Also Noted: Spotlight On... Advice to bankers from on high? News From the Fierce Network:
Today's Top News1. Wells Fargo faring well in mortgage market
It's fair to say, despite a tough third quarter, that big banks have seen improvement in their mortgage operations. Home prices have risen, which has helped tremendously. Credit quality has improved. And rates have been relatively low, despite a big taper scare. Reuters takes a look at Wells Fargo---the industry leader---and comes away impressed. It notes that in the third quarter Wells Fargo reported its lowest quarterly loan loss rate in at least nine years. That allowed the bank to boost profits by releasing about $600 million after taxes from funds previously set aside to cover expected losses. "Some of the improvement stems from a 2009 move to tighten underwriting standards for consumer loans, like more stringent requirements for verifying prospective homeowners' income." Since the new standards went into place, residential real estate loans have had virtually no losses," the CFO recently said. "Another factor helping loan performance: post-crisis loans make up a larger share of Wells Fargo's portfolio overall now, driving quality higher. Nearly half the commercial loans and around 45 percent of consumer loans on the books at the end of the third quarter were made after the financial crisis." One big issue, of course, is how long banks will be able to tap loan-loss reserves to boost earnings. At many banks, previous set-asides came in handy in the third quarter as a critical offset to losses elsewhere. This source of profits will not last indefinitely. That's for certain. For more: Read more about: mortgages, Wells Fargo
2. More deal-making ahead for Nasdaq?
Given all the controversy over Nasdaq's trading snafus as of late, the world seems to have forgotten just how far afield Nasdaq OMX has moved. In the third quarter, 73 percent of Nasdaq's revenue came from operations that do not depend on transactions. Cash equities accounted for less than 10 percent of revenue. In some ways, the success of the company depends on deals. It has paid $390 million to buy Thomson Reuters' investor relations, public relations and multimedia services units. It closed a $750 million deal to buy eSpeed, the electronic Treasurys-trading platform, from BGC Partners in June. Nasdaq said "the acquisitions were adding to earnings and integration was ahead of plan," notes Reuters. The company does not intend to slow down. Nasdaq OMX CEO Bob Greifeld has made clear that he "would be remiss" not to evaluate a deal for Euronext, which is expected to launch an IPO in early 2014 year as part of IntercontinentalExchange's (ICE's) takeover of NYSE Euronext. "He added that Nasdaq wouldn't try to launch a bid ahead of the IPO and it remains too early to say whether Nasdaq would pursue European exchanges being spun off from NYSE Euronext," according to Financial News. But there's an even bigger deal possibility out there, one that people only whisper about. It's possible that ICE will take a close look at NYSE Euronext's U.S. stock transaction business and ultimately decide that it doesn't fit with its business model. If the Big Board goes on the block, Nasdaq would have no choice but to bid aggressively. It may seem far-fetched, but you never know. For more: Read more about: Nasdaq OMX 3. Regulatory uncertainty over commodity units
Bank ownership of commodity operations has generated lots of controversy recently. When the heat intensified, JPMorgan Chase wasted no time in announcing it would sell its physical commodity ownership business, to the surprise of no one. Goldman Sachs has not followed suit with regard to its Metro warehousing unit, but surely the issue has come up internally. As for trading operations, the Federal Reserve has come under fire for a lack of bright lines in this area. However, it "may not unveil its plans for regulating Wall Street's commodity trading business until early next year," reports Reuters. "The timing confounds any expectations that the regulator would make its views known before a second Senate hearing expected next month into the rigging of aluminum and other markets, at which Fed officials are due to testify." Recall that the Fed has been forced to take another look at a "decade-old decision that has allowed Citigroup, Barclays and other banks to engage in the trading of physical commodities such as oil and metals, as well as its wider policy on containing the risks from the commodity business for banks. It has never publicly set a time frame or deadline for the review." There may be little it can do. Banning commodities trading certainly would be a non-starter. The debate about the value of active Wall Street trading on the well-being of actual users of the commodities rages. Regulators other than the Fed are taking a close look. It will be interesting to see if we get some juicy media reports just ahead of the hearings. Committees often leak information to drum up interest in the actual hearings. For more: Read more about: Commodities Trading 4. Goldman Sachs to young staffers: do not work on weekends
For junior associates at top banks, work may be getting just a tad easier. Goldman Sachs has become the latest bank to ease up on the demands placed on them. Bloomberg reports that the bank is actively "discouraging investment banking analysts from working weekends as it overhauls demands placed on entry-level employees and the support they receive." The move reflects the recommendations of a "junior banker task force" of executives from around the company earlier this year, which was tasked with improving the work environment of young associates, which still yearn to work at the gilded bank. Goldman Sachs will take on 332 analysts in its 2014 class, up 23 percent from 2012. These sorts of moves are in keeping with moves by other banks. Morgan Stanley, for example, gave up on an attempt this year "to block first-year bankers from talking with recruiters for outside firms after employees complained." In addition, Goldman Sachs decided last year to end the time-honored practice of offering two-year contracts to young associates. Instead, they made them permanent employees from the start. The idea is to keep these bright, potential-laden upstarts in the truck, rather than training them only to see them quickly move to the buy side. To be sure, plenty will migrate to the buy side anyway. But the top banks want to give themselves a better chance at retaining them. One has to wonder if the tragic death of a Bank of America intern in London recently has played into the movement. The tragedy gave rise to lots of articles, mainly about London banks, about whether junior associates were forced to work inhumane hours. For more: Read more about: Junior Associates, workplace 5. SAC Capital to admit to securities fraud
One of the big mysteries about the in-the-works SAC Capital settlement is what exactly the hedge fund would admit to. The fund has been willing to admit guilt, which might be seen as a prosecutorial victory in and of itself. But the U.S. attorney in Manhattan wants to go one step further apparently. According to the WSJ and other media reports, Phreet Bharara has held firm, and SAC Capital will admit to actual securities fraud, something that seemed inconceivable not too long ago. The conventional wisdom held that Steven Cohen, the founder of the troubled firm, would rather go to trial than to admit to actual fraud related to insider trading. His legal team proposed that the firm admit to lesser charges, along the lines of failure to supervise. But Bharara was having none of that. The case against SAC Capital is exceedingly strong, which has given the government stronger negotiating muscle. Indeed, the deal, as outlined in the media, seems quite favorable to the prosecution. The firm, which has been termed a "magnet for market cheaters," will also pay $1.2 billion and will agree to give up its registration that allows it to manage other people's money. The reality is that SAC Capital has been rendered a family office already. At the same time, separate civil and criminal investigations will continue. So it would be premature to say that the firm will be off the hook once it settles. One issue outstanding is how long Cohen will be prevented from managing outside money. He would obviously like to get back into the game as quickly as possible. But it will have to be negotiated. In any case, the deal is expected to be announced next week. For more: Read more about: insider trading, SAC Capital Also NotedSPOTLIGHT ON... Advice to bankers from on high? The Archbishop of Canterbury has some advice for bankers: follow your inner moral light as well as the letter of the law. He also criticized the free-market concepts of Milton Friedman in a speech to business executives. "Is being good in business merely about keeping the rules?" he was quoted. "If you keep the rules you're OK — that's pure Friedman. I think that's been utterly disproved. One of the things we saw on the Parliamentary banking standards commission most clearly was people were constantly asking what was legal and never asking what was right." What do you think? Article Company News: And Finally… Smartphones in meetings. Who cares the most? Article
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Wednesday, October 30, 2013
| 10.30.13 | SAC Capital to admit to securities fraud
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