Also Noted: Spotlight On... New online "dating" service of hedge funds News From the Fierce Network:
Today's Top News1. Broker dealers unfairly blamed for credit crunch
The conventional wisdom in the wake of the credit meltdown of 2008 was that broker dealers sucked liquidity out of the market, making a tough situation worse. But that may not be an entirely accurate picture of what went down. According to a new study by the Fed, duly noted by Alphaville, "contrary to the common perception that dealers were unloading bonds following liquidity shocks due to the Lehman Brothers' collapse, we find that the deleveraging has started to stabilize and dealers actually increased their corporate bond holdings throughout 2008. "During the period after the collapse of Lehman Brothers, when corporate bond prices were severely distressed, dealers' bond inventories sharply increased. This evidence suggests that dealers were providing liquidity when their clients were demanding immediacy, and were performing their role as liquidity providers." So if the market makers were doing what they were supposed to, what explains the market dysfunction? "Empirical evidence strongly suggests that the disruption in the cash market is due to excessive arbitrage trading by hedge-funds that was enabled by the existence of derivative contracts…" That conclusion also upends a bit of conventional wisdom, which is that hedge funds didn't have a lot to do with the credit crunch. The implications for the Volcker rule are intriguing. The study suggests that the rule, despite the market-making exception, will tend to reduce total liquidity provision, which apparently came in handy during the credit crunch. Hmmmm. For more: Read more about: Credit Crisis
2. Pioneering use of FIRREA shaped big enforcement wave
The surge in enforcement actions against banks has created a new star within the Justice Department, a little-known former engineer who earned a law degree at night. Leon Wideman, a career prosecutor in Los Angeles, developed a unique expertise in FIRREA, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which has been used as of late to great effect against big banks for activity related to the mortgage meltdown of 2008. The act was conceived in the wake of the thrift crisis, to give prosecutors a way to punish bank and other financial company executives via cases that require a lower burden of proof. It was his pioneering work that led to, among other things, the recent $13 billion settlement that the Justice Department seems to have struck with JPMorgan Chase. The United States attorney in Manhattan has relied on the act in several cases as well, filing actions against Wells Fargo, BNY Mellon and Bank of America, among others. A jury found Bank of America liable in that case just recently. "Mr. Weidman's work came into focus in 2009 with the economy reeling and the Obama administration under fire for not holding Wall Street banks accountable. As the Justice Department searched for new prosecutorial methods, Mr. Weidman became an overnight sensation within the agency," notes DealBook. "Federal prosecutors flew out to California to pick his brain. He held training sessions across the country. The Justice Department assigned him to one of its most promising investigations, a civil action against the credit-rating agency Standard & Poor's." For more: Read more about: Enforcement Action, FIRREA 3. Dell's LBO: one tough deal to pull off
The closing of the Dell leveraged buyout—after so many months of angst—has produced a lot of retrospective talk about the cosmic meaning of it all. One thing seems clear. It was even harder than most of us realized for Michael Dell and his partner Silver Lake to pull off the transaction. "As the buyout unfolded over the past year, he had to overcome a frustrated board preparing to appoint a strong second-in-command over his objection, a bid by buyout firm Blackstone Group LP that may not have included him, and a potential proxy fight by billionaire investor Carl Icahn to install a new board that would have replaced him," according to an insightful look back by Bloomberg. "There were plenty of other obstacles. Dell's board demanded six price increases before even agreeing to put the proposal to a shareholder vote. To try to drum up a better deal, the board then hired another bank that talked to 72 potential bidders during a lengthy 'go-shop' period. Twice, the CEO had to accept a discount on his shares in the company to increase the offer while Silver Lake refused to budge." In the end, Dell and Silver Lake won the right to attempt an ambitious makeover, with no guarantees of success. It will not happen overnight. In fact, it may take up to 7 or 8 years, perhaps even more, before the company goes public again. The reclamation process will be complicated by the fact that the company has precious little resources to make acquisitions. But it will be fun to watch. For more: Read more about: lbo, Leveraged Buyout 4. One JPMorgan settlement could turn into massive pre-tax gain
When does a high-profile settlement with government prosecutors actual add pre-tax profits to the financial statement? When the bank previously set aside more than the actual settlement amount. Assuming that the bank releases the difference, a big settlement could actually lead to a big profit pop. That's the situation that JPMorgan finds itself in right now, with regard to the settlement of allegations that the bank, along with Bear Stearns, sold defective mortgages to the big housing GSEs. According to Fortune, "Fannie and Freddie have been battling with JPMorgan and other banks over how much of those losses the government guarantors should swallow, and how much should be sent back to the banks. The cost of resolving all those disputed repurchase claims from 2000 to 2008 for JPMorgan: $1.1 billion." That's how JPMorgan will pay to resolve the claims. The articles suggests that the deal "appears to be an exceptionally good" one, noting that Bank of America paid $10.4 billion, including a payment for nearly $7 billion in loans, to settle its disputes over loans that Fannie guaranteed in the same time period. That was on top of a $1.4 billion settlement it had already reached with Fannie. We can only assume that the settlement sum was tied in part to the volume of loans purchased. In any case, what matters is that JPMorgan had already set aside $2.2 billion to reserve against this, according to Fortune. If that's true, then the bank might consider releasing the difference, turning the settlement into a $1.1 billion pre-tax gain. For more: Read more about: earnings, settlement 5. Fannie Mae sues 9 banks over Libor
Well, it was bound to happen. Fannie Mae has sued 9 top banks, charging that their alleged manipulation of the Libor ended up costing it about $800 million. The targets include Bank of America, JPMorgan Chase, Citigroup and Barclays. The controversy since the start of the great Libor scandal revolves around the rate-setting practices of the British Bankers Association. The scandal has proven to be a cornucopia of enforcement action. Four European banks---Barclays, UBS, Royal Bank of Scotland and Rabobank---have already settled with the Justice Department and other regulators on the issue, paying more than $3.6 billion in fines, notes CNNMoney. More settlements are expected. A handful of ex-employees of banks have also been charged. More charges will likely be handed up soon. The scandal has given rise to lots of private litigation as well. Ultimately, this could really explode, as more municipalities decide to seek redress in court. Brokerages and a host of other companies may also decide to seek restitution. By one estimate, more than $300 trillion worth of debt and contracts are linked to Libor. The Fannie Mae suits were expected, as Freddie Mac filed a similar lawsuit in March against more than a dozen banks. For banks, this is a simmering wild card in their efforts to control their litigation expenses. For more: Read more about: Fannie Mae, LIBOR Also NotedSPOTLIGHT ON... New online "dating" service of hedge funds Bloomberg Businessweek notes the rise of Hedgez, a new company that aims to match hedge funds with limited partners. The company was aided by the JOBS Act, which liberalized rules on mass-market solicitation by private investment companies. This strikes me as an interesting way for a fund to recruit accredited investors via modern social-media-driven tools. Seems like a good idea. But it remains to be seen if the company can attract enough accredited investors willing to do their own research for funds. Article Company News:
| |||||||||||||||||||||||||||||||||||
Friday, November 1, 2013
| 11.01.13 | One JPMorgan settlement could turn into massive pre-tax gain
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment