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Today's Top News1. Wells Fargo next in line for FIRREA action?
It's no secret that FIRREA, which stands for the Financial Institutions Reform, Recovery and Enforcement Act, has emerged as the tool of choice for federal prosecutors. The law, which was passed in 1989 in response to the thrift crisis, offers a lot of advantages for prosecutors, as it allows them to broadly build a civil case against financial institutions without having to prove it beyond a reasonable doubt. It also offers a generous 10-year statute of limitations. The law was used to target Bank of America, which was found liable in a recent trial over defective mortgages that the bank sold to the housing GSEs. Now it appears to be Wells Fargo's turn. Bloomberg reports that U.S. prosecutors in San Francisco have been taking a look at similar issues at the mortgage market leader for more than a year. This is hardly surprising. Wells Fargo has already agreed to an $869 million settlement with Freddie Mac to resolve disputes over defective mortgages sold to the GSE before Jan. 1, 2009. The push for more FIRREA prosecutions reflects the rise of the U.S. task force set up last year that seems to have focused on these sorts of cases. The task force, comprising state and federal agencies, is focusing on about eight banks, including all the big mortgage players. The Bank of America jury decisions just might prompt more banks to seek settlements a bit more aggressively. For more: Read more about: Wells Fargo, Enforcement Action
2. Bank of America shareholder suit dismissed
AIG's litigious path when it comes to the sale of allegedly defective mortgages began with a $10 billion suit against Bank of America in August 2011. This week, the big development was that the insurance giant may soon sue Morgan Stanley for similar alleged breaches. But the original suit managed to make it back into the news as well. When AIG sued Bank of America, the stock cratered on the news, which prompted an unusual shareholder lawsuit, one that alleged that management should have disclosed the legal action to shareholders much earlier. Shareholders led by Camcorp Interests of Houston "contended that Moynihan and other officials knew in February 2011, six months before AIG sued, of the insurer's claims and should have revealed them at the time," notes Reuters. In a decision made public this week, U.S. District Judge John Koeltl in Manhattan said four officers of the bank, including CEO Brian Moynihan, had in fact not been required to disclose "the purported imminence or size of AIG's lawsuit" in advance. The judge held that the "alleged omissions did not mislead investors because information about BoA's disclosure to MBS litigation generally, and AIG's claim in particular, was in the public domain. The overwhelming disclosure concerning BofA's broad exposure to MBS litigation renders the alleged omissions immaterial to a reasonable investor." For more: Read more about: Bank of America, lawsuit 3. Is Wall Street passé for youngsters?
Are graduates of top business schools turning their back on Wall Street? For a bit of hypothesis testing, we can turn to the most recent graduating class at Harvard Business School. "This year just 27 percent of newly minted Harvard MBAs took jobs in financial services, according to preliminary data from the school. While finance remains the biggest destination for elite MBAs, it's a much smaller share than at any time in recent history. Even in the years immediately after the financial crisis, the sector's share of Harvard MBAs never fell below 31 percent," according to CNBC. Investment banking in particular has taken some lumps. "Investment banking's cut of the Wall Street share has fallen from a pre-crisis high of 12 percent in 2007 to 5 percent this year. And that isn't just an effect of the financial crisis. As recently as 2011, investment banks claimed 10 percent." The destination of choice for many now seems to be the technology industry. From 2006 through 2009, 7 percent of HBS graduates took jobs in this area. That slowly rose until 2013, when it leaped to 18 percent. This is hardly surprising given the workplace woes that the financial services industry has sustained. The press has been unrelentingly bad. And there's little in the way of job security, even at the senior levels. That said, the money is still fantastic, and the recent move by banks to make life easier for junior associates certainly will help. All in all, graduates will always follow opportunity, with a bit of a lag. That's always been the case. As the industry cycles back to peak employment, we'll likely see the worm turn again. For more: Read more about: MBAs, workplace 4. All hedge funds feel the effect of SAC Capital deal
The decade-long SAC Capital saga was about the industry, not just one company. There are various ways to interpret the impact. Some might argue that the long-running investigation and subsequent prosecution changed the industry, giving rise to heightened compliance concerns. Others might argue that the prosecution was more of a reflection of larger trends that were already reshaping the industry. What we can all agree on is that the industry has become much concerned with compliance and enforcement issues. DealBook articulates the conventional wisdom. "Tougher regulatory scrutiny since the financial crisis and changes in the law have forced hedge funds to spend millions of dollars a year on new compliance measures to make sure that they are not ensnared in the same net as SAC. This has added to the cost of doing business, which can cut into returns." Compliance costs for large hedge fund managers range up to $14 million a year. Midsize firms spend about $6 million, according to KPMG. As a percentage of earnings, this can easily be significant. The most significant cost, however, may not be readily quantifiable. The reality now is that hedge fund firms are much more likely to be tolerant of mediocre returns. To be sure, there are many reasons to play it safe. Still, the fear of regulatory attention multiplies at firms with sustained solid performance. Part of the problem with SAC Capital is that its multi-year returns started to seem too good to be true. It's a different business these days. That's for sure. Longevity is the new priority for many, who want to play it safe. For more: Read more about: insider trading, SAC Capital 5. Twitter IPO prices amid lots of optimism
Twitter and its underwriters seem to have timed its much anticipated IPO perfectly. The market has been in bullish mode for most of the year, richly rewarding big-name deals. The average one-day price rise for U.S. IPOs so far this year has been 17 percent. Six companies have doubled in price on debut, according to Dealogic data. The conditions may be in place for a strong performance by Twitter. The road show went well. And the underwriters lifted the IPO range from $17 to $20 a share to $23 to $25 a share. Media reports hold that the deal was priced even higher, at $26 a share. Twitter's projected market cap based on this price comes in at $14.1 billion, with the potential to reach $14.4 billion if underwriters exercise an over-allotment option, which is likely. If the full overallotment is exercised, Twitter could raise $2.1 billion, making it the second largest Internet offering in the U.S. behind Facebook's $16 billion IPO last year and ahead of Google 2004 IPO, notes Thomson Reuters. The big question at this point is how long the big institutions that dominate the shareholder base will hold on to these shares. The underwriters' strategy reportedly was to sell the majority of shares to a relatively small group of about 30 institutional investors. Some of these players may be bound by agreements not to flip in the short-term. But others who received an allocation, including some active hedge funds, will be tempted to lock in profits quickly. At least one pundit thinks investors should flip and repurchase at a lower price. For more: Read more about: Twitter IPO Also Noted
SPOTLIGHT ON... Chess duel rivets Wall Street Chess players have always held a special cachet on Wall Street, which sees accomplishment in the sport as a badge of intellect, not that Bobby Fisher would have worked out all that well in investment banking. He likely would have been a disaster. Still, CNBC notes that many executives are tuned into the hotly anticipated match between reigning champ Viswanathan Anand, age 43, and upstart Magnus Carlsen, 22, of Norway-nicknamed the "Mozart of Chess" because of his meteoric rise. Article Company News: And Finally… Ready for the iPad pro? Article
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Thursday, November 7, 2013
| 11.07.13 | Twitter IPO prices amid lots of optimism
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