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Today's Top News1. Morgan Stanley escapes enforcement costs
So, which bank has really emerged from the financial crisis in the best shape? The debate has raged, with various banks taking turns in the winner's circle. As litigation costs mount across the industry, is it time to anoint a new winner? Fortune notes that one bank "has completely avoided any prosecution from the federal government tied to the financial crisis. It's the only major bank not to have paid a fine to Uncle Sam." That bank would be … Morgan Stanley! "That, of course, could make it the low-hanging fruit for prosecutors. And while Morgan Stanley never made mortgage loans directly to consumers, it sold just as many risky bonds tied to home loans as Goldman and others. Morgan Stanley also disclosed earlier this week that insurer AIG is likely to sue the bank for as much as $3.7 billion for losses on mortgage bonds," the article notes. Th article goes on to say that Morgan Stanley is complying with the spirit of Dodd-Frank more than any of its competitors--making it the poster child for financial reform. That has made it somewhat of a poster child for financial reform. All in all, the fact that it has escaped enforcement action is great news. But that alone does not make for a winning business model. The jury is out on whether its emphasis on wealth management will lift it into a new category. For more: Read more about: Morgan Stanley, Enforcement Action
2. Big MD decisions coming soon at Goldman Sachs
It's that time of the year at Goldman Sachs. Mid-career professionals are sweating out managing director decisions, which will be announced soon. "The promotion, one step below becoming a partner, is worth millions of dollars of added income over several years," notes the NYPost. "But not getting named a managing director, or MD, could spell the end of a promising Goldman career. It's one of the more excruciatingly tense weeks at Goldman--and this year the pressure is ratcheted higher than ever because it is the last annual set of MD promotions." We noted back in March that the bank had decided to stop making MD promotions every year. After the 2013 class is announced, the bank will promote people to the MD level every other year. The move was motivated by the sense that the executive ranks had become top heavy. In the wake of the financial crisis, for several reasons, the top echelons had bloated just a bit. Last year, about 50 partners left the storied bank, while 10 new ones were added. The motivation to pare the ranks in part is financial; the bank continues to face pressure to keep expenses low. For those who make the cut, the moment will be extra sweet, as the club they will enter will be that much more exclusive. The bank may see fit to tap a larger than normal class, given that the next opportunity will be two years away. Last year, 266 executives got the nod. For more: Read more about: Goldman Sachs, managing directors 3. Legal setback for banks in eminent domain case
The battle over eminent domain and underwater mortgages hit a new level of intensity in Richmond, California, where Mortgage Resolution Partners is trying to put its plan in place. The banking industry has turned out in force, to oppose the plan by any legal means, making this ground zero in a fight that has massive implications for other cities hard-hit by the real estate crisis. Unsurprisingly, the battle has moved to federal court, where a judge has heard arguments in a move by the Bank of New York Mellon, as trustee for the residential MBS trusts that include the Richmond mortgages, and Wilmington Trust sued the city for an injunction. In a setback for banks, the judge has ruled that the banks' move was "premature," given that eminent domain has not yet been exercised. The city of Richmond had sent letters last summer to 624 home mortgages owners, notifying them that they had to sell their underwater loans to the city or face eminent domain. "Pursuant to state law, the city cannot move forward with the plan without a supermajority vote from Richmond's City Council to use eminent domain. No such vote has taken place yet," notes Courthouse News. But the war seems to be intensifying. More cities are pondering Richmond's program, and some may opt to proceed in similar fashion. Oakland in particular seems interested. Big MBS holders, the likes of Pimco and Blackrock, will be forced to step up their fight as well. For more: Read more about: mortgages, Eminent Domain 4. NYSE in good position in listing war
Even before the Nasdaq's disastrous Facebook IPO, the NYSE had been chipping away at its main competitor's status as the No. 1 listing venue for big-name technology companies. Reuters notes that the Nasdaq "had easily scored the most tech initial public offerings" every year from 1999 until 2012, when NYSE Euronext moved into a tie. In 2013, the Big Board seems to have taken the lead. Including the Twitter deal, 19 tech companies have chosen to list on the NYSE in 2013, while Nasdaq has won 14 listings. Proceeds from technology company IPOs have been higher with NYSE deals as well, $4.6 billion to $1.9 billion for Nasdaq, according to Thomson Reuters. The knee jerk response would be to attribute most of this to the bungled Facebook deal. But NYSE Euronext has also benefitted from rule changes since 2008 to make it more attractive to smaller technology companies, such as lowering market capital minimums. The NYSE's surge comes at an opportune moment. The stock market has been booming, and more companies are pondering IPOs. It wouldn't be a surprise if the NYSE were to build on its gain. What would be surprising: a move by a really big-name technology company from the Nasdaq to the NYSE. For years, the Big Board has coveted the likes of Google, Apple or even Intel or Microsoft. The NYSE has yet to entice one of the super big caps to their exchange. Perhaps 2014 will be the year. For more: Read more about: Nasdaq, NYSE 5. New tool to combat market manipulation
The rise of FIRREA as an enforcement tool against banks has been much discussed as of late, given the stunning success that prosecutors have had with the statute. Market regulators may similarly benefit from a new approach to market manipulation, one that would bring cases under a relatively new statute. The Deal Professor notes that in October, the CFTC used Rule 180.1 for the first time in its settlement with JPMorgan Chase for the so-called "London whale" trades, which cost the bank in excess of $6 billion in losses and $100 million in penalties. For the agency, the beauty was that "the case let the agency unveil a new approach that allowed it to punish reckless trading practices even without proving there was any intentional misconduct." The new rule "is patterned after Rule 10b-5, which the Securities and Exchange Commission uses in a wide range of fraud cases, including those involving market manipulation. These provisions reach more than just actual trading that drives prices up or down because any 'manipulative device' can be the basis for a violation, even if it did not actually succeed in causing harm to investors." That said, there are limits even to these rules. For regulators, the big challenge remains technology. The SEC took a big step forward in February, when it launched its Market Information Data Analytics System (MIDAS), which for the first time provided the agency with data about every displayed order posted on exchanges. Every day, the system collects one billion records time-stamped in microseconds. The information comes from the consolidated tapes and proprietary feeds of each exchange and includes posted orders and quotes, modifications and cancellations, and trade executions both on- and off-exchange. That said, regulators increasingly have to worry about non-stock markets as well, and the surveillance apparatus for say the credit defaults swaps market simply does not exist. The battle is still being waged uphill. For more: Read more about: CFTC, Enforcement Action Also Noted
SPOTLIGHT ON... Activist hedge fund wins with Microsoft Jeffrey Ubben's ValueAct Capital Management won big by betting $2 billion of its $12 billion under management on Microsoft in April. That amounted to a tiny stake in the software giant, less than 1 percent. But the results have been huge. "Ubben made his presence felt in Redmond, Wash., pressing other shareholders and potentially threatening a proxy battle. By Labor Day weekend, ValueAct appeared to have played a role in long-serving Microsoft CEO Steve Ballmer's decision to quit within a year. The hedge fund also managed to get a commitment from Microsoft that ValueAct's president, G. Mason Morfit, could join Microsoft's board of directors by early 2014 and get regular meetings with the company's directors and managers. But as part of the deal, ValueAct had to promise that it would not seek a proxy contest or publicly criticize Ballmer or any other Microsoft executives." Article Company News: Industry News: Regulatory News: And Finally… Retailers await the Grinch. Article
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Tuesday, November 12, 2013
| 11.12.13 | Morgan Stanley escapes enforcement costs
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