Everythintg Financial

This thread is for the ever-changing landscape of the financial services industry. I intend this thread to be filled with posts about Funds, Investment banks, insurance companies, and rogue traders alike.

============================================================================================

Oct. 22 (Bloomberg) -- Wells Fargo & Co. earned almost a
third of its pretax quarterly profit by hedging mortgage-
servicing rights, producing gains similar to those that have
helped some of the biggest U.S. banks offset weaker consumer-
lending businesses.
Wells Fargo’s hedges outperformed writedowns it took on the
so-called MSRs by $1.5 billion and JPMorgan Chase & Co. came out
ahead by $435 million. The two banks, as well as Bank of America
Corp. and Citigroup Inc., wrote down MSRs by at least $5 billion
in the third quarter as mortgage rates fell by about 0.26
percentage point.
“The earnings level is unsustainable,” Rochdale
Securities analyst Richard Bove said yesterday, and cited
mortgage servicing as he cut his rating on Wells Fargo to
“sell” from “neutral.” Shares of San Francisco-based Wells
Fargo dropped 5 percent in New York trading to $28.90, with most
of the decline coming after Bove’s report.
Banks’ mortgage units are using gains on mark-to-market
adjustments and hedging derivatives to drive earnings as lenders
record losses on consumer loans during the worst recession since
World War II. Net gains on MSRs and hedges also added $1 billion
to Wells Fargo’s earnings in the second quarter and to
JPMorgan’s in the first.
The value of the rights depends largely on the expected
life of the mortgage, which ends when a borrower pays off the
loan, refinances or defaults. When rates drop and more borrowers
refinance, MSR values decline. Banks typically hedge the
movements using interest-rate swaps and other derivatives.
Writedowns
Wells Fargo wrote down the value of its MSRs by $2.1
billion in the quarter, the result, it said, of model inputs and
assumptions. The hedges it used to offset the movement of the
servicing rights rose by $3.6 billion, resulting in a pretax
gain of $1.5 billion. Wells Fargo reported pretax net income of
$4.67 billion and a record $3.24 billion third-quarter after-
tax profit.
The net gain was “largely due to hedge-carry income
reflecting the current low short-term interest rate environment,
which is expected to continue into the fourth quarter,” Wells
Fargo said in a statement announcing its earnings.
JPMorgan reported a $1.1 billion writedown of servicing
rights, while it earned $1.53 billion on hedges. That helped the
New York-based bank’s earnings rise to $3.59 billion from $527
million a year earlier.
‘Inundated’ With Swings
“You are inundated with these swings with the accounting
provisions,” Anthony Polini, an analyst at Raymond James
Financial Inc., said in an interview. “From a quality of
earnings standpoint, you would rather see the growth in net
interest income but this is how we bridge the gap. That’s why
they are called hedges.”
Bank of America, which posted a $1 billion quarterly loss,
wrote down MSRs by $1.83 billion. The Charlotte, North Carolina-
based bank didn’t disclose the performance of its hedges. A $1.2
billion decline in mortgage-banking income was driven in part by
“weaker MSR hedge performance,” the company said.
The carrying value of Citigroup’s rights fell by $542
million in the quarter. The bank, based in New York, didn’t
report how much of the decline stemmed from changes in its
valuation models or from the impact of customer payments.
Citigroup, which reported a $101 million profit, also didn’t
disclose its hedge performance.
56 Percent of Market
The four banks wrote up the value of their MSRs by about
$11 billion in the second quarter, according to regulatory
filings. Mortgage rates climbed by 0.35 percentage point in that
period, according to Freddie Mac.
The four banks control 56 percent of the market for the
contracts, according to Inside Mortgage Finance, a Bethesda,
Maryland-based newsletter that has covered the industry since
1984. Servicers collect payments from borrowers and pass them on
to mortgage lenders or investors, less fees. They also keep
records, manage escrow accounts and contact delinquent debtors.
Under U.S. accounting rules in place since 1995, banks
should report the value of mortgage-servicing rights on a fair-
market basis, or roughly what they would fetch in a sale. A bank
must record a loss whenever it sells MSRs for a price below
where they’re marked on the books.
Because there’s no active trading in the contracts, there
are no reliable prices to gauge whether banks are valuing the
rights accurately, analysts said.
Bank of America held the largest amount of MSRs as of Sept.
30, with $17.5 billion. JPMorgan had $13.6 billion, while Wells
Fargo owned $14.5 billion and Citigroup $6.2 billion.

Glad I'm not a banker...

Oct. 22 (Bloomberg) -- The Federal Reserve proposed new
guidelines on pay practices at banks and said it will launch a
review of the 28 largest firms to ensure compensation packages
don’t create incentives for the kinds of risky investments
blamed for the financial crisis.
“Compensation practices at some banking organizations have
led to misaligned incentives and excessive risk-taking,
contributing to bank losses and financial instability,” Fed
Chairman Ben S. Bernanke said today in a statement. “The
Federal Reserve is working to ensure that compensation
packages appropriately tie rewards to longer-term performance.”
The central bank’s action parallels efforts by U.S.
lawmakers, the administration of President Barack Obama and
world leaders to overhaul incentives to reduce threats to the
financial system. Investments in mortgage-backed securities and
other complex instruments have led to more than $1.6 trillion in
credit losses and writedowns at firms from Zurich-based UBS AG
to New York-based Citigroup Inc., triggering the worst economic
crisis since the 1930s.
“Today’s proposal is but one part of a broad program by
the Federal Reserve to strengthen supervision of banks and bank
holding companies in the wake of the financial crisis,” Federal
Reserve Governor Daniel Tarullo, an Obama appointee who is
leading an overhaul of Fed supervision, said in a statement.
The central bank said it may take enforcement action
against banks where compensation or risk-management practices
“pose a risk to the safety and soundness of the organization
and the organization is not taking prompt and effective measures
to correct the deficiencies.”
Bailout Recipients
The Fed plan comes as the Obama administration slammed Wall
Street by ordering pay cuts of an average of 50 percent and caps
on benefits for top executives at companies owing the government
billions of dollars from taxpayer-funded bailouts.
The news triggered debate about the government’s reach into
private industry, whether pay reductions would spread to other
companies and if a talent drain from U.S. firms would ensue.
“I don’t think there will be any charity cases on Wall
Street,” Representative Barney Frank, 69, a Democrat from
Massachusetts and chairman of the House Financial Services
Committee said earlier in a telephone interview. “This is a
very good thing.”
Executives at seven companies including Citigroup and
Charlotte, North Carolina-based Bank of America Corp. will have
their pay cut by an average of 50 percent after months of
negotiations with Kenneth R. Feinberg, 63, the U.S. special
master on compensation.
Cash Portion
The cash portion of salaries for the 25 highest-paid
employees will be slashed 90 percent under Feinberg’s review,
released today. Some cash will be replaced by shares that
employees will be restricted from selling immediately.
The Fed acted to increase its scrutiny of pay practices
after it came under fire from lawmakers including
Senate Banking Committee Chairman Christopher Dodd, a Democrat,
and Richard Shelby, the panel’s top Republican, for lax
oversight of banks and housing before the financial crisis.
As the economy emerges from recession and bank earnings
recover, Wall Street firms including Goldman Sachs Group Inc.
are starting to boost bonuses again.
Goldman Sachs set aside $16.7 billion for compensation and
benefits in the first nine months of 2009, up 46 percent from a
year earlier and enough to pay each worker $527,192 for the
period.
Compensation Slashed
Chief Executive Officer Lloyd Blankfein, who set a Wall
Street pay record in 2007, slashed compensation last year and
went without a bonus after the firm reported its first quarterly
loss and accepted financial support from the government.
The Fed guidance was needed not just to correct flaws in
bonus practices that played a role in causing the financial
crisis, according to documents released today by the central
bank.
The federal safety net for consumer deposits may also
encourage shareholders to tolerate risks that exceed what is
acceptable to keep the financial system safe and sound, the Fed
said. Without the guidelines, banks will resist cutting bonuses
to avoid losing talented employees to rivals, in what the Fed
calls the “first mover” problem.
Senior Executives
The guidelines would apply to all senior executives who
oversee firm-wide activities or business lines and to all
employees down the chain of command whose activities expose the
bank to material amounts of risk, including traders with large
position limits and loan officers.
The central bank’s compensation proposal will be open to
public comment for 30 days and may not be adopted for months
after that, a Fed official told reporters.
Banks won’t be allowed to wait until then, as the Fed
expects all banks to review their compensation arrangements
immediately and take corrective action if they encourage
excessive risk taking.
In addition, the 28 largest banks must provide the Fed with
numerous details on their existing compensation plans--and
timetables showing how they will improve the “risk
sensitivity” of bonus arrangements and corporate governance.
The Fed won’t apply what it calls “one size fits all”
rules by capping pay or outlawing particular pay practices. Even
a requirement that banks spread bonus payouts over three years
may not sufficiently protect a bank against long-term risks.
Bank Ratings
The findings from the supervisory reviews will be added to
the banks’ ratings, and the Fed may require banks to correct
deficiencies in bonus plans. To monitor and encourage
improvements, Fed staff will prepare a report after the
conclusion of 2010 on trends in banks’ compensation practices.
The guidance will apply to all banking organizations
supervised by the Fed, including bank holding companies, state
banks and the domestic operations of foreign banks with a U.S.
branch or lending subsidiary.
In 2008, the Fed supervised 5,757 U.S. bank holding
companies as well as 862 state-chartered banks.

Batman wrote:

Glad I'm not a banker...

Oct. 22 (Bloomberg) -- The Federal Reserve proposed new
guidelines on pay practices at banks and said it will launch a
review of the 28 largest firms to ensure compensation packages
don’t create incentives for the kinds of risky investments
blamed for the financial crisis.
“Compensation practices at some banking organizations have
led to misaligned incentives and excessive risk-taking,
contributing to bank losses and financial instability,” Fed
Chairman Ben S. Bernanke said today in a statement. “The
Federal Reserve is working to ensure that compensation
packages appropriately tie rewards to longer-term performance.”
The central bank’s action parallels efforts by U.S.
lawmakers, the administration of President Barack Obama and
world leaders to overhaul incentives to reduce threats to the
financial system. Investments in mortgage-backed securities and
other complex instruments have led to more than $1.6 trillion in
credit losses and writedowns at firms from Zurich-based UBS AG
to New York-based Citigroup Inc., triggering the worst economic
crisis since the 1930s.
“Today’s proposal is but one part of a broad program by
the Federal Reserve to strengthen supervision of banks and bank
holding companies in the wake of the financial crisis,” Federal
Reserve Governor Daniel Tarullo, an Obama appointee who is
leading an overhaul of Fed supervision, said in a statement.
The central bank said it may take enforcement action
against banks where compensation or risk-management practices
“pose a risk to the safety and soundness of the organization
and the organization is not taking prompt and effective measures
to correct the deficiencies.”
Bailout Recipients
The Fed plan comes as the Obama administration slammed Wall
Street by ordering pay cuts of an average of 50 percent and caps
on benefits for top executives at companies owing the government
billions of dollars from taxpayer-funded bailouts.
The news triggered debate about the government’s reach into
private industry, whether pay reductions would spread to other
companies and if a talent drain from U.S. firms would ensue.
“I don’t think there will be any charity cases on Wall
Street,” Representative Barney Frank, 69, a Democrat from
Massachusetts and chairman of the House Financial Services
Committee said earlier in a telephone interview. “This is a
very good thing.”
Executives at seven companies including Citigroup and
Charlotte, North Carolina-based Bank of America Corp. will have
their pay cut by an average of 50 percent after months of
negotiations with Kenneth R. Feinberg, 63, the U.S. special
master on compensation.
Cash Portion
The cash portion of salaries for the 25 highest-paid
employees will be slashed 90 percent under Feinberg’s review,
released today. Some cash will be replaced by shares that
employees will be restricted from selling immediately.
The Fed acted to increase its scrutiny of pay practices
after it came under fire from lawmakers including
Senate Banking Committee Chairman Christopher Dodd, a Democrat,
and Richard Shelby, the panel’s top Republican, for lax
oversight of banks and housing before the financial crisis.
As the economy emerges from recession and bank earnings
recover, Wall Street firms including Goldman Sachs Group Inc.
are starting to boost bonuses again.
Goldman Sachs set aside $16.7 billion for compensation and
benefits in the first nine months of 2009, up 46 percent from a
year earlier and enough to pay each worker $527,192 for the
period.
Compensation Slashed
Chief Executive Officer Lloyd Blankfein, who set a Wall
Street pay record in 2007, slashed compensation last year and
went without a bonus after the firm reported its first quarterly
loss and accepted financial support from the government.
The Fed guidance was needed not just to correct flaws in
bonus practices that played a role in causing the financial
crisis, according to documents released today by the central
bank.
The federal safety net for consumer deposits may also
encourage shareholders to tolerate risks that exceed what is
acceptable to keep the financial system safe and sound, the Fed
said. Without the guidelines, banks will resist cutting bonuses
to avoid losing talented employees to rivals, in what the Fed
calls the “first mover” problem.
Senior Executives
The guidelines would apply to all senior executives who
oversee firm-wide activities or business lines and to all
employees down the chain of command whose activities expose the
bank to material amounts of risk, including traders with large
position limits and loan officers.
The central bank’s compensation proposal will be open to
public comment for 30 days and may not be adopted for months
after that, a Fed official told reporters.
Banks won’t be allowed to wait until then, as the Fed
expects all banks to review their compensation arrangements
immediately and take corrective action if they encourage
excessive risk taking.
In addition, the 28 largest banks must provide the Fed with
numerous details on their existing compensation plans--and
timetables showing how they will improve the “risk
sensitivity” of bonus arrangements and corporate governance.
The Fed won’t apply what it calls “one size fits all”
rules by capping pay or outlawing particular pay practices. Even
a requirement that banks spread bonus payouts over three years
may not sufficiently protect a bank against long-term risks.
Bank Ratings
The findings from the supervisory reviews will be added to
the banks’ ratings, and the Fed may require banks to correct
deficiencies in bonus plans. To monitor and encourage
improvements, Fed staff will prepare a report after the
conclusion of 2010 on trends in banks’ compensation practices.
The guidance will apply to all banking organizations
supervised by the Fed, including bank holding companies, state
banks and the domestic operations of foreign banks with a U.S.
branch or lending subsidiary.
In 2008, the Fed supervised 5,757 U.S. bank holding
companies as well as 862 state-chartered banks.

Wow... this is rediculous. So much for capitalism!

Batman wrote:

This thread is for the ever-changing landscape of the financial services industry. I intend this thread to be filled with posts about Funds, Investment banks, insurance companies, and rogue traders alike.

============================================================================================

Oct. 22 (Bloomberg) -- Wells Fargo & Co. earned almost a
third of its pretax quarterly profit by hedging mortgage-
servicing rights, producing gains similar to those that have
helped some of the biggest U.S. banks offset weaker consumer-
lending businesses.
Wells Fargo’s hedges outperformed writedowns it took on the
so-called MSRs by $1.5 billion and JPMorgan Chase & Co. came out
ahead by $435 million. The two banks, as well as Bank of America
Corp. and Citigroup Inc., wrote down MSRs by at least $5 billion
in the third quarter as mortgage rates fell by about 0.26
percentage point.
“The earnings level is unsustainable,” Rochdale
Securities analyst Richard Bove said yesterday, and cited
mortgage servicing as he cut his rating on Wells Fargo to
“sell” from “neutral.” Shares of San Francisco-based Wells
Fargo dropped 5 percent in New York trading to $28.90, with most
of the decline coming after Bove’s report.
Banks’ mortgage units are using gains on mark-to-market
adjustments and hedging derivatives to drive earnings as lenders
record losses on consumer loans during the worst recession since
World War II. Net gains on MSRs and hedges also added $1 billion
to Wells Fargo’s earnings in the second quarter and to
JPMorgan’s in the first.
The value of the rights depends largely on the expected
life of the mortgage, which ends when a borrower pays off the
loan, refinances or defaults. When rates drop and more borrowers
refinance, MSR values decline. Banks typically hedge the
movements using interest-rate swaps and other derivatives.
Writedowns
Wells Fargo wrote down the value of its MSRs by $2.1
billion in the quarter, the result, it said, of model inputs and
assumptions. The hedges it used to offset the movement of the
servicing rights rose by $3.6 billion, resulting in a pretax
gain of $1.5 billion. Wells Fargo reported pretax net income of
$4.67 billion and a record $3.24 billion third-quarter after-
tax profit.
The net gain was “largely due to hedge-carry income
reflecting the current low short-term interest rate environment,
which is expected to continue into the fourth quarter,” Wells
Fargo said in a statement announcing its earnings.
JPMorgan reported a $1.1 billion writedown of servicing
rights, while it earned $1.53 billion on hedges. That helped the
New York-based bank’s earnings rise to $3.59 billion from $527
million a year earlier.
‘Inundated’ With Swings
“You are inundated with these swings with the accounting
provisions,” Anthony Polini, an analyst at Raymond James
Financial Inc., said in an interview. “From a quality of
earnings standpoint, you would rather see the growth in net
interest income but this is how we bridge the gap. That’s why
they are called hedges.”
Bank of America, which posted a $1 billion quarterly loss,
wrote down MSRs by $1.83 billion. The Charlotte, North Carolina-
based bank didn’t disclose the performance of its hedges. A $1.2
billion decline in mortgage-banking income was driven in part by
“weaker MSR hedge performance,” the company said.
The carrying value of Citigroup’s rights fell by $542
million in the quarter. The bank, based in New York, didn’t
report how much of the decline stemmed from changes in its
valuation models or from the impact of customer payments.
Citigroup, which reported a $101 million profit, also didn’t
disclose its hedge performance.
56 Percent of Market
The four banks wrote up the value of their MSRs by about
$11 billion in the second quarter, according to regulatory
filings. Mortgage rates climbed by 0.35 percentage point in that
period, according to Freddie Mac.
The four banks control 56 percent of the market for the
contracts, according to Inside Mortgage Finance, a Bethesda,
Maryland-based newsletter that has covered the industry since
1984. Servicers collect payments from borrowers and pass them on
to mortgage lenders or investors, less fees. They also keep
records, manage escrow accounts and contact delinquent debtors.
Under U.S. accounting rules in place since 1995, banks
should report the value of mortgage-servicing rights on a fair-
market basis, or roughly what they would fetch in a sale. A bank
must record a loss whenever it sells MSRs for a price below
where they’re marked on the books.
Because there’s no active trading in the contracts, there
are no reliable prices to gauge whether banks are valuing the
rights accurately, analysts said.
Bank of America held the largest amount of MSRs as of Sept.
30, with $17.5 billion. JPMorgan had $13.6 billion, while Wells
Fargo owned $14.5 billion and Citigroup $6.2 billion.

I will state now that Wells Fargo management is not one of the best out there for commercial banks. Their management style does not embrace rewarding sales people (the drivers of their bottom line, err top line?). Most sales people (especially Wachovia)since the merger and recession have been reduced to base salaries (and no overtime) and are faced with an imposing integration on par of tyranny. Products are being forced on sales people who in turn are told to sell the products onto the consumer irregardless of morals...

All in all would I short wells fargo based on management? the simple answer is ... yes

By DealBook
Oct. 28 (New York Times) -- Nomura Holdings, Japan's biggest brokerage, stayed in the black for a second straight quarter, helped by a recovery in financial markets and the acquisition of parts of Lehman Brothers, The Associated Press said.
Nomura's profit for the July-September period totaled 27.72 billion yen ($304.6 million) compared with a 72.87 billion yen loss a year earlier, it said Wednesday. Quarterly sales rose 37.9 percent to 355.47 billion yen ($3.9 billion) from 257.73 billion yen.
Nomura said it generated more revenue from overseas than inside Japan for the first time during the latest quarter. It was able to create stable income from its strong client base in Japan as well as new businesses acquired abroad, it said.
Nomura acquired Lehman's equities business in Asia and Europe last year after the American investment bank collapsed.
The costs of buying those businesses contributed to Nomura's record loss the previous fiscal year. Nomura returned to profit in the April-June quarter of this year.
"The acquisitions have been a resounding success," said Nomura President and Chief Executive Kenichi Watanabe. "The results are another solid step in our drive to become a truly global investment bank."
Chief Financial Officer Masafumi Nakada told Nikkei on Wednesday that the company hoped to expand its trading operations in the United States, leveraging the proceeds from the firm's two capital increases.
He positioned the rebuilding of the American operations as one of the firm's top priorities, saying: "The U.S. market has huge potential, given its scale and rich product lineups. It is imperative for us to beef up our business there, in order to better serve our Japanese and global clients."

Go to Article from The Associated Press via The New York
Times>>Go to Press Release from Nomura (PDF)>>Go to Article from
Nikkei (Subscription Required)>>
Copyright 2009 The New York Times Company

By David Scheer, Josh Fineman and Karin Matussek
Oct. 28 (Bloomberg) -- K1 Group, the German hedge fund firm, is embroiled in an international criminal investigation after saddling banks, including Barclays Plc, JPMorgan Chase & Co. and BNP Paribas SA, with about $400 million of losses, people with knowledge of the probe said.
European and U.S. authorities are examining whether K1, which manages funds of hedge funds, deceived the banks when borrowing money to ratchet up the size of its investments, according to the people, who declined to be identified because the investigation isn’t public. German and U.S. prosecutors may announce the first charges in the case as soon as this week, they said. JPMorgan inherited its exposure to K1 after acquiring Bear Stearns Cos., which did business with the fund manager.
The inquiry focuses on whether K1, founded by German psychologist Helmut Kiener, 50, engaged in circular transactions with a network of investment firms in the U.K., the U.S. and other countries to create the illusion that K1 had more money available to backstop loans from the banks, the people said. The
K1 Web site says Kiener’s investment system generated an 825 percent return from 1996 through last June.
U.S. regulators are boosting scrutiny of international investment advisers after money managers Bernard Madoff and R.
Allen Stanford were accused of moving funds off-shore to obscure multibillion-dollar frauds. Earlier this month, federal investigators used wiretaps for the first time to crack alleged insider trading by hedge funds, filing charges against billionaire Raj Rajaratnam and five others. Rajaratnam and Stanford have denied wrongdoing. Madoff pleaded guilty.
FBI, IRS, Customs
Prosecutors in Wuerzburg, Germany, are investigating Helmut Kiener, their spokesman, Dietrich Geuder, said in a telephone interview today. He declined to provide more details.
There was no answer today at one phone number listed for Kiener, who resides near Frankfurt. Another phone listed in his name was disconnected.
"We are fully cooperating with law enforcement," said Daniel Hunter, a spokesman for London-based Barclays, the U.K.’s second-biggest bank. David Wells, a spokesman for New York-based JPMorgan, the second-biggest U.S. bank by assets, declined to comment.
"We are not in a position to comment on any pending investigation," Carine Lauru, a spokeswoman for Paris-based BNP Paribas said by telephone today. "We co-operate with law- enforcement authorities."
Calls to K1’s phone numbers listed in Germany today weren’t answered or were disconnected. There was no immediate response to a message left at one number. A K1 executive in Hong Kong said he couldn’t immediately comment because he first needed to speak with Kiener. A call to a K1 phone number listed for its office in the British Virgin Islands, where some of its funds are based, was answered by an employee who said she was in Spain and that an executive wasn’t immediately available to talk.
International Investigation
Swaantje Dirks of law firm Graf Praschma, Hess & Rottloff Rechtsanwaltsgesellschaft mbH, which has represented the K1 Global Ltd. unit in past German litigation, declined to comment, and wouldn’t say whether the Frankfurt-based attorneys still represent the company.
Agents at the Federal Bureau of Investigation have been working on the case with German counterparts since at least the early part of this year, according to the people familiar with the matter. Investigators at the Internal Revenue Service and Immigration and Customs Enforcement are also involved in the probe, the people said. FBI spokesman J.J. Klaver declined to comment.
A K1 Group executive in Hong Kong was quoted by Hedgeweek in February as saying K1 had almost $1 billion under management.
BaFin’s Order
Germany’s financial regulator, known as BaFin, has tried since 2001 to prevent Kiener and companies associated with him from soliciting German investors, BaFin spokesman Sven Gebauer said. The regulator initially ordered Kiener to stop collecting capital in Germany for a K1 fund company, arguing that it lacked a license.
In 2003 and 2004, BaFin issued orders against K1 companies based in Germany and the British Virgin Islands, on the grounds that they lacked proper authorization. The firms challenged the orders in court, and two of them, K1 Global Ltd. and K1 Invest Ltd., had BaFin’s order overturned, Gebauer said.
After Germany’s highest administrative court held in a similar case that such funds don’t need a license to operate in Germany, the regulator dropped its appeal, according to Gebauer.
Lending to firms that invest in a variety of hedge funds is considered safer because risks are spread among a variety of managers, said Michael Statz, founder of Fiducia Capital in Munich, a hedge-fund consultant. Banks typically use the fund stakes as collateral. If one of those funds loses money, banks can force the sale of other stakes to avoid losses on their own books.
Psychology Degree
Kiener received a psychology degree from Johann Wolfgang Goethe University in Frankfurt in 1987, where his studies included "statistical chance theory," according to K1’s Web site. He developed what the Web site describes as a "semi- automatical allocation system" using statistics to help pick hedge-fund investments. He founded his firm in 1995 and advises the firm’s off-shore hedge funds, according to the site.
"By his far-reaching contacts all over the world he has succeeded in building up a value-consistent investment portfolio with successful and well-known money managers," the Web site says.
--With assistance from Joshua Gallu in Washington, Saijel Kishan and Katherine Burton in New York and Simon Clark in London. Editors: Otis Bilodeau, Alec McCabe, Edward Evans.

a new ponzi scheme every day... no comment -_-

Quote :

Batman Wrote:

Interesting article on two new ETF's providing hedges on inflation:

IndexIQ, the "hedge fund" ETF company, is planning to launch two new ETFs this week: the IQ CPI Inflation Hedged ETF and the IQ Arb Global Resources ETF. The links point to information about the underlying indexes including the holdings.

CPI
is supposed to "provide a hedge against changes in the U.S. inflation
rate by providing a 'real return' or a return above the rate of
inflation," while GRES is designed to pick stocks based on momentum and
valuation and use ETFs to hedge.

CPI allocates 54% to the iShares Short (as in short term) Treasury Bond ETF (SHV), 29% to the SPDR version of the same fund, 8% to the iShares 20+ Year ETF (TLT), 7% to GLD which clients own and less than 1% in the Rydex Yen ETF (JPY) and PowerShares DB Oil Fund (DBO).

There
is a presentation about the funds on Thursday that I will try to
participate in, but I don't see where all the treasury exposure can
contribute to a long term result consistent with the objective. The yen
and oil could help out, but not at those weightings. Can oil double
from here? Even if it does, it only adds a few basis points to the
result and I'm thinking that if oil doubled from here the price of a
lot of other things would go up, too. As for the yen, I don't thing the
green back can cut in half against the yen, but if it does, again, the
position adds nothing substantial to the fund's result. Will gold go up
50%? Even if you think so, the fund would only get 350 basis points
from such a move.

The fund can and probably will make changes to
the holdings periodically and right here right now inflation is not
really showing up in the consumer price index, but I'd think there be
some use of TIP ETF.

GRES
is baffling in another way. So commodity related stocks with a little
hedging, seems simple enough. The largest holding is Sandvik (SDVKY.PK) from Sweden. I don't know it very well but it makes mining equipment, maybe like a Swedish Joy Global (JOYG)?
It might be a fine company but somehow it weighs in at 8.1% of the
index; not the fund, the index. There are seven other companies with a
greater than 3% weighting, 20 names with 1-3% inclusive and 90 stocks
with 0.20% weightings or less, including 25 stocks with a 0.01%
weighting. If they seed the fund with $10 million then the fund would
be buying $10,000 worth of those 25 stocks. That's a lot of commission
dollars.

In reality, I'm sure the prospectus allows for sampling
that one way or another allows for not having to buy every single
stock. A process that allows for 8% into one stock and that many names
with microscopic weights is difficult to figure without an explanation.

It
looks as though the expense ratio for CPI will be 0.65% and 0.75% for
GRES. Conceptually these could be very interesting maybe I can glean a
more favorable understanding after their presentation.

CIT Falling Apart
NEW
YORK (AP) -- CIT Group Inc., one of the nation's largest lenders to
small and mid-sized businesses, said Wednesday it received $4.5 billion
in credit from its own lenders and bondholders as it tries to avoid
collapse.

The company has been trying for months to restructure its operations and reduce its
debt burden to avoid bankruptcy. The loan also comes as CIT Group has
been facing pressure from billionaire investor and bondholder Carl
Icahn who was been trying to get investors to reject the company's
restructuring plan.The new $4.5 billion loan is being financed
by a group of lenders, including some bondholders, that provided CIT
with a $3 billion lifeline over the summer.Jeffrey Peek, CIT
Group's chairman and CEO, said in a statement the new loan will help
the company serve customers as it progresses through an ongoing
restructuring plan.CIT Group, based in New York, is currently
asking bondholders to swap their debt for stock and new debt that
matures later. It is trying to reduce its near-term debt maturities by
$5.7 billion.Even if it gains approval to restructure its debt
from bondholders, CIT has warned it still might have to file for
bankruptcy protection. A failure to gain acceptance on the
restructuring offer, which has been sweetened twice, would almost
definitely result in bankruptcy.CIT has also asked bondholders
to approve a prepackaged bankruptcy plan at the same time they vote on
the debt restructuring in case the company does collapse. Most
bondholders must decide by Thursday whether to approve the
restructuring and bankruptcy plans.At the same time, Icahn has
waged a campaign in recent weeks to try and get debtholders to vote
against CIT Group's restructuring plan, which he says unfairly hurts
small bondholders.On Tuesday, Icahn offered to buy certain
classes of debt from CIT bondholders for 60 cents on the dollar if they
reject the company's restructuring plan. Icahn also offered CIT a $4.5
billion loan late Tuesday in attempt to stop it from reaching its
latest deal with lenders.A spokesman for Icahn was not immediately available to comment Wednesday afternoon on CIT's new loan.CIT
said in a statement that Icahn gave the lender less than one hour to
accept his offer and the company received no evidence or agreement that
showed Icahn could fund the $4.5 billion loan.If CIT collapses,
it could further hurt an economy -- and especially a retail industry --
trying to recover from the worst recession since the Great Depression.
CIT Group is a short-term financier to about 2,000 vendors that supply
merchandise to 300,000 stores, according to the National Retail
Federation.The lender's problems have been growing as its
borrowing costs have outpaced its income since the credit crisis
erupted last year. When the credit markets shut down last year, CIT
lost its primary source of funds used to operate the business and it
has yet to recover. CIT received $2.3 billion in government bailout
money last fall at the peak of the crisis.Shares of CIT jumped 13 cents, or 13.5 percent, to $1.09 in afternoon trading.

Doesn't look like U.S. will recoup CIT investment of $2.3B seeing as they filed for Chapter 11 today...Not good. Alex, I'd definately like to touch on bankruptcy in Wednesdays meeting. I think it is important that Clark and Mike understand it.

==============================================================================================

an excerpt via Bloomberg:

Subprime Mortgages
“Short term, it’s going to cause some difficulties for
startups and smaller borrowers,” said Jean Everett, a partner
at Hiscock & Barclay focusing on financial institutions and
lending. “CIT lent across so many sectors it’s sort of
difficult to predict how it’ll affect each sector.”
CIT fell 23 cents to 72 cents in New York Stock Exchange
composite trading on Oct. 30. The stock is down 84 percent year
to date.
Peek, 62, who joined CIT in 2003 after failing to land the
top job at Merrill Lynch & Co., pushed the lender into subprime
mortgages and student loans to pump up growth.
Assets at CIT jumped 77 percent from 2004 to the end of
2007 as it acquired companies that focused on vendor finance,
education lending and medical, construction and industrial
equipment loans. Net income surpassed $1 billion in 2006, a 39
percent increase over two years.
CIT’s $500 million of notes due Nov. 3 fell to 68 cents on
the dollar as of Oct. 29 from 80 cents at the beginning of the
month, according to Trace, the bond-price reporting system of
the Financial Industry Regulatory Authority.
CIT’s bankruptcy filing was made by Skadden, Arps, Slate,
Meagher & Flom LLP, which the company said on July 11 it had
hired as a legal adviser.
The case is In re CIT Group Inc., 09-16565; U.S. Bankruptcy
Court, Southern District of New York (Manhattan.)

I copied here a post I wrote here in July regarding CIT, CIT appears like the blood of american economy...

Sauros wrote:

I copy-pasted here what I posted in another thread so profound I found the implications of this.

As seen on CIT's website [/size]]http://cit.com/about-cit/vital-role/index.htm

"It may not be a household name, but CIT has a million business customers that rely on the company"

"We are talking about business that make up the backbone of the economy"

"CIT plays a vital lending role to over 1,000,000 small and mid cap businesses"

The Vital Role of CIT

Over 1,000,000 business customers depend on CIT to provide the financing they need to run their businesses. And for more than 100 years, CIT has remained committed to the lending needs of the small and middle market – providing needed capital to markets that other larger and smaller financial institutions often don’t.
The current financial challenges in the market haven’t wavered our commitment to the businesses that count on us. To get a sense of the vital role CIT plays to small and middle-market businesses throughout the US, let’s look at the role it plays in two important sectors at thecenter of the current credit crisis.

The importance of CIT to the retail industry

CIT is the leading factoring company in the US. Factoring is a crucial part of ensuring the retail industry can fill their shelves with the products they sell. If, for example, a small dress manufacturer delivers a shipment of dresses to a retailer, CIT “factors” their invoice, taking on the responsibility of procuring payment from the retailer – providing them with the capital they need to continue their business. Without CIT as a factoring partner, manufacturers would find it more difficult to maintain the capital they need to produce the products that US retailers need.

The importance of CIT to small businesses

According to the SBA, small businesses make up more than 99.7% of all employers and create 75% of net new US jobs. And for nine straight years, CIT has been the #1 SBA 7(a) lender in the US – and the top lender to women, minorities, and veteran entrepreneurs for the last six. CIT provides the vital capital that mid-size and small businesses – from private schools to restaurants to veterinary hospitals – depend on to keep their company’s dreams alive – including commercial real
estate financing, construction loans, franchise financing and more.

Batman wrote:

Doesn't look like U.S. will recoup CIT investment of $2.3B seeing as they filed for Chapter 11 today...Not good. Alex, I'd definately like to touch on bankruptcy in Wednesdays meeting. I think it is important that Clark and Mike understand it.

The dark trader is right, understanding bankruptcy rules is key. The thing is with the Chapter 11 and the Debtor in Possession process, a bankruptcy is not necessarilly a bad stuff but just a way to try to make it back with taxpayer money... Actually, back to the beginning of this year, I went far enough to argue that Chapter 11 could be a "solution" : http://blog.thelordoftrading.com/2009/04/sell-dip_29.html

http://seekingalpha.com/article/170340-latest-hedge-fund-ideas-soros-citadel-atticus-and-more?rpc=401&source=feed



We're back with our latest compilation of the most recent news out
of hedge fund land. Our goal here is to give you all of the major hedge
fund news in quick little hits. If you've missed some of our previous
updates, we highly recommend checking them out our September update, as well as our July hedge fund news. Let's dive right into the latest updates from some prominent players:

George Soros, Soros Fund Management

Legendary
investor and hedge fund manager George Soros 'bought the dip' in
financial markets as he saw it as a buying opportunity to make some
money. This just goes to show that no matter your economic thoughts,
you have to play the market for what it is, as irrationality often
abounds. He still thinks we are facing structural long-term problems,
but that has not stopped him becoming more bullish for the short-term.
His main concern is the deleveraging of the U.S. consumer over a longer
period of time which will hurt consumer spending and thus growth going
forward.

While he 'bought the dip,' Soros is now cautious as he
notes the market to be very overextended and at the risk of another
drawdown. While he thinks a downturn is coming, he says that the market
will be fine for the rest of the year. The problems, he says, will come
in 2010 once the reality of weak global growth hits. In terms of recent
portfolio activity, we highlighted when Soros adjusted three of his positions. To check out Soros' thoughts on financial markets in their latest iteration, we recommend checking out his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.


Ken Griffin's Citadel Investment Group

Investors
can finally redeem their money out of Citadel's largest funds,
Kensington and Wellington. After being locked up for almost an entire
year, we wonder how many investors will pull their funds purely out of
rage from being locked up so long. They probably will take at least a
little consolation in the fact that after a horrendous performance in 2008,
Citadel's funds have at least bounced back as they are up 57% this
year. Citadel has $14 billion in assets under management and apparently
Citadel's funds are positioned to "withstand a catastrophic market
event" so the fund has learned from its mistakes. In terms of its
recent activity, Citadel has been busy with its ETrade stake and we also noted its UK positions here. Bloomberg also has a recent in-depth profile of Griffin up here as well.


Timothy Barakett, Atticus Capital

While Barakett may have left the hedge fund manager game,
he has not ceased being an investor. Apparently, Barakett is set to
invest in the various new fund launches by former Atticus employees.
Atwater is a hedge fund being launched by Lee Pollock and Kris Green
who formerly plied their trade at Atticus. Atwater is supposedly
planning to raise $500 million by the end of next year and will focus
on merger arbitrage and special situations.

Another fund
Barakett is set to invest in is being launched by former Atticus
Capital analyst Ed Bosek and Noam Ohana, who previously invested
Atticus' partner money in other hedge funds. They have founded Beacon
Light Capital, a hedge fund that will trade global equities. Bosek will
be portfolio manager while Ohana will be the chief operating officer of
the fund. Whenever the time comes, we'll check out whatever SEC filings
may come out of both these new ventures.


Hugh Hendry, Eclectica Fund

Our
resident deflationist is hedge fund manager Hugh Hendry of the
Eclectica Fund. His latest media appearances have him noting that
markets are crowded right now and are "all one trade." He thinks that
stocks and gold now have a risk that everyone could all want to exit at
the same time, saying that now investors are either in the market or
not at all. One interesting point he does bring up is the fact that the
rally has been ramping higher on questionable volume. He notes the
absence of typical volume associated with healthy rallies in this video
interview embedded below (email readers come to the blog to view it):



Hendry's commentary is always good reading and you can read some of his recent letters here as well as here.


Jeremy Grantham, GMO

The resident perma-bear and 'grumpy old man' (we mean that with respect) Jeremy Grantham
is out with his latest commentary and it is a good read as usual.
Here's a notable excerpt from his latest piece where he chimes in on
the current market:

Corporate
ex-financials profit margins remain above average and, if I am right
about the coming seven lean years, we will soon enough look back
nostalgically at such high profits. Price/earnings ratios, adjusted for
even normal margins, are also significantly above fair value after the
rally. Fair value on the S&P is now about 860 (fair value has
declined steadily as the accounting smoke clears from the wreckage and
there are still, perhaps, some smoldering embers). This places today’s
market (October 19) at almost 25% overpriced, and on a seven-year
horizon would move our normal forecast of 5.7% real down by more than
3% a year. Doesn’t it seem odd that we would be measurably overpriced
once again, given that we face a seven-year future that almost everyone
agrees will be tougher than normal?

It's always good to hear both sides of an argument and if you want your fair dose of pessimism, head Grantham's way (some his past commentary here). You can check out his full recent commentary via .pdf here.


Bruce Kovner's Hedge Fund Caxton Associates

Interestingly
enough, we see that Caxton Associates has helped executives at the firm
raise $500 million to launch new Lucidus Capital Partners. The new
hedge fund will focus on high yield and will be managed by Darryl Green
and Geoffrey Sherry. Caxton has taken a 25% stake in this new firm.
What's interesting here is that Sherry will continue to run Caxton's $1
billion bond fund as well. We'll have to see if this new trend of hedge
funds funding new funds spawned from inside their own walls continues.
This can be quite successful, as evidenced by Julian Robertson's
network of seeded 'Tiger Cub' funds. Back in our June performance update post, we noted that Caxton was barely up for the year at that time, at 2.21%.

Abu Dhabi Investment Fund (Aabar Investments)

This
Abu Dhabi investment fund has taken a $328 million stake in a Spanish
financial firm's new Brasilian arm, Banco Santander Brasil. Aabar has
been one of the most active funds out of Abu Dhabi as they also have a
9.1% stake in Daimler (DAI),
a 30% stake in Virgin Galactic, and a 4% stake in Tesla Motors. Aabar
is controlled by the Abu Dhabi government through a majority stake in
the International Petroleum Investment Company.


Paolo Pellegrini, hedge fund PSQR Management

We recently covered the ex-Paulson & Co hedge fund manager's trade ideas
and we see that he is back in the media yet again. Pellegrini recently
laid out the 'only attractive bet' for investors is to short long-term
U.S. debt. He says,I always like to think about assets that are
likely to experience a breakdown; the only thing I’m pretty comfortable
with right now is U.S. Treasury securities and U.S. agency
mortgage-backed securities. I think that those are overpriced so they
are attractive shorts ... The dollar has depreciated more than it
should for the short term ... And if you ask me where am I putting my
money now, I am on the sidelines.” Make sure to check out Pellegrini's
recent thoughts on shorting treasuries and longing oil.


Bruce Berkowitz (Fairholme Funds)

Noted equity mutual fund manager Bruce Berkowitz of the Fairholme Fund (FAIRX)
is launching a new bond fund that will invest over the entirety of the
bond universe. While Berkowitz is unquestionably a good equity fund
manager, it raises the question if he is also a good bond fund manager?
His equity fund has an annual return of over 9% over the past 5 years.
While many investors will undoubtedly jump on this fund due to the name
recognition, be aware that it has a $25,000 minimum initial investment,
over 10x his other fund. It will be interesting to see if Berkowitz can
also prove his worth in the bond arena, as few managers out there can
dabble successfully in both.


Stanley Fink, International Standard Asset Management

Former
Man Group CEO Stanley Fink is releasing a new fund at his new firm.
International Standard Asset Management will release a gold fund in
December, even against Fink's liking, as he isn't fond of single
commodity funds. However, you can never turn down an opportunity that
investors clearly desire. Fink's fund will thus join a large cast of
prominent hedge fund players in the gold trade including David Einhorn of Greenlight Capital and John Paulson of hedge fund Paulson & Co, amongst many others.


Thanks for checking out our latest edition of hedge fund quick-hits and make sure to check out our September hedge fund news as well.

By Andrew MacAskill
Nov. 3 (Bloomberg) -- The U.K. government’s plan to inject a further 25.5 billion pounds ($42 billion) into Royal Bank of Scotland Group Plc will make it the most expensive bank bailout in the world, surpassing Citigroup Inc.
Prime Minister Gordon Brown’s government may today announce the additional funding for RBS and an extra 5.6 billion pounds for Lloyds Banking Group Plc, the two largest U.K. banks that received government money, a person familiar with the matter said. That will increase the amount received by Edinburgh-based RBS to about 45.5 billion pounds, more than the $45 billion pumped into Citigroup and Bank of America Corp.
The government is providing more cash for the banks even as the Bank of England says the country’s recession is nearly over.
Today’s 31 billion pounds of additional funding is eight times greater than expenditure this year on Britain’s war effort in Afghanistan, according to the House of Commons Defence Committee figures. The decision is likely to be unpopular with voters angered by the return of bonuses. Bonuses for workers in the financial services industry may rise 50 percent this year, the Centre for Economics & Business Research Ltd. said on Oct. 21.
"The public are reaching the limit of how much government support for the banks they will tolerate," said Vicky Redwood, U.K. economist at Capital Economics Ltd. in London and a former Bank of England official. "People are getting fed up with reports of a return to high bonuses and banks not lending."
Lloyds is planning to raise about 13 billion pounds in a rights offering so it can exit the government’s program insuring risky assets, said the person, who declined to be identified because the talks are private. The government, which owns 43 percent of the bank, will take up its rights to buy about 5.6 billion pounds of stock.

Asset Protection Scheme

RBS will insure 280 billion pounds of assets with the Asset Protection Scheme, the person said. The government may buy 25.5 billion pounds of ‘B’ shares in the bank. The bank will use about 13 billion pounds of that money to lift core Tier 1 capital, 6.5 billion pounds to pay the fee for using the APS, and may use the remaining cash to bolster capital.
Linda Harper, a spokeswoman for RBS, declined to comment.
Citigroup, based in New York, came so close to a funding shortfall last year it had to get $45 billion under a federal bailout program. Citigroup is 34 percent government owned, and RBS 70 percent. Bank of America, which is based in Charlotte, North Carolina, took $45 billion in U.S. aid.

‘More Money’

Britain’s 68 billion-pound bailout for RBS and Lloyds may need to be increased still further, said Colin Ellis, European economist at Daiwa Securities SMBC Europe Ltd. in London.
"It’s not inconceivable that we will need to put more money into the banks," Ellis said in an interview. "One of the lessons from previous crisis is that you just don’t know how much the final bill for the bailout is going to be."
In return for taxpayer assistance, the two banks have pledged to provide 78 billion pounds of increased lending over this year and next. Britain’s economy should return to growth by the end of the year, Bank of England Governor Mervyn King said in a speech on Oct. 20.
Trailing in the opinion polls for almost two years, the ruling Labour Party is attempting to regain credibility with voters on the economy. While the opposition Conservative Party says the biggest threat to the U.K. economy is the deficit, Brown says expenditure must remain high until economic recovery is assured.
The public finances are already under strain even before today’s announcements. The government’s budget deficit was forecast to reach 175 billion pounds in the year ending March 2010, or 12.4 percent of gross domestic product, the most in the Group of 20, according to figures from the U.K. Treasury in April.

‘Extremely Severe’

"The problems are extremely severe," said Jamie Dannhauser, an economist at Lombard Street Research Ltd. in London. "Given the sheer scale of the mess that the U.K.
banking system got itself into, it would be absurd to think that we could sort these things out quickly."
Before today’s announcement, each household in the U.K. had about 3,000 pounds invested in the banks. The government’s paper loss on its stakes in RBS and Lloyds dropped to 10.9 billion pounds in June from 18 billion pounds in February as the banks’
shares advanced, according to government figures.
The International Monetary Fund has estimated the final cost of the bailout to British taxpayers may climb to 9.1 percent of GDP, or about 132 billion pounds.

By Elena Logutenkova
Nov. 3 (Bloomberg) -- UBS AG, Switzerland’s largest bank, reported a fourth consecutive quarterly loss after a charge to reflect an improvement in the company’s own debt outweighed a rebound in trading revenue.
The third-quarter net loss was 564 million Swiss francs
($552 million), compared with a 283 million-francs profit a year earlier, the Zurich-based bank said today. Analysts surveyed by Bloomberg estimated a loss of 337 million francs. The results included a 1.44 billion-franc accounting charge that reflects rising costs to UBS should it buy back outstanding debt.
Chief Executive Officer Oswald Gruebel, who joined in February, is trying to halt redemptions by wealthy clients and rebuild the investment bank after more than $50 billion of losses and asset writedowns tied to the financial crisis. He hired former Merrill Lynch & Co. executive Robert J. McCann last month to help stop client withdrawals at the wealth management unit. Outflows totaled 26.6 billion francs in the third quarter.
"The core private banking franchise still seems to be hurting," said Florian Esterer, who helps manage about $49 billion at Swisscanto Asset Management in Zurich. "The money outflows are still bad across all divisions."
Gruebel and Chairman Kaspar Villiger, in a letter to shareholders, said they don’t expect "an immediate recovery"
in client inflows after UBS settled a U.S. lawsuit related to tax evasion in August and the Swiss government sold its investment in the company.

Investment Bank Loss

The pretax loss at UBS’s investment bank narrowed to 1.37 billion francs in the third quarter from a 2.75 billion-franc loss a year earlier, while earnings at the wealth management and Swiss bank unit slumped 52 percent to 792 million francs. Wealth management Americas saw profit fall 41 percent to 110 million francs, while asset management’s earnings dropped 69 percent to 130 million francs.
In adding to the charge on its own debt, UBS booked a net loss of 409 million francs related to the sale of its Brazilian Pactual unit because of foreign currency fluctuations, and a 305 million-franc loss from the sale of the Swiss government’s investment. The bank said it expects another charge on own debt in the fourth quarter.
Sales and trading revenue of 2.15 billion francs was the bank’s highest of the past nine quarters, as the fixed-income business had its first quarter of positive revenue during that period.
UBS shares rose 17 percent this year to 17.35 francs in Swiss trading, valuing the company at 61.7 billion francs. That was outpaced by a 42 percent gain in the 63-company Bloomberg Europe Banks and Financial Services Index and a 96 percent increase at Credit Suisse Group AG.

‘Detailed Plans’

Credit Suisse, the second-biggest Swiss bank by assets, reported the highest quarterly profit in more than two years for the third quarter, helped by gains from trading. Deutsche Bank AG, Germany’s biggest bank, said last week its net income more than tripled on tax gains and trading revenue.
UBS’s priority is to restore profitability after the U.S.
settlement lifted a "tremendous weight" and the sale of the Swiss government’s holdings gave a "boost to morale across the firm," Chief Financial Officer John Cryan told investors on Sept. 30. The company, which is scheduled to hold an investor day on Nov. 17, has "detailed plans" of how to boost earnings, he said.
Gruebel, 65, has already announced 7,500 job cuts, sold a Brazilian unit, replaced four executive board members and tapped investors for 3.8 billion francs to bolster capital. He told employees in a memo on Sept. 8 that recovering UBS’s reputation will probably take longer than boosting earnings after the bank admitted to helping some U.S. clients evade taxes.

U.S. Lawsuit

"Business is steadily returning to normal," Gruebel said in the statement today. "Having stabilized the bank’s financial condition and resized the business, I expect to see further progress in future quarters, particularly in 2010. However, this progress will depend on market and other factors."
The company may not attract net new client investments until 2011 after losing advisers, Citigroup Inc. analysts forecast in September. UBS wealth management clients withdrew a net 156.3 billion francs in the fifteen months through the end of June.
UBS agreed in August to divulge information on 4,450 accounts to the Swiss tax authorities. The government will determine whether individual cases fit criteria supplied by the U.S. in an information request, as part of the settlement of the lawsuit that sought data on as many as 52,000 clients.

McCann Appointment

UBS hired McCann, who used to run the brokerage unit of Merrill Lynch, as its head of wealth management in the Americas.
McCann said he will review the business with the aim of boosting revenue and cutting costs to return to profit.
"McCann was a fantastic nomination," said Teresa Nielsen, a Zurich-based analyst at Vontobel. Gruebel "has done an incredible job so far, but work still lays ahead of him."
UBS amassed the biggest writedowns and losses from the credit crisis among European competitors, and had to turn to the Swiss government a year ago for a 6 billion-franc capital injection to help it spin off risky assets into a Swiss National Bank fund. The bank last year reported a net loss of 21.3 billion francs, a record in Swiss corporate history.

What the heck is going on with the euro banking system? Is the US to follow whats the catalyst? Derivatives?

Nov. 10 (Bloomberg) -- Morgan Stanley Chief Financial
Officer Colm Kelleher said corporate mergers and acquisitions
may see a rebound next year as markets improve.
“The elements are in place for a resurgent M&A market in
2010,” Kelleher, 52, told investors today at a conference in
New York sponsored by Bank of America Corp. “Our backlogs are
strong.”
Morgan Stanley jumped to No. 1 among advisers on global
takeovers this year, topping larger rival Goldman Sachs Group
Inc. for the first time since 2000, according to data compiled
by Bloomberg. Companies announced mergers and acquisitions this
year with a total value of $1.42 trillion, down from $2.28
trillion at the same point last year, the data show.
Morgan Stanley, the second-biggest U.S. securities firm
behind Goldman Sachs before both converted to banks last year,
has lagged behind competitors in trading revenue. Kelleher said
the firm is hiring as many as 400 sales and trading employees
this year to help win clients and gain market share.
The Morgan Stanley Smith Barney joint venture, the biggest
U.S. retail brokerage, is still expected to achieve $1.1 billion
in cost savings by 2011 and a pretax profit margin of between 20
percent and 25 percent by that time, Kelleher said. Morgan
Stanley acquired control of the venture, which it shares with
Citigroup Inc., earlier this year.
“Nothing we have seen so far has knocked us off course
from the trajectory we saw when we announced the merger,”
Kelleher said.

==========================================================================================================================

MS on the way back. Good to see. I like when companies let others take the limelight (GS, CIti, JPM, BAC) while they gear up for growth.

Snapman wrote:

What the heck is going on with the euro banking system? Is the US to follow whats the catalyst? Derivatives?

Good article from the economist touching on the euro banking system:

NEELIE KROES has, according to one analyst in London, “cut through
all the bullshit”. Europe’s competition commissioner has trod where
national regulators dare not, by imposing harsh penalties on the banks
that received the biggest bail-outs in Europe. On November 3rd
Britain’s two monsters, Royal Bank of Scotland (RBS) and Lloyds Banking
Group (LBG), got the treatment. In the preceding week ING, a Dutch
insurance and banking conglomerate, surprised investors by announcing a
break-up and a capital raising. Over the summer Germany’s Commerzbank
and WestLB both agreed to tough penalties. Several more banks,
including Dexia and KBC, both based in Belgium, and Germany’s Hypo Real
Estate, are next in the commission’s line of fire.


Ms Kroes is acting under a generous interpretation of her mandate.
The objectives of reversing the damaging effects of state aid on
competition and of ensuring that bailed-out firms have viable business
plans are not controversial. But the commission’s apparent desire to
address concerns over moral hazard by punishing firms that have been
rescued by the state is much more provocative. National governments
have so far done precious little to tackle this issue. That partly
reflects their defence of national champions, but also a reluctance to
start messing about with big banks while the supply of credit to the
economy is still under threat and while they still need to raise more
equity from private investors.

The two big German restructurings were arguably the most
straightforward. Both Commerzbank and WestLB will shrink their
balance-sheets by about half from their peak (see chart). It was
relatively simple to identify those bits of the banks that were sick,
such as property, or sub-scale, such as international operations.

ING will shrink dramatically, too. About half of the reduction in
its balance-sheet will come from offloading its insurance operations.
It is hard to see how this improves either competition or the firm’s
viability, but it does at least chime with the views of many investors
that ING’s conglomerate model is too unwieldy.

The other zombies are harder to deal with, as the British examples
show. The disposals being forced on RBS owe little to competition or
viability concerns and quite a bit to the punishment motive. RBS will
offload peripheral operations—such as insurance and its commodities
unit—that make money, are healthy, and which it might otherwise have
sensibly retained.

LBG, meanwhile, has few peripheral assets (aside from an insurance
business which it was miraculously allowed to keep). It has got off
much more lightly than the other banks, and though this may reflect
pressure from the British government, it also reflects genuine economic
concerns. Breaking up LBG’s bog-standard British lending activities
would be disruptive for customers in the short term, and forcing it to
cut its dangerous reliance on wholesale funding too quickly would
starve house-mad Britons of mortgage credit.

KBC also presents problems. Its insurance operation is much more
closely integrated into its branch network than those of ING or RBS,
and forcing it to sell its central and eastern European operations
would run against wider political objectives. It may shrink by less
than others as a result. Likewise the commission has sounded tough on
Dexia, a Franco-Belgian lender, demanding that it come up with a plan
early next year. But although its business model now seems barmy—a
partly state-owned bank that raises government-backed funds to lend to
local governments—it performs a vital economic function that cannot be
replaced easily. Ireland’s banks are in a mess too, but the
government’s bail-out package has yet to be finalised and any European
sanctions are some way off.

In short, the high point of European Commission intervention has
probably been reached. That leaves much in the hands of Europe’s
national governments and although there are good reasons to doubt their
resolve, there are no grounds at all to understate the task at hand.

The capital positions of Europe’s banks look passable but most of
the existential questions about banking are arguably harder to solve
for Europe than for America. America has Bank of America, JPMorgan
Chase and, perhaps, Citigroup to worry about as firms that combine
“casino” investment-banking arms with “utility” retail and commercial
lending. Europe has at least seven comparable firms: Deutsche Bank,
Barclays, RBS, BNP Paribas, Société Générale, Credit Suisse and UBS,
the last of which reported the latest in a string of weak results on
November 3rd.

The mismatch between its internationalised banks and national fiscal
authorities also makes things more complex for Europe. Josef Ackermann,
the boss of Deutsche Bank, warned on November 2nd that organising banks
into stand-alone national silos would “effectively kill” the single
banking market in Europe. Some countries in Europe—such as Switzerland,
Britain and Ireland—are home to banks that are so big they may exceed
the capacity of their economies to save them.

Finally, European banks have a bigger wholesale-funding problem than
American ones, with explicit central-bank and government-guaranteed
debt of $2 trillion outstanding in the middle of this year, about
triple American levels. Funding is the industry’s secret subsidy:
without explicit or implicit guarantees many banks would teeter. Yet it
is also the hardest issue of all to grapple with, not least because
there is no easy way to replace it without shrinking banks’
balance-sheets in a manner that damages the supply of credit. Whatever
it is that Neelie Kroes has cut through, there is a lot of it left.

This is a very negative indicator of economic health.......

=============================================================================================================================



As Shipping Slows, Banks and Carriers Fear Loan Defaults

Published: November 11, 2009

LONDON — When Eastwind Maritime, a medium-size
carrier company, went bankrupt this summer, few banks in the United
States took notice.


Singapore's container port last month. As global trade recovers, a glut of new ships is expected to undermine a price recovery.


Cargo vessels off the coast of Singapore last June. With trade slowed by the recession, bankruptcies of carriers could rise.


But in Europe, where banks
hold over $350 billion of increasingly dubious shipping industry loans,
the inability of Eastwind, which is based in New York,to handle its
debt of more than $300 million set off an anxiety attack on lending
desks across the Continent.The collapse of Eastwind Maritime, analysts say, while small, could well be a harbinger of more carrier failures to come.And for Europe’s struggling banks, already plagued by a toothless
economic recovery and continuing losses in real estate, the emergence
of yet another questionable category of loans adds to fears that many
of them are lagging their counterparts in the United States in
overcoming the financial crisis.In Britain, for example, where
the economy shrank a further 0.4 percent for the third quarter, the
government had to put an additional £43 billion ($71 billion) into the Royal Bank of Scotland and Lloyds, both essentially under national control, because of continuing trouble with their real estate loans. And in Spain, where loans to companies working in the real estate
sector are estimated to be almost 50 percent of gross domestic product,
a consensus is growing that many banks are underreporting the value of
their stricken loan portfolios. Now there is more to worry
about. Banks with large shipping industry portfolios — among them Royal
Bank of Scotland and Lloyds, and HSH Nordbank and Commerzbank in
Germany — could face meaningful write-downs as ship owners confront
plummeting charter rates from a 25 percent drop in global trade. “Peak of defaults is generally one year after the trough of the
economy,” said Scott Bugie, a European bank analyst at Standard &
Poor’s. “In the U.S., the debt workouts have been faster and the
economy also bottomed out before Europe.”HSH Nordbank, a leading
lender to the shipping industry, set aside close to $800 million in
provisions for its shipping-related loans this spring, and it has
already received 13 billion euros ($19.4 billion) in support from its
owners, the regional German states of Hamburg and Schleswig-Holstein. And while global trade appears to be gradually on the mend, a glut of
previously ordered ships due in the coming years is expected to limit
the extent of a meaningful price recovery. “The problem is that
there will be more bankruptcies and foreclosures if the ship owner
can’t operate his ship,” said Anthony B. Zolotas, a shipping industry
banker at Eurofin in Athens. “At that point he will give the keys to
the bank and say, ‘Sorry, mate, I just can’t do this anymore.’ ” Banks
in Europe have stubbornly resisted taking write-downs for their
shipping industry debts. They concede that the global cargo sector is
troubled, but as long as companies continue to pay interest on their
loans — which most are still doing — the banks contend that there is no
need to write them off. “Our book is of very high quality, and
to date we have not had to make a single provision this year for
possible loss,” said Lambros Varnavides, who oversees shipping loans
for R.B.S. “If the market remains low or becomes weaker,” he
said, “it is likely that some provisions may be required even for us.”
He adds, however, that he would expect to recover those provisions once
the markets rebound. But as competition for business drives
cargo revenue well below what it costs to send a ship across the ocean,
analysts say that ship owners may soon be the next group of borrowers
unable to manage their debts.Many see parallels to the way banks
in the United States and Europe adopted an overly optimistic view of
their exposure to subprime mortgages in late 2006 and early 2007.As with Eastwind, small undercapitalized subprime lenders began to fail
when home owners realized that the size of their mortgage had surpassed
the value of their house, and stopped making the payments on their
loans. Although the pile of shipping industry debt does not
compare to the trillions of dollars in toxic mortgage securities that
infected balance sheets worldwide, the essential dynamic of plummeting
ship values, burdensome debt and disappearing equity is much the same.

Cato Brahde, a portfolio manager at Tufton Oceanic, a hedge fund
that specializes in the shipping industry, says that history shows that
the stronger the trade-driven boom, the longer the down cycle that
follows, with the slump possibly persisting anywhere from three to 10
years.

The current bust began in
the summer of 2008. And after what he called the “biggest order book of
all time,” that suggests that most of the pain for the shipping
industry is still to come. “We estimate that there will be a 50
percent oversupply in container ships,” Mr. Brahde said. “And in the
next five or six months you will see more banks repossessing ships. It
is not life or death, but for those with real exposure there will be
problems.” Like all carriers, Eastwind built its fleet of 55
ships by relying on the generous terms of its eager bankers. At the top
of the cycle, when the average five-year-old vessel was valued at about
$88 million as of June of 2008, the company seemed a pretty good bet. But with the 45 percent plunge in freight rates for container ships,
the values of the ships that secured the bank loans have dropped, too. For example, Aozora Bank, a Japanese bank that in addition to being one of Eastwind’s top lenders is a major creditor of Lehman Brothers,
found to its dismay that the value of the 12 Eastwind ships it now
controlled was considerably lower than its $77 million exposure,
according to Eastwind’s bankruptcy filing. Other big lenders include
the Bank of Scotland, part of the Lloyd’s Group, and Nordea Bank, based
in Sweden. It is that type of negative equity situation, which
was at the heart of the subprime crisis, that could threaten banks if
it occurs on a wider scale. Most vulnerable is HSH Nordbank,
which is exposed to the industry’s weakest segment, container ships. It
has $50 billion in shipping loans, or about seven times its equity. The exposures of other major ship lenders include Commerzbank, with $37 billion; R.B.S. with $25 billion; and Lloyds TSB with $23.9 billion, according to estimates made by ING Bank.With the exception of HSH Nordbank, the shipping industry loans of the
other banks represent a small percentage of their overall loan books —
not enough, taken on their own, to make a balance sheet buckle.But the fact that shipping industry debts are concentrated in some of
Europe’s weakest banks suggests that the loans may well cause more
problems than bankers are now willing to admit. As a private
company, without a Greek billionaire or friendly government to back it,
the end came quickly for Eastwind once creditors refused to extend more
loans. So quickly, in fact, that some of the company’s ships,
which are a main mover of Chiquita Brands fruits and vegetables, were
left stranded in open water. In one case, a ship belonging to
Eastwind lacked the money to pay for fuel, according to the company’s
bankruptcy filing. Another even lacked sufficient funds to provide food
and water to its crew. While the ships eventually found their way to port, it may well be their bankers that soon find themselves at sea.

Not really surprising considering the ratings agents need to cover their own behinds nowadays...



DJMN: Banks' Capital Adequacy Ratios Still Need Improvement - S&P




LONDON (Dow Jones)--Most major banks across the world still don't
have enough capital to comfortably maintain their credit ratings
despite recent improvements, Standard & Poor's Corp. said in a
report Monday, as it introduced a new framework to track banks' capital
adequacy and called into question the usefulness of standard market and
regulatory measures.
S&P said the average, risk-adjusted capital ratio for large,
international banks it looks at is just 6.7% as of June 30, more than
three percentage points below their average tier one ratios, and
illustrating the agency's "opinion that capital remains a neutral to
negative rating factor for the majority of banks in our sample."
The most-vulnerable bank under its criteria is Japan's Mizuho Financial
Group Inc. (MFG), with just a 2% estimated ratio, while the strongest
is HSBC Holdings PLC (HBC), with a 9.2% estimated ratio. To withstand
the full stress embedded in S&P's measure, banks must have a
risk-adjusted capital ratio of at least 8%, S&P said.
Other banks in the weak category are UBS AG (UBS) and Citigroup Inc.
(C). Strong banks under the measure include DBS Bank Ltd. (DBSDY), ING
Bank NV (ING) and Goldman Sachs Group Inc. (GS).
In its study, S&P took a swipe at widely-used measures of banks'
health such as their tier one and leverage ratios, saying they are not
consistently calculated or don't adjust for risks.
"We do not believe that these two capital ratios, which are the most
commonly used by market constituents, are sufficient to assess banks'
risk-adjusted capital adequacy," S&P said.
One difference between these measures and S&P's risk-adjusted
capital model is the rating agency's inclusion of a higher capital
charge against banks' trading books. Even after regulators move as
expected to up these charges, S&P estimates its own model will
still be significantly higher.
Company Web site: http://www.sandp.com

--By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451; margot.patrick@dowjones.com

Batman wrote:

Not really surprising considering the ratings agents need to cover their own behinds nowadays...



DJMN: Banks' Capital Adequacy Ratios Still Need Improvement - S&P




LONDON (Dow Jones)--Most major banks across the world still don't
have enough capital to comfortably maintain their credit ratings
despite recent improvements, Standard & Poor's Corp. said in a
report Monday, as it introduced a new framework to track banks' capital
adequacy and called into question the usefulness of standard market and
regulatory measures.
S&P said the average, risk-adjusted capital ratio for large,
international banks it looks at is just 6.7% as of June 30, more than
three percentage points below their average tier one ratios, and
illustrating the agency's "opinion that capital remains a neutral to
negative rating factor for the majority of banks in our sample."
The most-vulnerable bank under its criteria is Japan's Mizuho Financial
Group Inc. (MFG), with just a 2% estimated ratio, while the strongest
is HSBC Holdings PLC (HBC), with a 9.2% estimated ratio. To withstand
the full stress embedded in S&P's measure, banks must have a
risk-adjusted capital ratio of at least 8%, S&P said.
Other banks in the weak category are UBS AG (UBS) and Citigroup Inc.
(C). Strong banks under the measure include DBS Bank Ltd. (DBSDY), ING
Bank NV (ING) and Goldman Sachs Group Inc. (GS).
In its study, S&P took a swipe at widely-used measures of banks'
health such as their tier one and leverage ratios, saying they are not
consistently calculated or don't adjust for risks.
"We do not believe that these two capital ratios, which are the most
commonly used by market constituents, are sufficient to assess banks'
risk-adjusted capital adequacy," S&P said.
One difference between these measures and S&P's risk-adjusted
capital model is the rating agency's inclusion of a higher capital
charge against banks' trading books. Even after regulators move as
expected to up these charges, S&P estimates its own model will
still be significantly higher.
Company Web site: http://www.sandp.com

--By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451; margot.patrick@dowjones.com

A good question to think about is if all the banks affected by this crises will need to take another hit before recover or will central banks be able to keep pumping green blood into their systems (well green in America at least). We all know trichet has his opinion on that but you never know with emerging eastern europe... And we all know about how many banks are still holding on to bad assets on their books....

Banking Fail?

or

Central Banking epic win?

-snapman

Good question Snapman...But unfortunately Banks will fail by default. With Politicians more concerned with Banker bonuses than with Declining output, banks should fail by default. Unless some politcian with a red cape and blue tights can convince markets otherwise...

Batman wrote:

Good question Snapman...But unfortunately Banks will fail by default. With Politicians more concerned with Banker bonuses than with Declining output, banks should fail by default. Unless some politcian with a red cape and blue tights can convince markets otherwise...

Oh dear lets break out the 10k's and see how good we are at stock picking with financials

Im sure we can make a boat load by betting on the good ones and bad ones and then post fail picking up the fastest recovering ones. We all know Paulson has his bets big time locked in already

By Scott Lanman and Craig Torres
Nov. 24 (Bloomberg) -- The Federal Reserve asked nine of the U.S. banks that were part of this year’s stress tests to submit plans for repaying the government’s capital injections, a person familiar with the situation said.
The central bank this month asked Bank of America Corp. and eight other banks to give plans including a timetable, said the person, speaking on condition of anonymity. The firms may have the option to repay Troubled Asset Relief Program funds soon if they’ve been able to raise common equity and would continue to exceed capital buffers set in the stress tests, the person said.
"It would send a terrific message to the market if there was a plan and a timetable for at least the top banks in TARP to pay the money back," said Joel Conn, president of Lakeshore Capital Inc. in Birmingham, Alabama, which owns stock in PNC Financial Services Group Inc. "It would signify they are good enough to stand on their own."
The Fed’s request may turn up the pressure for banks accustomed to more flexibility on the timing and process of TARP repayment. Together the nine banks have received about $142 billion in bailout funds, out of the $700 billion Congress authorized in 2008 for the financial rescue.
The banks in the stress test that have yet to repay TARP are Bank of America, PNC, Citigroup Inc., Fifth Third Bancorp, GMAC Inc., KeyCorp, Regions Financial Corp., SunTrust Banks Inc.
and Wells Fargo & Co.

Stress Tests

The Fed released results in May from stress tests that showed how the 19 largest U.S. lenders would fare in a slower recovery with higher-than-forecast unemployment. Ten companies including Bank of America, Wells Fargo and Citigroup needed to raise additional capital.
Banks had been prohibited from repaying TARP money quickly unless they replaced it with private capital. That changed with February’s $787 billion stimulus law.
Since then, Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. among others have returned TARP funds by proving they were well capitalized without the government money.
Regions doesn’t comment on talks with regulators, spokesman Tim Deighton said. Bank of America and SunTrust declined to comment. Citigroup’s Stephen Cohen and Wells Fargo’s Julia Tunis Bernard declined to comment.
Bill Murschel, a KeyCorp spokesman, and Debra Decourcy of Fifth Third didn’t return calls for comment. Fred Solomon, a PNC spokesman, and GMAC’s Gina Proia declined to comment.
The request was reported earlier by DealReporter.com, a news service that focuses on mergers and is part of Pearson Plc’s Financial Times Group.

Bank of America Credit-Card Chief Struthers Sees Losses Peaking
By David Mildenberg

Nov. 30 (Bloomberg) -- Bank of America Corp., battling the
highest credit-card loss rate among the biggest U.S. lenders,
expects write-offs to peak this quarter unless unemployment
rises more than forecast.
“Most people think that charge-offs will be peaking right
about now, in the third and fourth quarters,” Ric Struthers,
president of global card services, said in an interview today.
“That’s a realistic view.”
Bank of America wrote off $14.3 billion of card loans as
uncollectible this year through Sept. 30, about 76 percent more
than the same period last year. Card defaults typically track
the U.S. unemployment rate, which reached 10.2 percent in
October. Struthers didn’t specify a target for the jobless rate;
the most pessimistic forecasters among 60 economists surveyed by
Bloomberg call for an 11 percent peak in the middle of 2010.
An improvement at the card unit may help Charlotte, North
Carolina-based Bank of America rebound after posting losses in
two of the past four quarters. Global card services was the
bank’s biggest segment through the first nine months,
contributing 23 percent of net revenue and 36 percent of income
before taxes and provisions, according to a company slide show.
Goldman Sachs Group Inc. lowered its forecast of the U.S.
card industry’s cumulative losses today to 20 percent to
23 percent of loans in 2009 and 2010, instead of 23 percent to
28 percent.
“Losses are already rolling over and falling below the
annual loss rate implied by our old forecasts,” Goldman analyst
Richard Ramsden wrote in the report.
Largest Portfolio
Bank of America said Nov. 16 that credit-card write-offs
fell in October to 13.22 percent from 14.25 percent in
September, after reaching a 2009 high in August of 14.54
percent. It’s still the highest loss rate among the nation’s six
biggest issuers.
The lender’s unit was hurt because it held the world’s
largest card portfolio and it grew quickly from 2006 through
2008 even as unemployment was beginning to swell, said
Struthers, based in Wilmington, Delaware. Bank of America’s
concentration in California and Florida also had an impact
because of high unemployment and weak home markets, he said.
The actual ratio of write-offs to loans may not decline
over the next quarter or two because total lending may fall
faster than the charge-offs, spokesman Tony Allen said.
Ranked by purchases and loan portfolios for the U.S. only,
the bank is second to JPMorgan Chase & Co., according to trade
journals the Nilson Report and American Banker.
Rewriting the Rules
Bank of America has reduced credit extended to customers,
added annual fees on more cards and is making it easier for
customers to understand their accounts. About 40 million
cardholders will get a one-page summary on balance transfers,
cash advances and fees on transactions and late payments, the
lender said today in a statement. Stricter U.S. credit-card
regulations are scheduled to take effect next year.
“It should have been done years ago, but it still will
certainly help consumers,” said Bill Hardekopf, chief executive
officer of lowcards.com, a Birmingham, Alabama-based Web site
that provides information on the credit-card industry. “It’s
very hard for people to cut through all of the information on
their credit-card accounts.”
Struthers declined to disclose the amount of credit
withdrawn or estimate what percentage of cards will include an
annual fee.
“When you think about financial literacy for consumers,
this is a step to get us there,” he said. “The more we can
make our responsibilities and the consumer’s responsibilities
clear and concise, the better it’s going to be.”
Bank of America rose 15 cents to $15.62 at 1:52 p.m. in New
York Stock Exchange composite trading. The shares have gained
11 percent this year.

Bloomberg is reporting Dubai World is restructuring $26B of debt with its lenders. v More on this to come later.

Trichet Putting Money Where Mouth Is Shows Dexia-Like Laggards


Nov. 30 (Bloomberg) -- European Central Bank President
Jean-Claude Trichet will shine a light on the weakest European
banks when he begins withdrawing the cheap loans that propped up
the financial industry this year.
Dexia SA and Commerzbank AG got a taste of what may come
when their shares sank as much as 3.7 percent on Nov. 20 as
Trichet explained the need to slow the unprecedented flow of
money and tightened collateral rules. He may go further Dec. 3
in disclosing just how the ECB proposes to wean the euro-area’s
lenders off emergency aid.
Less liquidity will show “the fundamental quality of
different banks,” said Elie Darwish, an analyst at Exane BNP
Paribas in Paris, who has an “underperform” rating on bank
stocks and recommends clients sell shares of Dexia. “They
benefited very much from the favorable environment created by
the ECB so may be hampered by the unwinding of this.”
Government-backed lenders, including Frankfurt-based
Commerzbank and Dexia in Brussels, will have higher funding
expenses, according to Simon Maughan, an analyst at MF Global
Securities Ltd. in London. He ranks Commerzbank, Germany’s
second-biggest lender, as the worst performer next year of the
bank shares he follows.
The nations with the euro area’s biggest budget deficits,
including Ireland and Greece, also face rising borrowing costs
after benefiting when banks recycled the ECB’s money into their
bonds. The cost of insuring $10 million of government debt
against default for five years jumped about 50 percent this
month for Greece and 23 percent for Ireland.
‘Swimming Naked’
“As Warren Buffett has observed, it’s when the liquidity
dries up that you’ll see who’s swimming naked,” said Erik
Nielsen, Goldman Sachs Group Inc.’s chief European economist in
London. The ECB may end up “tightening by stealth” if its
removal of support pushes up the interest rates charged by banks
and in money markets, even as Trichet signals that isn’t his
intention, Nielsen said.
The threat of side effects demonstrates the difficulties
ahead for the ECB as it seeks to cut stimulus programs,
especially in an economy whose 16 nations are recovering at
different speeds. That’s prompting Trichet to promise a
“gradual” withdrawal.
“A great theme will be unintended consequences,” said
Fred Goodwin, executive director of rates at Nomura
International Plc in London, who predicts an increase in banks’
credit risk as measured by the Euribor-OIS spread. “There will
be a link between tighter liquidity and bank risk that will show
up in stock prices, credit-default swaps and borrowing costs.”
Without Stimulus
The 64-company Bloomberg Europe Banks and Financial
Services Index returned about 40 percent this year. The concern
for investors is, “absent stimulus, how much growth is there in
the sector?” said Jonathan Tyce, an analyst at FBR Capital
Markets in London.
Maughan has an average growth target for bank stocks of as
much as 25 percent next year and says two-thirds are “out of
the woods.” A “quality differentiation” exists, with
investors demanding higher borrowing costs when lending to
companies that have government aid such as Commerzbank, Dexia
and Dublin-based Allied Irish Banks Plc, he said.
The reliance of some lenders on the central bank is
“probably the issue causing the greatest concern now,” Maughan
said in a Bloomberg Television interview on Nov. 25. “What is
going to happen to your funding costs when you have to go back
to private markets and pay a proper price for your debt?”
Selling Commerzbank
Seventy percent of analysts recommend selling Commerzbank
shares and 41 percent advise selling those of Dexia, according
to data compiled by Bloomberg during the past three months. By
contrast, 20 percent suggest selling Deutsche Bank AG, Germany’s
largest bank.
Deutsche Bank, which Maughan lists as the best performer in
its group in the euro-zone next year, has an annualized return
on equity of 16 percent, compared with Commerzbank’s 0.02
percent and Dexia’s 12.8 percent, Bloomberg data show.
BNP Paribas SA and Societe Generale SA, France’s biggest
banks by market value, repaid government aid provided during the
crisis, giving them an advantage. BNP Paribas said last month
investors sought 2.5 times the stock offered in a 4.3 billion-
euro share sale to reimburse the state. Societe Generale paid
back 3.4 billion euros this month.
Just 3 percent of analysts have a “sell” rating on BNP
Paribas, and 16 percent have that view of Societe Generale. Both
companies are based in Paris.
Commerzbank spokesman Reiner Rossmann declined to comment
on the implications for the lender of the ECB’s strategy.
Officials at Dexia also declined to comment.
Bad-Debt Forecast
Commerzbank said Nov. 5 it expects a “difficult” fourth
quarter, predicting loan-loss provisions will rise to about 4.2
billion euros ($6.3 billion) in 2009 from 3.7 billion euros last
year. Allied Irish, Ireland’s second-biggest bank, raised its
bad-debt forecast for this year on Nov. 18 by 1 billion euros to
about 5.3 billion euros as losses on property loans increase.
Lenders’ sensitivity to the ECB’s exit strategy was evident
Nov. 20 following Trichet’s remarks at a Frankfurt conference,
where he said that as markets recovered from the worst financial
crisis since the Great Depression, unchecked funding might spark
inflation and leave banks addicted to the aid. Hours later, the
ECB toughened the rules for some collateral it accepts against
loans. Starting in March, newly issued asset-backed securities
must be graded AAA/Aaa from two ratings companies instead of
just one.
‘Painkillers’
“Not all our liquidity measures will be needed to the same
extent as in the past,” Trichet said. “Eventually, the
administration of painkillers must be stopped if patients are to
get on their own two feet.”
The Dow Jones Stoxx 600 Index fell 0.8 percent, erasing an
advance and dropping for a fourth day, the longest decline since
July. Dexia dropped 2.6 percent to 5.20 euros and Commerzbank
fell 3.7 percent to 6.56 euros.
Trichet, 66, is signaling his next step will be to stop
lending banks as much money as they want for a year after one
last offering in December. While officials have discussed
whether to have the interest rate on new loans track the
benchmark refinancing rate, they are leaning toward sticking
with a fixed 1 percent rate, people familiar with the debate
said last week. Banks borrowed a record 442 billion euros in
June before taking 75.2 billion euros in September.
Unlimited Money
The ECB also may reduce the frequency of its three-month
and six-month tenders of unlimited money and cut the purchases
of so-called covered bonds, said Michael Saunders, chief
economist for western Europe at Citigroup Inc. in London. Policy
makers won’t raise their key interest rate from 1 percent before
2011 and will keep accepting a wide range of collateral,
Saunders said.
“The exit plan will be a combination of tough and tender
components,” he said.
Even if the ECB does become less generous, banks will still
have the December offering; and Guillaume Baron, a fixed-income
strategist at Societe Generale in Paris, estimates there will
remain an excess of liquidity in the market of as much as 135
billion euros until the end of June. That will keep the Euro
Overnight Index Average, or Eonia, for loans between European
banks at about 0.35 percent, he said.
Trichet’s policy shift comes as the Washington-based
International Monetary Fund says some banks haven’t done enough
to improve their balance sheets. Euro-area lenders have
recognized just 40 percent of their expected losses, compared
with 60 percent in the U.S., the IMF estimated in a Sept. 30
report. The Bundesbank said Nov. 25 that German banks alone may
have to write off another 90 billion euros.
Weakest Capital
Allied Irish, Milan-based UniCredit SpA, Banco Bilbao
Vizcaya Argentaria SA in Bilbao, Spain, and Frankfurt-based
Deutsche Bank are among banks with the weakest capital, Standard
& Poor’s said in a Nov. 23 study. Each company had a lower risk-
adjusted capital ratio as of June 30 than the average of 45
large international banks.
The ECB’s strategy also may mean higher interest rates on
government debt, limiting room for fiscal policy to continue
stimulating growth, said Julian Callow, chief European economist
at Barclays Capital in London.
Banks have been recycling ECB loans into government bonds,
helping reduce their yields even as countries cut taxes and
increased spending. Lenders’ net-asset purchases have more than
tripled to 150 billion euros, according to UniCredit. The yield
on the benchmark 10-year German bund fell to 3.14 percent last
week from 3.72 percent on June 5, even as the European
Commission downgraded its fiscal outlook.
Budget Deficits
Ireland, Greece and Spain may be the most vulnerable, said
Aurelio Maccario, chief euro-area economist at UniCredit in
Milan. The Brussels-based commission predicts their budget
deficits will exceed 10 percent of gross domestic product next
year, compared with a regional average of 6.9 percent.
Greece’s deteriorating finances mean the difference in
yield between its 10-year security and benchmark German bunds
widened to 204 basis points at the end of last week from 140
basis points on Nov. 13, the most since May. European Union
finance ministers will reprimand the government this week for
failing to take “credible and sustainable” measures to cut its
budget gap, according to a document obtained by Bloomberg News.
The extra interest investors want on Irish bonds relative
to the German equivalent reached 174.9 basis points on Nov. 27,
the highest since July. The Spanish spread is almost five times
wider than it was at the start of 2008.
Default Protection
Investors are paying more to protect themselves against
losses on sovereign bonds. It cost $218,000 to insure $10
million of Greek debt against default for five years on Nov. 26,
up from $140,000 at the end of October, while in Ireland it cost
$170,000, up from $138,000. The comparative price in Germany was
$25,000.
Greek banks are more dependent than those elsewhere on ECB
funding, with 38 billion euros of loans the equivalent of 7.9
percent of total assets, according to Barclays Capital. Ireland
ranks second at 5.9 percent. Greece’s central bank said Nov. 16
it had advised a number of financial institutions to be more
“‘prudent” when participating in the ECB’s December offering.
Some are already taking the initiative. EFG Eurobank
Ergasias SA, Greece’s second-biggest lender, cut its use of the
liquidity mechanisms by 50 percent, or 6 billion euros, during
the past six months, Deputy Chief Executive Officer Nikolaos
Karamouzis said Nov. 17. Anthimos Thomopoulos, chief financial
officer at National Bank of Greece SA, said Nov. 23 that
liquidity constraints were “not an issue.”
The ECB is “walking a tightrope,” said Elga Bartsch,
Morgan Stanley’s chief European economist in London. The
macroeconomic outlook and financial-market dislocations “make
an exit a finely calibrated decision,” she said.

I read this article on the wall street journal. Don't usually read the publication but this article kind of gets what the problem is as far as public opinion on banker and trader bonuses...Many Wall street guys donate tons of money every year to charitable causes out of their own pocket. Not to mention their spending helps stimulate the economy greatly. I believe in capitalism. I also believe bonuses should be based on performance. If one achieves and goes beyond the stated goals in their employment contract, they are entitled to be rewarded. However, the general public does not understand this and probably never will. Just as the words "terrorism", "Jihad", and "Al Queda" became propaganda buzz words sold by the Bush administration, "Banker", "Bonus", "bail-out" have become the same. Where is the accountability in the Media? Why do CNBC, Fox Business, and Bloomberg constantly push their own agendas? This question is rhetorical and redundant. However, I am disappointed that the world has not used this recession to educate itself on the underlying problems. Until Politicians, Bankers, Economists, Academics, and Bonuses come to a common understanding, much time will be wasted bickering about the ambiguous and irrelevant.

=================================================================================================================

Conspicuous consumption is making a comeback on Wall Street. But no one wants to admit they're doing it.

As traders and investment bankers near the finish line of what looks like a boom year for pay, some are spending money like the financial crisis never happened. From $15,000-a-week Caribbean getaways to art auctions to $200,000 platinum wristwatches that automatically adjust for leap years, signs of the good life are returning.

"What we're seeing in the last four to eight weeks is a fairly substantial uptick" in demand for extravagant purchases as Wall Street employees grow more confident that the market's steep rebound so far in 2009 will soon bring them fat bonuses, says David Arnold, senior vice president at Robb Report, a magazine targeted at the super-wealthy.
[SWAGGER]

Flight Options Inc., which sells 25-hour blocks of flight time on private planes starting at $97,000, says sales in the New York area are up sharply in the past month because of the market's resilience. "People are spending money again, and they're starting to travel consistent with their previous habits," says Jay Heublein, vice president of sales at the Richmond Heights, Ohio, company.

One of the most popular routes: the three-hour flight from New Jersey's Teterboro Airport, just a short ride from Manhattan, to Palm Beach International Airport, near second-home hotspots for some successful traders and bankers.

Much of the evidence for the spending rebound is anecdotal, largely because it is so recent. Still, even some widely cited barometers of Wall Street consumption suggest confidence is returning.

The $3.9 million median sales price for luxury Manhattan apartments in the third quarter was down 2.9% from a year earlier but up 6.7% from 2009's second quarter, according to Prudential Douglas Elliman Real Estate.

The world's chief auction houses, Sotheby's and Christie's International, brought in about $596 million combined from their semiannual sales of impressionist, modern and contemporary art in New York earlier this month. In comparison, their spring sales in May fetched $409 million.

Extravagant spending won't help Wall Street clean up its reputation, especially since firms rescued by U.S. taxpayers are rebounding much faster than the rest of the country. But the high rollers now reopening their wallets are at least trying to avoid being caught in the jarring displays of wealth that were a hallmark of the pre-crash years.
[SWAGGERjp3] Bloomberg News

APPETITE FOR EXCESS: The luxury-goods market has benefitted from the big spenders' return. There is a waiting list for Patek Philippe watches, above. The Mercedes Gullwing, below, is listed in the Robb Report, catalog for the ultrawealthy.
[SWAGGERjp1] Getty Images

In 2007, private-equity giant Stephen Schwarzman famously hired Rod Stewart to play at his 60th-birthday bash.

These days, financial institutions are aggressively price-shopping among party venues, event planners say. Ice sculptures and elaborate floral arrangements are out. So is top-shelf liquor, with bars instead stocked with beer, wine and soda. Party planners are cutting parties to three hours long from four.

"We're booking a number of holiday parties, but have been told to be very discreet about it," says Fred Seidler, who handles sales for Terminal 5, a trendy Manhattan concert venue that doubles as a party site. In December, the cavernous waterfront space is on track for as many as 15 corporate events, pushing sales toward a 60% increase from last year. He won't identify any clients.

A senior investment banker at a major Wall Street firm recently planned to impress clients with front-row World Series tickets. The company, a recipient of U.S. government aid, nixed the plans, citing potentially bad publicity. The investment banker wound up schmoozing his clients about 20 rows behind third base at Yankees Stadium.

"We have to be cognizant of the fact that we will be judged in the court of public opinion," Citigroup Chief Executive Vikram Pandit told a gathering of employees this month. Christmas parties normally paid for by Citigroup bankers and traders out of their own pockets are being canceled due to the hostile political environment this year.

Wall Street bankers participated at a Sotheby's auction of contemporary art earlier this month. The auction included an Andy Warhol painting that fetched $43.7 million. Sotheby's won't say who bought the wallpaper-like grid of greenbacks called "200 One Dollar Bills," but dealers say expectations of higher financial-industry bonuses are stoking strong bidding.

Sandy Heller, an art adviser who buys for SAC Capital Advisors founder Steve Cohen, says he is taking Wall Street clients to next week's major art fair, Art Basel Miami Beach. "We're not going to Miami so we can buy everything with a credit card," Mr. Heller says, "but as far as a broad mood goes, my clients are feeling more positive."

At dinner parties in late 2008, some Wall Street bankers and traders bemoaned the foolishness of their "top tick" purchases: a $100,000 car, a place in the Hamptons and exclusive country-club memberships. Human-resources departments got requests for low-interest loans to meet monthly expenses of certain employees. Goldman Sachs Group Inc. changed how it doled out certain stock grants as a way to get cash into the hands of squeezed employees.

Those nightmares are fading. "In September and October, things started to light up, and November was a fantastic month for bookings," says Tom Smyth, owner of St. Barth Properties, which rents vacation homes on the Caribbean island of St. Barts. A three-bedroom home with an ocean view costs at least $15,000 a week.

Robb Report's December issue featured an offer for buy two silver Mercedes-Benz sports cars: a fully restored 1954 model known as "the Gullwing," for doors hinged at the car's roof, and its 2011 counterpart. With a $1 million price tag, the package sold in 36 hours to a man the magazine won't identify.

More than a dozen people are on a waiting list at London Jewelers, a Long Island retailer that caters to vacationing Wall Street types, for certain watches made by Switzerland's Patek Philippe SA that track the moon's phases and cost as much as $200,000.

Demand for luxury watches has been gradually rising for months, says Candy Udell, president of London Jewelers. By May, people who delayed big-ticket purchases for fear of looking ostentatious were venturing back into pricey boutiques. "They couldn't hold back any longer," she says.

Would have loved to be short AIG yesterday. I guess there core insurance business is not as up to snuff as beleived by the media. The real question is how long ago the Fed and Treasury discovered this. Short on cash reserves? I'd really like to know what happened to Maurice Greenburg...Maybe one of our veteran traders can shed some light on this.
------------------------------------------------------------------------------------------------------------------------------------------------------------

AIG Short on Cash Reserves via NY Times:

An independent analysis of whether the insurance
industry has been setting aside enough money to pay its claims
estimates that the American International Group has a shortfall of $11.9 billion in its property and casualty business.



The conclusion is at odds with the often-repeated refrain that A.I.G.’s troubles can all be traced to its derivatives portfolio, and that its insurance operations are sound. Other
researchers have raised doubts about A.I.G.’s total worth since it was
bailed out last year, and even the federal government has acknowledged
that the company might have difficulty repaying all the money it owed
taxpayers, currently about $120 billion. In a report
distributed to clients on Monday, the investment research firm Sanford
C. Bernstein pointed to a big shortfall in A.I.G.’s property and
casualty insurance business — which has been renamed Chartis and is
intended to be the future core of the company’s operations.The
stock fell by almost 15 percent, to $28.40 from $33.30, in trading on
Monday. Bernstein cut A.I.G.’s price target by 40 percent, to $12 from
$20. The report’s author, Todd R. Bault, called the results “a big
surprise.” He also said the inadequacy of A.I.G.’s reserves had grown
in recent years — “nearly the opposite behavior that we would expect,”
since the claims-paying reserves of other insurance companies had been
growing. Most of the company’s shortfall was concentrated in
lines of insurance where claims tended to develop slowly, such as
workers’ compensation and professional liability. An A.I.G.
spokesman, Mark Herr, said the company had no comment on the report.
The insurance giant and its regulators have previously denied reports
of hidden weakness in its property and casualty business, including one in The New York Times. A
spokeswoman for the Pennsylvania Insurance Department, which regulates
A.I.G.’s biggest property and casualty business, declined to discuss
the Bernstein report, but said the state was “continuing to closely
monitor the A.I.G. companies.” The spokeswoman, Rosanne Placey, also
said a recent regulatory filing showed that A.I.G.’s big unit in
Pennsylvania, the National Union Fire Insurance Company, was gaining
strength. In New York, which also regulates major A.I.G.
subsidiaries, a spokesman for the New York State Insurance Department
said analysts there were “taking this seriously,” but had not finished
reviewing the research report and could not comment on Monday.Mr.
Bault is an actuary as well as a securities analyst, and is therefore
comfortable with the highly esoteric process of analyzing loss
reserves. But he had actually begun research on another issue, he
explained in the report: He was trying to find out whether any American
insurers had the strength to raise prices soon. When his first rough
cut of the data “made no sense,” he wrote, he looked more closely at
A.I.G.’s history of setting aside reserves over the last 10 years. That’s
when he identified a shortfall so large it was distorting the industry
as a whole. He ran three separate tests, all described in the report,
to make sure he was correct. “At a minimum, if these results
are reasonable, A.I.G. would likely have to take some kind of reserve
charge,” before bringing Chartis to market in an initial public
offering, he wrote, suggesting that a big addition to reserves could
even scuttle a deal. Some of the proceeds of an offering are intended
to help repay the government. Mr. Bault estimated that on an after-tax
basis, filling the entire gap would mean coming up with about $10 a
share, or about a third of the market value of the company.Mr.
Bault said inadequate reserves could prompt regulators to penalize
A.I.G., or customers to flee. Once he had excluded A.I.G. from his
industrywide data, he wrote, all other companies appeared to have more
than enough reserves. The study made no attempt to determine
why A.I.G. might be setting aside so little in reserves. Mr. Bault said
that the company has long been considered to have an aggressive
culture, and that it might have lost discipline after its longtime
chief executive, Maurice R. Greenberg, was ousted in 2005. But
he said a likelier explanation might be that A.I.G.’s use of
reinsurance had fallen by half over the last decade, meaning the
company was retaining much more exposure to risks today than in the
late 1990s, so it would need more reserves.

By Douglas Wong
Dec. 2 (Bloomberg) -- A Japanese client sued Bank of America Corp.’s Merrill Lynch & Co. in Hong Kong for alleged reckless misrepresentation in selling him warrants that resulted in losses of 1.14 billion yen ($13 million).
Kozo Sugiura, who sued Merrill and its former private banker Takenori Suzuki for the losses, said he wasn’t informed that the issuers and guarantors of his investments were Merrill- related companies and that they weren’t principal protected as instructed.
The investment documents were in English and a request by Sugiura and his assistant for copies in Japanese was turned down, according to a lawsuit filed in Hong Kong’s High Court Nov. 10.
Sugiura is seeking to be repaid for his losses as well as damages, costs and other unspecified relief.
Bank of America Merrill Lynch spokesman Robert Stewart declined to comment on the case, as did Rentaro Muto, Sugiura’s lawyer.
Other Asian clients have been suing their private banks this year, with Citigroup Inc. settling a lawsuit with a Singapore client in October and a former Goldman Sachs Group Inc.
banker banned from the industry in Hong Kong in July for making unauthorized trades for a client. UBS AG was sued that month by a client over the sale of structured products.
Morgan Stanley was sued in July by an 85-year-old Hong Kong client who claimed that he was negligently and recklessly sold financial products and signed documents in English that he didn’t understand, trusting a banker he had known for 14 years.
Sugiura sued Merrill and its former banker through two Japanese companies which had kept their funds with Asahi Bank until the Japanese bank closed its Hong Kong operation.
The case is Shin-Ei Sangyo Co. and STP Co. v. Merrill Lynch and Takenori Suzuki, HCA2272/2009, Hong Kong High Court.

Significant Risks to U.S. Bank Stocks Exist: Citigroup

By REUTERS

Published: December 1, 2009
Filed at 9:32 a.m. ET

(Reuters) -
Citigroup said there are substantial risks facing U.S. bank stocks now, but in
the near term these stocks can grind higher given a combination of the
Federal Reserve's accommodative stance plus a modest recovery."Since
there is above-average risk, we would remain very selective focusing on
banks that have strong capital positions, while avoiding banks with the
combination of relatively high commercial real estate exposure and
questionable capital strength," Citigroup said in a note.The brokerage upgraded BB&T Corp and Fifth Third Bancorp by a notch to "buy" and kept Bank of America Corp as its top pick among U.S. bank stocks.Citigroup analysts, including Keith Horowitz, also kept their "sell" rating on the shares of Zions Bancorp .The analysts are also upbeat about the shares of Suntrust Banks , while they see the least value on Regions Financial , KeyCorp and Zions.They estimated that banks in their coverage have crossed 55 percent of the credit cycle, though M&T Bank , Comerica and BB&T have most losses ahead.Banks
with excess capital will be key players when the credit cycle is over,
giving them a chance to take advantage of opportunities such as
acquiring weaker players and organic loan growth, the analysts wrote.
(Reporting by Anurag Kotoky in Bangalore; Editing by Gopakumar Warrier)

What are the implications of BofA exiting the TARP program? There will be many, I don't want to give too many of my thoughts away as I am working on a blog about this. I will say this will put more pressure on Citi. Though this is a dangerous game for BAC. If they need more capital in a year or 6 months from the U.S. government will they go back to UNcle Same hat in hand? This was clearly a move aimed at finding a new CEO.

"Compensation rules everything around me CREAM get the money dolla dolla bill yall"
Method Man
Wu-Tang Financial
Managing Director

================================================================================================

By LOUISE STORY
Published: December 2, 2009

Less than a year after grasping two multibillion-dollar bailouts from Washington, a resurgent Bank of America
announced on Wednesday that it would repay all of its federal aid,
underscoring the banking industry’s swift recovery from the gravest financial crisis since the Depression.

Despite continuing problems with its loans to struggling homeowners and consumers, Bank of America
plans to return the $45 billion in aid that it received at the height
of the financial panic — a step that, only months ago, would have been
almost unimaginable. But like many other big banks, Bank of
America is once again making money, in large part through Wall Street
businesses like trading stocks and bonds, rather than by making loans.
Its recovery, while many ordinary Americans are still struggling, is an
important milestone in the government’s yearlong effort to stabilize
the nation’s financial industry. The Obama administration has
begun talks with lawmakers about using unspent money from the financial
bailout program to help offset the costs of spending to create jobs. For Bank of America and its beleaguered leader, Kenneth D. Lewis,
the turnabout is particularly sweet. Mr. Lewis was driven first from
his role as chairman and then from his post as chief executive after
the bank’s controversial takeover of Merrill Lynch
last year. Now, with only weeks remaining in his tenure, he has managed
to extricate Bank of America — not long ago regarded as one of the
nation’s most troubled big banks — from Washington’s grip. Wednesday’s
announcement followed months of heated negotiations between the bank’s
board members, executives and federal regulators. It is a particularly
delicate time for Bank of America, which has struggled to find a
replacement for Mr. Lewis. By paying back the money that it received
under the Troubled Asset Relief Program,
or TARP, Bank of America will free itself from exceptional federal
oversight of its executives’ pay — a thorny issue in recruiting a new
chief executive. Indeed, Bank of America’s board has been
riven by dissent over just who should lead the bank into its
post-bailout period. Several potential candidates have said they were
not interested in the job, in part because of the bank’s federal
bailouts and the strings attached to them. But by paying back
its rescue funds, Bank of America will shed much of the stigma
associated with financial companies that received not one but two
federal bailouts. Its repayment will leave Citigroup and GMAC
standing alone as the only giant banks that have received such
extraordinary aid, although other banks big and small have yet to repay
single bailouts. Bank of America will repay part of its relief
funds by selling $18.8 billion in stock that is expected to be
converted into common stock, a move that will further dilute its
existing shares even as it strengthens the bank’s financial footing. But
most of the money will come from money that Bank of America has
generated in recent months with its wagers in the financial markets.
After its acquisition of Merrill — a takeover that was once panned but
now appears to be paying off — Bank of America has taken greater risks
to compete with Wall Street giants like Goldman Sachs and JPMorgan Chase.The bank said it would put $26.2 billion of its cash toward repaying its bailout and would also sell off $4 billion in assets.Mr.
Lewis was criticized for paying too much for Merrill Lynch, whose
gaping losses prompted Bank of America to seek a second lifeline from
Washington. The events surrounding the takeover, and the government’s
role in it, remain highly controversial. Some shareholders contend that
Bank of America failed to disclose adequately the risks associated with
the deal, which remains under state and federal scrutiny. A Treasury Department spokesman said the bank’s repayment represented a major step in removing the government from the banking sector."As
banks replace Treasury investments with private capital, confidence in
the financial system increases, taxpayers are made whole, and
government’s unprecedented involvement in the private sector lessens,"
said Andrew Williams, a spokesman for the Treasury.The
months-long struggle between the bank and regulators focused on the
amount of capital that Bank of America would have to raise to repay the
bailout funds. Regulators are pushing major banks to increase their
common equity, and the decision about Bank of America’s financial
makeup raises questions about whether regulators will demand increases
at other banks like Wells Fargo.Now
Bank of America’s board will focus on appointing Mr. Lewis’s successor,
a process that began in October when he surprised even close associates
by saying he would retire early. The board plans to meet in Charlotte
early next week and hopes to interview a few of the final candidates. Once
the bailout money is repaid, the bank will no longer have to consult
with the Treasury’s special master of compensation about what it awards
its new chief executive, or any other employee. That may open doors for
outside candidates for the job who were wary of accepting a job under
the government’s thumb.Bank of America executives have insisted
for months that the bank’s underlying businesses were far stronger than
those of some other banks and that the Merrill merger would pay off
quickly. Indeed, Merrill’s businesses have improved this year as Wall
Street’s traditional business of trading and deal making picked up. At
the same time, Bank of America’s core consumer lending units suffered
greater losses as the economy weakened.The bank’s negotiations
with the government were led by Greg Curl, who took over as its chief
risk officer in June. Mr. Curl negotiated the bank’s merger with
Merrill last year, and he has been considered a potential successor to
Mr. Lewis.

I can't believe MS did so poorly trading.

================================================================================================================================

Morgan Stanley Ousts Petrick as Trading Chief (Update1)

By Christine Harper


Dec. 8 (Bloomberg) -- Morgan Stanley reassigned two senior
executives to run the institutional securities unit, the largest
division, and ousted sales and trading chief Mitch Petrick after
his division’s revenue fell short of rivals.
Chief Financial Officer Colm Kelleher, 52, and Paul
Taubman, the 48-year-old chief of investment banking, were named
co-presidents of institutional securities. Kelleher will focus
on sales and trading, while Taubman will manage investment
banking, with both overseeing capital markets. Ruth Porat, 52,
head of the banking team that advises financial institutions,
will succeed Kelleher as CFO. The changes take effect on Jan. 1.
James Gorman, the firm’s co-president, is scheduled to
succeed John Mack as chief executive officer at year-end.
Gorman’s expertise is in managing retail brokerage and asset-
management divisions, not the securities businesses that
traditionally constituted Morgan Stanley’s core. Mack, who has
been chairman and CEO since 2005, is remaining as chairman.
“This is an attempt to groom the next generation of senior
management and re-initiate a partnership culture at the top,”
said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New
York. “The risk is that the co-heads are unable to work
together, but that is the challenge of any partnership.”
Petrick, 47, has been Morgan Stanley’s head of sales and
trading for two years. Revenue from the business was $6.87
billion for the first nine months of this year, down from $21.4
billion in the same period a year earlier, according to a
company filing.
Other Opportunities
By contrast, Goldman Sachs Group Inc.’s sales and trading
revenue surged to $27.3 billion from $13.7 billion a year
earlier and JPMorgan Chase & Co.’s trading division generated
$17.9 billion, up from $6.6 billion, according to company
filings. Morgan Stanley has said it plans to hire 400 employees
to bolster the sales-and-trading division.
Petrick, who has a background in distressed debt and
principal investments, is considering other roles at Morgan
Stanley.
“The firm is in ongoing discussions with Mr. Petrick about
other opportunities,” said Jeanmarie McFadden, a spokeswoman at
Morgan Stanley, without elaborating. Petrick didn’t immediately
respond to a phone message and e-mail seeking comment.
Other executives to lose their jobs in recent years because
of the performance of the sales-and-trading division include
Roberto Hoornweg, who was global head of interest rates and
currencies until he left in July, when the firm hired Jack
DiMaio to replace him.
Thomas Nides
In November 2007, Mack ousted Zoe Cruz, the co-president
who oversaw trading, and demoted trading chief Neal Shear
because of bad trades that resulted in the first quarterly loss
as a publicly traded company. Shear, who accepted a lesser role
as chairman of the commodities business before leaving Morgan
Stanley in March 2008, was succeeded in the trading job by
Petrick.
Thomas Nides, chief administrative officer and a long-time
colleague of Mack’s, will take on additional responsibility as
chief operating officer, the company said. He will take over
operations and technology from Jim Rosenthal, who will become
head of corporate strategy and chief operating officer of the
Morgan Stanley Smith Barney retail joint venture.
Morgan Stanley, the second-biggest U.S. securities firm
behind Goldman Sachs before both companies converted to banks,
combined its retail-brokerage division with Citigroup Inc.’s
Smith Barney earlier this year. The deal, hatched by Gorman, 51,
sharpens a focus on providing individuals with investment
advice.
Institutional Securities
Kelleher, who has worked at Morgan Stanley since 1989, held
management positions in fixed income and global capital markets
before becoming CFO in 2007. Taubman, who started his career at
the firm in 1982, helped make Morgan Stanley the No. 1 adviser
on global mergers and acquisitions this year, according to data
compiled by Bloomberg.
Institutional securities, which includes mergers and
acquisitions, underwriting and sales and trading, generated
$9.54 billion of revenue in the first nine months of this year,
compared with $6.25 billion from the retail brokerage division
and $1.35 billion from asset management.
Porat, who will be the first female CFO in Morgan Stanley’s
history, has been global head of the financial institutions
group since 2006. She joined Morgan Stanley in 1986 as a member
of the mergers and acquisitions department and went on to help
establish the firm’s efforts to provide corporate finance
services to buyout firms. She was also co-head of the global
technology group and helped lead the equity capital markets
business.
Walid Chammah, the 55-year-old co-president with Gorman,
said in September he will give up that role and keep his other
position of chairman of Morgan Stanley International in London.
In today’s announcement, the firm said Chammah will be chairman
of a new international operating committee comprising the
regional heads in Europe, Latin America and Asia

U.K. to Levy 50% Tax on Bank Bonuses Exceeding 25,000 Pounds
2009-12-09 13:20:53.496 GMT

(See {UKBU } for a special report on the pre-budget.)
By Scott Hamilton and Gonzalo Vina
Dec. 9 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling said the U.K. will force banks awarding bonuses above 25,000 pounds ($40,800) to pay a one-time levy of 50 percent.
"There are some banks who still believe their priority is to pay substantial bonuses to some already high-paid staff,"
Darling said in Parliament today. "Their priority should be to rebuild their financial strength and to increase their lending."
The move forms part of the Labour government’s efforts to assuage voter anger over bankers’ pay ahead of an election which has to be held by June. Darling is balancing the need to curb a record budget deficit while supporting voters struggling in the U.K.’s longest recession since 1955, and is seeking to recoup money from banks after they benefited from a government-backed bailout during the credit crisis.
"There is no bank that has not benefited either directly or indirectly from this help," said Darling, who ruled out a tax on banks’ profits. "I’m giving them a choice. They can use their profits to build up their capital base, but if they insist on paying substantial rewards, I’m determined to claw money back for the taxpayer."
The new levy, effective from today until April 5, will be charged to employers. It applies to all banks and building societies operating in the U.K., including subsidiaries of foreign banks. The Treasury said it will raise about 500 million pounds from the tax, affecting about 20,000 bankers.
Bonuses for U.K. financial services employees may rise by 50 percent to 6 billion pounds this year, the Centre for Economics & Business Research Ltd. said in October. Barclays Plc President Robert Diamond yesterday said a tax on bankers’
bonuses risks putting the country at a competitive disadvantage.

Scalpuman wrote:

U.K. to Levy 50% Tax on Bank Bonuses Exceeding 25,000 Pounds
2009-12-09 13:20:53.496 GMT

(See {UKBU } for a special report on the pre-budget.)
By Scott Hamilton and Gonzalo Vina
Dec. 9 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling said the U.K. will force banks awarding bonuses above 25,000 pounds ($40,800) to pay a one-time levy of 50 percent.
"There are some banks who still believe their priority is to pay substantial bonuses to some already high-paid staff,"
Darling said in Parliament today. "Their priority should be to rebuild their financial strength and to increase their lending."
The move forms part of the Labour government’s efforts to assuage voter anger over bankers’ pay ahead of an election which has to be held by June. Darling is balancing the need to curb a record budget deficit while supporting voters struggling in the U.K.’s longest recession since 1955, and is seeking to recoup money from banks after they benefited from a government-backed bailout during the credit crisis.
"There is no bank that has not benefited either directly or indirectly from this help," said Darling, who ruled out a tax on banks’ profits. "I’m giving them a choice. They can use their profits to build up their capital base, but if they insist on paying substantial rewards, I’m determined to claw money back for the taxpayer."
The new levy, effective from today until April 5, will be charged to employers. It applies to all banks and building societies operating in the U.K., including subsidiaries of foreign banks. The Treasury said it will raise about 500 million pounds from the tax, affecting about 20,000 bankers.
Bonuses for U.K. financial services employees may rise by 50 percent to 6 billion pounds this year, the Centre for Economics & Business Research Ltd. said in October. Barclays Plc President Robert Diamond yesterday said a tax on bankers’
bonuses risks putting the country at a competitive disadvantage.

yea everyones leaving the UK due to their rediculous taxes.... where to? Asia?!?

Blackrock To Raise $2.5B In Debt Sale


12-08-2009 | Source: emii.comPeople & Companies in the News

• Blackrock
  
• Barclays Capital
  
• Citigroup
  
• Credit Suisse
  
• Bank of America Merrill Lynch
  

New York-based asset manager, Blackrock, is selling notes worth $2.5 billion in three parts, The Wall Street Journal
reports. The first tranche of $500 million, three-year notes, will
offer a coupon rate of 2.25%, while the second tranche of $1 billion,
five-year notes, will offer a coupon rate of 3.5%.
The third tranche of $1 billion, 10-year notes, will offer a coupon rate of 5%, adds Reuters. The sale will be arranged by Barclays Capital, Citigroup, Credit Suisse and Bank of America Merrill Lynch. The company will use the proceeds of the sale to repay $3 billion in outstanding commercial paper.
Click here for the story from The Wall Street Journal.
Click here for additional coverage from Reuters.

Souros can you shed some light on this, and how this will affect London as a Financial hub in the future?

+++++++++++++++++++++++++++++++++++++
Darling Raises Taxes on Income to Curb Deficit


Dec. 9 (Bloomberg) -- Chancellor of the Exchequer Alistair
Darling imposed a 50 percent levy on banker bonuses and said he
will increase income taxes after elections next year as the
worst recession on record drives up U.K. government borrowing.
The Treasury expects to raise 550 million pounds ($896
million) targeting payouts at all banks operating in the U.K.
from today and another 3 billion pounds from incomes earned
after April 2011. Borrowing will rise by 4.6 billion pounds to
611 billion pounds in the four years through March 2013.
Trailing in opinion polls before an election that he must
hold by June, Prime Minister Gordon Brown is balancing the need
to clamp down on a record peacetime budget deficit while
extending support for voters struggling to keep their jobs.
“At this stage in the electoral cycle, the chancellor’s
weapon of choice is a butter knife rather than an axe,” said
Alan Downey, head of public sector consulting at KPMG. “Those
who were expecting a plan for reducing public expenditure will
be disappointed.”
U.K. government bonds rallied after Darling said growth
will resume next year. The yield on 10-year gilts narrowed 3
basis points to 3.662 percent at the close of trading in London
as Darling forecast less borrowing than economists had expected.
‘Serious Mistake’
The British Bankers’ Association Chief Executive Angela
Knight said foreign banks that reward staff with contractually
agreed bonuses will be “hardest hit” and may look at London as
“a significantly less attractive place.” Richard Lambert,
director general of the Confederation of British Industry, said
Darling’s “jobs tax” was a “serious mistake.”
Brown has narrowed the gap with the Conservatives since
September by attacking bankers, who the ruling Labour Party
blames for the credit crisis that began in 2007. Five polls
since the beginning of November have signaled the Conservative
lead over Labour is narrow enough to deny the opposition an
outright victory in the election.
“We must continue to support the economy until the
recovery is established,” Darling said in a speech in
Parliament. “The choices are between going for growth or
putting the recovery at risk.”
Bonus Plan
Darling also is pressing Lloyds Banking Group Plc and Royal
Bank of Scotland Group Plc to step up lending and repair balance
sheets after the industry took 117 billion pounds of Treasury
aid. The fee on bankers applies to discretionary payments of
more than 25,000 pounds and will be paid by the bank, not the
employee. Employees also will have to pay tax on the bonus at
their marginal rate, which already is due to rise to 50 percent
from 40 percent on wages over 150,000 pounds from April.
“There are some banks who still believe their priority is
to pay substantial bonuses,” Darling said in Parliament. “I am
giving them a choice. They can use their profits to build up
their capital base. If they insist on paying substantial
rewards, I am determined to claw money back for the taxpayer.”
It will now cost a bank 162,800 pounds to provide an
employee with a 59,000-pound bonus after tax, compared to
112,800 yesterday, said Jill Storey, a partner at KPMG LLP.
“On a bonus of 1 million pounds, the new tax will be
500,000 pounds, National Insurance will be 130,000 pounds, and
personal income tax is 400,000 pounds,” said Chris Maddock, tax
director of Vantis Group Ltd. “This makes a total of 1.03
million pounds for the Treasury.”
Pension Raid
Wealthier taxpayers were also hit with a clarification of
pension rules announced in April. People earning 130,000 pounds
or more will pay tax on the sums their employer contributes,
effectively cancelling out relief usually paid out on pension
payments made by employees. The measure takes effect in 2011 and
raises 500 million pounds by 2013.
Darling had to make sure that “those who did most to cause
the crash and did best from the boom make their proper
contribution through a fair tax system,” said Brendan Barber,
general secretary of the Trades Union Congress, whose members
fund two-thirds of the budget of Brown’s ruling Labour Party.
Conservative lawmaker George Osborne, who speaks for the
opposition on finance, suggested Darling’s bonus curbs don’t go
far enough.
“We warned him they should stop big cash bonuses,”
Osborne said. “They are going to pay out a load of bankers’
bonuses they shouldn’t have been paying in the first place.”
Tax Increase
From 2011, Darling said he’d raise National Insurance
contributions, which are paid by all wage earners to cover
health and pensions. The measure hits all those on earnings of
more than 20,000 pounds, below the median wage.
Tax rates in Britain are still far below the levels of the
1970s when Mick Jagger, together with the rest of the Rolling
Stones, moved to France to escape liabilities in the U.K.
When Labour was last in power, in the late 1970s under
James Callaghan, the top tax rate was 83 percent on earned
income and 98 percent on unearned income. These rates were cut
to 60 percent and 75 percent when Margaret Thatcher took over in
1979. By 1988, Thatcher had cut the top tax rate to 40 percent.
The top 10 percent of wage earners pay 53 percent of the
income tax raised in the U.K., says Deloitte & Touche LLP. The
financial services industry contributed 61.4 billion pounds in
tax in the fiscal year through March, 12 percent of the
Treasury’s total revenue, the BBA says.
Other Measures
Darling also confirmed he’d return value-added tax to 17.5
percent at the end of this year from 15 percent. He extended tax
relief on empty properties, cut duties on bingo gaming and
raised the basic state pension by 2.5 percent from April. He
also will increase disability benefits by 1.5 percent.
“This isn’t much of a game-changer,” said Anthony Wells,
a polling analyst at YouGov Plc. “None of the measures look
like obvious election bribes. There’s no solid thing they can
point at and say ‘this is the big thing we’re going to do that
the public will see is addressing the debt.’”
Today’s budget reduces government revenue by a total of 1.2
billion pounds in 2010 while raising 8.63 billion pounds in
fiscal 2012 and 2013 when the economy is back to its long-term
trend rate of growth, the Treasury estimates.
The chancellor extended a program guaranteeing jobs or
training youth unemployed for more than six months, half the
time it previously took to qualify.
Young people have felt the brunt of the recession,
accounting for three quarters of the jobs lost in the last year.
The number of 16- to 24-year-olds seeking work in the quarter
through September climbed to 19.8 percent, almost triple the
national average, government statistics showed on Nov. 11.
Brown’s View
“The pre-budget report is about recovery from
recession by investing in the future and about getting growth
in the economy,” Brown said in Parliament before Darling spoke.
He said the economy may shrink 4.75 percent this year, more
than his April forecast for a contraction of no more than 3.75
percent. He expects the economy to grow up to 1.5 percent next
year and 3.75 percent in 2011.
The chancellor revised down the estimate for possible
taxpayer losses from bailing out the banks to 10 billion pounds
from 50 billion pounds.
Liberal Democrat Vince Cable said, “for the next five
years or longer there’s going to be a real hard slog for the
economy, and the chancellor hasn’t set out the way through it.”

Snapman wrote:

Blackrock To Raise $2.5B In Debt Sale


12-08-2009 | Source: emii.comPeople & Companies in the News

• Blackrock
  
• Barclays Capital
  
• Citigroup
  
• Credit Suisse
  
• Bank of America Merrill Lynch
  

New York-based asset manager, Blackrock, is selling notes worth $2.5 billion in three parts, The Wall Street Journal
reports. The first tranche of $500 million, three-year notes, will
offer a coupon rate of 2.25%, while the second tranche of $1 billion,
five-year notes, will offer a coupon rate of 3.5%.
The third tranche of $1 billion, 10-year notes, will offer a coupon rate of 5%, adds Reuters. The sale will be arranged by Barclays Capital, Citigroup, Credit Suisse and Bank of America Merrill Lynch. The company will use the proceeds of the sale to repay $3 billion in outstanding commercial paper.
Click here for the story from The Wall Street Journal.
Click here for additional coverage from Reuters.

Who do you think Blackrock is gearing up to buy? Or this still capital needed to pay for the $10B Ishares acquisition?

Good to see Goldman taking this route. Maybe the media will lay off them for a time now. Probably not.

=================================================================================================================================================================


Goldman Sachs’s Top 30 Managers to Get Bonuses in Stock Only

By Christine Harper

Dec. 10 (Bloomberg) -- Goldman Sachs Group Inc., the most
profitable securities firm in Wall Street history, said the
firm’s top 30 executives will receive their entire year-end
bonus in stock that will be locked up for five years.
The award will be comprised of so-called shares-at-risk,
allowing the firm to take them back if it determines that the
executive failed to adequately analyze or raise concern about
risks, the New York-based company said in a statement today. The
firm also will give shareholders a non-binding vote on
compensation.
The policy will apply to the 30 members of Goldman Sachs’s
management committee, including Chairman and Chief Executive
Officer Lloyd Blankfein, Chief Financial Officer David Viniar
and the leaders of the firm’s global and regional divisions.
Goldman Sachs has been criticized for setting aside $16.7
billion to pay employees in the first nine months of the year
after benefiting from government support last year.
“We believe our compensation policies are the strongest in
our industry and ensure that compensation accurately reflects
the firm’s performance and incentivizes behavior that is in the
public’s and our shareholders’ best interests,” Blankfein said
in the statement.

Batman wrote:

Good to see Goldman taking this route. Maybe the media will lay off them for a time now. Probably not.

=================================================================================================================================================================


Goldman Sachs’s Top 30 Managers to Get Bonuses in Stock Only

By Christine Harper

Dec. 10 (Bloomberg) -- Goldman Sachs Group Inc., the most
profitable securities firm in Wall Street history, said the
firm’s top 30 executives will receive their entire year-end
bonus in stock that will be locked up for five years.
The award will be comprised of so-called shares-at-risk,
allowing the firm to take them back if it determines that the
executive failed to adequately analyze or raise concern about
risks, the New York-based company said in a statement today. The
firm also will give shareholders a non-binding vote on
compensation.
The policy will apply to the 30 members of Goldman Sachs’s
management committee, including Chairman and Chief Executive
Officer Lloyd Blankfein, Chief Financial Officer David Viniar
and the leaders of the firm’s global and regional divisions.
Goldman Sachs has been criticized for setting aside $16.7
billion to pay employees in the first nine months of the year
after benefiting from government support last year.
“We believe our compensation policies are the strongest in
our industry and ensure that compensation accurately reflects
the firm’s performance and incentivizes behavior that is in the
public’s and our shareholders’ best interests,” Blankfein said
in the statement.

Im just kinda curious Pat, Correct me if I am wrong. But you seem to like Goldman? What is it do you find attractive about their firm? Is it their valuations? Management? Or whatever else? just curious

Snapman wrote:

Batman wrote:

Good to see Goldman taking this route. Maybe the media will lay off them for a time now. Probably not.

=================================================================================================================================================================


Goldman Sachs’s Top 30 Managers to Get Bonuses in Stock Only

By Christine Harper

Dec. 10 (Bloomberg) -- Goldman Sachs Group Inc., the most
profitable securities firm in Wall Street history, said the
firm’s top 30 executives will receive their entire year-end
bonus in stock that will be locked up for five years.
The award will be comprised of so-called shares-at-risk,
allowing the firm to take them back if it determines that the
executive failed to adequately analyze or raise concern about
risks, the New York-based company said in a statement today. The
firm also will give shareholders a non-binding vote on
compensation.
The policy will apply to the 30 members of Goldman Sachs’s
management committee, including Chairman and Chief Executive
Officer Lloyd Blankfein, Chief Financial Officer David Viniar
and the leaders of the firm’s global and regional divisions.
Goldman Sachs has been criticized for setting aside $16.7
billion to pay employees in the first nine months of the year
after benefiting from government support last year.
“We believe our compensation policies are the strongest in
our industry and ensure that compensation accurately reflects
the firm’s performance and incentivizes behavior that is in the
public’s and our shareholders’ best interests,” Blankfein said
in the statement.

Im just kinda curious Pat, Correct me if I am wrong. But you seem to like Goldman? What is it do you find attractive about their firm? Is it their valuations? Management? Or whatever else? just curious

To be honest with you all of the above. In particular their culture. Every time I meet a Goldman employee I am very impressed by their knowledge of markets. I really respect how they manage and treat their employees. Every year they cut 10% of the fat on staff. They are constantly training employees. I like how once their employees leave they wind up all over the street running things somewhere else. Most of all they are leaders. Remember as I first started following markets these guys were on top and have continued to stay on top throughout the crisis. I really appreciate greatness in general. Whether it be in Sports, music, politics, or business. Long answer, I know. We can talk more about this when we have some face time. Thanks for asking though.


--Batman

I will definably look for a buying trend early morning...

=========================================================================================


Dec. 14 (Bloomberg) -- Citigroup Inc. is nearing an accord
with the Treasury Department and regulators that would let the
bank repay its $20 billion of bailout funds and escape
government pay limits, people familiar with the matter said.
Under the plan, which may be announced as soon as today,
the U.S. bank would raise about $20 billion of capital, said
three people briefed on the plan, who declined to be identified
because the talks are private. A partial offering of the
Treasury’s 7.7 billion shares may be coordinated with New York-
based Citigroup’s effort to raise capital, the people said.
Chief Executive Officer Vikram Pandit is pressing for an
exit from the Troubled Asset Relief Program to avoid being the
only large bank left on “exceptional assistance,” a Treasury
designation reserved for companies including American
International Group Inc. and General Motors Co. that are
surviving on taxpayer aid. Bank of America Corp. exited last
week after paying back $45 billion of bailout funds.
“It is important to get back to normal and if they pay
back the TARP money they aren’t so much under the pressure of
public opinion,” said Roger Groebli, Singapore-based head of
financial market analysis at LGT Capital Management, which
oversees about $75 billion.
Citigroup also plans an early termination of guarantees
from the Treasury, Federal Deposit Insurance Corp. and the
Federal Reserve on $301 billion of the bank’s riskiest
securities, mortgages, auto loans, commercial real estate and
other assets, the people said. Citigroup paid $7 billion in
advance for the guarantees, which last five to 10 years,
depending on the type of underlying assets. The matter remains
under discussion, the people said, adding that the terms or
timing could still change.
Employee Poaching
In October, Pandit, said he was “focused on repaying TARP
as soon as possible” in cooperation with regulators. Pandit
pushed to accelerate the talks after Bank of America’s plan was
announced, people familiar with the matter said last week.
Pandit, 52, has indicated he’s seeking to repay the
exceptional assistance partly on concern the government-imposed
pay limits might make Citigroup vulnerable to employee poaching
by unfettered Wall Street rivals, according to people familiar
with the matter.
Citigroup spokesman Jon Diat declined to comment. A
Treasury spokesman, Andrew Williams, declined to comment.
Williams said last week, “We continue to believe that banks and
our financial system are better off with private capital instead
of government capital.”
Wind Down
Citigroup, which took $45 billion of TARP funds last year,
converted about $25 billion in September into common stock,
equivalent to a 34 percent stake. Some details of Citigroup’s
plan were reported earlier by the Wall Street Journal.
The government is trying to wind down bailout programs
extended as financial markets convulsed late last year. Treasury
Secretary Timothy Geithner said in a Dec. 4 interview that most
taxpayer money injected into banks through TARP will eventually
be recovered.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan
Stanley, all based in New York, repaid bailout funds in June.
San Francisco-based Wells Fargo & Co., with $25 billion of TARP
money, isn’t subject to pay limits because it never needed a
second helping of bailout funds.

Citigroup Shares Drop After Deal to Repay Taxpayers (Update1)

By Bradley Keoun


Dec. 14 (Bloomberg) -- Citigroup Inc. fell the most in 2 ½
months in New York after the bank announced a deal with
regulators to repay $20 billion to taxpayers by selling equity
and debt.
Citigroup dropped 25 cents, or 6.3 percent, to $3.70 in
composite trading on the New York Stock Exchange at 4 p.m., the
biggest decline since Oct. 1. Volume of 822.8 million shares was
almost three times the three-month average.
The bank, the only major U.S. lender still dependent on
what the government calls “exceptional financial assistance,”
said it will sell at least $20.5 billion of equity and debt to
exit the Troubled Asset Relief Program. The U.S. Treasury
Department also plans to sell as much as $5 billion of common
stock it holds in the company, and will unload the rest of its
stake during the next six to 12 months.
“They are taking on a significant amount of additional
dilution in common shares outstanding in order to further exit
TARP,” said Edward Najarian, an analyst at International
Strategy and Investment Group in New York who rates Citigroup
“hold.” “We think the stock will be under pressure today.”
The New York-based company also plans to substitute
“substantial common stock” for cash compensation, Citigroup
said in a statement today.
Chief Executive Officer Vikram Pandit has pressed for an
exit from TARP out of concern that pay constraints imposed by
the program make Citigroup vulnerable to employee poaching by
Wall Street rivals. Bank of America Corp., the biggest U.S.
bank, exited the program last week after paying back $45 billion
of rescue funds.
‘Expensive’ Plan
“It’s important for Citi to exit these extraordinary
agreements with the U.S. Treasury and the government as quickly
as possible,” Gary Townsend, chief executive officer of Hill-
Townsend Capital LLC, an investment firm in Chevy Chase,
Maryland, said in a Bloomberg Television interview. “It’s
expensive perhaps, but I think it had to be done.”
The bank will sell $17 billion of common stock, with a so-
called over-allotment option of $2.55 billion, and $3.5 billion
of “tangible equity units.”
An additional $1.7 billion of common stock equivalent will
be issued next month to employees in lieu of cash they would
have otherwise received as pay.
“So much is wrapped up into intellectual capital
retention,” said Douglas Ciocca, a managing director at
Renaissance Financial Corp. in Leawood, Kansas. “It’s such a
big part of these banks at this point. They don’t want to be at
a disadvantage as it relates to contract renegotiations coming
into year-end.”
Loss Sharing
The TARP payments will result in a roughly $5.1 billion
loss. Citigroup will also terminate its loss-sharing agreement
with the government on $301 billion of its riskiest assets.
Canceling about $1.8 billion of trust preferred securities
linked to the program will result in a $1.3 billion loss, the
company said.
Citigroup owes “taxpayers and the government a debt of
gratitude for their extraordinary assistance,” Pandit said
today in a memo to employees obtained by Bloomberg News. “These
actions bring us closer to ending a very difficult period for
our company.”
The U.S. earned a net profit of at least $13 billion from
its investment in Citigroup, a Treasury official said today. The
estimate includes about $3 billion in dividends and gains on the
common-equity stake, roughly $5.8 billion based on the Dec. 11
share price.
Prince Alwaleed
Kingdom Holding Co. Chairman Prince Alwaleed bin Talal,
once Citigroup’s largest individual shareholder, said after the
announcement that he has no plans to sell shares in the bank.
In October, Pandit said he was “focused on repaying TARP
as soon as possible” in cooperation with regulators. He pushed
to accelerate the talks after Bank of America’s plan was
announced, people familiar with the matter said last week.
Citigroup, which took $45 billion of TARP funds last year,
converted about $25 billion in September into common stock,
equivalent to a 34 percent stake.
The government is winding down the bailout programs it
arranged as financial markets convulsed late last year. Treasury
Secretary Timothy Geithner said in a Dec. 4 interview that most
taxpayer money injected into banks through TARP will eventually
be recovered.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan
Stanley, all based in New York, repaid bailout funds in June.
San Francisco-based Wells Fargo & Co., with $25 billion of TARP
money, isn’t subject to pay limits because it never needed a
second helping of bailout funds.
Companies still dependent on the Treasury’s exceptional
assistance program include American International Group Inc. and
General Motors Co.

Is it safe to say that Wachovia has been fully absorbed? IDK, but i do know that Wells Fargo has a ton of room for east coast expansion now.

Wells Fargo to Repay $25 Billion in TARP Money




December 14, 2009, 6:33 pm






Wells Fargo
said Monday evening that it would repay the entire $25 billion that it
received in the government’s banking bailout last year. It said some of
the money would come from a $10.4 billion stock sale.
The announcement by Wells Fargo came after Citigroup
reached an agreement with banking regulators earlier in the day to exit
the government’s bailout program, making it the last of the big Wall
Street banks to pay back money.
Wells Fargo, which is based in San Francisco, said it had received authorization from the Treasury Department and banking regulators to leave the Troubled Asset Relief Program.
“TARP stabilized our country’s financial system when confidence in
financial markets around the world was being tested unlike any other
period in our history. Its success also generated financial returns for
taxpayers, including $1.4 billion in dividends paid to the U.S.
Treasury by Wells Fargo,” the bank’s president and chief executive,
John Stumpf, said in a statement. “Now we’re ready to fully repay TARP
in a way that serves the interests of the U.S. taxpayer, as well as our
customers, team members and investors.”
Wells Fargo said it would issue common stock with proceeds of $10.4
billion. It also said it would raise $1.35 billion through the issuance
of common stock to Wells Fargo benefit plans and increase equity by
$1.5 billion through asset sales to be approved by the Board of
Governors of the Federal Reserve.
The bank said that repaying the TARP money would eliminate $1.25
billion in annual preferred stock dividends to the government and would
add slightly to its earnings per share in 2010. It did note, however,
that buying back its preferred stock from the government is expected to
reduce income available to common shareholders in the fourth quarter by
$2 billion, as the book value of the preferred stock is less than the
amount paid.
Following redemption of the series D preferred stock, Wells Fargo
said, the Treasury Department will continue to hold warrants to
purchase approximately 110 million shares of Wells Fargo common stock
at an exercise price of $34.01 per share.

Changes in Glass-Steagall did not precipitate thiscrisis,” according to a text of the speech by Leach, now
chairman of the National Endowment for the Humanities. Sure it didn't. There is a reason the law was originally drafted in 1933. It is a shame that regulation took a back seat in the later years of Clinton's administration. I can't blame them though, times were too good.


House Discussing Glass-Steagall Revival, Hoyer Says

By James Rowley and Christine Harper

Dec. 15 (Bloomberg) -- The U.S. House is considering
reinstituting the Depression-era Glass-Steagall Act, which
barred bank holding companies from owning other financial
companies, Majority Leader Steny Hoyer said today.
A renewal of the 1933 law “is certainly under discussion”
by House members, Hoyer, a Maryland Democrat, told reporters in
Washington. The Glass-Steagall law was repealed in 1999 to help
pave the way for the formation of Citigroup Inc. by the $46
billion merger of Citicorp and Travelers Group Inc.
“As someone who voted to repeal Glass-Steagall, maybe that
was a mistake,” Hoyer said.
Hoyer made the comments when asked whether Congress and
President Barack Obama’s administration could do more to
persuade banks to make more business loans and get credit
flowing into the economy. Obama met yesterday with the chief
executive officers of U.S. banks, urging them to lend more
money. The U.S. House passed legislation Dec. 11 that would
overhaul regulation of Wall Street.
The Glass-Steagall law barred banks that took deposits from
underwriting securities. The 1999 law that repealed it enabled
the creation of “financial holding companies” that combine
banks with insurers or investment banks.
Enactment of that law has generated debate about whether it
helped spawn reckless lending practices and financial
speculation that led to the meltdown of credit markets last year
and the $700 billion U.S. bailout of troubled banks, including
Citigroup.
Goldman, Morgan Stanley
The change in law made it possible for Goldman Sachs Group
Inc. and Morgan Stanley, the two biggest U.S. securities firms,
to convert into bank holding companies, enabling them to get
cheap funding from the Federal Reserve during the financial
crisis. If Glass-Steagall hadn’t been repealed, Bank of America
Corp. wouldn’t have been allowed to acquire Merrill Lynch & Co.
Resurrecting Glass-Steagall might require undoing some of
those transactions unless Congress included an exception for
those already carried out.
Such a change in law also would reduce the need for the
taxpayer bailouts that added between 9 percent and 49 percent to
the profits of the 18 biggest U.S. banks in 2009, according to
Dean Baker, co-director of the Center for Economic & Policy
Research in Washington.
Bernanke
Even so, Fed Chairman Ben Bernanke told the Economic Club
of New York on Nov. 16, “Plenty of firms got into trouble
making regular commercial loans, and plenty of firms got into
trouble in market-making activities.”
“The separation of those two things per se would not
necessarily lead to stability,” Bernanke said.
Obama’s meeting with the bankers yesterday “was a good
thing for the president to do,” Hoyer said. “The president
needs to make it very clear that we expect some help from the
private sector to help bring this economy back.”
Obama “has got to go further than that,” Hoyer said,
noting that the administration is considering direct lending
from the Troubled Asset Relief Program to small businesses.
Former Citibank Chairman John S. Reed apologized in a Nov.
6 interview for helping engineer the bank’s merger with
Travelers and for his role in building a company that took $45
billion in U.S. assistance. Reed also recanted his advocacy of
the repeal of Glass-Steagall.
The 1998 merger depended on Congress repealing Glass-
Steagall before a five-year deadline that otherwise would have
required Travelers to sell its insurance underwriting business.
‘Learn From Our Mistakes’
“We learn from our mistakes,” Reed said in the interview.
“When you’re running a company, you do what you think is right
for the stockholders,” Reed said. “Right now, I’m looking at
this as a citizen.”
Jim Leach, the former Republican chairman of the House
Financial Services Committee, defended the repeal in an April 22
speech at a conference on financial reform sponsored by Boston
University Law School and the Bretton Woods Committee.
“Changes in Glass-Steagall did not precipitate this
crisis,” according to a text of the speech by Leach, now
chairman of the National Endowment for the Humanities.

These guys are so shrewd....


Taxpayers Help Goldman Reach Height of Profit in New Skyscraper

By Christine Harper


Dec. 21 (Bloomberg) -- In the first six months of 2010,
about 6,000 employees of Goldman Sachs Group Inc. will take a
break from their spreadsheets and move across the southern tip
of Manhattan to a new 43-story, steel-and-glass skyscraper.
The building was a bargain -- and not just because the
final cost is expected to be $200 million less than the $2.3
billion price the company had estimated when construction began
in November 2005. Goldman Sachs also benefited from the
government’s determination to avoid losing jobs in lower
Manhattan after the Sept. 11, 2001, terrorist attacks.
Building a new headquarters cater-cornered to where the
World Trade Center once stood qualified the firm to sell $1
billion of tax-free Liberty Bonds and get about $49 million of
job-grant funds, tax exemptions and energy discounts. Henry
Paulson, then Goldman Sachs’s chief executive officer,
threatened to abandon the project after delays in addressing his
concerns about safety. To keep the plan on track, state and city
officials raised the bond ceiling to $1.65 billion and added $66
million in benefits. The interest expense on the financing is
about $175 million less over 30 years than if the company had
issued corporate debt at the time, according to data compiled by
Bloomberg.
“It was absolutely imperative that Goldman Sachs keep its
world headquarters downtown,” says John Cahill, who took part
in the negotiations as chief of staff to then-Governor George
Pataki and now works at New York law firm Chadbourne & Parke
LLP. “They had the financial resources to move anywhere.”
Unprecedented Aid
Goldman Sachs, which set a Wall Street profit record of
$11.6 billion in 2007 and may have earned $11.4 billion this
year, according to the average estimate of 15 analysts surveyed
by Bloomberg, won new and larger concessions from taxpayers in
2008. This time it was the threat of a financial meltdown that
prompted the U.S. government, with Paulson as Treasury
secretary, and the Federal Reserve to supply an unprecedented
amount of aid to firms deemed critical to the financial system,
including Goldman Sachs.
The 140-year-old company received $10 billion in capital,
guarantees on about $30 billion of debt and the ability to
borrow cheaply from the Fed. The Fed’s bailout of American
International Group Inc., and its decision to pay the insurer’s
counterparties in full, funneled an additional $12.9 billion to
Goldman Sachs.
“What was done was appropriate because the potential costs
of not doing that were probably exceedingly high,” says Gary
Stern, who stepped down in August as president of the Federal
Reserve Bank of Minneapolis. “It certainly looked very
threatening.”
‘Bad Deal’
That’s not how the Goldman Sachs rescue looks to William
Black, a professor of economics and law at the University of
Missouri-Kansas City and a former bank regulator. He says the
government has been far too generous in allowing the firm to get
federal backing without either seizing equity or curbing risks.
“It’s just an unbelievably bad deal,” Black says. “We
could hire any middle-tier guy or gal at Goldman, and they would
tell us within 15 seconds that the deal we have made as a nation
with Goldman is underpriced by many, many orders of magnitude
and that we are insane.”
During the past year, Goldman Sachs’s profits and
compensation outstripped those of its rivals. The firm, now the
nation’s fifth-largest bank by assets, reported a record $8.44
billion in earnings for the first nine months of 2009 after
setting aside $16.7 billion to pay employees. That comes to
$527,192 for each person on the payroll, almost eight times the
median U.S. household income.
Public Anger
The company’s stock is up 93 percent this year, above its
price before Lehman Brothers Holdings Inc. collapsed. Meanwhile,
the U.S. unemployment rate hit a 26-year high of 10.2 percent in
October before dropping to 10 percent in November.
The perception that Goldman Sachs has profited at the
expense of taxpayers has fueled public anger -- even jabs from
the television comedy show “Saturday Night Live.” Rolling
Stone writer Matt Taibbi described the firm this year as “a
great vampire squid wrapped around the face of humanity.”
Conservative television commentator Glenn Beck devoted a 10-
minute segment in July to diagramming Goldman Sachs’s
connections to the government and arguing that taxpayers were
being spun in “a web of lies.”
Bonus Plan
“People are just really angry; you can see it on the left
and the right,” says Andy Stern, president of the 2.1 million-
member Service Employees International Union, who led about 200
protesters outside Goldman Sachs’s Washington office on Nov. 16
to demand that the firm cancel its year-end bonuses and repay
taxpayers instead. Some carried “Wanted” posters with pictures
of Chairman and CEO Lloyd Blankfein.
The firm has made attempts to placate critics. On Nov. 17,
it announced a five-year, $500 million program to provide
education, capital and other forms of support to small
businesses. On Dec. 10, it promised to pay the bonuses of the
firm’s top 30 executives only in stock that they can’t sell for
five years.
To Blankfein, the 55-year-old postal worker’s son who
earned $68.5 million in 2007, the firm’s ability to generate
profits and reward employees is a boon to society.
“Our shareholders are pensioners, mutual funds and
individual investors, and they’re all taxpayers,” Blankfein
told investors at a Nov. 10 conference hosted by Bank of America
Corp. in New York. “The people of Goldman Sachs are one of the
most productive workforces in the world.”
No ATMs
What Goldman Sachs’s workforce produces is different from
what employees do at other financial institutions, leading some
people to question why the firm is entitled to taxpayer support.
It doesn’t operate branches or automated-teller machines. Only
millionaires can open checking accounts. Instead, Goldman Sachs
exists to serve large corporations, governments, institutions
and wealthy individuals.
It makes money for them and for itself by trading assets
ranging from stocks and bonds to oil futures and credit
derivatives. In the first nine months of 2009, more than 90
percent of the company’s pretax earnings came from trading and
principal investments, which include market bets, stakes in
corporate debt and equity, and assets such as power plants.
“People who know the industry and know Goldman Sachs know
that it is a giant hedge fund, but it’s wrapped in an investment
banking wrapper,” says Samuel Hayes, a professor emeritus of
investment banking at Harvard Business School in Boston. The
public “would be horrified to think that their tax dollars were
going to a hedge fund.”
Repaying TARP
Goldman Sachs repaid the $10 billion it received in October
2008 from the U.S. Treasury’s Troubled Asset Relief Program, and
taxpayers got a return: $318 million in preferred dividends and
$1.1 billion to cancel warrants to buy company stock the
government was granted. Goldman Sachs says that’s a 23 percent
annualized return for U.S. taxpayers, according to the firm’s
calculation.
Other forms of support linger. By the end of September,
Goldman Sachs’s $189.7 billion of long-term unsecured borrowings
included $20.9 billion guaranteed by the Federal Deposit
Insurance Corp. under a program started in October 2008 to
unfreeze credit markets, according to the firm’s most recent
quarterly filing. Most importantly, the Federal Reserve agreed
on Sept. 21, 2008, to allow Goldman Sachs and smaller rival
Morgan Stanley to become bank holding companies, giving them
access to the Fed’s discount window and granting them a cheap
source of borrowing traditionally reserved for commercial banks.
Interest Expense
“The issue that people have focused on -- TARP and the
payback of TARP money -- is insignificant compared with the way
they’ve been able to use federally guaranteed programs and their
access to the Fed window,” says Peter Solomon, founder of New
York-based investment bank Peter J. Solomon Co.
Those benefits, along with a drop in the Fed’s benchmark
borrowing rate to as low as zero, have slashed Goldman Sachs’s
interest costs to the lowest this decade, though its debt was
higher in the first nine months of 2009 than in any comparable
period except the previous two years. For those three quarters,
the firm’s interest expense fell to $5.19 billion from $26.1
billion a year earlier.
“You can’t give a small group of firms this privilege,
where they get free money from the Fed and a taxpayer guarantee
and they can run the biggest hedge fund in the world,” Niall
Ferguson, a professor of history at Harvard University and
author of “The Ascent of Money: A Financial History of the
World,” said at a Nov. 18 panel discussion in New York.
‘Using Your Money’
That view is shared by Solomon. “Everybody thinks they’re
a bank, but they’re a hedge fund,” he says. “The difference is
that this year they’re using your money to do it.”
Lucas van Praag, the partner responsible for the firm’s
communications and the only Goldman Sachs executive willing to
comment for this story, denies any similarity to hedge funds,
the mostly private and unregulated pools of capital that
managers use to buy or sell assets while participating in the
profits.
“The assertion that we’re a hedge fund displays a
substantial misunderstanding of our business,” says van Praag,
59, a British-born former public relations executive who joined
Goldman Sachs after it went public in 1999. “We are in business
primarily to facilitate transactions for our clients, and over
90 percent of our revenue and earnings come from doing that.”
Proprietary Trading
Proprietary trading, in which Goldman Sachs employees make
bets with the company’s own money, has contributed only 12
percent of the firm’s revenue since 2003, van Praag says. Still,
fixed-income, currency, commodity and some equity trading that
takes place off exchanges blurs the line between client-driven
transactions and proprietary wagers, says Brad Hintz, an analyst
at Sanford C. Bernstein & Co. in New York who rates Goldman
Sachs stock “outperform.”
“It’s coming onto my balance sheet, I’m owning it and then
I’m selling it,” Hintz says. “The fact that I’m taking a
position means I’m taking risk, and if I’m taking risk, then I’m
taking a proprietary bet.”
If Goldman Sachs agrees to buy $1 billion of mortgages that
a client wants to sell and then decides to keep the mortgages,
it’s not easy to determine whether that trade is aimed at
helping a client or is a proprietary investment decision, Hintz
says.
Van Praag says that Goldman Sachs, unlike some other banks,
was never in imminent danger of going out of business during the
financial crisis unless the entire system was allowed to
implode.
‘We Didn’t Wait’
“We had cash and funding that would have allowed us to
survive for quite a long time, even assuming that counterparties
had decided to stop providing financing,” van Praag says.
“When markets became very difficult, we didn’t wait for the
government to act. We went out and raised money in the private
sector.”
Two days after winning the Fed’s approval to become a bank
holding company, Goldman Sachs sold $5 billion of preferred
stock to billionaire Warren Buffett’s Berkshire Hathaway Inc.
and then raised another $5.75 billion by selling common stock to
the public. Those deals, plus a $5.75 billion public offering in
April 2009, helped raise shareholder equity to $65.4 billion
from $45.6 billion in August 2008.
Goldman Sachs also cut the amount of assets it owns to $882
billion from $1.08 trillion before the Lehman collapse. The firm
holds $167 billion in cash or near-cash instruments, up from
about $102 billion at the end of August 2008, which it can use
to pay off debts if creditors stop making loans.
‘Classic Bank Run’
Treasury Secretary Timothy Geithner said in an interview
with Bloomberg Television on Dec. 4 that no bank would have
survived without the government’s help.
“The entire U.S. financial system and all the major firms
in the country, and even small banks across the country, were at
that moment at the middle of a classic run -- a classic bank
run,” he said.
Since the government stepped in, investors have been more
willing to lend money to Goldman Sachs. The premium bondholders
charge to own the firm’s bonds that mature in April 2018 instead
of U.S. Treasuries of the same maturity has shrunk to less than
1.5 percentage points from as much as 6.8 percentage points on
Nov. 20, 2008, according to data compiled by Trace, the bond-
price reporting system of the Financial Industry Regulatory
Authority. The spread isn’t as narrow as the 0.99 percentage
point premium to Treasuries that Goldman paid on new 10-year
bonds in January 2006, the data show.
‘Backstopped’
At an Oct. 15 breakfast sponsored by Fortune magazine,
Blankfein said that market prices prove that investors don’t
think the bank has a government guarantee.
“We’re not exactly borrowing at the government rate,” he
said. “The market isn’t behaving that way.”
Sean Egan -- co-founder of Haverford, Pennsylvania-based
Egan-Jones Ratings Co., which in October gave Goldman Sachs an
AA rating, its third highest -- has a different view.
“We’re in the business of doing credit analysis, and we’ve
come to the conclusion that essentially Goldman Sachs is
backstopped,” Egan says.
William Larkin, who manages about $250 million in fixed-
income investments at Cabot Money Management Inc. in Salem,
Massachusetts, says he owns Goldman Sachs bonds partly because
he thinks the company won’t be allowed to go out of business.
“They would be bailed out” if anything went wrong, Larkin
says. “Goldman right now is in a catbird seat because it’s very
important to keep them healthy.”
Fewer Competitors
Chief Financial Officer David Viniar takes issue with the
idea that the firm continues to benefit from an implied
guarantee by the U.S. government.
“We operate as an independent financial institution that
stands on our own two feet,” Viniar, 54, told reporters on an
Oct. 15 conference call. “We don’t think we have a guarantee.”
The firm has grown more dominant in the past year,
increasing its market share, Viniar told analysts on Oct. 15. It
has benefited from having fewer competitors -- Bear Stearns
Cos., Merrill Lynch & Co. and Lehman Brothers were all subsumed
into other banks during the financial crisis -- while larger
rivals such as Citigroup Inc. and UBS AG have been hobbled by
writedowns and a lower appetite for risk.
“The crisis has created an oligopoly,” says Solomon, who
founded his firm in 1989 after leaving Lehman Brothers.
Value-at-Risk
Goldman Sachs has also increased the size of the bets it’s
making. Its value-at-risk -- an estimate of how much the trading
desk could lose in a single day -- jumped to an average of $231
million in the first nine months of 2009, a record for the firm.
At the end of September, the company estimated that a 10 percent
drop in corporate equity held by its merchant-banking funds
would cost it $1.04 billion, up from $987 million at the end of
June.
Revenue generated by trading and investing, the most
unpredictable part of Goldman Sachs’s business, accounted for 79
percent of the firm’s revenue in the first nine months of 2009,
up from 28 percent in 1998. Early the next year, before Goldman
Sachs’s initial public offering, executives, led by Paulson,
told investors the company would try to decrease the percentage.
The government is acting schizophrenically by arguing that
Goldman Sachs needs taxpayer support because it poses a risk to
the financial system at the same time as it’s failing to do
anything to curtail that risk, says Nobel Prize-winning
economist Joseph Stiglitz, who teaches at Columbia University in
New York.
“We say they’re too big to fail, but we refuse to do
anything about their being too big to fail,” Stiglitz says.
“We say that they represent systemic risk, but we don’t
regulate them effectively.”
‘Biggest Single Gift’
Stiglitz also points to the Fed’s $182.3 billion AIG
bailout as an example of how policy has been tilted to support
Goldman Sachs.
“The biggest single gift was the AIG rescue,” he says.
“No one has ever provided a good argument for why we did it
other than we were bailing out Goldman Sachs.”
On Sept. 16, 2008, a day after Lehman filed the biggest
bankruptcy in U.S. history, the Fed authorized Geithner, then
president of the Federal Reserve Bank of New York, to lend $85
billion to help AIG avoid a similar fate by allowing it to
continue to post collateral owed on contracts and to settle
securities-lending agreements. Geithner later told a
Congressional Oversight Panel that the government acted because
“the entire system was at risk.”
$12.9 Billion
In November, the Fed created two entities: Maiden Lane II
to repurchase securities that had been lent out in return for
cash, and Maiden Lane III to purchase collateralized-debt
obligations so AIG could cancel the credit-default swaps,
similar to insurance policies, it had written on them. In the
latter program, the Fed allowed the counterparties to settle
contracts at 100 percent of their value.
Goldman Sachs was the biggest beneficiary, receiving a
total of $12.9 billion in cash, consisting of $5.6 billion to
cancel insurance on CDOs, $4.8 billion to repurchase securities
and $2.5 billion of collateral.
If Goldman Sachs and AIG’s other counterparties hadn’t been
paid off in full by the Fed, they might have taken losses on
their contracts.
Other bond insurers had canceled agreements by paying less
than par. Merrill Lynch accepted $500 million from Security
Capital Assurance Ltd. in late July 2008 to tear up contracts
guaranteeing $3.7 billion of CDOs. On Aug. 1, 2008, Citigroup
agreed to accept $850 million from bond insurer Ambac Financial
Group Inc. to cancel a guarantee on a $1.4 billion CDO.
Barofsky Report
In a Nov. 16 report on the AIG bailout, Neil Barofsky,
special inspector general for TARP, said the Fed tried for two
days to negotiate with counterparties, an effort that failed
because the Fed felt obliged to make any discounts voluntary and
because French counterparties said they couldn’t legally be
required to comply. Goldman Sachs refused to negotiate because
it felt it was hedged if AIG failed to pay, Barofsky wrote.
“Notwithstanding the additional credit protection it
received in the market, Goldman Sachs (as well as the market as
a whole) received a benefit from Maiden Lane III and the
continued viability of AIG,” Barofsky wrote. Goldman Sachs
would have been saddled with the risk of further declines in the
market value of about $4.3 billion in CDOs as well as some $5.5
billion of CDSs, he added.
‘Fascination With AIG’
Viniar, who held a conference call in March to answer
questions about the firm’s relationship with AIG, said Goldman
Sachs didn’t need a bailout because the firm’s hedges meant it
faced no significant losses if AIG failed.
“I am mystified by this fascination with AIG,” he said in
an interview in April. “In the context of Goldman Sachs,
they’re one of thousands and thousands of counterparties, and
the results of any trading with AIG are completely immaterial to
what we do. Always have been, and always will be.”
Suspicions that the fix was in for Goldman Sachs have been
fanned by the firm’s political connections.
Paulson worked at the company for 32 years, the last eight
of them as CEO, before becoming Treasury secretary in 2006.
Geithner selected former Goldman Sachs lobbyist Mark Patterson
to serve as his chief of staff at Treasury. Stephen Friedman, a
former senior partner who serves on the company’s board, stepped
down as chairman of the New York Fed in May amid controversy
over his purchases of the firm’s shares in December 2008 and
January 2009 after it became a bank holding company regulated by
the Fed. Geithner and Lawrence Summers, President Barack Obama’s
National Economic Council director, worked earlier in their
careers under former Treasury Secretary Robert Rubin, who was
once co-chairman of Goldman Sachs. Geithner’s successor as New
York Fed president is William Dudley, a former chief U.S.
economist at Goldman Sachs.
Political Contributions
Goldman Sachs and its employees have donated $31.4 million
to U.S. political parties since 1989, more than any other
financial institution and the fourth-highest amount of any
organization, according to the Center for Responsive Politics, a
Washington research group.
Regulators and lawmakers are attempting to make changes
that they say will protect taxpayers in the future. One proposal
being considered by the U.S. Congress is to require financial
institutions whose failure could cause a breakdown of the entire
system to hold more liquid assets and a larger buffer of capital
to help absorb losses.
The bill would also empower regulators to step in and
liquidate a major financial institution, or merge it with
another, rather than bail it out or let it collapse.
Safety Net
That’s not enough for Paul Volcker, the former Fed chairman
who serves as an economic adviser to Obama. Volcker, 82, has
argued that the government safety net should be limited to
financial institutions that provide utilitylike services such as
deposit taking and business-payment processing essential to
economic functioning. All risk-taking functions should be done
separately, he says.
“I do not think it reasonable that public money --taxpayer
money -- be indirectly available to support risk-prone capital
market activities simply because they are housed within a
commercial-banking organization,” Volcker said in a Sept. 16
speech at a conference in California.
Asked about Goldman Sachs in a Dec. 11 interview in Berlin,
Volcker said, “They can do trading and do anything they want,
but then they shouldn’t have access to the safety net.”
Black, the former bank regulator, agrees.
“The answer is not to give these guarantees but to make
sure there are no more systemically dangerous institutions,” he
says. “They shouldn’t be allowed to grow, and of course, that’s
what they’re doing right now. They’re mostly growing like
crazy.”
Ground Zero
On a cold, rainy morning in December, rust-colored beams
poke above a fence that surrounds the construction pit at Ground
Zero in lower Manhattan. Across West Street, workers in yellow
slickers are landscaping the strips that separate the entrance
to Goldman Sachs’s new headquarters from the highway. In the
lobby, a brightly colored abstract painting by Ethiopian-
American artist Julie Mehretu, which cost about $5 million,
greets employees who have already relocated.
The new building has twice as much space and costs 14 times
as much as Goldman Sachs’s old headquarters a half mile (0.8
kilometer) away. Two American flags the size of bed sheets
dominate the stone and concrete facade of the 30-story building
at 85 Broad St., constructed almost three decades ago when
Goldman Sachs was a private partnership with about 2,700
employees in New York.
In 1983, the year the firm moved in, it had pretax earnings
of $462 million, one-twenty-fifth of what it made in 2007.
While Goldman Sachs has outgrown its old headquarters, one
thing hasn’t changed: It’s still getting subsidies to remain in
lower Manhattan. When it built 85 Broad St., the company
received about $9 million in incentives to stay, according to a
press report at the time. Now, it’s getting $115 million -- an
amount dwarfed by the funds U.S. taxpayers provided in the heat
of the 2008 financial crisis.

Got to "make it rain" if you want to keep your position

===============================================================================================
Credit Suisse Names Sim M&A Chief After Advisory Fees Decline

By Ambereen Choudhury and Zachary R. Mider

Dec. 21 (Bloomberg) -- Credit Suisse Group AG,
Switzerland’s biggest bank by market value, named Boon Sim
global head of mergers and acquisitions, in a shake-up after
advisory revenue fell faster than rivals.
Sim, 47, will be replaced as head of U.S. mergers by Andrew
Lipsky, the bank said in an internal memo today. Giuseppe
Monarchi will replace David Livingstone as head of European M&A.
Livingstone, 46, will return to his native Australia as chief
executive officer of Credit Suisse Australia. The contents of
the document were confirmed by a Credit Suisse spokeswoman.
Credit Suisse, run by Chief Executive Officer Brady Dougan,
is tapping an executive to focus exclusively on the M&A business
for the first time in five years. The Zurich-based firm’s
advisory fees, which are mostly earned from counseling companies
on takeovers, dropped 55 percent in the first nine months of
2009, to 454 million Swiss francs ($434 million) from 1.03
billion a year earlier, according to the bank’s financial
statements.
Marc Granetz, 53, has run the M&A business since 2004 while
also serving as co-head of the entire investment-banking
division, including underwriting. Granetz in October was named
to a new role working with clients, and Luigi de Vecchi will
take over his investment-banking job. The other co-head of the
investment-banking division is James Amine.
Credit Suisse’s 55 percent decline in fees compares with
European rivals UBS AG, which dropped 50 percent, and Deutsche
Bank AG, which lost 32 percent. It’s also steeper than drops at
Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co.,
Citigroup Inc., and Lazard Ltd.
Revenue Decline
Credit Suisse is the ninth-ranked adviser on global M&A
this year, down from eighth place in 2008, according to data
compiled by Bloomberg. Advisory revenue fell 67 percent in the
third quarter from the year-earlier period to 106 million Swiss
francs, the lowest since the start of 2005.
Sim, who grew up in Singapore and is a former semiconductor
designer, joined Credit Suisse predecessor First Boston Corp. in
1991, working on deals including International Business Machines
Corp.’s hostile acquisition of Lotus Development Corp. in 1995.
In 2005, he helped usher in a new era of record-setting
leveraged buyouts, advising SunGard Data Systems Inc. on its
sale to a group of seven private-equity firms for $10.4 billion,
one of the first major “club deals.” He went on to work on
LBO’s including those of HCA Inc., First Data Corp. and Bausch &
Lomb Inc.
Leveraged Lending
The collapse of leveraged lending in 2007 put an end to
leveraged buyouts of more than a few billion dollars. This year,
Sim advised Fifth Third Bancorp in selling a 51 percent stake in
a payment-processing unit for $561 million to buyout firm Advent
International Corp.
Sim will report to Amine and de Vecchi.
“This group will lead one of the bank’s most critical
strategic advisory businesses,” Amine and de Vecchi wrote.
Lipsky, a former lawyer at Paul Weiss Rifkind Wharton &
Garrison, joined CSFB in 1997 and is now head of its diversified
industrials and services team. He advised Ingersoll Rand Co. on
its $10 billion takeover of air-conditioner maker Trane Inc.
last year.
Livingstone will be replaced by Monarchi, co-head of
European technology, media and telecommunications investment
banking in London, according to the memo. He advised Italy’s
Lottomatica SpA on its $4.7 billion purchase of U.S. gaming
equipment maker Gtech Corp. in 2006.
In Sydney, Livingstone will replace David Trude, who will
continue to work with the bank as an adviser. Joe Gallagher will
continue to run the bank’s Asia Pacific M&A team from Hong Kong.

Société Générale issues profit warning

By Peggy Hollinger in Paris
Published: January 13 2010 07:44 | Last updated: January 13 2010 09:43

Société Générale on Wednesday offered proof that the damage from the subprime crisis of
2008 had not yet run its course after warning it would barely make a
net profit in the fourth quarter because of a €1.4bn hit on risky
assets.France’s third-biggest bank also confirmed that the
slowdown in the fixed income market – signs of which had been flagged
in November – had accelerated with net income at the corporate and
investment banking division expected to be lower in the final three
months than in an already depressed third quarter.


Shares in SocGen fell more than 4 per cent to €49.60 in early Paris trading.The
bank sought to reassure investors by pointing out that activity in the
French retail and private banking business had held up, while the
international division, with operations in central Europe and the
Mediterranean, had also proved resilient.Nonetheless the
unexpected profits warning and new charge – coming after the bank had
already taken a €1.5bn hit on risky assets in 2009 – is likely to step
up pressure on the French bank to diversify its earnings away from more
volatile investment banking activities.Under new chief executive Frédéric Oudéa,
the group has begun to take steps to shift the balance,
after acquiring the 20 per cent of retail bank Crédit du Nord that it did not own from Dexia.

Mr Oudéa said in October that he was on the hunt for acquisitions –
with the bank expected to target Poland – to “prepare the bank for a
new world”. In its statement on
Wednesday, the group said it remained in a favourable position to
progress in 2010. During the crisis of 2009 it had returned “generally
satisfactory operating performances in a very challenging environment,
with strong performances in corporate and investment banking”. It
had also significantly reduced its market risk, and its exposures at
risk. Finally it strengthened its financial structure through the
€4.8bn capital increase in October.The bank said the writedown
was the result of a stricter assessment of assets at risk given the
contrasting signals that had come from the US residential property
market in the fourth quarter. The charge comprised writedowns
on collateralised debt obligations of residential mortgage-backed
securities, changes in the marked-to-market valuation of credit default
swaps and the revaluation of financial liabilities.

Goldman Sachs Posts Record Profit on Bonus Pool Cuts (Update2)

By Christine Harper
Jan. 21 (Bloomberg) -- Goldman Sachs Group Inc., the most
profitable securities firm in Wall Street history, reported
record earnings that beat analysts’ estimates as the bank
slashed its bonus pool.
Net income of $4.95 billion, or $8.20 per share, for the
three months ended Dec. 31 compared with a loss of $2.12
billion, or $4.97 per share, in the fiscal fourth quarter that
ended in November 2008, the New York-based company said today in
a statement. The average estimate of 21 analysts surveyed by
Bloomberg was for $5.18 a share.
Goldman Sachs, under Chairman and Chief Executive Officer
Lloyd Blankfein, relied on gains from trading as well as
investments with the firm’s own money to help it recover last
year from the worst financial crisis since the Great Depression.
Blankfein made up for a slowdown in trading revenue in the
fourth quarter by taking back money the bank had set aside for
pay earlier in the year, resulting in the lowest percentage of
compensation to revenue since Goldman Sachs went public in 1999.
“The big story is the compensation,” said Keith Davis, an
analyst at Farr, Miller & Washington LLC in Washington, which
manages about $650 million, including Goldman Sachs shares.
“They got the message that politically they can’t be paying out
close to 50 percent of revenues anymore, at least for the time
being. Obviously, that’s the primary reason for the beat.”
Goldman Sachs dropped 63 cents, or 0.4 percent, to $167.16
at 10:07 a.m. on the New York Stock Exchange.
Taxpayer Support
While last year’s earnings helped Goldman Sachs’s stock
double from 2008, the firm also became the target of politicians
and pundits who blamed company executives for profiting from
taxpayer support.
Labor unions led a protest demanding bonus payments be
canceled, a Rolling Stone magazine writer labeled the firm a
“great vampire squid wrapped around the face of humanity” and
the bank was lampooned on the television comedy show Saturday
Night Live.
On the first day of hearings of the Financial Crisis
Inquiry Commission earlier this month, Blankfein, 55, was the
target of questions about the firm’s products and its
relationship with American International Group Inc., whose
bailout by the Federal Reserve in 2008 funneled more cash to
Goldman Sachs than to any of AIG’s other trading counterparties.
Revenue Decline
Fourth-quarter revenue slid to $9.62 billion from $12.4
billion in the third quarter and compares with a negative $1.58
billion in the three months that ended Nov. 28, 2008. The
average estimate of 13 analysts surveyed by Bloomberg was for
fourth-quarter revenue of $9.65 billion, with estimates ranging
from $8.5 billion to $11.2 billion.
Compensation, which includes salaries, benefits and year-
end bonuses, was cut to negative $519 million in the fourth
quarter from $5.35 billion in the third quarter. Goldman Sachs
used $500 million of the money taken out of the compensation
pool to fund a charitable contribution to Goldman Sachs Gives, a
company philanthropy.
That cut the ratio of compensation to revenue to 35.8
percent, the lowest since the company went public in 1999. The
full-year compensation expense of $16.2 billion was up 48
percent from 2008, and below the record $20.2 billion expense in
2007. It was equal to an average of about $498,246 per employee.
“The people of Goldman Sachs performed extremely well this
year,” Chief Financial Officer David Viniar told journalists on
a conference call today. “But in addition to that, we’re not
blind to the economic environment and the pain and suffering
that’s still going on around the world.”
U.K. Tax
Viniar said the reduction in compensation also took into
consideration the U.K.’s 50 percent tax on bonuses for 2009.
Senior employees’ pay will be more affected by the decision to
cut the bonus pool than junior employees, he said.
Last month Goldman Sachs said its top 30 executives,
including Blankfein, Viniar and President Gary Cohn, wouldn’t
receive any cash bonuses for 2009. Instead, their bonuses will
consist entirely of restricted stock that they can’t sell for
five years.
Goldman Sachs’s business model, which includes deposit-
taking as well as trading for its own account and managing hedge
funds and private-equity funds, may be affected by a proposal
today from U.S. President Barack Obama. Obama is planning to
announce new rules after meeting with former Federal Reserve
Chairman Paul Volcker, who has advocated separating deposit-
taking from proprietary trading and other risky investing, an
administration official said.
Fed Oversight
Viniar said he thinks it’s “unrealistic” to believe that
a company the size and importance of Goldman Sachs will cease to
be a bank under the regulation of the Federal Reserve. He added
that it’s unclear how the proposals will define proprietary
trading and that an effort to reinstate the Glass-Steagall law
barriers between commercial banking and investment banking is
“pretty impractical in a world of global financial
institutions.”
For the full year, net income was $13.4 billion, or $22.13
per share, more than five times 2008’s $2.32 billion and
exceeding the record $11.6 billion the firm generated in 2007.
Fixed-income, currencies and commodities, the biggest
source of revenue, generated $3.97 billion in the fourth
quarter, compared with $5.99 billion in the third quarter and a
negative $3.4 billion in the fourth quarter of 2008.
Analysts’ Expectations
That fell short of some estimates. Jeff Harte, an analyst
at Sandler O’Neill & Partners in Chicago, expected fixed-income
revenue to drop 33 percent from the third quarter to just over
$4 billion.
Equity sales and trading revenue fell 30 percent to $1.93
billion from $2.78 billion in the third quarter, and compared
with $2.64 billion in the fourth quarter of 2008. Securities
services, which includes the prime brokerage division that
serves hedge funds, generated $443 million in revenue, down from
$472 million in the third quarter.
“Client activity really fell off leading into and through
the holiday season,” Viniar said of the decline in trading
revenue during the quarter. Clients “wanted to make sure that
2009 would end up a good year, so they stopped trading, stopped
taking risk, and really cut back on activity levels.”
Value at risk, a measure of how much the firm estimates it
could lose in a single day of trading, fell to $181 million in
the quarter from $208 million in the previous three months after
reaching a high of $245 million in the second quarter.
Principal Investments
Principal investments, which represents gains or losses
from the firm’s stakes in companies and real estate, produced a
$507 million gain in the quarter. That compares with a third-
quarter gain of $1.26 billion and a loss of $3.6 billion in the
previous fourth quarter.
Trading and principal investments accounted for 76 percent
of Goldman Sachs’s revenue in 2009, up from 41 percent in 2008
and 68 percent in 2007, according to company reports.
Investment-banking revenue of $1.64 billion in the quarter
compared with $899 million in the third quarter and $1.03
billion in the fourth quarter of 2008. Viniar said the backlog
of incomplete assignments increased during the quarter.
Fees for advisory services such as assistance on mergers
and acquisitions doubled to $673 million from $325 million in
the third quarter and $574 million in the prior year. Equity
underwriting fees were $624 million compared with third-quarter
revenue of $363 million, while debt underwriting was up 60
percent to $338 million from $211 million in the previous three
months.
Asset management, the division that oversees money for
institutions and wealthy individuals, reported a 16 percent gain
in revenue to $1.13 billion from $974 million in the third
quarter and $945 million in the fourth quarter of 2008. Assets
under management climbed to $871 billion from $848 billion at
the end of September.


No surprises here

Morgan Stanley’s New Chief Talks Risk

January 20, 2010, 2:19 pm

On Morgan Stanley’s earnings conference call on Wednesday, new chief executive James P. Gorman reiterated his message of the moment: the bank has learned from its mistakes, especially when it comes to taking on too much risk.
Mr. Gorman made little time for the past: his predecessor, John J. Mack, wasn’t brought up once during the hourlong call. But he talked up Morgan Stanley’s progress from the depths of the financial crisis in 2008, when the firm nearly died from its outsize trading bets gone wrong.
“Looking forward, I believe 2010 will be a year of execution for Morgan Stanley,” Mr. Gorman said on his first conference call as head of the firm. “I’m bullish on Morgan Stanley, as I believe we’re well positioned to capitalize on the recovery in the global capital markets.”
He focused on what lay ahead for the firm, including the eventual integration of Smith Barney and a closer relationship with the Mitsubishi UFJ Financial Group, which provided a much-needed lifeline during the fall of 2008.
But it was Mr. Gorman’s decision to pare back Morgan Stanley’s risk appetite that drew analysts’ questions, especially in light of the firm’s weaker-than-expected fourth-quarter earnings.
Mr. Gorman told analysts that he saw the issue of risk as a slightly complicated one.
“A lot of people have asked me this question, as to whether the firm would ratchet down further on its risk-taking ventures, and it is presented as a binary answer, we either take risk or we don’t take risk, which is obviously absurd,” he said. “We are obviously in the risk-taking business.”
Where does Morgan Stanley take risk? Mr. Gorman listed a few areas: currencies, emerging markets, credits, equity trading, commodities, structured products, rates. “We take a lot of risks,” he said.
But he emphasized that Morgan Stanley can’t be as risky as it was only a few years ago, when it was leveraged 35 to 1. Now the firm plans to maintain a leverage ratio of between 15 to 1 and 17 to 1. And it would make fewer concentrated bets, like those that nearly sank the firm during the subprime mortgage crisis.
“This is all about turning the dial, and it is not about taking outside risks for particularly in complex illiquid products with little ability for us to get out of these positions,” Mr. Gorman said. “We take risks professionally, we apply our capital, get the leverage on it. The question is, ‘What outside risks are we going to be taking that could jeopardize our health going forward?’ And the answer is none.”
– Cyrus Sanati

I am also Bullish on MS as well looking forward throu8gh 2010-2011. The firm recently gobbled up SmithBarney, which added 15,000 brokers. Their Asset Management should become the cornerstone of the firm in the next couple of years. Mr. Gorman is a rose through the ranks of Merrill in their Global Wealth Management business.

"A man must live what he knows."