Opinion

Ben Walsh

from Felix Salmon:

Counterparties: Sandy beached

Ben Walsh
Jul 30, 2012 22:31 UTC

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After Sandy Weill had his say on breaking up big banks last week, backlash to his reversal was inevitable. It turns out Bank of America and Citi had already considered his idea: Execs at BofA studied breaking out troubled Countrywide Mortgage, which has been called the worst deal in finance history, as well Merrill Lynch's securities business. Citi, apparently at the behest of regulators, did a similar analysis and even employed Bain to conduct it. The bank concluded that tax inefficiencies precluded a breakup; they have yet to pursue changing the tax code with the same vigor they applied to abolishing Glass-Steagall.

Somewhat paradoxically, BofA decided Countrywide was too bad to let go and that Merrill was too profitable to part with. The latter is just wrong, according to their own filings, as Jonathan Weil smartly points out: "Last quarter Merrill reported a net loss of $1.6 billion. It posted a $1.7 billion net loss for all of 2011".

Before Weill made his comments, Jamie Dimon had already said that he doesn't think any of JPMorgan's business would be better off independently. He's probably unlikely to take advice from a guy who once fired him said. Former JPMorgan Chairman and CEO William Harrison chimed in on the merits of Dimon's firm with this faintest of praise: "you can screw [management and risk-taking] up at a small bank or a large bank".

The WSJ reports that Dodd-Frank's two eponymous lawmakers don't agree with Weill: Former Senator Chris Dodd thinks Weill is "frankly too simplistic"; Representative Barney Frank says doing "something drastic to a major part of the economy isn’t a very good idea" right now.

from Felix Salmon:

Counterparties: The clarifying effects of CEO retirement

Ben Walsh
Jul 26, 2012 22:20 UTC

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It was a comment that launched a thousand strained attempts to capture its essential absurdity. Sandy Weill, the man who broke the wall between commercial and investment banking, the architect and former chief executive of Citigroup, has decided the whole thing is now a bad idea:

What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.

from Felix Salmon:

Counterparties: Marissa Mayer’s vacillating pay

Ben Walsh
Jul 20, 2012 22:03 UTC

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Read the headlines and you'd think Marissa Mayer has received the fastest series of pay raises in corporate history.

Yesterday, Yahoo's new CEO was earning "over $40 million". A few hours later, her compensation was worth "more than $59 million". Or maybe just "as high as $59 million". Then, overnight, she had secured "more than $70 million". This morning, her value continued to climb, and she was set to "receive up to $100 million". A few hours later, the number was a positively rococo "$129 million".

Goldman: The rest of you should invest in America

Ben Walsh
Jul 19, 2012 22:49 UTC

Lloyd Blankfein has taken to the op-ed page of Politico to extol investing in America: “When I meet with [CEOs] and institutional investors and they ask me where to invest, my response is that the United States remains as attractive as ever”.

But Blankfein’s champion-of-America pose doesn’t square with the fact Goldman is now an avowedly transnational company. They invented the term “BRICs” and have spent the last decade hyping the growth potential of Brazil, Russia, India and China. Since 2006, the firm has held an annual board meeting in each BRIC country, with the Middle East also thrown in for good measure. More recently, Goldman has moved on to evangelizing an even longer list of “growth markets“. And the bank’s success depends, as Bankfein’s said last year, on “chasing GDP” across the globe. Right now, that means doing a massive IPO for a state-owned Malaysian agro-conglomerate from offices in Singapore and Hong Kong.

Since 2010, Goldman has cut headcount by 17% with more reductions to come. Employees in so-called mature markets (the US and EU) have been disproportionately affected. Before the bust, the firm liked to brag that its center of gravity was in the middle of the Atlantic, halfway between New York and London. That portion of the world, however, is increasingly seeing tepid economic growth; Goldman’s future is more Pacific than Atlantic. The IMF recently revised its projection for 2013 GDP US growth down to 2.3%. On the other hand, emerging economies are projected to grow at 5.9% next year (though they are slowing). Those emerging economies are where Goldman’s business is growing.

from Felix Salmon:

Counterparties: ‘More foolish than wicked’ but still self-dealing

Ben Walsh
Jul 18, 2012 21:45 UTC

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The structured and synthetic credit markets just can't seem to catch a break. Monday was the first day of the civil fraud case against former Citi banker Brian Stoker. The SEC's case sounds a lot like Goldman's infamous Abacus deal – Citi sold $1 billion of CDOs to clients without disclosing to investors that it put a $500 million short position on those same securities. Japan's Mizuho may soon face similar charges.

Stoker's attorney offered the standard "sophisticated investor" defense, with this additional flourish: "The synthetic CDO market is high-stakes, high-level gambling... However you feel about gambling... this was legal gambling". As a result, Stoker's attorney argued, disclosure of conflicts to clients was moot.

from Felix Salmon:

Counterparties: King vs Geithner vs Barclays

Ben Walsh
Jul 17, 2012 21:56 UTC

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Testifying before Members of Parliament today, governor of the Bank of England Mervyn King added another layer of uncertainty to the "Liebor" scandal. BoE deputy governor Paul Tucker already strongly rejected Barclays' indirect but unmistakable assertion that he asked the bank to lowball Libor submissions. On Monday, Jerry Del Messier, Barclays former COO, testified that he thought he was an instruction from Bob Diamond to lowering Libor submissions. That, Del Messier said, "did not seem an inappropriate action given this was coming from the Bank of England". King hit back at Del Messier's interpretation of events, saying Barclays execs were in a "state of denial" about the true nature of their conversations with regulators.

King then went further, addressing documents released by the New York Fed last week showing that Tim Geithner, then President of the NY Fed, had been aware of potentially improper Libor submissions and emailed a set of reform recommendations to King in 2008. (And it turns out that these were basically carbon copies of banking industry recommendations.)

from Felix Salmon:

Counterparties: The largest antitrust settlement in US history?

Ben Walsh
Jul 16, 2012 21:36 UTC

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In a week full of scandals and financial restatements, MasterCard, Visa and a handful of the country's biggest banks nonetheless managed to stand out: in the largest antitrust settlement in US history, they have agreed to pay $7.25 billion.

The case centered on the "swipe fees" charged by card companies each time consumers pay with credit or debit. Those fees had been fixed, and passed along by stores to consumers. Now, retailers will get to negotiate the fees. The settlement is a coup for retailers.

from Felix Salmon:

Counterparties: What the Fed knew

Ben Walsh
Jul 13, 2012 20:12 UTC

We now know what the New York Fed knew about Barclays fudging its Libor submissions. Included in the NY Fed's vast document dump in response to a congressional request is this confidence-deflating exchange from Apr. 11, 2008:

Barclays: So, we know that we’re not posting um, an honest Libor.

NYFR: Okay.

B: And yet and yet we are doing it, because, um, if we didn’t do it

FR: Mm hmm.

B: It draws, um, unwanted attention on ourselves.

The NYT reports that after that and other exchanges between members of the NY Fed and Barclays, Tim Geithner, then head of the NY Fed, called and emailed the head of the Bank of England with his concerns and suggestions for how to improve oversight of Libor. The governor of the BoE, Mervyn King, called those suggestions "sensible", but as the NYT's Marc Scott writes, none of them were actually implemented.

And that leads back to the post-scandal explanation offered by Barclays: that England's central bank tacitly encouraged Barclays to continue its improper Libor submissions. Deputy BoE governor Tucker forcefully argued before members of Parliament on Monday that he was acting precisely as he should have, questioning what Barclays was doing to lower its borrowing rates in the aftermath of its rejection of government capital.

from Felix Salmon:

Counterparties: Another day, another city

Ben Walsh
Jul 11, 2012 22:15 UTC

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This is no Meredith Whitney-sized apocalypse, but it's worth noting that San Bernardino is the third California city in two weeks to seek bankruptcy.

The San Bernardino City Council made the decision after a report by staff said it would run a deficit of $45 million in its current fiscal year and that further cuts were not possible: "The city has declared numerous fiscal emergencies based on fiscal circumstances and has negotiated and imposed concessions of $10 million per year".

from Felix Salmon:

Counterparties: Barclays gets Tuckered

Ben Walsh
Jul 9, 2012 21:33 UTC

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Five days after Bob Diamond testified before members of Parliament on the LIBOR scandal, Bank of England deputy governor Paul Tucker had his turn today. He took aim at Barclay's less-than-subtle insinuation that in 2008 he all but asked the bank to submit artificially low rates. Tucker told the House of Commons that he was only warning Barclays not to spook the market by indicating it would borrow at elevated rates: "I was plainly talking about their money market activity".

That conversation, Tucker said, came the day after Barclays refused to accept fresh capital from the UK government and he wanted to understand what the bank's plan to instill confidence was, exactly. Tucker went on to say that he had similar conversations with non-LIBOR submitting financial firms. "Absolutely not" was Tucker's immediate reply when asked if he or any other government official ever pressured banks to lower their LIBOR submissions. (Tucker's full testimony is available here.)

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