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Giving props to Wall Street’s risks

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Wall Street would like you to believe that when investment banks take on risk they are largely doing it for the benefit of investors — maybe even you and me.

Bankers say much of the capital that their firms put at risk each day is to complete trades for big corporations, mutual funds, pension funds, hedge funds and university endowments. And contrary to the conventional wisdom, proprietary trading — bets made for a bank’s own behalf — is really just a small part of their business.

Lately, Wall Street’s captains of capitalism have been aggressive in pushing the “we take big risks for our customers, not for ourselves” line of argument.

That’s especially so in the wake of the public furor over the outsized trading gains at the big banks like Goldman Sachs Group, JPMorgan Chase and Barclays and even Citigroup, so soon after the collapse of Lehman Brothers.

A death panel for Citi

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It’s way too soon for the federal government to contemplate reducing its considerable equity stake in Citigroup.

If anything, now’s the time for the feds to finally get tough with the troubled giant and establish a firm deadline for forcing Citi to shrink itself.

A year on, it’s still a housing story

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Around the time Lehman Brothers’ collapse nearly pushed the global banking system off a cliff, Rose Barrett’s own personal financial crisis began.

Recently separated from her husband, the Kissimmee, Florida resident quickly found it hard to keep making her monthly $1,939 mortgage payment on her salary as a night nurse at a local rehabilitation center. She made a hardship application to her lender, the subprime banking arm of Banco Popular seeking relief from her 40-year fixed rate $200,000 mortgage with a hefty 9.45 percent interest rate.

Blankfein’s blind spot

Just look at who is in favor of compensation clawbacks, more transparency on derivatives and greater coordination among financial regulators.

Would you believe Lloyd Blankfein, the chief executive of Goldman Sachs?

While Goldman is being cast as the case study of everything that is wrong and retro about Wall Street, the firm itself is aware that the public debate about financial regulation has changed, even if Congress has yet to move on it.

Wall Street is being judged

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Capitol Hill has yet to get its act together on financial regulatory reform. But another arm of the federal government, the judiciary, is emerging as the new best friend of investors.

It started a few weeks ago when Judge Jed Rakoff refused to approve the Securities and Exchange Commission’s wimpy $33 settlement with Bank of America over the bank’s failure to come clean with shareholders about its acquisition of Merrill Lynch.

The capital games that banks play

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Treasury Secretary Timothy Geithner’s call for the global banks to set aside bigger capital cushions to better absorb losses on souring securities and ailing loans is a good idea. But that alone won’t be enough to prevent another crisis.

Regulators must also clamp down on the kind of AIG-engineered deals that legally enabled German, French, Dutch, Danish and other European banks to dodge existing capital rules and free up some $400 billion on their balance sheets.

Facing both ways on Goldman’s research

Both readers of the Wall Street Journal Europe were finally treated to the Goldman Sachs research story today, across two out of 32 pages. For new readers, the WSJ discovered that the world’s most envied bank told its most profitable clients about its research before telling everyone else.

There’s even a real-life example in the WSJ article, of a suitably-named investment company called Janus, which rose from $23 to $25 the day before the Goldman analyst reiterated his “neutral” stance on the stock. The price then bobbled around between $25 and $26 while the Goldman traders huddled and talked to their clients. Eight days later, the hapless analyst decided that Janus was a buy, and the price gently subsided.

Shock! Goldman favours big clients

Susanne Craig uses 2,200 words in today’s Wall Street Journal that state the obvious: Goldman Sachs treats big clients better than small ones.

In any other industry, a company giving favourable treatment to its best customers would stand accused of nothing more than sound business practice.

Citi’s dirty pool of assets

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Hard as it may be to believe, shares of beleaguered Citigroup are on fire.

The stock of the de facto U.S. government-owned bank is up some 300 percent after it cratered at around $1 back in early March.

The over-caffeinated stock maven Jim Cramer keeps calling Citi a “buy, buy, buy” on his nightly CNBC television show. Even the more sober-minded writers at Barron’s are pounding the table a bit, predicting Citi shares could double in price in three years.”

Less can be more

It’s good news when a bank reports a decline in the percentage of problem assets on its balance sheet. 

At Goldman Sachs it could even be better news down the line.

The bank’s tough-to-value Level 3 assets at the end of the second quarter totaled $54.5 billion, down from $66.2 billion in November 2008 — the end of the firm’s most recent fiscal year. 

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