Commentaries
Now raising intellectual capital
Derivatives moolah
The nation’s top commercial banks are poised to generate record revenue from trading derivatives this year. And that’s as good a reason as any why no one should expect the nation’s bank to go along peacefully with a plan to regulate the trading of these sophisticated instruments.
In the first half of the year, the 25 biggest commercial banks took in $15 billion from trading derivatives, with JPMorgan Chase and Goldman Sachs being two of the biggest beneficiaries. And as things stand now, the nation’s banks will easily surpass the record $18.8 billion in derivatives trading revenue taken in during 2006.
In short, there’s a lot of money to be made from trading derivatives. So don’t expect banks to easily accept new rules that will put a crimp in this important source of income.
Oh, and just where did Goldman get most of its derivatives trading revenue from? Trading credit default swaps and other credit derivatives. The OCC reports that Goldman, in the second quarter, raked-in $1.48 billion from trading CDS-like transactions.
A Dimon in waiting?
It’s a natural impulse of journalists to herald a top-level corporate management shake-up as setting the stage for a new heir apparent to a strong-willed chief executive. And not surprisingly, that’s how some in the financial media are reacting to news of today’s changing of the guard of JPMorgan Chase’s investment banking division.
But it’s way to premature to draw any conclusions from the announcement that Jes Staley will become sole CEO of the investment bank, following the departure of Bill Winters and the elevation of Steve Black to a new post within the investment bank.
Cazenove lives it large in ECM
Thomson Reuters data on equity capital markets activity over the first 9 months of the year throws up some pretty exciting data if you are a Cazenove shareholder.
Top of the European league table by a country mile sits JP Morgan with $33.5 billion of deals. And that figure incorporates the ECM deals done by JPM’s UK subsidiary (50 percent plus a share) JP Morgan Cazenove. On its own JPM Caz was responsible for $24.2 billion of deals, making it top of the table by some distance. Its nearest rival was Morgan Stanley with $15.5 billion of deals.
Giving props to Wall Street’s risks
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.
A death panel for Citi
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.
What derivatives, porn have in common
The key to the Obama administration’s plan to bring order to the murky world of derivatives ultimately rests on the definition of what is a standard run-of-the mill derivative.
That’s because Team Obama wants the vast majority of derivatives — financial instruments that derive their value from an underlying stock, bond or other asset — to get traded on regulated and well-capitalized exchanges and clearing houses.
Geithner: Look forward in anger
So Timothy Geithner went ballistic and started throwing around some obscenities during a meeting at the Treasury over the slow pace of financial regulatory reform.
Well, good for him. It’s about time someone in the Obama administration got a little red in the face over the financial crisis.
Jamie vs. Lloyd
Depending on your point of view, Jamie Dimon is the saint of Wall Street and Lloyd Blankfein is Wall Street’s biggest villain. Or vice-a-versa. Or maybe they’re both villains.
I suppose some might even argue that Dimon, the top honcho at JPMorgan Chase and Blankfein, the top gun at Goldman Sachs, are both saints. But the people in the pro-sainthood camp are keeping their thoughts to themselves these days.
Who will be CIT’s Buffett?
The behind-the-scene negotiations surrounding CIT Group’s threatened bankruptcy filing is bringing to mind the 2001 collapse of Finova, another sizeable mid-market lender.
 On the eve of Finova’s bankruptcy filing in March 2001, Warren Buffett seemingly came to the rescue with a $6 billion loan package to help keep the financial firm running in bankruptcy and payoff creditors. The financial package, which Buffett put together with Leucadia National Corporation, came from a new company called Berkadia.
Tax Wall Street trades
Reports of the death of the investment bank have been greatly exaggerated, as Mark Twain might have put it. It was just 10 months ago, after Goldman Sachs and Morgan Stanley quickly converted themselves into bank holding companies, that nearly everyone had written off investment banking. All those predictions about Wall Street firms becoming less profitable and boring places to work seem laughable in light of Goldman’s blowout second-quarter profits and JPMorgan Chase’s equally impressive earnings.
Now all the chatter is about how little things have changed on Wall Street, with trading revenues and fees from underwriting stock deals padding the bottom lines of both banks. Back in September, The New York Times ran a lengthy article headlined “Wall Street, R.I.P.: The End of an Era.”
-
The Wall
