Scanning Goldman Sachs’s newly published interactive annual report on Monday, Unstructured Finance had to do a double-take upon seeing American International Group highlighted as a client success story.
*Derivatives-tax plan concerns industry. John D. McKinnon and Siobhan Hughes – The Wall Street Journal. The Obama administration’s proposal this week to change the way some derivatives are taxed signals common ground with Republicans on a potentially difficult and divisive tax issue that could have far-reaching implications for investors. Link
Sometimes it seems that insider trading cases are all about hedge funds. After all, the overwhelming majority of the federal government’s multi-year crackdown on insider trading has netted dozens of traders and analysts working in the $2.25 trillion hedge fund industry.
* Middle class tax hikes loom in Obama proposal despite pledge to avoid them. The Washington Post. President Barack Obama proposed a 2014 budget that, if adopted, would break his promise to avoid any tax increases for middle- and low-income people. Link
* Luxembourg agrees to automatic information exchange to help fight tax evasion. The Washington Post. The initiative, which is to start in 2015, follows international pressure on Luxembourg to end its policy of banking secrecy that critics say has helped people hide money from tax authorities. Link
* Sen. Max Baucus moves to reshape tax code. Lori Montgomery – The Washington Post. Last month, Senator Max Baucus summoned members of the Senate Finance Committee to a closed-door meeting to discuss the first full-scale rewrite of the 5,600-page U.S. tax code in more than 25 years. After two years of watching President Obama and congressional leaders take on tax policy and other areas of the committee’s vast jurisdiction, the panel’s chairman is reclaiming his turf. Link
* No big deal? Small business groups shrug off delays to Obamacare’s health care exchanges. J.D. Harrison – The Washington Post. The Obama administration has delayed part of the health care law designed to give small business owners and employees more flexibility when purchasing insurance, which could temporarily undermine lawmakers’ intent to drive down the cost of health coverage. Link
The SkyBridge Alternatives Conference – the annual hedge fund blowout better known as SALT, is a month away. And the official agenda for the three-day bacchanal, which sees thousands of hedge fund investors, allocators and hedge fund hangers-on descend on Las Vegas in the second week of May, has been released.
Ronald Reagan famously said that the “nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’” But according to a report from SNL, the government may actually help banks when it forces them to add directors to their boards. Every bank CEO’s worst nightmare is having the government name directors to his or her board. Usually, banks pack their boards with clients or prominent people that offer prestige and potential business leads, but little substantive oversight. At the smaller banks that SNL is focusing on, that often amounts to people like the owner of the local car dealership, or the owner of the local golf equipment seller. (For a stereotypical example of a community bank’s directors, consider the board of Smithtown Bancorp, which was sagging under the weight of failed loans before being taken over by People’s United Bank in 2010.)
The Treasury, on the other hand, tends to appoint people with actual banking experience, who can do what board members are supposed to do: keep an eye on management for the benefit of shareholders. The government only does so for banks that have lost their way: the Treasury has the right to name directors to boards of banks that received bailout money under the Troubled Asset Relief Program, and that missed six quarters of dividend payments. Typically, these appointees are bankers with more than 20 years of experience.
By SNL’s reckoning, the banks with Treasury-appointed directors have racked up median stock gains of 50.38 percent since taking on the new board members, compared with a median gain of 28.22 percent in an index of bank stocks.
Of course there may be other reasons for this outperformance – for example, it may be that small bank stocks in general have outperformed larger bank stocks over the relevant time frame, or that relatively weak banks have been in greater demand from value investors betting on an improving economy. But it may also be that the government has found a fix for the principal-agent problem at banks that have stumbled into trouble.