morgan-stanley

Video: De Kock Doubts Greece Will Default or Restructure Debt

by on May 20, 2011

May 20 (Bloomberg) — Gabriel de Kock, an executive director at Morgan Stanley, talks about Greece’s credit rating and the prospects of the country defaulting on its debt. Fitch Ratings cut Greece’s rating to B+, four levels below investment grade, from BB+. De Kock speaks with Pimm Fox on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

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Video: De Kock Doubts Greece Will Default or Restructure Debt

NY AG Wants Mortgage Records From 3 Major Banks

by AP on May 18, 2011

Huffington Post…

ALBANY, N.Y. — New York Attorney General Eric Schneiderman is seeking records from three major Wall Street banks as part of a broad investigation into the mortgage crisis that fueled the recession, an official familiar with the issue said Tuesday. Schneiderman is meeting with representatives of the Bank of America, Morgan Stanley and Goldman Sachs, according to the official, who spoke to The Associated Press on condition of anonymity. Those meetings are expected to focus on mortgage securities operations during the boom on Wall Street that ultimately cost banks billions of dollars. The official said securitization of those mortgages would be an area Schneiderman will examine. Packaging mortgages into securities that investors could buy might have concealed risky loans, something critics on Wall Street said was at the center of the mortgage crisis. The official spoke on the condition of anonymity because of the sensitivity of the continuing investigation. There was no immediate comment from the banks. There also was no immediate response to messages left at Schneiderman’s offices about the records search, which was first reported by The New York Times and the Wall Street Journal. The official told the AP that the records search is part of Schneiderman’s review of factors that led to the 2008 financial crisis. Back then, banks sold bundles of risky mortgages with teaser rates that increased after only a few years. Many borrowers ended up defaulting on the loans when the interest rates spiked. As a result, the value of mortgage securities plummeted. Experts in the area have since said that banks had very little of their own money invested in those mortgages. That led banks to take greater risks, which contributed to the fiscal crisis. ___ Associated Press Business Writer Pallavi Gogoi contributed to this report from New York City.

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NY AG Wants Mortgage Records From 3 Major Banks

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Video: Jonas Likes Auto Stocks Amid Higher Gasoline Prices

May 13, 2011

May 13 (Bloomberg) — Adam Jonas, an analyst at Morgan Stanley, talks about the prospects for automobile stocks amid higher gasoline prices. He speaks on Bloomberg Television’s “InBusiness with Margaret Brennan.” (Source: Bloomberg)

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Goldman, Citigroup Among Large Banks Targeted By EU Over Alleged Collusion

April 29, 2011

BRUSSELS — The EU’s competition watchdog is investigating the practices of some the world’s biggest banks, as well as a market data firm and a clearing house, in the market for credit default swaps. The two probes home in on a market that has come under fire for lacking transparency and allegedly worsening debt market turmoil during the financial crisis. While the investigations focus on competition issues, they accompany a broader regulatory crackdown in Europe on credit default swaps and other derivatives. The European Commission said it has “indications” that the 16 banks acting as dealers in the CDS market – practically all the big players in global investment banking – give essential information on pricing and other daily activities only to Markit, the leading financial data provider for that market. Such preferential treatment “could be the consequence of collusion between them or an abuse of a possible collective dominance” and could lock other data providers out of the CDS business, the Commission said. The 16 firms targeted are JP Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo, Credit Agricole and Societe Generale. Credit default swaps were invented to help investors insure themselves against the default of a company or a state whose bonds they hold. However, they have also been used for speculation and the profits some banks and hedge funds make from such transactions have come under scrutiny during the financial crisis. “CDS play a useful role for financial markets and for the economy,” said Joaquin Almunia, the EU’s competition commissioner, said in a statement. “Recent developments have shown, however, that the trading of this asset class suffers a number of inefficiencies that cannot be solved through regulation alone.” In a second case, the Commission is also investigating whether nine of those banks received preferential treatment – such as lower fees and profit-sharing deals – from ICE Clear Europe, the biggest CDS clearing house in the EU. “The effects of these agreements could be that other clearing houses have difficulties successfully entering the market and that other CDS players have no real choice where to clear their transactions,” the Commission said. The banks targeted in the second probe are Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS. Almunia said he hoped that the “investigation will contribute to a better functioning of financial markets and, therefore, to a more sustainable recovery.”

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Daniel Dicker: How To Drop Gas Prices By a Dollar — Overnight

April 27, 2011

Want to see lower prices at the pumps? Obama says there’s “no silver bullet,” while Boehner considers removing tax subsidies to big oil. Romney and Pawlenty take up the cry of “drill, baby, drill,” but even unrestricted access to U.S. reserves would only result in another 500,000 barrels a day at the outside, a piddling help to our country that consumes 21 million barrels a day. The bottom line is, none of those ideas will help us lower gas prices in the short term. How about a ban on all long-only commodity funds (LOCFs) and commodity ETFs instead? I believe such a bill supporting the liquidation of these funds could knock a dollar a gallon off the price at the pumps practically overnight. For the past ten years, but particularly in the last five, Wall Street has created and sold commodity index funds, ETFs, hedge funds and online trading to compel investors into buying oil as if it were a stock or a bond, even though oil is anything but. They’ve had incredible success: Since 2003, index investment into commodities, overwhelmingly directed at oil, has grown from virtually zero to now top $350 billion dollars. ETFs have increased by $50 billion in the last year alone and commodity hedge funds, as well as individuals investing in oil, have ballooned similarly. But oil is not like a stock. Commodity markets require equal amounts of sellers to match the number of buyers, and this one-sided appetite to own oil has had one overwhelming effect: driving prices through the roof. And who’s paying for it? It’s not just the consumer who suffers from the wagering taking place with oil. More than 50% of the businesses listed on the New York Stock Exchange have energy as their primary input cost. For businesses both small and large, hyped energy prices threaten our tenuous recovery by stifling new hiring and growth. The high costs of imported oil only serve to fill Middle Eastern sovereign wealth funds with U.S. capital. A recent shocking report from Morgan Stanley puts the total “oil bill” of current crude prices at $2.4 trillion dollars or 3.7% of the total GDP of oil importing countries. For Wall Street, this is just collateral damage. They continue to fight for these new instruments and new markets for the same reasons they created and traded sub-prime mortgage securities and credit default swaps: Wall Street, and particularly the major investment banks, are terrific at trading off of and posting huge profits from these money flows. What can be done to stop this? What’s clear is that oil is just too important a resource — to every aspect of our lives — to be subject to the same financial manipulations as other investment assets like stocks and bonds. Besides just the costs for gas and heat, energy is the main component cost for processing foods and drugs, plastics and aluminum – just about everything we depend upon. A quick way to promote fairer prices would be a direct ban on commodity indexes and ETFs that use futures and swaps. Not one dollar invested in any of these instruments could be mistaken for a “hedge” — they’re all just bets. Our priorities should be clear and non-partisan: the right to bet on oil prices should be less important than the right of consumers and businesses to a fair and honest price. So far, however, this measure to try and control some of the money flowing into oil is not even being discussed. And it’s not a change that anyone should expect any time soon. Wall Street influence in Washington is powerfully strong. Rolling back the clock on financial “innovations” that benefit traders is an uphill battle. Without further action, however, higher oil prices become a self-fulfilling prophecy: rising prices inspire more money to bet on rising prices. As early as this summer, we could be looking at $5 a gallon gas.

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Video: U.S. Stocks Gain as Apple, Morgan Stanley Beat Estimates:

April 21, 2011

April 21 (Bloomberg) — Bloomberg’s Cali Carlin reports on the performance of the U.S. equity market today. U.S. stocks rose, sending the Standard & Poor’s 500 Index near its bull-market high, as stronger-than-estimated earnings at companies from Apple Inc. to Morgan Stanley bolstered optimism about the economy. Bloomberg’s Pimm Fox also speaks. (Source: Bloomberg)

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Morgan Stanley Q1 Earnings

April 21, 2011

Morgan Stanley Q1 Earnings

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Dan Solin: An Outsider’s Look at Insider Trading

April 20, 2011

I am fascinated by all trading (since little of it makes sense to me), but insider trading really intrigues me. Some recent cases are worthy of special attention. In one, a hedge fund manager in FrontPoint Partners is alleged to have sold a huge block of shares in a biotech company after he got a tip that one of the company’s drugs was in trouble. The sale allegedly avoided $30 million in losses. According to an article in the Wall Street Journal , FrontPoint, which was previously owned by Morgan Stanley, agreed to a settlement with the SEC involving payment of $33 million. Criminal charges are pending against the fund manager. The fund manager, who earned a medical degree from Yale, allegedly paid cash to a French doctor who gave him the inside tip. On one occasion, he allegedly slipped $10,000 in cash in an envelope to the doctor while they were both at a bar in Milan. The French doctor has admitted his complicity in this scheme. I have to give credit to his lawyer, David Zornow, who noted that: “Dr. Benhamou’s conduct in this instance must fairly be considered in the overall context of his extraordinary contributions to his patients and to medical science.” How those contributions should factor into his illegal conduct is beyond me, but I thought the effort to conflate the two was very creative. The founder of the Galleon Group, Raj Rajaratnam, is currently on trial for insider trading, as part of a broad crackdown by the U.S. Attorney Office. By some accounts, 47 people affiliated with hedge funds in the last 18 months have been charged with insider trading. Here’s what fascinates me. These are not rinky dink outfits. Galleon Group managed over $3 billion in assets. It had significant resources which — you would think — would permit it to do all the research necessary to uncover mispriced stocks and secure outsized returns for its wealthy investors. Clearly, these giants of Wall Street know something they aren’t telling their clients: It’s really hard to be a successful stock picker. In fact, I am unaware of any research validating this skill and reams of data showing that stocks are fairly priced, incorporating all available information instantaneously. As successful insider trading indicates, it’s tomorrow’s news that affects stock prices. When FrontPoint got tipped off about non-public information, it was able to profit. Essentially, it learned about tomorrow’s news before that news was public. Insider trading validates index based investing. The hedge fund managers who engage in this activity understand they are unlikely to “beat the markets,” without violating the law. As noted author and market theorist William Bernstein said: ” It turns out for all practical purposes there is no such thing as stock picking skill.” Confronted with that reality, some managers have resorted to illegal conduct. There is a much better alternative. It will permit you to outperform 95% of all professionally managed money. Invest in a globally diversified portfolio of low management fee stock and bond index funds in an asset allocation suitable for you. Keep your cash out of envelopes. Keep yourself out of prison. That’s my outsider’s look at insider trading. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Merrill Lynch Uses Large Signing Bonuses To Attract Star Brokers

April 15, 2011

NEW YORK (Joseph A. Giannone) – Merrill Lynch is giving some regional managers permission to offer unusually high upfront signing bonuses to attract top-tier brokers from rivals, according to several recruiters. The second-largest brokerage firm is sweetening elements of a scheme unveiled in January, according to the recruiters who spoke on condition of anonymity. Merrill’s offer, which is likely to be offered to a few dozen brokers, illustrates how difficult it has become to lure stars who have been locked into place through retention packages that pay bonuses over seven years or longer. “There is flexibility on deals for the best of the best,” said a recruiter briefed on the recruiting plan. “Now managers don’t have to ask for an exception.” A spokeswoman at Bank of America, the parent of Merrill Lynch, declined to comment. Terms of the deal are complex, as is often the case with payout grids and recruiting packages. Top-echelon brokers can receive 150 percent of the fees and commissions they generated over the previous 12 months, supplemented by an additional 15 percent if they have attained certain professional designations such as the Certified Financial Planner Board of Standards’ CFP certification. The aggressive package is well above the recent norm of 125 percent of trailing 12-month revenue in upfront cash, the recruiters said. The supplement is not new, but it has been standardized and put in writing for the first time, they said. On the back end, brokers can get 200 percent of their annual production — split evenly between cash and stock — starting after 18 months. Balances would be paid out over the following five years as brokers hit targets for bringing in new client assets. The payouts are not capped. The benchmarks are similar to those outlined in January, but Merrill has extended the deadline for meeting the first asset-gathering hurdle to 18 months, 50 percent longer than in the initial scheme. The deadline for brokers to expand their starting books of business by half as many assets has been extended under the new plan to six-and-a-half years. To collect the full amount of deferred pay, brokers must remain at Merrill for nine years. Managers are also authorized to make offers to “second quintile” brokers at rival firms, with a maximum up-front bonus of 140 percent of trailing 12-month revenue in addition to the certification supplements. Back-end payments for this tier are capped at 350 percent of a broker’s trailing-year revenue at the former firm, a recruiter said. Bank of America on Friday unveiled first-quarter earnings that were below expectations, but bolstered by contributions from Merrill Lynch. Brian Moynihan, chief executive of the bank company, has publicly expressed disappointment with Merrill’s recruiting performance in 2010. The broker-dealer this year has articulated an ambitious plan to expand its brokerage force by a net 8 percent in 2011, or more than 1,200 brokers. In the first quarter, Merrill added 184 advisers, bringing its brokerage force to 15,695, the bank said Friday. That’s down from 16,690 that Merrill boasted in September 2008 when it agreed in the depths of the financial crisis to sell itself to Bank of America. Morgan Stanley Smith Barney is now the number one broker, with more than 18,000 retail advisers. (Reporting by Joseph A. Giannone, editing by Jed Horowitz) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Video: Roach Says U.S. Economy Must Be Weaned Off `Steroids’

April 12, 2011

April 12 (Bloomberg) — Stephen Roach, nonexecutive chairman of Morgan Stanley Asia, talks about risks to the U.S. recovery, Federal Reserve monetary policy and economic lessons from the experience of Japan. Roach speaks with Carol Massar on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Matt Taibbi: The Real Housewives Of Wall Street

April 12, 2011

Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?

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U.S. Banks Relying On Rainy Day Funds, Not Revenue To Turn Profits

April 9, 2011

CHARLOTTE, North Carolina (Joe Rauch) – Investors looking for loan growth and surging revenues at the biggest U.S. banks, including Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) are likely to be disappointed by first-quarter earnings. Banks have been generating most of their profits in recent quarters from dipping into money they previously set aside to cover bad loans. Those reserve reductions make sense if credit losses are stabilizing, which seems to be the case. But banks cannot reduce their loan loss reserves forever and at this point profit growth must come from making more money from loans and generating more fees, analysts said. Boosting interest income from loans is tough when the interest rates at which banks lend are so low and loan demand is still tepid. Fee income, meanwhile, is being threatened by future regulatory changes. “The revenue line will be key, that’s what most investors will be focusing on,” said Jason Ware, senior equities analyst at Albion Financial Group. The Salt Lake City-based wealth manager oversees $650 million in client assets. “The question everyone has is ‘Where does the top line go from here?’” he said. Some banks will be particularly hard hit by weak trading in the quarter, as the stock market sagged on Middle Eastern political upheaval, a Japanese earthquake and tsunami sent the yen to record highs and markets were broadly unpredictable. But what many analysts are focusing on now is loan growth and data show the results may not be great. Bank loans outstanding declined 0.9 percent in January and 6.8 percent in February, according to a report from the Federal Reserve. Commercial and industrial loans were on the rise, which many analysts see as a positive sign, but meanwhile a broad array of consumer loans — mortgages, credit cards — are posting declines, so total bank credit outstanding are shrinking. The first quarter, analysts said, is typically the weakest of the year for banks. But the analysts with the best track records foresee a quarter that was tougher than usual for many banks, according to Thomson Reuters Starmine Smart Estimates. These “smart analysts” believe other analysts are far too optimistic about some banks, and only a little too pessimistic about the others. The analysts that have historically been the most accurate believe that results for Citigroup, Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) will fall short of analysts’ average estimates, according to Starmine Smart Estimates. Starmine’s analyst estimates, for example, indicates Morgan Stanley may miss estimates by as much as 22 percent. The Starmine “smart analysts” are projecting that Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), JPMorgan Chase, and Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz) will beat broader estimates by a fairly small margin. BofA is projected with the largest earnings beat at 7.7 percent above the average estimate, Starmine estimates. NEW NORMAL For even the largest U.S. banks, interest income from loans is a key driver of earnings growth, but the total number of outstanding loans continues to stagnate, even as banks appear to have solved many of the credit issues that have dogged them for the last three years. The fees that banks get from processing debit cards will likely be limited by provisions of the Dodd-Frank financial reform bill, which will pressure fee income for banks in the future. Marty Mosby, bank analyst with Guggenheim Securities, said he is expecting banks will show a 10 percent decline in total charge-offs of bad loans, with some showing charge-offs shrinking by as much as 50 percent. While that will be a boost to earnings as banks continue to release reserves protecting against loan losses, Mosby said he does not expect loan growth for the next few quarters. “This will be a different model than what we’re used to seeing, based more on profitability, consolidation and efficiency, rather than outright organic growth,” Mosby said. In the fourth quarter of 2010, loans at U.S. banks totaled $7.38 trillion, the lowest level since the fourth quarter of 2009 and off from the peak of $8 trillion in the second quarter of 2008, FDIC data show. Long term, investors may need to adjust their expectations for the industry’s earning ability. Mosby said banks that were once able to produce a 20 percent return on shareholder equity may not be able to top 15 percent. Bank’s return on equity could dip to as low or 10 or 12 percent, he added. Halle Benett, a banker in charge of financial institutions merger advisory at UBS for the Americas, said: “I do think you’ve got to come to a decision as to what is generally accepted profitability for banking institutions and I’m not sure the cycle we came out of was the long-term norm.” (Reporting by Joe Rauch; Additional reporting by Clare Baldwin and Lauren LaCapra in New York; Editing by Gary Hill) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wall Street May Allow Shareholders To Vote On Executive Pay

April 1, 2011

Morgan Stanley, Goldman Sachs and JPMorgan Chase & Co will soon join Citigroup and Bank of America Corp in allowing shareholders to vote on executive compensation, the Wall Street Journal said, citing people familiar with the matter. Last year’s Dodd-Frank financial reform law requires a say-on-pay vote at least three years at most big U.S. companies. Other companies that already have recommended shareholders’ vote on the executive pay are Monsanto Co, Tyco International, Toll Brothers Inc, the newspaper said. Morgan Stanley, Goldman Sachs and JPMorgan are expected to recommend an annual vote in their coming filings with the U.S. Securities and Exchange Commission, WSJ said, citing people familiar with the matter. The banks were not immediately available for comment. (Reporting by Megha Mandavia; Editing by Jon Loades-Carter) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Tesla Stock Soars After It’s Called ‘America’s Fourth Automaker’

March 31, 2011

Ford, General Motors, Chrysler and Tesla? A new report by Morgan Stanley suggests that electric car startup Tesla is in good position to break into the Big Three to become “America’s fourth automaker.” The brokerage believes that increasing gas prices and promises of governmental support for alternative fuel vehicles may help launch the manufacturer to global success. Tesla’s stock rose 20 percent following the report, to $28.51, but the firm’s price target for the end of the year is $70, about double its current price. Not everyone is quite so optimistic, however. Though Morgan Stanley’s report estimates that electric cars will reach 7 percent of total U.S. car sales by 2020, previous estimates have placed that figure closer to 1 or 2 percent. “I’d say that the praise is a little bit of a hyperbole,” said Ed Kim, director of industry analysis with AutoPacific. “In fact more than a little — Tesla still has a long way to go before they become a true volume automaker in North America.” Major obstacles still confront the electric vehicle industry from reaching widespread adoption. Unlike gasoline-run cars, or even hybrids, pure electric cars require significant infrastructure to be at all viable outside of urban areas where driving distances tends to be shorter. Ultimately, though, experts believe EV adoption will come down to price: if gas prices continue to rise, and the government actually steps in to provide major subsidies on electric vehicle purchase, American consumers may come to regard the cars as worthwhile investments. “As long as we’re still in a world where we don’t have a vastly expanded infrastructure, in a world where gasoline is still cheap enough, the mainstream is not going to embrace them,” said Kim. “Consumer behavior is affected first and foremost by price.” Watch a short video about Tesla below by AOL Autos: PRODUCTION PLAYER! DO NOT DELETE.

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Video: Parker Expects U.S. Stock Market Multiple to Contract: Video

March 18, 2011

March 18 (Bloomberg) — Adam Parker, head of U.S. equity strategy at Morgan Stanley, discusses the outlook for U.S. stocks, corporate earnings and economic growth. Parker talks with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

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Video: Roach, El-Erian, Geithner Own Words on Japan Economy

March 17, 2011

March 17 (Bloomberg) — Stephen Roach, non-executive chairman of Morgan Stanley Asia Ltd., Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., and U.S. Treasury Secretary Timothy Geithner speak about the economic impact of the March 11 earthquake and tsunami in Japan on the country and the rest of the world. This report also includes comments from Joao Vale de Almeida, the European Union’s ambassador to the U.S., Citigroup Inc.’s Willem Buiter and Credit Suisse Asset Management’s Stefan Keitel. (Source: Bloomberg)

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Justice Department Investigating Foreclosures On Military Families By Morgan Stanley Subsidiary

March 12, 2011

The Justice Department is investigating allegations that a mortgage subsidiary of Morgan Stanley foreclosed on almost two dozen military families from 2006 to 2008 in violation of a longstanding law aimed at preventing such action.

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Video: Secker Expects Equity Markets to Become More Volatile

March 11, 2011

March 11 (Bloomberg) — Graham Secker, Morgan Stanley’s head of pan-European equity strategy, talks about the outlook for stocks and the effect of higher oil prices on the economy. He speaks with Mark Barton on Bloomberg Television’s “Countdown.”

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SEC Proposes Curbing Executive Bonuses

March 2, 2011

WASHINGTON (Reuters) – U.S. securities regulators issued a proposal on Wednesday to curb bonuses at brokerage and investment advisory firms over the objections of Republicans on the panel and even some doubts expressed by Chairman Mary Schapiro. The Securities and Exchange Commission voted 3-2 to issue for comment a plan for the wealth management industry that is substantially similar to one proposed by the Federal Deposit Insurance Corp last month for banks. The measures, required by last year’s Dodd-Frank financial law, are aimed at reducing incentives for executives and other top employees to take excessive risks. They require more disclosure of pay schemes and in some cases deferral of bonus money to later years. Some SEC members were concerned by how the agency’s pay proposal would affect the largest brokerage firms and financial advisory companies, which would include units of large banks such as Morgan Stanley and Bank of America. The plan would also likely hit some advisers of large hedge funds as well, although the SEC did not elaborate on which particular companies might be impacted. “Larger broker dealers and investment advisers may find it more difficult to recruit and retain quality personnel,” Republican Commissioner Troy Paredes told the SEC meeting. “It is potentially compromising the competitiveness and capability of these financial institutions.” Nevertheless, the broader U.S. plan to limit financial services pay is markedly softer than the European Union, which in December set guidelines that top bankers be limited to receiving 20 percent of their annual bonuses upfront in cash, with some exceptions. In other measures mandated by Dodd-Frank, the SEC on Wednesday proposed reducing money market fund reliance on credit-ratings and extended the comment period on a plan to restrict the voting power of large financial companies in derivatives clearinghouses. WATCHING FOR “UNINTENDED CONSEQUENCES” One part of the SEC’s proposal would target broker-dealers and investment advisers with proprietary assets over $1 billion. Any firm that meets that threshold would need to make disclosures to regulators about their pay structures. Those firms would also generally be banned from creating pay schemes that may lead executives, directors or principal shareholders to take inappropriate risks or take actions that result in a material loss. Those provisions are expected to affect around 132 brokerage companies and 70 investment advisory firms. But the SEC did not provide detail on which individuals at the firms may be impacted. David Tittsworth, executive director of the Investment Adviser Association, doubted the proposal would affect a large number of advisers, expecting it would only apply to publicly traded firms, or those affiliated with a large bank or broker. Danny Sarch, a brokerage industry recruiter based in White Plains, New York, said the SEC’s proposal is misdirected, partly because brokers lost a lot of money during the financial crisis, showing their interests were tied to shareholders’. “Retail brokers were not responsible for the financial meltdown,” Sarch said. Another piece of the rule, meanwhile, targets executive officers and the heads of major business lines who work at financial firms with $50 billion in proprietary assets. That part of the rule would require these firms to defer at least half of executives’ bonus pay over a three-year period. SEC staff and commissioners said they were keen to hear from the public about whether the proposed compensation structure was properly tailored to different business models, particularly investment advisers. Schapiro said she was hoping in particular to receive comments about private fund advisers, “given how they often structure their compensation.” “This is an area where we want to be very attuned to unintended consequences,” she said. CREDIT RATINGS, CLEARINGHOUSES The SEC on Wednesday also began to tackle the removal of credit-rating references in federal regulations affecting money market mutual funds. Dodd-Frank requires federal agencies to help reduce reliance on them by markets, a response to criticism that raters gave glowing reviews to investments linked to sub-prime mortgages just ahead of the crisis. In the area of over-the-counter derivatives, the SEC proposed new governance standards for clearinghouses and also reopened the public comment period on a contentious rule that would place limits on the voting power that financial firms can wield in derivatives clearinghouses and trading facilities. The plan on voting caps has been widely opposed by big Wall Street banks, although the Justice Department’s Antitrust Division has said it does not go far enough. The governance and operations proposal addresses the financial resources that clearinghouses must hold to withstand defaults by members. It also includes provisions to prevent clearinghouses from denying memberships to smaller firms. Major clearinghouses and trading platforms include LCH.Clearnet, IntercontinentalExchange’s ICE Trust, and Tradeweb, a trading platform majority owned by Thomson Reuters and minority-owned by big banks. (Reporting by Sarah N. Lynch in Washington; Additional reporting by Helen Kearney in New York; editing by Tim Dobbyn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wall Street Preps For Exodus Of Talent To Hedge Funds

February 2, 2011

BOSTON (By Aaron Pressman) – The usual flurry of brokerage firm traders seeking to join hedge funds after the payout of annual bonuses could be more of a blizzard this year, with compensation shrinking on Wall Street and a regulatory crackdown in the offing. Wall Street’s leading banks cut bonuses by an average of 5 percent for all employees, according to a Reuters survey conducted last month. But executive recruiters say the drop for traders was more severe, closer to 25 percent to 30 percent, because of weaker results and the expected implementation of the Volcker rule ending proprietary trading at the banks. “People on proprietary trading desks are showing a greater level of interest in hedge funds than in the past,” said Paul Sorbera, president of executive recruiter Alliance Consulting. “Even if their bank isn’t shutting the desk down, the pending rules make people in the seats concerned for their longevity.” Details of the rule, first proposed by former Federal Reserve Chairman Paul Volcker, are expected from U.S. regulators within months. Mandated as part of the Dodd-Frank financial reform law last year, the Volcker rule seeks to ban proprietary trading at banks, but it is not clear how tight the restriction will be. Last week’s headlines about hedge fund star John Paulson’s $5 billion 2010 paycheck also certainly got the attention of Wall Street’s top traders. Goldman Sachs’ recent award of a $2 million annual base salary and $12.6 million in stock to its chief executive officer, Lloyd Blankfein, pales in comparison. GLORY DAYS OVER? Hedge fund compensation overall is recovering from a dip during the credit crisis. And after a burst of fund closings and client redemptions, the $1.9 trillion industry is getting an influx of cash again. “Where we are now, it’s certainly much more difficult for the banks to compete for that talent,” said Lawrence Lieberman, senior managing director at Orion Group, an executive recruiting firm that focuses on the money management industry. On average, senior equity professionals at hedge funds — including portfolio managers, traders and analysts — made $875,000 last year, up from $800,000 in 2009, according to a survey by compensation consultants at Greenwich Associates and Johnson Associates. The average for fixed income pros rose to $1.1 million from $1.0 million. While pay for bond traders at the hedge funds slightly exceeded pre-crisis levels, equity market specialists still have a lot of ground to make up before they again reach the 2007 average of $1.7 million. The Greenwich/Johnson survey found much lower salaries in its “other” category, which includes banks, but the group’s data is skewed by the inclusion of much lower pay at insurance companies and government agencies. In equities, senior professionals made $385,000 on average in 2010, up from $350,000 in 2009. On the bond side, the average pay increased to $450,000 from $400,000. Making comparisons between average pay at hedge fund and Wall Street firms is almost impossible, Johnson Associates Managing Director Alan Johnson said, but people are moving for more money. “It’s driven by pay — that’s a lot of it,” he said. On Wall Street, compensation is shrinking for many traders. Profits are down from the glory days, and new rules from Dodd-Frank and the Securities and Exchange Commission have increased pressure to curb pay. Morgan Stanley not only reduced bonuses, but also increased the portion of the payouts that cannot be spent for up to three years to 60 percent from 40 percent. Senior executives will see 80 percent of their bonuses deferred, the investment bank said. Even before the figures had leaked out, Morgan Stanley’s head of proprietary trading, Peter Muller, had decided to take his group independent. Top traders at Goldman Sachs, including Morgan Sze, Pierre-Henri Flamand and Daniele Benatoff, have left to open their own funds or are making plans to do so. In October, private equity firm Kohlberg Kravis Roberts & Co grabbed nine Goldman traders led by Bob Howard. Moving to a hedge fund may not be an option for everyone who wants to leave a Wall Street trading desk, given the smaller size of the fund industry, Johnson noted. “We are not talking about thousands of people because there aren’t enough jobs,” Johnson said. “But you will see a lot of the most valuable and most prominent people go.” Beyond 2011, further regulations will probably determine the long-term trend in the sector, according to University of Virginia economics professor Ariell Reshef, who studied the after-effects of Depression-era regulation on Wall Street. Rules put in place so far pale in comparison to what was done in the 1930s to curb risk-taking, including the Glass-Steagall Act of 1933, which separated banking and underwriting, Reshef said. “We have not seen any significant regulatory changes,” he said. “What has transpired is small cash compared to 1933-34 regulatory reforms — pun intended.” (Reporting by Aaron Pressman; Editing by Lisa Von Ahn) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Wall Street Pay Jumps 5.7 Percent, Breaking Record

February 2, 2011

Wall Street pay is rising, while income for normal Americans has stagnated. Even as the real economy limped, financial firms paid employees a record sum last year, the Wall Street Journal reports. In 2009, the last full year data are available, average wages for Americans fell 1.5 percent from the previous year, according to the National Average Wage Index. Median household income in 2009 was “not statistically different” from 2008, according to the Census Bureau . But total pay at Wall Street firms rose 5.7 percent in 2010, as the 25 companies that have already reported results shelled out a record $135 billion. Even as regulators pressured firms to alter compensation, prominent executives got big pay bumps, seeming to suggest that the former Wall Street culture has emerged virtually unscathed from the recession. In the years leading up to the financial crisis, executives got bonuses based on their companies’ short-term performance, a phenomenon that experts say encouraged excessively risky behavior. When lawmakers drafted regulations for the financial sector, executive compensation became a crucial subject for reform. The stimulus act, passed in early 2009, contained rules limiting pay. But those rules have not worked, according to a December report from the Council of Institutional Investors. While some firms did decrease bonuses, they also raised base salaries to compensate. Even the new forms of pay — such as restricted stock, designed to align executives’ interests with those of shareholders — don’t effectively curb dangerous risk, the report found. Indeed, combined pay at the financial firms surveyed by the WSJ hit an all-time high last year. Despite concerns in recent months that firms were suffering from a decline in trading volume, revenue rose 1 percent to $417 billion, another all-time record. Meanwhile, the percentage of revenue that went into employees’ pockets climbed as well, from 31.1 percent in 2009 to 32.5 percent last year. The taxpayer bailout that firms received during the crisis has helped amplify Wall Street’s bottom lines . With hundreds of billions from the Troubled Asset Relief Program and other initiatives, the five biggest investment banks — Goldman Sachs, JPMorgan, Bank of America, Citigroup and Morgan Stanley — saw their revenues soar, Bloomberg News reported last year. As TARP has wound down, the Federal Reserve has launched a $600 billion asset-purchase program, intended to augment the flow of cash through the economy, which has also been a direct and indirect boon for the banks. As it buys U.S. government debt, the Fed announces its purchases ahead of time, giving certain banks an opportunity to profit on the trades.

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LinkedIn Files For IPO

January 27, 2011

Developing: More information to come. LinkedIn has just filed for its IPO. As TechCrunch initially reported, and the company’s official blog confirmed, the business networking site has just submitted an S-1 filing with the SEC. The maximum proposed offering priced is $175 million, though the amount is sure to change. Private trading exchange SharesPost indicates LinkedIn’s implied value is $2.5 billion. The company reported revenue of $161.4 million in the first nine months of 2010. Number of shares to be sold and price range have not yet been decided. While some of the shares will be issued for sale, others will be sold by stockholders of the company. Morgan Stanley, Bank of America, Merrill Lynch and J.P. Morgan will act as the bookkeeping managers.

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Morgan Stanley Earnings

January 20, 2011

Morgan Stanley Earnings

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Video: Swonk Says Recovery Not Fast Enough for Labor Market

January 7, 2011

Jan. 7 (Bloomberg) — Diane Swonk, chief economist at Mesirow Financial Inc., and Richard Berner, co-head of global economics at Morgan Stanley, talk about the December U.S. employment report, the labor market, the federal budget deficit and the outlook for economic growth. Employers in the U.S. added fewer jobs than forecast in December, confirming Federal Reserve Chairman Ben S. Bernanke’s view that it will take years for the labor market to heal. Swonk and Berner speak with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

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Will Gas Prices Rise Even Higher In 2011?

January 1, 2011

NEW YORK — The price of oil is poised for another run at $100 a barrel after a global economic rebound sent it surging 34 percent since May. That could push gasoline prices to $4 a gallon by summer in some parts of the country, experts say. Flying, shipping a package and ordering a pizza all likely would get more expensive in the new year if that happens and companies pass along higher energy costs. Some economists say rising energy prices will slow economic growth. The U.S. is the world’s largest oil consumer, but prices since spring have been on a roll primarily because of rising demand in developing countries, especially China. China’s oil consumption is expected to rise 5 percent next year; that compares with less than 1 percent growth forecast for the U.S. Benchmark oil for February delivery rose $1.54 on Friday to end the year at $91.38 per barrel on the New York Mercantile Exchange. It reached $92.06 earlier in the day, the highest since Oct. 6, 2008. Nationwide gasoline pump prices now average $3.072 per gallon. Gasoline expert Fred Rozell predicts that 15 states – including Alaska, Hawaii, Connecticut and Rhode Island – will see gasoline prices top $4 a gallon by Memorial Day. “A dollar more per gallon isn’t that much – probably about $750 more per year for each motorist, but there’s a psychological aspect to gas prices,” he said. “People are going to be up in arms about this.” Higher oil prices have fattened oil company profits. Excluding BP PLC, the four other major investor-owned oil companies posted combined profits of $59.7 billion in the first nine months of the year, a 49 percent increase from the year before. Exxon Mobil Corp., Royal Dutch Shell, Chevron Corp. and Total SA are expected to earn $81 billion for the full year. The fifth oil giant, BP, was held responsible for the largest offshore oil spill in U.S. history and booked $39.9 billion in charges related to the disaster. Excluding special expenses like the Gulf of Mexico spill, analysts say the company will still earn $20.2 billion in 2010. “There’s nothing this industry can’t survive,” Oppenheimer & Co. analyst Fadel Gheit said. The price of energy and other commodities shifted into high gear in late August when Federal Reserve Chairman Ben Bernanke signaled that the central bank was prepared to stimulate the economy by buying government bonds. The $600 billion program didn’t start until November, but speculators had already starting bidding up the value of asset classes like oil. A further oil price spurt came in late November as it became clear that Congress was likely to extend for two more years tax cuts set to expire at the end of the year. The Organization of Petroleum Exporting Countries is capable of raising output, if it needs to, by more than five million barrels per day. Still, Morgan Stanley estimates that the rising energy needs of China and other emerging economies will consume about half of that amount over the next two years. That could create supply pressures similar to those that preceded the price spike of 2008, when oil soared to $147 a barrel. John Hofmeister, former president of Shell Oil and author of “Why We Hate The Oil Companies,” predicts Americans will pay $5 per gallon for gasoline by 2012. Other experts say that’s a long shot. “That means oil close to $200″ per barrel, analyst and trader Stephen Schork said. “We can see it, but we could also see a global depression, too.” In other Nymex trading Friday, natural gas for February delivery rose 6.7 cents to settle at $4.405 per 1,000 cubic feet. Unlike oil, natural gas prices are less than half where they were in 2008. That’s due largely to the technological advances that allowed energy companies to unlock huge deposits in underground shale formations in the U.S. Heating oil for January delivery rose 5.83 cents to settle at $2.5437 per gallon and gasoline for January delivery added 6.14 cents to settle at $2.4532 per gallon. In London, Brent crude increased $1.66 to settle at $94.75 per gallon.

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Video: Sipkin Says Morgan Stanley Top Ranking `Carries Weight’

December 27, 2010

Dec. 27 (Bloomberg) — Doug Sipkin, an analyst with Ticonderoga Securities, talks about Morgan Stanley’s overtaking of JPMorgan Chase & Co. as the top banker for stock sales. He speaks with Carol Massar on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Greenlaw Advises Avoiding Longer-Term Treasuries in 2011

December 15, 2010

Dec. 15 (Bloomberg) — David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley, discusses the Treasury market, economy and inflation risk. He talks with Lisa Murphy on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

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Video: Fels Says Portgual May Seek Bailout, Spain Not `Safe’

November 24, 2010

Nov. 24 (Bloomberg) — Joachim Fels, chief global fixed-income economist at Morgan Stanley, talks about the sovereign debt risk facing Portugal and Spain. Fels speaks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Charles Gasparino: GM IPO Continues Trend of Rewarding Those Who Failed

November 18, 2010

What do the General Motors and the nation’s big banks have in common? They’ve both been bailed out by the federal government and, were it not for government largess, neither would be here today celebrating the automaker’s largely successful stock offering. It’s an irony that has escaped most of the media amid all the hoopla over GM’s “initial public offering,” which is an odd way to describe what is happening now regarding GM’s return to the public markets. IPOs, of course, are usually reserved for relatively new companies that have created new products or services in such a way that investors see promise in their future. GM, on the other hand, is a washed up maker or inferior cars. Its laundry list of problems — from failing to compete with Japanese brands to a bloated work force — pushed the company into bankruptcy in 2009, from which it emerged only after a $50 billion bailout from the government. Thanks to yesterday’s stock sale, GM is about 2/3 the way through paying back the money it owes the taxpayer. The rest is expected to be paid back over the next few years. So far, it’s unclear if the taxpayers will benefit from any of this; now stripped of many of its liabilities and flush with government handouts, GM is marginally profitable again. The stock opened at a healthy $33 a share (it “popped” on the opening a couple bucks before coming down a bit in price). But some analysts say it will have to double in value over the next year or so for the taxpayer to be made whole. While it’s unclear whether taxpayers will make money out the GM fiasco, it’s pretty clear Wall Street already has. Yesterday’s rally in the stock market was attributed to strong demand for the IPO of a company designated Too Big To Fail. Traders who managed to get their hands on the new GM shares were “flipping” them or selling them sometime after the market opened, which is why the price shot up at the opening before settling down as investors took profits on the initial run up. Even worse were the fees raked in by the big Wall Street firms that underwrote the stock issue. Let’s not forget that GM has company on the government’s Too Big To Fail list, and it’s the big Wall Street firms like Morgan Stanley, JP Morgan, Bank of America, Goldman Sachs and Citigroup, the top underwriters of the deal. Combined, the banks received $135 billion in bailout money during the 2008 financial crisis, and that doesn’t consider the countless billions they received through guarantees and other subsidies over the past two years. They are said to split a little under $120 million in fees, which we are all told is low compared to some other corporate deals. Recently some people at the Wall Street firms have complained not just about the relatively low fees but also about the fact that they had to split those fees with several minority-owned firms, which also have positions in the underwriting group. These outfits, of course, received a much smaller portion of the deal, so they made less money than the big firms. But executives at the large banks noted that many of the minority firms and their executives have made political donations to President Obama, which given the government’s ownership stake in the company, accounted for their presence on the deal. Give me a break. The saddest part about this nonsense is that it actually made its way into the deal’s coverage by a financial news television station (hint: it’s not the one I now work for now). Why is it such nonsense? Aside from the fact that many of GMs’ employees are in fact minorities, that all of the big firms in the main underwriting group were also big contributors to the Obama presidential campaign (for more on this check out my new book Bought and Paid for ), or that in just one example of political cronyism, Tom Nides, the No. 2 executive at lead underwriter Morgan Stanley has been appointed for a top position in the Obama White House, not one minority-owned firm needed a bailout in 2008. In other words, maybe it should be the minority-owned firms running the deal instead of the likes of Morgan Stanley and Goldman Sachs?

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Richard H. Neiman: Financing the Economic Recovery in the New Congress

November 17, 2010

Communities across America are still reeling from the financial crisis, precipitated by a flood of questionable bank practices. It may therefore sound ironic that financing is integral to fixing the nation’s financial problems. Just as irresponsible lending drove the crisis, responsible loans and investments will finance the economic recovery. But what is ultimately required is a greater commitment from our banks and more creative thinking from government. No matter how the new Congress decides to proceed towards job creation, there is low-hanging fruit that can be exploited at no cost to the taxpayer — namely the Community Reinvestment Act, or CRA. For over 30 years, CRA has incentivized banks to provide much needed credit access and investments in low and moderate income neighborhoods, often minority communities, which had been blatantly redlined. The incentives for banks provided by this law have leveraged infusions of public capital perhaps by as much as 10 to 25 times, attracting additional private capital in the process. Over the past decade, the CRA has fostered a doubling in lending to small businesses and farms, in excess of $2.6 trillion. With two out of every three jobs in America created by small businesses, this is exactly the type of stimulus that we can all agree is needed to help jumpstart the economy. Despite how some scapegoat the CRA, these loans and investments have been done prudently and were not a culprit in the mortgage meltdown. For example, only six percent of the higher rate loans made during the subprime boom were originated by institutions subject to the CRA. Even more impressive, when these loans were originated by nonbank mortgage lenders who are not subject to CRA, less than two percent were acquired by institutions for CRA credit. Far from being part of the problem, CRA is part of the solution. It is therefore very welcome news that federal bank regulators are considering reforming the CRA to enhance its impact. They must. In the 1990s CRA evaluation started to become too formulaic. Becoming more quantitative was once the right choice, but over time the pendulum has swung too far in that direction. A “check-the-box” compliance mindset exists on the part of many banks and regulators that hinders the CRA from achieving its full promise. In at least three ways the law can be reenergized to better promote growth by recapturing more of the qualitative focus of the CRA. The new Congress can endorse these incentives to spur private sector action. The first place to start is with regulation. Regulators regularly examine banks for compliance with the CRA. Yet year after year, 85% to 90% of banks receive a “Satisfactory” rating. Like grade inflation, this uniformity reduces the value of the CRA as a tool for meaningful comparison. A more precise ratings scale is needed, to differentiate between banks whose performance is very good and those who are not making a real impact. The ability to distinguish more finely between banks would restore the CRA’s original intention to hold banks up to the sunshine of public scrutiny and place limits on their activities when CRA performance is substandard. Second, the reward that banks receive for excellence must be enhanced. The financial crisis — with imploding subprime loans that left people homeless — forced us all to recognize the close connection between consumer protection and bank safety. This connection should be formalized. When bank regulators evaluate a bank’s management quality, as part of their regular analysis of a bank’s safety and soundness, management should receive a higher score by demonstrating true commitment to the CRA and making worthy loans, and a lower score for not. Third, larger banks should be expected to look to a wider geography of underserved neighborhoods, beyond the physical locations of the bank’s branch network as the law now requires. The current brick-and-mortar approach does not reflect the business realities of banks such as Goldman Sachs and Morgan Stanley, which do not have retail branch operations. Banks should be encouraged to work nationwide, recognizing that office location does not drive their business strategy. If we do not act, good projects that can spur job creation will continue to languish for lack of financing. Even last year, with lending at a low point, banks subject to CRA still originated over six million small business loans. The CRA can be even more effective in encouraging banks to discover unexpected business opportunities within their reach. Our families and neighborhoods are waiting.

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Video: Gregory Peters Says Bonds `Skewed Against’ Investors

November 12, 2010

Nov. 12 (Bloomberg) — Gregory Peters, global head of fixed-income research at Morgan Stanley, talks about the likely impact of the Federal Reserve’s policy of quantitative easing on financial markets and risk assets. The Fed’s decision to purchase as much as $600 billion of Treasuries is unlikely to help bond investors, according to Peters. He speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Video: Flanagan Says Fed May Be Adding to Volatility in Bonds

November 5, 2010

Nov. 5 (Bloomberg) — Kevin Flanagan, chief fixed-income strategist at Morgan Stanley Smith Barney, talks about Federal Reserve monetary policy and the impact quantitative easing measures may have Treasuries. Flanagan speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Greenlaw Says Recovery Sustained, Growth to Be Modest

October 29, 2010

Oct. 29 (Bloomberg) — David Greenlaw, chief fixed-income economist at Morgan Stanley, talks about the outlook for U.S. economic growth, Federal Reserve monetary policy and Treasury yields. Greenlaw speaks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Video: Brokers Flee Brokerages as Big Banks’ Assets Decline

October 26, 2010

Oct. 26 (Bloomberg) — More than 7,300 brokers have left the four biggest full-service brokerages — Morgan Stanley Smith Barney, Merrill Lynch, Wells Fargo Advisors and UBS Wealth Management Americas — from the beginning of 2009 through June, according to financial services research firm Aite Group LLC in Boston and company filings. Assets under management at the four top brokerages also fell, dropping 16 percent to $4.75 trillion from 2007 through 2009, Aite Group. Bloomberg’s Brennan Lothery reports. (Source: Bloomberg)

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JPMorgan Almost Doubles Lobbying Spending In Third Quarter

October 21, 2010

The 10 biggest banks in the U.S. spent almost $11 million lobbying the government on financial reform legislation and other issues during the third quarter of 2010, according to the latest disclosure reports. And though the Dodd-Frank financial reform bill was signed into law by President Obama on July 15, several prominent banks have since increased their lobbying, a sign that the real back-room deals may be happening now while several agencies write the specific rules and regulations. Major Wall Street players and banks have been huddling in meetings with regulators and staffers at the Federal Reserve, the Federal Deposit Insurance Corporation, the Comptroller of the Currency and the Securities and Exchange Commission in recent months to hash out the details of those rules. JPMorgan Chase almost doubled their spending on lobbying to $2.7 million from $1.5 million in the second quarter. And Barclays PLC upped its expenditures to $1.09 million from $930,000 in the second quarter. But other firms reduced their spending, including Bank of America, which spent almost $700,000, down from $1.09 million in the second quarter, and Goldman Sachs cuts its lobbying almost in half, from $1.58 million to $780,000. In addition to financial reform, JPMorgan’s interests covered the gamut, from credit card transaction fees and proposals to increase commercial real estate lending to rural housing loan programs and the government’s massive $3.4 billion settlement of a lawsuit involving alleged mismanagement of Native American trust accounts — sometimes referred to as the biggest class-action lawsuit in history against the government. Here is how much the top 10 banks spent on lobbying in the third quarter: Bank of America Corporation – $690,000 JPMorgan Chase & Co. – $2.74 million Citigroup Inc. – $1.34 million Wells Fargo & Company ) – $1.18 million Goldman Sachs Group, Inc. – $780,000 Morgan Stanley – $650,000 Metlife, Inc. – 1.19 million Barclays Group US Inc. – $1.09 million Taunus Corporation (Deutsche Bank) – $540,000 HSBC North America Holdings – $540,000 `

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Morgan Stanley financial results

October 20, 2010

Morgan Stanley financial results

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Video: Wadsworth Says China Has to Address Yuan Convertibility: Video

October 18, 2010

Oct. 18 (Bloomberg) — John Wadsworth, Morgan Stanley Asia honorary chairman, talks about China’s currency policy and economy. Wadsworth speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Video: Grasek Expects Banks to Report Improvements in Credit: Video

October 15, 2010

Oct. 15 (Bloomberg) — Betsy Graseck, an analyst at Morgan Stanley, discusses the outlook for bank earnings in the third quarter and the impact of home-foreclosure problems on the industry. Grasek, speaking with Margaret Brennan on Bloomberg Television’s “InBusiness,” also talks about her recommendation of American Express Co. (Source: Bloomberg)

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The New ‘Hot’ Wall Street Trend: ‘Boring’ Banks

October 5, 2010

The “hot” trend on Wall Street, the Wall Street Journal reports, is to be boring. In response to the soon-to-be-implemented international banking regulations ( Basel III ) and the recent reduction in stock trading volume , the WSJ reports that banks are gradually returning to their traditional business practices, which include trading, managing and advising on behalf of their clients. The Basel requirements will force banks to hold more capital to guard against losses. With bigger piles of unused money, banks likely won’t be able to generate the kinds of profits they were seeing in the years before the crash. (In theory, this also means they’ll be less risky.) The WSJ says Thomson Reuters predicts Goldman Sachs and Morgan Stanley will see a 23 percent drop in profit from 2006 peaks. The July financial reform legislation has also inspired some banks to trim or cut their proprietary trading desks, which make trades for the banks’ own account. The WSJ reported last month that JPMorgan was phasing out its proprietary trading operations entirely. Soon after, Bloomberg Businessweek reported Goldman would likely follow suit. At the end of the month, Businessweek reported that Bank of America would fire almost a third of its prop traders. In his Bloomberg column last week, Michael Lewis , author of The Big Short , wondered why banks were taking such drastic steps to cut prop trading, given that lobbyists were able to massage the reform into allowing banks to use up to 3 percent of their money for their own bets. An explanation, Lewis says, could be that banks have realized proprietary trading isn’t as profitable as it once was. With increased government (and media) scrutiny, taking big risks, at least visibly, seems to have fallen out of style. As Paul Krugman wrote last year, banking used to be “boring.” But starting in the 1980s, regulations were lifted, including the 1999 repeal of the Depression-era Glass-Steagall Act . Government officials, including President Obama, have said deregulation helped cause the financial crisis.

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Robert Kuttner: Trade War Is Here — and We’ve Disarmed

October 4, 2010

Last Wednesday, by a wide bipartisan margin of 348-79, the House passed a bill giving the executive branch authority to impose retaliatory tariffs on a wide range of Chinese exports. The bill was intended to give the Obama Administration leverage (which the White House seems quite disinclined to use) in continuing talks with Beijing about China’s manipulation of its currency. The usual suspects made alarmed clucking noises about jingoism and impending trade war. Writing in the New York Times op-ed page , Steven Roach, a senior executive with Morgan Stanley, contended that the real problem is the low US savings rate, which supposedly leads America to over-consume and pull in imports. This has been used as an alibi for decades, but the fact is that our savings rate bounces around while our trade deficit with China moves only in one direction. Global mega-banks like Morgan Stanley profit from the US China trade, even if America gets rolled. Even the Financial Times , usually pretty sensible, warned against a more assertive stance. In truth , a trade war already exists, and it is being unilaterally waged by China. The entire Chinese industrial system uses a wide range of subsidies that violate both the letter and the spirit of the World Trade Organization. As the US-China Economic and Security Review Commission has long documented, China subsidizes exports, provides bank loans to industry at zero or negative interest rates, and either bribes or coerces US industry to locate production in China for export but not for China’s internal market. All development land in China is owned by the government, which means that China can subsidize favored projects at will. Supposedly, state socialism failed, but the Chinese have created an improbable combination of a one-party socialist state and predatory capitalism. American industry is so far into the tank with the Chinese and the U.S. government is so heavily dependent on the Chinese to buy our bonds that the administration can’t imagine taking a hard line against Beijing. Our diplomats behave more like a client power genuflecting before the might of the imperial master than the dominant nation that the U.S. is supposed to be. The Chinese system has succeeded in giving China a growth rate in excess of ten percent a year. It has created a new capitalist class, a burgeoning middle class, and an urban proletariat that lives relatively better in sweatshop conditions than in rural destitution. The system works, sort of, for China. But it doesn’t work for China’s leading trading “partner” — the United States. It would be far better if China focused more in its own internal market, and paid its people wages commensurate with their rising productivity, so that they could import more from the rest of the world. Wages count for only about 32 percent of total GDP in China — in most of the West, the figure is double that. So the Chinese governments keeps its own people poor and uses the fruits of their labor to invest in expansion, including many billions of dollars in illegal subsidies to industry, and then lends America the money to buy subsidized products. An artificially cheap currency, which has gotten most of the attention, is only one part of Chinese mercantilism. It gets the focus, because even the free-market crowd find it hard to defend. But China could let its currency values be set by market forces tomorrow morning and the rest of its mercantilist system would remain intact, as a real menace to what’s left of US manufacturing. Interestingly, some improbable commentators, like the Washington Post ‘s Robert Samuelson , usually a defender of the free-trade orthodoxy, are recognizing that we have a real problem. Much of the fault lies with our own leaders, and the fault is bipartisan. Both parties have refused to commit the US to an industrial policy of its own. The Democrats under Clinton (Bob Rubin, to be precise) let China into the WTO without asking for any serious reforms in return. The indulgence of Beijing continued under Bush, and continues to this day under Obama. The Chinese make vague noises about currency revaluation, and the administration immediately backs off. These people are cleaning our clock. The one card we have to play is that they desperately need the big US consumer market. For the moment, there is a two-way codependency. It’s not in China’s interest for America to go broke. But in another few years, we will have squandered whatever leverage we still have left. For once, Congress did the right thing. The administration should follow. If China wants the benefits of an open trading system, it should start playing by the rules. And our own executive branch should pay more heed to jobs for our people, and less to profits for corporations that move work offshore and banks that profit from alliance with China’s mercantilism. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos . His latest book is A Presidency in Peril .

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Video: Kindler Says Private Equity `Back in the Game’ for M&A: Video

September 28, 2010

Sept. 28 (Bloomberg) — Robert Kindler, vice chairman and global head of mergers and acquisitions at Morgan Stanley, talks about M&A market conditions. He speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (This report is an excerpt of the full interview. Source: Bloomberg)

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Big Banks Pledge Not To Make Direct Campaign Contributions, Despite Ruling

September 28, 2010

Morgan Stanley [MS 24.87 -0.28 (-1.11%) ] joins a handful of other companies that have decided to continue operating under the old rules, despite the new ruling. The growing movement suggests that many companies aren’t willing to risk the political blowback that could come from dumping millions of dollars into campaigns, or don’t want to open themselves up to endless demands for cash from politicians–or both.

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Video: Roach Expects `Sluggish, Anemic’ U.S. Economic Recovery: Video

September 21, 2010

Sept. 22 (Bloomberg) — Stephen Roach, chairman of Morgan Stanley Asia, talks about the outlook for the U.S. economy and Federal Reserve monetary policy. Roach also discusses U.S. stance on China’s currency policy, and Lawrence Summers’s departure from his job as director of the president’s National Economic Council. He talks from New York with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

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Video: Berner Says His Mortgage Aid Proposal Is Not a `Bailout’: Video

September 20, 2010

Sept. 20 (Bloomberg) — Richard Berner, co-head of global economics at Morgan Stanley, talks about his proposal for helping struggling homeowners pay their mortgages. Berner, speaking with Matt Miller on Bloomberg Television’s “Street Smart,” also discusses the outlook for the U.S. economy. (Source: Bloomberg)

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Bank Profits Hit A Wall In September

September 17, 2010

After pulling in their biggest haul in three years last quarter, bank profits have hit a wall in the first two weeks of September, The Financial Times reports. Analysts have revised down their predictions for bank profits in the third quarter, as trading activity this month has been lackluster. According to data from Bloomberg, as reported by the Financial Times , average earnings estimates for Goldman Sachs and Morgan Stanley have each dropped two cents a share since the beginning of September. With trading slow in both stocks and bonds, the FT notes, analysts think the big banks will fall short of last year’s relatively cheery numbers. Analyst Richard Staite said in a letter to clients that Goldman’s revenue would total $4.2 billion for fixed-income trading (a four percent drop from last quarter) and $1.6 billion for equity trading (a 32 percent rise over last quarter). During this period last year, according to Reuters analysis reported by the New York Times , Goldman pulled in $12.37 billion in revenue, or $3.19 billion in profit. HuffPost’s Shahien Nasiripour reported last month that bank profits in the second quarter of this year jumped 21 percent from the previous quarter, as banks paid the least in perhaps 50 years to borrow money. Even in that climate, though, Goldman’s own profits dropped 82 percent from the previous year, Businessweek said. It wasn’t supposed to be this way. Fingers were crossed at the start of the month, as Bloomberg reported that September activity needed to be “off the charts” to redeem a disappointing July and August. Initially, it looked like a rebound might be in the cards, as the S&P 500 rose last week. The Wall Street Journal even dared to ask this Wednesday, “What’s a September skeptic to do?” The answer, it now seems, is gloat.

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Bailed-Out Banks Finance ‘Legalized Loan Shark’ Payday Lenders, Says New Report

September 14, 2010

Big banks that received TARP bailout money are funding payday lenders — companies Senator Dick Durbin (D – Ill.) termed ” bottom feeders ” — and which charge high interest rates and fees for short-term loans, according to a report released Tuesday. The banks, which include Wells Fargo, Bank of America and JP Morgan, currently provide roughly $1.5 billion in credit lines to publicly-held payday loan companies and between $2.5 to $3 billion to the larger payday loan industry, says the report, which was issued jointly by community group network National People’s Action and non-partisan watchdog Public Accountability Initiative. The payday lenders, including Advance America, Cash America and ACE Cash Express, which allow customers to borrow against future paychecks, and which, according to the report, charge an average interest rate of 455 percent on top of fees of $15-18 per $100 loaned, often depend on the big banks’ financing for their business. “The very same banks that helped tank the economy and then needed hundreds of billions of dollars in taxpayer-funded bailouts are now aiding the bottom-feeders of the financial industry, as they seek–the payday lenders–to strip even more wealth away from everyday Americans,” NPA executive director George Goehl, who also called payday lending “legalized loan sharking,” said in a telephone press conference. “If Al Capone was alive today you might even get a better loan from him.” (Goehl is also a HuffPost blogger) The report, called “The Predators’ Creditors,” which features a picture of three sharks on the cover, says that some banks abstain from business with payday lenders because of what Advance America itself calls “reputational risks.” The report also notes, though, that some of these payday lenders have ties to Wall Street. For example, the board of Advance America includes former executives from Bank of America, Morgan Stanley and Credit Suisse. PAI co-director Kevin Connor, who co-authored the report, said in the press conference that big banks are attracted to the payday loan industry because “Americans were losing their jobs and homes in record numbers but they still had their family treasure to borrow against” Connor also noted that the big banks themselves pay close to zero interest when they borrow from the Fed, a stark contrast to the high interest rates paid by consumers. NPA and PAI are calling for an end to these credit lines from banks. Goehl said a protest campaign will launch today in Ohio and continue in Iowa, Kansas, Missouri and Illinois through next week, culminating in a meeting of the organizers in Chicago. “This report is really the beginning, not the end,” he said.

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