Archive for the ‘Bulge Bracket Banks’ Category

Bank Stocks Beware: Bernanke & Fed Support Increasing Capital Requirements

Tuesday, June 7th, 2011

U.S. bank indices fell 2% yesterday after fears that capital requirements would increase as much as 7%.  Bank of America (NYSE: BAC), fell below $11.00, the lowest since last year.  The discussion came about after the Basel Committee on Banking revealed how levered large financial institutions still were, and tried to reconcile levels with future recession risks.  A 7% equity capital raise for most banks would be catastrophic and dilute equity by 50%+, but a 3% raise seems manageable in a functioning economy.  The problem is that the U.S. economy is on life support, and that life support is called Quantitative Easing 2.  Once this support fades on June 30th, how will U.S. banks (at their already low valuations due to real estate risk and put backs) raise new equity capital?  A replay of 2009?  You be the judge.

According to Bloomberg, “The Fed supports a proposal at the Basel Committee on Banking Supervision that calls for a maximum capital surcharge of three percentage points on the largest global banks, according to a person familiar with the discussions.

International central bankers and supervisors meeting in Basel, Switzerland, have decided that banks need to hold more capital to avoid future taxpayer-funded bailouts. Financial stock indexes fell in Europe and the U.S. yesterday as traders interpreted June 3 remarks by Fed Governor Daniel Tarullo as leaving the door open to surcharges of as much as seven percentage points.

“A seven percentage-point surcharge for the largest banks would be a disaster,” said a senior analyst at Barclays Capital Inc. in NY. “It will certainly restrict lending and curb economic growth if true.”

Basel regulators agreed last year to raise the minimum common equity requirement for banks to 4.5 percent from 2 percent, with an added buffer of 2.5 percent for a total of 7 percent of assets weighted for risk.

Basel members are also proposing that so-called global systemically important financial institutions, or global SIFIs, hold an additional capital buffer equivalent to as much as three percentage points, a stance Fed officials haven’t opposed, the person said.

Bank Indexes Fall

The Bloomberg Europe Banks and Financial Services Index fell 1.45 percent yesterday, while the Standard & Poor’s 500 Index declined 1.1 percent. The KBW Bank Index, which tracks shares of Citigroup Inc., Bank of America Corp., Wells Fargo. and 21 other companies, fell 2.1 percent.

In a June 3 speech, Tarullo presented a theoretical calculation with the global SIFI buffer as high as seven percentage points.

“The enhanced capital requirement implied by this methodology can range between about 20% to more than 100% over the Basel III requirements, depending on choices made among plausible assumptions,” he said in the text of his remarks at the Peter G. Peterson Institute for International Economics in Washington.

In a question-and-answer period with C. Fred Bergsten, the Peterson Institute’s director, Tarullo agreed that the capital requirement, with the global SIFI buffer, could be 8.5 percent to 14 percent under this scenario. A common equity requirement of 10 percent is closer to what investors are assuming.

‘Across the Board’

“I think 3 percent is where everyone expected it to come out,” Simon Gleeson a financial services lawyer at Clifford Chance LLP, said in a telephone interview. “If it is 3 percent across the board then it will be interesting to see what happens to the smallest SIFI and the largest non-SIFI” on a competitive basis, he said.

U.S. Treasury Secretary Geithner, in remarks yesterday before the International Monetary Conference in Atlanta, said there is a “strong case” for a surcharge on the largest banks. Fed Chairman Bernanke is scheduled to discuss the U.S. economic outlook at the conference today.

“In the US, we will require the largest U.S. firms to hold an additional surcharge of common equity,” Geithner said. “We believe that a simple common equity surcharge should be applied internationally.”

Distort Markets

Financial industry executives are concerned that rising capital requirements will hurt the economy, which is already struggling with an unemployment rate stuck at around 9 percent.

Higher capital charges “will have ramifications on what people pay for credit, what banks hold on balance sheets,” JPMorgan Chase & Co. chairman and chief executive officer Jamie Dimon told investors at a June 2 Sanford C. Bernstein & Co. conference in New York.

The Global Financial Markets Association, a trade group whose board includes executives from GS and Morgan Stanley, said the surcharge may apply to 15 to 26 global banks, according to a May 25 memo sent to board members by chief executive officer Tim Ryan.

Dino Kos, managing director at New York research firm Hamiltonian Associates, said the discussion about new capital requirements comes at a time when banks face stiff headwinds. Credit demand is weak, and non-interest income from fees and trading is also under pressure.

Best Result

U.S. banks reported net income of $29 billion in the first quarter, the best result since the second quarter of 2007, before subprime mortgage defaults began to spread through the global financial system, according to the Federal Deposit Insurance Corp.’s Quarterly Banking Profile.

Still, the higher profits resulted from lower loan-loss provisions, the FDIC said. Net operating revenue fell 3.2 percent from a year earlier, only the second time in 27 years of data the industry reported a year-over-year decline in quarterly net operating revenue, the FDIC said.

“You can see why banks are howling,” said Kos, former executive vice president at the New York Fed. Higher capital charges come on top of proposals to tighten liquidity rules and limit interchange fees, while the “Volcker Rule” restricts trading activities. Taken together these imply lower returns on equity, he said.

“How can you justify current compensation levels if returns on equity are much lower than in the past?” Kos said.

Goldman Sachs Promotes Record # of Managing Directors!

Thursday, November 18th, 2010

Today, Goldman Sachs appointed 321 Managing Directors, all one level below Partner.  This number is sharply higher than the 272 in 2009 and 259 in 2008.  Yesterday, 110 MDs were appointed to Partner, a highly coveted role.  Twenty four percent of the MD promotions consisted of women, the highest percentage in Goldman’s history.  This is after the firm was sued in September by 3 former GS employees for discriminating against women in both pay and upward mobility.  Interestingly enough, 45% of the new partners were based in the Americas, while 26% were in Asia.  This pattern reflects the growth of the firm, now focusing on emerging markets.

According to Bloomberg, “Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, promoted a record number of employees to managing director, one level below the highest rank of partner.

The 321 appointments, up from 272 last year and 259 in 2008, were detailed in an internal memo obtained by Bloomberg News. The announcement came a day after the New York-based company selected 110 people to become partners, a designation that means they share in a special pool of compensation.

Goldman Sachs Chairman and Chief Executive Officer Lloyd Blankfein, 56, has presided over an expansion of the firm, with the total number of employees rising to 35,400 from about 24,000 when he took over in mid-2006. In promoting more employees this year, the company is rewarding people who stayed through the financial crisis, said Charles Peabody, an analyst at Portales Partners LLC.

“It’s a function of trying to regain loyalty after turbulent times,” said Peabody, who is based in New York and recommends investors buy Goldman Sachs stock.

Yesterday’s promotions include the largest group of women ever, making up 24 percent of the new class, said Lucas van Praag, a spokesman in New York. Women make up 19 percent of all managing directors, including the new class, he said. Van Praag said “over 10 percent” of this year’s new partners are women and declined to give a more specific figure.

Employee Lawsuit

Goldman Sachs was sued in September by three former employees who alleged that they faced discrimination in pay and fewer opportunities for promotion than men. Goldman Sachs has said the suit is without merit.

While half of the new managing directors are based in the Americas, 28 percent are in Europe, the Middle East and Africa and 22 percent are in Asia, van Praag said. He said the figures represent a marginal increase in the number outside the Americas.

About 45 percent of the new partners are based in the Americas, with 29 percent in Europe, the Middle East and Africa and 26 percent in Asia.

“That, I think, is reflective of where their growth is going to be,” Peabody said of the hires outside the Americas.

The following is a list of the new managing directors from the internal memo:

James B. Adams

Geoffrey P. Adamson

Yashar Aghababaie

Nicole Agnew

John F. Aiello

Ahmet Akarli

Ali A. Al-Ali

Jorge Alcover

Moazzam Ali

Paolo Aloe

Shawn M. Anderson

Gina M. Angelico

John J. Arege

Paula G. Arrojo

Richard J. Asbery

Scot M. Baldry

Gargi Banerjee

Amit Bansal

Thomas J. Barrett

Roger K. Bartlett

Renee Beaumont

Stephen E. Becker

Mick J. Beekhuizen

Stuart R. Bevan

Ron Bezoza

Nick Bhuta

Christopher Biasotti

David R. Binnion

James Black

Michael Bogdan

Charles P. Bouckaert

Marco Branca

Didier Breant

Kelly Reed Brennan

Craig T. Bricker

Nellie Bronner

Kimberley Burchett

Sara Burigo

James M. Busby

Elizabeth A. Byrnes

Alvaro Camara

Ramon Camina Mendizabal

Tavis C. Cannell

Michael J. Casabianca

Jacqueline M. Cassidy

Leor Ceder

Gaurang Chadha

Brian D. Chadwick

Eli W. Chamberlain

Gilbert Chan

Kevin M. Chan

Isaac J. Chang

Devin N. Chanmugam

Francis S. Chlapowski

Dongsuk Choi

Stephen L. Christian

Peter I. Chu

Vania Chu

Susan M. Ciccarone

Emmanuel D. Clair

Bracha Cohen

Darren W. Cohen

Antony Courtney

Christopher J. Creed

Timothy J. Crowhurst

Helen A. Crowley

Elie M. Cukierman

Matthew J. Curtis

Jason S. Cuttler

Sterling D. Daines

Kevin Daly

Rajashree Datta

Samantha Davidson

Adam E. Davis

Sally Pope Davis

Raymond E. de Castro

Gilles M. Dellaert

Wim Den Hartog

George J. Dennis

Sara V. Devereux

Diana R. Dieckman

Avi Dimor

Lisa A. Donnelly

Igor Donnio

Mark T. Drabkin

Tilo A. Dresig

Thomas K. Dunlap

Steven M. Durham

Michael S. DuVally

Masahiro Ehara

Grant M. Eldred

Manal I. Eldumiati

Charles W. Evans

Anne Fairchild

Craig R. Farber

John W. Fathers

Lev Finkelstein

Warren P. Finnerty

Elizabeth O. Fischer

John J. Flynn

Veronica Foo

Francesca Fornasari

Christian L. Fritsch

Andrew J. Fry

Charles M. Fuller

Ruth Gao

David M. Garofalo

Lisheng Geng*

Luke F. Gillam

Lisa M. Giuffra de Diaz

Matthew J. Glickman

Parameswaran Gopikrishnan

Luke G. Gordon

Pooja Grover (IBD)

Patricia R. Hall

Anna Hardwick

John L. Harrisingh

Peter M. Hartley

Taimur Hassan

Gerrit Heine

Caroline Heller

Richard I. Hempsell

Isabelle Hennebelle-Warner

Jeremy P. Herman

Matthias Hieber

Amanda Hindlian

Darren S. Hodges

Edward Y. Huang

Simon Hurst

Edward McKay Hyde

Nagisa Inoue

Marc Irizarry

Shintaro Isono

Benon Z. Janos

Ronald Jansen

Darren Jarvis

Mikhail Jirnov

Benjamin R. Johnson

Richard Jones (GIR)

Mariam Kamshad

Makiko Kawamura

Christina Kelerchian

Andre H. Kelleners

Sven H. Khatri

Sandip Khosla

David A. Killian

Melinda Kleehamer

Maxim B. Klimov

Adriano Koelle

Goohoon Kwon

Thymios Kyriakopoulos

Laurent-Olivier Labeis

David R. Land

Lambert M. Lau

Sandra G. Lawson

David H. Leach

Terence Leng

Deborah A. Lento

Gavin J. Leo-Rhynie

Leon Leung

Ke Li

Qunmei Li**

Xing Li*

Sabrina Y. Liak

Jason R. Lilien

Kirk L. Lindstrom

Amy M. Liu

Bernard C. Liu

Nelson Lo

Kyri Loupis

Yvonne Low

Joshua Lu

Yvonne Lung

John G. Macpherson

Premal Madhavji

Marcello Magaletti

Todd M. Malan

Uday Malhotra

Upacala Mapatuna

Kristerfor T. Mastronardi

Ikuo Matsuhashi

Francois Mauran

Brendan M. McCarthy

Patrick E. McCarthy

Michael J. McCreesh

Mathew R. McDermott

Charles M. McGarraugh

Sean B. Meeker

Christopher J. Millar

Vahagn Minasian

Matthew R. Mitchell

Ryan C. Mitchell (EQ)

Christine Miyagishima

Igor Modlin

Michael Moizant

Petra Monteiro

Heather L. Mulahasani

Eric Murciano

Colin D. Murphy

Paul M. Mutter

Balachandra L. Naidu

Arvind Narayanan

Mani Natarajan

Antti K. Niini

Tomoya Nishikawa

Daniel Nissenbaum

Kevin Ohn

Thomas A. Osmond

Diana Y. Pae

David C. Page

Elena Paitra

Chrisos Papavasiliou

James Park

Katherine J. Park

Kyung-Ah Park

Ian L. Parker

Karen M. Parry

Benjamin R. Payne

Thomas G. Pease

Andrew J. Pena

Stuart R. Pendell

Ricardo H. Penfold

Jerry Z. Peng

Andrew Philipp

Sasa Pilipovic

Giovanna Pomilio

Asahi M. Pompey

Ling C. Pong

Michael A. Pope

Raya Prabhu

Macario Prieto

Joshua Purvis

Xiao Qin

Philippe Quix

J Ram

Rajiv Ramachandran

Maximilliano Ramirez

Gary M. Rapp

Felicia J. Rector

Christopher C. Rollins

Colin J. Ryan

Maheshwar R. Saireddy

Ricardo F. Salgado

David Sancho

Ian P. Savage

Bennett J. Schachter

Bruce J. Schanzer

Martin L. Schmelkin

Laurie E. Schmidt

Alexander A. Schnieders

Joseph Schultz

Dirk Schumacher

Carsten Schwarting

Thomas Schweppe

Dmitri Sedov

Ram Seethepalli

Stacy D. Selig

Kunal Shah (FICC, EMEA)

Tejas A. Shah

Alasdair G. Share

Kevin C. Shea

William Q. Shelton

Jie Shen*

Jason E. Silvers

Ales Sladic

Howard D. Sloan

Michelle D. Smith

Stephanie P. Smith

Thomas J. Smith

Sangam Sogani

Robert A. Spencer

Thomas G. Stelmach

Thomas A. Stokes

Sinead M. Strain

Phillip B. Suh

Jamie Sutherland

Anton Sychev

Brian A. Tafaro

Hideaki Takada

Konnin Tam

Bong Loo Tan

Yasuko Taniguchi

Daniel W. Tapson

Richard M. Thomas (Finance)

Francis S. Todd

Christos Tomaras

Lale Topcuoglu

Thomas A. Tormey

Chi Keung Tse

Weidong Tu**

Reha Tutuncu

Mei Ling Tye

Allen Ukritnukun

Nicholas A. Valtz

Nicholas J. van den Arend

Emile F. Van Dijk

Dirk-Jan M. Vanderbroeck

Alexandra S. Vargas

Peter G. Vermette

Matthew P. Verrochi

Cynthia L. Walker

Sindy Wan

Freda Wang

Yi Wang**

Mitchell S. Weiss

Greg R. Wilson

Mark J. Wilson

Gudrun Wolff

Isaac W. Wong

David J. Woodhouse

Stuart J. Wrigley

Jerry Wu*

Jihong Xiang**

Ying Xu

Lan Xue

Yoshiyuki Yamamoto

C.T. Yip*

Eugene Yoon

Angel Young

Daniel M. Young

Raheel Zia

*Employee of Goldman Sachs Gao Hua Securities Company Limited

**Employee of Beijing Gao Hua Securities Limited”

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Pershing Square Capital Q12010 Investor Letter

Saturday, July 3rd, 2010

In the latest hedge fund letter, portfolio manager William Ackman goes over his positions in General Growth Properties, Borders, Sears Canada, Craft, Citigroup, and Alliansce.  At the time the letter was written, Citigroup made up 9% of the fund’s holdings with the following rationale:

“We recently acquired 146.5 million shares of Citigroup, representing approximately 9% of fund capital. We believe that recent events surrounding the financial reform bill, alleged fraud at Goldman Sachs, the overhang of the sale of the U.S. government’s 27% stake in Citi, and distress in Europe have created a compelling opportunity to purchase Citi shares at a meaningful discount to their fair value.”

Pershing Q1 2010 Investor Letter

Lehman Brothers Whistle Blower Letter

Tuesday, March 30th, 2010

The letter below is a shocking account of Matthew Lee’s findings at Lehman Brothers in May of 2008.  Enjoy the read.

Letter by Lehman Whistle Blower Matthew Lee, Dated May 16, 2008

KKR & TPG Interested in Purchasing CICC Stake from Morgan Stanley

Monday, March 1st, 2010

Over the past three years, Morgan Stanley has had difficulty managing its stake in CICC or China International Capital Corp., one of China’s most prominent investment banks.  Recently both TPG and KKR, two of the most powerful private equity firms in the U.S. announced that they were interested in purchasing this stake from Morgan Stanley.  Other firms, including Bain and J.C. Flowers had showed interest in 2008, but valuations for too low at that point for Morgan Stanley to sell.  Morgan Stanley will now be able to start its own investment bank in China without having a conflict of interest.

According to Bloomberg’s Cathy Chan, ” TPG Capital LLP and Kohlberg Kravis Roberts & Co. are in final talks to buy Morgan Stanley’s stake in China International Capital Corp., the first Sino-foreign investment bank, for more than $1 billion, said four people with knowledge the matter.

The U.S. private equity firms plan to equally split Morgan Stanley’s 34.3 percent holding in CICC, the people said, asking not to be identified because the talks are confidential. Bain Capital LLC lost out in bidding for the stake after offering less than $1 billion, one person said.

Selling the stake will allow Morgan Stanley to build its own investment bank in China after being a shareholder in CICC for a decade without having management control. It’s the bank’s second attempt to dispose of the stake, after talks with buyout firms fell apart in early 2008 on disagreements about price. New York-based Morgan Stanley invested $35 million in CICC when it was established in 1995.

“It’s a good profit and Morgan Stanley has been seeking to build its own platform as they can’t exert influence on CICC,” said Liang Jing, a Shanghai-based analyst at Guotai Junan Securities Co. “For the buyout funds, it’s nice choice of investment if you don’t mind being a passive investor.”

Morgan Stanley ceded management control in 2000 and CICC is now run by Levin Zhu, the son of former Chinese Premier Zhu Rongji.

China Fortune

The Chinese government allowed Morgan Stanley to invest in CICC in return for the expertise required to build China’s first investment bank. Elaine La Roche, the last Morgan Stanley- appointed head of CICC, stepped down in June 2000. The partners bickered about compensation, management and strategy and that lack of consensus worked against both firms, she said in a 2005 interview.

Wei Christianson, Morgan Stanley’s chief executive officer in China, declined to comment, as did Joshua Goldman-Brown, an outside spokesman for KKR in Hong Kong, and officials at TPG. The Wall Street Journal and Financial Times earlier reported the two buyout firms are close to acquiring the CICC stake.

Morgan Stanley signed an initial agreement in 2007 to buy a one-third stake in China Fortune Securities Co. Regulators declined to sign off on that venture, partly because Morgan Stanley already owned a stake in CICC, people with knowledge of the matter have said.

“They have to start building the business from scratch and it will take five years before they can expand beyond underwriting business if they decide to be on their own,” Liang said.

Top Underwriter

The China Securities Regulatory Commission said late 2007 that overseas-invested financial firms that had been operating for five years would be allowed to expand into brokerage services.

CICC was last year’s top manager of Chinese domestic equity offerings, rising from No. 2 in 2008, according to data compiled by Bloomberg. Domestic equity and equity-linked sales in China rose to 245.6 billion yuan ($36 billion) in 2009 from 232 billion yuan a year earlier.

Buyout firms including TPG, Bain Capital, CV Starr & Co., J.C. Flowers & Co. and General Atlantic LLC showed interest in the CICC stake in 2008, people familiar said at the time.

Goldman Sachs Group Inc. was the first Wall Street investment bank to gain approval to form a securities venture in China in 2004, followed by UBS AG.

Credit Suisse Group AG and Deutsche Bank AG ventures won approval to underwrite bond and stock sales in 2008 and 2009 respectively, while Macquarie Group Ltd. is in the process of getting regulatory approval. CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, formed its China venture in 2003.”

~I.S.

Credit Suisse Junk Bonuses Turn Into $5B

Wednesday, February 24th, 2010

All of you probably remember last year how Credit Suisse did something “unthinkable” by giving bonuses in the form of CDOs and ABS.  Now it seems that CS bankers were some of the most highly compensated during the recession!

Credit Suisse sign

Bankers’ ‘junk’ bonuses turn into $5bn

By Alex Ritson
Business reporter, BBC World Service

Bonuses made up of so-called toxic debt and given to bankers at Credit Suisse as a punishment for poor investments, have soared in value.

Their bonus pool, made up financial products originally thought to be worthless, is now worth $5bn (£3.2bn).

The bank lost $7bn last year, in part due to the investment decisions of some of its best-paid staff.

The toxic debt bonuses had been described as a way of giving the bankers to taste of their own medicine.

But it has now emerged the value of the toxic bonus pool has climbed by 72% – far outperforming many safer investments.

Well-deserved?

The money had been put into complicated financial products linked to the risky commercial debt secured on among other things, a Japanese shopping centre, an American supermarket chain and other commercial property that had plunged in value.

At the height of the financial crisis, many people thought these investments were worthless. To Credit Suisse, it seemed right to share them out as annual bonuses among the people who had apparently got things so wrong.

But as confidence has returned to the market – it has become clear that the toxic asset pool wasn’t nearly as toxic it had been thought.

The toxic bonus fund has soared in value by 72%. That compares with a 60% rise in the value of Credit Suisse shares over the same period – or a mere 19% rise in the main US share index the Dow Jones.

The bankers may well feel they have earned the money though.

Credit Suisse is safely back in profit – and unlike its rivals at UBS, Credit Suisse did not take a bail-out from the Swiss Government.

~Sourced by I.S.