banks

Will Barclays make a move for a U.S. firm?

Jim Kim — Tue, 19 Aug 2008 21:12:14 -0400

That Barclays will buy a big U.S. bank is one of those standing rumors. They never seem to come true, but no one is quite willing to discount the idea altogether. As the credit crisis unfolded, many thought it might come to the table to rescue some banks. Bob Diamond, the bank's president, tells the Financial Times, that it might buy a wealth management firm but not an investment bank. So while it isn't going to buy Lehman Brothers outright, it might be interested in its wealth management properties. The news may give some hope to other firms, like Fifth Third and National City, which might be considering a sale of asset management divisions. It's clear that in this credit crunch, high net worth clientèles are even more important.

For more:
- here's the Financial Times article

What good is the universal bank model?

Jim Kim — Mon, 18 Aug 2008 18:36:48 -0400

Citigroup gets all the attention, but the universal banking model was embraced by other banks over the past decade or so, though not to the same degree. The idea of course was to create a set of integrated services that offered customers one-stop financial shopping. In so doing, another benefit would emerge: Business diversification would make banks better able to withstand various shocks. The likes of HSBC, UBS and JPMorgan Chase all bought into that. The AP notes that the current crisis seems to be putting the lie to such thinking. Is JPMorgan Chase better off for its 2004 purchase of Bank One? Ladenburg Thalmann's Richard Bove doesn't think so. Also, the internal breakup of UBS strikes some as admission that the universalist model has yielded bitter fruit. Clearly, the subprime reach was incredibly extensive, reaching across consumer and institutional markets.

For more:
- here's the AP article

Related Article:
Is the current banking model obsolete?

JPMorgan raises $1.6 billion

Jim Kim — Fri, 15 Aug 2008 09:17:06 -0400

JPMorgan Chase was able to raise $1.6 billion to buttress its balance sheet, but the money did not come cheap. The preferred debt issue carries a whopping 8.7 percent interest rate. The Financial Times reports that this is the highest rate offered by the bank on preferred debt since the big merger in 2000, nearly 10 percent higher than JPMorgan's previous offering of hybrid securities in April (Dealogic). Let's face it, there's really no easy way of raising capital without punishing shareholders. The issue here is whether there are other capital raises in sight for JPMorgan. The banks is taking pains to underscore that the offering was not a response to the surprise $1.5 billion loss the bank suffered in July due to credit valuations. Still, some are growing a bit nervous, as we've noted, about JPMorgan's Alt-A and commercial real estate-backed portfolios.

For more:
- here's the FT article

Auction rates securities settlements in perspective

Jim Kim — Fri, 08 Aug 2008 07:37:27 -0400

The news that Citigroup and Merrill Lynch will reimburse individual investors burned by auction rate securities to the tune of $17 billion is certainly eye-catching. The New York Times notes that the Citigroup action (Merrill's offer was not part of the settlement) represents "among the largest amounts ever recovered by investors from a single company as a result of regulatory action." Morgan Stanley got in on the act, agreeing to reimburse some small towns in MA. These actions set a precedent of sorts for other banks--Lehman Brothers, JPMorgan Chase, Wachovia, Bank of America and others--that are in similar straights due to their marketing of ARSs. All of this will affect the bottom line, and hopefully it will end the matter. What remains to be seen is whether Citigroup's $100 million penalty reflects a premium over other penalties given the alleged destruction of relevant evidence.

For more:
- here's the article

Citigroup to buy back auction rate securities

Jim Kim — Thu, 07 Aug 2008 07:30:08 -0400

We've seen a lot of activity on the auction rate security front recently. We may start seeing some settlements. The New York Times reports that Citigroup is nearing a deal with federal and state authorities that might result in the bank buying back about $7 billion in auction rates securities from retail investors. It's unclear if securities will be bought back from institutions and corporate investors. Citigroup will also pay a fine--$100 million to New York and $50 million each to about 12 states. The SEC may ultimately levy another fine. This will have implications for other investigations and may set a precedent regarding other banks, notably Merrill Lynch, which has been charged by Mass. Ultimately, we'll also likely see a host of private suit settlements that will certainly add to the costs of the ARS mess.

For more:
- here's the New York Times article

Recombining stock research and banking a good idea?

Jim Kim — Wed, 06 Aug 2008 13:49:15 -0400

You can bet Eliot Spitzer is not taking this well: Citigroup is mulling a move that would fold its once-maligned equity research unit into the institutional securities business. Recall that six years ago, in a high-profile victory for Spitzer, a so-called "global settlement" forced banks to separate the two and ended the practice of using analysts as tools of bankers. This may seem shocking. But the fact is that investment banking still pays for the research, the Financial Times notes. Citi execs tell the paper that rules separating the two functions will prevent any conflicts of interest. Which makes sense. But not all have great trust in Citi right now. It was just accused of destroying evidence in an auction rate security probe by the state of New York. Meanwhile, Mass. regulators accused Merrill Lynch execs of muzzling an analyst who was bearish on auction rate securities.

For more:
- here's the Financial Times article

Lehman Brothers to sell entire investment management unit?

Jim Kim — Tue, 05 Aug 2008 14:28:56 -0400

The latest rumor regarding Lehman Brothers is that it is mulling a sale of its entire asset management unit, not just Neuberger & Berman. This would not be a surprise to anyone. Obviously, all the top banks are considering ways to boost capital ratios. It's unclear what other assets management properties Lehman holds. There may not be a whole lot there beyond Neuberger & Berman, which by one estimate might fetch up to $10 billion. Not a bad chunk of capital, a nice offset to more writedowns, which seem to be on the way (see next item). Of course, with such a sale, you give up a lot in terms of earnings growth. The larger issue is what the Lehman Brothers of the future will look like. It will emerge as a much small company, with less lofty ambitions. Meanwhile, analyst Richard Bove just cut his price target. He wonders if the bank can find a new profit center.

For more:
- here's an AP article on the rumors about the asset management unit

Can hedge funds save the economy?

Jim Kim — Sun, 03 Aug 2008 10:23:54 -0400

Lone Star is not alone in buying up super discounted mortgage assets right now. Business Week Online notes a host of hedge funds and private equity firms are busy buying up thousands of mortgages at huge discounts. Many are not looking to flip immediately. (Unless the price is right, of course). Instead, they want to do what banks have proven pretty awful at: work with mortgage holders. Lone Star has made a specialty out of this. They paid very little for the loan, which makes the effort worthwhile. Sure, they'll end up with a lot of foreclosed-on property, but the steep price drops may have bottomed. They just might be entering a bouncing market. It's unclear if this will have a meaningful impact on the residential housing economy. But if it can keep more homeowners from defaulting, and the market turns up, they just might make a tidy profit.

For more:
- here's the article

Rule change delay to help banks

Jim Kim — Thu, 31 Jul 2008 06:02:37 -0400

Can you imagine an accounting rule that would force banks to put up to $5,000 billion (according to Citigroup analysts) in debt on their balance sheets right now? That was exactly the scenario U.S. banks were facing. The rise of special purpose entities and such---which has really rankled regulators--has lead to a lot of regulatory breast-beating. Frankly, it would probably be a good idea to find ways to curb off-balance sheet creativity. But banks are reeling right now, big and small. Obviously, many are capital short, and a quick move to consolidate a lot of debt could really hurt their capital ratios. The FASB reluctantly has moved to delay new requirements until 2010, reports the Financial Times. Robert Herz, FASB chairman, told reporters, "It does pain me to allow something that has been abused by certain folks, to let that go on for another year."

For more:
- here's the FT article

Bill Gross: Writedowns to hit $1 trillion

Jim Kim — Wed, 30 Jul 2008 13:41:01 -0400

According to the Financial News Online writedown-o-meter, banks collectively wrote off $205 billion as of June. Since then, the total has climbed higher. While we've heard many people suggest that the worst is over, Bill Gross, the outspoken bond manager at Pimco, is not one of them. He suggests that banks may ultimately be forced to write down more than $1 trillion, according to Financial News Online. Whew! He told clients there's about $5 trillion in mortgage-related risky assets on bank books. The flip side is that these potential losses will require additional capital, which may prove hard to come by. We'll see more asset sales, more dividend cuts, and less lending. None of this is good news. I'd like to think that $1 trillion is way high, but who knows.

For more:
- here's the article