June 2012

  • News

    Bonus Watch ’13 & Beyond Will Be Pretty Predictable In Europe

    You would think that European regulators have a lot to worry about with their banks but they’ve got time for a surprising distraction: finalizing a plan to cap bankers’ bonuses at 1x base compensation*: Bankers’ bonuses across the European Union are set to be limited by law, with many bank lobbyists admitting in private that […]

    / Jun 13, 2012 at 7:08 PM
  • News

    So This Is Jim Cramer Talking About Jamie Dimon’s Capitol Hill Appearance

    “He didn’t win. He’s a loser. How? You lose when you go in front of Congress and you lose when you go out. Anyone that declares him a winner is wrong…He walked in a loser. Testified. Walked out a loser. And by the way, he agrees with me. He knows he’s a loser with no control and doesn’t even know what happened in his own bank…A loser. Crisis PR is psychiatry. You go in there as a guy who is stupid, you don’t come out being smarter. You don’t. You come out just as stupid…He’s a loser…This is not Michael Corleone with Frank Pentangeli in the back of the room. This is not Nevada gaming licenses…He’s a loser. It’s okay, man. He’s a loser. Maybe next year he’ll be a winner but he is a loser. Okay.”

    / Jun 13, 2012 at 5:39 PM
  • News

    Bonus Watch ’12: First Year Bank Robbers

    Bonus expectations got ya down? Thinking about robbing a bank? You might want to reconsider. Not because it could be dangerous or you might go to jail or your disguise sucks but because, statistically speaking, it’s not really worth your time. In terms of work put in you’d be much better off giving out hand jobs in the alley between 200 West and Shake Shack.

    In what’s billed as the first cost-benefit analysis of such crimes, three economists note that Britain saw 106 attempted or successful robberies of 10,500 branch banks in 2007. The average haul was $31,600, including the one-third of attempts that came up empty. The average “successful” heist landed about $46,600 — but about 20% of those successes were later tarnished, to say the least, when the raiders were arrested. Each incident involved an average of 1.6 people, resulting in a per-person take of $19,750: a mere half-years’ worth of wages for the average Britisher. (In the U.S., the authors say, the average total bank-robbery take, per incident, is even smaller, just over $4,000.) Think a half-year’s salary isn’t bad for one day’s work, plus a little planning? A “career” bank robber would more likely than not be arrested after only four attempts…“The return on an average bank robbery is, frankly, rubbish,” they write.

    Bank Robbery Doesn’t Pay (Much) [Ideas Market/WSJ]

    / Jun 13, 2012 at 5:16 PM
  • News

    Which Goldman Sachs CEO “Was Known To Challenge Subordinates To Impromptu Wrestling Matches”?

    Was it:

    a) Lloyd Blankfein
    b) Hank Paulson
    c) Jon Corzine
    d) Stephen Friedman
    e) Gus Levy
    f) John Whitehead
    g) John Weinberg
    h) Sidney Weinberg
    i) Marcus Goldman
    j) other

    Hopefully you answered D, Stephen Friedman, as that was the answer we were looking for, per a New York Observer piece on financial services employees who feel more comfortable in a onesie than a suit.

    “I wrestled as well as I could wrestle, and if I lost, that was my own fault,” KKR’s Henry Kravis once told an interviewer about what he learned from wrestling. “I had nobody to blame but myself.” Apollo Global Management co-founder Josh Harris wrestled at the University of Pennsylvania before deciding that making his 118-pound weight class didn’t allow either the time or calories for the old “college experience.” Former Goldman Sachs chief executive officer Stephen Friedman, an AAU champion who wrestled at Cornell, was known to challenge subordinates to impromptu matches. Former Merrill Lynch CEO John Thain was a college wrestler, though Mr. Novogratz pointed out that Mr. Thain, now CIT Group CEO, wrestled at the Division III level.

    Fortress Chieftain Mike Novogratz Wrestles with Olympians, Youth…and Wall Street [NYO]

    / Jun 13, 2012 at 3:17 PM
  • News

    Lloyd Blankfein Wants To Be Buried In The Backyard Of Goldman Sachs

    Lloyd C. Blankfein, chairman and chief executive officer of Goldman Sachs for the past six years, said it’s a “tough job to leave” and he’s unlikely to follow his predecessors into government. “When you think of my last five or six predecessors, five of them left because they went to the government,” he told reporters […]

    / Jun 13, 2012 at 2:18 PM
  • Whaledemort

    The Whale and the Quants

    If you’d like some non-real-time insight into the London Whale, may I highly recommend this oral history, by Edinburgh sociologists Donald MacKenzie and Taylor Spears, of how investment banks came to price and trade and hedge things like the index CDS that the Whale dabbled in? It made me tear up a little. It is […]

    / Jun 13, 2012 at 11:19 AM
  • JPMorgan Flogging

    Jamie Dimon: “We Are All Blessed To Have The American Financial System”

    “It is be the best in the world.” We should give thanks and “stop shooting each other.”

    / Jun 13, 2012 at 11:15 AM
  • JPMorgan Flogging

    Is It Polish Craps? Is It Ukrainian Blackjack?

    Senator Bob Menendez: I listen to this [hearing] and I paraphrase Shakespeare when I ask, a hedge or not a hedge, that is the question. Jamie Dimon: [staring]

    / Jun 13, 2012 at 11:12 AM
  • JPMorgan Flogging

    Jamie Dimon: Don’t Blame The Risk Committee!

    They took JPMorgan through the financial crisis “with flying colors.” The Whale stuff was a blip. [Related]

    / Jun 13, 2012 at 10:44 AM
  • Opening Bell

    Opening Bell: 06.13.12

    Dimon To Fault Controls On Risk (WSJ)
    Mr. Dimon, scheduled to appear before the Senate Banking Committee on Wednesday morning, intends to apologize for the miscues—a stark departure from his normal shoot-from-the-hip demeanor. But Mr. Dimon will push back on any implication that the incident is lastingly detrimental to the largest U.S. bank by assets. In fact, the New York company expects its second quarter to be “solidly profitable” despite the losses, Mr. Dimon said in an early copy of his prepared remarks. “We will not make light of these losses, but they should be put into perspective,” Mr. Dimon is expected to say. “We will lose some of our shareholders’ money—and for that, we feel terrible—but no client, customer or taxpayer money was impacted by this incident.”

    Jamie Dimon’s Testimony (PDF)
    “All of these activities come with risk. And just as we have remained focused on serving our clients, we have also remained focused on managing the risks of our business, particularly given today’s considerable global economic and financial volatility. Last, I would like to say that in the face of these recent losses, we have come together as a Firm, acknowledged our mistakes, and committed ourselves to fixing them. We will learn from this incident and my conviction is that we will emerge from this moment a stronger, smarter, better company.”

    Dimon: JPMorgan Traders Took Risks They Didn’t Understand (Bloomberg)
    In testimony prepared for a hearing today, Dimon expressed regret over losses in the bank’s chief investment office, saying that its trading strategy was “poorly conceived and vetted” by senior managers who were “in transition” and not paying adequate attention.

    Greeks Withdraw $1 Billion A Day Ahead Of Vote (Reuters)
    Greeks pulled their cash out of the banks and stocked up with food ahead of a cliffhanger election on Sunday that many fear will result in the country being forced out of the euro. Bankers said up to 800 million euros ($1 billion) were leaving major banks daily and retailers said some of the money was being used to buy pasta and canned goods, as fears of returning to the drachma were fanned by rumors that a radical leftist leader may win the election.

    At Starbucks, Uncertainty Over Mayor’s Drink Plan (NYT)
    As the Bloomberg administration moved ahead on Tuesday with its plan to restrict sales of big sugary drinks in New York, securing a preliminary nod from the city’s Board of Health, it said it is still trying to determine the impact on one popular beverage brand: Starbucks. Mayor Michael R. Bloomberg’s plan, which would limit the size of sweet drinks sold at many establishments to 16 ounces or less, exempts any beverage that contains more than 50 percent milk by volume. Officials in City Hall and in Seattle said they were unsure how those rules might affect the Starbucks family of syrupy, milkshake-style coffee drinks, catnip to thousands of caffeine-addicted New Yorkers who frequent the company’s 190 outlets in Manhattan…The rules would ban large sodas sold at fast-food restaurants, movie theaters and street carts. But the Big Gulp, the supersized soda cup at 7-Eleven, would still be allowed under the proposal, because the proposal would exempt the sale of drinks in groceries or convenience stores.

    Full-Scale Bailouts for Italy, Spain in 6 Months: Egan-Jones (CNBC)
    Spain and Italy need a full-scale bailout from the European Union because of their high levels of government debt and the credit quality of their banks, and will likely seek help within the next 6 months, according to Sean Egan, Founding Partner and President of Egan-Jones, an independent ratings agency. Poor credit quality of banks usually goes hand-in-hand with poor government finances as the two institutions are “joined at the hip”, Egan told CNBC Asia’s “Squawk Box” on Wednesday. That’s the case for most countries such as the U.S., the U.K., Switzerland and Ireland; Spain and Italy are no exceptions, he said. “It makes little sense to separate the banks’ credit quality from the governments’ credit quality because quite often, they support each other and that’s certainly the case in Italy and Spain,” he said. “We think that Spain will be back at the table, asking for more than the 100 billion euros ($125 billion) that they just asked for, and we think that Italy will also come to the table within the next 6 months.”

    Chinese Banks To See Squeeze On Profit (WSJ)
    In a bid to bring down lending rates and rev up economic growth, China’s central bank said last week it would allow banks to double the maximum discount on loans and offer deposit rates that can reach 1.1 times the benchmark level. That could squeeze the minimum spread between loans and deposits from 2.4% to as little as 1.5%. “It’s the biggest step towards a market-oriented interest-rate regime since 2004,” said Yin Jianfeng, a researcher at government think tank the Chinese Academy of Social Sciences, referring to a past easing of controls on lending rates. “Given the global financial tumult and domestic economic slowdown, I’d say it’s a really bold move.”

    ING Fined A Record Amount (WSJ)
    ING Bank has agreed to pay a record penalty of $619 million for illegally moving billions of dollars through the U.S. banking system on behalf of Cuban and Iranian clients and threatening to fire employees if they failed to conceal the origin of the money. The U.S. prohibits certain countries and entities from accessing the U.S. banking system through sanctions enforced by the Treasury Department’s Office of Foreign Assets Control. Banks in Manhattan, which process most of the world’s U.S. dollar payments, use “filters” to prevent terrorists, money launderers and other criminals from gaining access.

    Let’s Pizza vending machine ready for U.S. debut (PM)
    Let’s Pizza, a vending machine that creates pizzas from scratch in 2.5 minutes, is about to plant a flag in U.S. soil. The machine was created by Italian Claudio Torghel and is distributed by A1 Concepts, based out of The Netherlands…The machine contains a specially developed bag of flour and a bag of mineral water. Every time you order a pizza, the machine will start making the dough, then shape it into a crust, and top it with organic tomato sauce. Next, one of the toppings is placed on top and the pizza is ready for the oven. Each machine offers four different kinds of pizzas.

    / Jun 13, 2012 at 9:18 AM
  • Write-Offs

    Write-Offs: 06.12.12

    $$$ Swelling Bond Yields Add to EU Pressure [WSJ]

    $$$ Goodbye Smith Barney [DealBook]

    $$$ A Marxist take on the European Central Bank [Slack Wire]

    $$$ Izzy Kaminska: “If it is true that the system can increasingly provide a base level of existence for ever more people for almost no cost, should we be surprised that those western countries where a base level of existence is adequate — because of weather, surroundings and general environment — are the first to opt out of unnecessary human productivity?” [FTAV]

    $$$ Corporate political giving is negatively correlated with market performance for most companies, positively correlated with performance for firms in highly regulated industries [Rice via WonkBlog]

    $$$ Mitt Romney and “Sport,” a Continuing Saga [MoJo]

    $$$ CRT Capital Group is looking for a credit product sales assistant in Stamford [DBCC]

    $$$ SEC Charges 14 Sales Agents In $415 Million Long Island-Based Ponzi Scheme [SEC]

    $$$ Greek Antiquities, Long Fragile, Are Endangered by Austerity [NYT]

    $$$ The Volume Clock: Insights into the High Frequency Paradigm [SSRN via MR]

    $$$ Someone at ISDA appears to have the job of pointing out when Gretchen Morgenson is wrong about derivatives [ISDA]

    $$$ The explosion of the yacht named Blind Date was a hoax [NYP]

    / Jun 12, 2012 at 6:58 PM
  • News

    Should You Mourn For JPMorgan’s Trust Preferred Securities?

    I spend a good 40% of my day mindlessly refresing JPMorgan’s page at the SEC hoping they’ve filed a new structured notes prosupp so I was excited to see this: Following the Federal Reserve’s announcement on June 7, 2012 of proposed rules which will implement the phase-out of Tier 1 capital treatment for trust preferred […]

    / Jun 12, 2012 at 5:46 PM
  • News

    Jamie Dimon: It Most Likely Won’t Happen Again

    “When we make mistakes, we take them seriously and often are our own toughest critic,” Dimon said in the remarks ahead of his appearance before the Senate Banking Committee to discuss losses linked to credit derivatives by New York-based JPMorgan’s chief investment office. “While we can never say we won’t make mistakes — in fact, […]

    / Jun 12, 2012 at 5:14 PM
  • News

    Columbia University Students, Faculty, Alums Demand CU President Take Back All The Nice Things He Said About Jamie Dimon

    As you may have noticed, Jamie Dimon has had some unwanted attention thrown his way over the last several weeks, on account of one of his employees losing a few billion dollars. Though the JPMorgan CEO has been dealing with public displays of hate previously reserved for Lloyd Blankfein and Goldman Sachs, and will certainly be on the receiving end of a lot more tomorrow when he testifies on Capitol Hill, he has had a few people come to his (and his bank’s) defense. Yesterday Stephen Schwarzman told Bloomberg to lay off JD and JPM, noting that “occasional losses are inevitable” and “publicly excoriating JPMorgan serves no purpose except to reduce people’s confidence in the financial system,” while former Goldman exec Bill Archer said the whale fail makes him just “kind of shrug.” Lee Bollinger, who is President of Columbia and chairman of the Federal Bank of New York’s board of directors told the Journal that Dimon shouldn’t step down from his post as a director, as some have requested, and that those who cite conflicts of interest have a “false understanding of how [the Fed] works.” Some individuals from the Columbia community read Bollinger’s comment and, spoiler alert, are not happy. Enter, a strongly worded letter.

    Mr. Lee Bollinger
    President of Columbia University
    Office of the President
    202 Low Library
    535 West 116th Street, Mail Code 4309
    New York, NY 10027
    Dear President Bollinger,
    As faculty, alumni and students of Columbia University, we are writing to express our deep disappointment in your recent decision to support JPMorgan Chairman and CEO Jamie Dimon’s continued membership on the Board of the New York Federal Reserve Bank.

    As the Chairman of the Board of the New York Fed, your unambiguous duty – as stated by the Guide to Conduct – is to maintain “the integrity, dignity, and reputation of the Federal Reserve System . . . and to avoid actions that might impair the effectiveness of System operations or in any way tend to discredit the System.”

    By supporting Mr. Dimon’s tenure you abdicated this basic responsibility. By echoing Mr. Ben Bernanke’s remarks that it is up to Congress to address this problem, you denied your duty to ensure the integrity of the Fed. By stating that Congress has more pressing issues to address than this one, you, in essence, urged inaction by all parties capable of affecting this important change. Surely you understand that a functioning financial system is a pre-requisite of our country’s economic recovery. By characterizing those who wish to see Mr. Dimon resign as “foolish” and in possession of a “false understanding” of how the Fed works, you have added insult – and inaccuracy – to the injury of encouraging this institution to continue in its current form.

    It is worth reminding you that JPMorgan Chase is currently under investigation for its recent $3 billion trading loss – a loss Mr. Dimon initially denied and then characterized as a ‘tempest in a teapot.’ It may also bear repeating that Mr. Dimon has long campaigned aggressively against important regulatory reforms designed to prevent excessive risk taking by Too Big To Fail institutions – institutions the Federal Reserve saved with $3 trillion dollars in special lending facilities and which Congress bailed out with $700 billion of taxpayers’ money. Certainly Mr. Dimon has no place as a leader of this institution.

    We urge you to reverse your support for Mr. Dimon and call for his immediate resignation. By way of reminder, there is precedent for this kind of action. In April 2011, Jeffrey R. Immelt, CEO of General Electric, stepped down from the NY Fed after it was clear that GE Capital would be regulated by the Fed as a ‘systematically important’ financial institution. As one of the largest banks in the world, JP Morgan is similarly – if not more ‘systemically important.’

    As an educator, you have a special responsibility to demonstrate moral and intellectual credibility, something you have failed to do in this situation. As the president of a university, you have a responsibility to ensure that students have the best possible opportunities upon graduation. Surely you understand the connection between the unemployment crisis facing young people in America and the 2008 financial collapse. That collapse not only threatened the employment potential of millions of American students, but also risked the fiscal health of the parents and grandparents who co-signed their educational loans. That you would choose to uphold the interests of major financial institutions over students and their families is unimaginable. We certainly hope that the contributions made to Columbia by JPMorgan – sums north of $500,000 – had nothing to do with your decision.

    Three years after the biggest financial crisis since the Great Depression, the country is struggling to rebuild its economy. A stable and appropriately governed financial system is a critical pre-requisite of our recovery. As the Chairman of the NY Fed, we urge you to take the obvious step of demanding Mr. Dimon’s resignation.

    Thank you,
    Current Students, Alumni and Faculty of Columbia University
    Richard Adams
    Graduate Student and Alumnus

    Marcellus Andrews
    Professor of Economics
    Columbia University

    John Atlas
    President of the National Housing Institute Charles H. Revson Fellow, 2004

    Partha Banerjee
    J-School, 2000

    Hilary Beattie
    Asst. Clinical Professor of Medical Psychology in Psychiatry

    Carl Bettendorf
    Alumnus and Adjunct Faculty

    Lila Braine

    Dana Burnell
    Alumni

    Sylvia Bettendorf
    Student

    Jamie Chen
    CC Class of ’09

    Paul Colson
    Faculty

    Jonathan Crissman
    Student

    Mina Dadgar
    Alumni

    Carolyn Douglas
    Associate Professor of Psychiatry

    Nnaemeka Ekwelum
    Class of 2012

    Tim Foreman
    Student

    David Friedman
    Officer

    Danielle G.
    Student

    Nancy Goody
    Alumnae -GS of Arch & HP

    Warren Green
    Administrator

    Robert Hanning

    William D. Hartung
    Center for International Policy
    Columbia College Class of 1978

    James Hone
    Faculty

    Bonnie Kaufman
    Faculty, Medical School

    Jee Kim
    Columbia College, ‘95

    Susan Lob
    Adjunct Faculty and Alumni

    Barbara Lundblad
    Faculty
    Union Theological Seminary

    John Markowitz
    Professor of Clinical Psychiatry,
    Alumnus College ’76, GSAS ’78, P&S ’82

    Rangi McNeil
    School of the Arts Alumni

    Sara Minard
    Faculty

    Federick Neuhouser
    Professor of Philosophy

    Michael Newell

    Kaveh Niazi
    Alumni

    Jeffrey Ordower
    Columbia College Class of 1991

    Alexandra Pines
    Class of 2016

    Ai-jen Poo
    Director
    National Domestic Workers Alliance

    Bill Ragen
    Columbia College 1980

    Yuliya Rimsky
    Columbia University
    Alumnus Class of 2012 & SIPA student Class of 2014

    Katherine Roberts
    Alumna, GSAS

    Eva Salzman
    Alumni

    Jeff Schneider
    Alumni

    Shruti Sehgal
    BC Alumnus, Class of 2011

    Eric J. Schoenberg
    Adjunct Associate Professor
    Columbia Business School

    The Honorable David Segal
    Former RI state representative
    CC ‘01

    Anat Shenker-Osorio
    Founder and Principal, ASO Communications, Columbia College ’99

    Kobi Skolnick
    Current student of Negotiation and Conflict Resolution, Class of 2013

    Jill Strauss

    Denise J. Tartaglia
    Alumni

    Stephanie Taylor
    Co-Founder, Progressive Change Campaign Committee, Columbia University alumni, SOA ’07

    Alan Wallach
    Alumnus

    Mark Watson
    Alumnus

    James Williams
    Officer Libraries

    Thomas J. Yager
    Associate Research Scientist, Mailman School of Public Health

    / Jun 12, 2012 at 5:02 PM
  • Communiqués

    Bill Ackman: Where We’re Going, We Don’t Need Roads

    The principal weakness we share with most other money managers is the fact that our capital base is not permanent, and we therefore keep cash on hand and/or own passive liquid investments which we can sell to meet potential investor demands for capital. To address this weakness in our open end hedge fund structure, later this year, we intend to launch the private phase of Pershing Square Holdings, Ltd., which we expect to eventually list on the London Stock Exchange…In [the cases of Canadian Pacific, JC Penney, Justice Holdings and General Growth], we had the resources to effectuate the necessary change and the capital commitment from investors who were willing to wait for the changes to be implemented. During the course of each investment, however, there have been periods of enormous skepticism both from the investing public at large and, presumably, from some of you who are invested in the Funds…The Pershing Square funds have been a large beneficiary of our ability to take advantage of periodic market skepticism by increasing our ownership at more favorable prices. Volatility is the friend of the unleveraged long-term investor. We much prefer the bumpy road to higher rates of return than a smoother ride to more modest profits.

    Pershing Square Q12012 Letter To Investors [PDF]

    / Jun 12, 2012 at 4:08 PM
  • News

    Paying Bankers In Derivatives Worked Out So Well For Credit Suisse, Let’s All Do It

    BreakingViews has a couple of posts up about one of my favorite things in the financial universe, Credit Suisse’s habit of paying its bankers in structured credit instruments that take pages to describe. How’s that going? Great: Three years ago, around 2,000 employees were forced to take some $5 billion of the riskiest assets from […]

    / Jun 12, 2012 at 3:53 PM
  • News

    Layoffs Watch ’12? Morgan Stanley?

    James Gorman is approaching cost-cutting with the same focus as the Zodiac killer, so maybe.

    Morgan Stanley is “maniacally focused” on cutting costs apart from compensation and is on track to reduce expenses by $500 million this year, Chief Executive James Gorman said on Tuesday. Gorman, speaking at a conference in New York, also reiterated Morgan Stanley’s plans to reduce costs by $1.4 billion annually over the long term…The bank is also monitoring the size of its overall payroll for possible job cuts as revenue remains under pressure from a weak market environment, he said. “We are very, very focused on that, obviously, in this environment,” said Gorman.

    Morgan Stanley “maniacally” focused on cost cuts-CEO [Reuters]
    Very much related: Morgan Stanley Joins Goldman Sachs In Herbicide

    / Jun 12, 2012 at 2:23 PM
  • News

    Accused Madam’s Pigs Can Breathe A Cautiously Optimistic Sigh Of Relief

    April 3, 2012: Report details ease with which alleged madam and so-called animal lover Anna Gristina sells majority of pet pigs in order to pay legal fees. April 9, 2012: Gristina is denied bailed reduction for a 4th time, must figure out a way to come up with the remaining scratch. Though family claims it […]

    / Jun 12, 2012 at 1:32 PM

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