Honestly bank earnings week has been a little boring, no? It’s been quarters since anyone announced a six billion dollar trading loss, and the recent news is pretty much modest beats from a diverse mix of businesses and where is the fun in that I ask you. Financial-market memories are short and … have negative serial correlation, or something … which might explain why Goldman is down today despite announcing a $4.29 EPS vs. analysts’ $3.87, with strength in principal investments and debt underwriting making up for so-so FICC revenues.
The call: variations on boring. Goldman CFO Harvey Schwartz painted a picture of Goldman clients who are deterred from strategic activity by macro uncertainty – “oh we can’t do that merger, because, uh, Cyprus” – and so spend their time refinancing their loans every six months to get lower interest rates.1 I suppose their bankers have to make fees somehow. And there don’t seem to be many conclusions to draw from the numbers: FICC revenues are down because there is noise in FICC revenues, not due to any change in business mix or performance. VaR is down because market vols are down, not because of any change in risk appetite. Private equity gains in investing & lending reflect stronger public equity markets because private equity is just beta. I guess.
Nor is Harvey your go-to guy to fulminate about regulation, though these days really no one is. He said various nice things about how the regulators are working hard and getting it right, and how Goldman doesn’t act in anticipation of regulations but only responds to them when they’re final. Others have phrased this less charitably. Thus Goldman’s new BDC is not a preemptive effort to fit prop traders into the Volcker Rule, but just a client-driven part of Goldman’s asset management strategy – “deploying our competencies into opportunities we feel like our clients would benefit from.”
So what’s left? There’s comp, of course: comp accruals were 43% of revenue ($4.34bn), versus 44% in 1Q2012 ($4.38bn), and headcount is down 1%. Analysts tried to push Schwartz to extrapolate a trend there, but again he mostly resisted. Keep enough people to serve clients, etc. Read more »
The Financial Industry Regulatory Authority accused Washington-based Success Trade Securities and its 45-year-old founder, Fuad Ahmed, of lying to 58 investors — most of them current and former NFL and NBA players — about how he planned to use their money. Ahmed sold $18 million in promissory notes to investors without telling them how he was spending it, including a $1,300-a-month lease for his Range Rover and an $82,000 interest-free loan for his brother, according to a complaint. Finra slapped the securities firm with a temporary cease-and-desist order while it investigates. [NYP]
FINRA chief Richard Ketchum has a puzzling message for the industry he regulates: Keep the malfeasance coming. Read more »
This should make you feel better:
Knight Capital Group currently remains in compliance with its net capital requirements following the firm’s $440 million trading loss, a front-line financial regulator said Thursday.
The Financial Industry Regulatory Authority, an independent regulatory authority for the securities industry, said in a statement Thursday that it’s working with Knight and other regulators to “review the impact resulting from Knight Capital’s technology issue,” which occurred in early trading Wednesday.
“Finra is closely monitoring the firm’s capital, and, at present, they are in compliance with net capital requirements,” said Finra spokeswoman Nancy Condon in a statement. “Finra currently has examiners on site” at Knight’s Jersey City, N.J., headquarters, she said.
Reassuring! Some context: Read more »
Yes, we know, the price of gold is kept artificially low by ponzi-scheming central bankers, who conspired with the CME to cost Hugo Chavez $1.2 billion today. And yes, we know that Finra is a fairly industry-friendly regulator of Wall Street banks that have a vested interest in keeping up the paper-asset bubble. Still, you may want to hear them out when they tell you that not everyone on the other side of the trade has your best interests at heart:
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According to the complaint, McCrudden noted on his website, which has since been scrubbed, “There are no good ways to execute this plan. These people have got to go! And I need your help, there are just too many for me alone [.]” (He also provided a list of the people he intended to cross off, including Mary Schapiro, Richard Ketchum and Gary Gensler, among many others.
This is just an FYI for anyone doing some risk/reward analysis re: whether or not freeing up the funds to buy unlimited lap dances by screwing clients is worth it– much to the chagrin of one Bloomberg columnist, you’re really just looking at a relative slap on the wrist. Read more »
Before another New Jersey health care worker gets thrown for a loop and tries to cover their losses from yet another structured product by suing everyone involved, Finra sent out a little reminder to brokers and investment advisers that leveraged ETFs are not for everyone. They cautioned that these “highly complex financial instruments” are typically unsuitable for retail investors. For those who might selectively confuse the safety of products labeled ultra short/ultra long for the cash stuffed under their mattress, the Finra communication is bad news. Now they might have to freely admit that they were simply greedy and didn’t know what they were doing.
Finra Urges Caution on Leveraged Funds [WSJ]
It seems small retail investors are still a glutton for punishment. A number of retail investors learned a harsh lesson last year when the convertible feature of their reverse convertible bonds kicked in and their high yielding bonds morphed into rapidly sinking equities. There are certain varieties of structured products that retail investors can take issue with because they weren’t fully aware of a seemingly minor structural mechanic that came back to bite them. This isn’t one of them. Even by retail investor standards, the key mechanic, the knock-in level, is spelled out clearly.
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We suspect that when Harry Markopolis called FINRA “corrupt,” he at least seems to have hit the nail on the head:
Two employees of Allen Stanford’s financial business, which U.S. regulators have accused of massive fraud, held advisory roles at a watchdog group overseeing U.S. broker-dealers aimed at preventing abuses.
Lena Stinson, director of global compliance at Stanford Financial Group, is listed as serving on the membership committee of the Financial Industry Regulatory Authority, or FINRA, which describes itself as the largest independent regulator of U.S. securities firms.
Frederick Fram, the chief operating officer of Stanford Group Holdings, serves on the FINRA continuing education content committee, “where he participates in creating material for the Regulatory Element continuing education program,” according to a biography on Stanford’s website.
Entertaining. Of course, don’t forget:
On Tuesday, FINRA named Richard Ketchum as its chief executive officer. He replaces Mary Schapiro, who resigned after she was confirmed as chairman of the U.S. Securities and Exchange Commission.
Stanford workers have ties to regulator FINRA [Reuters]