Tags: Goldman Sachs, Morgan Stanley, research
Wall Street banks’ research on their competitors is not only a window into analysts’ anxieties about their own banks’ prospects, but also a ripe area for conflicts between investment advice and industry advocacy. The days of analysts writing research reports that were like “Facebook should really do a huge equity offering and hire my bank as sole underwriter,” or whatever, are mostly behind us, but when banks write about their industry you might wonder if they’re giving dispassionate advice or pushing their employer’s interests. And when they write about their competitors it must be tempting to be a bit underminey. So various banks have published research saying “actually breaking up the big banks would be bad for shareholders,” which may be true but also not un-self-interested, as breaking up the big banks would surely be bad for the equity research analysts they employ. And then Morgan Stanley published a don’t-break-up-the-banks piece saying “… except Citi,”1 and if you knew that MS is in the process of trying to buy a chunk of Citi cheaply you might be like hmmm. Today Goldman recommends that Morgan Stanley get out of fixed-income trading, and, again: suspicious!
That’s arguably not their main point; much like JPMorgan last week, GS set out to quantify how much of their fun financial regulation is ruining, which again you could read as advocacy. Even though it’s the opposite of what Lloyd is advocating. Here’s Bloomberg:
New bank regulations and capital requirements are “structural” changes to the industry that are more to blame for declining profits than the U.S. economic slump, Goldman Sachs Group Inc. analysts said.
“The operating environment is unlikely to change any time soon, and we see shareholders of challenged banks becoming more demanding in asking management teams to lay out a path to unlocking value in the near term,” analysts led by Richard Ramsden in New York wrote in a report published today.
Their view contrasts with Goldman Sachs Chief Executive Officer Lloyd C. Blankfein, who said in November, “I don’t think we can conclude that the slowdown is secular rather than cyclical change.”
Here is their main chart, which is sad though perhaps too soon to call secular: Read more »
Tags: fixed-income, Layoffs, Morgan Stanley
Employees within fixed income may need to find room at another inn. Read more »
Tags: concerns, James Gorman, letters, mass exoduses or lack thereof, Morgan Stanley, Rebecca Rothstein
They’re not there yet, however; first, they’re going to send James Gorman a strongly worded letter about the issue and make a decision based on his response. They do sound pretty miffed though, so God help the guy if his answer is anything but “I’ve got my tool kit and I’m on the way over.” Read more »
Tags: Derivatives, Morgan Stanley, swaps, synthetic electricity
I very much enjoyed this Morgan Stanley electric shenanigans case that settled yesterday. According to the complaint, this happened:
- KeySpan, an electric generator, realized that prices for electric generation would be going down as more capacity came online.
- It decided to keep up prices by cutting back its own generation.
- But that’s dumb, because then it wouldn’t be able to sell much electricity at the high prices, which would mainly benefit its competitors.
- So it decided to buy its main competitor, cut back generation, but still sell plenty of electricity at high prices.
- But it “concluded that its acquisition of its largest competitor would raise serious market power issues” and so would raise problems with antitrust and electric grid regulators.
- So it said “aha, a swap!”
- And it synthetically acquired the capacity of its largest competitor (Astoria Generating) by entering into a swap with Morgan Stanley where it effectively bought that capacity at $7.57 a kilowatt-month.
- And Morgan Stanley hedged that trade by entering into a swap where it effectively bought the capacity from Astoria at $7.07 a kilowatt-month.
- Attentive readers will note that that’s a $0.50 difference, so Morgan Stanley made $0.50 per kW-month for about three years, for total revenue of around $21.6mm.*
So what do you make of it? The complaint sounds terrible, but then it would, and Morgan Stanley isn’t talking (and not admitting or denying etc. etc.), so we’ve only got one side of the story and maybe it’s exaggerated. But if you believe the complaint then everyone at KeySpan and Morgan Stanley knew that they were structuring this deal to get around antitrust requirements that they knew would make it impossible for KeySpan to buy Astoria directly. That’s certainly one possibility – everyone was as criminal as criminal can be – and, yeah, sure, probably, though the relatively low-dollar-value settlement might suggest otherwise.
But I like imagining the other possibilities in which someone was taking advantage of someone else’s naïveté. Read more »
Tags: Citigroup, Morgan Stanley, Morgan Stanley Smith Barney, Perella Weinberg
There’s been sort of an impromptu referendum on whether the big US universal banks should be smashed into itty-bitty pieces, and how itty-bitty, and which ones should be smashed first, and for some reason the leading contenders seem to be Citi and Morgan Stanley. Those two seem uninterested in that free advice, though, since they’re now haggling over the price of Morgan Stanley Smith Barney, the joint venture that is slowly migrating from Citi’s bloated clutches into Morgan Stanley’s also apparently bloated clutches. Whee.
Morgan Stanley owns 51% of this wealth management venture, while Citi owns 49%, and MS is looking to exercise an option to buy 14% more at a contentiously negotiated price. Citi carries MSSB on its books at a $22bn valuation and wants Morgan Stanley to pay a bit more than that to buy another chunk of it, while Morgan Stanley carries it at something like a $14bn valuation and wants to pay $9bn for it.* I submit to you that that bid/ask spread is not well calculated to make you feel good about (1) the intellectual rigor and independence of Citi’s and/or Morgan Stanley’s investment banking valuation work or (2) the balance sheet transparency of major banks. Thing (1) is I guess why the parties hired Perella Weinberg to be their neutral appraiser.** Thing (2) sparked Citi to put out an 8-K last week saying “oh btw we might have a huge hit to earnings when we mark down our ‘reasonable and supportable’ $22bn valuation to whatever Perella Weinberg finds,” which would not be great for earnings or Basel I capital or general confidence in Citi.***
That said I liked this approach to valuation: Read more »
Tags: blown to Neptune, Mike Mayo, Morgan Stanley, no respect, what?
Especially when he’s working his ass off to make this company big money and no one seems to give a baker’s damn. Here’s a tip from the Mayo Jar: When Fortune All-Star Analysts talk, you listen. Read more »
Tags: bonus watch, Compensation, Goldman Sachs, interesting turns of events, Jefferies, JPMorgan, Morgan Stanley
Jefferies set aside $870 million in the first six months of its fiscal year, enough to pay its 3,809 employees an average of $228,407. Goldman Sachs set aside $225,789 for each of its 32,300 workers. Average pay for the 26,553 people in JPMorgan’s investment bank was $184,989, or at least 18 percent less than Jefferies’s and Goldman Sachs’s reported figures. It was 10 percent less than both in fiscal 2011…Goldman Sachs, run by Chief Executive Officer Lloyd C. Blankfein, 57, includes consultants and temporary staff when reporting headcount. Jefferies, which has been luring talent from larger rivals to expand in the wake of 2008’s credit crisis, tallies only full-time workers in its disclosures. Jefferies’s reported headcount would expand by 10 percent to 15 percent if the firm included temporary workers, said a person with direct knowledge of the figures who requested anonymity because the information isn’t public. While that would place the firm’s average pay per employee below Goldman Sachs’s, it still exceeds JPMorgan’s and Morgan Stanley’s. [Bloomberg]