Continue reading Investment Banking Unit Pushes JPM to Strong Profit

Investment Banking Unit Pushes JPM to Strong Profit originally appeared on BloggingStocks on Fri, 15 Jan 2010 08:30:00 EST. Please see our terms for use of feeds.

Continue reading Goldman Sachs discusses pay with major investors

Goldman Sachs discusses pay with major investors originally appeared on BloggingStocks on Thu, 03 Dec 2009 10:30:00 EST. Please see our terms for use of feeds.

Continue reading Hedge fund goes public . . . through the backdoor

Hedge fund goes public . . . through the backdoor originally appeared on BloggingStocks on Fri, 05 Jun 2009 12:30:00 EST. Please see our terms for use of feeds.

Continue reading A day ahead of earnings, Goldman Sachs raises $5.5 billion for private equity fund

A day ahead of earnings, Goldman Sachs raises $5.5 billion for private equity fund originally appeared on BloggingStocks on Mon, 13 Apr 2009 11:00:00 EST. Please see our terms for use of feeds.

Morgan Stanley (NYSE: MS) may cut 5% of its workforce. Given the drop-off in investment banking activity and asset management, the number may not be high enough, but it is a start. Wall Street is still worried about the bank's future, as its stock price shows. Shares change hands at $21, down more than 50% during that last year. Morgan is doing better than some other companies in its sector, but the deepening recession could hurt earnings more than last year.

According to The Wall Street Journal (subscription requited), "The New York firm, which let go of about 7,000 employees last year, may decide on another round of staffing cuts in the next two weeks."

Continue reading If Morgan Stanley (MS) cuts jobs, stock may rise

If Morgan Stanley (MS) cuts jobs, stock may rise originally appeared on BloggingStocks on Fri, 30 Jan 2009 10:00:00 EST. Please see our terms for use of feeds.

Just when you think you've heard it all, you hear more. In the last year, Wall Street -- or more specifically, the brokerage units of New York financial companies -- lost $35 billion. (Worldwide, financial institutions have taken $1 trillion in write-offs of bad assets). Those firms received a large proportion of the $350 billion TARP and persuaded the Treasury to guarantee losses from hundreds of billions worth of their financial toxic waste. Their reward? $18.4 billion in bonuses.

How much of the TARP went to paying for those bonuses? The banks have cleverly neglected to report that. But let's face it -- money is fungible. So if they did not use the money from the deposits they received from the Treasury to pay bonuses, our tax dollars freed up cash they may have had from other sources that did go to paying those $18.4 billion in bonuses.

Continue reading Wall Street loses $35 billion in 2008, uses TARP for $18.4 billion bonus

Wall Street loses $35 billion in 2008, uses TARP for $18.4 billion bonus originally appeared on BloggingStocks on Thu, 29 Jan 2009 11:15:00 EST. Please see our terms for use of feeds.

JPMorgan Chase (NYSE: JPM) posted earnings Thursday. In a surprise to analysts, who had been expecting a break-even quarter, JPM reported earning 7 cents for the fourth quarter.

While the report showed a 76% decline from the previous year, the news pushed the stock to early gains in the face of a drop in the Dow.

Typical of the lack of conviction in the markets, JPM gave up early gains. Subsequent trading restored the stock to the positive column before it succumbed to a late-day sell-off that shaved more than 6% from its market value.

The mid-morning decline in JPM occurred as Bank of America (NYSE: BAC) plummeted to a new low at $7.50. BAC is sagging under the weight of absorbing Countrywide and Merrill Lynch, both of which have proven more difficult to digest than earlier thought.

Bank stocks in general are under heavy selling pressure after Federal Reserve Chairman Ben Bernanke declared Wednesday that billions more will be required to restore stability to the nation's (and the world's) banking system.

Continue reading JPMorgan up on earnings report

JPMorgan up on earnings report originally appeared on BloggingStocks on Fri, 16 Jan 2009 11:06:00 EST. Please see our terms for use of feeds.

New accounting rules could curb investment banking fees originally appeared on BloggingStocks on Thu, 08 Jan 2009 09:22:00 EST. Please see our terms for use of feeds.

Credit Suisse hands out illiquid junk for bonuses originally appeared on BloggingStocks on Mon, 22 Dec 2008 11:29:00 EST. Please see our terms for use of feeds.

It would be pretty nifty to bank online with Goldman Sachs (NYSE: GS). It is the world's premier investment bank, although it has converted itself to a commercial bank to get government funding.

Still, saying I bank online with Goldman sounds better than saying I bank online with the First National Bank of Akron Ohio.

According to The Wall Street Journal, "If Goldman goes ahead, the new unit will seek deposits that can be used to fund various businesses now that Goldman is a bank-holding company." In other words, now that Goldman is a bank, it wants to drive up deposits. Starting an online bank is cheaper than going out and buying a number of regional banks to pick up their depositor bases.

All kidding aside, the chance to have an account at such a prestigious financial institution could draw a great deal of money, especially from the well-to-do. A marquis name should make for marquis customers. And, that should bring Goldman a lot of the assets it needs to fund its more profitable businesses.

Douglas A. McIntyre is an editor at 247wallst.com.

Internet banking at Goldman Sachs (GS) originally appeared on BloggingStocks on Wed, 03 Dec 2008 09:13:00 EST. Please see our terms for use of feeds.

Bloomberg is reporting that the global banking industry could lose 350,000 jobs by the middle of next year. That would be about 20% of the employees in the sector.

That level of unemployment represents an almost unimaginable human tragedy and one that might have been avoided in part if management at large financial house had not bet the bank on mortgage derivatives. But, that is water under the bridge.

The question which gets begged is where all of those people will go. Many bankers are not qualified for other high-paying jobs, which means they will stay unemployed for long periods or will face having to take significant cuts in their incomes. Either way, the shift will take a large toll on government services such as unemployment benefits. Let's not forget the lost taxes.

The destruction of the banking industry is a microcosm of what many happen across sector after sector if the recession bites hard. Autos may be the next domino to fall, but retail and hospitality won't be far behind it. Suddenly hundreds of thousands of jobs become millions, and, if things get especially bad, tens of millions.

Financial services is the canary in the coal mine. If the industry cannot fine some employment equilibrium it is bad for everyone.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Banking industry may lose 350,000 jobs originally appeared on BloggingStocks on Fri, 21 Nov 2008 10:53:00 EST. Please see our terms for use of feeds.

Continue reading Why do so many analysts like GM, Ford, Circuit City?

Why do so many analysts like GM, Ford, Circuit City? originally appeared on BloggingStocks on Mon, 10 Nov 2008 16:44:00 EST. Please see our terms for use of feeds.

Obviously, things are getting worse in the financial world and not better. Most Wall Street firms have laid off workers on mortgage trading desks and fired overlapping workers due to "mergers" like the one between Bear Stearns and JP Morgan (NYSE:JPM). But, the evaluations by management at banks and investment houses is moving to other areas which are no longer making money like M&A and corporate finance. That could lead to more firings before the end of the year, in some cases to avoid paying bonuses to those who will get throw over the side.

According to the FT, "Executives and analysts say the redundancies - to be finalised this month as banks prepare next year's budgets - could top 70,000 among US groups alone and add to the estimated 150,000 jobs already lost by the financial sector worldwide."

Many Americans have little sympathy for New York City. Manhattan is often viewed as a center for rich people with multi-million dollar apartments, limousines, and private jets. But, a significant loss of jobs in the largest city in the US will do more than erode the tax base there.

Because of the concentration of wealth in NYC, there is also a concentration of demand for consumer goods. This is not just for Mercedes. It also includes hardware and software at Wall Street firms, building materials for high-rises, luxury goods from major retailers, and infrastructure supplies for the region's massive transportation and road systems.

What is bad for NYC is, to a very large extent, bad for the country.

Douglas A. McIntyre is an editor at 247wallst.com.

Wall Street: Another 70,000 layoffs originally appeared on BloggingStocks on Mon, 10 Nov 2008 08:51:00 EST. Please see our terms for use of feeds.

Bottom falls out of tombstone market (not THAT kind!) originally appeared on BloggingStocks on Sun, 09 Nov 2008 15:12:00 EST. Please see our terms for use of feeds.

The Goldman Sachs Group (NYSE: GS) plans to can 10% of its 32,500 person staff. Despite its glorious reputation, Goldman is not that different from other financial institutions (FIs). It earned high returns by borrowing too much and now that over-borrowing is causing a painful implosion. As I pointed out last night at The Wharton Club of Boston, the current debt-led bubble has cost $37 trillion so far -- six times more than the equity-led dot-com bubble.

The cost of debt is clear from a quick examination of Goldman's financial statements under current CEO Lloyd Blankfein. When he took over from current Treasury Secretary Hank Paulson, Goldman's ratio of assets to shareholder equity was 18.7 but by the end of 2007, the ratio peaked at 26.2 as assets more than doubled to $1.1 trillion and its return on equity (ROE) climbed to 32%.

Much of the increase in Goldman's ROE was due to debt. In particular, 65% of the increase in Goldman's ROE from 2003 to 2006 was a result of its industry-leading use of borrowed money to increase its assets. While high leverage amplifies returns when asset values climb, it causes even more offsetting pain when asset values decline. For example, the $305 billion in profits earned by the top nine investment banks over the last three years has been wiped out by $323 billion in write-downs in the last year.

Continue reading Goldman's 10% layoffs reflect debt's dangers

Goldman's 10% layoffs reflect debt's dangers originally appeared on BloggingStocks on Thu, 23 Oct 2008 09:43:00 EST. Please see our terms for use of feeds.

Collateralized Debt Obligations (CDOs) -- those fiendishly complex securities that slice bonds into different groups based on risk -- are a $1.3 trillion pile of toxic waste likely to be written down 90% from financial institutions' (FIs) books. That's a shame because so far FIs have written off $660 billion worth of subprime mortgages and mortgage-backed securities (MBS) and that total is expected to top $2 trillion before it's all over. That is way more than the $340 billion in capital that resides on FIs books.

Since there is very little information about CDOs available, it is difficult to both put a value on them and to know how bad the damage is. One firm estimates that $254 billion of CDOs tied to subprime mortgages have defaulted. But corporate CDOs are privately traded, so the damage from writing down this toxic waste is difficult to quantify. These corporate CDOs were called synthetic -- they consisted of bundles of Credit Default Swaps (CDSs) on corporate bonds.

The $54 trillion CDS market -- famously deregulated by John McCain's chief economic advisor Phil "Americans are Whiners" Gramm -- is now causing shudders for owners of synthetic CDOs since they are tied to the bankruptcy of Lehman Brothers along with Iceland's biggest banks. Fitch downgraded 422 classes of CDOs on October 13 after seven financial companies defaulted or were bailed out since September. And Barclays estimates that 70% of synthetic CDOs were tied to Lehman Brothers.

Continue reading With CDOs slashed 90% will toxic waste's toll top $2 trillion?

With CDOs slashed 90% will toxic waste's toll top $2 trillion? originally appeared on BloggingStocks on Wed, 22 Oct 2008 09:39:00 EST. Please see our terms for use of feeds.

It's kind of amazing that any bank is earning a profit these days. But JPMorgan Chase (NYSE: JPM) pulled it off -- making a profit of $527 million -- 84% less than last year at this time. Bad loans are the culprit -- leading to $5.8 billion in write-downs, losses and credit provisions. And JPMorgan's outlook for the next few quarters is not upbeat.

What I find most interesting about its numbers is that one of its lines of business saw a boost in revenue and profit. In particular, its investment-banking division made $882 million in the third quarter -- 198% more than last year -- and its revenue rose $1.1 billion. Unfortunately, its retail and credit card units suffered. Retail bank earnings fell 61% to $247 million and its credit-card division's $292 million in profit was 63% below last year's.

Although its CEO is downplaying expectations, I think that JPMorgan will benefit from the new two-tiered banking system created by the $250 billion capital infusion plan. Banks that don't get enough government capital will lose deposit and loan business to the strongest players. JPMorgan -- which got $25 billion in taxpayer money -- will be one of the beneficiaries.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in JPMorgan securities.

JP Morgan posts 84% profit plunge originally appeared on BloggingStocks on Wed, 15 Oct 2008 09:22:00 EST. Please see our terms for use of feeds.

Bloomberg News reports that Washington pulled another Sunday night special -- wiping out Wall Street as we have known it. Ironically, this move will put Wall Street back where it was prior to the Great Depression. How so? Last night the Fed approved changing Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) from investment banks to commercial ones. Morgan Stanley -- which may sell up to 20% of itself to Mitsubishi UFJ and may put merger discussions on hold -- and Goldman Sachs now have greater odds of remaining independent.

Most significantly, the change will allow both banks to take consumer deposits and get short-term loans from the Fed. In exchange for that cheap money, they will need to increase the amount of capital they have, take less risk, and submit themselves to tighter regulatory scrutiny. The capital increases are the most significant piece of this new puzzle. According to the New York Times, "Goldman Sachs has $1 of capital for every $22 of assets; Morgan Stanley has $1 for every $30. By contrast, Bank of America (NYSE: BAC) has less than $11 for every $1 of capital." Goldman and Morgan will be required to raise significant capital to reach that 11 to 1 ratio. How they do that still remains a mystery.

Ironically, prior to the Great Depression, banks like JPMorgan operated both commercial and investment banks -- taking deposits from consumers and doing stock offerings for business. I was surprised to learn that they already have billions in deposits. "Morgan Stanley had $36 billion in retail deposits as of August 31 and Goldman Sachs had $20 billion," according to the Times. Now, they'll need to add branches and invest in marketing and systems to expand that amount. So, although the industry will return to its pre-Great Depression structure -- it will be more tightly regulated than it was back then.

Continue reading Wall Street wiped out: Goldman and Morgan to change structure

Wall Street wiped out: Goldman and Morgan to change structure originally appeared on BloggingStocks on Mon, 22 Sep 2008 09:15:00 EST. Please see our terms for use of feeds.

I have been astonished by the speed of the collapse of our financial system. There is no precedent in my lifetime for such a rapid collapse. And I doubt that the lessons of the Great Depression pertain to the current situation. This is the Greatest Depression -- about which I posted in March -- and the lessons of this one are likely to expose five fundamental flaws in our financial architecture.

These flaws are the reason for the rapid meltdown and they include:

1. Securitization -- the popularity of shifting risk from an originator to a group of investors in a package wrapped in a AAA credit rating based on flawed analysis.
2. Lack of transparency -- the inability to estimate the future cash flows of such a complex security -- thereby creating massive uncertainty in a period of decline.
3. Leverage -- borrowing way too much money with too tiny a sliver of capital to protect against risk -- making it possible to wipe out all the capital with a 6% decline in the value of these securities.
4. Heads-I-win, tails-you-lose pay -- Paying deal makers for the size of their deals and sticking taxpayers and shareholders with the losses.
5. Global interconnectedness -- thanks to information technology and ease of investment rules, a sneeze in the US causes hurricanes around the world.

How could we cure these problems? As I posted, we could end securitization, demand complete transparency, raise capital requirements, link pay to profits rather than sales, and create firewalls to prevent problems in one market from infecting the rest. But with the global financial architecture crumbling worldwide, there's no time for this now.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Why such a rapid meltdown? originally appeared on BloggingStocks on Tue, 16 Sep 2008 10:13:00 EST. Please see our terms for use of feeds.

Twelve banks, lead by JP Morgan (NYSE:JPM) and Goldman Sachs (NYSE:GS), will set up a $70 billion loan facility which any of them can draw on in an emergency.

According to The Wall Street Journal, "The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs."

By some accounts, any one of the members in the pool can take down 33% of the $70 billion. If the financial crisis gets significantly worse, the partners may be battling each other for that money. Competition for the capital could become unpleasant.

One other way to look at the fund is that it is an M&A facility. If any single bank or broker owes the fund $30 billion, it may be a way for a stronger member, say Goldman, to buy that company by taking on its loan obligation.

An acquisition fund disguised as a lender venture. How clever.

Douglas A. McIntyre is an editor at 247wallst.com.

Banks may fight over new $70 billion fund originally appeared on BloggingStocks on Mon, 15 Sep 2008 08:40:00 EST. Please see our terms for use of feeds.