Tag Archives: Morgan Stanley

Trump says he’s thinking about breaking up the big banks

President Donald Trump said Monday he was contemplating breaking up the big Wall Street banks.

“I’m looking into that right now,” he told Bloomberg about bringing back the “old system” that separated consumer lending and investment banking.

Continue reading Trump says he’s thinking about breaking up the big banks

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It’s Time To Talk About That Other Thing That Destroyed Wall Street Earnings

woman new york city bags grocery cart cans garbage

All of the big American Wall Street banks have reported their fourth-quarter earnings, and you can pretty much use one word to describe them — rotten.

Most of the talk has centered on a full-on rout in trading revenue, especially in the bond, currency, and commodities markets. Citi’s trading revenue was down 14% overall from the same time last year. JPMorgan Chase’s bond trading revenue fell 23% from the same time last year.

Even Goldman Sachs, the only bank to eke out an earnings beat, saw its bond-trading revenue fall 29%. It was the talk of Goldman’s conference call — the fact there was a difference between good volatility in markets (just a touch) and bad volatility in markets (too much).

But while the focus on trading revenue makes for sexy headlines, it leaves out one big unsexy factor that decimated bank earnings. Yes, we’re talking about legal costs.

Perhaps people are simply tired of talking about this factor, because a lot of the transgressions banks are paying for date back to the financial crisis. Perhaps cynics are just tired of repeating the phrase “cost of doing business.”

Here’s the scoreboard for you:

  • Bank of America shelled out $393 million for legal expenses, down from $2.3 billion a year before. That said, in the third quarter the bank shelled out $5.6 billion for legal costs — so there’s that.
  • JPMorgan’s legal expenses held steady for the fourth quarter of 2013 and 2014, roughly hovering at about $1 billion.
  • Goldman Sachs fared better, spending $161 million legal expenses in the fourth quarter of 2014, down from $561 million at the same time last year and $194 million the previous quarter.
  • Citigroup’s legal expenses increased from the same time last year to $3.5 billion from $1 billion. In the third quarter of 2014 the bank spent $1.3 billion on legal expenses.
  • Morgan Stanley’s legal expenses aren’t totally clear. We know only that the bank spent $284 million “for legacy residential mortgage related matters” and that “Non-compensation expenses of $2.8 billion decreased from $4.1 billion a year ago, primarily reflecting lower legal expenses.”

It looks bad, sure, but we’ve seen worse.

The issue is that, seven years after the crisis, Wall Street is starting to settle into a new normal.

Eric Thayer/Reuters

If these legal issues — some from the crisis, some not —  are merely the “cost of doing business,” then it’s starting to look as if business is costing too much. Two or three years ago it seemed clear that these fines would, sooner rather than later, become a thing of the past. A big Wall Street bank would announce a massive legal cost, and that bank’s stock wouldn’t move an inch. Investors didn’t really care.

But that kind of thinking is becoming increasingly problematic as it is clear these expenses actually do matter, and this quarter is an excellent example of why. Combine a weak quarter in trading (or equity underwriting, or any other sector of the business) along with legal costs, and all of a sudden you have a nasty cocktail of big-bank failure. With these legal costs as they are, it doesn’t take much to tip the scales.

Trading issues happen — the market is cyclical and every trader will tell you that one minute you’re killing it, and the next minute you’re getting your face ripped off. That’s natural. The mess that those losses make when combined with legal expense, however, is not so natural.

The longer this goes on, the more people will catch on to that.

Ex-Goldman Trader Sentenced to 9 Months in Prison

Matthew Taylor, a former trader for Goldman Sachs, pleaded guilty to fabricating huge positions to protect his bonus.

A federal judge in Manhattan on Friday sentenced Matthew Taylor, a former Goldman Sachs trader, to nine months in prison for covering up an $8.3 billion unauthorized trade at the firm.

In 2012, the Commodity Futures Trading Commission accused Mr. Taylor of hiding the trade to protect his year-end bonus of $1.5 million. Prosecutors said Mr. Taylor acted out of “greed and pride” and had sought a sentence of 33 to 41 months. Mr. Taylor’s trade cost Goldman $118 million, a figure he has been ordered to repay.

Mr. Taylor, who once earned seven figures on Wall Street, now cleans pools six days a week in Florida. Mr. Taylor, who was dressed in a dark suit and blue tie, apologized to the court, his wife, his two children and even Goldman for his conduct, adding that it was “painful beyond words” to be the source of distress to his loved ones.

Mr. Taylor, who graduated from the Massachusetts Institute of Technology, owned a home in the Hamptons by the time he was 28.

“In short, Mr. Taylor, you were, in the words of Tom Wolfe, ‘a master of the universe,’ ” the judge, William H. Pauley III, said.

The C.F.T.C. accused Mr. Taylor, who traded equity derivatives products in New York, of hiding the $8.3 billion position he had taken in electronic futures contracts tied to the Standard & Poor’s 500-stock index. Though his superiors had ordered him to reduce the risk on his trading book, he instead ratcheted up the position. To conceal the size of the position, he entered “multiple false entries” into a Goldman trading system, booking trades that he never actually made.

Goldman fired Mr. Taylor after learning about his cover-up and reported the unauthorized trades to authorities within days. The C.F.T.C. did not bring charges against Mr. Taylor until five years later, during which time he was able to get another job as a trader with Morgan Stanley.

Mr. Taylor left Morgan Stanley during the summer of 2012 and pleaded guilty to wire fraud earlier this year.

“This case presents a paradigm of everything that is wrong with Wall Street and the regulators that are charged with protecting the public,” the judge said. “So much for Goldman’s concern about the financial markets.”

Goldman said in a email statement that it notified the Financial Industry Regulatory Authority, the brokerage industry’s policing arm, about Mr. Taylor’s dismissal and made clear “that he was fired for misconduct related to ‘inappropriately large proprietary futures positions in a firm trading account.’”

In August, Mr. Taylor agreed to pay a $500,000 fine in a civil matter related to the criminal case. He had earlier been forced to to give up $3 million in deferred compensation when Goldman fired him.

Mr. Taylor is the second Wall Street trader to receive prison time in less than a month. In November, Kareem Serageldin, a former trader at Credit Suisse, was ordered to serve two and a half years for inflating the value of mortgage bonds as the housing market collapsed.

“Mr. Taylor accepts the judgment of the court,” Thomas C. Rotko, a lawyer for Mr. Taylor, told reporters outside of the courtroom. “We are pleased that the judge saw this matter as we did as an indictment in part of the regulatory system itself.”

Alibaba Shares Debut At $92.70; Chinese E-Commerce Giant More Valuable Than Facebook, Amazon

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Founder and Executive Chairman of Alibaba Group Jack Ma attends the company’s initial price offering (IPO) at the New York Stock Exchange on September 19, 2014 in New York City. The New York Times reported yesterday that Alibaba had raised $21.8 Billion in their initial public offering so far. Andrew Burton/Getty Images

Shares in Chinese e-commerce giant Alibaba Holdings Ltd. opened trading on the New York Stock Exchange Friday at $92.70, 36 percent percent higher than its IPO price, making the Hangzhou-based firm more valuable than Amazon.com, Procter & Gamble or Facebook Inc.

The debut gave Alibaba an initial market cap of $228 billion; shares initially surged as high as $99.70 before falling back to the IPO price in the first hour of trading.

The debut came after Alibaba’s IPO, which raised $21.8 billion, a number that could rise to $25 billion if underwriters exercise their option to increase their allotment by 15 percent.

If that happens, the deal will exceed the $22 billion raised by the IPO of the Agricultural Bank of China in 2010, which holds the global record, according to the Wall Street Journal.

The mega-deal values Alibaba tantalizingly close to Walmart, the world’s largest retailer, which has a market cap of $245 billion.

Investment bank Cantor Fitzgerald encapsulated the enthusiasm for the stock by giving it a “buy” rating and a $90 price target, and saying the company “had the potential to dominate global online commerce over time.”

“We believe that a differentiated pricing model, strong brand, and unmatched scale give Alibaba an unfair competitive advantage relative to peers both in and outside China,” analyst Youssef Squali wrote.

The pop in shares created a windfall for the underwriting banks, including Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley, which helped price the shares and make money on the gain over the IPO price. It also means big shareholders like founder Jack Ma himself also left money on the table.

Goldman gives junior bankers 20% pay rise

The Goldman Sachs logo is displayed at the company's booth on the floor of the New York Stock Exchange in New York, US, on Friday, July 19 2013

Goldman Sachs is increasing salaries for junior bankers in the US by about 20 per cent in an increasingly frenetic war to attract and retain young graduates.

Some first-year employees will see their salaries increase to about $85,000, according to people familiar with the matter. The change does not affect bonuses, which can equal the salary. It does not affect every new recruit, and is not being rolled out internationally.

Wall Street banks, which have been trying to rein in overall remuneration costs, have come under pressure to improve salaries for their junior staff. Rivals, including Morgan Stanley, have already moved to increase base pay.

Many bankers complain that, while they may be receiving a large bonus in deferred stock, they need cash to spend on expensive Manhattan rents.

The move comes amid a broader reappraisal of pay and conditions at large banks, which are having to deal with private equity firms poaching their staff, Silicon Valley technology companies looking for talent and the death of a Bank of America intern who was working long hours.

BofA announced last month that it would hire more junior staff in an attempt to improve the work/life balance of its bankers. Several banks have attempted to limit work at weekends. Goldman has taken this approach and warned of disciplinary consequences for bankers who breach the new rules.

Last October Goldman announced the findings of a “junior banker task force” set up to improve conditions.

Its proposals included hiring more entry-level employees, called analysts, and providing additional opportunities for these analysts to spend time with their managers and clients.

“The goal is for our analysts to want to be here for a career,” said David Solomon, Goldman’s co-head of investment banking. “We want them to be challenged, but also to operate at a pace where they’re going to stay here and learn important skills that are going to stick. This is a marathon, not a sprint.”

In 2012 Goldman ended two-year contracts and bonuses for analysts at its investment banking operations. The move to give these junior bankers full-time employment contracts from the start was designed as a way to prevent them from being poached by hedge funds and private equity groups.

US banks draw up early plans for move to Ireland if UK leaves EU

Canary Wharf
Canary Wharf, part of London’s financial district

Wall Street banks are drawing up preliminary plans to move some London-based activities to Ireland to address concerns that the UK is drifting apart from the EU.

People familiar with Bank of America, Citigroup and Morgan Stanley said that they considered Ireland a favourable location for some of their European business if they needed to move them out of the UK. One said he was already planning to move some activities to Ireland.

The people said their plans were in most cases still at very early stages. But they said the US banks had started preparing for the euro zone’s impending banking union that threatens to isolate Britain and, ultimately, for a possible UK exit from the EU.

People familiar with Bank of America, Citigroup and Morgan Stanley say they have considered Ireland a favourable location for some of their European business if they need to move them out of the UK. Photograph: Bobby Yip/Reuters
People familiar with Bank of America, Citigroup and Morgan Stanley say they have considered Ireland a favourable location for some of their European business if they need to move them out of the UK.

“I’m frankly looking at moving some activities to Ireland,” said one senior UK-based manager at a Wall Street bank. “I think the Irish Central Bank and Government would welcome this. It is not so much Brexit, more about legal entity optimisation.”

Most US and Asian banks have chosen to base their main European operations in the UK, giving them an automatic passport to carry out their services across all 27 countries in the EU.

But senior US banking executives said the UK was unlikely to be granted the same “passporting” rights if it left the EU – the “Brexit” scenario.

Passported activities

Executives at American banks in Europe are reluctant to speak publicly about the issue for fear of upsetting the UK regulators. One said: “I don’t think people are making enough of it – a lot of passported activities that cannot take place in London will not exist here any more.”

As the European Central Bank prepares to take charge of the biggest banks in the euro zone later this year, there are fears among some executives at US banks that this will drive a wedge between the UK and the rest of Europe’s financial system.

Britain is already challenging an ECB policy in the European Court of Justice that would force clearing houses handling euro-denominated transactions to decamp from London to the euro zone.

The UK hosts more than 250 foreign banks and last year it generated a financial services trade surplus of $71 billion, about a third of which came from trade with the EU, according to TheCityUK, a financial lobby group.

Israel’s Mobileye safety system supplier raises $890 million in IPO

A device, part of the Mobileye driving assist system, is seen on the dashboard of a vehicle during a demonstration for the media in Jerusalem October 24, 2012. Mobileye, which makes technology to help drivers, expects sales to more than double every year for the next few years as car manufacturers look to offer more safety features and self-drive cars gain in popularity. REUTERS/Baz Ratner (JERUSALEM - Tags: SCIENCE TECHNOLOGY TRANSPORT BUSINESS) - RTR39IZE

 

(Reuters) – Mobileye N.V., which makes software and cameras that help cars avoid accidents, said on Monday it has launched a road show for its U.S. initial public offering of around $500 million.

 

The Israeli based company will sell 27.75 million shares – 8.325 million by Mobileye itself and another 19.425 million by the selling shareholders.

Mobileye said it expects the IPO on the New York Stock Exchange to price at $17 to $19 a share and list under the symbol MBLY. That would bring in proceeds of $472 million to $527 million.

The selling shareholders have also granted the underwriters an option to purchase up 4.16 million additional shares to cover any over-allotments.

Goldman Sachs and Morgan Stanley are lead underwriters.

The company’s collision-avoidance technology is used in more than 3 million vehicles made by the likes of BMW and General Motors.

Mobileye’s systems include a windshield-mounted camera that takes pictures of what is in front of the driver. The images are processed and, in real-time, a small device on the dashboard gives the driver audio-visual warnings.

Amnon Shashua, the firm’s chairman, and Ziv Aviram, its chief executive, each own 9 percent in the company.

Mobileye’s other top shareholders include Goldman Sachs Group Inc, Fidelity Investments, BlackRock, and Enterprise Holdings, the No 1 U.S. car rental company.

Mobileye’s revenue doubled to $81.2 million for the year ended Dec. 31. The company swung to a profit of about $20 million in the year from a loss of $53 million a year earlier.

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