Weekly Financial Biz Recap: Jamie Dimon’s SCANDAL, Morgan Stanley Takes Heat
Spain’s new capital requirements for its banks are hitting two majors hard: BBVA (NYSE:BBVA) will set aside provisions worth approximately €1.8 billion ($2.3 billion) for that purpose, which impacts its 2012 net profits by €1.3 billion and reduces core capital by 38 basis points. Banco Santander S.A. (NYSE:STD) is placing €2.7 billion on reserve having earned €1.6 billion in the previous quarter, but neither bank is reducing its dividend. Concerning the matter, Moody’s notes that even the newly announced €30 billion in loss provisions by the Spanish banks will prove insufficient to protect them against upcoming increasing loan delinquencies.
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Among Monday’s JPMorgan (NYSE:JPM) news is that its CIO Ina Drew will retire and be replaced by Managing Director Matt Zames, who is currently Chairman of the Treasury Borrowing Advisory Committee. That group is comprised of big Wall Street players, and advises the Treasury concerning its borrowing requirements. Meanwhile, Drew is eligible for $14.65 million of accelerated equity awards, even though she was involved in the now-famous $2.3 billion trading loss. However, on Tuesday shareholders get their turn at the annual meeting, and will be able to cast a non-binding vote on Drew’s and Jamie Dimon’s 2011 compensation.
Tuesday’s JPMorgan (NYSE:JPM) news – so far – includes reconfiguring compensation after The Loss, an unfortunately timed shareholders meeting, and the growing list of investigators and pilers-on. Two senior executives say that the company is mulling bonus ‘clawbacks’, after word went out of Ina Drew’s possible receipt of $14.65 million in accelerated equity awards (although she could see her awards cancelled if it’s determined that she “caused material financial or reputational harm”). The shareholders’ meeting adjourned after 50 minutes, failing to pass a resolution which would split the Chairman and CEO roles at the company. 40.1 percent voted for the new arrangement, and several bigwigs added their support as well. Jamie Dimon told the audience that JPM’s after tax loss should be around $1 billion, and that earnings will be as much as $20 billion in 2012; using these figures he argued against reducing the dividend. Finally, the list of investigating agencies now includes the Justice Department, the U.S. Senate, the Securities and Exchanges Commission, the Federal Reserve, and the United Kingdom’s FSA. However, shares are back up quite nicely on Tuesday – might have to do with that dividend.
Analysts at Citigroup are focusing on HSBC’s (NYSE:HBC) huge exposure to emerging markets, and are asking why its shares are not valued accordingly. The exposure comprised $13.8 billion (80 percent) of the 2011 net profit. However, it’s also noted that HSBC’s valuation is similar to those banks’ that do concentrate on developing markets, as does JPMorgan.
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General Electric (NYSE:GE) will receive a second quarter dividend of $475 million from its subsidiary GE Capital, and a $4.5 billion special dividend during the current year. These represent the first such payments since they were suspended in 2009.
Wednesday’s JPMorgan (NYSE:JPM) news is mostly confined to the company’s CIO unit and the controls that were placed upon it prior to The Loss. It seems that the division enjoyed looser risk requirements relative to other areas of the Bank, as it reported directly to Jamie Dimon, remaining mostly free from being monitored, even after warnings that went back to 2005. The group used its own Value-at-Risk model, which might have wrongly minimized the danger of the over-sized positions which led to the losses. At the same time in which the CIO unit was selling large amounts of corporate-debt insurance, a mutual fund elsewhere in JPM was purchasing it in the market. That does affirm that the asset management division is separate, as is required, but it also could prove that the ‘left hand didn’t know what the right hand was doing’, i.e., the bank was to large and complex to manage. Meanwhile, Bruno Iksil – called the “London Whale” for reasons unknown – is reportedly exiting JPM’s risk-management unit, possibly in connection with the loss.
AIG (NYSE:AIG) intends to divest its shares in AIA Group (AAIGF.PK), following the expiration of a lock-up period in early September, according to CEO Bob Benmosche. The firm sold some $6 billion of the same stock in March, which left it with approximately 19 percent. The further sale is expected to help reduce the company’s earnings volatility.
Legg Mason (NYSE:LM) says that it will repurchase $1.25 billion worth of convertible senior notes, bought by KKR (NYSE:KKR) in 2008. The former will take non-cash charge of $70 million to $80 million in its fiscal first quarter to gain the early extinguishment of the notes, and also expects to buy back $1 billion in shares.
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Bank of America’s (NYSE:BAC) overseas wealth management unit is up for sale, as the company is said to think it too small to generate significant margins. Royal Bank of Canada (NYSE:RY) and Credit Suisse (NYSE:CS) are reportedly on the list of potential buyers, in a deal that could bring BofA as much as $2 billion.
Oh, here we go… Morgan Stanley (NYSE:MS) is now another focal point of worries (just like JPMorgan?) concerning its own exposure to the European Union periphery, and also what might happen if its credit rating is cut, which analysts say could happen in the near term. Meanwhile, shares of MS have lost much of their huge late 2011 rally.
And go… Shares of JPMorgan (NYSE:JPM) actually do seem to be falling on Thursday, especially when compared to the other members of the To Big To Fail club. This is the first time JPM stocks have slumped since word of The Loss; could it be due to new revelations that the deficit is now estimated at closer to $3 billion? Some analysts say that part of the cause was a ‘bullish bet on investment grade debt paired with a short sale of junk’.
Lloyds (NYSE:LYG), under investigation for manipulating the London interbank offered rate (LIBOR), which is an analog to the U.S. federal funds rate, has suspended two derivatives traders. Other banks losing staff in the same way over the same matter, are said by sources to be those of JPMorgan, Royal Bank of Scotland (NYSE:RBS), and Deutsche Bank AG (NYSE:DB).
Carlyle (NYSE:CG) could execute a lucrative departure from the Taiwanese Ta Chong Bank, if it and other major investors can divest Ta Chong to Yuanta Financial for T$37 billion ($1.25 billion), as is expected. Yaunta is shifting its concentration back to Taiwan, and Carlyle would have a 7 percent interest in the company, post-sale.
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Friday’s JPMorgan (NYSE:JPM) report includes the exposure of its Chief Investment Office, and Jamie Dimon’s initial reaction to news of The Loss. The Financial Times says that the CIO has accumulated more than $100 billion of positions in ‘complex, risky bonds and structured products’, with a current “non-vanilla” portfolio reaching more than $150 billion. It now seems that there was no treasurer in place while the CIO was engaging in their risky trades, and also that the CIO’s risk manager, who was appointed in February, was inexperienced in the specifics of those trades. Meanwhile, it’s said by inside sources that Jamie Dimon “couldn’t breathe” upon sight of the actual positions behind the $2 billion loss, and that his risk-management instincts were perhaps glazed over time by the profits the Office was producing, leaving him unaware that it had changed from a hedging outfit to one making major directional decisions.
ING’s (NYSE:ING) Asian life insurance division is up for sale, and reported possible buyers include Manulife Financial (NYSE:MFC), Metlife (NYSE:MET) and Prudential (NYSE:PRU), and are ready to conduct their first-round offers Friday. Sources estimate that such a transaction could bring between $6.5 billion and $7 billion, as ING continues to sell off its units.
Chatter regarding possible curbs on the short selling of bank stocks, bring shares of Banco Santander SA (NYSE:STD) up, along with other related companies and exchanges in Spain. At the same time, STD’s United Kingdom chief reports that its division there lost around £200 million in deposits on Friday, due to customers’ uncertainties over the new rules and perhaps Europe in general.
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