2012年1月30日星期一
2012年1月20日星期五
Q&A: Consumer watchdog spells out agency's tasks
A company’s obligations don’t stop with the law. It also needs to be fair and upfront with customers.
That’s the message from Richard Cordray, who was named by President Barack Obama as the first director of the Consumer Financial Protection Bureau.
“Frankly there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal,” Cordray said in an interview with The Associated Press. Such practices will now be a target for the CFPB.
The agency and Cordray’s appointment are both controversial. The CFPB was created as part of the overhaul of the nation’s financial regulations, with a mandate to police the array of financial products marketed to consumers.
Republicans blocked Cordray’s appointment for months, saying the agency would have far too much power with too little accountability. Then earlier this month, Obama installed Cordray when Congress wasn’t in session.
With a director finally in place, the CFPB is moving quickly to flex its full authority in policing businesses such as mortgage brokers, student lenders and other businesses that previously escaped federal scrutiny.
On Thursday, the agency released a field guide for its examiners to analyze practices at payday lenders, which essentially offer customers advances on their paychecks for a flat fee. It will mark the first time the industry will be subject to such oversight.
The CFPB has started collecting public comment to help simplify the disclosures consumers receive with credit cards, mortgages and student financial aid. It will take months or even years before consumers see how these efforts play out.
But here’s what Cordray had to say about how the agency will impact consumers:
____
Q: A major focus for the CFPB has been on improving the transparency of a product’s fees and terms, and the disclosures consumers receive. Are there instances where this won’t be enough and more aggressive regulatory action will be required?
A: Let me answer that question in two parts. On transparency and disclosure; a key insight here is that more disclosures don’t always make things better. As it accumulates, there can be so much dense fine print that it can actually make things much worse _ consumers find it hard to penetrate and they often will not read it.
That’s a concern and that’s why we’re trying to make things more transparent, simpler and clearer with our “Know Before You Owe” project.
However, simply making things clearer to consumers is not enough if people aren’t actually playing by the rules and defrauding consumers. There we have to enforce the rules and we have to do it fairly, even handedly, but with rigor so that everybody understands that they have to follow and respect the law.
Q: Are there practices that are technically legal yet require regulatory action?
A: If something is technically legal, that’s one issue. But we also have the authority to determine that practices are unfair, deceptive and abusive. That’s where our authority can be used to try to protect consumers, even though maybe the technicalities of pre-existing laws have been followed.
So that’s something we’re going to have to be careful about _ the use of that authority. But it certainly is necessary to protect consumers and frankly there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal. But when you see how a product is marketed, you can see what the effect is on consumers.
Q: So in those situations, what is the most important thing consumers need to know about what the CFPB can and cannot do?
A: Consumers should know that when they feel they’re being treated unfairly, they have the opportunity to come and tell us about it. And I mean the 300 million consumers all across this country _ they can come to our website at consumerfinance.gov. If it’s a mortgage or credit card issue, they can file a complaint with us.
If it’s any other kind of issue, we will be able to take those complaints eventually.
Q: Once those complaints are in hand, what are the limits of what the CFPB can do?
A: We have three different sets of authority that Congress gave us and that we are by law responsible to carry out. We have rule making authority. And we particularly are going to be active in trying to correct some of the problems in the mortgage markets over the next year or two.
We have supervision and examination authority, which is new but very important. It’s the ability to actually go into these institutions, look at their books and records and ask questions about what they do, and really get to the bottom of things. This means both working with them where that’s possible and or bringing enforcement actions where that’s necessary.
And the third is the ability to actually enforce the law _ which is clearly needed if you’re going to have a marketplace that actually works.
Q: One of the first industries the agency will be looking at is payday lending. A concern for consumer advocates is that customers often roll over the loans, meaning they repeatedly take out new loans to repay previous loans. What practices in the payday industry raise concerns for you?
A: One of the things we’re very concerned about is making sure that those products actually help consumers and don’t harm them. So the possibility that consumers end up rolling loans over and over, and end up in this sort of debt trap where they’re living off of money at 400 percent interest rates is a concern and it’s something we’re going to look at very closely.
Q: Suze Orman has a prepaid card and Amex last year rolled out a prepaid card. Do you see any risks with celebrities and major banks backing prepaid cards, or are there upsides?
A: We generally think consumers need to take care when they’re attracted to a product for reasons that might obscure the actual price and risk involved. People want think carefully about what they’re getting into here.
In the prepaid space in particular, there’s a lot of evolution and there are a lot of new products coming out. Some have appeared to be terrible products and some may be pretty good. We’re monitoring that and as I say, it’s a fast moving market right now and we’re going to consider carefully how to address those issues as they arise
Q: A lot of major banks have adopted this theme of transparency. Chase rolled out new checking account disclosures and Citi has its Simplicity credit card. How much faith do you have that the market can “right itself” in terms of transparency?
A: I have a lot of faith in the market if it is backed by evenhanded, comprehensive rules of the road that everyone knows they have to live by. If the market is left to its own devices or if we regulate part of the market and leave the rest unregulated, as happened with the mortgage market, that created, in my view, a lot of what caused the financial meltdown _ that’s never going to work.
It is our view that what we do will actually strengthen markets.
It’s quite possible that banks would have been moving to more transparency and simpler terms on their own. I happen to think some of that is in reaction to knowing that the consumer bureau is now in place, that it’s something we’re emphasizing.
Q: Student loans were a big issue during the Occupy protests and graduates are burdened with more and more debt. Do you see any parallels to the mortgage industry?
A: I’ve read a lot that suggests that student loans may be a bubble that is developing. Obviously the major driver of the total amount of student loans is the rapid increases in tuition and the costs of higher education in the last 10 years. We don’t control that.
What we can control and what we can affect is the choices that consumers make. That they know what their choices are, that they know the difference between federal loans and private student loans _ how that can affect terms of repayment, how that can affect the price and interest rate. These are important things for consumers to know.
We’re working right now with the Department of Education on an easy to navigate shopping sheet for students and their families.
Q: What role do school financial aid offices have in explaining the costs?
A: You have to examine the particular approach of an institution in context. You have to look at the facts and circumstances. So I wouldn’t make a blanket statement about all student loan offices, but obviously that’s an initial point of contact for the student and their families on the terms of what’s being offered. That needs to be done clearly and it needs to be done so that the student and their family can understand that choice.
It’s our belief that if consumers are presented with information in a clear and understandable fashion, they are the ones who will be able to make the best choices for themselves. It will never be for us to try and make these choices for anyone.
Q: Are companies changing their practices just because they know that the CFPB is out there?
A: I think that you are seeing change in these markets. I think you’re seeing it on three sides.
One side is you now have a bureau with some good tools to actually affect these markets in a constructive way.
On the business side, many of them are recognizing that they should get out in front of it. They’re trying to see what they can change on their own to either head off the enforcement or to try to improve things because they’re persuaded that it needs to be done.
The third side is consumers themselves. And it’s very important for consumers to recognize they have a lot of power in the market. Especially with social media, as they group together and it’s not just an isolated complaint but a group of people with a similar complaint. They can affect these businesses and how they respond to them
It’s important for consumers not only to look to the bureau for help but to look to themselves and help themselves.
___
Candice Choi can be reached at www.twitter.com/candicechoi
http://tourism9.com/ http://vkins.com/
That’s the message from Richard Cordray, who was named by President Barack Obama as the first director of the Consumer Financial Protection Bureau.
“Frankly there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal,” Cordray said in an interview with The Associated Press. Such practices will now be a target for the CFPB.
The agency and Cordray’s appointment are both controversial. The CFPB was created as part of the overhaul of the nation’s financial regulations, with a mandate to police the array of financial products marketed to consumers.
Republicans blocked Cordray’s appointment for months, saying the agency would have far too much power with too little accountability. Then earlier this month, Obama installed Cordray when Congress wasn’t in session.
With a director finally in place, the CFPB is moving quickly to flex its full authority in policing businesses such as mortgage brokers, student lenders and other businesses that previously escaped federal scrutiny.
On Thursday, the agency released a field guide for its examiners to analyze practices at payday lenders, which essentially offer customers advances on their paychecks for a flat fee. It will mark the first time the industry will be subject to such oversight.
The CFPB has started collecting public comment to help simplify the disclosures consumers receive with credit cards, mortgages and student financial aid. It will take months or even years before consumers see how these efforts play out.
But here’s what Cordray had to say about how the agency will impact consumers:
____
Q: A major focus for the CFPB has been on improving the transparency of a product’s fees and terms, and the disclosures consumers receive. Are there instances where this won’t be enough and more aggressive regulatory action will be required?
A: Let me answer that question in two parts. On transparency and disclosure; a key insight here is that more disclosures don’t always make things better. As it accumulates, there can be so much dense fine print that it can actually make things much worse _ consumers find it hard to penetrate and they often will not read it.
That’s a concern and that’s why we’re trying to make things more transparent, simpler and clearer with our “Know Before You Owe” project.
However, simply making things clearer to consumers is not enough if people aren’t actually playing by the rules and defrauding consumers. There we have to enforce the rules and we have to do it fairly, even handedly, but with rigor so that everybody understands that they have to follow and respect the law.
Q: Are there practices that are technically legal yet require regulatory action?
A: If something is technically legal, that’s one issue. But we also have the authority to determine that practices are unfair, deceptive and abusive. That’s where our authority can be used to try to protect consumers, even though maybe the technicalities of pre-existing laws have been followed.
So that’s something we’re going to have to be careful about _ the use of that authority. But it certainly is necessary to protect consumers and frankly there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal. But when you see how a product is marketed, you can see what the effect is on consumers.
Q: So in those situations, what is the most important thing consumers need to know about what the CFPB can and cannot do?
A: Consumers should know that when they feel they’re being treated unfairly, they have the opportunity to come and tell us about it. And I mean the 300 million consumers all across this country _ they can come to our website at consumerfinance.gov. If it’s a mortgage or credit card issue, they can file a complaint with us.
If it’s any other kind of issue, we will be able to take those complaints eventually.
Q: Once those complaints are in hand, what are the limits of what the CFPB can do?
A: We have three different sets of authority that Congress gave us and that we are by law responsible to carry out. We have rule making authority. And we particularly are going to be active in trying to correct some of the problems in the mortgage markets over the next year or two.
We have supervision and examination authority, which is new but very important. It’s the ability to actually go into these institutions, look at their books and records and ask questions about what they do, and really get to the bottom of things. This means both working with them where that’s possible and or bringing enforcement actions where that’s necessary.
And the third is the ability to actually enforce the law _ which is clearly needed if you’re going to have a marketplace that actually works.
Q: One of the first industries the agency will be looking at is payday lending. A concern for consumer advocates is that customers often roll over the loans, meaning they repeatedly take out new loans to repay previous loans. What practices in the payday industry raise concerns for you?
A: One of the things we’re very concerned about is making sure that those products actually help consumers and don’t harm them. So the possibility that consumers end up rolling loans over and over, and end up in this sort of debt trap where they’re living off of money at 400 percent interest rates is a concern and it’s something we’re going to look at very closely.
Q: Suze Orman has a prepaid card and Amex last year rolled out a prepaid card. Do you see any risks with celebrities and major banks backing prepaid cards, or are there upsides?
A: We generally think consumers need to take care when they’re attracted to a product for reasons that might obscure the actual price and risk involved. People want think carefully about what they’re getting into here.
In the prepaid space in particular, there’s a lot of evolution and there are a lot of new products coming out. Some have appeared to be terrible products and some may be pretty good. We’re monitoring that and as I say, it’s a fast moving market right now and we’re going to consider carefully how to address those issues as they arise
Q: A lot of major banks have adopted this theme of transparency. Chase rolled out new checking account disclosures and Citi has its Simplicity credit card. How much faith do you have that the market can “right itself” in terms of transparency?
A: I have a lot of faith in the market if it is backed by evenhanded, comprehensive rules of the road that everyone knows they have to live by. If the market is left to its own devices or if we regulate part of the market and leave the rest unregulated, as happened with the mortgage market, that created, in my view, a lot of what caused the financial meltdown _ that’s never going to work.
It is our view that what we do will actually strengthen markets.
It’s quite possible that banks would have been moving to more transparency and simpler terms on their own. I happen to think some of that is in reaction to knowing that the consumer bureau is now in place, that it’s something we’re emphasizing.
Q: Student loans were a big issue during the Occupy protests and graduates are burdened with more and more debt. Do you see any parallels to the mortgage industry?
A: I’ve read a lot that suggests that student loans may be a bubble that is developing. Obviously the major driver of the total amount of student loans is the rapid increases in tuition and the costs of higher education in the last 10 years. We don’t control that.
What we can control and what we can affect is the choices that consumers make. That they know what their choices are, that they know the difference between federal loans and private student loans _ how that can affect terms of repayment, how that can affect the price and interest rate. These are important things for consumers to know.
We’re working right now with the Department of Education on an easy to navigate shopping sheet for students and their families.
Q: What role do school financial aid offices have in explaining the costs?
A: You have to examine the particular approach of an institution in context. You have to look at the facts and circumstances. So I wouldn’t make a blanket statement about all student loan offices, but obviously that’s an initial point of contact for the student and their families on the terms of what’s being offered. That needs to be done clearly and it needs to be done so that the student and their family can understand that choice.
It’s our belief that if consumers are presented with information in a clear and understandable fashion, they are the ones who will be able to make the best choices for themselves. It will never be for us to try and make these choices for anyone.
Q: Are companies changing their practices just because they know that the CFPB is out there?
A: I think that you are seeing change in these markets. I think you’re seeing it on three sides.
One side is you now have a bureau with some good tools to actually affect these markets in a constructive way.
On the business side, many of them are recognizing that they should get out in front of it. They’re trying to see what they can change on their own to either head off the enforcement or to try to improve things because they’re persuaded that it needs to be done.
The third side is consumers themselves. And it’s very important for consumers to recognize they have a lot of power in the market. Especially with social media, as they group together and it’s not just an isolated complaint but a group of people with a similar complaint. They can affect these businesses and how they respond to them
It’s important for consumers not only to look to the bureau for help but to look to themselves and help themselves.
___
Candice Choi can be reached at www.twitter.com/candicechoi
http://tourism9.com/ http://vkins.com/
2012年1月12日星期四
Bank profit reports could be lifted by business loans
(Reuters) – A recent rise in loans to businesses is spurring hope that U.S. bank earnings reports, which begin on Friday, will show the outlook for this economically critical industry is better than battered stock prices and weak investment banking volumes suggest.
Loans by large banks to commercial and industrial companies picked up sharply through the last week of the year, according to Federal Reserve data, and in recent days have started to catch the attention of investors.
“Loan growth will be one of the hottest topics throughout the earnings season,” said David Long, a bank stock analyst at Raymond James & Associates.
A lasting upturn in demand for loans to finance investment would be good for the economy and, in turn, rebuild profits from consumer lending, investment banking and asset management.
Promising signs in loan portfolios, though, are expected to be countered by another rough patch for capital markets businesses. Banks are also still trying to shake off mortgage-related losses tied to the housing bust and struggling to increase revenue in the face of new regulations that crimp the fees they can charge for debit card swipes.
JPMorgan Chase & Co, the biggest U.S. bank, is scheduled to report fourth-quarter and full-year results on Friday morning, kicking off the earnings season for financial companies. The report will break out results from JPMorgan’s large investment banking, business lending, and consumer franchises, which could foreshadow earnings reports in the next two weeks from companies concentrated in those segments.
Bank of America Corp, Citigroup Inc , Wells Fargo & Co , Goldman Sachs Group Inc and Morgan Stanley report the following week after the Martin Luther King holiday.
JPMorgan is expected to report earnings per share that are 18 percent lower than in the same period a year earlier, according to analysts surveyed by Thomson Reuters I/B/E/S. Estimates for Bank of America, on the other hand, call for the bank to rebound from a loss at the end of 2010 amid a raft of unusual charges for bad mortgages.
Quarterly earnings for the broader financial sector represented by about 80 large companies, including insurance companies and money management firms, are expected to be down about 1.6 percent from a year earlier, according to Thomson Reuters I/B/E/S.
Bank analysts and investors, though, will be looking beyond year-ago profit comparisons to what institutions reveal about current profit margins for lending, cost controls, regulatory burdens and any change in demand from borrowers for money.
Weak demand from consumers who borrowed too much during the housing bubble has combined with tougher requirements from governments for financial safety to push bank stocks down to record lows compared with the companies’ earnings and net worth, also known as book value.
That is why solid new business loan growth could alter the industry’s outlook. In fact, bank stocks are off to a strong start this year on hopes the worst is behind the industry. The KBW Bank Index is up 10 percent this year, while Bank of America shares, down nearly 60 percent in 2011, have surged 24 percent.
“If we do see some loan growth, that starts to reflect that the economy is starting to stabilize and we’re starting to see some growth,” said Marty Mosby, analyst with Guggenheim Partners. “As banks start to see some lending growth that turns into some job growth.”
Outstanding loans to commercial and industrial businesses by large banks grew 5.2 percent in the fourth quarter through December 28, according to Federal Reserve data. That is more than a 20 percent annualized rate and an acceleration from the 3.1 percent and 3.4 percent increases in the two previous quarters, said Long.
To be sure, much of the increase was likely not so much additional demand from companies as it was a shift in market share of existing borrowings, said Long. European banks lending to U.S. companies backed away to trim their balance sheets in the sovereign debt storm. And bond investors in the capital markets gave up some of the business when they were unwilling to refinance large loans as cheaply as large U.S. banks.
“It isn’t an indication of super-charged growth,” Mike Mayo, an analyst with CLSA and author of “Exile on Wall Street: One Analyst’s Fight to Save Big Banks from Themselves,” said in an interview.
CONTINUING CHALLENGES
More business loans are especially important because loans to consumers and loans for commercial and residential real estate have declined from their levels a year ago, according to Paul Miller, an analyst at FBR Capital Markets.
Miller cautions the earnings reports could include unpleasant surprises. For example, some banks may decide to take charges to clear their books of inflated values on assets before they start the new year. Charges like those will not be as easily offset as in recent quarters, when improving consumer creditworthiness allowed banks to reverse the large reserves they booked for bad loans.
“I don’t think we will get the improvements in credit like we’ve seen in the past,” said Miller.
Other challenges for banks in the fourth quarter, according to Miller, include reduced income from debit card swipe fees and tighter net interest margins – the spread between what banks make on loans versus what they pay on deposits.
To make up for lost revenue, banks are tightening their belts. Bank of America said it will eliminate 30,000 jobs in the consumer bank and staff functions over the next few years. It is also preparing for cutbacks in capital markets and wealth management operations, starting this spring. Wells Fargo is looking to reduce quarterly expenses by $1.5 billion by the fourth quarter of this year through a wide-ranging efficiency program, that also includes job cuts.
EUROPEAN UNCERTAINTY REMAINS
Analysts expect Goldman Sachs and Morgan Stanley to report the worst annual earnings since the financial crisis, due to tremendous market volatility stemming from the European sovereign debt crisis. Big swings in stock and bond prices led clients to pull back sharply on trading and deal-making.
Overall investment banking revenue declined 9 percent across Wall Street compared with the third quarter, which was already weak, according to a report by JPMorgan analyst Kian Abouhossein. He expects banks to report a quarterly decline of 17 percent in deal-making revenue, with a 3 percent drop in fixed income trading revenue and a 2 percent drop in equities trading revenue.
Investors remain concerned about Wall Street’s exposure to Europe, as well as whether big banks’ trading desks can earn more than their cost of capital, given market stress and new regulations that aim to cut back on risk-taking.
Goldman Sachs is expected to report fourth-quarter earnings of $1.50 per share, less than half of what it earned in the year-ago period, according to Thomson Reuters data. Morgan Stanley is expected to report a loss of 56 cents per share due to a special charge related to a settlement with MBIA Inc. It earned 41 cents a share in the year-earlier quarter.
Analysts do not see an end to the investment banking woes any time soon, which explains why both Goldman and Morgan Stanley have outlined plans to lay off staff and are expected to cut bonuses by billions of dollars to trim costs. Fourth-quarter reports will provide more insight on the compensation the firms have set aside for the year.
“Unfortunately, we do not anticipate a robust capital markets recovery in 2012,” Brad Hintz, an analyst at the brokerage Sanford Bernstein & Co and a former Morgan Stanley treasurer, said in a recent report.
(Reporting by David Henry in New York and Rick Rothacker in Charlotte, North Carolina. Additional reporting by Lauren Tara LaCapra in New York; editing by Andre Grenon)
http://tourism9.com/
Loans by large banks to commercial and industrial companies picked up sharply through the last week of the year, according to Federal Reserve data, and in recent days have started to catch the attention of investors.
“Loan growth will be one of the hottest topics throughout the earnings season,” said David Long, a bank stock analyst at Raymond James & Associates.
A lasting upturn in demand for loans to finance investment would be good for the economy and, in turn, rebuild profits from consumer lending, investment banking and asset management.
Promising signs in loan portfolios, though, are expected to be countered by another rough patch for capital markets businesses. Banks are also still trying to shake off mortgage-related losses tied to the housing bust and struggling to increase revenue in the face of new regulations that crimp the fees they can charge for debit card swipes.
JPMorgan Chase & Co
Bank of America Corp
JPMorgan is expected to report earnings per share that are 18 percent lower than in the same period a year earlier, according to analysts surveyed by Thomson Reuters I/B/E/S. Estimates for Bank of America, on the other hand, call for the bank to rebound from a loss at the end of 2010 amid a raft of unusual charges for bad mortgages.
Quarterly earnings for the broader financial sector represented by about 80 large companies, including insurance companies and money management firms, are expected to be down about 1.6 percent from a year earlier, according to Thomson Reuters I/B/E/S.
Bank analysts and investors, though, will be looking beyond year-ago profit comparisons to what institutions reveal about current profit margins for lending, cost controls, regulatory burdens and any change in demand from borrowers for money.
Weak demand from consumers who borrowed too much during the housing bubble has combined with tougher requirements from governments for financial safety to push bank stocks down to record lows compared with the companies’ earnings and net worth, also known as book value.
That is why solid new business loan growth could alter the industry’s outlook. In fact, bank stocks are off to a strong start this year on hopes the worst is behind the industry. The KBW Bank Index is up 10 percent this year, while Bank of America shares, down nearly 60 percent in 2011, have surged 24 percent.
“If we do see some loan growth, that starts to reflect that the economy is starting to stabilize and we’re starting to see some growth,” said Marty Mosby, analyst with Guggenheim Partners. “As banks start to see some lending growth that turns into some job growth.”
Outstanding loans to commercial and industrial businesses by large banks grew 5.2 percent in the fourth quarter through December 28, according to Federal Reserve data. That is more than a 20 percent annualized rate and an acceleration from the 3.1 percent and 3.4 percent increases in the two previous quarters, said Long.
To be sure, much of the increase was likely not so much additional demand from companies as it was a shift in market share of existing borrowings, said Long. European banks lending to U.S. companies backed away to trim their balance sheets in the sovereign debt storm. And bond investors in the capital markets gave up some of the business when they were unwilling to refinance large loans as cheaply as large U.S. banks.
“It isn’t an indication of super-charged growth,” Mike Mayo, an analyst with CLSA and author of “Exile on Wall Street: One Analyst’s Fight to Save Big Banks from Themselves,” said in an interview.
CONTINUING CHALLENGES
More business loans are especially important because loans to consumers and loans for commercial and residential real estate have declined from their levels a year ago, according to Paul Miller, an analyst at FBR Capital Markets.
Miller cautions the earnings reports could include unpleasant surprises. For example, some banks may decide to take charges to clear their books of inflated values on assets before they start the new year. Charges like those will not be as easily offset as in recent quarters, when improving consumer creditworthiness allowed banks to reverse the large reserves they booked for bad loans.
“I don’t think we will get the improvements in credit like we’ve seen in the past,” said Miller.
Other challenges for banks in the fourth quarter, according to Miller, include reduced income from debit card swipe fees and tighter net interest margins – the spread between what banks make on loans versus what they pay on deposits.
To make up for lost revenue, banks are tightening their belts. Bank of America said it will eliminate 30,000 jobs in the consumer bank and staff functions over the next few years. It is also preparing for cutbacks in capital markets and wealth management operations, starting this spring. Wells Fargo is looking to reduce quarterly expenses by $1.5 billion by the fourth quarter of this year through a wide-ranging efficiency program, that also includes job cuts.
EUROPEAN UNCERTAINTY REMAINS
Analysts expect Goldman Sachs and Morgan Stanley to report the worst annual earnings since the financial crisis, due to tremendous market volatility stemming from the European sovereign debt crisis. Big swings in stock and bond prices led clients to pull back sharply on trading and deal-making.
Overall investment banking revenue declined 9 percent across Wall Street compared with the third quarter, which was already weak, according to a report by JPMorgan analyst Kian Abouhossein. He expects banks to report a quarterly decline of 17 percent in deal-making revenue, with a 3 percent drop in fixed income trading revenue and a 2 percent drop in equities trading revenue.
Investors remain concerned about Wall Street’s exposure to Europe, as well as whether big banks’ trading desks can earn more than their cost of capital, given market stress and new regulations that aim to cut back on risk-taking.
Goldman Sachs is expected to report fourth-quarter earnings of $1.50 per share, less than half of what it earned in the year-ago period, according to Thomson Reuters data. Morgan Stanley is expected to report a loss of 56 cents per share due to a special charge related to a settlement with MBIA Inc
Analysts do not see an end to the investment banking woes any time soon, which explains why both Goldman and Morgan Stanley have outlined plans to lay off staff and are expected to cut bonuses by billions of dollars to trim costs. Fourth-quarter reports will provide more insight on the compensation the firms have set aside for the year.
“Unfortunately, we do not anticipate a robust capital markets recovery in 2012,” Brad Hintz, an analyst at the brokerage Sanford Bernstein & Co and a former Morgan Stanley treasurer, said in a recent report.
(Reporting by David Henry in New York and Rick Rothacker in Charlotte, North Carolina. Additional reporting by Lauren Tara LaCapra in New York; editing by Andre Grenon)
http://tourism9.com/
2012年1月2日星期一
State investments continue to grow
Wyoming made $770 million from investments of its $14.4 billion in trust funds during the 2010-11 fiscal year and finished repaying losses from the 2008 economic bust.
“We’ve had two really good years,” State Treasurer Joe Meyer told the Select Committee on Capital Financing and Investments, which met in Casper earlier this month. “So we live happily ever after until the next crisis comes.”
Meyer presented his investment report to the legislators to bring them up to speed on the state’s major permanent trust funds before the budget session begins.
“For the fiscal year ending June 30 … we made $770 million on this $14 billion portfolio, and we distributed out $622 million [to various state agencies],” said Chief Investment Officer Michael Walden-Newman, from the treasurer’s office.
The treasurer also put $91 million back into the permanent trust funds, completing repayment of some $200 million that was lost through unfavorable business decisions in the 2008 economic downturn ($110 million was repaid in 2010).
“This past year we paid off the remaining $91 million, so that came out of the $770 million,” Walden-Newman said. “We also had some losses that we carried on the books from the crisis … they were about $35 million that we paid off and then we paid the investment managers [$42.4 million]. So what we distributed was $620 million for the fiscal year, which was actually very good considering how horrible it had been a couple of years prior.”
Meyer, meanwhile, was still mad at the losses from the downturn, which he attributed largely to decisions by some of the private investment managers who no longer work for the state.
“I can accept an investment manager losing money with their style, that’s to be expected; you can’t tell markets that much,” Meyer said. “But when they get stupid enough to sell at the bottom of the market, without telling us, I lose my temper and I get mad. They have since apologized to us; I said well it’s a little bit late to apologize to us now.”
The treasurer’s office, in conjunction with the State Land and Investment Board (composed of the state’s top five elected officials, including Meyer), oversee management of the state’s $14.4 billion in established funds, which include the Permanent Wyoming Mineral Trust Fund ($5.3 billion); Hathaway Scholarship Fund ($502.8 million); Higher Education Endowment Fund ($111.5 million); Workers’ Compensation Fund ($1.36 billion); and the Tobacco Settlement Fund ($67.5 million). There’s also the Permanent Land Fund, which is actually three separate funds: the Common School Land Fund ($2.24 billion); University Permanent Land Fund ($18 million); and the Remaining Permanent Land Funds ($122.8 million). In addition, there are a myriad of smaller funding sources in the state (such as the Wildlife Trust Fund) which are combined into what’s called the State Agency Pool, and totals some $4.7 billion.
Some of the funds, such as the Permanent Mineral Trust Fund, the Hathaway Scholarship Fund and the Higher Education Endowment Fund, are “inviolate,” which means once the money is in, it can never come out, the fund, or corpus, can never be allocated. The interest from investment of that money, however, can be spent and pays for programs tied specifically to the fund, such as Hathaway scholarships.
To ensure their inviolability, there are specific guidelines and risk limits for these permanent funds, with the primary objective being to protect the money.
“We just don’t have that many risky investments,” Meyer told the committee. “Actually, when the bottom dropped out in 2007-2008, this very, very conservative portfolio … dropped 11 percent in value. Our retirement system lost 35 percent, and most state and public funds across the United States lost in excess of 30 percent in value. That doesn’t mean that we’re geniuses, it means the type of portfolio that we built has been stretched … I prefer a diversified portfolio.”
Meyer said while there’s caution, there’s also alertness to the market.
“We’ve got some flexibility in there to see what’s really happening in the real world,” Meyer said. “That’s when Mike [Walden-Newman] and R.V. Kuhns [the state’s private investment management firm] get their heads together, and they call the managers, and they say, ‘What do you think is going on?’ It’s a very interactive, very alive process. You know we’re damn fortunate to have money …”
“We’re very conscious in the treasurer’s office that the primary investment portfolio is the protection of the corpus of the funds,” Walden-Newman said. “And secondly, to provide liquidity to meet the state’s needs. And then after those is to provide the highest possible rate of return within the risk parameters … And the risk parameters are set in the asset allocation, and for us the risk parameters are mostly set by the cap placed on equity exposure of 55 percent of the permanent funds, so that we have less volatility in the stock market, and a more reliable and predictable income in the bond market.”
The investment income isn’t only interest or revenues, but also the value of the asset itself, i.e., capital gains (or losses). Meyer said that while the value of many of the stocks, bonds and other assets went up substantially this year, he cautioned that the values go can go down as quickly as they go up. Because of the volatility, “You’ll see a $450 million shift in market value in just one month,” Meyer said as an example. “September was a miserable month, October was a really hot month, so if you ask how much capital gains we can get, I would never expect $450 million in one month, and capital appreciation, but that’s what happened.”
Meyer said they only count capital gains as income in July at the end of the fiscal year, if they cash in. Capital gains also aren’t counted as income for budgeting purposes in the important Consensus Revenue Estimating Group (CREG) report, which is the main benchmark used in developing the state budget.
“Those capital gains haven’t ever been, and won’t be, profiled in the CREG report, but they’ll come to the state …” Meyer said, noting the current policy of the treasurer’s office.
State budgeters, however, are aware it might be there at the end of the fiscal year ($275 million of the $622 million that was distributed to the agencies this past fiscal year came from capital gains).
“Now that can become a serious sum of money come July,” noted Rep. Steve Harshman, R-Natrona, who’s a member of the legislature’s Joint Appropriations Committee.
Another issue that arose in the meeting concerned what are called “reserve accounts,” which are less restricted than the fixed funds, but designated for the same purpose. For instance, if investments from the Hathaway Scholarship Fund come up short to finance all the qualifying students, the reserve account is there to make up the difference.
The reserve accounts generate investment interest as well, which in recent years has gone directly into the state’s General Fund. The committee, however, voted to introduce bills that would have that interest stay with the reserve account in the case of the Hathaway Fund and the Common School Fund.
While the state apparently isn’t projecting a significant increase in investment income this current fiscal year, the funds are still expected to grow.
“I tell people it took Wyoming 113 years to get its first $5 billion in this portfolio,” Walden-Newman said, commenting that was around 2003. “It took five years to get the next $5 billion, so in 2008 we were at $10 billion. And we’re going to be at $15 billion in this portfolio, based on our projections, about this time next year … and on out.”
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“We’ve had two really good years,” State Treasurer Joe Meyer told the Select Committee on Capital Financing and Investments, which met in Casper earlier this month. “So we live happily ever after until the next crisis comes.”
Meyer presented his investment report to the legislators to bring them up to speed on the state’s major permanent trust funds before the budget session begins.
“For the fiscal year ending June 30 … we made $770 million on this $14 billion portfolio, and we distributed out $622 million [to various state agencies],” said Chief Investment Officer Michael Walden-Newman, from the treasurer’s office.
The treasurer also put $91 million back into the permanent trust funds, completing repayment of some $200 million that was lost through unfavorable business decisions in the 2008 economic downturn ($110 million was repaid in 2010).
“This past year we paid off the remaining $91 million, so that came out of the $770 million,” Walden-Newman said. “We also had some losses that we carried on the books from the crisis … they were about $35 million that we paid off and then we paid the investment managers [$42.4 million]. So what we distributed was $620 million for the fiscal year, which was actually very good considering how horrible it had been a couple of years prior.”
Meyer, meanwhile, was still mad at the losses from the downturn, which he attributed largely to decisions by some of the private investment managers who no longer work for the state.
“I can accept an investment manager losing money with their style, that’s to be expected; you can’t tell markets that much,” Meyer said. “But when they get stupid enough to sell at the bottom of the market, without telling us, I lose my temper and I get mad. They have since apologized to us; I said well it’s a little bit late to apologize to us now.”
The treasurer’s office, in conjunction with the State Land and Investment Board (composed of the state’s top five elected officials, including Meyer), oversee management of the state’s $14.4 billion in established funds, which include the Permanent Wyoming Mineral Trust Fund ($5.3 billion); Hathaway Scholarship Fund ($502.8 million); Higher Education Endowment Fund ($111.5 million); Workers’ Compensation Fund ($1.36 billion); and the Tobacco Settlement Fund ($67.5 million). There’s also the Permanent Land Fund, which is actually three separate funds: the Common School Land Fund ($2.24 billion); University Permanent Land Fund ($18 million); and the Remaining Permanent Land Funds ($122.8 million). In addition, there are a myriad of smaller funding sources in the state (such as the Wildlife Trust Fund) which are combined into what’s called the State Agency Pool, and totals some $4.7 billion.
Some of the funds, such as the Permanent Mineral Trust Fund, the Hathaway Scholarship Fund and the Higher Education Endowment Fund, are “inviolate,” which means once the money is in, it can never come out, the fund, or corpus, can never be allocated. The interest from investment of that money, however, can be spent and pays for programs tied specifically to the fund, such as Hathaway scholarships.
To ensure their inviolability, there are specific guidelines and risk limits for these permanent funds, with the primary objective being to protect the money.
“We just don’t have that many risky investments,” Meyer told the committee. “Actually, when the bottom dropped out in 2007-2008, this very, very conservative portfolio … dropped 11 percent in value. Our retirement system lost 35 percent, and most state and public funds across the United States lost in excess of 30 percent in value. That doesn’t mean that we’re geniuses, it means the type of portfolio that we built has been stretched … I prefer a diversified portfolio.”
Meyer said while there’s caution, there’s also alertness to the market.
“We’ve got some flexibility in there to see what’s really happening in the real world,” Meyer said. “That’s when Mike [Walden-Newman] and R.V. Kuhns [the state’s private investment management firm] get their heads together, and they call the managers, and they say, ‘What do you think is going on?’ It’s a very interactive, very alive process. You know we’re damn fortunate to have money …”
“We’re very conscious in the treasurer’s office that the primary investment portfolio is the protection of the corpus of the funds,” Walden-Newman said. “And secondly, to provide liquidity to meet the state’s needs. And then after those is to provide the highest possible rate of return within the risk parameters … And the risk parameters are set in the asset allocation, and for us the risk parameters are mostly set by the cap placed on equity exposure of 55 percent of the permanent funds, so that we have less volatility in the stock market, and a more reliable and predictable income in the bond market.”
The investment income isn’t only interest or revenues, but also the value of the asset itself, i.e., capital gains (or losses). Meyer said that while the value of many of the stocks, bonds and other assets went up substantially this year, he cautioned that the values go can go down as quickly as they go up. Because of the volatility, “You’ll see a $450 million shift in market value in just one month,” Meyer said as an example. “September was a miserable month, October was a really hot month, so if you ask how much capital gains we can get, I would never expect $450 million in one month, and capital appreciation, but that’s what happened.”
Meyer said they only count capital gains as income in July at the end of the fiscal year, if they cash in. Capital gains also aren’t counted as income for budgeting purposes in the important Consensus Revenue Estimating Group (CREG) report, which is the main benchmark used in developing the state budget.
“Those capital gains haven’t ever been, and won’t be, profiled in the CREG report, but they’ll come to the state …” Meyer said, noting the current policy of the treasurer’s office.
State budgeters, however, are aware it might be there at the end of the fiscal year ($275 million of the $622 million that was distributed to the agencies this past fiscal year came from capital gains).
“Now that can become a serious sum of money come July,” noted Rep. Steve Harshman, R-Natrona, who’s a member of the legislature’s Joint Appropriations Committee.
Another issue that arose in the meeting concerned what are called “reserve accounts,” which are less restricted than the fixed funds, but designated for the same purpose. For instance, if investments from the Hathaway Scholarship Fund come up short to finance all the qualifying students, the reserve account is there to make up the difference.
The reserve accounts generate investment interest as well, which in recent years has gone directly into the state’s General Fund. The committee, however, voted to introduce bills that would have that interest stay with the reserve account in the case of the Hathaway Fund and the Common School Fund.
While the state apparently isn’t projecting a significant increase in investment income this current fiscal year, the funds are still expected to grow.
“I tell people it took Wyoming 113 years to get its first $5 billion in this portfolio,” Walden-Newman said, commenting that was around 2003. “It took five years to get the next $5 billion, so in 2008 we were at $10 billion. And we’re going to be at $15 billion in this portfolio, based on our projections, about this time next year … and on out.”
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India tycoon’s got tons of cash, nowhere to invest
The problem isn’t opportunity, he said. It’s India.
“Every large investment, there was no transparency,” Piramal said.
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His dilemma is a worrying sign for India. With the country mired in corruption, bureaucratic red tape and unclear and changing government policies, many of the men who made their billions here are saying maybe it’s time to quit India. It’s got to be easier to do business elsewhere.In May last year, Piramal’s healthcare business sold its generic drug operations to US pharmaceutical giant Abbott Laboratories for $3.8 billion. Piramal, a tall big man in a country that still measures prosperity by girth, was eager to set that cash pile to work. He wanted to expand one of his chemical plants, but was told it would take five years.
“The same plant could be set up in China in two years,” he said. “I love India, but my customer is not going to wait.”
India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet for capital. Instead, since the beginning of 2010, the amount that Indians have invested in businesses overseas has exceeded the amount foreigners are investing in India, according to central bank figures.
In part this reflects the confidence and aptitude of India’s maturing companies and the current malaise in the global economy and financial markets. But it also reflects deep problems at home. India’s big coporations may be cash rich but the failure to invest that money domestically is bad news for a developing country that needs capital to build the roads, power plants and food warehouses that could help lift hundreds of millions out of dire poverty.
The frustration of India’s business elite with corruption, political paralysis, log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles – to pick a few of the top complaints – has reached a pitch perhaps not heard since India began liberalizing its economy in the early 1990s. “If you are an honest businessman in India, it’s very difficult to start up anything,” said Jamshyd Godrej, chairman of manufacturing giant Godrej & Boyce. “Companies are going to operate where they see the best opportunities and efficiency for their capital.”
Increasingly, that’s outside India.
In 2008, foreigners poured roughly twice as much direct investment into India – $33 billion – as Indians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad – twice as much as foreigners invested in India – a trend that’s continued this year.
There is another, unspoken element to all the complaints. To the extent that business in India ran on corruption, some of the old, dirty ways of doing things are being disrupted, freezing India’s already glacial bureaucracy, business leaders say.
Scandals in the staging of the Commonwealth Games, the pilfering of homes meant for war widows and the irregular auction of cellphone spectrum that cost the country billions has sent parliamentarians and even a Cabinet minister to prison.
With Indians tiring of the incessant graft, tens of thousands of middle-class protesters poured into the streets and pushed an anti-corruption bill onto the floor of Parliament.
Steelmakers can’t get enough iron ore because a massive mining scandal in the southern state of Karnataka prompted a court to order the closure of illicit mines that account for a fifth of iron ore production in the country.
The bureaucrats – even the honest ones – are reportedly so scared of being punished they are refusing to make the decisions needed to make the country run.
Piramal is not unpatriotic. Each room in his executive suite is named after an Indian epic hero: Arjuna, the most pure; Dhananjay, acquirer and master of wealth. There’s a quote from the Upanishads scriptures on the wall.
His office sits in a one million square foot office park in Mumbai his family built. The buildings around him – white with blue glass that flashes back the unforgiving sun – bear his own name in large black letters: Piramal Towers.
Piramal had the will and the means to build power plants and roads.
Instead, his Piramal Group’s largest investment to date has been in one of the office park’s tenants: the Indian subsidiary of the British telecom giant Vodafone Plc.
Last September, when he got the first payout, of $2.2 billion, from Abbott, the phone started ringing.
“Because people knew we had money, we had so many people approaching us for projects in the infrastructure sector,” he said. “These people had no experience and no knowledge and no track record of having built a business in any area. And yet they were coming to us saying we have licenses and approvals. That just didn’t sound right or smell right.”
Each day, they paraded through his office: The investment banker who decided to build a 500 megawatt power plant, the coal trader assured of a government coal allocation, small-time miners with pretty presentations promising land, licenses and financing.
“They’d name politicians from the center and the state who had it all tied up for them,” he said. “It didn’t sound right. Obviously there were things going on in the system.”
Road and port projects weren’t much better, he said.
Piramal also looked at investing in engineering and infrastructure services companies, but couldn’t make sense of their books.
“We couldn’t find anything,” he said. “People get greedy. In their desire to get good valuations they resort to, if I can say, creative accounting.”
Today, India’s infrastructure companies are known as great wealth destroyers.
“Infrastructure investment has become untouchable, a sure way of losing money,” said Jagannadham Thunuguntla, head of research at SMC Global Securities. He calculates that four of India’s top infrastructure companies – GMR Infrastructure, GVK Power and Infrastructure, Lanco Infratech and Punj Lloyd – have lost over 80 percent of their value since 2007. A fifth, Larson & Toubro is down 50 percent.
Piramal may have dodged a bullet, but shareholders in Piramal Healthcare aren’t happy. Despite a $600 million special dividend and share buyback, the share price has sagged since the Abbott deal was announced on May 21 last year. They’d like to see the Abbott cash productively deployed. Instead, much of it is sitting in fixed deposit accounts.
Piramal said he really does want to run a pharmaceutical company and be the first Indian company to discover a world-class drug – despite his dabbling in telecom, financial services and real estate financing. It’s just that pharma can’t absorb all his cash. He plans to sell the 5.5 percent stake he picked up in Vodafone Essar for $640 million in a few years, when Vodafone Essar issues shares in an initial public offering, he said.
He has also launched Piramal Capital, to make real estate and infrastructure loans, and spent about $50 million to acquire IndiaReit, a real estate investment company.
Meanwhile, his thoughts have turned to Boston, where he set up IndUS Growth Partners with a professor from Harvard Business School to look for buying opportunities in the US, in security, financial services and biotechnology. And he said he’s still planning to spend over a billion dollars on biotechnology acquisitions in North America and Europe.
“India was going more towards capitalism than socialism,” Piramal said. “I think we’re going back. Capitalism went to too much excess. Corruption levels went to the extreme.”
He said he’ll announce his first overseas acquisition by March.
AP
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