Original Story: bloomberg.com
Ruined weekends, PowerPoint drudgery and overnight shifts in Manhattan skyscrapers once were a point of pride for the Harvard Business School graduates who went to Wall Street. Now young stars hold heads high about how lucrative and healthy their lives will be -- elsewhere.
"People used to brag and say, 'Oh yeah, 21-hour days, seven days a week for eight months,' that was a badge of honor,'' said Kiran Gandhi, who like others in this year's class applied to technology companies. "The humble brag is now, 'Oh yeah, I work 9 to 5, I get paid a ton of money, and I have a great life.' It's green juice from vats in the office and amazing organic iced coffee cold-brewed -- the quality of life.'' A Detroit business lawyer is following this story closely.
The allure of Silicon Valley, where hip startups are minting billionaires, is eclipsing that of staid investment banks under pressure to cut risks and costs. This year, a long slide in the number of Harvard MBAs joining banks may hit a new low, even after many of the biggest firms adopted policies to become more hospitable to new recruits. In 2007, about 13 percent of the school's graduates who landed jobs went into investment banking or trading, according to Harvard's reports. By last year, that fell to about 5 percent.
Now a preliminary survey of this year's grads shows only 4 percent intended to join a bank after getting degrees in May. Among the class's 46 Baker Scholars -- a designation Harvard grants the top 5 percent of MBAs -- only one expressed interest.
Those are the findings of Keima Ueno, who got his MBA from Harvard this year. As a student, he served as a peer mentor and wrote a blog on what life is like at the school. So when Harvard sent his class data from a pre-commencement survey, he used it to figure out where the Baker Scholars wanted to go. He wasn't surprised by the results.
"When we hear that our classmates managed to acquire a position with an investment bank, we say 'Congratulations,''' he said. "But we are thinking, 'I'm sorry to hear that.''' An Atlanta investment lawyer represents business and corporate finance clients.
Trading Places
Ueno spent three years in Morgan Stanley's investment bank before returning to school to earn his MBA. Now he's in Japan, running his family's health-care business and a startup Internet retailer.
Technology companies have been luring more top graduates with the promise that they'll not just make gobs of money, but also have a happier life, even if the hours are still long, according to students and recruiters. Last year, about 17 percent of Harvard's business school graduates poured into the industry, up from 7 percent in 2007, its figures show. Banks lost more recruits than any other sector. While Ueno's tally doesn't break out tech the same way, it shows startups alone are attracting 16 percent of this year's class, including six Baker Scholars. The raw survey data listed responses from every scholar but one.
Big banks are fighting back, promising recruits more hours to sleep, the occasional day off and reasonable deadlines. The effort, prompted by the death of a Bank of America Corp. intern in 2013, is driven in part by fear that the brightest students no longer see investment banking as a sustainable career. Goldman Sachs Group Inc. invited celebrity author Deepak Chopra to talk to its staff a few months ago about wellness, relaxation and the value of vacation.
What the banks can't promise is the kind of windfalls that attract graduates to startups. And average pay at investment banks has shriveled since the financial crisis because of a drop in revenue and a greater focus by regulators and shareholders on bonuses. Goldman Sachs per-employee compensation expense fell to $373,265 last year from $661,490 in 2007.
U.S. business schools don't typically release statistics showing where graduates landed until autumn, and Harvard wouldn't comment on Ueno's tally. Kristen Fitzpatrick, managing director of the business school's career and professional development office, said more students are thinking about banking because of the firms' recent efforts.
"The work has been appealing to a lot of people for a while,'' she said. "It's just that the lifestyle needed to get a little better.''
Other business schools are seeing similar trends for a range of reasons. New rules are forcing banks to curtail trading with their own money, pushing investing-focused graduates into hedge funds and buyout firms -- which pay well. The tech boom is luring away entrepreneurs seeking to strike it even richer -- à la Harvard College dropout Mark Zuckerberg.
Banks Losing Allure
While Harvard alumni Jamie Dimon, 59, and Lloyd Blankfein, 60, have amassed fortunes in their decades at Wall Street's biggest banks, such opportunities have diminished following 2008's financial crisis and pale to the quick riches possible in Silicon Valley. Dimon, a Baker Scholar, and Blankfein, who earned degrees at Harvard College and Harvard Law School, are each worth about $1.1 billion, according to the Bloomberg Billionaires index. Zuckerberg, the 31-year-old who built Facebook Inc., is worth about $41.2 billion. A Boston banking lawyer has extensive experience in banking and investment law.
At Harvard, it can't help that the pressure on junior bankers has become fodder for coursework, where students are briefed on real-life corporate dilemmas and debate strategies.
"There are several case studies dealing with investment banks wherein students discuss the brutal work environment and incredibly out-of-whack work-life balance,'' Ueno wrote in an e-mail. "The banks' efforts -- their success or lack thereof -- to bring about change have not been discussed, but what is consistently highlighted is the dark side of investment banks.''
Such attitudes vary among schools. When Training the Street, which conducts prep courses for entry-level analysts, surveyed MBA students at more than two dozen campuses this year, banking remained the top pick, drawing 26 percent. Still, buyout firms and hedge funds climbed to 16 percent, up from 11 percent last year.
"I think it's 'the grass is always greener,''' said the training firm's founder, Scott Rostan. "The lifestyle of any financial-services professional can be grueling,'' and an investment fund is "not necessarily night-and-day better.''
Bankers who graduated from the Wharton School of the University of Pennsylvania later expressed the lowest job satisfaction, despite relatively high pay, during a study conducted by Matthew Bidwell, an associate professor of management there. Usually, the two are positively correlated, he said.
"Being at somebody else's beck and call, I think it grinds people down,'' Bidwell said. "It's an extreme kind of long hours, whatever-it-takes, no-boundaries kind of culture.''
"The hours are horrendous, you won't see your family, you will miss your kids' birthdays.'' -- Alexandra Michel. An LA CPA provides a wide range of services to businesses in a variety of industries.
Alexandra Michel, an adjunct professor at the University of Pennsylvania, said that won't dissuade some MBAs from entering the field, particularly if it's to join a top-tier firm such as Goldman Sachs. She spent 12 years studying the culture at investment banks and has tried warning students.
"The hours are horrendous, you won't see your family, you will miss your kids' birthdays,'' she recalled telling them. "The candidate breathes a sigh of relief and says, 'Oh, I can deal with that.'''
Representatives from top investment banks said they're still drawing plenty of business school graduates. Goldman Sachs received more MBA applicants this year for its summer associate program, a feeder for the firm's full-time associate positions, according to Leslie Shribman, a spokeswoman.
"We continue to see strong interest in our programs from students at top MBA schools across the nation,'' said John Yiannacopoulos, a spokesman for Bank of America.
Gandhi, who played drums for M.I.A. on the rapper's international tour during her first year at Harvard, said her father, who was an investment banker, never encouraged her to enter the field. She took a job at the music-streaming service Spotify Ltd.
"When I first met people at HBS and they had worked in a bank, I would pick up on them feeling like they were almost ashamed,'' Gandhi said. "And maybe that wasn't the case when my dad was there 25 years ago, when being at an investment bank meant you were a baller.''
Showing posts with label Wall Street. Show all posts
Showing posts with label Wall Street. Show all posts
Thursday, August 13, 2015
Thursday, April 2, 2015
GOOGLE HIRES WALL STREET'S RUTH PORAT AS NEW CFO
Original Story: mercurynews.com
MOUNTAIN VIEW -- One of Wall Street's most powerful women will become one of Silicon Valley's most powerful women when Ruth Porat joins Google this spring as its chief financial officer.
The Internet search giant on Tuesday announced the hiring of the 57-year-old Porat, a longtime Morgan Stanley banker who became its chief financial officer in 2010. She will become Google's highest-ranking female executive when she starts her new job on May 26.
Porat described the post as a kind of Silicon Valley homecoming. She grew up in Palo Alto, studied economics at Stanford University and was later a top banker dealing with technology firms.
"I'm delighted to be returning to my California roots and joining Google," she said in a statement.
Porat has been the public face of Morgan Stanley and been referred to in reports as the most senior woman -- or most powerful -- on Wall Street. Key positions she has held at the firm include vice chairman of investment banking and co-head of technology investment banking. She was the lead banker on financing rounds for tech companies including Amazon, eBay, Netscape and Priceline. An employment lawyer regularly negotiates employment agreements and severance packages for high level managers and executives.
"We're tremendously fortunate to have found such a creative, experienced and operationally strong executive," said Google CEO Larry Page in a written statement. "I look forward to learning from Ruth as we continue to innovate in our core -- from search and ads, to Android, Chrome and YouTube -- as well as invest in a thoughtful, disciplined way in our next generation of big bets."
Porat will be the only woman among Google's five top executives, though the company also has three women in senior leadership roles: Susan Wojcicki, who heads YouTube; Lorraine Twohill, the marketing chief; and Rachel Whetstone, senior vice president of communications and policy. Other women who were part of Google's senior leadership team have gone on to high-profile executive positions elsewhere, such as Marissa Mayer, now Yahoo's CEO; and Sheryl Sandberg, chief operating officer at Facebook.
Google announced just two weeks ago in a regulatory filing that its current CFO, Patrick Pichette would be retiring. Pichette, who joined Google in 2008, wrote a widely shared post on Google+ explaining his decision to step down to spend more time with his family.
Google shareholders are likely to welcome Porat's experience in "dealing with complex global operating environments and regulatory challenges," said Peter Stabler, an analyst at Wells Fargo Securities, in a written note Tuesday, but whether she signals any big changes in Google's philosophy remains unclear. An employment lawyer is following this story closely.
Pichette had arrived seven years ago during a recession and became known for trimming costs, from unsuccessful business ventures to the hours at the campus cafeterias. In more recent boom years, however, he's been a staunch defender of the company's cutting-edge risks on a wide assortment of research that reflect Google's experimental approach but can make investors nervous.
Other tech companies have lured executives from Wall Street, including Twitter, which appointed Anthony Noto as its CFO last year. Noto hails from Goldman Sachs.
Porat declined interviews Tuesday but her rise through the Wall Street ranks was profiled in a 2010 book, "How Remarkable Women Lead: The Breakthrough Model for Work and Life," written by authors Joanna Barsh, Susie Cranston and Geoffrey Lewis, who work for management consulting firm McKinsey & Company.
The book described her working parents as an inspiration.
Her father, Dan Porat, 93, was an electronic engineer at Stanford's SLAC National Accelerator Laboratory from 1962 to 1988. Her mother, Frieda Porat, was a psychologist and teacher who wrote books about organizational management. She died in 2012.
Ruth Porat describes herself on her Twitter profile as a breast cancer survivor and proud Stanford alumnus.
She is also vice chairwoman of the Board of Trustees at Stanford. She has advanced degrees from The Wharton School of the University of Pennsylvania and the London School of Economics.
After studying economics at Stanford, she took a job at the U.S. Department of Justice in the early 1980s. But she was also fascinated with mergers and acquisitions, which drew her to Morgan Stanley in 1987, according to the book.
Revealing her challenges, and successes, as a woman on Wall Street, Porat told the authors that "biases are deep" and it's important to find the right boss.
"One of the biggest problems women have is they work really hard and put their heads down and assume hard work gets noticed," she said. "And hard work for the wrong boss does not get noticed. Hard work for the wrong boss results in one thing -- that boss looks terrific and you get stuck."
MOUNTAIN VIEW -- One of Wall Street's most powerful women will become one of Silicon Valley's most powerful women when Ruth Porat joins Google this spring as its chief financial officer.
The Internet search giant on Tuesday announced the hiring of the 57-year-old Porat, a longtime Morgan Stanley banker who became its chief financial officer in 2010. She will become Google's highest-ranking female executive when she starts her new job on May 26.
Porat described the post as a kind of Silicon Valley homecoming. She grew up in Palo Alto, studied economics at Stanford University and was later a top banker dealing with technology firms.
"I'm delighted to be returning to my California roots and joining Google," she said in a statement.
Porat has been the public face of Morgan Stanley and been referred to in reports as the most senior woman -- or most powerful -- on Wall Street. Key positions she has held at the firm include vice chairman of investment banking and co-head of technology investment banking. She was the lead banker on financing rounds for tech companies including Amazon, eBay, Netscape and Priceline. An employment lawyer regularly negotiates employment agreements and severance packages for high level managers and executives.
"We're tremendously fortunate to have found such a creative, experienced and operationally strong executive," said Google CEO Larry Page in a written statement. "I look forward to learning from Ruth as we continue to innovate in our core -- from search and ads, to Android, Chrome and YouTube -- as well as invest in a thoughtful, disciplined way in our next generation of big bets."
Porat will be the only woman among Google's five top executives, though the company also has three women in senior leadership roles: Susan Wojcicki, who heads YouTube; Lorraine Twohill, the marketing chief; and Rachel Whetstone, senior vice president of communications and policy. Other women who were part of Google's senior leadership team have gone on to high-profile executive positions elsewhere, such as Marissa Mayer, now Yahoo's CEO; and Sheryl Sandberg, chief operating officer at Facebook.
Google announced just two weeks ago in a regulatory filing that its current CFO, Patrick Pichette would be retiring. Pichette, who joined Google in 2008, wrote a widely shared post on Google+ explaining his decision to step down to spend more time with his family.
Google shareholders are likely to welcome Porat's experience in "dealing with complex global operating environments and regulatory challenges," said Peter Stabler, an analyst at Wells Fargo Securities, in a written note Tuesday, but whether she signals any big changes in Google's philosophy remains unclear. An employment lawyer is following this story closely.
Pichette had arrived seven years ago during a recession and became known for trimming costs, from unsuccessful business ventures to the hours at the campus cafeterias. In more recent boom years, however, he's been a staunch defender of the company's cutting-edge risks on a wide assortment of research that reflect Google's experimental approach but can make investors nervous.
Other tech companies have lured executives from Wall Street, including Twitter, which appointed Anthony Noto as its CFO last year. Noto hails from Goldman Sachs.
Porat declined interviews Tuesday but her rise through the Wall Street ranks was profiled in a 2010 book, "How Remarkable Women Lead: The Breakthrough Model for Work and Life," written by authors Joanna Barsh, Susie Cranston and Geoffrey Lewis, who work for management consulting firm McKinsey & Company.
The book described her working parents as an inspiration.
Her father, Dan Porat, 93, was an electronic engineer at Stanford's SLAC National Accelerator Laboratory from 1962 to 1988. Her mother, Frieda Porat, was a psychologist and teacher who wrote books about organizational management. She died in 2012.
Ruth Porat describes herself on her Twitter profile as a breast cancer survivor and proud Stanford alumnus.
She is also vice chairwoman of the Board of Trustees at Stanford. She has advanced degrees from The Wharton School of the University of Pennsylvania and the London School of Economics.
After studying economics at Stanford, she took a job at the U.S. Department of Justice in the early 1980s. But she was also fascinated with mergers and acquisitions, which drew her to Morgan Stanley in 1987, according to the book.
Revealing her challenges, and successes, as a woman on Wall Street, Porat told the authors that "biases are deep" and it's important to find the right boss.
"One of the biggest problems women have is they work really hard and put their heads down and assume hard work gets noticed," she said. "And hard work for the wrong boss does not get noticed. Hard work for the wrong boss results in one thing -- that boss looks terrific and you get stuck."
Thursday, November 4, 2010
The Great Communicators of Wall Street
The Wall Street Journal
The Financial Industry Is Reviled but It Keeps Its Influence With a Simple Message
The late, great George Carlin slayed many sacred cows in his time, but he never picked on politicians.
"Everybody complains about politicians, everyone thinks they suck," Mr. Carlin said in one of his last riffs. "Well where do you think these politicians come from? They don't fall out of the sky. They don't pass through a membrane from another reality."
And, he went on, "if you have selfish, ignorant citizens, you're gonna have selfish, ignorant leaders."
If only Mr. Carlin were alive today to see the results of Tuesday's midterm election, and the previous election for that matter, even he might be surprised at how accurate his analysis was.
American voters appear predisposed to voting emotionally. They swept Barack Obama into the White House on a goopy message of "change" and "hope" and after they got it, were so disgusted they voted overwhelmingly for a party whose only cohesive message was a declarative "we're not him."
"Garbage in, garbage out," Mr. Carlin used to say.
It is a cycle as perpetual as the two major parties' search for a simple unifying message. But not every political body is blindly grasping for the mercurial voter sentiment. U.S. corporations and Wall Street specifically, have a time-tested, clear and potent message that resonates: Greed is good.
Americans may be skeptical of big corporations and big finance, but on that point, they can relate.
Cue the reaction of Thomas Donahue, president and chief executive of the U.S. Chamber of Commerce, to Tuesday's results. Voters, he said, "clearly stated that a strong and vibrant private sector is critical to reviving our economy, creating jobs, and putting us on a path to long-term growth. We will work with members of both parties who support policies that enable businesses of all sizes to do what they do best—create jobs, opportunity, and prosperity."
Mr. Donahue is onto something. While many pundits suggested the Republican swing in the House was due to a rebuke of health care, or big government, or an aloof president unsympathetic to the nation's struggles, exit polls found that while those issues mattered some they were all dwarfed by worries about the economy.
More than 80% of voters ranked the economy as the No. 1 issue affecting their voting decisions, according exit polls conducted by the Associated Press.
For them, U.S. business and Wall Street offered what the political parties couldn't or didn't: the prospect of better fortunes through business success. To get there, business needs to be freer from regulation and taxed less.
And if you don't think business interests mattered, consider that of the top 20 recipients of financial industry campaign contributions, only four lost on Tuesday: Sen. Blanche Lincoln, (D., Ark.), the influential chair of the Senate Agriculture Committee, Gov. Charlie Christ, (I., Fla.), Carly Fiorina, the Republican former chief executive of Hewlett-Packard Co.; and Alexander Giannoulias, the Illinois State treasurer who lost a senate bid to Rep. Mark Kirk, (R., Ill.).
Even among the losses, it could be argued Wall Street won a few. Mr. Kirk actually ranked fifth among the top 20 recipients of financial industry contributions while Mr. Giannoulias ranked 18th, according to OpenSecrets.org. A Wall Street-backed victory by Sen. Lincoln may have softened her tough stance on derivatives regulation, but her defeat makes the issue even more uncertain.
Moreover, if you think Wall Street is partisan to "business friendly" Republicans consider that the industry's $65 million in campaign contributions made through Oct. 13 actually were split evenly between the parties, with a slight edge to Democrats. Indeed, three of the top four recipients of financial industry cash were Democrats: New York Sens. Charles Schumer and Kirsten Gillibrand and Sen. Harry Reid of Nevada.
If there is a common thread among this disparate collection it is this: Wall Street likes influential members of Congress regardless of party affiliation. It leans pro-business. Even more than that, it likes winners and the potential for influencing them.
Wall Street's record in supporting midterm winners runs afoul of an electorate cynical about lobbyists, special interests and so-called industry shills. So why the support? In a very direct way it comes down to Mr. Carlin's assessment: Selfish citizens elect selfish leaders.
Whether it be selfishness or self-interest or simple greed, most people vote based on whether or not they think a candidate will make them—not the nation, not a greater good—better off.
That is why Wall Street's message has appeal for candidates and a public imbued with the "me first" doctrine. In the end, voters are willing to live with special interest influence in Washington as long as they can get lower taxes, the new corporate headquarters in town and the jobs that come with it or credit and mortgages. The risks? That's for the other guys to deal with.
Garbage in, garbage out.
Friday, October 15, 2010
Wall Street Feeling some of Main Street's Woes
LA Times
Analysts have recently slashed earnings estimates for a number of big players, and several firms have quietly fired staff. Many more layoffs are expected by early next year.
For a while, Wall Street seemed impervious to the economic woes clobbering Main Street, with bank profits, bonuses and share prices rebounding sharply.
Not anymore.
Not anymore.
With the country's major banks due Wednesday to start reporting third-quarter earnings, a new pessimism is taking hold on Wall Street based on the growing belief that the economy will remain weak for some time, limiting the industry's ability to make money.
Without strong economic growth, "you don't need as many financial services as we have now," banking analyst Nancy Bush said.
Wall Street analysts who follow their own industry have recently slashed earnings estimates for a number of big players. Several firms have quietly fired staff, and many more layoffs are expected by early next year. There are even predictions of a severe drop in Wall Street's notoriously generous compensation.
"We're going to see a larger increase in unemployment in the financial services than anyone had expected," said Steven Eckhaus, a lawyer who advises banks on employment matters.
Bank stocks have slid since peaking in April. Shares of Bank of America Corp. are down 31%, while JPMorgan Chase & Co. is off 15%.
JPMorgan was expected Wednesday to report sharply lower third-quarter revenue. The two remaining giant firms that are predominantly investment banks, Goldman Sachs Group Inc. and Morgan Stanley, have seen their earnings projections plunge in recent weeks and months.
Rochdale Securities analyst Richard X. Bove felt compelled to apologize recently when he reduced his earnings estimate for yet another bank. "The reasons for the reductions are not due to failures within the firms, but rather the weakness in the industry," he wrote.
Although the newly pessimistic outlook stems in part from recently tightened regulations that will limit some of Wall Street's most profitable activities, the mood largely reflects the persistent sluggishness of the economy.
"Projecting forward it seems like the profits of Wall Street and Main Street are going to be more in sync," said Michael Wong, a bank analyst at research firm Morningstar Inc. "The banks have had to readjust their expectations and to readjust their hiring practices."
Meredith Whitney, one of the most respected analysts following financial companies, recently projected that in the next year Wall Street firms could shed as many as 80,000 jobs — 10% of their combined workforces.
Bank of America, JPMorgan and the Wall Street unit of Britain's Barclays Bank have in recent weeks laid off staff such as investment bankers and traders, according to people familiar with the moves. Morgan Stanley is said to have imposed a firmwide hiring freeze.
Head counts on Wall Street remain down significantly from before the financial crisis, in part because of the collapse of some big firms. But a year ago, the talk was of hiring, not shrinking.
Now many are anticipating a big wave of layoffs early next year. And for those who remain, average compensation per employee will be down 32% in 2011 from 2009's level, industry analysts at JPMorgan forecast.
The gloom and doom has not reached every corner of the industry. Asset management services for wealthy people are doing well, for example. Fee revenue from advising companies on mergers also is up. Such work used to be the bread and butter of investment banks before it was supplanted by profits from securities trading. Last year, for example, the trading desks at Goldman Sachs brought in 76% of the company's revenue.
But among the lines of business on Wall Street, trading could take the biggest hit from the weak economy as well as from new regulatory constraints.
Trading revenues since the spring are already down from their eye-popping levels in the same months of 2009, although that was to be expected.
"You had to be stupid not to make good trading profits last year," said analyst Bush, citing the big stock market rebound that began in March 2009, coupled with the relative ease with which traders can make money in a period of rising share prices and high market volume.
The summer months were "painfully slow" for trading, Jefferies Group Inc. Chief Executive Richard Handler told analysts last month as the mid-size investment bank got a jump on reporting earnings because its fiscal third quarter ended Aug. 31.
Some of the layoffs at JPMorgan and Bank of America were in units doing so-called proprietary trading, which at banks was largely banned by the federal financial regulatory overhaul enacted during the summer. Recently adopted international rules also could reduce trading profits by limiting the amount of money a bank can have tied up in risky activities.
Until recently, banks had expressed confidence in their ability to adapt and even profit under tighter regulation. But a long period of economic weakness, which Wall Street economists now say is likely, is another matter.
If those forecasts are borne out, the industry could see little growth, said Handler of Jefferies, which was hiring furiously early this year.
"If the environment continues to be extremely slow," he said, "all investment banks are going to be slowing down their expansion plans."
Without strong economic growth, "you don't need as many financial services as we have now," banking analyst Nancy Bush said.
Wall Street analysts who follow their own industry have recently slashed earnings estimates for a number of big players. Several firms have quietly fired staff, and many more layoffs are expected by early next year. There are even predictions of a severe drop in Wall Street's notoriously generous compensation.
"We're going to see a larger increase in unemployment in the financial services than anyone had expected," said Steven Eckhaus, a lawyer who advises banks on employment matters.
Bank stocks have slid since peaking in April. Shares of Bank of America Corp. are down 31%, while JPMorgan Chase & Co. is off 15%.
JPMorgan was expected Wednesday to report sharply lower third-quarter revenue. The two remaining giant firms that are predominantly investment banks, Goldman Sachs Group Inc. and Morgan Stanley, have seen their earnings projections plunge in recent weeks and months.
Rochdale Securities analyst Richard X. Bove felt compelled to apologize recently when he reduced his earnings estimate for yet another bank. "The reasons for the reductions are not due to failures within the firms, but rather the weakness in the industry," he wrote.
Although the newly pessimistic outlook stems in part from recently tightened regulations that will limit some of Wall Street's most profitable activities, the mood largely reflects the persistent sluggishness of the economy.
"Projecting forward it seems like the profits of Wall Street and Main Street are going to be more in sync," said Michael Wong, a bank analyst at research firm Morningstar Inc. "The banks have had to readjust their expectations and to readjust their hiring practices."
Meredith Whitney, one of the most respected analysts following financial companies, recently projected that in the next year Wall Street firms could shed as many as 80,000 jobs — 10% of their combined workforces.
Bank of America, JPMorgan and the Wall Street unit of Britain's Barclays Bank have in recent weeks laid off staff such as investment bankers and traders, according to people familiar with the moves. Morgan Stanley is said to have imposed a firmwide hiring freeze.
Head counts on Wall Street remain down significantly from before the financial crisis, in part because of the collapse of some big firms. But a year ago, the talk was of hiring, not shrinking.
Now many are anticipating a big wave of layoffs early next year. And for those who remain, average compensation per employee will be down 32% in 2011 from 2009's level, industry analysts at JPMorgan forecast.
The gloom and doom has not reached every corner of the industry. Asset management services for wealthy people are doing well, for example. Fee revenue from advising companies on mergers also is up. Such work used to be the bread and butter of investment banks before it was supplanted by profits from securities trading. Last year, for example, the trading desks at Goldman Sachs brought in 76% of the company's revenue.
But among the lines of business on Wall Street, trading could take the biggest hit from the weak economy as well as from new regulatory constraints.
Trading revenues since the spring are already down from their eye-popping levels in the same months of 2009, although that was to be expected.
"You had to be stupid not to make good trading profits last year," said analyst Bush, citing the big stock market rebound that began in March 2009, coupled with the relative ease with which traders can make money in a period of rising share prices and high market volume.
The summer months were "painfully slow" for trading, Jefferies Group Inc. Chief Executive Richard Handler told analysts last month as the mid-size investment bank got a jump on reporting earnings because its fiscal third quarter ended Aug. 31.
Some of the layoffs at JPMorgan and Bank of America were in units doing so-called proprietary trading, which at banks was largely banned by the federal financial regulatory overhaul enacted during the summer. Recently adopted international rules also could reduce trading profits by limiting the amount of money a bank can have tied up in risky activities.
Until recently, banks had expressed confidence in their ability to adapt and even profit under tighter regulation. But a long period of economic weakness, which Wall Street economists now say is likely, is another matter.
If those forecasts are borne out, the industry could see little growth, said Handler of Jefferies, which was hiring furiously early this year.
"If the environment continues to be extremely slow," he said, "all investment banks are going to be slowing down their expansion plans."
Monday, May 10, 2010
Market Free Fall may Prompt New Rules
NY Times
WASHINGTON — The kind of bungee jump that stocks took Thursday, plunging abruptly before snapping partway back in a brief frenzy of electronic trading, has worried market operators and experts on trading for some time. Despite a surprising consensus about what needs to be done, federal regulators have not shown much urgency in rewriting the rules governing an increasingly fragmented, and computerized, trading system.
That appears likely to change after the wild, record-setting ride that briefly sent the market spinning out of control. President Obama and lawmakers called for action, and regulators at agencies including the Securities and Exchange Commission promised to deliver, even as they struggled to understand the origins and particulars of Thursday’s chaos.
The gist of the solution, according to regulators, traders and academics is that markets need uniform rules for intervening when a stock goes into free fall.
“We need to work out a common consensus as to how markets react when stock prices start to plunge in very short time periods,” said Richard G. Ketchum, the chief executive of the Financial Industry Regulatory Authority, the industry group that polices brokers and exchanges.
Asked why exchanges had not already agreed on such rules, Mr. Ketchum responded: “I can’t say that I have a good answer for that. We should have. And now we must.”
The much-discussed “stock market” — with its connotation of a single entity — is a misnomer. Investors can buy and sell stocks through about 50 markets in the United States. Most of the trades are placed through computer networks, at the direction of computer programs, and orders are routed automatically to the market offering the best price.
It is a system that sometimes spins out of control if the computerized sellers cannot find enough buyers. Last year, on April 28, 2009, the stock price of Dendreon, a Seattle biotechnology company, plunged 69 percent in 70 seconds before trading was halted. When trading resumed the next day, most of the loss was instantly erased.
The same pattern unfolded Thursday, as shares in companies including Procter & Gamble fell precipitously.
Because such declines can reflect a temporary shortage of buyers rather than a permanent loss of value, some of the markets impose “circuit breakers” that pause trading to protect sellers from taking unnecessary losses. The New York Stock Exchange, for example, briefly suspended trading in some shares on Thursday, then slowed the pace of trading to give sellers a better chance to find buyers.
But experts say such safeguards make sense only if they are applied uniformly. When the New York exchange suspended trading Thursday, sellers simply moved to other exchanges with fewer restrictions. In some cases, the supply of buyers on those exchanges already had been exhausted, causing the computerized trading programs to offer shares at lower and lower prices. Some of the resulting downward spirals ended at one penny.
“When the New York Stock Exchange went into slow motion, a system designed to stabilize trading actually backfired in practice,” said James J. Angel, a professor at Georgetown University who studies financial markets. “No exchange should have an independent circuit breaker.”
The S.E.C., which oversees the nation’s equity markets, requires a suspension in trading only in the event of a broad market collapse, defined as a drop of at least 10 percent in the Dow Jones industrial average, which is based on the share prices of 30 large American companies.
Other countries, like Germany, impose similar circuit breakers on trading in shares of any individual company that has a similar drop, but the S.E.C. has never done so. A former S.E.C. official said the possibility had been discussed in recent years, but “I don’t think there was quite the urgency to deal with it.”
The S.E.C. and the Commodity Futures Trading Commission said in a joint statement on Friday that the issue now had their attention.
“We are scrutinizing the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility,” the statement said. “This is inconsistent with the effective functioning of our capital markets and we will make whatever structural or other changes are needed.”
Early this year, the S.E.C. also began a broad review of equity markets, including whether computerized trading is properly regulated.
The heads of several of the largest electronic exchanges said Friday that they would support industrywide rules for breaking free falls.
But there are other ideas to keeping computerized markets in check. Lawrence E. Harris, a finance professor at the University of Southern California, said regulators should simply require all sellers to specify a minimum price below which they do not want to complete the sale of their shares. Market orders, placed at the best available price, can be too risky in the fast-moving age of electronic trading.
On Thursday, some sellers placed orders that were not fulfilled until prices had plunged as low as a penny a share. If sellers had placed “limit orders” instead, those transactions would not have happened, Professor Harris said.
“Electronic exchanges in most other countries only accept limit orders,” said Professor Harris, a former S.E.C. chief economist. “Without any mechanisms to stop the market, we just had stocks falling through the ice.”
But Rafi Reguer, a spokesman for the electronic exchange Direct Edge, said retail investors liked market orders because limit orders could be rejected, forcing the seller to try again, in some cases at a lower price.
“Sometimes what people value is the certainty of execution,” Mr. Reguer said.
Experts also note that the value of limit orders can be subverted if investors routinely set unrealistically low limits, to avoid the inconvenience of having their orders rejected.
The BATS Exchange, a large electronic exchange based near Kansas City, rejects orders if the price would be more than 5 percent or 50 cents away from the last completed transaction.
During the market panic on Thursday, between 2:40 and 3 p.m., BATS prevented more than 47.6 million orders from executing — more than 95 percent of all orders during that period, according to Randy Williams, a spokesman for the company.
Friday, April 30, 2010
Labor Unions March on Wall Street, Securities Workers Complain
San Francisco Chronicle
Labor union members led by AFL-CIO President Richard Trumka marched on Wall Street to demand taxes on bonuses as securities workers said the protesters should go to work and stop demonstrating.
"It's time for special taxes for bank bonuses," Trumka told an estimated 7,500 at a rally outside City Hall yesterday that began after trading ended at the New York Stock Exchange. "When you engage in rampant and risky speculation, you are going to pay your fair share in taxes."
The rally capped a drive by the nation's largest organization of labor unions called the "Make Wall Street Pay" campaign. Protestors, some dressed as pirates and others wearing prison garb, held signs saying "Break Up Megabanks" and "Hey Big Banks -- Less Bail, More Jail." Rallies have targeted Goldman Sachs Group Inc., the most profitable securities firm, and the five biggest U.S. banks.
Trumka started the march yelling "Let's let Wall Street hear us, all the way down to the bull" at Bowling Green, the end point for the protest. They marched under sunny skies with temperatures approaching 70 degrees (21 Celsius).
Brendan Plunkett, 46, a corporate bond trader, was heading home to Essex Falls, New Jersey, as the marchers walked down Broadway.
"If they care so much about the country, they should go to work and be productive and stop with the protests," he said. "It's all nonsense to me, and it always will be."
Ralph Metz, a 29-year-old stock broker for Spartan Capital Securities LLC at 45 Broadway, echoed that sentiment. "People have got to take responsibility for the decisions they make," he said.
Difference With Goldman
His friend, 31-year-old stock broker John Phillips, said the protestors picked the wrong target by focusing broadly on Wall Street. "There's a difference between Goldman Sachs and the rest of us," he said. "A lot of the guys in government used to work for Goldman Sachs."
Police estimated more than 7,500 people gathered in the park south of City Hall, before the crowd headed south past the stock exchange carrying signs reading "Reclaim Our Democracy" and "Hold Banks Accountable."
"They are tax dodgers, they aren't putting anything back into the community," said Otis J. Loweryberg, 84, a former International Business Machine Corp. worker in Delaware. "They only think about self -- self motivation, self-preservation. How do these guys go home at night when people have no food on the table."
The AFL-CIO, the 11-million-member labor federation, is urging Congress to impose a transaction tax on securities trading to help cover the $900 billion cost for a government jobs program they want lawmakers to create.
Geithner Opposition
Treasury Secretary Timothy Geithner has said he opposes the transaction tax, though Trumka told reporters yesterday it is picking up interest within the Obama administration. "We talk about it all the time," Trumka said. "The conversation is getting better and more analytical."
The U.S. Chamber of Commerce, the nation's largest business lobbying group, opposes the tax, which it says would hurt more than bankers.
Wayne Usilton, 63, a former Chrysler worker from Delaware, said he joined more than 40 other union members from his state on a bus trip to the Manhattan event.
"The average person on Main Street is just fed up with big business and Wall Street manipulation," Usilton said.
"It's time for special taxes for bank bonuses," Trumka told an estimated 7,500 at a rally outside City Hall yesterday that began after trading ended at the New York Stock Exchange. "When you engage in rampant and risky speculation, you are going to pay your fair share in taxes."
The rally capped a drive by the nation's largest organization of labor unions called the "Make Wall Street Pay" campaign. Protestors, some dressed as pirates and others wearing prison garb, held signs saying "Break Up Megabanks" and "Hey Big Banks -- Less Bail, More Jail." Rallies have targeted Goldman Sachs Group Inc., the most profitable securities firm, and the five biggest U.S. banks.
Trumka started the march yelling "Let's let Wall Street hear us, all the way down to the bull" at Bowling Green, the end point for the protest. They marched under sunny skies with temperatures approaching 70 degrees (21 Celsius).
Brendan Plunkett, 46, a corporate bond trader, was heading home to Essex Falls, New Jersey, as the marchers walked down Broadway.
"If they care so much about the country, they should go to work and be productive and stop with the protests," he said. "It's all nonsense to me, and it always will be."
Ralph Metz, a 29-year-old stock broker for Spartan Capital Securities LLC at 45 Broadway, echoed that sentiment. "People have got to take responsibility for the decisions they make," he said.
Difference With Goldman
His friend, 31-year-old stock broker John Phillips, said the protestors picked the wrong target by focusing broadly on Wall Street. "There's a difference between Goldman Sachs and the rest of us," he said. "A lot of the guys in government used to work for Goldman Sachs."
Police estimated more than 7,500 people gathered in the park south of City Hall, before the crowd headed south past the stock exchange carrying signs reading "Reclaim Our Democracy" and "Hold Banks Accountable."
"They are tax dodgers, they aren't putting anything back into the community," said Otis J. Loweryberg, 84, a former International Business Machine Corp. worker in Delaware. "They only think about self -- self motivation, self-preservation. How do these guys go home at night when people have no food on the table."
The AFL-CIO, the 11-million-member labor federation, is urging Congress to impose a transaction tax on securities trading to help cover the $900 billion cost for a government jobs program they want lawmakers to create.
Geithner Opposition
Treasury Secretary Timothy Geithner has said he opposes the transaction tax, though Trumka told reporters yesterday it is picking up interest within the Obama administration. "We talk about it all the time," Trumka said. "The conversation is getting better and more analytical."
The U.S. Chamber of Commerce, the nation's largest business lobbying group, opposes the tax, which it says would hurt more than bankers.
Wayne Usilton, 63, a former Chrysler worker from Delaware, said he joined more than 40 other union members from his state on a bus trip to the Manhattan event.
"The average person on Main Street is just fed up with big business and Wall Street manipulation," Usilton said.
Tuesday, March 16, 2010
Dodd's New Plan for Finance Rules Aims to Give More Muscle to Fed
The Wall Street Journal
WASHINGTON—The political battle over rewriting the rules of Wall Street will intensify Monday afternoon when Senate Banking Committee Chairman Christopher Dodd is expected to introduce legislation tougher on financial companies than was expected just a few weeks ago.
The shift follows a push from the Obama administration, which sees a political advantage in pushing legislation taking aim at Wall Street. Mr. Dodd's bill would allow the Fed to examine any bank-holding company with more than $50 billion in assets, and large financial companies that aren't banks could be lassoed into the Fed's supervisory orbit. This came after Treasury officials pushed Mr. Dodd to bring more companies under the Fed's purview.
Any financial company, from small payday lenders to huge megabanks, would have to abide by new rules written by an autonomous Fed division that would be given the job of protecting consumers. This division would also be able to sanction any bank with more than $10 billion of assets for violations of consumer rules. Other industries could face enforcement if regulators decide to expand the division's powers. This is a departure from a more-constrained setup Republicans thought they had secured in recent talks.
The bill would now give the government more power to crack down on risky practices or certain types of lending.
In other highlights, under the proposed legislation the government would have power to seize and dismantle failing financial companies; complex financial instruments such as derivatives would face more scrutiny; shareholders would have more say in the way publicly traded companies operate; and the government would have more tools to force banks to reduce their risk.
Mr. Dodd has courted Republican support for months and said Sunday in an interview he still hoped to pass a bill with broad support. But he also appeared emboldened, and called Republican efforts to delay a vote "totally unrealistic and wrong." He suggested Republicans who wanted to make changes to the bill would have to "back up their commitment with the votes."
He dismissed arguments from some in the banking sector that have said more regulations would constrain credit. He called this a "Chicken Little" argument, calling it alarmist and arguing that financial crises are what dry up credit.
With Mr. Dodd intent on moving quickly, the banking industry will have limited time to try to shape the bill. "The industry will be subject to these new rules for the next 50 years or so, so this is a major moment in the history of the financial-services industry," said Scott Talbott, a senior vice president at the Financial Services Roundtable, a trade group representing large financial companies.
The Dodd bill comes nearly 18 months after the height of the financial crisis in 2008. Whether it can quickly gain traction could help determine the fate of the Obama administration's yearlong effort to rein in banks.
"There's no question that Treasury is pushing left, and that's what I would expect at this point," said Sen. Bob Corker (R., Tenn.), who negotiated for weeks with Mr. Dodd on parts of the bill.
The biggest winner in Mr. Dodd's bill appears to be the central bank. It would police previously unregulated sectors of the economy and would have a new division to write consumer-protection policy. The biggest losers appear to be large financial companies, who would face a muscular, centralized regulatory architecture for perhaps the first time in U.S. history.
-----------------------------------------------------------------------------------
Bill's Highlights
Dodd's proposal touches on several areas. Key points:
* Consumers: A consumer-protection division would be created within the Federal Reserve, with the ability to write new rules governing the way companies offer financial products such as mortgages and credit cards. It would have authority over any bank with more than $10 billion of assets, and certain nonbank lenders.
* Banks: The Fed would oversee bank holding companies with more than $50 billion of assets. Regulators would have the discretion to force banks to reduce their risk or halt certain speculative trading practices.
* Failing companies: The government would be able to seize and break up large failing financial companies. Big companies would have to pay into a $50 billion fund to finance the dissolution of a failing firm.
* Systemic risk: A new council of regulators would be created to monitor broader risks to the economy. The council could strongly urge individual agencies to take specific actions to curb risk.
* Corporate governance: The Securities and Exchange Commission would have authority to write rules giving proxy access to shareholders who own a certain amount of stock. Shareholders would have a nonbinding vote on compensation packages for top executives.
* Hedge funds: Large funds would have to register with the government.
-----------------------------------------------------------------------------------
Democrats opted last week to forge ahead and introduce a bill without Republican support. Central parts of the bill—especially consumer protection and the role of the Fed—could precipitate a clash, making the bill's prospects cloudy. Democrats believe they can rally public support, with many people still angry at the banking industry in the wake of the financial crisis.
"It would be great to find a bipartisan solution, but if we can't, we have to be true to the policy of ending the malpractice on Wall Street," said Sen. Jeff Merkley (D., Ore.), a member of Mr. Dodd's committee.
Mr. Dodd hopes he can begin holding votes in his committee starting next week. The legislation could come to the Senate floor by late April.
The House of Representatives passed its version in December. Any differences would have to be reconciled with a potential Senate version.
Republicans have said they wanted new market rules. They have blamed the White House for forcing Democrats to push ahead before a bipartisan deal could be struck. The party has not spelled out a strategy for responding to Mr. Dodd's bill, and it's possible Republicans could try to filibuster it, with Democrats one shy of the 60 Senate votes they need to end debate. On Friday, the 10 Republicans on the Senate Banking Committee urged Democrats to slow the process down.
Mr. Dodd's bill is expected to more closely align with the White House's initial proposal, after diverging from it during weeks of negotiations with Republicans. Mr. Dodd, in an earlier proposal, had cut the Fed out of bank supervision. After aggressive lobbying by Treasury Secretary Timothy Geithner and Fed officials, Mr. Dodd agreed to expand the Fed's scope to allow it to monitor any large financial companies.
The shift follows a push from the Obama administration, which sees a political advantage in pushing legislation taking aim at Wall Street. Mr. Dodd's bill would allow the Fed to examine any bank-holding company with more than $50 billion in assets, and large financial companies that aren't banks could be lassoed into the Fed's supervisory orbit. This came after Treasury officials pushed Mr. Dodd to bring more companies under the Fed's purview.
Any financial company, from small payday lenders to huge megabanks, would have to abide by new rules written by an autonomous Fed division that would be given the job of protecting consumers. This division would also be able to sanction any bank with more than $10 billion of assets for violations of consumer rules. Other industries could face enforcement if regulators decide to expand the division's powers. This is a departure from a more-constrained setup Republicans thought they had secured in recent talks.
The bill would now give the government more power to crack down on risky practices or certain types of lending.
In other highlights, under the proposed legislation the government would have power to seize and dismantle failing financial companies; complex financial instruments such as derivatives would face more scrutiny; shareholders would have more say in the way publicly traded companies operate; and the government would have more tools to force banks to reduce their risk.
Mr. Dodd has courted Republican support for months and said Sunday in an interview he still hoped to pass a bill with broad support. But he also appeared emboldened, and called Republican efforts to delay a vote "totally unrealistic and wrong." He suggested Republicans who wanted to make changes to the bill would have to "back up their commitment with the votes."
He dismissed arguments from some in the banking sector that have said more regulations would constrain credit. He called this a "Chicken Little" argument, calling it alarmist and arguing that financial crises are what dry up credit.
With Mr. Dodd intent on moving quickly, the banking industry will have limited time to try to shape the bill. "The industry will be subject to these new rules for the next 50 years or so, so this is a major moment in the history of the financial-services industry," said Scott Talbott, a senior vice president at the Financial Services Roundtable, a trade group representing large financial companies.
The Dodd bill comes nearly 18 months after the height of the financial crisis in 2008. Whether it can quickly gain traction could help determine the fate of the Obama administration's yearlong effort to rein in banks.
"There's no question that Treasury is pushing left, and that's what I would expect at this point," said Sen. Bob Corker (R., Tenn.), who negotiated for weeks with Mr. Dodd on parts of the bill.
The biggest winner in Mr. Dodd's bill appears to be the central bank. It would police previously unregulated sectors of the economy and would have a new division to write consumer-protection policy. The biggest losers appear to be large financial companies, who would face a muscular, centralized regulatory architecture for perhaps the first time in U.S. history.
-----------------------------------------------------------------------------------
Bill's Highlights
Dodd's proposal touches on several areas. Key points:
* Consumers: A consumer-protection division would be created within the Federal Reserve, with the ability to write new rules governing the way companies offer financial products such as mortgages and credit cards. It would have authority over any bank with more than $10 billion of assets, and certain nonbank lenders.
* Banks: The Fed would oversee bank holding companies with more than $50 billion of assets. Regulators would have the discretion to force banks to reduce their risk or halt certain speculative trading practices.
* Failing companies: The government would be able to seize and break up large failing financial companies. Big companies would have to pay into a $50 billion fund to finance the dissolution of a failing firm.
* Systemic risk: A new council of regulators would be created to monitor broader risks to the economy. The council could strongly urge individual agencies to take specific actions to curb risk.
* Corporate governance: The Securities and Exchange Commission would have authority to write rules giving proxy access to shareholders who own a certain amount of stock. Shareholders would have a nonbinding vote on compensation packages for top executives.
* Hedge funds: Large funds would have to register with the government.
-----------------------------------------------------------------------------------
Democrats opted last week to forge ahead and introduce a bill without Republican support. Central parts of the bill—especially consumer protection and the role of the Fed—could precipitate a clash, making the bill's prospects cloudy. Democrats believe they can rally public support, with many people still angry at the banking industry in the wake of the financial crisis.
"It would be great to find a bipartisan solution, but if we can't, we have to be true to the policy of ending the malpractice on Wall Street," said Sen. Jeff Merkley (D., Ore.), a member of Mr. Dodd's committee.
Mr. Dodd hopes he can begin holding votes in his committee starting next week. The legislation could come to the Senate floor by late April.
The House of Representatives passed its version in December. Any differences would have to be reconciled with a potential Senate version.
Republicans have said they wanted new market rules. They have blamed the White House for forcing Democrats to push ahead before a bipartisan deal could be struck. The party has not spelled out a strategy for responding to Mr. Dodd's bill, and it's possible Republicans could try to filibuster it, with Democrats one shy of the 60 Senate votes they need to end debate. On Friday, the 10 Republicans on the Senate Banking Committee urged Democrats to slow the process down.
Mr. Dodd's bill is expected to more closely align with the White House's initial proposal, after diverging from it during weeks of negotiations with Republicans. Mr. Dodd, in an earlier proposal, had cut the Fed out of bank supervision. After aggressive lobbying by Treasury Secretary Timothy Geithner and Fed officials, Mr. Dodd agreed to expand the Fed's scope to allow it to monitor any large financial companies.
Friday, February 19, 2010
Philadelphia, Where Rogue Traders Dare Not Tread
Reuters
An office building that sits atop an upscale shopping mall in downtown Philadelphia is not the sort of place that would ordinarily strike fear into the hearts of bad guys on Wall Street.
But that is home turf for the little-known regulator who has built a better mousetrap: an increasingly sophisticated computer database which is already helping the U.S. Securities and Exchange Commission catch insider traders.
Last month, Daniel Hawke, an energetic, guitar-playing 46-year-old lawyer, was named head of a new task force charged with cracking down on a variety of market abuses.
Even before the promotion, Hawke, who remains director of the SEC's Philadelphia office, cast a surprisingly long shadow over the financial industry from his perch a two-hour or so drive from the canyons of Wall Street.
A few weeks after hedge fund billionaire Raj Rajaratnam was arrested in New York last October in the most significant insider trading investigation in two decades, Hawke and his team of lawyers were busy working to reel in the next big catch.
In mid-November, his crew handed out more than a dozen subpoenas to hedge funds and Wall Street investment firms seeking information about trading activity in shares of several drug manufacturers and consumer products companies that were buyout targets in 2006 and 2007.
Hawke, who has more than a decade of regulatory work under his belt, won't discuss the details of the subpoenas or the nature of the ongoing investigation.
But the flurry of activity last fall is indicative of the new, aggressive approach Hawke said he and his team are using to unearth cases of insider trading. And in the months to come, Wall Street firms and hedge funds likely will receive more of these regulatory calling cards from Philadelphia.
"Our focus is on conducting trader-based investigations, rather than going security by security," said Hawke, who has run the Philadelphia office since 2006 and will now also serve as director of the new market abuse unit.
The goal, he said was to discover "hard-to-detect frauds."
CYBER SLEUTHS
Much of the initial detective work that Hawke's group is doing relies heavily on computers. The team cross-checks trading data on dozens of stocks with personal information about individual traders, such as where they went to business school or where they used to work.
Hawke said his investigators are looking for patterns of "behavior by traders across multiple securities" and seeing if there are any common relationships or associations between those traders.
His stock sleuths then try to determine whether those traders who are wheeling-and-dealing in the same group of securities are doing so because they are simply smarter and luckier than other investors, or have benefited from improper access to confidential information.
Looking for connections and past associations among traders at hedge funds and Wall Street firms may not sound like an entirely novel way to conduct an investigation. But it is a marked departure from the way insider trading investigations tended to get going at the SEC.
Historically, the agency has pursued such cases only after being tipped off by an informant or receiving a referral from a market surveillance team at a particular exchange about unusual trading in some stock.
"Our goal is to be better masters of our own destiny by making the most informed decision about what conduct to investigate," said SEC Enforcement Chief Robert Khuzami, in a recent interview. "And one way to accomplish that is to have the broadest and deepest information about what is going on in the markets."
Even the sprawling Galleon Management insider trading investigation, which has led to criminal charges filed against Rajaratnam and 21 others, began with a tip from an exchange and the help of an informant. Federal prosecutors didn't begin placing wiretaps on some of the defendants' cell phones until well after the SEC began gathering evidence of potential wrongful trading by Galleon co-founder Rajaratnam and others.
"A decade ago there wasn't a whole lot of computer assistance when it came to matching up names or matching up employers," said Bruce Carton, a former SEC senior counsel and now editor of Securities Docket, an online securities law blog. "That's extremely helpful."
PHILADELPHIA STORY
This newly elevated status for Hawke's crew may come as a surprise to some on Wall Street, where the SEC's Philadelphia office is often seen as playing second fiddle in regulatory matters to New York and Washington, D.C.
After all, the Galleon case has been almost entirely a New York and Washington operation. And while Hawke's office has jurisdiction over firms operating in five mid Atlantic states and the nation's capital, no one could confuse Philadelphia's Market Street district with Wall Street.
Four years ago, security was so lax at the building where Hawke works that a group of self-styled anarchists stormed the entryway of the SEC's offices and staged a protest.
But tapping Hawke to oversee the SEC's new market abuse task force is a way for the agency's bosses to acknowledge that the Philadelphia office has come up with innovative ways to investigate insider trading.
The agency is giving Hawke the authority to pull in SEC lawyers across the nation. Indeed, his deputy in the market abuse unit is Sanjay Wadhwa, who is currently the assistant regional director of the SEC's New York office.
Hawke began briefing the agency's top brass about his computer-assisted forensic work in late 2007. During a meeting with then SEC Enforcement Chief Linda Thomsen and others, he explained how his team had begun compiling trading records kept by Wall Street market makers on dozens of stocks that were buyout targets. He told his superiors they were looking for common trading patterns to begin an initial inquiry.
A year ago, Hawke's strategy of combing through these so-called "blue sheet" trading records scored its first big success. The Philadelphia office, in tandem with federal prosecutors in New York, filed civil and criminal charges against seven people in conjunction with an insider trading scheme that reaped more than $11 million in profits. The case arose from an analysis of trading patterns in stocks of several companies involved in buyouts in which UBS kept coming-up as one of the deal advisors.
Federal prosecutors got a big break in that investigation when one of the defendants, former UBS investment banker Nicos Stephanou, pleaded guilty and agreed to testify against his alleged co-conspirators. Stephanou is charged with providing some of the defendants with confidential information about the impending buyouts of supermarket chain Albertsons and construction materials manufacturer ElkCorp.
In his cooperation agreement, Stephanou also admitted providing some of his co-conspirators with confidential deal information as far back as 1997. Before the arrests in Galleon, the Stephanou case was one of the bigger insider trading busts by prosecutors and securities regulators in recent memory.
LONG ARM OF THE SEC
Over the years, Hawke, a Washington native, whose father John was a former U.S. Comptroller of the Currency, has earned a reputation for taking on complex cases. He joined the SEC in 1999, after walking away from a lucrative job as a partner with a Washington law firm.
One of his first assignments was a case that led to the SEC filing administrative charges in the summer of 2001 against the now defunct accounting firm Arthur Andersen, which the agency accused of producing faulty audits of trash hauling giant Waste Management Inc. A few months later, Arthur Anderson would again be in the news for its improper audits of Enron.
But it is in insider trading cases where Hawke has shined. And he's not shied away from taking on cases where defendants accused of wrongful trading live in far flung places.
In the Stephanou case, for instance, some of the defendants come from Cyprus and Greece. In 2005, he uncovered a scheme by traders in Estonia to get illegal access to corporate press releases distributed by Business Wire before the potential market-moving information was released to the public.
"Dan has a long history pursuing investigations that have a market abuse angle," said Scott Friestad, an associate director in the SEC's Washington, D.C. office, who supervised Hawke before he moved to the Philadelphia office. "He has been involved in bringing a number of cases that are ground-breaking in some fashion."
Hawke has also had his share of setbacks. For example, in 2008, a federal judge tossed out a case Hawke's office had filed against a hedge fund manager it had accused of insider trading.
Right now, the Philadelphia office is embroiled in a pitched legal battle with suspended Blackstone Group investment banker Ramesh Chakrapani, one of the defendants in the Stephanou case. In an unusual procedural move, Hawke's office wants to dismiss its insider trading case against Chakrapani but retain the right to refile the case at a later date. But a lawyer for Chakrapani, in a bid to clear his client's name, has asked a federal judge to dismiss the SEC action with prejudice -- meaning the agency can't come back and charge the banker again.
A ruling in the matter is pending.
And some, even inside the SEC, question whether Hawke's approach is of much use for developing investigative leads beyond cases in which traders are getting access to confidential buyout-related information.
Hawke is cognizant of those criticisms. He said his proactive approach doesn't necessarily trump tips or informants. The Estonian case, he pointed out, began with a tip from Seattle-area trader and well-known regulatory gadfly Yolanda Holtzee about an unusual spike in trading in a stock.
Rather, he said, computer-assisted probes are intended as a "starting point" for investigations. They help regulators get a better view of what traders are doing in the markets, he said.
Hawke, whose office overlooks the historic building where Thomas Jefferson penned the Declaration of Independence, also said he hopes to send a stern warning to would-be scofflaws that the SEC is on the watch and won't be waiting for informants to come forward to expose wrongdoing.
Last month, Daniel Hawke, an energetic, guitar-playing 46-year-old lawyer, was named head of a new task force charged with cracking down on a variety of market abuses.
Even before the promotion, Hawke, who remains director of the SEC's Philadelphia office, cast a surprisingly long shadow over the financial industry from his perch a two-hour or so drive from the canyons of Wall Street.
A few weeks after hedge fund billionaire Raj Rajaratnam was arrested in New York last October in the most significant insider trading investigation in two decades, Hawke and his team of lawyers were busy working to reel in the next big catch.
In mid-November, his crew handed out more than a dozen subpoenas to hedge funds and Wall Street investment firms seeking information about trading activity in shares of several drug manufacturers and consumer products companies that were buyout targets in 2006 and 2007.
Hawke, who has more than a decade of regulatory work under his belt, won't discuss the details of the subpoenas or the nature of the ongoing investigation.
But the flurry of activity last fall is indicative of the new, aggressive approach Hawke said he and his team are using to unearth cases of insider trading. And in the months to come, Wall Street firms and hedge funds likely will receive more of these regulatory calling cards from Philadelphia.
"Our focus is on conducting trader-based investigations, rather than going security by security," said Hawke, who has run the Philadelphia office since 2006 and will now also serve as director of the new market abuse unit.
The goal, he said was to discover "hard-to-detect frauds."
CYBER SLEUTHS
Much of the initial detective work that Hawke's group is doing relies heavily on computers. The team cross-checks trading data on dozens of stocks with personal information about individual traders, such as where they went to business school or where they used to work.
Hawke said his investigators are looking for patterns of "behavior by traders across multiple securities" and seeing if there are any common relationships or associations between those traders.
His stock sleuths then try to determine whether those traders who are wheeling-and-dealing in the same group of securities are doing so because they are simply smarter and luckier than other investors, or have benefited from improper access to confidential information.
Looking for connections and past associations among traders at hedge funds and Wall Street firms may not sound like an entirely novel way to conduct an investigation. But it is a marked departure from the way insider trading investigations tended to get going at the SEC.
Historically, the agency has pursued such cases only after being tipped off by an informant or receiving a referral from a market surveillance team at a particular exchange about unusual trading in some stock.
"Our goal is to be better masters of our own destiny by making the most informed decision about what conduct to investigate," said SEC Enforcement Chief Robert Khuzami, in a recent interview. "And one way to accomplish that is to have the broadest and deepest information about what is going on in the markets."
Even the sprawling Galleon Management insider trading investigation, which has led to criminal charges filed against Rajaratnam and 21 others, began with a tip from an exchange and the help of an informant. Federal prosecutors didn't begin placing wiretaps on some of the defendants' cell phones until well after the SEC began gathering evidence of potential wrongful trading by Galleon co-founder Rajaratnam and others.
"A decade ago there wasn't a whole lot of computer assistance when it came to matching up names or matching up employers," said Bruce Carton, a former SEC senior counsel and now editor of Securities Docket, an online securities law blog. "That's extremely helpful."
PHILADELPHIA STORY
This newly elevated status for Hawke's crew may come as a surprise to some on Wall Street, where the SEC's Philadelphia office is often seen as playing second fiddle in regulatory matters to New York and Washington, D.C.
After all, the Galleon case has been almost entirely a New York and Washington operation. And while Hawke's office has jurisdiction over firms operating in five mid Atlantic states and the nation's capital, no one could confuse Philadelphia's Market Street district with Wall Street.
Four years ago, security was so lax at the building where Hawke works that a group of self-styled anarchists stormed the entryway of the SEC's offices and staged a protest.
But tapping Hawke to oversee the SEC's new market abuse task force is a way for the agency's bosses to acknowledge that the Philadelphia office has come up with innovative ways to investigate insider trading.
The agency is giving Hawke the authority to pull in SEC lawyers across the nation. Indeed, his deputy in the market abuse unit is Sanjay Wadhwa, who is currently the assistant regional director of the SEC's New York office.
Hawke began briefing the agency's top brass about his computer-assisted forensic work in late 2007. During a meeting with then SEC Enforcement Chief Linda Thomsen and others, he explained how his team had begun compiling trading records kept by Wall Street market makers on dozens of stocks that were buyout targets. He told his superiors they were looking for common trading patterns to begin an initial inquiry.
A year ago, Hawke's strategy of combing through these so-called "blue sheet" trading records scored its first big success. The Philadelphia office, in tandem with federal prosecutors in New York, filed civil and criminal charges against seven people in conjunction with an insider trading scheme that reaped more than $11 million in profits. The case arose from an analysis of trading patterns in stocks of several companies involved in buyouts in which UBS kept coming-up as one of the deal advisors.
Federal prosecutors got a big break in that investigation when one of the defendants, former UBS investment banker Nicos Stephanou, pleaded guilty and agreed to testify against his alleged co-conspirators. Stephanou is charged with providing some of the defendants with confidential information about the impending buyouts of supermarket chain Albertsons and construction materials manufacturer ElkCorp.
In his cooperation agreement, Stephanou also admitted providing some of his co-conspirators with confidential deal information as far back as 1997. Before the arrests in Galleon, the Stephanou case was one of the bigger insider trading busts by prosecutors and securities regulators in recent memory.
LONG ARM OF THE SEC
Over the years, Hawke, a Washington native, whose father John was a former U.S. Comptroller of the Currency, has earned a reputation for taking on complex cases. He joined the SEC in 1999, after walking away from a lucrative job as a partner with a Washington law firm.
One of his first assignments was a case that led to the SEC filing administrative charges in the summer of 2001 against the now defunct accounting firm Arthur Andersen, which the agency accused of producing faulty audits of trash hauling giant Waste Management Inc. A few months later, Arthur Anderson would again be in the news for its improper audits of Enron.
But it is in insider trading cases where Hawke has shined. And he's not shied away from taking on cases where defendants accused of wrongful trading live in far flung places.
In the Stephanou case, for instance, some of the defendants come from Cyprus and Greece. In 2005, he uncovered a scheme by traders in Estonia to get illegal access to corporate press releases distributed by Business Wire before the potential market-moving information was released to the public.
"Dan has a long history pursuing investigations that have a market abuse angle," said Scott Friestad, an associate director in the SEC's Washington, D.C. office, who supervised Hawke before he moved to the Philadelphia office. "He has been involved in bringing a number of cases that are ground-breaking in some fashion."
Hawke has also had his share of setbacks. For example, in 2008, a federal judge tossed out a case Hawke's office had filed against a hedge fund manager it had accused of insider trading.
Right now, the Philadelphia office is embroiled in a pitched legal battle with suspended Blackstone Group investment banker Ramesh Chakrapani, one of the defendants in the Stephanou case. In an unusual procedural move, Hawke's office wants to dismiss its insider trading case against Chakrapani but retain the right to refile the case at a later date. But a lawyer for Chakrapani, in a bid to clear his client's name, has asked a federal judge to dismiss the SEC action with prejudice -- meaning the agency can't come back and charge the banker again.
A ruling in the matter is pending.
And some, even inside the SEC, question whether Hawke's approach is of much use for developing investigative leads beyond cases in which traders are getting access to confidential buyout-related information.
Hawke is cognizant of those criticisms. He said his proactive approach doesn't necessarily trump tips or informants. The Estonian case, he pointed out, began with a tip from Seattle-area trader and well-known regulatory gadfly Yolanda Holtzee about an unusual spike in trading in a stock.
Rather, he said, computer-assisted probes are intended as a "starting point" for investigations. They help regulators get a better view of what traders are doing in the markets, he said.
Hawke, whose office overlooks the historic building where Thomas Jefferson penned the Declaration of Independence, also said he hopes to send a stern warning to would-be scofflaws that the SEC is on the watch and won't be waiting for informants to come forward to expose wrongdoing.
Friday, August 29, 2008
Heavier Ax for Wall Street?
Poor Credit Conditions, Steady Drip of Firings Suggest More Pain in FallThe securities industry pays well, but employment is highly volatile. And autumn is typically the season of greatest sadness. Horrid credit conditions and this summer's steady drip of firings suggest the ax will fall with full force when Wall Street hobbles back to business after Labor Day.
Despite news ranging from layoffs, to hiring freezes, to bans on color copying, the official jobs figures don't yet show major stress. Employment in the industry actually rose 0.4% in the second quarter from the first, according to Department of Labor statistics. But this is cold comfort, as there is a lag between the announcements of layoffs and their appearance in government figures.
Moreover, the bloodletting appears to have grown heavier since the end of June. This is worrying. Employers typically don't cut many jobs in the summer. A study by human-resources firm Challenger, Gray & Christmas suggests firings over the past 15 years, on average, were 18% lower in the summer than in the spring.
Employers typically then pick up the pace in the fall as budgets for the following year come in tighter -- sackings ramp up 30% from the summer. It is only somewhat coincidental that fewer mouths mean bigger bonuses for those who remain.
How bad could it get? Many recruiters claim this may be the direst financial crisis in decades. And the longer the crunch lasts, the better the chances become that this crack could cause Wall Street even more pain than the big downturn of the early 1970s.
About 17% of securities industry workers lost their jobs from 1972 through 1974. In New York City, nearly one in four did. Smart bankers should start squirreling away those nuts before the cold snap hits.
Refinancing the Financiers
Debt refinancing is the next big challenge for the world's banks. After being mauled by subprime-mortgage-related losses and tortuous capital raisings, financial institutions must renew an increasing proportion of their own funding, and at a much greater cost.
This refinancing challenge is another legacy of the credit boom. When times were easy, in 2006, banks shortened the maturity and increased the volume of their floating-rate notes, which pay a fixed premium to the London interbank offer rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another.
That exuberance leaves $871 billion of long-term debt to refinance by the end of 2009, according to J.P. Morgan Chase.
If the rollovers came in May, it wouldn't have been so bad. Then the spread on credit default swaps for financial institutions on the Itraxx index had fallen to 0.54 percentage point from 1.3 points in March.
With economies stumbling and house prices still falling, the spread has climbed back above 0.9 point.
The refinancing schedule seems to be influencing the CDS spreads of individual banks. Take UniCredit. Over the past year, the Italian bank's spread has widened 113%, not too bad a performance in a dismal credit market.
But almost half of that widening has come in the past month, perhaps in recognition that it has to roll over $6 billion of floating-rate notes by Sept. 12.
In contrast, Barclays has no floating-rate notes to roll over before December. Its CDS spread has widened a modest 14% in the past month. Refinancing uncertainty may have contributed to wider spreads at the brokers -- up 60% in the past three months at both Merrill Lynch and Goldman Sachs Group (both suspect companies).
In a deleveraging financial world, rolling over debt no longer is necessarily a routine operation, even for solid institutions. But once the banks and brokers find the new money, they have to deal with the consequences.
The highly leveraged balance sheets of financial institutions multiply the effect of higher funding costs. All things being equal an added 0.3 point on interest rate paid translates into something like two points in lower return on equity.
Wall Street Journal; August 28, 2008
Subscribe to:
Posts (Atom)