Robert Litterman, chairman of Goldman Sachs Group Inc.’s quantitative hedge-fund group, will step down at the end of this month, a move planned before President Barack Obama’s call yesterday to limit proprietary trading at banks, according to people familiar with the situation.
Litterman, a 24-year Goldman Sachs veteran, advised a unit that ran Global Equities Opportunities, a quantitative hedge fund that required a $3 billion cash infusion in 2007. The fund, which used mathematical models to trade securities, closed last month after its assets fell to $200 million from as much as $7.5 billion, according to two people familiar with the situation.
Litterman’s departure was not connected to the fund’s closure, the people said. Global Equities and Goldman Sachs’s Global Alpha fund lost value in August 2007 when many quantitative managers raced to exit trades simultaneously. In June 2008, Litterman said the hedge funds suffered because they were too large for a “de-leveraging explosion.”
Huffington Post broke us this one, Thanks James, Adrinana! Huff!
Add someone in Hongkong who writes a default swap for them ( insurance, in case of default, maybe the local Nankiang units can diversify :) ) and you have another perfect crisis, for the Chinese to fund this time. And they’ve defaulted on quite a few contracts themselves! ( commodities, October 2009)
Citi taught us to use Off Balance sheet financing
Banks are moving loans off their balance sheets in order to dress up their accounts for worried regulators.Only this time it isnt Citigroup C or State Street SST thats involved, but Chinas big banks.In November Chinas banks packaged and then sold $18.6 billion in loans to Chinese trust companies, removing those loans from the banks balance sheets, Shanghai Benefit Investment Consulting has told the Wall Street Journal. Thats a huge 54% of all the new loans banks made in the month according to government figures. For the year the total of loans packaged and sold by banks comes to almost $90 billion.The repackaging and sales come as Beijings bank regulators have started to worry that the countrys banks dont have enough capital to back all the loans theyve made in 2009. So far in 2009 Chinas banks have made more than $1 trillion in new loans, according to government figures. Regulators have begun to press banks to raise more capital to buttress their balance sheets.By selling the loans to trust companies, banks take them off their balance sheets. That has the effect of reducing the amount of loans that the banks look like they have made. That in turn reduces the amount of capital it looks like they need to raise to support these loans via James Jubak: Chinas Banks Copy Citigroup in Hiding Bad Loans Off Their Balance Sheets.
Wells Fargo used 2009 as a good time to review its national footprint and with Wachovia in its belt used the time to grow its retail presence and cement a leadership position that now threatens BofA directly
Also a couple of tricks of the trade, kept it more profitable than most in its competitor set, using the now derogatoy ‘Proprietary Trading’ desks to hedge with mortgage securities
In investor-speak, that means Wells Fargo, which has 6,600 branches in 39 states, purchased investments that pay off when short-term rates fall–which is exactly the action central bankers have taken to keep credit flowing during the financial crisis.
Wells Fargo reported a profit of $2.82 billion or 8 cents a share for the 4th Quarter up 92 cents a share from the year ago results. The bank reported revenues of $88.7 billion for 2009, producing $12.7 billion in income and the 4th quarter results were well ahead of expectations
In the fourth quarter, Wells Fargo originated $94 billion in mortgages while Bank of America originated $84 billion, up sharply from the volume of mortgages they made in the fourth quarter of 2008 at the depths of the financial crisis. According to trade publication National Mortgage News, the two banks accounted for 40% of new mortgages in the third quarter of 2008, the latest period for which information is available. They have similarly dominant positions in the servicing of mortgages.
After this, the war is now heavily tilted in favour of the west coast headquartered Wells Fargo, with Citi struggling to keep up with both. Wells Fargo was never under the pay czar’s administration and despite a 47 cent loss from a $25 b repayment in the fourth quarter, did not tailspin like the other two
Goldman Sachs spent $16b on compensation in 2009 or just 35.8% of revenue to record the lowest compensation pay out on the street. Investment Banks like JP Morgan still target paying 40-5% going forward. Thus isn the Q4 ending December ’09, Lloyd Blankfein’s team earned a record $4.95 billion riding on a revenue of $9.62 billion vs $9.65 billion in the year ago quarter. Comp expense was thus down $3.4 billion to produce a great surge in profits.
Goldman also said compensation and benefits expenses were $16.19 billion in 2009, or 35.8% of net revenue. The ratio fell from 48% in 2008 to the lowest level in the company’s history, Goldman said.
The Wall Street firm, which has faced public anger over recording big profits after accepting bailout funds, said total compensation and benefits have decreased by $4 billion, or 20%, since 2007.
In the fourth quarter, compensation was reduced by $500 million to fund a charitable contribution, Goldman said Thursday.
Total underwriting fees at the investment bank climbed to $962 million from $460 million a year earlier.
“Despite significant economic headwinds, we are seeing signs of growth and remain focused on supporting that growth by helping companies raise capital and manage their risks, by providing liquidity to markets and investing for our clients,” Chief Executive Lloyd Blankfein said in a press release.
The bank’s earnings of $8.20 a share easily topped analysts’ expectations of $5.20 a share and compared with a loss of $2.12 billion, or $4.97 a share, in the quarter a year earlier.
Mr. Viniar said Goldman’s business through 2009 had been bolstered by its strong trading activities — helping companies and governments hedge interest rates or deal in currencies. This activity dropped off in the final quarter, he said, but its revenues were helped by strong investment banking activities, like equity and debt underwriting, in the fourth quarter. The dramatic slowdown in trading, however, had already begun to reverse itself in 2010, he said.
On average, each Goldman employee is set to receive about $498,000 in bonus and compensation for 2009, an amount that could still incense the bank’s critics, given the economic pain elsewhere in the country.
CFO David Viniar is reported to have spent the entire earnings conference delineating on how Goldman Sachs is showing “restraint” in its pay policies and how the government monies helped them turn the tide on 2008 and 2009
Paul Volcker has new risk limits
After the treasury induced reforms that were more a laundry list of all measures, with existing internal controls at banks pushed into the open, in the next round against criminal misuse of the monetary and fiscal basis, Obama leaned towards Paul Volcker to introduce risk based limits for the Treasuries at commercial and investment banks. Goldman Sachs has already brought leverage down to 4.42 times net worth during the upheavl of 2009.
In an interview with ABC on Wednesday Mr Obama characterised the move by saying that the administration was about to get into a “big fight with the banks.”
“We’ve got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behaviour of financial players all around the world,” he said.
“People are angry and they’re frustrated. From their perspective, the only thing that happens is that we bail out the banks… We’re about to get in a big fight with the banks.”
An administration official on Wednesday said the plan – in discussion for the last couple of months – was born out of a need to “cut down on excessive risk taking”.
The announcement is likely to stop short of the return to a forced separation between riskier investment banking and the utility functions of retail and commercial banking that was enshrined in the Glass-Steagall Act.
Goldman Sachs – which runs a large proprietary trading business and which reported stronger than expected fourth-quarter profits on Thursday – will be watching the details closely, but the measures are more likely to threaten institutions whose operations are large and span commercial and retail operations as well as trading for their own benefit.
“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama at the White House.
“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary,” Obama added.
The proposal aims to deter commercial banks from becoming so large that they put the broader economy at risk and distort normal competitive forces
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BofA is doing well if for the fact that it has already returned all government monies and has provisioned another $1.6 billion for Credit Losses
As a new habit, we will continue to use the NY Times summary ( No it’s not Scott :) )
Even as the nation’s largest financial institutions report whopping profits from their investment banking units, those with major consumer lending portfolios continue to bleed money as unemployment and a weak housing market hamper people’s ability to repay their debts.
On Wednesday, those losses posed a fresh threat to Bank of America, which reported a fourth-quarter net loss of $5.2 billion, or 60 cents a share, compared with a net loss of $2.4 billion, a year earlier. Analysts surveyed by Bloomberg had expected a loss of 52 cents a share.
For the year, the bank lost $2.2 billion or 29 cents a share compared with a profit of $2.6 billion or 54 cents in 2008.
The bank, which acquired Merrill Lynch in 2008 at the height of the crisis, said its total assets soared to $2.4 trillion at the end of 2009 from $1.9 trillion a year earlier.
via BofA losses
The rise in 2009 total assets is good, the fourth quarter loss is just $194 million after TARP payback but overall the card portfolio ( yes, MBNA as we knew it) is by itself $4.9 billion and total write downs have risen to a huge $33 billion from less than half the amount for 2008. Also, BofA and Wells Fargo tomorrow will not have the luxury of international business anymore. However, Wells Fargo is competitive and profit-making. Without HHI, Moynihan would probably continue in a state of suspended thinking and BofA must suffer in 2010 as a result. the ML acquisition is not bringing in ny benefits with top executives walking out and global results affected by well Merrill Lynch.
Bank of America is good at retail banking and even traditional Commercial Banking however, and its trained , much prized employees could still show Wells Fargo a thing or too.
Andrew Sorkin at NYtimes’ Dealbook just updated below
Update | 1:12 p.m. MetLife has emerged as the lead bidder for the American International Group’s Alico life insurance unit, people briefed on the matter told DealBook, as A.I.G. seeks to sell off the unit to help repay its $182 billion in government aid. The February offer was a good 25% lower at $11 billion
[picapp align=”left” wrap=”true” link=”term=aig+building&iid=4269881″ src=”8/4/c/3/PicImg_AIG_gives_company_2d16.JPG?adImageId=9298971&imageId=4269881″ width=”234″ height=”156″ /]Under the terms being discussed, MetLife would pay about $14 billion to $15 billion for the A.I.G. business, these people said. A.I.G. has said that in a disposition of Alico, about $9 billion of the proceeds would go toward repaying the government’s lifeline.
A deal for Alico is still two to three weeks away, these people said, cautioning that negotiations are ongoing and may still fall apart. MetLife and A.I.G. held talks about a potential sale of the unit before, only to fall apart over price.
Alico services 19 million customers in 54 countries with a government interest of $9 billion , while the IPO candidate AIA based in Asia is the other new Life insurance entity with a $16 billion Govt interest i.e. a $20b equity capital base. Reuters story here
The Alico and AIA book together make up the $600b in investment assets with AIG and a $14 billion price tag should turn in a neat book profit and cash for returning the govt liabilities of $180 billion. The AIA IPO will be a further $8 billion and has waited for Benmoshe and/or Greenberg to complete the Alico deal.
P.S. We are not mentioning the ink on N Y Times to Alico that still links to an Alco inc. in Agribusinesses, but really the way people disrespect paper and newspaper, it’s funny, rofl..
Also, in the mean time, Bernanke has stepped in to try and clear his name:
Bernanke, Hoping to Quiet Critics, Seeks Review of Fed’s A.I.G. Bailout By THE ASSOCIATED PRESS
[picapp align=”right” wrap=”true” link=”term=AIG&iid=6809696″ src=”0/f/f/7/Neil_Barofsky_testifies_ccc9.JPG?adImageId=9298931&imageId=6809696″ width=”234″ height=”156″ /]The $182 billion rescue has sparked public outrage and demands in Congress for more information about the lifelines, beginning in 2008, provided to the company.
We will dive deeper once result season delivers by 21st when Goldman Sachs and some others like PNC and Sun Trust report earnings. Bank of America reports Tomorrow..
C ‘s loss of $0.33 per share is merely the payback being factored into the balance sheet. The credit losses were only $800 million.
Foreclosures will barrel down, Funds will not be cheap, their international operations cannot be contained or governed by local US law. Also domestic Citi business will turn profitable by Q3 and International Biz volume will exceed expectations
As per Marketwatch.com reports, also
“”Provisions and charge-offs were lower than we expected, suggesting that Citi’s ‘s outlook for its loan book has improved, particularly in corporate and international portfolios,” Standard & Poor’s analysts said in report to clients on Tuesday. “We think the pace of reserve building will continue to slow, allowing for an earnings improvement in 2010, the analysts concluded.””
Draft: Check our http://stocks.advantages.us for results based commentary
strangely enough, i have stuck to NY times for the result extract body..but the only thing of note below is the GCB profits of $1.6 billion which are based on hiding Card and other unsecured loan losses of $10 billion
[picapp align=”left” wrap=”true” link=”term=citigroup&iid=7375655″ src=”b/b/b/a/Citigroup_announces_that_34e7.JPG?adImageId=9299085&imageId=7375655″ width=”234″ height=”155″ /]
Bank executives say a speedier recovery in Asia and parts of Latin America has helped consumer loan losses. But amid double-digit unemployment and a weak housing market, the North American mortgage and credit card businesses keep hemorrhaging money — albeit, at a slower pace.
“Whether these trends continue will depend on the U.S. economy,” said John Gerspach, Citigroup’s chief financial officer.
Mr. Gerspach warned that stiffer credit card regulations would present a considerable headwind and the fate of the administration’s mortgage modification could significantly impact results. That program, by allowing the bank to delay booking losses on borrowers that fall behind on their loans, reduced credit losses by about $200 million in the fourth quarter.
Citigroup’s global consumer banking business posted a $1.9 billion profit for 2009, though that significantly overstated the performance of its mortgage and credit card businesses. For reporting purposes, the bank does not include its big mortgage, consumer finance and private-label credit card businesses. Those businesses, under the category of “Local Consumer Lending,” lost about $10 billion in 2009.
Over all, Citigroup’s investment bank reported the best results, though it still lagged competitors. Profit in the unit rose to $2.4 billion, up 6 percent from 2008. Although trading revenue surged in the first half of the year, it started to fizzle in the third and fourth quarters as the markets recovered. Its results also swung wildly from quarter to quarter from the impact of an obscure accounting charge on bank-issued debt, known as credit valuation adjustment, based on the perception of Citigroup’s financial health.
Mr. Gerspach said the figures needed to be adjusted again at the end of the year — lowering earnings by $840 million. “We corrected a mechanical miscalculation,” he said on the conference call.
It get’s wierd(er). I am flummoxed. Let me bite into a little late night chocolate. Searing hot.
One would have thought, esp the fat cat bankers and the Bens, that Cadbury’s needed a richer valuation. As the story unfolds however, there seems to be more than what meets the eye.[picapp align=”right” wrap=”false” link=”term=FUDGE&iid=5140001″ src=”d/4/9/6/closeup_of_a_3b19.jpg?adImageId=9179782&imageId=5140001″ width=”120″ height=”120″ /]
Nestle backing Kraft did not bring extra cash from Kraft and with Buffet watching, nothing more is likely to happen. However the counter offer for 790p or $12.80 as mentioned by Hershey’s today shows a rather bankrupt chocolate bank. I thought only one would be Charlie’s Willy Wonka. All the players are strapped for Cash, the market is growing, the health foods market is not hurting the Chocolate segment, i don’t see where it needs Willie wonka to save Charlie Cadbury.
But Cadbury is obviously out-of-pocket and cannot fund itself through a Management buy out, neither are the numbers interesting enough for PE. It seems like PE funds are passing on this one maybe because they do not read their stuff here. More chocolate dinners for them please. Transformers? Anyone? with a nice movie to curl up with , of course..[picapp align=”left” wrap=”true” link=”term=Chocolate+production&iid=5255854″ src=”3/c/f/1/Close_up_of_6a46.jpg?adImageId=9179945&imageId=5255854″ width=”120″ height=”120″ /]
I think the like of Bronson Point are obviously busy with bigger prey, but there are others who can help Philip Cadbury out of this predicament and continue growing the market. They were a very happy lot after announcing results in the local India office, esp as India and China continue to recruit in MNCs so we can be happy when things don’t move and we can get on with selling. I’m still waiting for the next offer myself.. I need that job for growing India’s brilliant consumer economy.[picapp align=”center” wrap=”true” link=”term=Cadbury%27s&iid=7312398″ src=”3/f/0/6/Cricket_Field_at_0be5.jpg?adImageId=9179974&imageId=7312398″ width=”120″ height=”116″ /]
But, as of now, Ben applied first and Warren Buffet does like fudge. coming back to PE front, no, emerging market desks here are unlikely to be interested because there is so much in infrastructure and IT, so much in existing brands that need to grow 2-3X from a large established base at ITC, Unilever and P&G apart from Pepsi and Coke. And Britannia, Fonterra, Kraft itself with the unhurt Nestle and the OTC pharma specials from the big 4.
And the issue was..cash. Of course, they might even need more cash to counter the Diamond Foods campaign in the Superbowl, and Irene wouldn’t overspend. Hershey’s is too small to play with Cadbury, but it shows how much Kraft is under-spending when cottage industry players like Hershey’s that have a niche like Swiss Cheese, no go on this deal.