Friday, September 30, 2011

Bank of America's Continued Mis-Steps

We are having a tough time keeping up with the nonsense at BofA. Adding to their recent problems, they have now announced that they are going to start charging their own customers $5.00 a month if they want to use their debit cards. Yup, BofA is going to charge it's own customers $60 a year to access their own money.

I don't know much about banking. My issues with BofA are on the brokerage side, which I do know something about. But this new fee demonstrates some of the problems on the brokerage side for BofA - they simply do not have a clue.

Smaller banks are jumping for joy at BofA's latest move; others are as well. The Retail Industry Leaders Association (RILA) claims that the bank earns a profit of 1100 percent every time a debit card is swiped, and have cost merchants over 20 billion dollars last year. “Crying poverty and adding fees, all while collecting a 600 percent profit on every transaction is one heck of a public relations strategy,” according to Katherine Lugar, the RILA's executive vice president for public affairs. “Bank of America's new fee is great news for every other bank in America. If Bank of America wants to charge account holders to access their own money, every other bank, particularly credit unions and community banks will welcome the flood of customers in search of a new bank,” added Lugar.

Senator Richard Durbin, architect of debit card interchange fee reform, bashed the proposed monthly fee. "Bank of America is trying to find new ways to pad their profits by sticking it to its customers," he said in a statement. It's overt, unfair, and I hope their customers have the final say."

Bank of America to charge debit card use fee | Reuters

Tuesday, September 27, 2011

UBS Trader Loses 2 BILLION Dollars

I really thought it was going to be Merrill Lynch that would be the next firm to have problems, given the disaster known as Bank of America, but I might have been wrong.
Then again, no one could really expect me to know, or even guess, that UBS would allow a trader to lose 2 BILLION dollars. Now, it is UBS that is in the news, and the target of rumors and speculation regarding how long it can hold on.
In just the last few days:
Trader scandal may hamstring UBS' recruiting  - apparently the wealth management business is getting hurt by the losses. Quite frankly, there is a serious disconnect here, if wealthy individuals are staying away from UBS because a trader in Europe lost 2 BILLION dollars, but apparently that is happening.

UBS 'business model is gone' — and rich clients could follow - according to this analysis, Ermotti will have" to rebuild investor confidence shaken by the failure of the bank's risk controls. He will have to shrink an investment bank to conserve capital as well as bolster the bank's wealth management operations, which generate about 41 percent of the bank's revenue. There, he will have to prevent wealthy clients from pulling funds from the country's largest wealth manager."

New UBS boss: U.S. brokerage not for sale -not an unexpected rumor, but interesting that there was a denial.

UBS Chief Resigns Over Rogue Trader Affair - this might have been overkill, but bravo! for taking responsibility for mistakes made during your watch.

Line of the Day

Over at Above The Law, they are debating the question of whether insider traders should go to jail. One reason for sending people to jail is deterence. Matt Levine, the editor of DealBreaker, argues that deterrence makes sense, claiming that "[p]eople who work at hedge funds really don’t want to go to jail. Compared to their Greenwich homes, jail has worse food, more violence, and fewer golden retrievers."

True statement, and he finishes with: 

"Also they get ordered around by people with less education than them, which is why they left BofA in the first place."

Is Bank of America so bad that it is now part of a running joke?

Read the whole article, it is a good discussion of the insider trading issue. DealBreaker Debate: Insider Trading Sentencing.

Monday, September 26, 2011

Court Confirms Scope FINRA Arbitration Jurisdiction

The federal appellate court in New York has rules that an issuer who used UBS' auction rate securities services can force UBS to arbitrate a dispute over those services under the mandatory arbitration provisions under FINRA's rules.

The securities industry is the only industry in the United States where its firms and employees are forced to arbitrate disputes with their customers, and between themselves, by government regulation. This decision clarifies the scope of that requirement, which only requires a firm to arbitrate disputes with "a customer."

Some commentators, including my friends at the ADRProfBlog, are calling the decision an expansion of FINRA arbitration jurisdiction. I don't agree, and do not believe there was ever a serious dispute over the definition of "customer" in the FINRA rules. As the Court pointed out, every definition of "customer" is basically one who purchases goods or services. The Isssuer in the case was clearly purchasing UBS' services in connection with the maintenance and operation of its auction rate securities auctions, and as an underwriter, was a customer.

There is a more interesting aspect to this decision however. The Issuer filed a FINRA arbitration against UBS alleging fraud in connection with the auction rate securities program organized and operated by UBS. UBS is losing arbitration claims left and right, over auction rate securities and Lehman Principal Protection Notes. UBS did not want to go to a FINRA arbitration, and filed in Court to stop the arbitration. The Federal District Court denied the request, ruling that the Issuer is a customer. UBS appealed again, to the Second Circuit, which again ruled that the Issuer was a customer. Which, as noted above, was the only answer that the Court could reach under these circumstances.

Is this a case of UBS attempting to run up its adversary's legal costs in order to achieve a result to which it would not obtain from a court? Perhaps, and in this case the adversary had the funds to fight. What happens when they engage in such conduct with an employee, or a customer? 




Second Circuit expands FINRA’s arbitration jurisdiction

Thursday, September 22, 2011

SEC Charges Former Goldman Sachs Employee and His Father with Insider Trading

More Insider Trading allegations from the SEC. This time it is a Goldman Sachs employee who worked on Goldman's ETF desk. According to the Commission's allegations, the defendant obtained non-public details about Goldman’s plans to purchase and sell large amounts of securities underlying the SPDR S&P Retail ETF (XRT). He tipped his father, and they then traded those securities.

The case marks the SEC’s first insider trading enforcement action involving ETFs.

SEC Charges Former Goldman Sachs Employee and His Father with Insider Trading; 2011-188; September 21, 2011

CEO Tells Congress He Was Fined For Hiring Too Many People

Only in the securities industry could this nonsense occur. The CEO of Euro Pacitic Capital, a broker-dealer, testified before Congress about job creation, and testified that

securities regulations have prohibited me from hiring brokers for more than three years. I was even fined fifteen thousand dollar expressly for hiring too many brokers in 2008. In the process I incurred more than $500,000 in legal bills to mitigate a more severe regulatory outcome as a result of hiring too many workers. I have also been prohibited from opening up additional offices. I had a major expansion plan that would have resulted in my creating hundreds of additional jobs.

Typical FINRA. Rather than assist compliant firms from growing their business, it continually finds ways to stop the expansion, and in this case, to prevent the creation of new jobs. More than anyone else, I understand the regulations that Schiff is referring to, and understand the reasons for those regulations. The reasons are valid. The rigid enforcement of the regs, rather than working with the firm to permit the expansion, is the problem.

Schiff's full remarks are at

At the same time, you have to be amused at the spin some bloggers are putting on this story. Like this headline link to the exact same story: "CEO Testifies Obama Fines Their Firm for Creating Jobs." Of course, the regulations that Schiff is referring to have been in place for decades, Obama has nothing to do with the enforcement of those regulations, and neither does the federal government.  FINRA is a private organization, which regulates the financial industry with SEC oversight, but not day to day involvement. But don't let the facts get in the way of a good presidential bashing.

CEO Tells Congress He Was Fined For Hiring Too Many People 

Wednesday, September 21, 2011

Moody Lowers Bank of America's Debt Rating

Not much of a surprise here - Moody's Investors Service has lowered Bank of America Corp.'s debt ratings, saying it is now less likely that the U.S. government would step in and prevent the lender from failing in a crisis.

Still watching for the Merrill spinoff........

Moody's lowers BofA's debt ratings, shares tumble

Friday, September 16, 2011

Mack to Leave Morgan Stanley

Shakeups in the wirehouse world are becoming an every-day occurance. The WSJ is reporting that John Mack will resign as Chairman of Morgan Stanley at the end of the year. The last couple of years have been turmoil at Morgan Stanley, with infighting among the various factions at the firm from the Mack camp vs. the Purcell camp.

That infighting resulted in terminations, early resignations and huge distractions to the firm and its management. Add to that the mortgage trading which almost closed the firm, and the firm's involvement in the auction rate securities debacle, and it is no wonder why the firm's stock price has been crushed.

But all will be well for Mr. Mack. The article also mentions that Mack is going to write a book about his career, and is considering a goverment career, perhaps as Treasury Secretary.

Morgan Stanley's Mack to Leave at Year's End -

Faith in UBS Goes Rogue

Can someone explain how a major international bank can be the victim of fraudulent trades by an employee that cause losses of 2 BILLION dollars? How does that happen? Where are the internal controls that would prevent a trader from placing trades of the size or frequency that could result in losses of that magnitude?

You would think we were talking about Bank of America, but no, this time it is UBS, another bank that cannot run a brokerage firm or investment bank.

UBS has proven itself to be a disaster, and it is amazing that more individual at UBS have not gone to jail, or at least been banned from the securities industry. From Auction rate securities, Lehman Principal Protection Notes, Tax Evasion, rigging municipal bond transactions in 36 states, UBS has been accused of all sorts of fraud in the past few years, and the fines alone have totaled millions of dollars. One can only imagine the losses that some of this activity caused to its clients.

Now its own employee has caused losses of 2 BILLION dollars.




HEARD ON THE STREET: Faith in UBS Goes Rogue -

Faith in UBS Goes Rogue

Monday, September 12, 2011

Bank of America is Doomed. Just File Bankruptcy Now

While I still have a problem with Henry Blodget still participating in the financial industry, even as a columnist, great article on Bank of America's imminent bankruptch. The full title is BANK OF AMERICA IS DOOMED, Says Chris Whalen-Stop Firing People and Just Declare Bankruptcy Now.

Whalen is arguing for a government seizure of the bank, and a reorganization. I am not so sure that is possible, but he makes a great point - 

Bank of America is rearranging chairs on the deck of the Titanic. And firing thousands of people who don't need to be fired.

BANK OF AMERICA IS DOOMED, Says Chris Whalen—Stop Firing People And Just Declare Bankruptcy Now

Thursday, September 8, 2011

Merrill Brokers Next Target for BofA?

The forced departure of Sallie Krawcheck may be a sign of more than just problems at Bank of America - we may be seeing the start of an internal attack on Merrill Lynch brokers.

We all know the contempt that Bank of America has for it's own securities firm employees - witness what it did to its bank brokers when it cut their pay in half, but industry media is speculating that two of the reasons Krawcheck was canned was first, her refusal to force Merril Lynch brokers to push Bank of America products on their customers, and two, her opposition to a move to radically alter compensation at Merrill Lynch by altering the commission structure and putting brokers on a salary plus bonus.

I am sure that she was opposed to the salary and bonus plan, most right-thinking industry executives know that such a compensation scheme does nothing to benefit the broker, and will cause long term damage to the business. Bank of America will undoubtedly wrap itself up in the American flag and claim that it is a move designed to align the broker's interests with the customer, but that is simply nonsense. Wrap fee accounts did that - the broker is compensated for his success in managing the assets. Putting brokers on salary is simply a money grab - taking money from your own employees to shore up your abysmal failure on the banking side.

We all know that Bank of America is failing, and that the only profitable piece of its operations is Merrill Lynch. Again, rather than fix its problems on the banking side, it is going to attempt to cannibalize the brokerage side, and take compensation from its employees.

That is not a coghent business plan. Has BofA really forgotten what happened when it pulled a similar stunt on its bank brokers? They left in droves.

Watch for Merrill brokers to do the same. 

Tuesday, September 6, 2011

Krawcheck Bounced at Bank of America

I can't say I am shocked. Sally Krawcheck has been forced out of Bank of America. It is barely two years ago that she was brought in to head global wealth and investment management at Bank of America, otherwise known as Merrill Lynch. InvestmentNews is reporting that she has been forced out.

InvestmentNews is reporting that it is a reorganization, but that sounds like a codeword for a sale. There was talk last week of a tracking stock, but that appears to be a bad idea that has been abandoned.

More to follow, but here is the original article -

The Problem with Knee Jerk Legislation

Instapundit calls it the problem with naming laws after dead people. True, but it is also the problem with rushing to pass new laws to make the public feel good. Not only do you look foolish, sometimes you actually create mini-disasters. See, e.g. Sarbanes-Oxley and Dodd-Frank.

"Murder victim’s mother blames ‘bath salts’ drugs for her daughter’s death. New Jersey rushes to pass a ban on bath salts, names law after victim. Now: Tests show accused killer had no bath salts in his system.”