J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees number came from equity and debt underwriting, with the big piece coming from debt – a quarterly record of $971 million for the bank.
Grouped under the investment bank is also trading – and fixed income once again ruled the day. Of the $6.6 billion of revenues from “fixed income/equities,” $5.23 billion came from fixed-income. The bank didn’t offer a break down i.e. how much was from FX trading, for example.
Finally, the investment bank (trading and traditional IB) contributed about 43% of the firms net income ($2.37 billion of a total $5.5 billion).
A quarter where the investment bank didn’t carry the whole day, er quarter, but carried a lot of it.
Posted by Rick Stine
on March 29, 2011
, Hedge Funds
In my travels around Asia the past couple of weeks, I’ve been meeting with various banks and investors to learn more about the FX market in connection with our big initiative there. Stopped in to see a decent sized U.S. hedge fund and was fascinated by the investment strategy.
Among other tings, these folks invest in convertible bonds issued in local currencies in home countries. They end up with three factors that can affect returns: credit exposure, changes in interest rates and changes in currency values. The manager relayed an interesting anecdote that explained the benefit of such a strategy: the bond and underlying stock hadn’t moved much in price but the currency had to the point it allowed him to convert the bonds into stock and then sell the stock, convert the currency to dollars and make a handsome return. In other words, currency fluctuations in transactions like this can help take an out-of-the-money convertible and all of a sudden bring it in the money.
There is clearly a lot of positioning going on by AT&T to convince the public and U.S. regulators that its proposed acquisition of rival T Mobile from Deutsche Telecom shouldn’t be viewed as anti-competitive. One certainly might think that when two of the top leaders in any industry join forces.
If you check out the AT&T website, already there is a video of CEO Randall Stephensen discussing, among other things, his respect for regulators. There is a brief presentation of the deal that shows how consolidation has not hurt pricing. to the contrary, prices have come down since consolidation has been underway.
Posted by Rick Stine
on March 18, 2011
, Japan Earthquake
Retail investors are often looked on as the unsophisticated types who move slowly and late and rarely have a short-term affect on financial markets. They broke from that mold in Japan, where retail FX traders (known as Mrs. Watanabe) contributed to a surge in the Japanese yen this week when they began to unwind a popular strategy called the carry trade. Many of these investors had shorted the yen and gone long currencies that offer higher yields (the so-called carry trade). Concerned about the effects of the horrible earthquake in Japan on its economy, these investors unwound these trades – meaning they bought the yen en masse and sold the other side of the trade, often the Australian dollar.
Is it possible that the retail investor could move the currency of the world’s third-largest economy this way? Sure thing, because Japanese retail trading of the yen can account for nearly 30% of all trading on any given day.
The Federal Reserve has a committee studying how to improve communications with the public. But change was not in evidence in the latest statement issued today following the rate-setting meeting of the central bank.
In a bid to be more open with investors and the general public, the Fed should adopt a less stilted post-meeting announcement of its rate decision. Sure, each word the Fed utters must be carefully chosen because each word will be subject to over-the-top analysis by market types and analysts. But still, the Fed should indicate it doesn’t live in a cave.
Bill Ford, executive chairman of Ford Motor Co., worries about traffic gridlock on a global basis.
Zhengrong Shi, chairman and chief executive of China’s Suntech Power Holdings, one of the world’s largest solar panel companies, wonders whether “perhaps there’s too much democracy” in the U.S., making it difficult for the nation to adopt a coherent and consistent industrial policy.
“There are no decisions being made,” he said. “It’s like in a company. Sometimes you hear all the voices. The CEO knows what the right decision is and sometimes they just want to bang the table and say, ‘Let’s do it.’”
Posted by Neal Lipschutz
on February 28, 2011
, Credit Crisis
, United States
One of the most interesting aspects of the 26-page annual missive penned by Berkshire Hathaway Inc. Chairman Warren Buffett was the reproduction of a 1939 letter from his grandfather and the mathematical trajectory one can trace from a homespun lesson on savings to Berkshire’s ability to massively benefit from the recent financial crisis.
In that 1939 letter from Ernest Buffett to one of his sons and the son’s wife, Ernest described the $1000 cash reserve he had built for them. “I hope it never happens to you, but the chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund …” Ernest wrote. Without liquidity, he said, one might have to “sacrifice some of their holdings” when cash was immediately needed.
This may be a case of over-the-top tea-leaf reading.
So, by definition, it will be convoluted. But here goes. My interpretation of some comments made today byFederal Reserve Vice Chair Janet L. Yellen indicates the central bank will feel no rush to remove the famous “extended period” language from its post-meeting statements.
The reason for that, essentially, is that Yellen thinks the Fed’s conditionality around that phrase has been sufficient to allow market participants to change their views about when the central bank may finally come off its long-standing emergency easy policy, which features zero short-term interest rates. Said another way, the phrase “extended period” is flexible.
Score one for the California Public Employees’ Retirement System. The country’s largest public pension fund won in its scrimmage with Apple Inc. about how Apple directors get to stay on board.
Apple shareholders voting at the company’s annual meeting today backed a CalPERS-offered proposal that asks the board of directors to jump on the majority voting bandwagon.
“An election where you can be voted in without a majority is unworthy of a great company like Apple,” said Anne Simpson, CalPERS’ senior portfolio manager who heads its corporate governance program, in a press release. “We strongly urge Apple to make the change that its owners are requesting.”
Disappointment is the word recently used by a commissioner of the Securities and Exchange Commission about the percentage of corporate directors at big U.S. public companies who are women.
The figure cited by SEC Commissioner Elisse B. Walter in a Feb. 10 speech was 15.7%. That’s the percentage of board seats held by women at Fortune 500 companies, according to the 2010 Catalyst Census.
Here is the fuller quote from Walter, who fills one of the Democratic seats of the five-person commission:
“I think it’s fair to say that there are significant challenges for those who want to see true gender diversity in corporate governance,” Walter said in the text of a speech to the DirectWomen Board Institute. “While I will not offer up a personal analysis as to why women are underrepresented on corporate boards – I’ll leave that to the experts – I can tell you that my initial reaction to the statistics is disappointment.”