Wall Street banks facing 2nd-quarter slowdown: Analyst
May 18, 2012
Wall Street banks will report sharp declines in trading and investment banking revenues in the second quarter because of weaker client activity, JPMorgan analyst Kian Abouhossein said in a report on Friday. Fixed income, currency and commodities trading revenue is likely to be particularly challenged for a group of banks including Goldman Sachs Group Inc and Morgan Stanley, dropping 32 per cent from the previous quarter, Abouhossein predicted. The group of eight banks will also report a 14 per cent decline in equities trading revenue and a 17 per cent fall in investment banking revenue, according to Abouhossein’s estimates based on activity so far.
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Wall Street banks will report sharp declines in trading and investment banking revenues in the second quarter because of weaker client activity, JPMorgan analyst Kian Abouhossein said in a report on Friday.
Fixed income, currency and commodities trading revenue is likely to be particularly challenged for a group of banks including Goldman Sachs Group Inc and Morgan Stanley, dropping 32 per cent from the previous quarter, Abouhossein predicted.
The group of eight banks will also report a 14 per cent decline in equities trading revenue and a 17 per cent fall in investment banking revenue, according to Abouhossein’s estimates based on activity so far.
Although the second quarter is typically slower than its predecessor, Abouhossein’s predicted declines are above-average. He attributed the unusually sharp declines to less liquidity provided by the European Central Bank’s long-term refinancing operation, as well as a “material” drop in client activity because of macroeconomic concerns.
Wall Street has faced revenue challenges for over two years because of concerns about the health of European countries and banks, a changing regulatory environment and the pace of growth in emerging markets. Share prices have remained under pressure as a result.
“Companies like Morgan Stanley and Goldman are black boxes to investors – there’s no way to unravel what their exposures are,” said Keith Davis, an analyst with Farr, Miller & Washington, which manages $800 million and invests in bank stocks. “When things go wrong people sell first and ask questions later.”
JPMorgan’s Abouhossein did not lower earnings estimates for the group of banks, which also included UBS AG, Credit Suisse Group AG, Deutsche Bank AG, BNP Paribas SA, Societe Generale and Barclays PLC, because his estimates were already well below average analyst estimates.
He said that banks are likely to undergo further restructuring to reduce costs in a weak revenue environment, and to lift capital ratios in anticipation of stricter Basel III capital rules.
Goldman, in particular, may undergo a “more aggressive cost management stance,” Abouhossein said, in order to lift its return-on-equity to 9.8 per cent by year-end as revenue slows.
Goldman, which already cut 3,000 workers from its payroll between March 2011 and March 2012, reported return-on-equity of 12.2 per cent last quarter. The figure is a key measure of profitability for shareholders and Goldman’s ROE has been challenged recently, down to 3.7 per cent last year from levels above 30 per cent before the financial crisis.
Wall Street banks facing 2nd-quarter slowdown: Analyst
May 18, 2012
Wall Street banks will report sharp declines in trading and investment banking revenues in the second quarter because of weaker client activity, JPMorgan analyst Kian Abouhossein said in a report on Friday. Fixed income, currency and commodities trading revenue is likely to be particularly challenged for a group of banks including Goldman Sachs Group Inc and Morgan Stanley, dropping 32 per cent from the previous quarter, Abouhossein predicted
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Wall Street banks will report sharp declines in trading and investment banking revenues in the second quarter because of weaker client activity, JPMorgan analyst Kian Abouhossein said in a report on Friday.
Fixed income, currency and commodities trading revenue is likely to be particularly challenged for a group of banks including Goldman Sachs Group Inc and Morgan Stanley, dropping 32 per cent from the previous quarter, Abouhossein predicted.
The group of eight banks will also report a 14 per cent decline in equities trading revenue and a 17 per cent fall in investment banking revenue, according to Abouhossein’s estimates based on activity so far.
Although the second quarter is typically slower than its predecessor, Abouhossein’s predicted declines are above-average. He attributed the unusually sharp declines to less liquidity provided by the European Central Bank’s long-term refinancing operation, as well as a “material” drop in client activity because of macroeconomic concerns.
Wall Street has faced revenue challenges for over two years because of concerns about the health of European countries and banks, a changing regulatory environment and the pace of growth in emerging markets. Share prices have remained under pressure as a result.
“Companies like Morgan Stanley and Goldman are black boxes to investors – there’s no way to unravel what their exposures are,” said Keith Davis, an analyst with Farr, Miller & Washington, which manages $800 million and invests in bank stocks. “When things go wrong people sell first and ask questions later.”
JPMorgan’s Abouhossein did not lower earnings estimates for the group of banks, which also included UBS AG, Credit Suisse Group AG, Deutsche Bank AG, BNP Paribas SA, Societe Generale and Barclays PLC, because his estimates were already well below average analyst estimates.
He said that banks are likely to undergo further restructuring to reduce costs in a weak revenue environment, and to lift capital ratios in anticipation of stricter Basel III capital rules.
Goldman, in particular, may undergo a “more aggressive cost management stance,” Abouhossein said, in order to lift its return-on-equity to 9.8 per cent by year-end as revenue slows.
Goldman, which already cut 3,000 workers from its payroll between March 2011 and March 2012, reported return-on-equity of 12.2 per cent last quarter. The figure is a key measure of profitability for shareholders and Goldman’s ROE has been challenged recently, down to 3.7 per cent last year from levels above 30 per cent before the financial crisis.
Facebook IPO shares tough task for small investors
May 14, 2012
By DAVE CARPENTER | Associated Press – CHICAGO (AP) — Hoping to get in on Facebook ‘s hotly anticipated public stock offering?
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By DAVE CARPENTER | Associated Press –
CHICAGO (AP) — Hoping to get in on Facebook‘s hotly anticipated public stock offering? You’ll need Facebook friends at very high levels — or a lot of money.
Most people who like the idea of owning Facebook’s stock will have difficulty getting it at the offer price, currently expected at $28 to $35 a share. Unless you know the right people at Facebook, you’ll likely need to have a large, active account with one of the big banks or brokerage firms directly involved in the stock sale.
Otherwise, you can take your chances by buying shares after the initial public offering is completed, when Facebook begins trading on the Nasdaq Stock Market under the ticker symbol “FB.” That’s likely to happen Friday.
Doing it that way typically means paying much more for the stock, however. And heavy demand skews the early stock price, leaving an investor vulnerable to the risk of a big drop.
Jerome Cleary isn’t deterred. One of a legion of Facebook fans, he has never wanted to own a stock as much as he wants to buy this one. Cleary, a standup comedian in Los Angeles, says he has already signed up for an account with a discount online brokerage so he’ll be ready.
“I know you should buy stock in what you know and like,” Cleary says. “I feel that because they have an incredible mass of wealth and such growing popularity, the stock really may pay off.”
Facebook Inc.’s IPO is expected to be the largest ever for an Internet company. It’s expected to raise as much as $11.8 billion for Facebook and its early investors — far more than the $1.67 billion raised in Google Inc.’s 2004 IPO.
Analysts say there’s so much interest in Facebook’s stock that some underwriters are closing their books as early as Tuesday. This means they won’t be taking any more orders from potential buyers. The IPO is expected to be completed late Thursday, with shares available for trading Friday.
Scott Sweet, the owner of advisory firm IPOBoutique, says the high demand also means that Facebook might raise the per-share price above $35, the high end of the range Facebook currently expects. Facebook and the IPO’s lead underwriter, Morgan Stanley, declined to comment.
If you’re thinking of investing in Facebook, here are some things to consider.
— IPO SHARES
Facebook and its early investors are selling more than 337 million shares, but those shares are parceled out very carefully, away from the public’s eyes.
Typically individuals get to buy no more than 10 percent to 20 percent of shares sold at an IPO’s offering price. The vast majority will go to company insiders, institutional investors, the underwriters selected by the company to handle the process and preferred clients of all of them.
Morgan Stanley leads the team of 33 underwriters selected for the Facebook offering, followed by JPMorgan Chase and Goldman Sachs.
The inclusion of online broker E-Trade Financial Corp. as an underwriter was seen as a glimmer of hope that Facebook might make more shares available than usual for retail investors through discount brokerages. But chances of getting any are very slim regardless.
— ELIGIBILITY
The big online brokerages have been taking formal requests from customers for Facebook’s IPO. They anticipate they’ll get their own allocations from one source or another, such as one of the underwriters. E-Trade, Fidelity Investments, Charles Schwab and TD Ameritrade, among others, have been fielding abundant queries.
But the requirements they set on who gets them eliminate most small investors.
Fidelity, which will be getting an undetermined number of shares from underwriter Deutsche Bank, says customers should have $500,000 in their accounts and have made 36 trades in the past year to be eligible. Ameritrade’s account requirements are at least $250,000 and 30 trades in three months. Schwab’s are a minimum $100,000 or 36 trades in the past year, but the firm says it also has other requirements.
Even meeting the requirements is no guarantee of getting shares.
Joshua Freeman, an information technology professional in New York, knows investing in Facebook is risky, but he believes “it’s got a pretty good shot to make some money.”
He has been investing with E-Trade since the mid-1990s and has about $200,000 in his account. But he’s pessimistic about his request for 100 Facebook shares at the IPO price, given the frenzy over the offering.
“I’m hoping to get some but I’m guessing that I won’t,” Freeman says. “I’m hoping it follows the trend and goes crazy and then dips a little bit. If it does that, I may buy some on the open market.”
— OPEN MARKET
If you strike out as an insider, it will still be easy, but expensive, to buy shares on the open market. Open and fund an account with a brokerage. Then for a transaction fee of as little as $7, you can buy Facebook stock at whatever price the market demand has driven it.
Be aware that the price could jump significantly by the time you place your order. Among last year’s hottest IPOs, Groupon Inc. soared in the opening minutes and gained 31 percent on the first day of trading. Zillow Inc. jumped 79 percent and LinkedIn Corp. more than doubled.
Investors buying on the open market miss much or perhaps all of any first-day “pop.”
The first-day market price of newly issued stocks during the past decade has been an average 11 percent higher than the offer price, according to University of Florida finance professor Jay Ritter.
For investors buying at the offer price, Facebook is likely to produce a gain on the first day, he says. But once it starts trading, investors should think of it as just another stock that’s as likely to go down as up.
Consider this: Groupon, which went public at an IPO price of $20 six months ago, soared as high as $31.14 on the first day. It closed Monday at $11.73, 41 percent below the offer price.
As for the idea of buying the stock at a low point a few months from now, Ritter says that has not worked historically as a reliable strategy with IPOs. And this one’s starting at a very high price, he emphasizes, with optimistic expectations of future growth built into it.
The only sure winners, he says, will be Facebook employees and venture capitalists who invested in the company when it was private.
James Breyer and his Accel Partners firm, investors since 2005, stand to make up to $1.34 billion from the 38.2 million shares they are offering. Zynga Inc. CEO Mark Pincus, a Facebook investor since 2004, stands to make up to $35 million on 1 million shares.
“The time to buy Facebook was five years ago,” Ritter says.
Massive derivatives loss at JPMorgan fuels calls to tighten Wall Street regulation
May 13, 2012
The only Wall Street titan to emerge from the financial crisis without a black eye headed into the weekend with a concussion.
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The only Wall Street titan to emerge from the financial crisis without a black eye headed into the weekend with a concussion.
JPMorgan Chase, fresh off the surprise news that it lost more than $2 billion in recent weeks to a complex trade in credit derivatives, saw its stock value plummet Friday more than 9 percent. The massive loss also reportedly led regulators to open up inquiries about the trading strategy and caused a downgrade of its credit by the rating agency Fitch, which in turn sent its stock lower in after-hours trading.
To top it off, the reported loss renewed calls on Washington regulators to finish a key tenet of the Dodd-Frank financial reform law that JPMorgan has fought tooth-and-nail against: the so-called Volcker Rule.
The timing couldn’t have been worse. In recent weeks, Jamie Dimon, chief executive of JPMorgan, led a cadre of Wall Street chiefs to the Federal Reserve Bank of New York to press for changes to the provision that would ban government-backed firms such as his from running hedge funds and engaging in proprietary trading.
They reportedly were met with utter silence.
Proprietary trading, or betting on the markets with the bank’s own capital, has been the source of huge profits for Wall Street, but it also was a major driver of the damaging risk-taking that contributed to the financial crisis.
Five federal agencies charged by Dodd-Frank with implementing the Volcker Rule have proposed a nearly 300-page rulebook to stop the activities. But the effort has been vigorously opposed by financial industry lobbyists and Republican members of Congress, who view the rule as too strict, complicated and expensive to implement. Among other things, they say the proposed rule would quash legitimate trading activity, such as market making, which is done on behalf of clients.
Even Paul Volcker, the former Federal Reserve chairman, has said the rule that’s been proposed in his name is complex, although he’s blamed lobbyists for contributing to that.
Regardless of the criticism, the loss at JPMorgan likely will accelerate the push to implement the Volcker Rule, industry watchers say. “Something will be adopted that will be called the Volcker Rule,” said John Coffee, professor at Columbia Law School. “How strong it will be remains to be seen.”
It’s up for debate whether the Volcker Rule would have stopped JPMorgan from building up the position that had the loss. The bank claims the troublesome trade was performed as a hedge, or a way of protecting itself from market risk, something that’s allowed under the rule as it has been proposed. But that only led to a senator who sponsored the Volcker Rule, Jeff Merkley of Oregon, to call on regulators Friday to tighten their proposed rules even further and bar activities “disguised as ‘market making’ or ‘risk mitigation.’”
Sen. Tim Johnson, the South Dakota Democrat who leads the Senate Banking Committee, said in a statement that the loss underlines why “opponents of Wall Street reform must not be allowed to gut important protections for the financial system and taxpayers.” Sen. Bob Corker, a Tennessee Republican who serves on the committee, called Friday for hearings on the loss.
Sen. Robert Menendez, the New Jersey Democrat who sits on the banking committee, said, “This gambling by big Wall Street banks is risky for all of us, and taxpayers shouldn’t be left to clean up the mess if they fail.”
Sean Oblack, Johnson’s spokesman, said in a statement that the Banking Committee is “waiting to learn more of the facts before making a decision on a hearing.”
The other fallout from JPMorgan’s trading loss could be the way in which banks set aside capital to protect themselves from loss, said Will Rhode, principal and director of fixed-income research at the Tabb Group. At present, banks use a “Value at Risk” model that lets them measure their own risk profile to determine their capital buffer.
But if JPMorgan, long held to be one of Wall Street’s best risk managers, gets that calculus wrong, global banking regulators could see that as a sign banks are incapable of managing their own risk. In turn, they could foist upon banks inflexible, blanket capital requirements. That in turn would force investment banks to scale back and shrink their operations, Rhode said.
Ed Beeson: (973) 392-4262, ebeeson@starledger.com
RXi Pharmaceuticals’ Common Stock to Commence Trading under the Symbol “RXII”
May 10, 2012
WORCESTER, Mass.–(BUSINESS WIRE)– RXi Pharmaceuticals Corporation (OTCBB: GALE – News) announced today that the Financial Industry Regulatory Authority, Inc., also known as FINRA, has approved RXi Pharmaceuticals’ common stock for trading under the stock symbol “RXII” on the OTC Bulletin Board. RXi Pharmaceuticals anticipates its stock will be eligible for trading commencing today, May 10, 2012. The listing of RXi Pharmaceuticals’ stock marks the completion of its spin-off into an independent, publicly-traded company from former parent Galena Biopharma, Inc
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WORCESTER, Mass.–(BUSINESS WIRE)–
RXi Pharmaceuticals Corporation (OTCBB: GALE – News) announced today that the Financial Industry Regulatory Authority, Inc., also known as FINRA, has approved RXi Pharmaceuticals’ common stock for trading under the stock symbol “RXII” on the OTC Bulletin Board. RXi Pharmaceuticals anticipates its stock will be eligible for trading commencing today, May 10, 2012.
The listing of RXi Pharmaceuticals’ stock marks the completion of its spin-off into an independent, publicly-traded company from former parent Galena Biopharma, Inc. (NASDAQ:GALE). The spin-off transaction was previously announced by Galena in September 2011, and, on April 26, 2012, Galena paid a dividend of one share of RXi Pharmaceuticals common stock for each outstanding share of Galena common stock.
“We are pleased to announce the public listing of our common stock and the completion of our spin-off into an independent company,” commented Geert Cauwenbergh, Dr. Med. Sc., newly appointed President and Chief Executive Officer of RXi Pharmaceuticals. “With our increased focus as an independent company, we intend to work hard to create value for our shareholders through the advancement of RXi’s robust platform.”
World Trade Financial Corporation is acting as the initial market maker for the trading of RXi Pharmaceuticals’ common stock. World Trade Financial Corporation can be contacted at (619) 325-2620 or at www.worldtradefinancial.com.
About RXi Pharmaceuticals
RXi Pharmaceuticals Corporation (OTCBB: GALE – News) is a biotechnology company focused on discovering, developing and commercializing innovative therapies based on its proprietary, next-generation RNAi platform. Therapeutics that use RNA interference, or “RNAi,” have great promise because of their ability to “silence,” or down-regulate, the expression of a specific gene that may be overexpressed in a disease condition. Building on the pioneering work of scientific founder and Nobel Laureate Dr. Craig Mello, RXi’s first RNAi product candidate, RXI-109, which targets CTGF (connective tissue growth factor), is scheduled to commence human clinical trials for scar prevention in 2012. For more information, please visit www.rxipharma.com.
About Galena Biopharma
Galena Biopharma, Inc. (NASDAQ: GALE) is a Portland, Oregon-based, biopharmaceutical company that develops innovative, targeted oncology treatments that address major unmet medical needs to advance cancer care. For more information please visit us at www.galenabiopharma.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future expectations, plan and future development of RXi Pharmaceuticals Corporation’s products and technologies. These forward-looking statements about future expectations, plans and prospects of the development of RXi’s products and technologies involve significant risks, uncertainties and assumptions, including the risk that RXi may not be able to successfully develop its candidates, the risk that the development of our RNAi-based therapeutics may be delayed or may not proceed as planned and we may not be able to complete development of any RNAi-based product, the risk that the development process for our product candidates may be delayed, risks related to development and commercialization of products by our competitors, risks related to our ability to control the timing and terms of collaborations with third parties and the possibility that other companies or organizations may assert patent rights that prevent us from developing our products. Actual results may differ materially from those contemplated by these forward-looking statements. RXi does not undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances that occur after the date of this release.
Occupy Wall Street May Day Protesters May Have Been Unlawfully Arrested
May 7, 2012
The police captain, bullhorn in hand, paid no mind to the heckler gesturing and yelling in front of him. His stern command was clear: the young man, and with him the crowd of Occupy Wall Street demonstrators assembled at the plaza on the southern tip of Manhattan, would all have to move. And fast.
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The police captain, bullhorn in hand, paid no mind to the heckler gesturing and yelling in front of him. His stern command was clear: the young man, and with him the crowd of Occupy Wall Street demonstrators assembled at the plaza on the southern tip of Manhattan, would all have to move. And fast.
They were, the captain told them, breaking the law by standing in a New York City park after closing time. They would be given a little time to vacate the premises, but after that, “anyone who does not disperse will be subject to arrest under park rules.”
That was the scene last Tuesday at the public space known as the New York Vietnam Veterans Memorial Plaza, where about a thousand demonstrators had descended following a day of street protest called by the loosely organized movement against social and economic injustice known as Occupy Wall Street. It was the end of May Day, and the protesters — who had flooded the park and conducted an improptu forum earlier — were now surrounded by hundreds of NYPD officers, who had followed the Occupy march from Union Square.
The captain’s threat wasn’t hollow. Within minutes, 12 people who had refused police orders to evacuate had been arrested and were being marched, in plastic handcuffs, to a blue-and-white NYPD paddy wagon. They were charged with “remaining in a New York City Park after closing without permission,” a crime for which late-night joggers, amorous couples and mischievous teenagers are more commonly cited.
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The officer’s authority to issue that threat, however, is less certain. As it turns out, protesters were not standing in a New York City park at all when they were told to disperse.
According to Eric Arnone, an attorney now of counsel at the Manhattan law firm of Galluzzo and Johnson and a former Manhattan assistant district attorney — to whom the situation was described — what happened that evening on the windswept plaza was the equivalent of “arresting people for standing in a backyard.”
The detentions could be chalked up to honest mistake: The plaza where protesters were standing is an open paved space between two skyscrapers in the city’s Financial District that is in part a public park and partly a private corporate plaza. And while protesters were arrested in the privately owned section, the border between the two is a simple low wall.
But according to demonstrators, the arrests were made solely to disperse the crowd. “No matter what, the police did not act in the right way. They only did that because, in the morning, when those criminal financial institutions opened up, they didn’t want us there,” said Tarak Kauff, one of the dozen demonstrators arrested.
The police deny that.
“All arrests were lawful, and a representative of private property there was sent by property management to act as complainant,” said Deputy Commissioner Paul J. Browne, the NYPD’s top spokesman.
The presence of the about 1,000 demonstrators at the plaza was the fortuitous result of some confusion at the end of the day’s headline march, which took crowds from Union Square to Wall Street down Broadway. The marchers had been prevented by police from reaching Wall Street, and as they navigated the winding, cobblestoned — and now heavily blockaded — streets of New York’s historic Financial District, they found themselves funneled to the space.
Many of those who walked into the memorial plaza, from around 8:30 p.m. onwards, expressed awe as they took in the sight around them: an open, well-lit, fully paved public space whose main architectural feature is a circular amphitheater-style seating circle arranged around a reflecting fountain and backed by a lit glass wall. In other words, just about the perfect place to host a large public gathering.
Occupy Wall Street May Day Protesters May Have Been Unlawfully Arrested
May 7, 2012
The police captain, bullhorn in hand, paid no mind to the heckler gesturing and yelling in front of him. His stern command was clear: the young man, and with him the crowd of Occupy Wall Street demonstrators assembled at the plaza on the southern tip of Manhattan, would all have to move
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The police captain, bullhorn in hand, paid no mind to the heckler gesturing and yelling in front of him. His stern command was clear: the young man, and with him the crowd of Occupy Wall Street demonstrators assembled at the plaza on the southern tip of Manhattan, would all have to move. And fast.
They were, the captain told them, breaking the law by standing in a New York City park after closing time. They would be given a little time to vacate the premises, but after that, “anyone who does not disperse will be subject to arrest under park rules.”
That was the scene last Tuesday at the public space known as the New York Vietnam Veterans Memorial Plaza, where about a thousand demonstrators had descended following a day of street protest called by the loosely organized movement against social and economic injustice known as Occupy Wall Street. It was the end of May Day, and the protesters — who had flooded the park and conducted an improptu forum earlier — were now surrounded by hundreds of NYPD officers, who had followed the Occupy march from Union Square.
The captain’s threat wasn’t hollow. Within minutes, 12 people who had refused police orders to evacuate had been arrested and were being marched, in plastic handcuffs, to a blue-and-white NYPD paddy wagon. They were charged with “remaining in a New York City Park after closing without permission,” a crime for which late-night joggers, amorous couples and mischievous teenagers are more commonly cited.
Like us on Facebook
The officer’s authority to issue that threat, however, is less certain. As it turns out, protesters were not standing in a New York City park at all when they were told to disperse.
According to Eric Arnone, an attorney now of counsel at the Manhattan law firm of Galluzzo and Johnson and a former Manhattan assistant district attorney — to whom the situation was described — what happened that evening on the windswept plaza was the equivalent of “arresting people for standing in a backyard.”
The detentions could be chalked up to honest mistake: The plaza where protesters were standing is an open paved space between two skyscrapers in the city’s Financial District that is in part a public park and partly a private corporate plaza. And while protesters were arrested in the privately owned section, the border between the two is a simple low wall.
But according to demonstrators, the arrests were made solely to disperse the crowd. “No matter what, the police did not act in the right way. They only did that because, in the morning, when those criminal financial institutions opened up, they didn’t want us there,” said Tarak Kauff, one of the dozen demonstrators arrested.
The police deny that.
“All arrests were lawful, and a representative of private property there was sent by property management to act as complainant,” said Deputy Commissioner Paul J. Browne, the NYPD’s top spokesman.
The presence of the about 1,000 demonstrators at the plaza was the fortuitous result of some confusion at the end of the day’s headline march, which took crowds from Union Square to Wall Street down Broadway. The marchers had been prevented by police from reaching Wall Street, and as they navigated the winding, cobblestoned — and now heavily blockaded — streets of New York’s historic Financial District, they found themselves funneled to the space.
Many of those who walked into the memorial plaza, from around 8:30 p.m. onwards, expressed awe as they took in the sight around them: an open, well-lit, fully paved public space whose main architectural feature is a circular amphitheater-style seating circle arranged around a reflecting fountain and backed by a lit glass wall. In other words, just about the perfect place to host a large public gathering.
Stock Trading Remains in a Slide After ’08 Crisis
May 6, 2012
Mario Tama/Getty Images The New York Stock Exchange. Investors have pulled away from stocks and instead are favoring bonds, despite low interest rates.
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Mario Tama/Getty Images
The New York Stock Exchange. Investors have pulled away from stocks and instead are favoring bonds, despite low interest rates.
Even though American stocks have doubled in price in the last three years, investors and traders large and small keep giving the market the cold shoulder.
Trading in the United States stock market has not only failed to recover since the 2008 financial crisis, it has continued to fall. In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion, according to Credit Suisse Trading Strategy.
The decline stands in marked contrast to past economic recoveries, when Americans regained their taste for stock trading within two years of economic shocks in 1987 and 2001.
This time around, the stock market has many more players, including high-speed trading firms, which have recently come to account for over half of all stock market activity. But even they, like all other major groups, have recently been doing less overall trading.
“When you keep in mind recent history, this is kind of uncharted territory,” said Justin Schack, an analyst at Rosenblatt Securities.
Many market experts say the biggest reason for the shrinking volume is that traders and investors remain leery that the economy will suddenly turn on them in the wake of the financial crisis, the wild swings in stock prices and the European debt troubles.
Investors and financial industry professionals are struggling to understand what the decline could mean, particularly if it continues. Less rapid trading by short-term speculators could be a good thing for buy-and-hold investors tired of being burned by the market. But the decline could also signal a broader turn away from the domestic stock market by investors who want to hold less of their nest eggs in stocks and by companies that opt for raising capital in bond markets instead of issuing shares.
“My expectation was that we would see people go back to the stock market,” said Charles Rotblut, a vice president of the American Association of Individual Investors. “It remains to be seen whether there will be a core group of people that is just turned off of the stock markets altogether.”
The New York-based system of stock trading has been showing the strain of the slowdown. The New York Stock Exchange said last week that trading in the first quarter fell 23 percent from a year earlier. A few days earlier, Nasdaq announced that its first-quarter revenues from stock trading in the United States were down 7 percent from a year ago. Both exchange companies have aggressively moved to capture other businesses that do not rely on stock trading, but they have also embarked on cost-cutting programs.
“We can’t be certain as to when or whether the volume is going to recover,” said Lee Shavel, chief financial officer at the Nasdaq OMX Group.
The recent slowdown has occurred not only on the nation’s 13 official exchanges and trading platforms. Dozens of off-exchange operations have captured a larger proportion of all stock trades in recent years, but even their overall trading numbers have been trending down.
The decline in trading has not sent the prices of stocks down. Though there is less buying and selling, the people who have remained in the market are willing to pay higher prices, driving the value of the benchmark Standard & Poor’s 500-stock index up 102 percent since the market hit a bottom in the spring of 2009.
But the recent falloff in trading is striking because data from the New York Stock Exchange shows that volumes have not declined for three consecutive years in records going back to 1960. For an explanation of the lower trading volumes, many market-watchers have looked to the high-speed traders, who use computers algorithms to take advantage of small price discrepancies and who have accounted for an increasing share of all trading in recent years.
These firms have been curtailed slightly by recent regulations aimed at making the markets less volatile. But more fundamentally, industry participants say high-speed traders rely on transacting with slower, traditional traders like retail investors and mutual funds. When those groups pull back, the high-speed firms have little choice but to scale back as well.
“On a typical trade, two high-frequency trading firms will not trade against each other,” said Manoj Narang. His New Jersey high-speed trading firm, Tradeworx, is still growing, he said, but for most established firms, if ordinary investors “don’t want to trade, there’s really simply nothing for us to do.”
Among retail investors, the most reliable source of trading volume has been the day traders who were given access to cheaper trading by discount brokers like E*Trade and TD Ameritrade.
Elite Colleges and Wall Street's Recruiting Machine
May 4, 2012
May 4, 2012, 4:23 pm By LILY ALTAVENA Despite Wall Street’s reported recruiting problems , which made headlines after the resignation of Greg Smith, a Goldman Sachs executive, the nation’s financial firms are still drawing top graduates with six-figure incomes that can relieve the financial burden of student loans, a recent college graduate writes.
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May 4, 2012, 4:23 pm
Despite Wall Street’s reported recruiting problems, which made headlines after the resignation of Greg Smith, a Goldman Sachs executive, the nation’s financial firms are still drawing top graduates with six-figure incomes that can relieve the financial burden of student loans, a recent college graduate writes.
Laura Newland, a 2010 graduate of Duke University, discussed her recruiting experience with financial firms in a post on DealBook. She said that the students who excelled in the recruitment process were those who were “ruthless and cunning.”
Ms. Newland writes:
The financial pressures manifest themselves in different ways on different campuses, but at the country’s most-esteemed schools, the economy has precipitated Wall Street’s recruiting supremacy. When a six-figure income, including bonus, is dangled in front of a 22-year-old’s nose, it’s tough to stomach the thought of taking on the average $158,000 debt-load of today’s medical student, or shelling out $50,000 a year for a master’s degree.
So we head to Wall Street, rationalizing that we will stay for “just a year or two.” Once there, it’s tough to leave. A 2011 Bloomberg article reported that a banker with 10 years’ experience specializing in mergers will earn $2 million a year — more than 10 times the salary of an equally experienced cancer researcher or aerospace engineer.
But to attribute the industry’s appeal solely to our financial predicament is simplistic. We’ve been deemed the “Me Generation” for good reason. And Wall Street recruiters are more than happy to cater to our sense of entitlement.
They and their Ivy-pedigreed employees bombard campuses for weeks to shower us with fancy dinners, lavish trips to Manhattan and promises of a challenging, rewarding career. They tap into our competitiveness, so their internship programs begin recruiting us as sophomores, knowing that if we are offered opportunities to build our résumés, we won’t just apply, but we’ll commit ourselves so fully that we’ll mistake our desire to win the race with a desire for what it is we’re chasing.
I navigated a salacious recruiting process. I watched ruthless and cunning peers excel, and the more good-hearted crumble. I saw that being popular, good-looking and able to drink hard seemed to matter more than being smart. And as I began my internship search in the midst of the financial crisis, while the industry and our economy crumbled around us, not a single banker I met acknowledged blame on Wall Street’s part.
Ms. Newland turned down a “coveted offer” from one firm, she said, because the culture was “toxic.”
What do you think of Ms. Newland’s statements? Let us know your thoughts in the comment box below.
Holding company stock in a 401(k) is a risky bet
May 2, 2012
(Money Magazine) — I work for a Fortune 500 company that matches my 401(k) contributions in company stock, which I can then re-allocate to other investments every quarter if I wish.
Originally posted here:
(Money Magazine) — I work for a Fortune 500 company that matches my 401(k) contributions in company stock, which I can then re-allocate to other investments every quarter if I wish. Given that I won’t retire for several decades and I think my company has great growth potential, how much of my 401(k) do you think I should have in my company’s stock? John, Minneapolis, Minn.
How do I put this? How about zero, none, nada, zilch.
Other than whatever shares of your company that might be owned by an index fund or other broadly diversified mutual fund that’s on your 401(k)’s investment menu, I don’t think you should keep a dime of your 401(k) in your employer’s stock, regardless of how spectacular you may think the company’s growth prospects are.
Why do I take this hard line? One reason is common sense. You’ve already got a lot of your financial security riding on your employer in the form of your paycheck. Investing in your employer’s stock only compounds the problems you might face if your company runs into trouble.
Investment analysts have long known that people who concentrate their portfolio in an employer’s stock — or shares of any single company for that matter — don’t earn high enough returns to compensate them for the extra risk they take on by holding an inadequately diversified portfolio.
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Economist Lisa Meulbroek notes in “Company Stock In Pension Plans: How Costly Is It?” that “even employees who work for relatively safe ‘blue chip’ firms are significantly worse off by concentrating their wealth in company stock.”
There are plenty of examples that illustrate the perils of loading up on company stock. The most famous is Enron, the energy firm that was the darling of the investment community until it collapsed in 2001, taking the 401(k) plans of thousands of employees down with it.
More recent high-profile corporate implosions, like that of Bear Stearns and Lehman Bros., also serve as warnings of why it’s dangerous to have much of your wealth invested in your employer’s shares.
And your company doesn’t have to actually go belly up for you to get hurt, a fact I know only too well from personal experience. Even though I never voluntarily put a cent of my 401(k) dough in my employer’s stock, I acquired a decent size stake of Time Warner shares over the years via matching contributions that I wasn’t permitted to move. After the combination of the late ’90s stock frenzy and the AOL Time Warner merger in 2000 sent the price of my company shares into the stratosphere, I found myself with a 401(k) that had roughly half of its value in employer stock I was locked into.
Unfortunately, as investors began to recognize just how disastrous this merger was shaping up to be, the price of my company shares began to plummet. Only when the stock neared the bottom of its more than 80% slide were plan participants given the option of moving out of our company shares. By then, the damage had already been done, in my case a loss of several hundred thousand bucks that’s taken roughly a decade to recoup. Thankfully, the 2006 Pension Protection Act has since ushered in new rules that make it much easier for 401(k) participants to diversify out of company stock.
However, there is one scenario in which holding onto company shares in a 401(k) could make sense. If someone is closing in on retirement and has a big slug of employer stock that’s been acquired at very low prices over the years, that person may qualify for a tax break known as “net unrealized appreciation,” or NUA, by taking possession of the actual company shares rather than rolling them over into an IRA.
I want to emphasize I’m not suggesting anyone invest in company shares during their career to take advantage of this strategy. But if someone has already acquired a large amount of company shares with a low cost basis and is nearing retirement, then NUA is a move worth considering.
Even then, it’s important to remember that this strategy has potential downsides even beyond the risk of having so much of one’s wealth tied to a single stock.
Bottom line: I recommend you transfer out of company shares as soon as you’re legally permitted to do so and spread the money proportionally among the other investment options you’ve chosen.
If you’re so tempted by the growth potential of your employer’s stock that you simply can’t resist taking a flier on it, then at least minimize the potential damage by keeping your overall exposure to company stock, including your 401(k), stock options, stock grants, etc., to no more than 10% of your wealth.
Saving and investing for retirement is tough enough. Don’t make it harder by engaging in a strategy that increases risk without a commensurate boost in return.
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First Published: May 2, 2012: 11:09 AM ET
