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Breaking It Off: It has been a nice, decade-long relationship between JPMorgan Chase and Highbridge Capital Management, but the private-equity business is basically saying it's time to move on. And even JPMorgan officials agree it is time to see other people, so to speak. Reports in two major dailies said Jamie Dimon & Co. is close to finalizing a deal that would spin off the majority of Highbridge's $22 billion PE portfolio to management. It's part of the wave of shedding noncore holdings because of postcrisis regulations for big banks to derisk.
Highbridge Chief Executive Scott Kapnick has wanted the business to spin off from JPM for more than a year so he could "run it independently of a large bank," the Journal quoted sources familiar with the matter. Dimon "became receptive ... to the belief the business would be able to expand faster and act more quickly with greater independence from J.P. Morgan," the Journal story said. JPMorgan will still have a separate, in-house unit that makes PE investments, the Times points out.
Fed in Focus: Items in several papers stepped back from the daily "Will they? Won't they? When will they?" speculation about the Fed to look at the bigger picture. The Washington Post Wonkblog's deconstruction of the "mutiny of the doves" facing Fed Chair Janet Yellen is good inside baseball, but the piece intrigued Scan more for tackling two big questions the media often sidesteps: why does the Fed worry about inflation being too low? And does it really matter whether the Fed moves this year or in March, especially when the hike in question could be as low as a quarter point?
The short answer to the first question is a little inflation is a good thing for a recovery, because businesses don't have to cut costs as much (i.e., lay off employees) to maintain their efficiency and the Fed doesn't have to cut rates as much to give the economy a boost when needed. The answer to the second is, yes, the timing does matter "because a Fed that is willing to raise rates when it's not clear it should is a Fed that looks like it will raise rates more in total," prompting businesses to tighten their belts and pushing up the dollar.
A letter in the Journal accused the Fed of "mission creep" beyond its originally intended role of helping banks weather short-term crises. Today its balance sheet is 25% of GDP and "laden with Treasury securities and mortgage-backed securities, asset classes that were strongly opposed by the original Federal Reserve founders," the letter says. It ended with a pro-market call to cut the Fed down to size.
And the Financial Times' "Exchange Column" tries to poke a hole in the notion the Fed should raise rates to help Grandma and Grandpa Saver get some decent return on their money. Tighter credit could slow economic growth, reduce inflationary expectations and prompt market rates to actually fall, the column says.
SEC Revamp? President Obama's nominations of Lisa M. Fairfax, a professor at the George Washington University Law School, and Hester Peirce, a senior research fellow at George Mason University’s Mercatus Center, for seats on the Securities and Exchange Commission stirred up a lot of dust.
Peirce is a "well-known critic" of the government’s Wall Street bailout and the Dodd-Frank Act, the Post noted. She used to work for Banking Committee Chairman Richard Shelby. The Times story says the nominees would make the agency "the most diverse it has ever been" as four of the five commissioners would be women and Fairfax would be just the third African-American commissioner in the SEC's history.
Unshockingly, a Journal opinion piece about the situation grouses about the rise of the left wing's influence. It describes Fairfax as a liberal law professor and "Elizabeth Warren’s latest appointment," saying the White House got the Massachusetts senator's blessing on a list of potential candidates that included Fairfax.
Sanctions Central: Several of the papers had detailed pieces on Crédit Agricole's agreement to pay a $787 million penalty for allegedly processing transactions that violated U.S. sanctions related to Iran, Sudan, Cuba and Myanmar. Note to executives: if you run across a memo on a “Sudanese U-turn exception,” Scan recommends you flag it for the compliance department. FT, Journal and Times
Wall Street Journal
"Lawmakers Raise Alarms Over Tapping Banks to Pay for Highways" — A bipartisan group of 150 House lawmakers opposes a spending provision that would divert $1 billion of banks' dividends each year on their shares in the Federal Reserve System toward highway construction. The concern is understandable, but longtime readers of American Banker know roads legislation has played a big role in banking policy before: the language that created the Federal Home Loan Bank System was successfully inserted in a bill to widen a street in Washington, D.C., during the Depression.
"Banks Facing Tough Times Pull Out Visa...Shares" — This is a good roundup of a quarterly earnings maneuver that gets reported incrementally. Fun fact: U.S. financial institutions collectively own more than $30 billion in Visa shares, or about 17% of the company, the story says.
Fifth Third’s Profit Jumps on Fees and Commercial Growth — The story sheds more light on Fifth Third's eye-catching writedown of a commercial loan backed by student loans. The credit in question was a $500 million loan the bank gave an unspecified student lender in 2007, the story says.
New York Times
"Michael Bloomberg for President? Wall Street’s Drums Are Beating" — Scan doesn't know if Bloomberg could win, nor does he, according to the story, but the idea of a data terminal in every pot intrigues many bankers. And who could resist the bumper sticker: “He’s all the best of Trump without the worst of Trump.”
"RushCard Breakdown Affects Thousands of Prepaid Debit Card Users" — This piece has some poignant personal stories about RushCard customers whose daily lives were severely complicated by the breakdown in the popular prepaid debit card. It surely fuels more questions about the risks facing the unbanked who feel traditional financial institutions have shunned them.
"Hacks clear path for US cyber bill" — All the news about data breaches could give the business world its best chance at convincing Congress to push through cybersecurity legislation despite privacy and other worries.
Larry Summers: Canadian election proves that an anti-austerity message is a winning one: The ex-Treasury secretary has really been getting his thoughts on policy and the economy out there lately.