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Morgan Stanley's Miss: The investment bank's third-quarter results fell far short of analyst expectations, owing to steep declines in its trading and private equity businesses. The firm warned trading won't recover soon, given macroeconomic headwinds from China, the Fed, and the commodities markets. The Washington Post notes "the effect of the trading decline on the bank’s bottom line comes despite Morgan Stanley’s efforts to insulate itself from market gyrations by focusing more on wealth management." Wall Street Journal, New York Times, Financial Times, Washington Post
The FT's "Lex," meanwhile, calls the disappointing performance a hit to the credibility of CEO James Gorman, who several years ago was seen as "a breath of fresh air" who would "rein in a culture of colossal compensation that fed excessive risk-taking." "For all of … Gorman’s efforts, the bank’s earnings remain surprisingly vulnerable to risky bond and currencies trading and, apparently, private equity," the column says. "He has somehow managed to reduce Morgan Stanley’s earnings power while, it seems, much of the volatility of those earnings remains."
To be fair, Morgan Stanley isn't the only brokerage struggling to wean itself off volatile commission-based revenues in favor of steadier asset-management fees. Merrill Lynch, nestled inside Bank of America, faces the same challenge, this analytical take in the Journal notes.
What's German for 'Oops'? On the heels of Sunday's management shakeup at Deutsche Bank, the FT reports a fat-finger error (by a junior associate, natch) caused an accidental $6 billion payment to a hedge fund client in June. The bank got its money back the next day, but the goof "raises fresh questions about its operational controls and risk management." Meanwhile, "BreakingViews" in the Times lauds the management restructuring for clearing out scandal-tainted executives and splitting up business lines for greater accountability.
Wall Street Journal
Administration officials made the rounds yesterday to clarify their commitment to kicking the can down the road with respect to Fannie and Freddie, despite what one called "the increasingly noisy chorus of advocates of recap and release." More on that in American Banker.
Bank of America's tech and ops chief Cathy Bessant has no use for innovation labs, which are all the rage among the bank's peers and industry vendors. "It’s more powerful to capture innovation from ten thousand people than to put 10 people in a lab," Bessant argues. More on that in American Banker as well.
The Journal editorial page laments the prospect of Congress resurrecting the Ex-Im Bank but holds out hope that the institution might be reformed, such as by turning it into a lender of last resort.
New York Times
"Citigroup Accused of Improperly Avoiding $800 Million in New York State Taxes" — not by the state, though. The plaintiff is an economics professor who claims Citi used its crisis bailout money to improperly reduce its state franchise taxes. The New York attorney general is staying out of it.
"Cybersecurity Firm Says Chinese Hackers Keep Attacking U.S. Companies" — Notice how the headline leads with the attribution. "According to the CrowdStrike blog post, several of the recent attacks were the responsibility of a group it calls Deep Panda," which has "hacked companies in an array of industries, including in agriculture, finance, chemicals and technology."
"Barclays Agrees to Settle Mortgage Lawsuits for $325 Million" — These are NCUA cases over sales to corporate credit unions of mortgage securities that later went kablooie.
Former Treasury Secretary Robert Rubin reviews Roger Lowenstein's new history of the Fed, "America's Bank."
U.S. News & World Report: The "information-sharing" bill in Congress will weaken cybersecurity rather than improve it, warns Andrea Castillo. "Malicious hackers will salivate at the opportunity to exfiltrate massive and sensitive data sets from … poorly secured agencies."
National Review: A thoughtful and wide-ranging essay by Kevin D. Williamson on the fetish for punishment among American pundits and policymakers touches on the "why hasn't anyone gone to jail for the financial crisis?" meme: "On the matter of high finance, the desire to punish interacts toxically with simplemindedness.…The reforms that do make a difference, such as the Fed’s decision to raise banks’ capital requirements … and other reforms that would make a difference, excite no one. Why? Because they do not feel sufficiently punitive."
BuzzFeed: Users of Russell Simmons' prepaid debit RushCard have been unable to access their funds for more than a week, due to a technology glitch.
And, Lastly …
Halloween is coming, but no trick-or-treater's costume could be half as frightful as this investor letter from Artemis Capital Management, which sprinkles references to H.P. Lovecraft and "the Sorcerer's Apprentice" (the original Goethe poem, not the Disney cartoon) amid warnings about the systemic risks of unconventional monetary policy.