Receiving Wide Coverage ...
Did the Fed Mess Up?: To put it mildly, it's been a rough few weeks for equity markets and the global economy. Slides in corporate profits, stocks, commodities and even industrial production have left some invoking the "R" word: recession. Others are kinder – merely arguing we're entering a bear market after a very extended bull run. But, as discussions of what caused the market and economic downturns stir, one common cause comes up time and again: the Fed. The Federal Reserve's choice to raise interest rates last month has played a key role in markets' downturn, according to the Wall Street Journal. Yes, the quarter-point increase was a small one, but the Journal argues the Fed operates through a complicated web of economic factors. The Fed can increase risk to push spending, but when investors aren't ready they'll pull back, one analyst told the paper. And that's just what happened with commodities and China. This has some observers, as noted by the Financial Times, arguing the Fed made a big policy error when it chose to raise rates. The FT does not claim the interest rate roll out was bumpy – indeed it went smoothly. But with global economic issues becoming more pressing so quickly, some think the expectation of four more rate hikes in 2016, dubious when first suggested, will be impossible. The FT doesn't place the blame for investor unease squarely on the Fed – the paper notes central banks worldwide have contributed to the uncertainty. But importantly, as the Fed heads into its January FOMC meeting, it has the opportunity to begin discussing how to adjust its course. And that choice could provide some much-needed stability.
Bye, Bye Bonuses: Jamie Dimon got lucky. While the JPMorgan Chase chief will receive a 35% raise, his peers at other banks won't be so lucky. Goldman Sachs said Friday it would lower CEO Lloyd Blankfein's bonus. for the first time since 2011. For 2015, he'll make $23 million -- $1 million less than the year before. And over at Morgan Stanley, chief James Gorman saw his annual pay docked $1.5 million from the year before, to $21 million. And the pay cuts didn't just happen at the top of the pyramid – overall, Goldman Sachs' pay pool was flat year-over-year, despite an 8% jump in the number of employees. And other C-suite executive at the investment bank saw $1 million to $2 million cuts in pay. But the banks may be making a smart choice in not giving their employees bonuses. As the Financial Times notes, cash bonuses have a very short-term impact, if any at all, on performance – particularly when employees consider it a given. The paper argues banks should investigate other methods of promoting better performance – citing as an example JPMorgan's new effort, called "Pencils Down," aimed at getting bankers to relax on weekends.
Wall Street Journal
A ruling by the Consumer Financial Protection Bureau against a mortgage lender has snowballed into a legal battle that questions the watchdog's enforcement authority. In 2014, an in-house judge at the CFPB ruled PHH Corp. illegally received kickbacks from mortgage insurers, with the agency's director Richard Cordray backing the decision months later by imposing a $109 million fine, well above the judge's initial punishment. Now, PHH has taken the case to an appeals court – stoking the flames of opposition that have risen up against the CFPB in the four years it has existed. One of the main gripes: Cordray can overrule judges based on new interpretations of the law with no notice. PHH argues this is the case with his interpretation of the Real Estate Settlement Procedure Act, which differed from the Department of Housing and Urban Development. If PHH wins its appeal, it could usher in not only a wave of lawsuits against the watchdog, but also radically change how it operates.
U.S. banks have begun to sever ties with clients in Mexico as regulatory pressure ramps up. U.S. regulators have long raised concerns about correspondent banking, which authorities say some drug cartels south of the border are using to launder money. But now, as there is a shift worldwide away from emerging markets as banks become wary of the risk they present, Mexican banks are beginning to feel the pain. Banks affected by the move away from Mexico include Banco Azteca, Grupo Financiero Banorte and Monex Grupe Financiero. Banco Azteca reports numerous U.S. lenders have cut ties, despite the fact that it's working to improve compliance. For many of these banks, the major issue is money transfers, since billions of U.S. dollars make their way down to Mexico. Banks need ways to exchange that currency, and their current predicament threatens it.
A brewing court case could have major implications for hiring and retention policies on Wall Street. M&A legend Joe Perella sued a group of fired employees that alleged planned to leave his firm, Perella Weinberg Partners, and create their own. One employee in question, Michael Kramer, has countersued saying he and three associates had no plans to quit and start their own firm, arguing that PWP "weaponized" their employment contracts against them to the tune of $60 million of equity. The case is likely to call into question a bastion of bank employment contracts – "gardening leave" – which pays an employee after they leave to bar them from starting in a new job with a rival. Other so-called "restrictive covenants" that could come under scrutiny include non-solicitation and non-competition clauses. If the case reaches trial, it could throw into question many employment contracts.
New York Times
There were many surprising consequences of the financial crisis, but one of the most interesting is "Wall Street chiefs who stick around." In a guest column, author and former banker William Cohan argues America's big banks have helped to usher in a new Golden Age of Wall Street in the wake of the Great Recession – with op executives holding tight to their positions, even as their European rivals have seen a revolving door. Jamie Dimon's been CEO of JPMorgan Chase for 10 years. Potential successor have left for rivals, such as Jes Staley's departure to Barclays. Despite the bank's deep bench, no imminent replacement has become clear. Over at Goldman Sachs, a lymphoma diagnosis wasn't even enough to topple longtime chief Lloyd Blankfein. And Morgan Stanley's CEO James Gorman has named a president – but that man, Colm Kelleher, is one year older and therefore all the more unlikely to unseat him. Still, Cohan does not paint this situation as a negative – indeed, he believes U.S. banks will continue to reign supreme, despite the unusually long tenure of top brass.