Ben Walsh | Analysis & Opinion

from Counterparties:

Ben Walsh

Apr 29, 2014 21:45 UTC

Financial institution of America has actually joined Citi in the suspicious group of bankings whichhave actually fallen short the Fed's tension examination twice. The Federal Reserve announced theother day that the financial institution would certainly have to resubmit its funding strategy as aresult of improperly stated information.

While BofA made a bookkeeping mistake, and an instead outright one, the Fed also fell short to spotthe mistake the very first time around. Ben White estimates an unnamed elderly financial institutionexecutive doing blame jujitsu: "Easy at fault BofA here but seems like some of the blame visits thenontransparent design and application of stress screening by the Fed".

Last month, the Fed approved Banking of America's plan for a $4 billion share buyback and a $1.5billion dividend rise. Now, after BofA discovered troubles in its resources calculations, it is haltingthose plans as well as will certainly submit a brand-new plan to the Fed. The bank's mistake was indetermining the worth of a collection of organized notes provided by Merrill Lynch in 2009. TheWSJ's Michael Rapoport describes the rule that faltered BofA, called the "reasonable value choice":

The concern goes back to the 2007 bookkeeping rule that granted financial institutions a"reasonable worth choice" - the chance to value a few of their financial obligation at market price, orthe finest approximation of it, instead of at their original price.

When making the computation to obtain from its funding under accounting regulations to itsregulative resources, BofA removed out "latent" modifications on those structured notes - i.e., thepaper acquires as well as losses on notes it still held. Yet the financial institution also removed out"recognized" losses on organized notes that had grown or been redeemed - as well as it had not beenintended to do so.

from Counterparties:

Ben Walsh

Apr 21, 2014 22:11 UTC

Five months earlier, Square was speaking with Goldman Sachs and Morgan Stanley concerning a2014 IPO. Now the settlements firm is trying to offer itself before it runs out of cash. The WSJreports that Google discussed acquiring the business, whose card viewers connects straight intocellphones. Google's interest in getting Square was reported earlier this month by Jessica Lessin.Apple and also PayPal are additionally possible acquirers, according the WSJ and also verified byForbes.

Square issued a narrowly-worded denial, mentioning to Mashable, "we are not, neither have we everbeen in purchase talks with Google ... we have actually never seriously taken into consideration

marketing to any individual or been in any type of talks to doing this". TechCrunch provides a feelingfor the hairsplitting taking place here, verifying that while Square met with Google, "none of themeetings the repayments firm had with Google totaled up to real purchase talks, we're mentioned to,just 'a two min satisfy as well as welcome'".

Jason Del Rey recaps the entertaining state of affairs: "The most-asked question, of program, iswhether Square is available or otherwise. Which answer relies on what you mean by available forsale". Del Rey states the response is yes, if the rate is $8 billion or even more. (It was most latelyvalued at $5 billion.)

from Counterparties:

Ben Walsh

Apr 17, 2014 21:43 UTC

Really want to register for the Counterparties email? Visit this site.

In January, fifteen months after he joined Yahoo, primary running policeman Henrique de Castrowas terminated. SEC filings show that the firm paid him $58 million to go out the door, or around$130,000 each day of service, weekend breaks consisted of.

In a step extremely unlikely to mollify critics, Yahoo's declaring revealed that had the business'sstock not risen considering that de Castro signed up with the business, he would certainly haveexited with a simple $17 million. Bloomberg Businessweek's Joshua Brustein says that de Castro"obtained discharged at the excellent time". The firm's shares rose greater than 2 and also a halftimes while he existed. All that increase is attributable to the surge in the worth of Yahoo's risk inAlibaba.

Golden parachutes anger even Vladimir Putin's business administration sensations. Fortunately isthat, regardless of de Castro's payment and former Time Warner Wire CEO Robert Marcus' $80million parachute, severance plans are on the decrease, a minimum of by one action. Ton of money'sClaire Zillman reports that a Thomson Reuters Journal of Compensation and also Benefits researchstudy located that from 2007 to 2011, the number of randomly selected S&P 500 firms that paidthree times income in severance fell from 58 % to 38 %. The number of business paying two timessalary as severance rose from 9 % to 20 % over the same time period.

from Counterparties:

Ben Walsh

Apr 17, 2014 16:00 UTC

Goldman Sachs released its first-quarter earnings this early morning. Reuters' Lauren LaCaprastates that earnings was down 11 % compared with in 2013 and also earnings from set income,currency, and also assets (FICC) was down 11 % as compared to last year. LaCapra writes that"since 2009 - when markets prospered briefly in the aftermath of the monetary situation," Goldman'sFICC business has been decreasing gradually as a section of its overall earnings.

Quartz's Mark DeCambre graphes the post-crisis decrease in FICC's contribution to Goldman's totalprofits. In the initial quarter of 2014, FICC accounted for $2.85 billion, or 30 %, of Goldman's $9.33

billion in total income.

Taking care of FICC's efficiency on today's earnings telephone call, CFO Harvey Schwartz claimed,"we don't check out it on a quarter by quarter basis. We look at it on a multi-quarter basis." Variouscompanies within the unit will certainly be up some quarters and others will certainly be down, so,Schwartz said, "if you are visiting be in these businesses, you truly need variation."

from Counterparties:

Apr 16, 2014 21:11 UTC

Wish to register for the Counterparties email? Click on this link.

Your rental fee really is also damn high.

Kim-Mai Cutler has a long, in-depth explainer on San Francisco's actual estate dilemmainTechCrunch. To start with, she states, there's just not nearly enough supply: "San Francisco has anabout 35 % homeownership rate. Then 172,000 units of the city's 376,940 real estate apartments areunder rental fee command", a number equivalent to a remarkable 75 % of the city's rental units.That does not leave a lot for the rental market. As an outcome, any rental fees which can increase,will certainly rise. (Marc Andreessen keeps in mind that technology has been increasing prices inthe location for a minimum of 30 years, as well as populace boom cycles have actually belonged tothe city's past since the Gold Rush.)

Technology business keep creating jobs in San Francisco and Silicon Valley without constructing alot more housing to suit the additional employees. As computer system programmers flood in to thealreadying existing housing stock, the functioning class is pressed out totally. A big component ofthis issue, claims Ryan Avent, is San Francisco's restrictive zoning demands. The city's longtimeresidents are excellent at keeping new construction out of their backyard. "Nevertheless altruisticthey perceive their mission to be, the outcome resembles exactly what you 'd acquire if fatty tissuefeline manufacturers lobbied the federal government to drive their competition out of business", hecomposes.

While the technology sector (as well as San Francisco's zoning regulations) worsen the scenario inThe golden state, it's actually component of a better trend in city housing price. Urban populationsaround the country, Cutler directs out, have actually been increasing considering that the 80's. Aguide from the real estate website Zillow located that "across the country, renters are investingmore of their earnings on lease compared to they contend any type of factor in the previous 30years", especially in metropolitan centers. In quite a couple of cities, the typical individual has firedpast the typically approved 30 % of income on rental fee guideline, and is now paying nearly 40 % ofexactly what they make on housing.

from Counterparties:

Ben Walsh

Apr 11, 2014 21:45 UTC

Something troubling is occurring in the stock exchange. Not only are markets are down - the Nasdaqand also the S&P 500 are down 3.1 % and 2.6 %, specifically, this week - yet no person hasdeveloped a convenient, convincing (and also deceptive) reason. Don't bother, says Matthew Klein,that United States stocks are up 30 % because the beginning of 2013. We have to recognize whythey are down this week, as Barry Ritholz composes, since we long for suggesting in an arbitraryworld.

Probably it's all tech stocks' fault. They have, FT Alphaville's Dan McCrum drolly commented,"become a little much more decently priced". The Nasdaq is down 7 % in the last month. Over theprevious two and also a half months, Twitter, Facebook, Amazon, and also Netflix are down 31 %, 7%, 21 %, and 16 %, respectively.

Perhaps biotech stocks are the offender. They are down 4.5 % in the recently, as well as 16.8 % inthe last month. But even analysts, folks paid to draw verdicts from nearly anything, aren't sure:"Biotech Stocks' Beating Perplexes Analysts", the WSJ stated on Thursday. The write-up discussesthe problem: biotech specialists, which understand a whole lot concerning specific firms, are bullish,while generalist investors, which believe 36 times revenues is stressing, are bearish. But merely aday previously, on Wednesday, tech shares were 'leading' stocks greater, as "biotech stocks drew in

customers trying to find bargains".

from Counterparties:

Ben Walsh

Apr 9, 2014 21:59 UTC

Would like to enroll in the Counterparties email? Click below.

United States banks need $95 billion additional capital by 2018. A brand-new government regulationwill certainly increase the leverage proportion - a financial institution's funding versus its overallpossessions - to a minimum of 5 %, while all FDIC-insured bankings will see their proportion surgeto 6 %.

When the policy works, the US will have a greater resources requirement compared totheinternational Basel III arrangement's 3 %. Dealbook's Peter Eavis claims the take advantage ofratio is a "much more straightforward device that will be tougher to evade as well as lesscomplicated to enforce compared to numerous of the brand-new rules covering the sprawling,intricate businesses of banking". The FEET's Gina Chon as well as Tom Braithwaite explain that therule "does not enable banks to use their own versions" (coughing, risk-weighted rules, coughing).

Matt Levine digs right into the technique for determining take advantage of proportion and alsolocates it's in fact more compared to merely funding divided by complete possessions. However hethinks that's a good point, since lenders ought to be continually challenged as well as terrified by theinchoate, contingent companies they are attempting to take care of.

from Counterparties:

Ben Walsh

Apr 7, 2014 21:40 UTC

Intend to sign up for the Counterparties email? Go here.

The bond markets ultimately have something nice to say concerning Greece and also Spain. Or aminimum of Greece as well as Spain are gaining the perk of ECB head of state Mario Draghi'scurrent remarks. Last week, Greek bond yields fell to pre-bailout degrees, and the Spanishgovernment marketed $7 billion of financial obligation at the most affordable rates given that thecrisis-- lower, in nominal terms, than the US federal government is paying to provide Treasury notes.

After keeping prices unchanged last week, Draghi informed journalism that the central bank"discussed lower rates of interest, we talked regarding a lower deposit facility price, we spokeregarding lengthening the fixed-rate complete allocation, we discussed QE". The main banking isfighting dropping rising cost of living across the region, as well as deflation has actually already hit aminimum of 5 eurozone countries.

Bloomberg View's Mark Gilbert tries to make sense of the truth that "Spain, where more comparedto a quarter of the nation is out of work, is paying much less compared to the world's greatesteconomic climate, which also occurs to have the global reserve currency of option as well as thedeepest and also most liquid bond market anywhere". The only explanation he believes makes good

sense is that the "bond market is telling us that it thinks quantitative easing is coming to the euroregion".

from Counterparties:

Ben Walsh

Apr 4, 2014 21:27 UTC

Wish to enroll in the Counterparties email? Click here. Climate adjustment, the latest UN reportdiscovers, is really bad already - and it's becoming worse.

The NYT condenses the study's gloomy lookings for: ice caps and also sea ice are thawing; droughts,heatwaves, as well as massive rainstorms are intensifying; the ocean is acidifying; "fish andnumerous various other animals are shifting towards the poles or in many cases going vanished".The Economic expert claims environment adjustment could no more be considereded as a stand-alone risk. As an alternative, it is currently interacting with social, political, and also economicdangers. All meanings that, Philip Bump creates, "a lot more violence, much less food".

The record - which examines the state of environment study - places an enhanced concentrate on thedemand for "durability and adaptation to unavoidable climate change", claims Fred Pearce.Nonetheless, the last 48-page summary of the guide omitted, because of objections from the US aswell as other abundant nations, a World Bank quote that establishing nations need $100 billion ayear to manage environment modification's results. The quote was consisted of simply in the seldomreviewed text of the complete, 2,500-page record.

No person - neither federal governments neither markets - is doing a good task putting anaccurateprice on carbon. The Environmental Protection Fund, National Resources ProtectionCouncil, as well as the Institute for Plan Researches produced a record criticizing the US federalgovernment's $37 a tonne estimate of the expenses of carbon as also reduced. The largest carbonmarket in the world, the EU Exhaust Trading Scheme, costs a tonne of carbon at between EUR6 toEUR7, however Ken Arrow and his co-authors say that the cost of of a tonne of carbon can be ashigh $64:

from Counterparties:

Ben Walsh

Apr 3, 2014 21:57 UTC

Intend to register for the Counterparties email? Visit this site.

Fed governor Jeremy Stein, the main bank's resident bubble police officer, is resigning efficient May28. He will go back to Harvard's economics department, which he left in 2012.

The NYT's Binyamin Appelbaum writes that Stein "assisted to provide an intellectual rationale forthe careful progression of the Fed's stimulation campaign"; he has also talked with accuracy onending the problem of too-big-fail banks as well as suggested that exactly how crowdfunding wouldbe routed to area financial investment.

Despite below-target inflation and also as well as high joblessness, Stein has concentrated on

concerns that quantitative easing will advertise extreme risk-taking, possibly creating bubbles, aswell as leading to another financial situation.