Credit Suisse bankers might not love their employer, but Main Street might. The company has segregated some 800 derivatives risk items to securitize a bond paying 5% to 6.5% to its bankers, in lieu of cash compensation, for at least four years and for as long as nine years. With the U.S. 10-year treasury sitting around 2%, this doesn’t seem like such a bad deal for the bankers. First, the optics: Those Wall Street bankers are finally taking on some responsibility for what they create. Main Street hasn’t had too much to celebrate lately, but can this mean that Wall … Continue Reading →

I use the term “legisgulator” as proxy for “legislator and regulator,” but also perhaps because it has a nice guttural ring to it. Legisgulators are modern-day emperors unable to appreciate their nakedness, or, in other words, unable to see that their well-meaning rule-making is, to put it bluntly, worthless. Legisgulators on both sides of the Atlantic are busy dotting the i’s and crossing the t’s on derivatives regulations, oblivious to a vortex of collapsing capital markets headed their (our) way. This crowd firmly believes in creating its own climate, and this has historically resulted in success — just not today. Maybe legisgulators … Continue Reading →

A customer arbitration case involving Merrill Lynch (see this Forbes blog post)  highlights an important risk inherent in the traditional wirehouse model; the ability for financial advisors to run their own sales process and design their own investment products while using the wirehouse’s brand name to legitimize their practices. The risk presented by these portfolio-manufacturer types is that they are motivated to sell their own hand-crafted model of securities rather than other solutions that may be a better fit for their clients’ financial situation. Fortunately, these financial advisors seem to represent a minority of the wirehouse financial advisor population. Based on … Continue Reading →

The Federal Reserve Bank (FRB) has finally and reluctantly released compliance rules for the Durbin Amendment. It would be difficult to declare anyone a winner in this long-protracted battle; merchants want to eliminate interchange, banks cling on to the old ways of making money, and the once-revered Visa and MasterCard have been stripped of many of their powers. Gone are exclusivity and transaction-routing dominance.  Visa and MasterCard are left with shrinking margins on core transaction volume. Worst off is the consumer. Merchant cost savings will be kept by the merchants, banks will increase the cost of checking relationships, and the … Continue Reading →

In the U.K. and Ireland, the reputation of international financial reporting standards (IFRS) for bank loans continues to tarnish. IFRS have been subject to criticism from U.K. Parliamentary committee and institutional investors alike — one institutional fund manager said about IFRS, “reporting the train crash has taken place, but providing no warning that there might be a train crash.” Now, the Central Bank of Ireland wants Irish banks to revert to the former accounting convention of generally accepted accounting principles (GAAP) so that the full extent of bad loans and their impact on banks’ capital base may be disclosed. The … Continue Reading →

The U.K. Independent Banking Commission (“the Commission”) has published its Interim Report, which sets out its current and provisional views on possible reform to improve stability and competition in U.K. banking. The Commission seeks responses to its recommendations before it publishes its final report in September 2011. It believes that multifaceted approach — helping banks better absorb losses, making it easier and less costly to sort out banks that get into trouble, and curbing incentives for excessive risk-taking — is necessary to make the banking system safer, and that banks must have greater loss-absorbing capacity and/or simpler structures. In summary, … Continue Reading →

As we enter the new year, it’s customary to reflect on the previous year and anticipate the year ahead. It’s also when everyone rolls out their top 10 and 15 lists for their areas of coverage. Though a bit cliché, this is a useful way to pause, reflect, and prioritize time and resources for the year to come. 2010 was a banner year for regulation in the financial services industry, and 2011 promises more of the same. By one count, the Dodd-Frank Act alone requires that regulators formulate more than 243 rules to implement it. With that as a backdrop, … Continue Reading →