SEC Wants To See More Transparency from BrokerDealers Trafficking in Bonds

Posted on June 21, 2014 by admin

SEC Chair Mary Jo White is shifting her aim and gunning for increased pricing visibility and transparency from the Wall Street brokerdealers engaged in providing pricing and trade execution in the $14 trillion dollar secondary marketplace for trading corporate and municipal bonds.

According to the Scott Patterson in his WSJ weekend journal column, :

European Pressphoto Agency

“…To even the playing field, Ms. White suggested requiring public dissemination of the best buy and sell orders generated on private electronic networks for corporate and municipal bonds that are accessed primarily by market insiders.

Currently, investors typically see prices only after a trade is executed.

“This potentially transformative change would broaden access to pricing information that today is available only to select parties,” Ms. White said in a speech at the Economic Club in New York.

The effort comes amid a broader push by Ms. White to erode some of the trading advantages enjoyed by certain large traders that aren’t available to most rank-and-file investors. In a speech two weeks ago, Ms. White vowed to ratchet up oversight of computer-driven trading, a push that could ultimately dull the edge such high-speed traders enjoy.

The bond market initiatives, while still in the planning stage, could deliver a blow to big Wall Street banks that dominate bond trading, while benefiting regular investors who have largely been shut out of the inner workings of the bond market, observers said. Wall Street’s fixed-income businesses already are being buffeted by new rules on capital and risk-taking, and a drop in client trading.

Fund managers who invest in corporate and municipal debt would be among the biggest beneficiaries of the move, because they would have a better idea about how much supply and demand existed in the market for bonds they want to trade…”

For the full story from the WSJ, please click here

Finra Fixing To Levy More Fines Against BrokerDealers

Posted on June 21, 2014 by admin

BrokerDealer.com blog post courtesy of extracts from the Wall St. Journal

The Financial Industry Regulatory Authority aka Finra, the Wall Street watchdog charged with policing the brokerdealer community and overseen by the Securities and Exchange Commission (SEC), is considering tougher penalties for misconduct after criticism from an SEC official that its sanctions are too lenient.

In the five years since the financial crisis, Finra, which is funded by the industry, didn’t discipline any Wall Street executives. It imposed fines of $1 million or more 55 times through 2013, compared with 259 times for the SEC, according to a Wall Street Journal analysis. The SEC oversees a wider number of firms and range of conduct.

Susan Axelrod, Finra’s executive vice president of regulatory operations, said in an interview the watchdog would review its guidelines to make sure penalties are “meaningful and will have an impact.”

She rejected any suggestion its punishments have been insufficient, adding that Finra, as “the cop on the beat from Wall Street to Main Street,” should not be judged just on its biggest fines. “We’re going to bring the action against the individual broker in Des Moines, Iowa, that other regulators are not going to bring. That’s a key part of our mission.”

The Bad Broker-Dealers Just Banned From Brokerage Industry for Swindling Customers

Posted on June 20, 2014 by admin

FINRA is rounding up the crooks in the bank channel. The regulatory watchdog recently barred three more bank advisors from the industry, adding to the two it banished in April.

Two of the three brokers recently banned were registered with JP Morgan Securities. Kirk Eric Archibald allegedly created unauthorized bank ATM cards while employed as a personal banker and then used them to make unauthorized transactions that resulted in a loss of $19,150, according to BrokerCheck and a settlement letter that he signed with FINRA.

Michael Linfeng Zheng, the other disgraced advisor from JP Morgan Securities, allegedly took an unattended bank customer’s debit card and programmed the card’s PIN on a coworker’s computer. He then used the debit card at a nearby ATM to steal $404 from the customer’s account.

Ann Maria Ferrao was with HSBC Securities. FINRA permanently barred her from the industry for allegedly misappropriating funds from clients’ bank accounts for the benefit of other clients and for her own personal benefit, according to the settlement letter she signed.

JP Morgan, which dismissed both Archibald and Zheng, did not return a call seeking comment. And HSBC, which fired Ferrao, declined to comment. Archibald, Zheng and Ferrao could not be reached.

The regulator also suspended an advisor registered with Wayne Hummer Investments, the investments and insurance arm of Wintrust Financial Corp.’s wealth management division. Arnold Steven Janickas was suspended for two years for allegedly borrowing a total of $805,000 from a customer to buy and renovate a house. Contrary to FINRA rules and Wayne Hummer’s written policies and procedures, Janickas accepted four unsecured loans in the amounts of $550,000, $75,000, $100,000, and $80,000, without notifying or obtaining approval from the firm. He repaid $444,882, leaving a loan balance of $360,118, FINRA alleges in its settlement letter with the advisor.

Click here to read the entire story

2014 Investment Banking Trends: Is the Truth Stranger than ‘Fiction’?

Posted on June 20, 2014 by admin

Krishnan Ranganathan, in his recent article published at TabbForum.com on 18 June, 2014, remarkably delineates the trends of investment banking in 2014. He astonished the readers by comparing predictions and realities of debt capital markets, equity capital markets, mergers and acquisitions, and syndicate loans from first five months of 2014.

The future of investment banking was a hotly contested point at the beginning of the New Year. How have industry predictions fared in the first five months of 2014?

Six months ago, around the beginning of the New Year, an onslaught of publications, opinions, views and surveys (what I call “fiction” here for argument’s sake) emerged on what could be in store for banks in 2014. A highly debated area was the future of investment banking (IB), where the outlook was starkly divided. This article summarizes the key predictions from a gamut of such reports and attempts to decode the predictions vis-à-vis the results in the first five months of 2014.

IB revenue is taken as an aggregate of Debt Capital Markets (DCM), Equity Capital Markets (ECM), Syndicated Loans, and Mergers and Acquisitions (M&A).

Debt Capital Markets (DCM):

Prediction: Bond deal activity is expected to rise significantly, which would represent an all-time record year for bonds. EMEA and Asia are likely to be more bullish on bonds. Some also felt that with the Fed tightening its monetary policy, we can expect rising interest rates on corporate debt in 2014. Refinancing is likely to drive growth in debt issuance.

Reality: Fixed income (FI) continues to play second fiddle to equities, thus triggering investments out of FI. Also, issuer activity is seeing lukewarm interest due to additional Fed tapering and ascending interest rates.

Global Supranational, Sovereign, Agency (SSA) volume has shown a decrease of 16% on 2013 YTD and represent the lowest total since 2007 YTD. A mere 2,620 deals have come to market thus far in 2014, the lowest level since 2000 YTD.
Global covered bond activity in 2014 stands at its lowest level since 1996.
However, the global PIK (Payment In Kind) bond market seems to have done decent business, with the volume, $4.2bn, the highest since 2007.

Verdict: Off track.

Equity Capital Markets (ECM):

Prediction: Resurgent IPO activity is widely believed to continue, especially in the US, where companies may be expected to use share offerings to fund growth. Admittedly, some shareholders are likely to be more resistant to dilutive follow-on deals as compared to Asia or Europe. While in Asia, share prices and the regulatory environment are seen as favorable to new issuances, in Europe, there is a need for liquidity coupled with shareholders’ interest in secondary offerings. Some experts believe weak valuations and shareholder resistance may lead to recapitalizations in the form of asset sales rather than share offerings.

Reality: Based on the most recent 2014 data, ECM came back with a bang last year after successive declines and is continuing to do well, with many issuers clearing their backlog in the light of improved economic conditions.

EMEA acquisition-related ECM volume is the highest YTD volume since 2009, with the IPO volume at the highest YTD level since 2007.
EMEA Financial Sponsor (FS)-related IPO volume is the highest YTD volume on record.
US-listed first follow-on volume is at the highest level since 2000 YTD, while the US-listed Chinese issuer cross-border ECM volume has already seen 16 deals and is the highest YTD volume on record.

Verdict: Somewhat On Track

Mergers and Acquisitions (M&A):

Prediction: Large cash reserves/commitments, opportunities in emerging markets and availability of credit in favorable terms are likely to improve deal sentiments in 2014. Improved consumer confidence and booming equity markets are the proverbial icing on the cake. The most active industries driving M&A are expected to be media, telecom and technology, followed by Pharma, healthcare and life sciences. The healthcare sector sees heavy pressure to spend and match competitors despite valuations acting as an impediment (while industry regulation is less of a catalyst). Energy, Power & Commodities are likely to remain lackluster, plagued by cost-cutting and non-core asset divestitures as well as their vested interest in building cash cushion.

Reality: While 2013 saw risks attributable to macro-economic parameters holding center stage and squeeze in fees on account of lower margins for bigger deals, the first few months in 2014 have seen a good degree of deals being announced, particularly from Private Equity players and corporates hoarding substantial cash buffers.

Global $10bn+ M&A volume (with 13 deals till now, the majority in Telecom and Healthcare, and the US taking the lion’s share) has seen a 75% increase compared to the same period last year and is the highest YTD volume since the last seven years in this category.
Global hostile M&A volume is up significantly and is at the highest YTD level since 2007. Asia Pacific-targeted Financial Sponsor (FS) M&A volume, driven largely by China, is at the highest YTD level on record and is nearly twice as high as in last year.
US Outbound M&A volume, with 555 deals, has reached the highest YTD level on record.
Global Technology sector M&A volume is up 94% compared to last year and is the highest since 2000 YTD.

Verdict: On track

Syndicated Loans:

Prediction: Market observers and survey respondents believe that syndicated loan deal activity will rise significantly, leading to a best year for loans since 2007. In the US, loan growth is widely expected to outpace bond growth because of a perceived investor shift toward floating-rate assets.

Reality:

The average US-marketed syndicated loan margin is witnessing a fifth consecutive year-on-year decrease and is the lowest average margin since 2008 YTD. On the contrary, AeJ (Asia excluding Japan) G3 syndicated loan volume is at the highest YTD level since 2008.
Global second- and third-lien average loan pricing is at the lowest level since 2008 YTD. Leveraged loans account for 51% of European leveraged finance (leveraged loans and high-yield bonds) in 2014; YTD is down from a 65% share in 2013 YTD and the lowest YTD share on record.
However, volume for global amend & extend (A&E) loan facilities in 2014 YTD totals a record high and marks the fifth consecutive YTD increase in volume.

Verdict: Off track

Conclusion:

Interestingly, most of the banking surveys seem to have been off the mark by a mile (at least in the first 5 months, with only M&A bucking the trend). I would stick my neck out and bet on M&A deals (again contrary to the majority view and skewing the “verdict” hopelessly!) ranking low on numbers while high on shareholder value. The recent Pfizer-Astra Zeneca episode is a case-in-point where companies are being extremely selective whilst working with a longer list of economic and industry parameters.

British Property Website Zoopla Valued at $1.5 Billion in I.P.O

Posted on June 18, 2014 by admin

BrokerDealer.com/blog update courtesy of extracts from today’s NYT DealBook

LONDON – Zoopla Property Group, a British real estate listings website, was valued at more than $1.5 billion in its initial public offering in London on Wednesday.

The company priced its offering at 2.20 pounds a share — just below the midpoint of its initial price range of £2 to £2.50 a share — giving it a market capitalization of £918.8 million, or about $1.56 billion.

The offering came amid increasing worries about Britain’s red-hot housing market. The country’s top financial officials have warned recently of the need for new lending rules to curb the risks the frothy market poses to economic growth and falling unemployment.

Bruce Dear, head of London real estate at the law firm Eversheds, said the Zoopla I.P.O. “has been caught marginally offside by the Bank of England flagging that the housing market must be dampened. This explains their sensible ‘lower half’ pricing.

“How Zoopla must wish it had made its I.P.O. run three months ago,” Mr. Dear said.

Zoopla’s shares rose more than 5 percent in early trading on Wednesday.

Started in 2008, the website attracts more than 20 million visits a month. About 19,000 real estate agents in Britain pay a monthly subscription fee to advertise their listings on the site, generating the vast majority of Zoopla’s revenue.

In announcing its I.P.O. last month, Zoopla said it had strong market penetration levels, representing about 90 percent of residential listings from property professionals in Britain.

“Today’s announcement marks an important milestone for our business following a number of years of strong growth and having built a market-leading proposition,” Alex Chesterman, Zoopla’s founder and chief executive, said at the time.

If an over-allotment of shares is fully exercised, Zoopla expects to realize proceeds of £369.9 million, or about $627.6 million. The public float, excluding any over-allotment, represented 38.3 percent of Zoopla’s share capital.

Daily Mail and General Trust, which is the publisher of The Daily Mail newspaper and its popular website, reduced its holdings in Zoopla through the offering, retaining a 33.7 percent stake before the exercise of the additional share allotment.

The full article can be found at NYT DealBook.