Morgan Stanley Cuts 1,000 As Mortgages Diminish
Morgan Stanley is eliminating 1,000 jobs as it scales back its residential mortgage operations in the U.S. and closes operations in the U.K. More than 100 other mortgage lenders have cut jobs in the last year, as the housing crisis continues to worsen in what some analysts are likening to a massive car pileup.
The New York financial giant will continue serving mortgages in the U.S. through the Saxon Mortgage Services Inc. platform, while its Morgan Stanley Credit Corp. will continue to offer residential mortgages to brokerage clients.
Zurich, Switzerland-based UBS AG also confirmed a fourth-quarter net loss of $11.23 billion, due to heavy losses on mortgage securities in the U.S. The bank also posted its first net loss in 10 years.
UBS currently has $27.59 billion in securities linked to subprime mortgages, down from $38.77 billion in September, according to The Wall Street Journal. Several top executives have been let go, including Chief Executive Officer Peter Wuffli, Chief Financial Officer Clive Standish and Huw Jenkins, head of investment banking.
Sources on Wall Street say that Ambach has hired Gartner Group to reengineer its operations, starting with its IT group. Meanwhile, Warren Buffett is moving large positions into reinsurance and out of collateralized debt obligations, to the surprise of some of those in the credit rating business.
Fidelity Brokerage Assets At Record $1.99 Trillion
Fidelity Investments' brokerage client assets reached a record $1.99 trillion in the fourth quarter, a 17% increase from a year ago.
Fidelity attributes the growth to market activity and increased net flows across all three brokerage units: Fidelity Retail Brokerage, Fidelity Institutional Wealth Services and National Financial.
The average daily commissionable trades rose 30% over the previous year to set a record of 408,803.
Net new client assets grew 32% to $58.5 billion, and total client accounts rose 5% to 18 million.
The firm saw growth across all of its brokerage firms over the course of the year, with net new client assets up 22% to $201.1 billion. The Institutional Advisor business added $96.5 billion, up 129%.
Yikes! Wachovia Knew Of Thefts in 2005
High-ranking Wachovia bank executives knew about fraudulent and deceptive practices by one of its telemarketing firms, but continued to provide services to them anyway, The New York Times writes.
In contrast to denials by bank executives last spring, internal Wachovia e-mail and other documents show that Wachovia was alerted by other banks and federal agencies about deceptive practices, but the bank continued to provide services to multiple companies that collectively stole as much as $400 million from clients.
"YIKES!!!!" wrote one Wachovia executive in 2005, in a warning to colleagues that an account used by telemarketers had drawn 4,500 complaints in two months. "DOUBLE YIKES!!!!" the executive added. "There is more, but nothing more that I want to put into a note."
Wachovia continued to process fraudulent transactions for that account, partly because the bank charges fraud artists a large fee every time a victim spotted a bogus transaction and demanded their money back. One company paid Wachovia about $1.5 million over 11 months, according to investigators.
Main Street Investors Next In Line for Cascading Fixed Income Debacle?
Investors holding municipal bonds directly or through mutual funds could see their returns diminished by ratings agencies' recent downgrades of troubled bond insurers, according to a report to be presented to Congress.
"For someone intending to sell the municipal bonds before maturity, the downgrade cuts the value of the bond," said the Congressional Research Service report, sent to lawmakers last week. "How much of a loss in value would depend on how low the insurer was downgraded and the rating on the underlying bond."
Some lawmakers already are concerned and a House subcommittee has a hearing scheduled on the state of the bond insurance industry.
"The written responses of financial regulators to recent inquiries I made about the problems affecting the bond insurance industry and the shortcomings of its current regulatory regime have convinced me of the real need to reform the oversight of this important sector of our financial system," said Rep. Paul E. Kanjorski, D-Pa., chairman of the Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises.
The Congressional Research Service report said that with the potential losses so high, financial institutions would be acting in their own "self-interest" to help the insurers "retain their AAA ratings with or without direct government intervention."
It continued: "Unless a single, very well capitalized individual or firm becomes convinced that buying out a large bond insurer made business sense, the odds of a purely private rescue seem small."
Door to the Credit Crunch Whacks Student Loans
The credit calamity is crunching another corner of the market: securities tied to student loans, according to The Wall Street Journal.
Auctions of these securities, bundled long-term student loans, have failed to generate interest by money-market investors.
The failure of these auctions is a further sign of extreme market stress, The Journal said. SLM Corp., Educational Funding of the South, College Loan Corp. and Brazos Higher Education Service Corp. have all had auctions fail recently.
Their lending programs are financed in part by pooling together loans and using them as collateral for these securities, but the securities have interest rates that reset in auctions ever few weeks, similar to adjustable-rate mortgages.
A failed auction means that dealers can't find anyone interested when the debt comes up for investors to bid on. The banks aren't required to buy the debt themselves, and instead opt to stay on the sidelines when the auction fails.
Portfolio Specialists To Trump Bigger Shops
Specialist fund groups and niche advisors will trump larger asset managers and consultants in the institutional marketplace of the future, according to the Financial Times.
Investors are expected to turn to boutique managers and absolute-return type products in the search for profits, according to a survey of 485 asset managers, institutional funds and other service practitioners conducted by Watson Wyatt.
"Alpha had a difficult year in 2007, and for most funds there are question marks about its sustainability," said Roger Urwin, global head of investment consulting at Watson Wyatt. "But a typical pension fund wants a return of around 7% or 8%, and alpha will play a significant part in achieving this."
Along with alpha, 58% of respondents said investors will demand greater product transparency and a slowdown of high fund fees.
Standard & Poor's Readies Brand-New Ratings System, Ombudsman Czar
Standard & Poor's is planning to take 27 new steps to improve consumer confidence in credit ratings.
The unit of McGraw-Hill said it will appoint an ombudsman to examine potential conflicts of interest among analysts, and an outside firm will review compliance and governance processes.
Critics have said that rating agencies like S&P, Moody's Investors Service and Fitch Ratings assigned high ratings to hundreds of billions of dollars in securities linked to low-quality debt, only to rapidly downgrade those same securities when the market dropped.
S&P said it will place new emphasis on factors such as liquidity, volatility and other "what if" scenarios of market disruptions.
"The actions we are taking will serve the public interest by building greater confidence in credit ratings and supporting the efficient operation of the global credit markets, and minimize even the potential for perceived conflicts of interest," said S&P President Deven Sharma.
Hedge Funds Show Poor Performance in December
Investors dramatically cut the amount of new money they put into hedge funds. Investors put $2.3 billion into hedge funds in December, a sharp drop from $21.8 billion in November, according to Trim Tabs and Barclay Hedge.
"Flows tend to follow performance, and hedge funds are no exception," said TrimTabs Chief Executive Officer Charles Biderman. "In November, hedge funds lost 1.7%, which was their worst performance since September 2001. In December, the inflow into hedge funds was the lowest in two years."
Funds that specialize in emerging markets attracted the most money, with $4.4 billion in December, and generated returns of 24% for the year.
The least popular group was merger arbitrage, losing an estimated $2.7 billion, or 7.7% of assets.
Overall, hedge funds brought in $257 billion in 2007, compared with $187 billion collected by stock mutual funds. The most popular categories in 2007 were multi-strategy ($56.8 billion) and emerging markets ($41.7 billion). Equity long/short funds lost $700 million worth of investments.
Scotia Securities Debuts Climate Change Fund
Scotia Bank has launched the Scotia Global Climate Change Fund, in Canada, designed for investors who are looking for exposure to environmentally responsible companies, without compromising on returns.
The Scotia Global Climate Change Fund is advised by State Street Global Advisors'environmental, social and governance investment team led by Bill Page.
The fund's investment strategy is claimed to be long-term and designed to benefit those companies adopting technological and environmental practices that mitigate and address the implications of climate change.
The fund diversifies across nine climate themes that cover 10 economic sectors thereby enabling the fund to capitalize on a broad scope of opportunities while reducing the risk associated with investments in only one or two of these areas.
Glen Gowland, managing director and head of Scotia Mutual Funds and president & CEO of SSI, said: "Global climate change is a reality that has the potential to impact the way we live, the companies where we work and the way in which we invest our money."
DTCC Plans to Automate Syndicated Loan Processing
The Depository Trust & Clearing Corp. will launch Loan/SERV, a new and evolving suite of services to help automate and streamline the processing of syndicated commercial loans. Syndicated loans are complex structures involving multiple lenders for each borrower, with an agent bank acting as the liaison, transmitting information back and forth between parties. The primary loan transactions can be made in multiple currencies, may include a combination of term and revolving loans, and are routinely traded in the secondary market. The syndicated loan market continues to grow in both complexity and volume. According to industry estimates, global syndicated lending reached $4.5 trillion in 2007, up 13.4% from 2006 and a 32% increase over 2005. "Today, the loan process is essentially manual and information is faxed among market participants," said Christopher Childs, VP and manager for syndicated loans.
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