The admission of wrongdoing by Philip Falcone, pictured left, and his hedge fund Harbinger Capital Partners, along with a five-year ban from the securities industry, is a step in the right direction for the Securities and Exchange Commission.
The deal with Mr Falcone (documented here) is the first evidence of a tougher policy on serious regulatory breaches by the SEC under Mary Jo White, its new chairman. This actually requires the offenders to admit to something when they settle and pay a fine.
The previous deal that Mr Falcone and his lawyers had struck with SEC staff – to pay a fine and accept a two-year ban while neither admitting nor denying a breach (the usual SEC formula) was thrown out by the commissioners earlier this year.
The criminal indictment of SAC Capital, the hedge fund founded and run by Steve Cohen, left, is a seminal moment on Wall Street. It is also a relief that prosecutors and the Securities and Exchange Commission have not backed down.
It looked dicey for a while, after SAC reached one of its infuriating “neither admit nor deny” civil settlements with the SEC on insider trading charges. The distinctive feature was that SAC paid $616m to settle, which a judge described as “counterintuitive and incongruous.”
How well is Wall Street doing? That depends on whether you are looking at their results as a casual observer, or a shareholder.
This is turning into one of the best earnings seasons on Wall Street since 2009, when banks made a rapid recovery from the 2008 crisis. Not only were they bailed out but supported by ultra-low interest rates and official backing for troubled assets.
There are various ways for prosecutors to put pressure on people, and one is to let them know they are being investigated – and then wait.
Steve Cohen of SAC Capital, the embattled hedge fund, is finding out how tough Preet Bharara, federal attorney for the southern district of New York, can play. Mr Bharara is taking his time in assembling a case against SAC for alleged insider trading.
After six years of scrutiny, and repeated legal action against those around him, Steve Cohen remains a free man. His $15bn hedge fund SAC Capital is still in business and he still firmly maintains his innocence, despite the evident disbelief of regulators and prosecutors. It is time to prosecute him.
My views on Jamie Dimon‘s dual roles as chairman and chief executive of JPMorgan Chase have not changed since a year ago, when I called for him to give up the chairmanship, but the stakes are much higher.
Mr Dimon faces a shareholder vote at the bank’s annual meeting next week to enforce a split of the two roles in the company bylaws. According to the Wall Street Journal, he has hinted that he might give up both jobs and leave if that passes.
Bankers were “the Praetorian guard of capitalism”, Michael Noonan, Ireland’s finance minister, said last week. Given the scarring defeat suffered by the free market’s crack troops in the financial crisis, and the curbs now applied to their pay and rations, you might expect enthusiasm to replace them in the front line to be muted.
If you’re on Twitter, you’ll know by now that Warren Buffett is – to quote his first and (at time of writing) his only tweet – “in the house“.
His appearance on the social media service is apparently linked to a Fortune forum in which the Sage of Omaha is due to participate. It has already garnered him (again, at time of writing) 40,000 followers and prompted some Twitter wit from his bridge partner, Bill Gates.
The chaos over the rescue of Cyprus – under which insured bank deposits were initially threatened but have been reprieved – has raised questions about whether depositors in other eurozone countries will feel safe.
But I wonder if the bigger long-term effect will be on offshore banking centres in general, rather than the eurozone. After all, Cyprus shows that a small financial centre that becomes overwhelmed by financial difficulties cannot stand behind a banking system several times the size of its economy.
I struggle to see any logic behind the European Parliament’s latest initiative to crack down on financial industry pay, beyond a dislike of bonuses. The idea that investment funds should be treated similarly to systemically important banks has even less merit than the original idea.
The basis on which the EU proposed to rein in bank bonuses – despite UK opposition and criticism from supervisors including Andrew Bailey, the incoming head of the Prudential Regulation Authority – was that excessive bonuses gave bankers a perverse incentive to take risks.
The article by Erin Callan, former chief financial officer of Lehman Brothers, on how she lost herself in work, is an interesting reflection not only on women on Wall Street, but also on how relentlessly many bankers work.
Ms Callan, who lost her job in 2008 “amid mounting chaos and a cloud of public humiliation only months before the company went bankrupt”, writes in the New York Times of the extreme work culture at the top of the former investment bank:
There are plenty of interesting ironies raised by the news that investment banks are charging asset managers up to $20,000 an hour for access to chief executives, often unbeknown to the executives themselves.
One is that chief executives themselves are no strangers to “cash for access”. It’s a perennial political “scandal” that big corporate donors to political parties get to rub shoulders with the prime minister or his cabinet at private parties and dinners. The last time such a hoo-ha erupted, in 2012, the FT wrote that prominent City figures were “bemused at the outrage” surrounding the affair, describing it as “a healthy part of the democratic process”. One said:
What strikes me about the findings of the UK Competition Commission’s inquiry into the audit market is that in a world of ever more rapid change, a company’s relationship with its auditor is now often the oldest fixture in the boardroom.
Think about it. The commission says 31 per cent of blue-chip FTSE 100 companies have had the same auditor – almost invariably one of the “Big Four” – for 20 years or more. During that period, on average, most companies will have changed their chief executive at least four times, their non-executive board members (assuming replacement at the nine-year mark, when they lose their independence according to UK guidelines) twice, and their computer systems probably five or six times.
If I were a mastermind seeking to undermine the City of London, I would shift Germany’s financial centre from Frankfurt to Berlin, just as the country moved its political capital from Bonn in the 1990s. Then it would be part of a cosmopolitan city where foreign bankers and lawyers might actually want to live.
As an old student of HSBC – or, as I prefer to call it, Hongkong and Shanghai Banking Corporation – I found Stuart Gulliver’s remarks about the inadequacy of its structure following the Mexico money laundering scandal fascinating.
HSBC’s chief executive told the Parliamentary Commission on Banking Standards on Wednesday:
“Our structure was not fit for purpose for a modern world. Our geographic footprint became very attractive to transnational criminal organisations, whether they are terrorist in origin or criminal in origin.”