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Robert Reich’s Take on JPMorgan and Goldman Sachs

Late last year JPMorgan was the recipient of $25 billion in bailout loans through the government’s Troubled Asset Relief Program. But today is a different story, as JPMorgan performed well beyond analysts’ expectations with an impressive second quarter. The second quarter earnings increased by 36% over the first quarter of this year to $2.7 billion. With that performance, JPMorgan has joined Goldman Sachs as a top investment bank that went from bailout to produce huge earnings.

Goldman Sachs, which also received government help, emerged from the pile by earning $3.44 billion in the second quarter. Both firms are now set to be the top firms on Wall Street. The high earnings in comparison to the other investment banks, which have struggled to overcome the damage of the global financial crisis, allows them to outspend their competition. They can now use the profits to buy top talent from the other investment banks and further accumulate profits by charging clients higher fees along with other advantages that come from being the biggest on the Street.

Robert Reich, a Professor of Public Policy at UC Berkley is critical of the top-performing firms and sees a greater role for the government in overseeing the powerful banks. He believes that antitrust enforcers should be charging the banks a hefty insurace fee in exchange for marking them “too big to fail” giving them the assurance that they will be bailed out if risky choices don’t pan out. Professor Reich argues that even though both banks have repaid their federal loans the governement should not allow the banks to influence the debate over financial regulations–especially in regards to derivatives trading. He prescribes the following:

Antitrust law was designed to prevent just this sort of market power and political heft. The Justice Department or the Federal Trade Commission should investigate the new-found dominance of Goldman and JP — and, if warranted, break them up. Alternatively, Congress should impose a surtax on the newly-exclusive group of Wall Street firms, most notably Goldman and JPMorgan, which are now backed by implicit government bailout insurance guaranteeing that, should they get into trouble, taxpayers will keep them afloat. The surtax would approximate the economic benefit to these firms of such government largesse, which I’d estimate to be at least 50 percent of their profits from here on.

Read the whole article

Tags: Robert Reich JPMorgan and Goldman Sachs, Robert Reich marketplace, investment banks, prime brokerage, JPMorgan and Goldman Sachs, Goldman profits, prime brokers bailout

Robert Reich | JPMorgan and Goldman Sachs

Late last year JPMorgan was the recipient of $25 billion in bailout loans through the government’s Troubled Asset Relief Program. But today is a different story, as JPMorgan performed well beyond analysts’ expectations with an impressive second quarter. The second quarter earnings increased by 36% over the first quarter of this year to $2.7 billion. With that performance, JPMorgan has joined Goldman Sachs as a top investment bank that went from bailout to produce huge earnings.

Goldman Sachs, which also received government help, emerged from the pile by earning $3.44 billion in the second quarter. Both firms are now set to be the top firms on Wall Street. The high earnings in comparison to the other investment banks, which have struggled to overcome the damage of the global financial crisis, allows them to outspend their competition. They can now use the profits to buy top talent from the other investment banks and further accumulate profits by charging clients higher fees along with other advantages that come from being the biggest on the Street.

Robert Reich, a Professor of Public Policy at UC Berkley is critical of the top-performing firms and sees a greater role for the government in overseeing the powerful banks. He believes that antitrust enforcers should be charging the banks a hefty insurace fee in exchange for marking them “too big to fail” giving them the assurance that they will be bailed out if risky choices don’t pan out. Professor Reich argues that even though both banks have repaid their federal loans the governement should not allow the banks to influence the debate over financial regulations–especially in regards to derivatives trading. He prescribes the following:

Antitrust law was designed to prevent just this sort of market power and political heft. The Justice Department or the Federal Trade Commission should investigate the new-found dominance of Goldman and JP — and, if warranted, break them up. Alternatively, Congress should impose a surtax on the newly-exclusive group of Wall Street firms, most notably Goldman and JPMorgan, which are now backed by implicit government bailout insurance guaranteeing that, should they get into trouble, taxpayers will keep them afloat. The surtax would approximate the economic benefit to these firms of such government largesse, which I’d estimate to be at least 50 percent of their profits from here on.

Read the whole article

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Below is are a few excerpts from a recent article by IDD on the revolution of the prime brokerage business.

Prime brokers are an attractive bet to firms like Sequoia — which made its investment through the Sequoia Capital U.S. Growth Fund, with nearly $900 million under management — because they are an integral part of a hedge fund’s business. They provide the lending, clearing and settlement services that hedge fund managers rely on. Increasingly, however, prime brokers’ stock has risen in value as they bend with the changes hedge funds are experiencing.

In some cases prime brokers are expanding their role and realigning their business models to compensate for the decline in profits tied to the smaller pools of assets that hedge funds are managing. Just this week, for example, the industry lost another $3 billion when the Pequot Capital Management hedge fund revealed that it was winding down its funds and closing its doors in response to an investigation involving insider trading.

“Prime brokers are pulling back on capital introduction, consulting and financing. There are hedge fund clients looking for solutions, things they used to turn to that are not available anymore,” says Dailey. Prime brokers have also done away with supplying shared office space to hedge funds, a common practice in which 20 to 30 hedge funds shared quarters to save on expenses; it was begun in the ’80s at Furman Selz.” Read more…

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Below is are a few excerpts from a recent article by IDD on the revolution of the prime brokerage business.

Prime brokers are an attractive bet to firms like Sequoia — which made its investment through the Sequoia Capital U.S. Growth Fund, with nearly $900 million under management — because they are an integral part of a hedge fund’s business. They provide the lending, clearing and settlement services that hedge fund managers rely on. Increasingly, however, prime brokers’ stock has risen in value as they bend with the changes hedge funds are experiencing.

In some cases prime brokers are expanding their role and realigning their business models to compensate for the decline in profits tied to the smaller pools of assets that hedge funds are managing. Just this week, for example, the industry lost another $3 billion when the Pequot Capital Management hedge fund revealed that it was winding down its funds and closing its doors in response to an investigation involving insider trading.

“Prime brokers are pulling back on capital introduction, consulting and financing. There are hedge fund clients looking for solutions, things they used to turn to that are not available anymore,” says Dailey. Prime brokers have also done away with supplying shared office space to hedge funds, a common practice in which 20 to 30 hedge funds shared quarters to save on expenses; it was begun in the ’80s at Furman Selz.” Read more…

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Below is a note from a recent HedgeFund.net conference about the profitability of prime brokerage. While short-term there is a downtown in volume and assets on the books of many prime brokerage firms, I believe the industry is still very profitable for dozens of firms. While some groups are suffering, many are seeing huge gains in assets over the last few quarters. Here is the article quote:

Prime brokerage is dead or, in the aftermath of the collapse of Lehman Bros., at least on life support, a panel at a HedgeFund.net conference Wednesday said.

“I don’t think the prime brokerage model is dead, but it is definitely in a coma,” panelist Richard Del Bello offered. Read more…

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Tags: prime brokerage, prime broker, prime brokers, prime brokerage profits, profitability of prime brokerage industry, investment banking, investment bank

Below is a note from a recent HedgeFund.net conference about the profitability of prime brokerage. While short-term there is a downtown in volume and assets on the books of many prime brokerage firms, I believe the industry is still very profitable for dozens of firms. While some groups are suffering, many are seeing huge gains in assets over the last few quarters. Here is the article quote:

Prime brokerage is dead or, in the aftermath of the collapse of Lehman Bros., at least on life support, a panel at a HedgeFund.net conference Wednesday said.

“I don’t think the prime brokerage model is dead, but it is definitely in a coma,” panelist Richard Del Bello offered. Read more…

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The following post first appeared on PrimeBrokerageGuide.com, the #1 website on prime brokerage.

Just found a great article on the prime brokerage business and what challenges they face right now. The article suggests that there are three key issues facing prime brokers right now and provides some advice on how to face those challenges. Below is a short excerpt from this article and link to the full text.

As historic flows of hedge fund redemptions draw worldwide attention, prime brokerages face stiff competition for assets under management. Accenture believes that in order to adapt to the current downturn and position for high performance when the market rebounds, prime brokerages face three key imperatives.

1. Strengthen Core Business Capabilities
2. Build A Client Centric Organization
3. Focus on Operational Efficiency

Read more…

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The following post first appeared on PrimeBrokerageGuide.com, the #1 website on prime brokerage.

Just found a great article on the prime brokerage business and what challenges they face right now. The article suggests that there are three key issues facing prime brokers right now and provides some advice on how to face those challenges. Below is a short excerpt from this article and link to the full text.

As historic flows of hedge fund redemptions draw worldwide attention, prime brokerages face stiff competition for assets under management. Accenture believes that in order to adapt to the current downturn and position for high performance when the market rebounds, prime brokerages face three key imperatives.

1. Strengthen Core Business Capabilities
2. Build A Client Centric Organization
3. Focus on Operational Efficiency

Read more…

Learn more about Prime Brokerage.

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The following articles was initially published on PrimeBrokerageGuide.com. The number of stories coming out about prime brokerage hirings, acquisitions, and office moves has doubled over the past two years. This industry is going through some huge changes right now. Here is a recent article out on CitiGroup and Bank of America making changes to their platforms.

Citigroup (C) and Bank of America (BAC) are boosting their prime brokerage groups to take advantage of disruption in the business amid the financial crisis, according to published reports.

Prime brokerage is the business of providing trading and lending services to hedge funds. Citi has added 18 people this year to its global prime brokerage operations, The Wall Street Journal says. BofA, through its recent acquisition of Merrill Lynch, plans to hire 40 employees for its global financing business. The 800-person group includes prime brokerage and securities lending, among other businesses, the Journal says.

Goldman Sachs (GS) and Morgan Stanley (MS) have long been the leaders in prime brokerage, the article says. But others, including Citi and BofA had been looking to expand their business for several years now. source

Learn more at http://PrimeBrokerageGuide.com

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