The Financial Landscape: Small Wins for Unions, Greece; A 'Small' Hit for JPMorgan
A roundup of news from around the world of finance:
Unionizing Gets a Boost: Labor got a piece of good news to take a bit of the sting out of Monday's massive Walmart (WMT) defeat: On Tuesday morning, the National Labor Relations Board proposed new rules to accelerate unionization elections, a process that took on average 57 days in 2008. "Unions have long complained that it takes too many weeks from when they petition for an election to when a secret-ballot election is held," explains The New York Times. Delays in the process give management "too much time to mount an aggression antiunion campaign with videos and one-on-one sessions with workers."
The Times also reports that congressional Republicans "are expected to attack the board's proposed rulemaking, saying it shows yet again that President Obama's NLRB is doing favors for organized labor" -- a curious charge to make against an agency whose purpose is to facilitate union representation and investigate unfair labor practices. Using rhetoric that more or less lays bare the adversarial view of labor taken by capital and management, Chamber of Commerce labor law policy director Michael Eastman told Bloomberg Businessweek, "We knew it was only a matter of time before the administration used the regulatory process to tilt the playing field in organized labor's favor."
The AFL-CIO, on the other hand, characterized the new regulations as "a modest step to remove roadblocks and reduce unnecessary and costly litigation" -- "good news for employers as well as employees." The NLRB's sole Republican, Brian Hayes, dissented from the proposal.
Greek Government Clears One Hurdle: Greek Prime Minister George Papandreou (pictured, above) won a critical vote of confidence in Parliament Tuesday, meaning that he can proceed with the controversial austerity measures that other euro zone members have set as preconditions for further financial support. In the short term, disaster has been averted, but it's still far from clear whether Papandreou can lead his fractious society to accept all the concessions demanded by the EU, European Central Bank and International Monetary Fund: tax increases, wage cuts and privatizations.
Before the vote, U.S. Treasury Secretary Timothy Geithner criticized his European counterparts for failing to "speak with a clearer, more unified voice on the strategy" for Greece, citing uncertainty in the virtual parliament of global investors. Sounding like a stern father addressing a wayward child, Geithner insisted there "is no reason why Europe cannot manage these problems." The EU has "a very substantial financial arsenal," he said. It's just a matter of making "it available so banks can be recapitalized where they need capital, to make sure there is a funding available to the banking system." If nothing else, Geithner's advice seems an accurate reflection of economic policy priorities under Obama.
Justice, Wall Street Style: Last year, the SEC slapped Goldman Sachs (GS) with a civil fraud suit relating to a mortgage-backed securities deal: An investment vehicle peddled by Goldman in 2007, called Abacus, had been put together by hedge fund manager John Paulson, who was in the process of massively shorting the housing market (which was then on the verge of collapse). In marketing Abacus, Goldman lied about Paulson's involvement, and certainly did not mention that the CDOs in question had been selected for the likelihood that they would fail -- that the deal was, in essence, just one part of Paulson's enormous bet against the subprime mortgage sector. (Paulson made $1 billion from Abacus.) On the day the suit was filed, Goldman said in a statement that the SEC's charges were "unfounded in law and fact." Three months later, the firm settled the suit for $550 million, a record, though it neither admitted nor denied wrongdoing.
Sponsored Links
Now JPMorgan Chase & Co (JPM) has announced its agreement to pay $153.6 million to settle SEC charges "that it misled investors about a mortgage securities transaction just as the nation's housing market was starting to plummet." As Bloomberg explains, "The company, the only major Wall Street bank to remain profitable throughout the financial crisis, didn't tell investors that hedge fund Magnetar Capital LLC helped pick assets linked to a synthetic collateralized debt obligation in 2007." Magnetar, like Paulson, was looking for subprime mortgage-backed CDOs to short.
When the Goldman case was announced, one line of defense was that the parties on the other side of the Abacus deal (i.e., a German and a Dutch bank) were "sophisticated investors" who ought to have been able to assess the risk of the investments even without disclosure of Paulson's role. The investors defrauded by JPMorganSecurities LLC (the company's brokerage unit) include Thrivent Financial, a membership organization for Lutherans based in Minneapolis; Security Benefit Corp., an insurance and retirement services company based in Topeka, Kan.; and General Motors Asset Management, which manages company pension plans.
I say "defrauded," but in fact JPMorgan "simply admitted that it 'messed up the documentation,' " according to an analyst who spoke to Bloomberg. Goldman, on the other hand -- despite the pro forma lack of acknowledgment of wrongdoing -- essentially conceded that it knew what it was doing. This despite the fact that JPMorgan reportedly worked more closely with Magnetar to select CDOs than Goldman had done with Paulson. The analyst continued, "This looks like a win for JPMorgan," and indeed, at the end of trading Tuesday, the company's stock was up 1.1%. Those looking for harsher justice -- and not holding financials stocks -- might take heart from the fact that "the KBW Bank Index (KBX) is down nearly 10%"; Goldman in particular is trading "only about 4% above the 52-week low it hit last summer when investors were nervous about the SEC's fraud charges." Paulson, meanwhile, just booked a $720 million loss for his investors by selling all his 34.7 million shares of Sino-Forest Corp. (TRE), a troubled Chinese logger. His fund is down 20% for the year; bets on the banks have also failed to pay off.
The parallel between the Goldman and JPMorgan cases was not lost on SEC enforcement chief Robert Khuzami: "It's the same general allegation of wrongdoing," he told Bloomberg Television. "The message in both cases is if you engage in this kind of wrongdoing, if you mislead investors, you're going to pay a fine."
But that's all that will happen: Khuzami all but admits that no criminal charges will be countenanced. "We look hard and long at the conduct of individuals," Khuzami insisted, "and make our decisions based on the evidence." It's strange that, in an industry notorious for lavishly compensating individuals -- on the theory that the absolute best talent must be recruited -- no particular managers should be obviously responsible for delinquent decisions.
A New Face in the GOP Race: Former Utah Gov. John Huntsman -- Obama's former ambassador to China -- announced his entry into the race for the Republican presidential nomination Tuesday, calling the American economy "totally unacceptable." According to the AP, Huntsman "also sought to stress his background as a businessman and has said jobs would be a top priority -- seemingly taking a page or two from the Mitt Romney playbook. Huntsman's business credentials, however, are somewhat thin -- a year of work in Taipei, a stint as an executive for his billionaire father's Huntsman Corporation (HUN), a global chemical concern. But least he didn't make his money restructuring companies and eliminating jobs like Romney did. Huntsman also has the advantage of relative novelty, and has taken some interesting initial positions (for instance, against an interventionist foreign policy).
And a Familiar GOP Candidate Loses More Face: Meanwhile, following the abrupt departure of 16 top campaign advisers earlier this month -- while he was on a Mediterranean cruise -- Newt Gingrich has received the resignations of two top fundraisers, described as a director and a consultant. His campaign is reportedly more than $1 million in debt -- and on the heels of the latest resignations comes news of a second thick line of credit at jeweler Tiffany & Co. (TIF)for as much as $1 million. "I will endure the challenges," Gingrich told an audience in a Beverly Hills ballroom recently. "I will carry the message of American renewal to every part of this great land. And with the help of every American who wants to change Washington, we will prevail."
Get info on stocks mentioned in this article:
