Bruce Wrobel, a prominent American investor in Africa who until recently ran Blackstone's Sithe unit, has died.» Read More
At the heart of the Volcker Rule is the distinction between proprietary trading and trades aimed at market-making or hedging risk.
The success of the rules, the final draft of which were just released on Tuesday morning, will depend on how effectively regulators fenced off banned prop trading from permitted market making and hedging.
Five federal agencies approved the rule Tuesday—some 1,419 days after President Barack Obama announced that the rule would be included in the Dodd-Frank financial reforms.
The basic structure of the rule, outlined in 71 pages of regulation and more than 900 pages of commentary from regulators, reflects the simplicity of the idea and the complexity of its implementation.
The simple part: Banks are banned from engaging in prop trading. The complex part: That ban is subject to several exemptions intended to allow banks to facilitate customer trading and hedge their own risks.
Let's focus on two that are central to the business of Wall Street: market making and hedging. There are also very complex exemptions for "covered funds" (such as hedge funds, private equity funds and other investment funds) run by banks, but those will be covered separately.
Deutsche Bank's bid to revive its American wealth management unit hasn't been entirely smooth.
The bank considered selling the business in late 2011 but cancelled the plans in 2012 as Anshu Jain and Jürgen Fitschen become co-chief executives last June. Deutsche Bank also combined the overall asset and wealth management units and put longtime executive Michele Faissola in charge last year as part of the restructuring.
This year, the Frankfurt-based bank has seen turnover of New York-based executives as U.S. capital continues to leave Deutsche Bank's mutual funds, which are branded DWS Investments.
The latest move involves DWS U.S. CEO Michael Woods, who recently departed, according to people familiar with the situation. Woods joined in 2009 as U.S. head of distribution, a business development role.
In an 892-page explanation of the so-called Volcker Rule, U.S. government regulators propose cracking down on a variety of bank hedging activities, including positions meant to offset a bank's overall risk.
They also proposed more detailed trading reports as well as CEO certification that large banks have complied with the rule's parameters.
BankUnited is defying the odds. A casualty of the financial crisis, it has emerged as the nation's top performing mid-sized bank—resurrected by a leadership team regarded among the best in the business.
The Florida-based bank, which had succumbed to bad mortgages, is thriving and growing again, earning it the best-in-class honors from Bank Director magazine.
After a huge restructuring, it's now opening locations in New York. There are five BankUnited branches in the state—with a sixth due to open in Brooklyn next week.
New York is where much of BankUnited's management team resides, including CEO John Kanas, who is credited with bringing the bank back from the brink where it stood just four years ago.
A private equity group led by Kanas and W.L. Ross & Co.—famed investor Wilbur Ross' vulture capital firm—bought BankUnited in an unprecedented move. It was the first time the FDIC gave a private equity firm the go ahead to purchase a bank.
"We thought over time this would be profitable. We put up $900 million in the spring of 2009 to buy the whole company and entered into an agreement with the FDIC which required them to absorb 95 percent of the losses. Nineteen months later we took it public," Kanas said.
Happy Tuesday. Looks like some white stuff is on the way for Wall Street, so we're just going to snuggle up with a morning six-pack.
Across the pond, meanwhile, authorities take a big swing and a miss in a business corruption trial. (Reuters)
Isolationism is cool again in America. Presidential aspirants, take notice. (Washington Post)
Mom-and-pop retail investors are zigging and big-money institutions are zagging as the market tries to figure out which way things are going after a record-busting year on Wall Street.
While the overall market mood is solidly bullish, recent fund flows show almost diametrically opposed views as to where money will be best treated.
Retail investors have been betting mostly on international rather than U.S. stocks, with a focus on small-and multi-cap funds.
Institutional investors, on the other hand, have been focusing on domestic stocks, with a tilt toward larger companies.
The sentiment of institutional versus retail is best gauged by examining dollar fund flows to exchange-traded against mutual funds. Market analysts at RBC Capital Markets believe the flows paint an interesting and complex picture.
Stephen Williamson, an economist at the St. Louis Fed, has conjured up quite a storm of controversy with his claim that quantitative easing could be deflationary.
Williamson's formulation of his point is long and not easy to follow.
But it can be simplified like this: when the Fed engages in quantitative easing it acquires securities held by investors in exchange for dollars. Investors will only accept those dollars, according to Williamson, if they believe the dollars will rise in value. Which is to say, the operation of QE seems to imply deflation.
There has been a lot of hair pulling, teeth gnashing and fulmination over this line of argument. It's bothered every sort of economist imaginable, from Keynesians like Paul Krugman to Austrians like Bob Murphy, to market monetarists like Scott Sumner. (This post by Noah Smith is a good starting place if you really want to jump down the monetary policy rabbit hole.)
A lot of the discussion, unfortunately, is not very enlightening because so little attention is paid to the operational mechanics of QE.
There's just too much digital blackboard economics going on, fighting over models and such, and not enough real world observation. (One exception to this: FT Alphaville's Izzy Kaminska post on safe asset shortages.) When you pay attention to the real world, the situation is much simpler.
QE isn't inflationary or deflationary.
Management consulting firm McKinsey & Co. believes massive sums of capital will be needed to keep up with the world's economic development—and private firms like Morgan Stanley and BlackRock are lining up to make money from the demand.
"We basically need to replace all the infrastructure stock on the face of the planet. It's an enormous amount—and then some," Robert Palter, co-head of McKinsey's global infrastructure practice, said Thursday at the Infrastructure Investor's LP Summit in New York City.
McKinsey estimates that $57 trillion of infrastructure investment is needed by 2030 to support economic growth expectations, mostly to finance roads, power and water-related projects.
Palter said the U.S. was increasingly warming to private capital to supplement government infrastructure spending, particularly at the state level. "We are at the early stages of a new market in infrastructure," he said.
At the same time, Palter warned that public-private partnerships—the kind that built new terminals at both New York City airports recently—would not be a "panacea" to funding shortfalls.
Let's say you are Lloyd Blankfein, the CEO of Goldman Sachs.
You're sitting in your office in a tower shooting up from lower Manhattan. From this floor you can literally look down on nearly every building around you. You are scraping skies they cannot reach. The only thing taller is the Freedom Tower.
On your desk, a terminal buzzes away, feeding you the prices of everything you care to know about.
So what do you want to happen next year?
Investors avidly awaiting signs that the Federal Reserve is ready to reduce its monthly stimulus may find that the news already has passed them by
Tapering, as the market calls it, easily has been the market's main concern, and in fact only worry other than sustaining the modest growth in both earnings and gross domestic product.
That worry began in May of this year when Fed Chairman Ben Bernanke first raised the prospect during a congressional hearing, and speculation over when it may start has been a major market-mover throughout.
The Fed has been creating $85 billion a month that it uses to buy Treasurys and mortgage-backed securities, expanding its balance sheet to just shy of $4 trillion, in what is known as quantitative easing, or QE. It also has kept its target funds rate near zero since the financial crisis hit in 2008.
There's reason to believe, though, that the reduction in the pace of monthly bond purchases—and that's all it will be, a reduction, not a cessation—already has been mostly priced into market action and may not have such a monumental impact as is feared.
John Carney is a senior editor for CNBC.com, covering Wall Street and finance and running the NetNet blog.
Jeff Cox is finance editor for CNBC.com.
Lawrence Delevingne is the ‘Big Money’ enterprise reporter for CNBC.com and NetNet.
Stephanie Landsman is one of the producers of CNBC's 5pm ET show "Fast Money."