Presidential candidates may talk a good game when it comes to fiscal responsibility, but the reality come January is likely to be a lot messier. » Read More
As the Puerto Rican debt crisis continues to unfold, mutual fund managers have been busy trimming their sails to reduce exposure to the commonwealth's crisis.
Over the past year, the number of funds with exposure to Puerto Rico has been pared to 29 — out of a pool of 562 municipal bond funds — from as many as 48 in June 2015, according to data from Morningstar and a study by Markov Processes International. Total dollar exposure has been cut as well, from about $9.9 billion last summer to $6.3 billion now.
The exposure issue is central to the debate now over what happens next. Island officials have been negotiating with Washington lawmakers for a bailout package, though that hasn't stopped the first wave of defaults from happening.
Puerto Rico missed a $367 million payment May 2 on its Government Development Bank notes, but municipal bond investors in general remain hopeful that there will be limited contagion.
"The majority of municipal bond mutual funds don't show exposure to Puerto Rico debt," Sean Ryan, a senior MPI research analyst, said in an interview. "It isn't really a systemic issue, which is one thing that investors should always be worried about. In this case, only a few are exposed versus the entire category."
The retreat from Puerto Rican debt positions has been strong:
Financial technology start-ups and online lenders should provide their borrowers and their investors with more transparency into how they arrive at proprietary credit scores, according to a report Tuesday from the Treasury Department.
It said that computer programs the companies use can make the process run faster and cut costs, but they also can distort credit scores and carry "the potential for fair lending violations."
"Applicants do not have the opportunity to check and correct data potentially being used in underwriting decisions," the report said.
Fintech lenders including SoFi have originated billions in online loans in part thanks to proprietary algorithms they use to grade borrowers.
The report also revealed plans for a standing working group for the lenders, through "interagency coordination," which suggests that fintech companies may face a rising tide of regulation.
When Comerica CEO Ralph Babb admitted, first on a conference call with analysts and then again at his company's annual meeting, that he'd consider making a sale of some or all of his bank, it was a big inflection point for other Wall Street banks that have been fighting off low rates and poor share performance. Finally, someone was at least thinking about cutting a deal.
Babb said on the bank's earnings call that it hired Boston Consulting Group to help it undertake "a more intense review of our expense base and revenue base."
Consider 2015 to be the year the hedge-fund industry completed the crossover to the digital age.
Computerized trading strategies helped the nearly $3 trillion industry's biggest players reap the biggest profits. Fully six of the top eight moneymakers for the year use so-called quant approaches to generate profits.
Tops among them were Ken Griffin at Citadel and James Simons at Renaissance Technologies, both of whom reeled in $1.7 billion according to the year's Institutional Investor's Alpha Rich List of the top hedge fund managers. (Get the full top 25 list and analysis here.)
Overall, it was a tough slog for the industry. Returns were middling, with the HFRI fund weighted composite index falling 1 percent, only the fourth full-year decline since 1990. Assets, however, edged higher, rising $51.7 billion to $2.97 trillion, according to HFR.
It took less to make the Rich List, with the median income at $275 million, the lowest in five years. The average stood at $517,.6 million, a slight uptick from 2014 but off 40 percent from the $846 million in 2013. To be considered for inclusion on the list, managers had to make $135 million, the lowest since 2011.
Nearly half of hedge funds lost money, according to Institutional Investor, and some familiar names on the Rich Lists of years past were missing, including John Paulson of Paulson and Co., Leon Cooperman of Omega Advisors, and Daniel Loeb at Third Point.
These industry leaders , however, did make the list, and qualified for the top 10:
Corporate America may have overplayed its hand when it comes to the earnings game.
With the first-quarter earnings season almost completely on the books, one of the biggest stories aside from the 7.1 percent decline in profits was that investors were less impressed than usual with companies that beat expectations. They have also been giving a harder time to companies that missed analyst estimates.
Taken together, the reporting season tells a story of investors both getting savvier about the collective lowering of the earnings bar, and growing more leery of market valuations.
"Companies have been very negative on their own earnings when they're giving guidance," said Greg Harrison, a research analyst at Thomson Reuters. "They've been really trying to push the bar down."
That bar went so low that it was pretty easy for most companies to clear it. With 87 percent of the S&P 500 reporting, 71 percent topped expectations for bottom-line profit, with 53 percent beating on the top-line revenue side, according to FactSet.
After underperformance on fixed income trading desks and headcount reduction that reminded some on Wall Street of the post-crisis bloodbath, it's possible the worst of the storm has passed.
That's from Credit Suisse analysts, who say that revenue on Wall Street from fixed income, currencies and commodities are poised for a rebound after declining five of the last six years.
"The fixed income trading business could be at an inflection point at investment banks," said Credit Suisse analyst Christian Bolu, speaking on a conference call Friday.
If 2015 was the year where financial technology startup funding hit its peak, 2016 might be the year that regulators scared investors away.
Regulatory oversight of fintech startups is tightening, according to a report from PwC, and it's a growing concern for industry CEOs. PwC noted that 86 percent of financial services CEOs are worried about the impact of being too heavily regulated, and notes that the chorus of voices in Washington talking about fintech concerns is growing.
"The twin pillars of financial services regulation in the U.S. are safety and soundness and consumer protection," said Haskell Garfinkel, fintech co-lead with PwC. "Regulators are trying to balance these mandates with the flood of innovation occurring on the periphery of the regulated industry."
Fees paid by consumers to obtain loans are proving a lucrative source of revenue for Lending Club and other online lenders.
Lending Club charges up to 6 percent in origination fees based on its "proprietary model ranking," according to the company's website. The most highly rated borrowers in the model ranking pay the lowest fees, and the borrowers with poor ratings pay the most. Lending Club also uses its ranking system to determine the interest rates applicable to loans; the borrowers who have the best rating pay as little as 1 percent, according to its website.
Most of Lending Club's fees skew toward the higher end of the scale, said Bob Ramsey, senior vice president of equity research with FBR Capital. Lending Club charges an average of 4.47 percent per origination, he said.
The fees are "the only way they make money," Ramsey said. "In 2015, it was $373 [million] or 87 percent of its total revenues."
A Lending Club representative declined to comment, citing the company's quiet period in advance of next week's earnings report.
Not everyone got caught flat-footed at the anemic level of job creation in April. In fact, many investors appeared to be bracing for it.
Stock-based funds saw huge outflows in the days leading up to Friday's nonfarm payrolls report, which showed the economy added just 160,000 new positions, or 42,000 below what Wall Street economists expected. Funds lost nearly $17 billion in investor cash, according to figures released Friday by Bank of America Merrill Lynch.
The fund exodus was more evenly distributed than usual, with exchange-traded funds surrendering $4 billion, or 0.5 percent of total assets, while mutual funds lost $13 billion. BofAML strategists labeled the move "risk-off into payrolls" as investors withdrew the most cash for a week since September.
That could explain the fairly muted market reaction to the April jobs report. Major market averages actually rose slightly at the market open Friday. The weak report caused expectations for a Fed rate hike this year to diminish even further, with traders pinning the chance of even one hike this year at just 50-50. The S&P 500 had been off 0.7 percent for the week heading into the day's trading, putting it about flat for the year.
Mergers and acquisitions pros are worried that Donald Trump may not be so great for the world of dealmaking.
A key tenet of Trump's presidential campaign is his criticism of government officials for poor dealmaking, particularly when it comes to trade deals and military treaties.
However, the corporate world's dealmakers believe a President Trump might hurt their own chances in the big money world of M&A.
A recent survey of investment bankers, development professionals and private equity leaders showed that 62 percent believe the presumptive GOP nominee will be bad for the global deal climate, according to Intralinks, an M&A content collaboration company that said it collected results from 1,500 respondents. He's viewed less favorably for the deal climate than his chief Democratic rival, Hillary Clinton.
Signs of fear are everywhere, from deep-pocketed hedge funders to mom-and-pop investors in flyover country.
The U.S. is on the verge of meeting most of the conditions the Fed has set to hike rates in June, Boston Fed's Eric Rosengren, tells The FT.
Here's why one top strategist feels the S&P 500 will hit new highs in 2017, and what could bring it crashing down.