The thing about useful stuff is

IT contractors get squeezed Thursday, October 30, 2008

Following moves by RBS, Barclays, Deutsche Bank, Merrill Lynch and Nomura in demanding their IT contractors take a 10% pay-cut or lose the possibility of a contract renewal, JP Morgan has now demanded a 15% cut or else face being given notice.

In the current market, most contractors will have little choice but to agree, given the scarcity of roles available elsewhere.

Labels: JPMorgan Chase, Merrill Lynch, Royal Bank of Scotland

posted by John Wilson @ 3:42 PM Permanent Link ,

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From one banking giant to another Friday, September 26, 2008

Reuters has a profile on Jamie Diamond, saviour of Wall Street and CEO of JP Morgan. At the end of the piece they comment on his man-management style and the high regard he evidently has for his peers.

People who know him say Dimon cuts his peers no slack. On a conference call for Wall Street chieftains while JPMorgan was rescuing Bear Stearns, Dimon shot down a somewhat technical question from Citigroup Chief Executive Vikram Pandit, who has a doctorate in finance. According to published reports, Dimon told Pandit: "Stop being such a jerk."

Do you think he was subsequently visited by HR to discuss his "issues" and need for inter-personal skills training?

Labels: Citigroup, Jamie Dimon, JPMorgan Chase, Vikram Pandit, Wall Street

posted by John Wilson @ 8:59 AM Permanent Link ,

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JP Morgan's outsourcing business Thursday, September 18, 2008

NEW YORK - JANUARY 16: (FILE PHOTO) The JPMorg...

Image by Getty Images via Daylife I was chatting with a good friend and COO of a large institutional fund manager this week over lunch about the outsourcing market for fund managers. In looking over the landscape of providers which includes BNY Mellon, Northern Trust, State Street, Citibank, BNP Securities Services and JP Morgan, it is notable that most still have relatively few clients. As such the economies of scale which many of these firms anticipated will have not materialised.

The one firm which does have a large stable, JP Morgan, achieved this through a series of back office lift-outs e.g. Morley and Barclays Global Investors. Yet these operations have broadly remained silo operations and have yet to be migrated to a common multi-tenanted platform. As a result, genuine economies have yet to be achieved. At some stage soon, one assumes that this arrangement will need to be tackled and existing clients migrated into such a setting. Yet no one will race to be first, given that most benefits accrue to the supplier and not the customer unless fee reductions are being proposed. Moreover, the operational and service risk arising will encourage most COOs to let someone else be the guinea pig.

In the meantime, any prospective customer will be aware that comments offered by existing "reference" customers won't reflect the setting they are being offered. Likewise, they also know they won't have the benefit of migrating to a proven strategic platform that has been tested in anger by others if they choose JP Morgan. Finally, when existing customers do migrate onto the same platform, new customers may be affected by the "wake from the other boats".

Consequently, JP Morgan faces a genuine dilema - continue pitching for more business with the elephant in the room, or temporarily step away from the market whilst they internally migrate existing customers. Irrespective of whether JP Morgan feel they can take on additional customers whilst migrating existing ones [they will obviously claim they could], they are likely to meet a sceptical client base for whom the risks will be perceived as too great. Of course, they could leave things as they are, but that looks like a difficult sell internally.

I have great respect and admiration for JP Morgan's EMEA regional boss, Francis Jackson, and am sure he will be giving this matter considerable thought, given the potential ramifications for his business. His competitors and clients are eagerly awaiting his decision and next steps

Labels: Barclays Global Investors, JPMorgan Chase, Northern Trust, State Street

posted by John Wilson @ 8:24 AM Permanent Link ,

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Clearing up Lehman pending settlements Wednesday, September 17, 2008

News is seeping out about the unwinding of the pending settlements [trades executed but yet to settle] and open interest in exchange traded as well as OTC contracts.

Firstly, Reuters reports that JP Morgan lent $87m to Lehman subsidiaries on Monday to enable them to clear and facilitate securities transactions, but apparently the New York Fed repaid them.

Next, LCH has declared Lehman in default and begun the process of unwinding and moving their trades. Lehman was a clearing member of LCH, acting on behalf of clients as well as its' own trading on variety of Exchanges. Lehman was also a Swapclear member, which clears OTC Interest Rate Swaps.

The easiest transfers are for those clients who traded on a segregated basis i.e. their trades were processed via and held in separate accounts from those of Lehman. Much harder to separate out are clients trades processed through non-segregated accounts in which will be co-mingled Lehman's own proprietary trades and will inevitably require Administrator assistance.

Clients have to make a positive decision as to whether to be segregated or not but firms usually incentivise them to be non-segregated e.g. higher interest rate on credit balances, in order that they can utilise the client assets, which is not permissible with segregated balances.

Any losses resulting from unwinding the business of Lehman will be offset against the margin balances Lehman had with the Clearing House. If these balances are insufficient, then a call will be made on the Default Fund which is funded by the members.

The exercise to close a trading firm is a huge undertaking - you don't simply close the doors because at any point in time, there is considerable activity "in progress" all of which needs to be unwound. It is likely to take months before the majority of the work is done.

Labels: JPMorgan Chase, LCH, lehman, Lehman Brothers, New York Federal Reserve Bank

posted by John Wilson @ 1:51 PM Permanent Link ,

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Sale of Financial Stock, Everything Must Go [?]

The New York Times has a stark interactive graphic here showing the dramatic falls in market capitalisation of 29 US financial firms over the last 12 months up to Sept 12th 2008, prior to the weekend meltdown. On 9 October 2007, the firms had a collective value of $1.86 trillion - no longer.

Amidst the huge falls group, several firms stand-out for their resilience and marked contrast.

Bancorp - down 1.1% to $57.8bn [$58.4bn]
Wells Fargo - down 8.8% $113.2bn [$124.1bn]
JP Morgan -down 11.7% $142.2bn [$161bn]

Other names included Lehman, Freddie Mac, Fannie Mae, Merrill Lynch, AIG who sadly have somewhat different results.

Labels: bear stearns, Fannie Mae, Freddie Mac, JPMorgan Chase, Lehman Brothers, Wells Fargo

posted by John Wilson @ 8:42 AM Permanent Link ,

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In case you think Lehman management aren't aligned with shareholders. Friday, September 12, 2008

In case you think Lehman staff aren't personally affected by the crisis facing their company, outside of fearing for their jobs, think again - the executives and rank-and-file at Lehman collectively own about 25% of the company.

According the Wall Street Journal, Lehman CEO Dick Fuld owns 10.9 million shares, or approx 1.4% of the company. The current value of those shares is approx $46 million, which equates to a paper loss of $649.2 million [93% fall] since 31st Jan 2008.

Other senior executives hit include their Chief Legal Officer [1.5 million shares]; Chief Risk Officer [259,791 shares]; and CFO [248,056 shares].

So, despite having followed the best practice notion of aligning managers and shareholder interests which theoretically would curb excessive risk taking, it appears that Lehman will fail to avoid a dramatic end to the business. Whilst it could remain intact were it to be rescued at the last minute by an overseas white knight, this seems unlikely given

a) the lack of time to conduct any due diligence given the urgent need to find a buyer and inject new capital into the business; and

b) the probable absence of any US Govt financial support for an overseas buyer, unlike that provided to JP Morgan in buying JP Morgan.

A possible solution to raise capital might come in the form a hastily arranged sale of Lehman's asset management business, but this may not be enough to provide permanent respite from the troubles it faces.

Instead, the most likely outcome seems to be a carve up amongst other banks, in which case employees will be hit with the trebble whammy of a massive drop in their personal wealth; unemployment at a time when job opportunities are almost non-existent; and missing out on a bonus which would ordinarily form a sizeable proportion of the compensation.

Whilst you may have little sympathy for Lehman staff given the past years of plenty enjoyed by folks in this sector and believe they brought it on themselves given past excesses, remember that the World economy benefited from good years recently in part due to cheap and abundant credit. Moreover, if you live in the UK, financial services accounts for 20% of UK GDP, which means a severe decline in the sector will also have a considerable impact on tax revenues that are desperately needed by the Government to spend on universal services like health care and social security.