Archive for the ‘Economic Crisis’ Category
PWC 2009 Wealth Management Survey Shows How Crisis is Changing Industry
June 29th, 2009 | 
Author: The Pricewaterhouse Coopers Global Private Banking and Wealth Management Survey 2009 has been released and provides some interesting insight into how the current financial crisis has impacted the wealth management industry, and what further changes lie ahead. Below are highlights of the survey:
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Proposed Regulatory Reform- Wall Street Needs to Respond Carefully
Not surprisingly, parts if the regulatory reform proposal released last week by the Obama Administration have proven to be rather controversial. The plan has attracting criticism from both lawmakers and members of the financial services industry, and praise from consumer advocacy groups. Can the plan prevent future financial crises without overburdening financial institutions with unnecessary and redundant oversight? I believe it has the potential to succeed, but the devil will be in the details that have yet to be determined. Over the coming weeks and months, there will be a great deal of debate, lobbying, and negotiations that will determine what the financial regulatory structure will be going forward.
What’s With All This Economic Optimism?
A steadily advancing stock market, improving economic indicators, positive statements from the Fed regarding the economy, financial services firms raising capital in the markets, and increased consumer confidence- all of this flies in the face of the gloom and doom scenarios that most economic and financial pundits were espousing earlier this year. How is this possible? Since the stock market is widely known to be a leading economic indicator, the strong rebound in equity indexes is a critical factor in this newfound optimism. The critical question, at this point, is whether this is a true bull market, or merely a bear market rally. In order to answer this question, I believe that we need to examine what is driving the market advances that have surprised just about everyone on the Street.
B of A Moves to Make Mortgage Origination More Consumer Friendly- Will Others Follow?
When it comes to mortgage lending practices, it appears that at least one bank has learned its lesson. After integrating Countrywide Home Loans and doing away with the name, Bank of America has taken steps to help potential home buyers with the mortgage process. According to The New York Times:
Expect Plenty of Fireworks as Washington Tackles the ‘Too-Big-To-Fail’ Issue
There will be plenty of activity for those of us in the financial services industry to keep an eye on as Washington grapples with the prospect of granting the government authority to take over, and possibly close, large financial institutions. The Senate Banking Committee will hold a public hearing Wednesday on that very subject, and The House Financial Services Committee is likely to do the same as early as next week.
Off-Balance-Sheet Accounting Change-So Near Yet So Far
Here is some very good news that contains an interesting twist. According to Bloomberg.com, FASB is close to announcing rule changes that will force banks to severely limit off-balance-sheet accounting. The twist is that it will not be implemented until next year:
Goldman Sachs CEO to Wall Street: “We have to recognize a higher responsibility”
Last week, Goldman Sachs CEO Lloyd Blankfein delivered a speech to the Council of Institutional Investors, and I was encouraged by much of what he had to say. Market Watch posted a full text of the speech, and here are some of the more interesting excerpts:
‘Mark’ Rule Change May Impair Treasury Plan- But is That Bad?
On Thursday, the Financial Accounting Standards Board is voting on FAS 157-e, which would allow banks to use their own judgment in valuing assets if there are no bidders for those assets. Some bankers and accounting experts believe that this rule change would undermine the Treasury’s plan to get the banks sell up to $1 trillion of these assets to a fund that combines private and public financing. According to the Wall Street Journal:
Will Commercial RE Defaults be the Next Bank Shoe to Drop?
In the face of rising vacancy rates and commercial real estate prices falling nearly 20% in the past year, commercial mortgage defaults may be the next bump in the road for the recovery of U.S. banks. According to Bloomberg News:
The Overreaction to the AIG Bonuses
I feel it is necessary to express my perspective on the AIG bonus issue, though it is not likely to make me many friends. The most important thing to make clear is that these were retention bonuses, not performance bonuses. As AIG CEO Liddy stated in his testimony before a Congressional panel, AIG needed to unwind $1.6 Trillion in very complex derivatives over a period of time in a way that would not cause them to blow up and send shocks that would further damage the world’s financial markets. He felt the traders that put these derivatives together were the only ones that could safely unwind them, and the $165 million was worth the mitigation of the risk of the unwind operations.
What Will Wall Street Look Like in Two Years?
I believe that the small boutique investment firms that dominated the business before the 1980s will make a comeback. These firms will go back to the basics of personal service, integrity, and earning a fair return by delivering value to their clients. They will be more transparent, will not take huge risks, and will focus on one or two areas of expertise. In other words, they will be the antithesis of Citigroup and Bank of America. There will always be large supermarket firms, but many people will want to deal with a firm that they know and trust.
U.S. Banks ARE Lending
Anthony J. Carfang and Cathryn R. Gregg, partners at Treasury Strategies, Inc. have written an open letter to Congress that points out that U.S. banks are writing loans. According to the letter, “The cries in the legislative chambers are growing louder by the day. “We need to force banks to begin lending!” “Bank lending is frozen!” “Banks are sitting on their TARP bailout money.” Major news outlets have covered the current crises with stories on banks failure to lend. Congress is planning tighter regulation and supervision aimed at requiring banks to lend.
Yet Treasury Strategies analysis of Federal Reserve data shows the underlying premise that banks are not lending appears to be mistaken.”
THE ECONOMIC CRISIS
Owning one’s own home has always been the epitome of the American Dream, so it seems highly ironic that the aggressive pursuit of this dream would be the major cause of the worst economic crisis since the Great Depression. It seemed appropriate to start off The Financial Services Issues blog with an in-depth discussion of the causes of this crisis, and then utilize this information to discuss ways of recovering from it, as well as how future crises can be avoided or minimized. I would like to start the discussion by listing the causes that have been put forth, and then discuss each in detail and try to ascertain how much of an impact each item has had on the downturn. Please feel free to comment if there are any factors that I have left out.
In reality, most of the list consists of factors contributing to the overall cause which was years of easy money leading to overvalued global assets, particularly the U.S. housing market, and the subsequent rapid decline in those values. While everyone talks about the housing bubble, the excess in asset prices were not limited to housing, though home prices were clearly the dominant factor.
