June 25, 2017

High & Low Finance: Chrysler’s Owners Are Racing for the Cliff

You call him Chrysler’s chief executive.

There has never been a proposed I.P.O. like Chrysler’s.

How is it different?

First, the preliminary prospectus filed by the company this week has only one underwriter listed, JPMorgan Chase. A typical offering by a large company will have at least a few underwriters. Every investment bank wants some of the profits, and the company wants maximum distribution. When General Motors, out of bankruptcy and newly profitable, went public in 2010, 10 underwriters were listed on the first prospectus, including all the big ones. Many more were added before the offering took place.

Here, it is quite likely that the rest of Wall Street stayed away because they feared alienating the very company whose stock was being sold.

Second, the G.M. prospectus, as with every other I.P.O. prospectus I have ever seen, tried to put its best foot forward. Within the bounds of securities laws, the prospectus writers did their best to attract investors. Chrysler’s, within the same bounds, is clearly aimed at alienating investors.

As such, it may become something of a collector’s item. A game of chicken between Chrysler’s two owners — Fiat, the Italian automaker, and a trust that provides benefits to Chrysler’s retirees — has burst into the open.

Each thinks the other is being unfair and is using threats to force concessions. If no one backs down, it is quite possible the company could be destroyed — something that would be disastrous to both. Each seems to be confident that the other will give in eventually.

But games of chicken can get out of hand.

The 2009 bankruptcies and bailouts of Chrysler and G.M. were messy. Some creditors were outraged, contending that they deserved more and that unionized workers deserved less. In both companies, the Treasury and trusts for workers’ benefits wound up owning big stakes.

At Chrysler, which was woefully mismanaged by its two previous owners — Germany’s Daimler and Cerberus, the American private equity firm — the Obama administration concluded that the company’s best hope for survival was to find an automaker with a high-quality management team that could be a valuable partner for a company that had been left with no presence outside North America. Fiat was interested and seemed ideal. It had no United States presence and had technology Chrysler could use. Chrysler had technology Fiat could use. Sergio Marchionne, Fiat’s chief executive, became Chrysler’s chief executive as well.

Most of Chrysler’s stock was owned by a retiree trust, a voluntary employee benefits association, or VEBA. The United States and Canadian governments had stakes as well — thanks to their bailout — and Fiat had a stake.

The combination seems to be working well, benefiting both companies. Chrysler is doing better than the parent these days, and in the end it may turn out that Chrysler will have rescued Fiat as much as or more than Fiat rescued it.

That Chrysler seems to be outperforming Fiat now may, however, say more about geography than competitiveness. The American car market is surging, while the Western European market is in a deep recession. In Italy, Fiat’s home market, new-car registrations are running at the lowest level in more than 30 years.

No one doubts that the two companies need each other, or that Fiat wants to buy the rest of Chrysler. And that is where the game of chicken is being played.

Under agreements that appear to have been poorly drafted, Fiat has a right to buy a substantial part of the VEBA’s interest every six months. The price is determined by a complicated formula that is supposed to represent what a market price for the stock would be if it were public.

It looks as if that formula may not be doing a very good job. When Fiat tried to make the first purchase last summer, it calculated the price as being about a third less than what it had voluntarily paid the Treasury a year earlier in a negotiated deal. The VEBA said the formula, under its interpretation, called for a much higher price. They went to court in Delaware to hash it out.

A ruling this summer gave Fiat a victory on important parts of the case but left others for a future trial. One detail still to be determined is whether the formula allows Fiat to use extraordinary losses to reduce the price it has to pay while ignoring similar gains that would raise the price. That seems to hinge on the meaning of a word (“charge”) that went undefined in the original document.

There are more such purchases scheduled to happen. For the VEBA, avoiding the formula might be very helpful. And the agreement provides that the formula vanishes with an I.P.O. After that, the market price would be used.

That is one reason that the VEBA may have had for exercising its right to sell some of its stock in an I.P.O.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/09/27/business/chryslers-owners-race-for-the-cliff.html?partner=rss&emc=rss

Under Scrutiny, Goldman Offers to Speed Metal Delivery

Under scrutiny for the long waits that have cost manufacturers — and ultimately consumers — many millions of dollars, Goldman said on Wednesday that its warehouse unit, Metro International Trade Services, would give customers who store aluminum at the warehouses immediate access to their metal.

Through Metro International, Goldman stores vast amounts of aluminum in and around Detroit. An investigation by The New York Times found that Metro routinely shuffled tons of the metal from one warehouse to another, a tactic that profited Goldman but pushed up the price of aluminum across much of the nation.

Goldman also said on Wednesday it would suggest ways to improve the metal storage system, whose rules are dictated by the London Metal Exchange.

Regulators at the Commodity Futures Trading Commission are examining practices at warehouse operations controlled by financial firms and trading houses such as Glencore Xstrata, the Noble Group and Goldman. These operations store aluminum for companies like Coca-Cola and MillerCoors, as well as for speculators.

Congress has taken an interest in the issue as well. Earlier this month, the Senate Banking Committee convened hearings on Wall Street’s push into the physical commodities markets and whether its involvement had raised prices. The Senate Permanent Subcommittee on Investigations, led by Carl Levin, a Michigan Democrat, has also been privately questioning big banks like Goldman, JPMorgan Chase and Morgan Stanley on their commodities businesses.

In Congressional testimony on Tuesday, Mary Jo White, the chairwoman of the Securities and Exchange Commission, said she had asked the agency’s staff to examine the issue.

Goldman said its offer to speed up delivery of metal was open only to industrial customers of its Metro warehouses. If a customer wants immediate delivery of its metal, Goldman said it would go into the open market and buy the amount requested, then swap it to the customer. Goldman said it would pay the difference between the market cost and the higher price that includes the storage premium. Goldman said none of its customers had taken up its offer yet.

Goldman also said that it supported recent efforts at the London exchange to increase the amount of metal allotted for delivery from its large warehouses, like those owned by Metro.

Last week, in the face of rising regulatory concerns about the big banks’ commodities operations, JPMorgan said it was looking to sell its physical commodities businesses, which include sprawling storage and transportation facilities. But Goldman does not appear to be following suit.

In a television interview on Wednesday, Gary D. Cohn, Goldman’s president, said the bank had no immediate plans to sell Metro International. Under the terms of the regulatory exemption provided to Goldman when it bought Metro, the bank has until 2020 to sell it.

Article source: http://www.nytimes.com/2013/08/01/business/under-scrutiny-goldman-offers-to-speed-metal-delivery.html?partner=rss&emc=rss

U.S. Scrutiny for Commodities Market

The hearing, convened by the Senate Financial Institutions and Consumer Protection subcommittee, came as Goldman Sachs, JPMorgan Chase and others face growing scrutiny over their role in the commodities markets and the extent to which their activities can inflate prices paid by manufacturers and consumers. The Federal Reserve is reviewing the potential risks posed by the operations, which have generated many billions of dollars in profits for the banks.

The hearing followed an article in The New York Times on Sunday that explored the operations of warehouses controlled in part by Goldman Sachs. The bank’s tactics, along with those of other financial players, have inflated the price of aluminum and ultimately cost consumers billions of dollars, an investigation by The Times found. The Commodity Futures Trading Commission is now gathering information on the warehouse operations.

Several witnesses at Tuesday’s hearings warned that letting the country’s largest financial institutions own commodities units that store and ship vast quantities of metals, oil and the other basic building blocks of the economy could pose grave risks to the financial system. The ability of those bank subsidiaries to gather nonpublic information on commodities stores and shipping also could give the banks an unfair advantage in the markets and cost consumers billions of dollars, the witnesses said.

Representatives from the financial industry did not testify on Tuesday, but Goldman Sachs for the first time addressed its role in the aluminum market. In a statement posted on its Web site, Goldman said that its ownership of aluminum warehouses did not affect prices of the metal, in part because only 5 percent of the aluminum that is used in manufacturing passes through the warehouses owned by Goldman and others. Goldman controls 27 warehouses in the Detroit area that are used to store aluminum for customers.

In addition, Goldman said, delivered aluminum prices are nearly 40 percent lower than they were in 2006. During the financial crisis, warehoused inventories of aluminum more than tripled, the company said, because of weakened consumer demand.

The Times investigation found that Goldman’s warehouse subsidiary moved large amounts of aluminum among its warehouses daily, a process that lengthened the storage time and increased the premium that was added to the basic price of aluminum. The London Metal Exchange, which sets the rules under which the metals warehouses operate, said in a separate statement that it was working with the industry to amend the delivery obligations of warehouse companies with long waiting periods.

Even with the waiting periods, “there is no reported shortage of aluminum in the market,” the exchange said. “Consumers can continue to buy directly from producers as they always have done.”

Saule T. Omarova, a law professor at the University of North Carolina who has studied the issue, told the subcommittee that there was one other company that was an early leader in combining the practice of moving physical commodities with the financing of market activity — Enron.

The comparison was seized upon by Senator Elizabeth Warren, a Massachusetts Democrat. “The notion that two of largest financial companies are adopting a business method pioneered by Enron,” she said, “suggests that this movie will not end well.” Major beverage companies have complained about the maneuvers. Tim Weiner, a MillerCoors executive, told the panel on Tuesday that while consumers might not think they have much at stake from tons of aluminum bars stored in a warehouse near Detroit, the actions of Goldman and others have raised prices, cost jobs and hindered innovation.

That is in part because waiting times for customers who want to retrieve their metals purchases have grown to more than 16 months since Goldman Sachs took over the warehouses three years ago. Before Goldman arrived, the average wait was six weeks.

Imagine going to a liquor store to buy a case of beer, and taking it up to the cash register to pay, Mr. Weiner said. Then instead of taking the case of beer to your car, the clerk told you to visit the store’s warehouse, where you can retrieve the beer in 16 months.

Article source: http://www.nytimes.com/2013/07/24/business/senate-panel-examines-potential-risks-in-big-banks-involvement-in-commodities.html?partner=rss&emc=rss

Senate Panel Examines Potential Risks in Banks’ Involvement in Commodities

The ability of those bank subsidiaries to gather nonpublic information on commodities stores and shipping also could give the banks an unfair advantage in the markets and cost consumers billions of dollars, the witnesses said.

The Senate Financial Institutions and Consumer Protection subcommittee convened the hearing to explore whether financial companies – the banking goliaths like Goldman Sachs, JPMorgan Chase and Morgan Stanley – should control power plants, warehouses and oil refineries.

Although Congress removed post-Depression era barriers that separated commercial banking and traditional commerce in the late 1990s, a group of bipartisan senators has lately been advocating the reinstatement of those walls in part to impose tighter regulation on such actions.

“This kind of ownership, while part of the real economy, can potentially be a risk for the banking system,” said Senator Sherrod Brown, the Ohio Democrat who is the chairman of the subcommittee, particularly because the giant banks receive the benefit of low-rate borrowing from the Federal Reserve. That could leave taxpayers on the hook for losses caused by a collapse in commodities prices or in the event of an environmental disaster like the Deepwater Horizon oil spill.

“There has been little public awareness of, or debate about, the massive expansion of our largest financial institutions into new areas of the economy,” Mr. Brown said. “That is, in part, because regulators have been less than transparent about basic facts.”

Some banking experts disagreed. Randall D. Guynn, head of the financial institutions group at the law firm Davis Polk Wardwell, told the panel that he “can’t think of a single example” where any commodities-related activity by large banks posed a risk to the nation’s financial system. In fact, he argued that their active involvement “might diminish risk rather than enhance it.”

The hearing followed an article in The New York Times on Sunday that explored the operations of warehouses controlled in part by Goldman Sachs, whose tactics along with other financial players, had inflated the price of aluminium. The Times reported yesterday that regulators, including the Federal Reserve and the Commodity Futures Trading Commission, had begun to gather information on the operations and to consider whether additional safeguards were needed.

Major beverage companies have complained about the maneuvers, and Tim Weiner, a MillerCoors executive, testified before the panel on Tuesday. While consumers might not think they have much at stake from tons of aluminum bars stored in a warehouse near Detroit, he said the management of those warehouses has raised prices, cost jobs and hindered innovation.

Article source: http://www.nytimes.com/2013/07/24/business/senate-panel-examines-potential-risks-in-big-banks-involvement-in-commodities.html?partner=rss&emc=rss

DealBook: 2 JPMorgan Directors Resign

David M. Cote and Ellen V. Futter, directors of JPMorgan Chase, were criticized for their lack of financial experience.Carlo Allegri/ReutersDavid M. Cote and Ellen V. Futter, directors of JPMorgan Chase, were criticized for their lack of financial experience.

1:27 p.m. | Updated

Two directors at JPMorgan Chase who  received lackluster support from shareholders at the bank’s annual meeting in May resigned on Friday.

The two board members, David M. Cote and Ellen V. Futter, were re-elected at the meeting, but narrowly.

Mr. Cote, the chairman and chief executive of Honeywell International, resigned after five years with the bank. Ms. Futter, the president of the American Museum of Natural History, had been on the board 16 years, JPMorgan said in a statement on Friday.

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Both Mr. Cote and Ms. Futter, members of the board’s risk committee, were buffeted by criticism after multibillion-dollar trading losses  that emerged last year from JPMorgan’s chief investment office in London. Some investors said the risk committee lacked the financial prowess to safeguard against the kind of trading losses that hit JPMorgan.

The trading debacle was also widely viewed as a black mark on the leadership of Jamie Dimon, the bank’s charismatic chairman and chief executive. A shareholder proposal to split Mr. Dimon’s two roles, while aimed at bolstering corporate governance, became a kind of referendum on Mr. Dimon’s stewardship of the bank.

It was a test he handily passed. Nearly 70 percent of the shares were voted to reject a proposal for an independent chairman. To voice their dissatisfaction, a small but vocal group of shareholders agitated against some of the board members’ re-election.

Shortly before the annual meeting in Tampa, Fla., Ms. Futter decided to resign, according to people with knowledge of the matter who spoke only anonymously. She was said to be sick of the swirl of negative attention clouding her service on the board, and worried that it would divert attention from both JPMorgan’s strong points and from the American Museum of Natural History.

Those plans changed, though, when Mr. Dimon called her to urge her to stay. A sudden resignation by a bank director, the people said, would have needlessly drawn attention from the centerpiece of the annual meeting: Mr. Dimon’s victory.

She was  re-elected with the lowest amount of support among directors, 53.1 percent of the vote. Mr. Cote was re-elected with 59.3 percent of the vote.

“I want to thank Ellen and Dave for their dedicated service to our firm,” Mr. Dimon said in a statement. “We have learned a great deal from both of them and will miss having them as members of our board.”

Mr. Dimon also reiterated his support for Mr. Cote on Friday. “As chairman and C.E.O. of Honeywell, Dave brought exceptional experience to JPMorgan Chase across a broad spectrum of issues., “ Mr. Dimon said in a statement. “He is a highly talented executive, and we were all fortunate to benefit from his knowledge and leadership.”

Despite JPMorgan’s overwhelming support for its board, criticism mounted as the annual meeting drew near in May.

Before the meeting, an influential shareholder advisory firm, Institutional Shareholder Services, or I.S.S., urged shareholders not to vote for three directors, including Mr. Cote and Ms. Futter.

In its report, the firm cited “material failures of stewardship and risk oversight” in the wake of the trading loss last year. For the advisory firm, it was a rare challenge, because the company noted that it only recommends that shareholders oppose directors under “extraordinary circumstances.”

The report, which came amid cries for an overhaul of JPMorgan’s board leadership, was another hurdle for the bank as it worked to restore its reputation as an astute manager of risk — an accolade JPMorgan won after emerging from the 2008 financial crisis in far better shape than its rivals.

While all three directors, including Mr. Cote and Ms. Futter, had served on the risk committee when JPMorgan navigated through that crisis, I.S.S. criticized them for not having strong enough backgrounds in risk management. Its report said “it is odd” that the bank’s biggest rivals had managed to find directors with stronger qualifications.

Ms. Futter had also served on the board of the insurance giant American International Group, which nearly collapsed in the 2008 financial crisis. Last year, 86 percent of shareholders voted for Ms. Futter, the lowest level of support for any director who was up for re-election at the bank that year.

Mr. Cote, as chief executive of Honeywell International, heads an industrial company, not a financial firm, I.S.S. noted, leaving him potentially lacking in relevant experience.

JPMorgan steadfastly stood by its board members ahead of the annual meeting. The board, JPMorgan executives noted, moved to cut Mr. Dimon’s compensation by 50 percent earlier this year. It also demanded a full accounting of what precipitated the trading loss and clawed back millions of dollars in compensation from the executives at the center of the bungled trades. And some executives inside the bank said that while Ms. Futter was not be a banker, she did bring perspective on reputational risk.

Both Mr. Dimon and Lee Raymond, the lead director of the board, have vowed to further rectify risk lapses and improve controls.

At the bank’s annual meeting, Mr. Raymond, the former chief executive of Exxon, hinted at the change. He told shareholders to “stay tuned” when he was asked if the board is planning to make changes to the risk committee.

Still, JPMorgan shareholders have much to be thankful for. Last week, the bank reported its 13th consecutive quarterly profit. JPMorgan has gained market share and has managed to buck many trends rattling its rivals.

JPMorgan said Friday that it would appoint new directors to the board later this year.

Article source: http://dealbook.nytimes.com/2013/07/19/2-jpmorgan-directors-resign/?partner=rss&emc=rss

Bank of Israel Chief in ’90s Is Choice to Lead It Again

JERUSALEM — Jacob Frenkel, an inflation hawk who was Bank of Israel governor in the 1990s, will return to the helm of the central bank, Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid said on Sunday.

Mr. Frenkel will replace Stanley Fischer, who is stepping down at the end of June after eight years on the job, having guided Israel’s economy through the global financial crisis.

Mr. Frenkel, 70, beat out the deputy governor, Karnit Flug, who will most likely be acting governor until Mr. Frenkel starts. The date of his arrival was not announced.

“He is a world-renowned figure, which is what Netanyahu was looking for,” said Jonathan Katz, an economist at HSBC.

As governor from 1991 to 2000, Mr. Frenkel was credited with reducing inflation, liberalizing financial markets and removing foreign exchange controls.

He is chairman of JPMorgan Chase International, and he has also served as vice chairman of the American International Group and chairman of Merrill Lynch International. Mr. Frenkel also is the head of the Group of Thirty, a private consulting group on global and financial issues.

Joseph Fraiman, chief executive at Prico Risk Management and Investments, said Mr. Frenkel would “fill the position of Fischer with quality and authority.” He added, “No less important, Frenkel will benefit from the international credit that is greatly needed for the Israeli economy, especially in the current period.”

Mr. Frenkel, whose appointment requires cabinet approval, will face several challenges, including the upholding of Mr. Fischer’s policies toward Israel’s government and working to halt fast-rising home prices.

Israel’s economy grew 3.2 percent in 2012, a rate that is expected to slow to 2.8 percent this year, excluding the start of natural gas production.

Inflation, which ranged from 1.3 to 18 percent in the 1990s, was at an annual rate of 0.9 percent in May. At the same time, Israel’s currency remains strong.

To encourage economic growth and keep exports competitive, the Bank of Israel reduced its benchmark interest rate twice in May, to 1.25 percent. The central bank will review interest rates on Monday, and analysts largely believe the key rate will stay unchanged.

When Mr. Frenkel was last in the job, the governor alone made interest rate decisions. Now, there is a six-member monetary policy committee with the bank chief as chairman.

Mr. Frenkel “will need to work harmoniously with the monetary council he inherited from Fischer,” said Yaniv Pagot, chief strategist at the Ayalon Group. “This is not a simple challenge that could, in a certain situation, bring the first cracks.”

He said that, with Israel’s foreign exchange reserves nearing $80 billion, it would be interesting to see whether Mr. Frenkel would continue intervening in the currency market and buy dollars to defend Israel’s exports if the shekel continued to strengthen.

Article source: http://www.nytimes.com/2013/06/24/business/global/bank-of-israel-chief-in-90s-is-choice-to-lead-it-again.html?partner=rss&emc=rss

DealBook: In a Shift, Interest Rates Are Rising

A specialist at the New York Stock Exchange. Investors have braced themselves for a new era of higher interest rates.Richard Drew/Associated PressA specialist at the New York Stock Exchange. Investors have braced themselves for a new era of higher interest rates.

It has been a reliable fact of life for investors, corporations and ordinary borrowers: interest rates, for the most part, keep heading lower.

But all of that may be about to change. For prospective homeowners, the cost of mortgages has been going up in recent weeks. Governments are also facing the prospect of higher borrowing costs down the road, and they are projecting increases to their debt burdens. Savers with money in bank accounts, on the other hand, have the prospect of finally earning more than a pittance on their deposits.

The interest rate charged by lenders, often cited as the single most important factor behind economic decisions, has been steadily going down for most of the time since the early 1980s, and has fallen to historical lows since the financial crisis. Over the last few months, though, investors and banks have been demanding higher payments for their loans, pushing up interest rates and bond yields.

The first tremors have been felt most sharply on investment products that were reliant on low rates, like bonds issued by American companies. But the movement is quickly spreading out into the real economy.

“I think you all should be ready, because rates are going to go up,” Jamie Dimon, the chief executive of JPMorgan Chase, told a financial industry conference at the Waldorf-Astoria Hotel in Manhattan on Tuesday.

As investors brace themselves for a new era of higher interest rates, global markets in bonds, currencies and stocks have experienced spasms of turmoil. On Tuesday, the catalyst for the market’s volatility was disappointment over the Bank of Japan’s decision not to take new steps to address rising bond yields. That heightened worries that other central banks — the Federal Reserve in particular — will soon pull back on pumping money into the financial system.

Since the financial crisis of 2008, the Fed has taken unprecedented steps to reduce rates, in an effort to stimulate borrowing and economic growth and bring down the unemployment rate. Recently, though, Ben S. Bernanke, the Fed chairman, signaled that the central bank could scale back its efforts in coming months if the economy improved. But there is much debate on Wall Street over what Mr. Bernanke is planning and when it might take shape.

Several prominent money managers say they believe that the economic recovery is weakening, which will make it impossible for Mr. Bernanke to pare the central bank’s intervention and could lead to falling rates again. Interest rates have experienced temporary spikes a number of times in recent decades before heading back down.

But recent economic reports, including last Friday’s job report, suggest that the economy is slowly recovering.

In anticipation of what the Fed may do, many on Wall Street have been preparing their portfolios for a future in which interest rates do not remain at the low levels of the last few years. In a survey of 500 large investors, 43 percent said they were planning to cut back on their exposure to bonds this year, while only 16 percent are planning to increase it, according to the asset manager Natixis.

The recent efforts to adjust to higher bond yields have already been messy. Investors have been piling out of supposedly safe bond funds that have been a source of reliable returns in recent years, creating unexpected volatility in the markets.

Big American asset managers who borrowed money to buy foreign stocks and bonds have recently been selling those holdings, hurting markets around the world. That has been worsened by data suggesting that economic growth may be slowing outside the United States.

The realignment in the markets was evident on Tuesday as Asian and European stock markets fell. In the United States, stocks swung widely, with the benchmark Standard Poor’s 500-stock index closing down 1.02 percent. Treasury prices fell, pushing the yield on the benchmark 10-year Treasury note as high as 2.29 percent — its highest level since April 2012 — before settling at 2.19 percent. The Japanese yen strengthened 2.8 percent against the dollar.

Many market specialists say they think that a transition could go more smoothly in the long run if interest rates continue to rise as the United States economy grows. Still, even in that optimistic situation, a wide array of market participants will have to shift their operating procedures and assumptions from a world where declining interest rates were a given.

“When past performance has been so consistent, the risk that investors underestimate the risk, I think has consistently been an issue,” said Richard Ketchum, the president of the Financial Industry Regulatory Authority, which oversees brokers.

The recent market volatility highlights the connection between Wall Street investors and consumers. Banks set mortgage rates in line with the yields on mortgage-backed bonds, for example. So as a sell-off has hit the market for such bonds, causing their yields to rise, ordinary borrowers end up paying more.

The rising cost of a new mortgage has already pushed down the number of people refinancing old mortgages, putting a crimp on a recent source of extra income for many households.

The looming question now is whether higher mortgage rates could stall the rally in home prices that has been taking place across the country.

Many real estate analysts say that homes are so affordable that even a considerable rise in interest rates would not do much to undermine the housing recovery, especially if the economy is growing at a healthy rate.

“There’s no strong correlation between interest rates and home prices,” said Douglas Duncan, chief economist at Fannie Mae.

But Joshua Rosner, a managing director at the research company Graham Fisher Company, said many Americans were still so heavily indebted that even a small rise in mortgage rates would hit the housing market. “Affordability is already a problem, and rising rates won’t help that,” he said.

For governments around the world, a rise in rates will eventually push up their borrowing costs at a time when they may still be grappling with fiscal deficits. Some countries will probably be able to take a steady increase in their stride. But a jarring wave of selling has recently hit certain bond markets in Latin America and Europe, pushing up borrowing costs for governments there.

Recent market moves have also been an unpleasant jolt for ordinary savers who have come to view bonds as a stable anchor for any retirement account. The Vanguard total bond market mutual fund fell 2.7 percent last month after returning a steady 5.4 percent a year since 2008. Funds holding junk bonds, which were one of the hottest investments in recent years, have suffered even more.

Some managers argue that the important thing is to shift between different types of bonds, de-emphasizing longer-term, government-issued bonds. But whatever the mix, it is likely that bonds will present a risk to investors that they have not in recent history.

“There’s no doubt we’re living through the end of a generational bull market in bonds,” said Scott Minerd, the chief investment officer at Guggenheim Partners.

Article source: http://dealbook.nytimes.com/2013/06/11/in-a-shift-interest-rates-are-rising/?partner=rss&emc=rss

DealBook: JPMorgan Shareholders Are Denied Access to Results

Jamie Dimon, chairman and chief of JPMorgan Chase.J. Scott Applewhite/Associated PressJamie Dimon, chairman and chief of JPMorgan Chase.

When it comes to shareholder votes, the running tallies are a closely guarded secret. Only a handful of parties get a peek into how these corporate battles are shaping up.

Now, in the midst of one of the most closely watched investor votes in years — over whether to separate the roles of chairman and chief executive at JPMorgan Chase — that protocol has changed. The firm that is providing tabulations of the JPMorgan vote stopped giving voting snapshots to the proposal’s sponsors last week. The change followed a request from Wall Street’s main lobby group, the firm says.

The pension fund shareholders that are promoting a split at the top of the bank are crying foul. Knowing the current tally is critical for both sides in shaping their campaigns, they say — cutting off access to them gives JPMorgan, which is getting frequent updates, an upper hand.

“They have changed the rules in the middle of the game and it has created an unfair advantage,” said Michael Garland, assistant comptroller who heads corporate governance for the New York City comptroller John Liu. “It’s like playing a game where only the home team gets to know the score.”

JPMorgan declined to comment.

The results of the shareholder vote will be announced on Tuesday at the bank’s annual meeting in Tampa, Fla. This week, the shares of a number of big investors were voted. It is not known, however, how the vote is trending.

A majority vote in favor of stripping Jamie Dimon of the chairman’s job, while not binding, would be a heavy blow to the influential chief executive. Last year, a similar proposal garnered the support of 40 percent of the shares.

Broadly speaking, the ability to get real-time voting information is crucial for both Wall Street firms and the shareholders sponsoring proposals. A losing side may decide to pour more resources into its campaign, making additional calls or send additional correspondence to shareholders.

“It’s a critical part of the process,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. He noted that “if you feel you need to win by shutting off information, it calls into question the strength of your arguments.”

Lyell Dampeer, a senior executive at Broadridge, said his firm was required to give real-time results to companies, and for years Broadridge gave that same information to proposal sponsors. But late last week, he received a call from an employee of the Securities Industry and Financial Markets Association, Wall Street’s main lobby group, requesting that Broadridge cut off access to organizations that are sponsoring proposals, he said. Sifma represents JPMorgan and other big banks and brokerage firms.

Broadridge is a little-known firm that distributes materials on behalf of banks and brokers and provides voting tabulations. Mr. Dampeer said the brokerage firms were his clients so he was “contractually obligated” to comply with their request. “It was a short call,” he said.

“We don’t have a view on this but we are caught in the middle,” Mr. Dampeer added. He said neither securities laws nor client contracts said Broadridge had to give information to the sponsors of proposals. “We act at the behest of our clients,” he said. And publicly traded companies are entitled to updates on shareholder voting.

Sifma declined to answer questions. In a statement, the lobby group said one of its working groups had concerns about “the authority of a vendor to release confidential information” and that group asked Sifma to pursue the issue. Executives at some banks were concerned, according to people briefed on the matter, that shareholder groups were leaking early vote tabulations.

The decision by Broadridge sheds some light on the usually obscure world of shareholder voting. Mr. Dampeer did not know how many other shareholders had been cut off from access, but he said the new policy would apply to countless other votes around the country.

Broadridge informed the Securities and Exchange Commission on Monday of its decision because the agency regulates brokerage firms. A spokeswoman for the S.E.C. declined to comment.

“If they aren’t providing results to one side, they shouldn’t give it to the company,” said Brandon Rees, acting director of the A.F.L.-C.I.O. Office of Investment.

For shareholders sponsoring the proposals, the tallies are particularly important at companies’ annual meetings, one of the few times when a broad swath of investors have access to management and board members. William Patterson, the executive director of the CtW Investment Group, which represents union pension funds and owns six million shares in JPMorgan, said that when deprived of the initial tallies, shareholders were at the whim of management.

“If you go in blind,” Mr. Patterson said, “you can’t really make an informed case to management” at the annual meeting about voting results “and hold them accountable.”

In the case of the JPMorgan vote, the stakes for both sides are high.

If shareholders vote to sever the positions, it would be a major victory for the sponsors and big shareholder advisory firms like Institutional Shareholder Services and Glass, Lewis Company, which have urged investors to vote for the split. Some of the big groups sponsoring this proposal have likened this effort to a presidential campaign and they say a vote in the favor would set the tone for dozens of other similar votes around the country.

For JPMorgan, a yes vote would put pressure on JPMorgan’s board to split the two roles. Management would not be required to do anything with the results, but failure to take some course of action could lead to more unrest at the bank. Over the last year, JPMorgan has been struggling with the fallout from a multibillion-dollar trading loss.

Behind the scenes, JPMorgan has been working to persuade shareholders to support having Mr. Dimon keep both the chairman and chief executive titles. He has been chief executive since 2005 and chairman since 2006.

Article source: http://dealbook.nytimes.com/2013/05/15/jpmorgan-voters-are-denied-access-to-results/?partner=rss&emc=rss

DealBook: JPMorgan Shows Strength in Quarter

Jamie Dimon, the chief of JPMorgan Chase, at a Senate panel last year.Larry Downing/ReutersJamie Dimon, the chief of JPMorgan Chase, at a Senate panel last year.

JPMorgan Chase, the nation’s largest bank, reported a 33 percent rise in first-quarter earnings on Friday, bolstered by gains in the investment banking business and a surge in mortgage lending.

“All our businesses had strong performance, and our client franchises did exceptionally well,” Jamie Dimon, the bank’s chief executive, said in a statement.

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As the economy recovers slowly, demand for loans remained stagnant. JPMorgan said total loans at the bank fell 1 percent. Yet gains from investment banking allowed JPMorgan to record 12 consecutive quarters of profit.

Within the investment banking unit, assets grew by 8 percent to $19.3 trillion for the first quarter. Fees rose 4 percent, to $1.4 billion.

The net earnings of $6.5 billion, or $1.59 a share, exceeded Wall Street analysts’ expectations of $5.41 billion, or $1.40 a share. Revenue was $25.8 billion, compared with $26.8 billion in the same period a year earlier.

The report kicked off the bank earnings season. As the nation’s largest bank by assets, JPMorgan is often looked at as a bellwether.

A bright spot for JPMorgan’s earnings was mortgage lending, fueled in part by federal programs that have helped damp interest rates. Those low rates have prompted homeowners to refinance. In total, the mortgage banking group posted a profit of $673 million for the first quarter, down 31 percent from a year earlier.

Mortgage originations rose 37 percent in the quarter, to $52.7 billion. Still, application volumes were down, 1 percent from a year earlier, settling in at $60.5 billion. Appetite for loans was dampened, the bank said, by an uptick in interest rates earlier this year.

“We are seeing positive signs that the economy is healthy and getting stronger,” Mr. Dimon said. “Housing prices continued to improve, and new home purchases are also starting to come back.

The bank’s credit card business also improved, with sales volume rising to $94.7 billion, an increase of 9 percent from the same quarter a year earlier, but down 7 percent from last quarter. Auto lending also grew by 12 percent from a year earlier to $6.5 billion.

The results point to some of the larger challenges facing the nation’s biggest banks. As low interest rates continue to undercut profits, banks like JPMorgan are under pressure to cut expenses.

JPMorgan said on Friday that its total head count continued to fall, reaching 255,898. Non-interest expenses plummeted by 16 percent to $15.42 billion from a year earlier.

The bank has pinned some of its hopes for future profitability on its asset management business, as profits from riskier businesses like trading get undercut by a spate of new regulation. The asset management business reported net income of $487 million for the quarter, up 26 percent from a year earlier.

JPMorgan continued to gain business in private banking, accumulating $2.2 trillion in assets under management, up 8 percent from a year earlier.

Some of the strength in earnings, however, were helped by JPMorgan’s decision to reduce reserves for mortgages and credit-card loans. By moving money from the reserves, which cushion the bank against potential loses, the bank got a net 18 cent gain a share.

Addressing questions on Friday about whether the earnings are deceptively strong, Mr. Dimon said in a conference call that even after the reserve reductions, “we had really good numbers everywhere.”

Another quarter of earnings offers JPMorgan another chance to move beyond the multibillion-dollar trading loss that has dogged the bank. During the bank’s quarterly earnings call in January, for example, Mr. Dimon said that the latest quarter signaled the end of the trading debacle. “We are getting near the end of it,” he said.

Since announcing the trading loss last May, JPMorgan and its influential chairman, Mr. Dimon, have struggled to reassure skittish investors and defray a series of federal investigations related to the bungled wagers on complex-credit derivatives. Mr. Dimon has testified before Congress, vastly reshuffled its executive ranks and fortified risk controls. In January, JPMorgan’s board slashed Mr. Dimon’s compensation by 50 percent to $11.5 million.

More recently, Senator Carl Levin, Democrat of Michigan, grilled current and former senior executives at the bank about lax oversight policies and gulfs in risk management. The Congressional hearing, which lasted for nearly four hours, renewed pressure on Mr. Dimon and the bank. At times, senior executives floundered as they tried to combat lawmakers’ accusations that the officials misled investors and regulators about the soured bet. The hearing came just a day after a scathing 300-page report into the losses.

Mr. Dimon has struck a more contrite tone, seemingly chastened by the continued fallout from the trading losses. In his annual letter to shareholders, released on Wednesday, Mr. Dimon repeatedly apologized for the losses. He described the losses as the “the stupidest and most embarrassing situation I have ever been a part of,” vowing to continue to bolster risk controls and rout out problems.

Rather than taking a combative tone toward regulations that rein in Wall Street, Mr. Dimon expressed regret for how the trading losses “let our regulators down.”

In his letter, Mr. Dimon also warned shareholders that the bank would continue to face regulatory challenges in the “coming months.” JPMorgan, Mr. Dimon said, will deploy resources to improve firmwide controls on risk and compliance. “We are reprioritizing our major projects and initiatives,” he said.

The earnings on Friday come just a month before JPMorgan’s annual shareholder meeting, where the results of a crucial vote will be announced. Shareholders will decide whether to strip Mr. Dimon of his chairman title, a role he has held since 2006. Ahead of the nonbinding vote, JPMorgan has been working behind the scenes to make their case to shareholders that Mr. Dimon should keep the dual roles.

Article source: http://dealbook.nytimes.com/2013/04/12/jpmorgan-shows-strength-in-quarter/?partner=rss&emc=rss

DealBook: JPMorgan Campaigns to Keep Dimon in 2 Top Jobs

Jamie Dimon, chief executive and chairman of JPMorgan Chase.Jacquelyn Martin/Associated PressJamie Dimon, chief executive and chairman of JPMorgan Chase.

JPMorgan Chase is working behind the scenes to avert a major potential embarrassment.

In anticipation of a crucial vote at next month’s annual meeting, board members are planning to sit down with some of the bank’s biggest shareholders to make their case that JPMorgan’s influential chief executive, Jamie Dimon, should keep his chairman title, according to several people briefed on the plans.

The campaigning, which shareholders indicate is unusually proactive this year, reflects the growing worries within JPMorgan that investors may be dissatisfied with management because of the continuing fallout from a multibillion-dollar trading debacle.

In the past, such investors say they usually received only a phone call from executives in the investor relations department or met with them in person. Along with director meetings, the company this year is also contacting smaller shareholders who previously might not have heard from the big bank at all.

Voting to split the roles would send a powerful message. Few big banks have separated the chairman and chief executive positions. And when they do, it generally occurs during a broader management shake-up, as in the case of Bank of America and Citigroup.

“As we approach our annual meeting, we are conducting our normal shareholder outreach program, which offers an opportunity to review company matters with investors and which sometimes includes conversations with directors,” Joe Evangelisti, a JPMorgan spokesman, said. “As we mentioned in our proxy filed last week, a director can be available for discussions with major shareholders.”

A few big shareholders can make a difference in either direction. Last year, roughly 40 percent of the JPMorgan investors supported a proposal to split the roles.

Firms that advise some of the nation’s largest shareholders are expected to recommend again that JPMorgan separate the posts of chief executives. Other big investors, including some that voted to keep the roles together last year, remain undecided, according to a number of shareholders who spoke on the condition of anonymity because of policies against talking to the media.

“If you separate the roles, there is another set of eyes and ears,” said Michael S. Levine, a portfolio manager at OppenheimerFunds. “That is not a bad thing, because there is more accountability.” But in comparison to its peers, he said, JPMorgan has done “arguably the best job.” On proxy matters, Oppenheimer, which owns 20 million JPMorgan shares, typically votes in line with the recommendations of the advisory firm, Institutional Shareholder Services.

JPMorgan’s Trading Loss

While a shareholder vote in favor of splitting the positions would not be binding, it would put pressure on the board to split the roles. Such an outcome would also indicate that many shareholders had lost faith in Mr. Dimon, 57, a precipitous fall for an executive who successfully steered the bank through the turmoil of the financial crisis.

If the vote goes against the company and the board decides to split the role, some board members and shareholders are concerned that Mr. Dimon might resign rather than accept what would most likely be regarded as an affront. Several shareholders have said privately that succession is a major factor in their decision-making process. In meetings with directors, the shareholders said they expected to ask about succession planning, and the board’s ability to exert influence on bank management.

In recent years, companies have been moving to split the role of chairman and chief executive, either proactively or at the urging of shareholders. The move is aimed at creating stronger, independent boards, to keep management in check. Last year, Citigroup’s board, let by a strong-willed chairman, Michael E. O’Neill, voted to oust the chief executive, Vikram S. Pandit.

In February, a group of JPMorgan shareholders filed a resolution to divide the chairman and chief executive posts. Since then, those investors have been working to gather support for the proposal.

“We don’t believe the person responsible for these costly mistakes should be overseeing reforms,” said Denise L. Nappier, the Connecticut state treasurer and a supporter of the proposal.

The board, including the lead independent director, Lee R. Raymond, the former chief executive of Exxon Mobil, has been trying to flex its muscle in recent months. In January, directors voted to slash Mr. Dimon’s pay by more than 50 percent to $11.5 million, in response to the trading loss.

But ultimately the board supports Mr. Dimon. In March, the directors indicated in the proxy filing that he should keep the chairman and C.E.O. titles, encouraging shareholders to vote against the proposal. “The board has determined that the most effective leadership model for the firm currently is that Mr. Dimon serves as both,” the board said in the proxy filing.

Now, the board is dispatching directors to meet with shareholders, according to people briefed on the board’s plans. While these meetings have yet to take place, shareholders say the board is likely to stress that they understand the investors’ concerns — and that the board is on top of the company’s problems. JPMorgan is likely also to emphasis firm’s strong profitability in recent years, despite its recent missteps.

It is hard to predict the outcome of the vote.

JPMorgan is owned by a wide variety of shareholders. Well-known institutions like Fidelity Investments and the Vanguard Group are among the biggest holders, collectively owning more than 6 percent of the company. Both firms have a history of following the board’s voting recommendations at JPMorgan, according to data compiled for The New York Times by the research firms Fund Votes and Disclosure Matters.

Still, other shareholders have switched their position, according to the data providers. Last year, American Funds voted to split the roles at JPMorgan, after having opposed it in previous years. Funds managed by Franklin Templeton voted against a split in 2007, but they have favored it in subsequent years.

“The top shareholders, BlackRock and Vanguard, decide the outcome 82.2 percent of the time, and both of them have previously sided with management on this vote,” said Travis Dirks, the head of Rotary Gallop, a firm that is often hired to predict the outcome of proxy fights. “That is hard to defeat,” he said, adding that it would take hundreds of smaller shareholders to tip the scales.

Last year, JPMorgan held its annual meeting in May, shortly after it disclosed the trading loss to investors. One shareholder, who asked not to be named because of a policy against speaking to the media, said that last year the loss was fresh and it wasn’t a big factor in how his firm voted.

This year, he said, the decision isn’t as clear. The continuing fallout from the trading loss, including the bank’s frayed relationship with regulators and concerns about its risk controls, will factor into his vote. But he added that splitting the role could create more problems than it solves, by adding to the management upheaval.

Several shareholders say the lack of a clear succession plan is a significant issue. In the last two years, Mr. Dimon has remade the upper echelons of the bank’s management. More than half of the managers who helped lead the bank through the crisis have left, including James E. Staley, the former head of the investment bank, and Barry Zubrow, once the bank’s top regulatory officer. Those who remain at the bank are mostly younger executives, many of whom are in their 40s and not necessarily ready to take the reins.

“It’s tricky,” said the shareholder. “The reward for a lack of succession planning isn’t to leave Mr. Dimon with both titles. Yet we are worried about what he happens if he leaves.”

Article source: http://dealbook.nytimes.com/2013/04/05/behind-the-scenes-jpmorgan-works-to-sway-shareholders-on-dimon-vote/?partner=rss&emc=rss