Tagged: Morgan Stanley

Banks BARE All

Where have I been?

Somehow, I missed the fun happening in SEC filings for large banks like Morgan Stanley, Goldman Sachs, JP Morgan, Credit Suisse and Deutsche Bank.

If you already know what BARES are – Buffered Accelerated Return Equity Securities, of course – goody for you, and you should’ve said something.

What first got my attention were big quarterly earnings this period for the banks. Strip out the Financials sector and S&P 500 earnings are measly. But banking is booming. Morgan Stanley reported a 66% jump in year-over-year quarterly net income “as the investment bank bounced back from a slump in trading revenue a year earlier,” said a Wall Street Journal story.

Wait a minute. Interest rates even after upticks since May 22 when Ben Bernanke offered an impression that the Infinite Money Theorem may in fact have a terminus are so low that inflation-protected notes guarantee buyers a loss even now. If banks rely on interest…well, you don’t expect big numbers, right?

Hang on now. Morgan Stanley said these results reflect trading gains. So I checked statistics at the Securities Industry and Financial Markets Association (SIFMA, where former Republican congressman Judd Gregg has just taken the helm). (more…)

Volcker Rocks IR

Volcker would be a great name for a shred-metal band. It seems vaguely gothic and you can picture musicians in leather with guitars and tattoos. Maybe colored hair.

Alas, no. The Volcker Rule is no band. But it’s prompting musical chairs that may rock IR. I’ll tell you how in a moment. First, this:

If you’re a member of MAPI, I’ll be regaling your IR council Friday Sept 14 with tales of the tape. If your IR program is stuck in the 1980s with a mullet and a Wurlitzer, come occupy a seat at the Intercontinental.

Second, a word on markets: No clanging claxons but we’re tapping the tam-tam on market risk. Hedging is up. Sentiment is vastly neutral – like painting the ceiling gray. Market structure to end August was a restive crowd in a mall at closing time.

Paul Volcker calmed the crowd. The six-foot-seven-inch Fed chairman loomed over markets from 1979-1987, earning praise for heeling rampant inflation. In 2010, a section of Dodd-Frank aimed at halting speculative trading by large commercial banks came to be called the Volcker Rule because the eminent economist had proposed it.

The rule hasn’t yet taken effect but Wall Street is already scurrying like a school when the bell rings. An exodus of proprietary traders – professionals deploying a bank’s own assets for return – from names like Goldman Sachs and Morgan Stanley is setting up shop. (more…)

Facebook Friends Morgan Stanley

While Florida voted, Morgan Stanley won the Facebook primary.

A unit of Thomson Reuters broke word that the big bank will helm a team of other big banks for what in May could be the biggest IPO, raising perhaps $10 billion.

We don’t care who underwrites the deal. But thinking about Facebook and its banking soldiers of fortune, the giant and the mighty in massive conformity, we thought of the markets.

In the data we track, Morgan Stanley is king of index program-trading executions. For large clients of ours, its volumes surpass those of small exchanges. At the Nasdaq, Morgan Stanley is the top liquidity provider, trumping fraternal behemoths BofA Merrill and Barclays and high-frequency clearing maestro Wedbush. Last June, Global Custodian’s annual ranking of prime brokers – banks bundling securities services for the buyside – slotted Morgan Stanley a close second to Goldman Sachs.

We wrote in September how the same names show up everywhere. The ones running books of derivatives, making markets in Treasuries, trading bonds electronically and correlating seas of equity executions are the same.

Lost in the long shadows of the large was word that technology research boutique Kaufman Brothers closed its doors this week. Ticonderoga Securities shut down earlier is month. Formerly Reynders Gray & Co. on the floor of the NYSE, the firm offered differentiated research, direct-access trading and agency executions. WJB Capital, another boutique, shuttered around January 4 after failing to raise capital and seeing its financing costs rise as high as 25%. (more…)

Datafeed Speed and Market Structure

If you absolutely must have trading data fast, who’s your huckleberry?

Burstream, apparently. The firm claims it can serve up actionable, meaningful trading data, no matter what market mayhem, in 600 nanoseconds. That’s 600 billionths of a second. The catch? You have to trade at the Nasdaq.

Burstream’s system is being installed at the Nasdaq OMX market center in New Jersey so the exchange’s important proprietary-trading customers will have a split-second – taken to the extreme – advantage. Customers wanting to use these superfast capabilities will be able to load their algorithms onto Burstream servers parked next to boxes housing the Nasdaq’s trade-matching engines.

Burstream systems will go near the Chicago Mercantile Exchange too. The idea is to unify data streams on stocks, commodities and derivatives so decisions about trading on divergence can be made faster than ever before possible. This is, of course, arbitrage.

Burstream says at its website: “Enable your high frequency trading algorithms to hit liquidity when it is revealed. Trade through market bursts while competitors exit the market. Sustained nanosecond speeds, even during message bursts will give your latency-sensitive algorithms a performance advantage.”

What makes Burstream special is its use of field-programmable gate-array chips (FPGAs) that can perform multiple calculations simultaneously, thus delivering a speed advantage over conventional hardware-processing techniques. (more…)

When Investors Buy and Sell

When investors buy and sell shares, what happens?

The logical answer is “stocks go up and down.” Let’s get more specific. Among the 20 largest asset managers at the end of 2009, ten were bank-owned, says consulting firm Towers Watson. The five largest – Blackrock, State Street, Allianz, Fidelity and Vanguard – are independents that pass the preponderance of their buying and selling through the biggest sellside firms on passive equity and ETF trading programs.

The banks behind ten of the twenty largest asset managers include BNP Paribas, Deutsche Bank, JP Morgan, BNY Mellon, Credit Agricole, UBS, Goldman Sachs, HSBC and Bank of America.

The top ten futures brokers for 2009 were Newedge (Societe General/Credit Agricole joint venture), Goldman Sachs, JP Morgan, Deutsche Bank, Citigroup, UBS, BofA, MF Global, Morgan Stanley and Barclays. (more…)

Of Beach Balls and Risk Allocations

Sorry to keep you waiting two extra days this week! We were in San Diego, where June Gloom outside contrasted with the festive mood filling the Manchester Grand Hyatt for NIRI National 2010, the annual gathering of IR professionals.

Attendance jumped from last year. A few new firms joined the lineup on the boulevards in the exhibit hall. One first-time attendee working in corporate governance said as we sat by the fire pit Monday night and watched the party crowd and the live band and the oddity of the evening, a young woman rolling around on the pool in a giant see-through inflated ball, “You NIRI folks are the nicest conference goers I’ve ever met.” (more…)

Loveland Ski Resort an hour up I-70 from downtown Denver logged 26 inches of snow in the past five days. We’ve had to cover patio plants the past two nights as temperatures dipped to 30. It’s bright and clear. But winter has had a hard time letting go this year.

Meanwhile in Europe, Morgan Stanley launched a lending book for European Exchange Traded Funds (ETFs) today. Here is the key to understanding financial reform currently mucking up Congress. It encapsulates everything that’s wrong with today’s capital markets. (more…)