Friday 30th January 2015
NEWS TICKER FRIDAY, JANUARY 30TH: The London office of Deutsche Bank is being investigated by the Financial Conduct Authority (FCA), according to The Times newspaper. Allegedly, the bank has been placed under ‘enhanced supervision’ by the FCA amid concerns about governance and regulatory controls at the bank. The enhanced supervision order was taken out some months ago, says the report, however it has only just been made public - According to Reuters, London Stock Exchange Group will put Russell Investments on the block next month, after purchasing it last year. LSE reportedly wants $1.4bn - Legg Mason, Inc. has reported net income of $77m for Q3 fiscal 2014, compared with $4.9m in the previous quarter, and net income of $81.7m over the period. In the prior quarter, Legg Mason completed a debt refinancing that resulted in a $107.1m pre-tax charge. Adjusted income for Q3 fiscal was $113.1m compared to $40.6m in the previous quarter and $124.6m in Q3 fiscal. For the current quarter, operating revenues were $719.0m, up 2% from $703.9m in the prior quarter, and were relatively flat compared to $720.1m in Q3 fiscal. Operating expenses were $599.6m, up 5% from $573.5m in the prior quarter, and were relatively flat compared to $598.4min Q3 of fiscal 2014. Assets under management were $709.1bn as the end of December, up 4% from $679.5bn as of December 31, 2013. The Legg Mason board of directors says it has approved a new share repurchase authorisation for up to $1bn of common stock and declared a quarterly cash dividend on its common stock in the amount of $0.16 per share. - The EUR faces a couple of major releases today, says Clear Treasury LLP, and while the single currency has traded higher through the week, the prospect of €60bn per month in QE will likely keep the euro at a low ebb. The bigger picture hasn’t changed, yesterday’s run of German data was worse than expected with year on year inflation declining to -.5% (EU harmonised level). Despite the weak reading the EUR was unperturbed - The Singapore Exchange (SGX) is providing more information to companies and investors in a new comprehensive disclosure guide. Companies wanting clarity on specific principles and guidelines on corporate governance can look to the guide, which has been laid out in a question-and-answer format. SGX said listed companies are encouraged to include the new disclosure guide in their annual reports and comply with the 2012 Code of Corporate Governance, and will have to explain any deviations in their reporting collateral. - Cordea Savills on behalf of its European Commercial Fund has sold Camomile Court, 23 Camomile Street, London for £47.97mto a French pension fund, which has entrusted a real estate mandate to AXA Real Estate. The European Commercial Fund completed its initial investment phase in 2014 at total investment volume of more than €750m invested in 20 properties. Active Asset Management in order to secure a stable distribution of circa 5% a year. which has been achieved since inception of the fund is the main focus of the Fund Management now. Gerhard Lehner, head of portfolio management, Germany, at Cordea Savills says “With the sale of this property the fund is realising a value gain of more than 40%. This is the fruit of active Asset Management but does also anticipate future rental growth perspectives. For the reinvestment of the returned equity we have already identified suitable core office properties.” Meantime, Kiran Patel, chief investment officer at Cordea Savills adds: “The sale of Camomile Court adds to the £370m portfolio disposal early in the year. Together with a number of other asset sales, our total UK transaction activity since January stands at £450m. At this stage of the cycle, we believe there is merit in banking performance and taking advantage of some of the strong demand for assets in the market.” - US bourses closed higher last night thanks to much stronger Jobless Claims data (14yr low) which outweighed mixed earnings results. Overnight, Asian bourses taken positive lead from US, even as Bank of Japan data shows that inflation is still falling, consumption in shrinking and manufacturing output is just under expectations. According to Michael van Dulken at Accendo Markets, “Japan’s Nikkei [has been] helped by existing stimulus and weaker JPY. In Australia, the ASX higher as the AUD weakened following producer price inflation adding to expectations of an interest rate cut by the RBA, following other central banks recently reacting to low inflation. Chinese shares down again ahead of a manufacturing report.” - Natixis has just announced the closing of the debt financing for Seabras-1, a new subsea fiber optic cable system between the commercial and financial centers of Brazil and the United States. The global amount of debt at approximately $270m was provided on a fully-underwritten basis by Natixis -

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Regulatory Update

Lessons from an Industry Titan: Jamie Dimon’s Testimony

Friday, 15 June 2012 Written by 
Lessons from an Industry Titan: Jamie Dimon’s Testimony This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are: http://www.ftseglobalmarkets.com/

This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are:

"[W]e are still reviewing the facts...”

Lesson: Never speak out publicly in a definitive way until you fully know the facts.  You will not fully know the facts for months.



"...I will explain everything I can to the extent possible."

Lesson: Even for Dimon, transparency matters.

"CIO's strategy...was poorly conceived and vetted.  The strategy was not carefully analyzed or subjected to rigorous stress testing.... CIO's traders did not have the requisite understanding of the risks they took.”

Lesson: Didn’t we learn this lesson in 2008? Back then we learned that some strategies had assumptions that seemed poorly founded in retrospect. This was particularly true about the behavior of the mortgage markets and their derivatives.  Guess the lesson is that most people never learn this lesson. Before a system or strategy is implemented, and periodically thereafter, management (including the board) should ask the probing questions. Make no assumptions on this score.

"Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO's trading personnel.”

Lesson: The press reported that the CIO’s then-current chief risk officer began to internally express his concerns about London office trading strategies last year. This past January, he was replaced as the head of risk by a former trader who, at least according to the press reports, had no prior risk management experience. This lesson relates to human nature: it's very hard to appreciate someone who has a different point of view. Watch out – he may be right.

"Risk Committee structures and processes in CIO were not as formal or robust as they should have been.”

Lesson: Assessments have to be substantive, robust, and “real”, and be tested and documented regularly as assumptions and/or reality changes. Structure, process and formality may not protect you from all losses, but they can provide a protective shield that will hopefully mitigate them. Be sure to build your protective shield. 

 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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