MS restructuring baby...

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Morgan Stanley Hires Goldman Sachs Veteran Tony Lauto (Update1)
By Christine Harper

Feb. 3 (Bloomberg) -- Morgan Stanley hired Anthony “Tony”
Lauto, who rose from clerk to partner during a 35-year career at
Goldman Sachs Group Inc., to help lead the firm’s equity-trading
business.
Lauto, 53, is joining the owner of the biggest brokerage
firm as a managing director in New York, according to a memo to
employees of Morgan Stanley’s equity division that was obtained
by Bloomberg News. Morgan Stanley spokeswoman Mary Claire
Delaney confirmed the contents of the memo, which was dated
today.
Morgan Stanley Chief Executive Officer James Gorman, who
succeeded Chairman John Mack as CEO at the start of this year,
is hiring to improve the firm’s performance in sales and
trading, where Morgan Stanley lags behind rivals including
Goldman Sachs. Lauto will become a member of Morgan Stanley’s
Equity Operating Committee to help guide strategy and develop
new leaders, according to the memo from Ted Pick, global co-head
of equities.
Lauto, born in the New York City borough of Brooklyn, began
working at Goldman Sachs in 1975 after one year as a math major
at Wagner College on New York’s Staten Island. He started as a
clerk operating an AutEx machine, which brokerages used to
indicate their interest in doing block trades.
Lauto went to Pace University at night, earning an
associate’s degree in applied science in 1978. He worked his way
up at Goldman Sachs to trading utility stocks in the 1980s and
later served as a senior manager on the firm’s block trading
desk.
Lauto became a partner in October 1998, just before the
firm went public in May 1999. He was in the same partner class
as Goldman Sachs executives such as Richard J. Gnodde, who is
now co-CEO of Goldman Sachs’s European division, Goldman Sachs
International, and Ed Forst, now a senior strategy officer.
In 2006, Lauto purchased a $7.99 million Manhattan
condominium near Lincoln Center from Henry Paulson, his former
boss and then-U.S. Treasury Secretary.

Banking Models evolving before our eyes... don't forgot what i posted about MS hiring hundreds of new traders the other day...

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Morgan Stanley 'Evaluating' Hedge Fund Biz

Morgan Stanley is said to be "evaluating" its hedge fund platform, Bloomberg reported Wednesday.


Chief Executive Officer James Gorman did not spell out what the Wall
Street firm had in store for its business, Bloomberg reported.

Gorman, who just succeeded John Mack as CEO, was speaking at an investor conference in London.


Morgan Stanley has full- or part-ownership in Avenue Capital Group,
FrontPoint, Lansdowne and Traxis. In 2006, the Wall Street firm went on
a shopping spree, gaining a presence in the hedge fund industry via
acquisition.

Paul Volker has introduced a proposal to ban a Wall Street firm like
Morgan Stanley from owning a hedge fund or private equity business.
Citi is reported to be speeding up its sale of its hedge fund and
private equity businesses in anticipation of the proposal becoming a
rule.


The Morgan Stanley press office could not provide comment by press time.

Corporate Bond Spreads Rise Most Since November: Credit Markets

By Sapna Maheshwari and John Detrixhe

Feb. 8 (Bloomberg) -- Corporate borrowing costs are rising
at the fastest pace in more than two months on concern that
worsening government finances will slow the global economy and
make it harder for companies to meet debt payments.

The extra yield investors demand to own corporate bonds
instead of government securities widened 4 basis points last
week to 169 basis points, the most since the period ended Nov.
27, according to the Bank of America Merrill Lynch Global Broad
Market Corporate Index. Spreads widened for three weeks, the
longest stretch in about a year, while those for U.S. high-
yield, high-risk companies expanded by the most since August.
Optimism over the recovering economy that made January the
best start to a year since 2001 for the corporate bond market is
fading as finances in Greece, Spain and Portugal deteriorate,
Japan struggles to emerge from recession and concerns grow that
emerging-market valuations are too high.

BES Investimento do Brasil pulled an international bond offering of as much as $350
million, capping a week of canceled sales from India to Korea.
“The potential impact of spill-over into other markets has
gotten folks to look at risk assets of all types, and you’re
seeing a pullback across the globe,” said Andrew Karp, a
managing director on Bank of America Corp.’s investment-grade
syndicate desk in New York.


Slowing Returns
Returns are slowing, with company debt gaining 0.12 percent
this month, after adding 1.83 percent in January including
accrued interest, the Merrill Lynch index shows. Treasuries have
returned 0.41 percent this month, after handing investors 1.58
percent last month, another Merrill Lynch index shows. U.S.
corporate bond sales are down 11 percent this year to $147.4
billion, from $165.6 billion in the same period of 2009,
according to data compiled by Bloomberg.

Declining issuance and widening spreads may continue as
borrowers monitor how government deficits are managed in Europe,
Karp said.

Elsewhere in credit markets, emerging-market bond spreads
are the widest since November, the cost to insure corporate debt
against default is the highest in two months, and prices of
securities backed by U.S. government agencies Fannie Mae and
Freddie Mac with relatively high coupons are at record highs.
At their meeting in Iqaluit, Canada, the Group of Seven
finance ministers pledged to press ahead with economic stimulus
measures even as investors intensify their focus on mounting
budget deficits. Canadian Finance Minister Jim Flaherty told
reporters that “we need to continue to deliver the stimulus to
which we are mutually committed and begin looking at exit
strategies to move to a more sustainable fiscal track.”

‘Running a Gauntlet’
“They are running a gauntlet, hemmed in between debt
crisis on the one side and a double-dip recession on the
other,” said T.J. Marta, chief market strategist at Marta On
The Markets LLC, a financial-research firm in Scotch Plains, New
Jersey. Marta is also a former fixed-income and currency
strategist at RBC Capital Markets and Citigroup Inc.
Sovereign debt concerns are overshadowing positive economic
news, Deutsche Bank AG fixed-income strategists Mustafa
Chowdhury in New York and Ralf Preusser and Francis Yared in
London wrote in a note to investors.

The U.S. unemployment rate fell to 9.7 percent in January,
the lowest level since August, from 10 percent the prior month,
even as payrolls fell by 20,000, the Labor Department said Feb.
5. White House economic adviser Lawrence Summers said the nation
is not “too far” from the start of a rebound in jobs.


Credit-Default Swaps

Credit-default swaps on the Markit CDX North America
Investment-Grade Index, linked to 125 companies and used to
speculate on creditworthiness or to hedge against losses, traded
at the highest in more than two months, increasing 9.5 basis
points over two days to 101.75 basis points as of Feb. 5,
according to broker Phoenix Partners Group.
In London, the Markit iTraxx Europe Index of companies with
investment-grade ratings climbed to the highest in almost four
months, rising 5.75 basis points on Feb. 5 to 92.25 basis
points, JPMorgan Chase & Co. prices show.

A credit swaps index linked to 15 Western European
countries including Greece, Portugal, Spain and Italy jumped to
the highest last week since it was introduced in September.
The Markit iTraxx SovX Western Europe Index of credit-
default swaps on the debt of 15 governments surged almost 18
basis points to 106.5 basis points, after reaching a record
106.75 basis points on Feb. 4, CMA DataVision prices show.


Junk Bond Losses

Credit swaps pay the buyer face value if a borrower
defaults in exchange for the underlying securities or the cash
equivalent. A basis point is 0.01 percentage point, and equals
$1,000 a year on a contract protecting $10 million of debt.
“The concern is, if you have a sovereign default, who is
exposed?” said Joe Jackson, head of credit research at St.
Petersburg, Florida-based Eagle Asset Management, which invests
about $18 billion. “It looks like people are aggressively
trying to buy protection against Greece, which leads you to
think there’s probably a lot of exposure out there.”
Speculative-grade corporate bond spreads widened 35 basis
points last week, the fourth straight increase and the biggest
jump since the week ended Aug. 14 when they expanded 37 basis
points, according to the Bank of America Merrill Lynch U.S.
High-Yield Master II index.

The bonds have lost 0.62 percent this month, after rallying 1.52 percent in January.
U.S. investment-grade credit spreads widened 5 basis
points, the biggest weekly increase in yields relative to
Treasuries since the period ended Oct. 2, when they rose 8 basis
points, according to Bank of America Merrill Lynch’s U.S.
Corporate Master index.


Emerging-Market Bonds

Emerging-market bonds have been among the hardest hit, with
the difference between yields on the bonds and government debt
reaching 3.2 percentage points on average at the end of last
week, up from the low this year of 2.95 percentage points on
Jan. 8, according to JPMorgan’s EMBI+ index.

BES Investimento do Brasil postponed its offering because
it would have been more expensive given “market volatility,”
Paulo Augusto Saba, managing director for global markets, sales
and fixed-income trading in Brazil, said in a telephone
interview. BES was planning to issue five-year bonds, he said.
BES is a unit of Lisbon-based Banco Espirito Santo SA.
“If we were to do the issuance now, we would have to pay
much more, and we didn’t need to do so,” Saba said from Sao
Paulo. “I want to do a beautiful deal. I don’t want to do a
Frankenstein deal in the market.”

India’s Bank of Baroda canceled a bond sale denominated in
U.S. dollars, and Korea Hydro & Nuclear Power Co., a unit of
state-run Korea Electric Power Corp., delayed a foreign-currency
debt offering until after March, said people familiar with the
matter who declined to be identified because the decisions
hadn’t been publicly announced.


Kraft Bonds Rally

Bonds issued last week by Kraft Foods Inc., the maker of
Oreos and Cheez Whiz, rose in secondary trading. Northfield,
Illinois-based Kraft sold $9.5 billion of debt in a four-part
issue after increasing the size of the sale from $4 billion and
boosting the spreads offered to investors.
The food maker’s 5.375 percent notes due in 2020 gained 1.3
cents on the dollar from 99.176 cents to yield a spread of 176.7
basis points, according to Trace, the bond-price reporting
system of the Financial Industry Regulatory Authority. The debt
sold at a spread of 190 basis points, Bloomberg data show.
“It has performed really well,” said Jackson of Eagle
Asset Management. “You start to get concerned if you see these
deals go really poorly. So far we haven’t seen that.”


Not Panicking

New bonds from Sacramento, California-based McClatchy Co.
also rose, in a sign investors weren’t panicking, money-manager
Martin Fridson wrote in an e-mail. The newspaper publisher’s
$875 million of 11.5 percent notes sold at a spread of 866 basis
points, and rose to 99 cents on the dollar on Feb. 5 from an
issue price of 98.824 cents.

“The newspaper business isn’t one of the strongest sectors
of the economy,” wrote Fridson, chief executive officer of New
York-based Fridson Investment Advisors. “One would not have
expected the offering to fare as well as it did if institutional
investors were in a frantic selling mode.”


Mortgage bonds with higher coupons and guaranteed by
Washington-based Fannie Mae and Freddie Mac in McLean, Virginia
climbed to records as benchmark Treasury notes gained and
monthly reports showed prepayments slowing last month.
Fannie Mae’s 30-year fixed-rate securities with 6 percent
coupons have climbed 1.2 percent since Dec. 28, to a new high of
107.2 cents on the dollar, Bloomberg data show. Similar bonds
with 4.5 percent coupons, whose returns vary less with changes
in prepayments because they trade closer to face value, have
fallen 1.2 percent after reaching their second-highest level
ever on Nov. 30, to 101.4 cents.


The data released by Fannie Mae and Freddie Mac suggested
that the government-supported mortgage companies continued to
buy loans out of the bonds they guarantee after the loans are
modified, as required by the debt’s contracts, according to
JPMorgan and Barclays Capital analyst reports.

I read this rumor about a month ago but nothing came of it...I cannot believe Thain was chosen to lead a company of CIT's importance to the U.S. economy. He did well at Goldman and NYSE EuroNext. However he showed is true colors at Merrill. But then again, I guess everyone deserves a second chance....

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Thain back from wilderness to head CIT

By Greg Farrell in New York
Published: February 8 2010 02:09 | Last updated: February 8 2010 02:09

John Thain has been named chief executive of the CIT Group,
the troubled middle- market financial company that emerged from
bankruptcy in December under the control of its primary creditors.For Mr Thain, 54, the appointment is an opportunity to rehabilitate his career after a one-year stint as chief executive of Merrill Lynch resulted in a last-minute sale of the 94-year-old company to Bank of America, followed by his own dismissal a short time later. EDITOR’S CHOICE

“I’m excited about this,” Mr Thain told the Financial Times. “This is an
opportunity to be part of a company that is key to the US economic
recovery and the creation of jobs.”CIT, which provides financing
to small businesses and middle-market companies, enjoyed several years
of robust growth and expansion under the leadership of Jeffrey Peek,
but proved to be unprepared for the collapse of the US housing market
in 2007 and subsequent credit crisis.

By the end of 2008, with delinquent loans soaring, CIT applied for and received $2.3bn in funds
from the troubled asset relief programme (Tarp). It faltered again last
July, when more than $5bn in loans came due and the federal government
refused to inject more Tarp money.

In Mr Thain, CIT gets a marquee name, albeit one that was tarnished last year after leaving
BofA, amid strong losses at Merrill and revelations that he had spent
$1.2m of company funds to refurbish his office in 2008.After Mr
Thain took the helm of Merrill in December 2007,
he helped it raise more than $30bn in fresh capital and rid it of $31bn
in collateralised debt obligations, but was unable to preserve its
independence and agreed to sell to BofA after a frenzied weekend of
negotiations in September 2008.

At CIT, Mr Thain faces multiple challenges. The recapitalised company
carries an expensive debt load he will try to renegotiate. He will have
to work closely with the Federal Reserve and the Federal Deposit
Insurance Corporation to bring it into compliance on a variety of
issues.

Asked if he had learned any lessons from Merrill, Mr
Thain said: “Fixing these kinds of financial problems is generally more
difficult and takes more time than you think, because you keep
uncovering new problems.” Mr Thain will be paid a salary of
$500,000 and receive 180,000 shares of restricted stock, worth $5.5m at
current prices, that vest over several years.

By Justin Baer in New York
Published: March 1 2010 20:40 | Last updated: March 1 2010 22:31

Goldman Sachs made at least $100m in net trading revenues on 131 days last year – equivalent to once every other trading day, according to a filing with the Securities and Exchange Commission on Monday. Goldman managed the result even as it took greater trading risks in 2009 than in the previous year. Its daily “value at risk” (VAR) – the most that the bank estimates that its traders could lose on a given day – was $218m in 2009, up from $180m during the previous fiscal year, which closed in November 2008.

Goldman earned a record $13.4bn in 2009 as net revenues more than doubled to $45.2bn and the bank reined in compensation costs amid a furore about bonuses earlier in the year.


Goldman’s 131 $100m-plus trading days in 2009 shattered its previous high of 90 days, set in 2008. In last year’s 263 trading days, the bank lost money 19 times, Goldman said in the filing. Its daily losses never exceeded $100m. “It’s impressive, but it’s not unexpected,” David Hendler, an analyst with CreditSights. “They were one of the few games in town in 2009.” Goldman’s performance came during a year when the demise of several rivals left it and fellow survivors better able to capitalise on the flurry of debt and equity trading that followed the financial crisis. The controversy over banks’ profits and compensation policies, and an uncertain outlook for both the markets and financial services regulation, could make it difficult for it to approach 2009’s performance any time soon, Mr Hendler said. And competitors had regained their footing. “It may have been a high-water mark.”

Trading and principal investments, which includes Goldman’s merchant banking activities, account for more than 75 per cent of its total net revenue. The rise in Goldman’s daily VAR was “principally due to an increase in the interest rates category” as spreads widened, and a “reduction in the diversification benefit across risk categories”, the bank said. The bank’s VAR tied to commodities trading declined as energy prices fell. The bank reports daily VAR at a 95 per cent confidence level, representing the one-day trading loss that it would expect to exceed only 5 per cent of the time. Goldman shares finished 0.12 per cent higher at $156.54 in New York trading.