'Bond King' Bill Gross quits Pimco for Janus

from reuters

BY PARITOSH BANSAL AND JENNIFER ABLAN

NEW YORK Sat Sep 27, 2014 4:07am IST

Bill Gross, co-founder and co-chief investment officer of Pacific Investment Management Company (PIMCO), speaks at the Morningstar Investment Conference in Chicago, Illinois, June 19, 2014.

(Reuters) - Bill Gross, the bond market's most renowned investor, quit Pimco for distant rival Janus Capital Group Inc on Friday, the day before he was expected to be fired from the huge investment firm he co-founded more than 40 years ago.

Gross, 70, had been clashing with the firm's executive committee and had threatened to resign multiple times, a source familiar with the situation said. The committee had planned to accept his latest resignation from the post of chief investment officer on Saturday.

The surprise development, which rattled the U.S. bond market, came the day before Pimco and its parent, German insurer Allianz SE, planned to dismiss Gross, the source said.

Gross will manage the Janus Global Unconstrained Bond Fund beginning on Monday, Janus said in a statement. The fund, started in May, has just $13 million in assets.

Dan Ivascyn, one of Pimco's deputy chief investment officers, is expected to replace Gross, who according to Forbes has a net wealth of $2.3 billion, a source familiar with the matter said.

"Pimco and Bill Gross are synonymous," said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ. "It will be extremely hard to think of Pimco and Bill Gross as separate, and it will take time for investors to realize that he no longer is going to play a role at one of the world’s largest fixed income managers."

PERIOD OF UPHEAVAL

The departure is the latest twist in a tumultuous year for Gross, long dubbed "the bond king" for his prowess in fixed-income investing, and for the firm he helped build into a $2 trillion powerhouse since co-founding it in 1971.

Earlier this year, his co-chief investment officer, Mohamed El-Erian, left Pimco, causing a highly public falling out between the two long-time colleagues. El-Erian remains at Allianz.

Gross' flagship Pimco Total Return Fund, the world's largest bond fund, with more than $220 billion in assets, has suffered nearly $70 billion of investor withdrawals over the past 16 months, while its performance has lagged its peers and the wider bond market.

His departure could lead investors to pull hundreds of billions of dollars in assets from Pimco and invest it with Janus, a Morningstar analyst said.

Pimco had prepared investors for the possibility of succession as recently as two weeks ago, said Karissa McDonough, a fixed income strategist at People’s United Wealth Management.

“They were trying to reassure us by driving home the point that they’re not so dependent on Bill Gross anymore,” McDonough said.

The departure also comes within days of news that the U.S. Securities and Exchange Commission was investigating whether a popular Pimco exchange-traded fund that Gross ran and that was launched to mimic the strategy of the much larger Pimco Total Return Fund, had artificially inflated returns.

The probe is not related to Gross' resignation, a spokeswoman for Allianz said.

Shares of Allianz fell more than 8 percent in German trading.

The news also sent yields of U.S. Treasury bonds higher and prices lower. Analysts said traders sold Treasuries on bets investors would pull cash from Pimco.

The impact was also felt in the niche market of inflation linked bonds known as Treasury Inflation Protected Securities (TIPS), where breakevens - the difference in yield between TIPS and a comparable maturity treasury - were narrower across the curve, denoting an underperformance of TIPS.

According to the latest public data, PIMCO owned $79.8 bln of TIPS and was the largest holder in 25 of the 38 outstanding issues, according to Thomson Reuters publication IFR.

JANUS' TRIUMPH

Gross' move was seen as a huge coup for Janus, which has less than $180 billion in assets under management, less than the Total Return Fund and a fraction of Pimco's total assets.

Janus shares were up nearly 38 percent, or $4.19, at $15.30 in late afternoon trading on the New York Stock Exchange.

"I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organization," Gross said in a statement.

Gross said he had chosen Janus because of his longstanding relationship with Chief Executive Richard Weil, who spent 15 years at Pimco before taking his current job in 2010.

Gross had also considered joining DoubleLine Capital. The investment firm's head, Jeffrey Gundlach, said he had met with Gross last week to discuss a possible role there.

Gross will be based in a new Janus office to be set up in Newport Beach, California, where Pimco is based.

(Reporting by Dan Burns, Paritosh Bansal, Jennifer Ablan, Luciana Lopez, Jonathan Gould, David Randall and Sam Forgione; Writing by Dan Burns and Megan Davies; Editing by Lisa Von Ahn and Steve Orlofsky)

Credit compare sites not equal

from daytondailynews.com



Posted: 12:00 a.m. Saturday, Sept. 13, 2014

By Clark Howard

Contributing Writer

The banksters are at it again. The Wall Street Journal says there’s dirty dealings going on, with many popular credit card comparison sites lying to you when you go to pick the best credit card.

Following the CARD Act of 2009, comparison shopping for credit cards became so easy; the whole thing was made to order for the Internet. So people set up slews of credit card comparison shopping sites.

But The Wall Street Journal reports the banks that control the bulk of our nation’s credit card portfolio have intimidated the credit card shopping sites with threats of lawsuits if they publish a bad review and by dangling advertising dollars in front of them for top billing on those sites.

The fix was in. And little by little, one site after another became worthless if you were looking for objective recommendations. Now when you go online to a comparison site, in many cases, the info is manipulated.

Six popular sites show credit cards that they get paid to show, according to the newspaper report. This is some ugly, crooked, dishonest stuff. And it completely perverts the original intention of the sites.

That got me thinking: What about CreditCardTuneUp.com? That’s the site I routinely recommend to you for research when you want to find out about credit card offers.

So we asked them point blank if they’re controlling listings based on what they get paid by the big banks. Unequivocally not, they said.

In fact, after we talked, CreditCardTuneUp added the following advertiser disclosure front and center on their website:

“The majority of the card offers that appear on this site are from companies from which Credit Card Tune-Up receives a commission for new cardmembers (e.g. Discover, Barclays, Simmons), though several offers are from companies with which there is no such partnership (e.g. Fidelity, PenFed, Navy FCU). However, these commissions do not impact how or where products appear on this site, including the order in which they appear. The Credit Card Tune-Up calculation engine does not include all card companies or all card offers available in the marketplace.”

So there you have it. I will continue to recommend CreditCardTuneUp in good faith. And about the other sites mentioned in The Wall Street Journal article, I’m bummed to have found out that they’re so disingenuous.

---

About Clark Howard

Find more answers to your consumer questions, plus Clark Howard’s book “Living Large for the Long Haul,” at ClarkHoward.com.

Eric Cantor Goes To Wall Street

from firedoglake.com


By: DSWright Wednesday September 3, 2014 4:27 am

In what is probably a surprise to no one, former House Majority Leader Eric Cantor has gone to Wall Street in the aftermath of his primary election defeat. Cantor will be working for Moelis & Co as vice chairman and managing director despite having little on his resume to justify the position.

For his largely ceremonial role he will be given $1.4 million in cash and stocks up front and receive a salary of $400,000 a year. Cantor will then receive $1.6 million in incentive cash and stocks in 2015 according to an SEC filing reviewed by The Hill.

Pretty nice pay day for a small town country representative. And like Citigroup had with Jack Lew, there is a nice provision for Cantor should he like to swing back through the revolving door.

The contract allows Cantor to leave the company after two years without a pay penalty to “take a full-time elected or appointed position in federal government, state government, or a national party.”

And of course those millions Cantor will receive in those two years will never influence how he treats Moelis & Co should he return to public office. Never.

Cantor has no real investment banking experience but he does understand influence peddling and insider dealings – so maybe not such a bad fit after all. And what does Wall Street get? Greater access to the inside of the Republican Party and another generation of party leaders. And as Wall Street learned during 2008, you can’t put a price on having powerful friends who can issue you a blank check backed by taxpayers. Giving Cantor this money is an investment that has already proven priceless in the past, at least until the Federal Reserve admits how much money it shoveled to the banksters.

In any case, what’s a few million dollars compared to the potential billions in bailouts that could be coming? Wall Street knows its business.

Photo by US House of Representatives under public domain.

Levine on Wall Street: The Mystery of Mortgage Fraud

from bloomberg



AUG 25, 2014 7:35 AM EDT

By Matt Levine

What is mortgage fraud, anyway?

Here's how the FBI puts it (not legal advice?): It's "some type of material misstatement, misrepresentation, or omission relating to a real estate transaction which is relied on by one or more parties to the transaction." One thing that looks like it might be mortgage fraud is: X borrows $100 to buy a $100 house, misrepresenting his income and intent to live in that house. X then sells the house to Y at an inflated price, say $150, and Y borrows $150 to pay the purchase price by similarly misrepresenting his income, intentions, etc. X has now made $50, which he splits with Y, and then they default on both mortgages and walk away with their $50. A Sacramento real estate agent named Yevgenity Charikov and his friends were accused of running more or less this scam in 2006 and 2007.

But hang on, Charikov said: Actually banks in 2006-2007 didn't care at all about anyone's income, or their intent to live in any houses. They were just churning out mortgages for the securitization market. They'd make loans to anyone. Sure, maybe our mortgage applications were full of lies, but those lies weren't material, and no one relied on them. So we couldn't have committed criminal mortgage fraud.

This argument worked: On Friday a federal jury acquitted Charikov and his friends. It also strikes me as obviously correct, and sort of wonderful, and something that everyone should be happy about. Charikov's lawyers took a populist view, arguing to the jury and anyone else who would listen that the real culprits are the evil banksters etc. etc. But if you're an evil bankster you should like this result even more. After all, when the evil banksters packaged and sold these mortgages to investors, those packages were also full of lies. And so those banks are out tens of billions of dollars for fraud settlements. But hang on, they might say: Sure we lied a lot about those mortgages. But where is the evidence that anyone cared? The mortgage machine needed to be fed, and we fed it, just like this Charikov character. It's only fraud if the victim wasn't in on it.

And what does it cost?

Elsewhere in mortgage fraud, Goldman agreed to pay $3.15 billion to buy back mortgage-backed securities worth $1.95 billion from Fannie Mae and Freddie Mac, to settle Federal Housing Finance Agency fraud claims. So that's $1.2 billion if you're keeping score I guess. TheFinancial Times is keeping score, and wonders how the Department of Justice, other regulators (FHFA, state attorneys general, etc.), and the banks figure out the numbers that go on these cases. "It is a black box," says a bank lawyer, and that seems about right. I complained last week about the sheer repetitiveness of these settlements -- Bank of America has settled its Fannie Mae claims five times now -- and the opacity is similarly frustrating. There's no clarity of "here's what they did, here's how much of it they did, and here's how much it costs them." It's just "here's what we were able to negotiate this time, isn't it big?"

And how do we get rid of it?

The Securities and Exchange Commission wants to require more disclosure about borrowers' income and credit scores in asset-backed securities. But here's a good post from Adam Levitin about subprime auto lending and ability-to-pay requirements. His argument is that "The advent of securitization and the sweatbox business model have broken the lender-borrower partnership." Securitization is what we were just talking about: If you're lending money to people for like a minute before you securitize the loans and sell them to muppets, you don't actually care if the people will pay you back, so you can just accept any old lies about their income. This destroys the old notion -- "the lender-borrower partnership" -- that a bank has good incentives only to lend money to people who can pay it back. It's no longer the bank's money. And then the "sweatbox model involves a lender that is willing to treat the loan's principal as a loss leader: if the lender collects enough in interest and fees over time, the lender may still make a profit even with the loss of some of the principal." Levitin's proposed fix is to forbid banks from making loans unless they think that they'll get paid back, which sounds super obvious and unnecessary until you look at how loans are actually made.

Allergan will hold a special meeting to vote on the Valeant deal (probably).

Bill Ackman delivered 1,500 pages of documents to Allergan, representing requests from holders of more than 30 percent of Allergan's shares to hold a special meeting of shareholders to vote on the takeover proposal from Valeant Pharmaceuticals and Pershing Square. Here is Pershing Square's press release, which says that "Allergan is now required to call the meeting no later than December 20, 2014," though in the next sentence it adds that Pershing Square and Valeant are preemptively suing to make it do that. Here isAllergan's press release, which puts a brave face on things ("many stockholders have explicitly conveyed their view that the requests arenot an endorsement of Valeant's offer"), and promises to review the requests and get back to everyone. In 1,500 pages of forms you can probably find something filled out wrong, and the question is, if there is a mistake, will Allergan be petty enough to deny shareholders their special meeting? Given the nastiness of this battle so far, I can't wait to find out the answer.

There are new ISDA Credit Definitions.

Are you not excited? Sure you are, come on. Awesome new provisions for the way we credit default swap now include:

• "a new Credit Event, Government Intervention, with respect to non-U.S. financial Reference Entities," so when a European government does some weird thing to a bank but doesn't call it default, you can still trigger CDS; and
• "Asset Package Delivery," so when your bank or sovereign poofs its bonds into some package of other weird things -- new bonds, say, or equity, or amorphous "claims" -- you can just hand that package of weird things in to the CDS auction.

There won't be that many Goldman Sachs partners this year.

This year's partner class will be "no more than 70 employees," "people familiar with the matter" told the Wall Street Journal. It would be funny if those people familiar with the matter also dropped a few names, like, "no more than 70 people, Jane Smith is looking pretty likely, but John Doe has no shot."

Things happen.

Companies are buying back less stock as prices go up. If a Dutch company buys an American one it doesn't have to pay American corporate taxes any more, even if the Dutch company is basically Bain Capital. Burger King might buy Tim Hortons. "The issue of cyber resilience is a bit of a sleeper issue." A Leverage-Based Measure ofFinancial Instability. Investment-grade whisky. It's getting easier toget drunk at the Harvard Club.

To contact the writer of this article: Matt Levine at mlevine51@bloomberg.net.

To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net.