August: No Time for Doldrums

Market events mean no time for rest?

If history repeats itself or if tradition rules, then the waning days of summer in finance and markets should be marked by doldrums, inactive markets and dreading Labor Day.

But once again August has thrown a soft curve ball--with market volatility, big institutions confronting legal issues, and a band of activist shareholders causing havoc in boardrooms. Nothing that has caused market nightmare, but enough to cause a little upheaval in what should be dull days before mid-September.  The Augusts of 2011-12, recall, were upended by disgusting debates in U.S. Congress about government deficits and debt. 

The tale of the "Whale" and the $6 billion in trading losses at JPMorgan from 2012, events we thought had faded from everybody's attention, plopped up again when government regulators and law-enforcement officials decided to place criminal charges against some banks officials for hiding information about the losses and acting in deceitful ways.  The irony is the "Whale" himself, the JPMorgan trader in London who presided over the disastrous trading positions, is not a target.  JPMorgan likely suspected some action of this kind would occur, but it didn't expect the whole matter would resurface in late-summer business headlines, forcing the bank once again to rehash, review and remember the whole dreadful episode.

William Ackman, the tenacious shareholder activist whose bold charges and boardroom moves attract constant media attention, raised his surrender flag this month with J.C. Penney.  Ackman and his Pershing Square Capital fund were instrumental in implanting Apple-groomed CEO Ron Johnson, who was supposed refashion JCP into the retail-industry version of Apple-like merchandising. The Ackman-backed experiment failed miserably, the JCP CEO resigned, and Ackman became a pariah in that boardroom.  He gave up in August, resigned from (or was shoved off) the board, and resumed his shareholder fights elsewhere--at Herbalife. 

Ackman has charged that company (Herbalife) in running a Ponzi scheme in selling its product, and various sides have taken up the debate:  Is Herbalife a legitimate company, a reasonable growth investment? Or is it administering a fraudulent marketing scheme? The skirmish continues.

Commodity activities have plagued big banks Goldman Sachs and JPMorgan this summer, and unexplained volatility is not the reason.  Business reporters (first at the New York Times) discovered questionable practices by Goldman in aluminum markets, where Goldman receives fees for warehousing aluminum before final sales to end-users. Goldman is alleged to conduct a practice of delaying the transport of aluminum by transferring it from warehouse bin to bin for no apparent reason except to prolong fee collection.

The wreckage of mortgages and assembling mortgage securities won't go away for many top banks. This summer, Bank of America, still being knocked over for acquiring Countrywide in the midst of the crisis, is wrestling with legal accusations and possible settlements--in the tens and hundreds of millions. 

Elsewhere, regulators accused JPMorgan for deceptive pricing behavior in West Coast electricity markets.  Energy regulators accused the bank of unfair mark-ups in electricity prices in related trading activity.  JPMorgan and regulators agreed to a settlement, but the entire episode was enough to spur the bank to move quickly, reorganize and rethink its commodities-trading business. It opted to withdraw from physical-commodities businesses--businesses it had inherited from Bear Stearns.

After a remarkable first-seven months run, equity markets have begun to rumble and shudder, mostly because market-moving investors prefer to pay much attention to hidden messages coming from the Federal Reserve.  Every hint that the Fed plans to stop purchasing bonds that will keep interest rates low leads to gyrations in stock markets. That's the way the markets move these days.

And while it was transforming itself into a model citizen for regulators, JPMorgan was pummeled once again when the SEC announced it was investigating the bank for nepotism, hiring sons and daughters of well-connected Chinese executives and government officials.  No doubt senior bankers in CEO Jamie Dimon's circle are puzzled about a finance-industry practice that has taken place since, well, stock-market traders consummated transactions around a tree in downtown, 19th-century Manhattan.

Perhaps these days, it's all  the new normal--abetted by the Internet, technology, immediate access to market updates and everybody's ability to reach out to anybody anytime.  There might have been a time when all bankers, traders, compliance officers, deal-doers, and research analysts escaped en masse in August.  But nowadays regulators and enforcement officials don't take a break.  High-frequency traders and hedge-fund managers don't let up in summer.  Shareholder activists don't ease the pressure, and board rooms, CFOs, and investment-managers don't have the luxury of summertime doldrums anymore. 

Tracy Williams

See also:

CFN:  Delicate work-life balance, 2010
CFN:  Market volatility: Can you stand it? 2011