Idola Blogs

July 7 Bloomberg — Goldman Sachs Group Inc. may lose its investment in a proprietary trading code and millions of dollars from increased competition if software allegedly stolen by a former employee gets into the wrong hands, a prosecutor said.

Sergey Aleynikov, a 39-year-old ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, a citizen of America and Russia who joined the bank in 2007, is charged in a criminal complaint with stealing the trading software. Teza Technologies LLC, a Chicago-based firm co-founded by a former Citadel Investment Group LLC trader, said it suspended Aleynikov, who started there on July 2.

via Goldman May Lose Millions From Ex-Worker’s Code Theft Update3 – Bloomberg.com.

Congress moved a full step closer to making it less hazardous for millions of Americans to keep using their credit cards. The Senate voted 90 to 5 Tuesday in favor of a reform that would prohibit credit card issuers from such unfair tactics as tripling interest rates overnight or passing out cards to clueless teenagers.

All customers would have to be notified 45 days in advance of any rate increase, and young people (under 21 in the Senate bill, 18 in the House version) would need an adult’s signature or proof that they have a way of repaying any new debt before getting a new card.

via Editorial – Safer Credit Cards – NYTimes.com.

Of the 39 evaluations made public this month, 10 were outstanding, 28 were satisfactory, and one was needs to improve. None were substantial noncompliance. Evaluations are available from links on http://www.occ.treas.gov/cra/may09.htm.

via OCC News: OCC Releases CRA Evaluations For 39 National Banks.

Less than 10% of high school graduates receive any financial education. The ABC Financial Literacy project is here to change that, not only with classroom education and materials, but with a real life experience of running, and owning their own business.

Approximately 75% of Americans live financially month to month. The ABC Financial Literacy Project was founded to make a change, because we believe that ordinary people can accomplish extraordinary things, and live the lifestyle they dream of with the right guidance.

The ABC Financial Literacy Project, is determined to offer a real life business experience to every parent and child, by choosing to work with a company that prides itself in a financial crusade to educate families across America.

So won’t you join us to stamp out financial illteracy in our nation – one kid at a time.

via ABC Financial Literacy Project – www.ABCLearnMoney.org.

Sharpe (1964) had published his capital asset pricing model (CAPM), which indicates that a portfolio’s expected return will increase with its systematic risk (beta) according to the formula

E(Z_p) = z_f + β[E(Z_m) – z_f]          [1]

That is, a portfolio’s expected return  equals the risk-free rate  plus the portfolio’s beta β multiplied by the expected excess return of the market portfolio . Formula [1] defines the portfolio’s expected return as a linear polynomial of the market expected return.

According to CAPM, portfolios may randomly outperform or underperform the market from one year to the next. Over many years, the random good years will tend to cancel the random bad years, and the portfolio’s long-run performance will fall on the capital market line (if it is optimized under CAPM) or under the capital market line (if it is not)

Jensen was interested in whether mutual fund managers add value over the long-term. Could they through skill, privileged information or intuition outperform the market reasonably consistently, year after year? This was not about having randomly good or bad years, but about having good years with noticeable consistently. The CAPM formula [E(Zp) = zf + ß[E(Zm) – zf]] didn’t accommodate this possibility, so Jensen added a term to it that did:

E(Z_p) = α + z_f + β[E(Z_m) – z_f] [2]

and so alpha, α, was born. This allows for a persistent positive contribution to a portfolio’s expected return due to the manager’s skill.

A frequency distribution of the alphas Jensen estimated for 115 mutual funds based on at least ten years of data for each. The vast majority have estimated alphas that are less than zero. The average fund’s alpha was –.011, or –1.1%. Results are after fees but not including sales loads. Returns, and hence alphas, are with continuous compounding. Reproduced from Jensen(1986).

Jensen’s results lent strong support for the efficient market hypothesis, suggesting that no investment managers have positive alpha.

Alpha has become a symbol. It is a one-word moniker for investment managers’ belief they can outperform the market. Alpha is out-performance, and it is the job of an active manager to produce alpha.

Source: alpha

Rekeda, who became head of structured credit in the Americas, and his team led Mizuho into a business it knew little about, securities backed by U.S. subprime mortgages, where it lost 672 billion yen ($7.1 billion), more than any bank in Asia. Most of the losses were related to defaults on collateralized debt obligations.

“Mizuho never made a penny out of subprime in the good times, they just got left holding the can in the bad,” says David Threadgold, an analyst at Fox-Pitt Kelton Asia Ltd. in Tokyo who has an “underperform” rating on the stock. “They made a very poor decision to launch into the packaging of subprime products at the end of 2006.”

via Mizuho $7 Billion Loss Turned on Toxic Aardvark Made in America – Bloomberg.com.

The results were pushed back several days as federal regulators and the banks have continued to debate the results. Several banks, including Bank of America Corp. and Citigroup Inc., have challenged the government’s findings.

The results are expected to show that several banks may need more capital, or a higher quality of capital, in order to continue lending if the economy worsens through 2010. Government officials have said that any requirement that a bank improve its capital standing does not mean the government thinks the bank is going to fail. In fact, the government has said it would not allow any of the 19 banks undergoing the test to fail.

via U.S. to Release Stress-Test Results on May 7 – WSJ.com.

Comptroller of the Currency John C. Dugan stated, “As a parent, one area of financial literacy that is especially important to me is that our children learn how to make the right financial choices before they leave home.  These school-based bank programs are productive collaborations between banks and schools that share a mutual interest in providing financial education to students eager to learn.”

The OCC encourages bank participation in financial literacy initiatives such as school-based bank savings programs.  Students involved in these programs receive “hands-on” learning, while banks gain added visibility in the communities they serve.

This Insights report explains how the various school-based bank savings programs operate and describes the potential risks and benefits, including positive consideration under the Community Reinvestment Act, that banks participating in these programs may receive.

via OCC News: School-Based Bank Savings Programs: Bringing Financial Education to Students.

Asian investments in hedge funds may have declined by 40 percent over the 18 months to mid-2009, said an official of Bank of New York Mellon Corp., the world’s biggest custody bank.

The value of institutional and wealthy individual holdings in hedge funds will fall to $206 billion by June from $344 billion in December 2007, said Andrew Gordon, the bank’s Hong Kong-based executive vice president of financial markets and treasury services. Government entities such as sovereign wealth funds will help drive a recovery in the dollar value of Asian hedge fund investments to $382 billion by 2013, he said.

via Asian Hedge Fund Investments May Have Fallen 40% Update1 – Bloomberg.com .

Regulators Disclose Criteria for Bank ‘Stress Tests’

By ERIC DASH

Federal regulators released the criteria they used to assess the financial health of the nation’s 19 biggest banks on Friday, but provided little new information for investors to distinguish the industry’s weak players from the strong.

In a 21-page report, the Federal Reserve regulators broadly laid out the tools they used to project bank losses if the economy worsens, and officials established an unspecified baseline to measure how much additional capital the banks should add as a buffer against higher losses. But they provided no concrete metrics to assess the depths of the troubles facing the industry or specific banks.

Still, the Federal Reserve report suggested that regulators are focusing on the amount of capital that they want banks to hold in common stock, which makes it easier for them to absorb future losses as the recession wears on. That could force at least a handful of the 19 banks to raise significant amounts of new capital and could lead to greater government ownership stakes in the banks.

“Losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks,” the Federal Reserve report on the stress test said. “Lower overall levels of capital — especially common equity — along with the uncertain economic environment have eroded public confidence in the amount and quality of capital held by some firms, which is impairing the ability of the banking system to perform its critical role of credit intermediation. “

Despite the limited details, Wall Street analysts and traders are already using whatever glimmers of information that have seeped out to conduct their own “stress tests.” Investors are making bets on which bank stocks may rise or fall even before the official exam results are announced. The stress test criteria were released as federal regulators started briefing top executives from the 19 large banks about how their companies fared on the examination. In closed-door meetings at the regional Federal Reserve Bank offices, the regulators plan to review their preliminary findings and inform bankers if they need additional capital. The banks will have until Tuesday to dispute any of the results before they are made public on May 4.

via Regulators Disclose Criteria for Bank ‘Stress Tests’ – NYTimes.com.