Toomre Capital Markets LLC

American International Group Inc. named Peter Hancock, described by former employer JPMorgan as an “architect” of the derivatives business, to oversee finance and risk, including the insurer’s money-losing credit-default swap unit on Monday, February 11th 2010. Mr. Hancock spent 20 years at one of the predecessor banks that now make up JPMorgan Chase & Co and eventually rose to be CFO and head of risk management before stepping down in 2000.

The New York Times highlights a big trend in data center computing: the move to bundled solutions rather than the acquisition of individual building blocks and then assembly of solutions by corporations and governments. In the February 8th 2010 article entitled Bundling Hardware and Software to Do Big Jobs, reporter Steve Lohr highlights how "Suppliers are offering customers assembled bundles of hardware and software to make it easier and less expensive for customers to cope with the Internet-era surge in data."

However, the real challenge is not just selling the software and hardware together. It is getting these large compute problems broken down so that subtasks can be processed simultaneously – a concept known as parallel computing – and hence available resources can more effectively reach at least a partial solution. As Kunle Olukotun, a computer scientist at Stanford says, "The huge challenge is to take all this data and generate useful knowledge from it. It is an enormous opportunity in science and business, but it also presents a massive computing problem."

Toomre Capital Markets LLC ("TCM") believes that the capital markets divisions of the financial world have been on the leading edge of this push to transform (on a real-time basis) data first into information and then into knowledge, simply because of the massive profits made in that sector. Wall Street has been able to throw tremendous resources at its data and compute problems. Note the many scientific and engineering graduate types who have left academia for the lure of Wall Street and high pay.

During 2009, Morgan Stanley dramatically underperformed both Goldman Sachs and JPMorgan in the performance of its securities business, particularly in the area known as FICC (fixed-income, currencies and commodities). The Financial Times article from February 1st 2010 entitled Morgan Stanley In Hiring Push has more details.

According to Morgan Stanley's new chief executive, James Gorman, Morgan Stanley plans to hire several hundred new traders over the next several years to hopefully close the gap with Wall Street trading rivals. Rather interestingly, he stated "We are not showing clients enough. We don't have people on the ground. We are not sufficiently penetrated with large clients and there are some smaller clients we are missing out on." He continued: "We need to seriously grow our footprint in products like currencies, equity derivatives and commodities. We could easily be 25 percent bigger than we are. [Investor's] bias is to do more business with [Morgan Stanley], the burden is on us to deliver."

What Toomre Capital Markets LLC ("TCM") finds so interesting with the article is the degree to which Morgan Stanley under-performed. Apparently, in 2009 Morgan Stanley had revenues of $5bn in fixed income trading (or $8.8bn excluding an accounting loss) compared with $17.6bn at JPMorgan and $23.3 recorded by Goldman Sachs. Put another way, Morgan Stanley's FICC unit only generated revenues one half of JPMorgan's revenues and thirty-eight percent of what Goldman Sachs recorded. WOW!! Clearly Morgan Stanley is not even close to its two rivals in this business area, which is counter to what many market participants perceive.

The article concludes with the thought that the need to add more traders and sales people to better staff the basic product areas of this business unit is an admission that at least one of former CEO John Mack's decisions was wrong. His decision to focus on various complex derivatives and associated products popular before the credit crisis left Morgan Stanley ill equipped to benefit from the pick-up in the trading of simpler fixed-income products.

President Obama continues to try to curb risk taking on Wall Street. Today, one year after his inauguration, he has proposed a plan to limit the size and activities of big commercial banks. "While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse," said President Barack Obama at the White House. Mr Obama continued his populist rhetoric with the statement:

My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.

According to congressional sources and administration officials, this proposal is designed to return — at least in spirit — to some of the curbs that were instituted with the Glass-Steagall act back during the Great Depression. This plan has been backed by former Federal Reserve Chairman Paul Volker and is designed to limit the amount of risk that customer deposit activities might be exposed to.

Apparently President Obama wants to prevent commercial banks and institutions that own banks from owning and investing in hedge funds and private-equity firms. Similarly he hopes to limit the amount and type of proprietary trading that they might do for their own accounts. As a result of these proposals, the common equity securities of the large banking institutions have sold off as investors are unsure about what type of business models these banks might pursue in the future and hence what "normalized" profits might be.

Toomre Capital Markets LLC ("TCM") wonders whether any of these populist proposals will eventually be enacted into law. As Ace Greenberg, the retired CEO of Bear Stearns, said on CNBC today about the possible return of Glass-Steagall: "The egg has been scrambled and I don't think they can put it back in the shell." However, they are sure to appease those on Main Street that are disappointed with the bank bailouts and the large Wall Street bonuses.

Ahead of President Barack Obama's meeting on December 14, 2009 with senior banking officials from institutions like Goldman Sachs, JPMorgan and Bank of America, The New York Times is reporting Citigroup Nears Deal to Return Billions in Bailout Funds. "Citigroup was close to a deal on Sunday night to be the last of the big Wall Street banks to exit the government’s bailout program, after trying to persuade regulators that it was sound enough to stand on its own. Negotiations between the bank’s executives and senior government officials went into the night and could still collapse."

Toomre Capital Markets LLC ("TCM") wonders how much of this drive to repay TARP funds is driven by executive compensation desires. Wall Street is still an incredibly "alpha" environment where most participants judge themselves by how well they are being compensated. With Goldman Sachs having a year very close to the earnings in its 2007 peak year, many "stars" are very much aware of the pay possibilities that exist at firms without the government imposed compensation restrictions. Surely Citigroup must be smarting from being the last major bank to have TARP funds outstanding and hence needing to limit what it can pay its investment banking, sales & trading and investment management employees.

Money manager Stanley Chais and "entities" associated with him are apparently under criminal investigation stemming from the Bernard Madoff affair. Toomre Capital Markets LLC ("TCM") previously wrote about Mr. Chais in the post Stanley Chais, A Fund Feeder to Bernie Madoff.

Late on Friday December 11th 2009 various news services are reporting that prosecutors from the Southern District of New York made a formal request to intervene in a civil lawsuit filed by the U.S. Securities and Exchange Commission. According to Bloomberg News, “The government’s criminal investigation seeks to determine whether Chais and others have violated various federal criminal statutes,” including conspiracy, mail fraud, wire fraud and money laundering, Assistant U.S. Attorney William Stellmach wrote in a legal brief. Prosecutors think they will decide whether to charge Chais or businesses related to him by mid-June, Stellmach wrote.

Over the past several months, I’ve been working on several projects at Toomre Capital Markets LLC dealing with optimal ways of distributing results of calculations done in MATLAB. In previous posts, I’ve written about accessing and storing information from Excel and SQL databases. In this post, I want to look at distributing some of the results via web pages.

One approach that we’ve used is having a MATLAB routine run as a DLL called from an IIS web server. The webserver passes key parameters to the MATLAB routine. The routine then retrieves information from an SQL database, runs a set of analytical routines and stores the results back in SQL. The IIS server retrieves the results from the database and builds the webpage for the end users.

There is a lot that can be done using this methodology, but it can be complicated making sure that all the variables are properly mapped between Matlab, SQL, and the webpages. If you have an IIS server and an SQL Server up and running and have plenty of time, you can build a very powerful application this way.

Joe Gregory, the former President of Lehman Brothers and long-time confidant to former CEO Dick Fuld, apparently had more difficult financial times since he was forced to resign from the failed investment bank in June 2008. As noted in this previous TCM post Possible Bankruptcy for Joe Gregory of Lehman Brothers, "one might surmise that Joe Gregory was as good at managing his own personal finances as he was at managing the leveraged risks of Lehman Brothers."

From the November 13th 2009 edition of The Wall Street Journal comes news that Joe Gregory has had some success in liquidating at least some of his various property holdings. The 2.5-acre oceanfront estate in Bridgehampton, N.Y., remains on the market with an asking price of $27.9 million. However, at least the property in Vermont is now sold. One wonders when and at what price the Bridgehampton house will eventually be sold.

Former Lehman Brothers Holdings Inc. president Joseph M. Gregory has gone into contract on his seven-acre Manchester, Vt., estate, which he listed for $2.48 million.

Mr. Gregory has also sold his guest house, across the street from the main house. After more than 30 years at Lehman, Mr. Gregory resigned from his post in June 2008; Lehman filed for bankruptcy-court protection from creditors in mid-September.

Mr. Gregory bought the seven-acre Vermont property for $675,000 in 1993, according to public records. A six-bedroom farm-style house sits on the property, which also has a barn with a three-bedroom guest apartment above. The guest house went for $715,000, 10% less than his asking price. He bought that two-acre property for $180,000 in 2000. Sunny Breen of Main Street Realty represented Mr. Gregory in both deals.