Friday March 7, 2014
The Volcker Rule, proposed by the former Federal Reserve Board chairman and incorporated in the Dodd-Frank financial reform bill, is proving to be yet another problematic element of that massive piece of legislation, from the standpoints of regulators and the regulated alike.
The rule attempts to reduce the risk incurred by banks, by barring them from taking speculative positions in securities. However, it also offers exemptions for various hedging activities that are specifically designed to reduce risk. Additionally, it is being interpreted as permitting market making activities solely designed to accommodate client order flow. Regulators and regulated entities alike are encountering major headaches in, respectively, enforcing and adhering to the rule. Follow the link for details.
Tuesday March 4, 2014
As mentioned in an earlier post, Merrill Lynch once had unfounded confidence in the potential for corporate incentive stock option plans to be a significant source of high net worth clients, and thus a major driver of asset growth and profitability. Many other securities firms are in the business of being corporate stock option plan administrators for similar reasons, but not necessarily because the business itself is especially attractive. In reality, this service typically is offered as a loss leader, offered to cement relationships with the companies offering such plans. Follow the links for details.
Meanwhile, sharp financial advisors and financial planners should understand the nuances of dealing with clients who have option grants pursuant to such programs. In particular, they should be familiar with the mechanics of option exercise and sell transactions, the most common action undertaken by option grantees once their holdings vest.
Saturday March 1, 2014
During my years at Merrill Lynch, I saw how the corporate budgeting department offered visibility and networking opportunities to its members. Indeed, its members typically rotated out to important positions elsewhere in the firm. If you are not familiar with the work of such groups, follow the link to gain a general appreciation thereof.
Additionally, you should familiarize yourself with the two principal approaches to budgeting and forecasting, the bottom up method and the top down method. Just note that these are not necessarily mutually exclusive. In fact, most companies apply a hybrid methodology that combines elements of both, such as by running the two processes in parallel, then reconciling the results into an internally consistent final product.
Lastly, a related issue is that of corporate travel expenses. In many companies, these can be a significant line item, and thus all sorts of rules and restrictions are set up to contain them. Unfortunately, some companies take a shortsighted approach that can be counterproductive in many respects. Follow the link to learn how.
Friday February 21, 2014
One important, yet often overlooked, application of financial analysis skills is in evaluating employers. This applies to prospective and current employers alike. Follow the link for details.
Employers make a lot of overblown claims to entice new talent, and blow a lot of smoke at employees. These days, it's particularly likely that companies will make all sorts of assertions to justify efforts at extracting more effort and production in exchange for less remuneration. Sometimes it's a matter of necessity, sometimes not. By applying your analytic skills to the numbers that the company makes public, you often can separate fact from fiction. A related issue: future payoffs that prove to be far below expectations.
Note the similarities with forensic accounting. During my tour of duty in Big Four consulting, a forensic accounting engagement gave me highly useful training in deducing the big picture from scattered bits of data.