Bloomberg – For Goldman Sachs Group Inc.’s Special Situations Group, disasters can be a source of some of the biggest profits. Now the secretive investing operation faces its own potential calamity.

Goldman Sachs already has shut two units that made bets with the company’s money because such proprietary trading by banks will be prohibited under the Volcker rule approved by Congress last year. Still, the Special Situations Group, known as SSG, continues to make investments and named a new global head last month. Executives have argued that SSG shouldn’t be affected because it’s more of a lending than a trading business.

Created during the late 1990s, SSG invests the bank’s money in the debt and equity of troubled companies and makes loans to high-risk borrowers. The effort to defend it illustrates how important the business is to Goldman Sachs and may be a test of how flexible regulators will be in defining proprietary trading.

“It is proprietary trading, but the business can also be modified if you had to,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. The question, he said, is “Where will the regulators draw the line?”

While SSG’s financial results aren’t published, the unit has been a major profit contributor at New York-based Goldman Sachs — the biggest in some periods — according to former SSG executives who asked not to be identified because they don’t want to speak publicly about their former employer.
Twice the Profit

Investing and lending, the newly created Goldman Sachs division that includes SSG, proprietary-trading businesses and investments in hedge funds and private equity, generated 32 percent of the firm’s 2010 pretax profit, almost twice the profit from investment banking and money management combined. Only sales and trading contributed more. Until last quarter, SSG’s results were included in Goldman Sachs’s largest segment by revenue: fixed income, currencies and commodities, or FICC.

Richard M. Ruzika, 51, a former Goldman Sachs commodities- trading chief and one-time New York Jets recruit, is retiring from the firm at the end of April after running SSG since 2007, said a Feb. 17 memo obtained by Bloomberg News. He will be replaced by Jason M. Brown, a Briton who has led SSG in Asia since 2007, according to a separate memo. Brown, who joined Goldman Sachs from Bear Stearns Cos. in 1999 and became a partner in 2006, will remain in Hong Kong.
Japanese Golf Courses

The unit bought distressed assets in the aftermath of Asia’s financial crisis and profited in the Enron Corp. bankruptcy, one former employee said. A gain on an investment in Accordia Golf Co., Japan’s largest golf-course operator, contributed about $500 million to fixed-income’s $3.1 billion of revenue in the fourth quarter of 2006. The gain wasn’t disclosed by Goldman Sachs until a year later.

Without those profits, it would be difficult to generate returns previously achieved, analysts said. Goldman Sachs’s annualized return on average common shareholders’ equity was 13.1 percent in the fourth quarter of 2010, down from 41.5 percent in the same period in 2006, company reports show.

Goldman Sachs has dropped 6.1 percent this year to $157.97 on the New York Stock Exchange, compared with a 2.5 percent gain for the 81-member Standard & Poor’s 500 Financials Index.

When Chairman and Chief Executive Officer Lloyd C. Blankfein addressed investors at a conference on Nov. 11, 2008, less than two months after rival Lehman Brothers Holdings Inc.’s bankruptcy, he tried to reassure them about Goldman Sachs’s ability to make money.
Volcker Restrictions

“We believe we have as strong a track record as anyone at being a nimble investor in special or distressed situations,” Blankfein, 56, said. “We can decide the extent to which the firm itself will invest.”

The Volcker rule, championed by former Federal Reserve Chairman Paul Volcker, 83, and included in the Dodd-Frank Act, could change that. The provision aims to constrain banks that receive government backing, such as deposit insurance and access to Fed funds, from betting on investments that could produce significant losses. It would also limit the amount of money firms can invest in private equity and hedge funds.

The Financial Stability Oversight Council, made up of U.S. regulators, released a study and recommendations Jan. 18 on how to implement the Volcker rule. The Fed and other banking regulators must put it into effect by October.
Unanswered Questions

There are unanswered questions that could leave an opening for SSG, said analysts and legal experts, including Roberta Karmel, a former member of the Securities and Exchange Commission who now teaches at Brooklyn Law School in New York. Can Goldman Sachs claim that purchasing debt makes the division a lender rather than a trader? If the unit holds its investments for months or years, do they cease to qualify as proprietary trading because the firm isn’t seeking to “profit from near- term price movements,” as the FSOC guidelines say?

“These laws are too complicated, and they can find loopholes,” said Karmel. “I don’t know how strictly the regulators will be able to define proprietary trading.”

David A. Viniar, Goldman Sachs’s chief financial officer, said on an Oct. 19 call with analysts that the Volcker rule might not affect SSG because “the predominant part of that business is actually a lending business, which we think is not only OK under the rules but is actually something that’s encouraged because it obviously helps the economy grow.”

Goldman Sachs executives don’t believe the company will be barred from using its money for so-called principal investments as long as they aren’t made through hedge funds or private- equity funds, Guy Moszkowski, an analyst at Bank of America Corp. in New York, wrote in a March 21 note to investors.
‘Key Drivers’

“One of the key drivers of Asia earning has historically been the ability to deploy the firm’s own capital in principal investments,” Moszkowski wrote after meeting in Hong Kong with four Goldman Sachs executives, including Yusuf Alireza, head of securities for Asia. “GS continues to believe, based on its interpretation of Volcker, that non-fund-related direct investing will not be precluded.”

Many of those investments are likely to be made through SSG or another unit called PIA, for Principal Investment Area, Moszkowski said in a phone interview after the report.

“They have been in the past, and they will be in the future,” said Moszkowski, who rates Goldman Sachs stock “neutral.” “Historically these types of balance-sheet investments have cropped up in many places around the firm, and it’s never entirely obvious that that’s a PIA investment or that’s an SSG investment.”
Troubled Companies

In his note, Moszkowski said it isn’t clear how Goldman Sachs will defend SSG’s practice of making loans to troubled companies and then receiving equity when the debt is converted to stock in a bankruptcy.

“To maximize many of these positions, SSG has followed a ‘loan-to-control’ strategy, whereby distressed-debt positions wind up as a controlling equity stake,” the analyst wrote. “Our interpretation of this has been that flat-out equity investments, or holding periods after a conversion to equity, will be very limited.”

If Goldman Sachs succeeds in convincing U.S. regulators that SSG doesn’t run afoul of the Volcker rule, new regulations from the Basel Committee on Banking Supervision could increase the amount of capital the firm has to set aside against principal investments, Moszkowski and other analysts said.
Sbarro Debt

Few of SSG’s investments are public, making it difficult for analysts and investors to know what the division is doing.

Special Situations Investing Group Inc., a legal entity that holds debt investments made by SSG, was included among creditors on a Jan. 5 forbearance agreement with lenders filed by Sbarro Inc., a pizza chain owned by private-equity firm MidOcean Partners. While Goldman Sachs didn’t appear among creditors on two more recent agreements, including a March 3 filing, a person at the firm familiar with SSG’s investments said the unit still owns Sbarro debt.

The bank wasn’t an original lender to Melville, New York- based Sbarro, which owns or franchises more than 1,000 fast-food restaurants, according to two members of the lenders’ syndicate who asked not to be identified because they weren’t authorized to speak to the media. Neither Goldman Sachs nor Special Situations Investing Group participated in a January 2007 loan to Sbarro or a March 2009 loan, according to data compiled by Bloomberg. SSG acquired the Sbarro debt in the secondary market in early 2010, the person familiar with the investment said.
‘Financial Distress’

Michael DuVally, a spokesman for Goldman Sachs, said he couldn’t comment on SSG’s investments.

Buying debt in the secondary market doesn’t sound like lending to James D. Cox, a professor at Duke University School of Law in Durham, North Carolina.

“I find it hard to think that they’re just like the corner bank lending money to somebody in financial distress,” Cox said. “This looks more like trading than it does any other activity, and it ought to be subject to Volcker requirements.”

There is a lending business within SSG, Goldman Sachs Specialty Lending, that “originates (or purchases) loans made to middle-market borrowers that cannot sufficiently access the market through traditional senior bank lenders,” according to a description in an SEC filing made by a Goldman Sachs subsidiary.

Xoma Ltd., a Berkeley, California-based biopharmaceutical company, received a $35 million loan from the unit in 2006 secured by royalty payments on three drugs, according to a Xoma press release at the time. The interest rate was the six-month London Interbank Offered Rate, or Libor, plus 5.25 percent. The loan was amended in 2008, with Goldman Sachs providing another $20 million and increasing the interest rate to 8.5 percent plus either 3 percent or six-month Libor, whichever was greater.
Regulators’ Warnings

The company violated the loan covenants in the first quarter of 2009, when regulators’ warnings about its psoriasis drug Raptiva led it to be pulled from European Union, Canadian and Australian markets. Xoma fully repaid Goldman Sachs in September 2009 by issuing new common stock and using the proceeds of its sale of a drug-royalty stream. The repayment included $2.4 million of accrued interest and a $2.5 million prepayment premium. The loan cost Xoma $12.4 million in interest expense for 2007, 2008 and 2009.

While SSG has produced significant profits over the years, it also contributed to some of the firm’s biggest losses during the financial crisis.

A pro forma accounting the bank provided in January showed that the investing and lending division, had it existed, would have lost $13.5 billion in the 12 months through November 2008, an amount exceeding the pretax earnings from fixed income and equities trading. It was the sole business at Goldman Sachs that reported losses that year. SSG accounted for only part of that, according to a person familiar with the matter.
Viniar Comments

SSG is almost never mentioned in Goldman Sachs’s regulatory filings or publications, and Viniar doesn’t talk about it on quarterly conference calls with analysts unless asked.

He provided some insight into the meltdown of two SSG investments on Dec. 16, 2008, in response to a query from Glenn Schorr, then an analyst at UBS AG.

“Well, that’s a group that you talk about more than we do,” Viniar, 55, said. “I won’t name them, but we made two investments where the total investment size between the two was $68 million. Those investments have a life-to-date profit after the fourth quarter of in excess of $300 million. But in the fourth quarter we had over $200 million of losses on those investments.”

The unit is a relative newcomer compared with other proprietary-trading divisions. Goldman Sachs Principal Strategies, the equities-trading team shut last year in response to the Volcker rule, grew out of the arbitrage trading business overseen by the late Gustave Levy, the company’s leader from 1969 to 1976, and Robert E. Rubin, 72, a former co-chairman who left the firm in 1993 and later became U.S. Treasury Secretary.
Debt-Trading Team

SSG, whose history was pieced together from interviews with seven former Goldman Sachs employees, including three who worked at SSG, traces its roots to the high-yield debt-trading team that spawned hedge-fund superstar David Tepper, 53, who left Goldman Sachs in 1992 to found Appaloosa Management LP, and the asset- and mortgage-backed trading team built by the late Michael P. Mortara.

While both of those desks traded on behalf of clients, they also invested the firm’s money in what one former employee said was known internally as a principal overlay.

An entirely proprietary credit-trading group that didn’t interact with customers was started in December 1996 by Jonathan Kolatch, who left in 1999 and now runs Redwood Capital Management LLC in Englewood Cliffs, New Jersey.
‘Much Bigger Business’

“We were there at the beginning, but later on it morphed into a much bigger business,” said Kolatch, whose unit had about $400 million of investments at the time. “We invested a fraction of the assets that SSG ultimately managed.”

When Kolatch left Goldman Sachs, his unit was taken over by Edward Mule, a partner who previously worked in the mergers department. The business was renamed Special Situations Investing, or SSI.

Mule, 48, had been running the distressed-debt trading business with Robert O’Shea, 46, who built the firm’s global bank-loan business after joining in 1990 from Bear Stearns. They also teamed up in 1996 to start what evolved into the specialty lending business. O’Shea went on to become global head of the high-yield business unit, which included SSI.

It was the 1997 Asian financial crisis that jumpstarted Goldman Sachs’s distressed-investing business. Mule and Peter Briger, who worked in the asset- and mortgage-backed debt trading unit, visited Asia and determined the firm could profit by buying pools of loans and assets dumped on the market after currencies were devalued and prices fell.

Special Opportunities

Briger, 47, who moved to Hong Kong, and Mule, who stayed in New York, teamed up to run an investing effort in the region, spending $800 million of the firm’s money before raising $1.5 billion for an Asia special opportunities fund. The fund included about $150 million of the company’s money, with the rest coming from investors including Japan’s Norinchukin Bank, Hawaiian landowner Bishop Estate and the government of Singapore, former employees said.

Goldman Sachs went public in May 1999, providing the firm with a permanent source of capital. The group headed by Briger and Mule, known as the Asia Special Situations Group, decided not to raise more third-party funds and to make future investments with the company’s money, former employees said.
Thai Auto Loans

Asia SSG became the dominant distressed-assets investor in Asia, generating profits by purchasing discounted Thai auto loans and corporate debt. One investment in South Korean liquor company Jinro Ltd. generated a profit of almost $1 billion, former employees said.

Briger and Mule both left in 2001. Mark McGoldrick, 52, who worked under them, was named to run the Asia business and later moved to London to oversee a fledgling European SSG. In the U.S., Mule’s SSI unit was led for one year by Stephen Golden and James Shim before being taken over by Joseph “Jody” LaNasa. Under LaNasa, who left in 2006 and started Serengeti Asset Management LP, SSI grew from $300 million of capital invested to $4.5 billion and produced an average return of about 20 percent, according to a former employee.

In November 2003, Goldman Sachs combined the Asian and European SSG businesses with the SSI unit and two other U.S. businesses, creating a single Global Special Situations Group, according to a memo at the time. Ralph Rosenberg, who had been co-chief operating officer of Goldman Sachs’s real estate principal-investing unit since 2000, was named to run the global business with McGoldrick, the memo said.
$70 Million Bonus

By the time McGoldrick left in 2007 — with the Wall Street Journal later reporting he was miffed at receiving only $70 million for his bonus — Rosenberg was also gone, replaced by Stephen McGuinness. Ruzika became co-head with McGuinness and then sole head when McGuinness joined Goldman Sachs Asset Management in 2008. The U.S. operations are led by Albert F. Dombrowski, who was elected partner in 2008, while the European business is overseen by Julian Salisbury in London, who also became a partner that year.

Former SSG employees, several of whom have left to start investing businesses focused on the same types of distressed opportunities SSG specializes in, say the group has fewer employees and less capital and freedom than it had in the middle of the last decade. Then, one former employee said, the global SSG business employed about 150 people, including five partners, and had about $25 billion of the firm’s capital invested.

SSG currently has about half the capital invested that it had at its peak, according to a person familiar with the matter.
‘Skill Package’

Like alumni of Goldman Sachs’s proprietary-trading desks, most of SSG’s former employees went on to found or work for hedge funds or private-equity firms. Briger is co-chairman of Fortress Investment Group LLC; O’Shea and Mule founded Silver Point Capital LP, where they serve as chairman and CEO; and McGoldrick started Mount Kellett Capital Management LP.

“Where they go tells you what their skill package is, what’s in their tool kit, and that tool kit is going to be pretty revealing in terms of what got rewarded at Goldman Sachs,” said Duke’s Cox. “It doesn’t look like your staid banker’s tool kit. It looks to me like a trader’s tool kit.”

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Do you wish to enter the professional world of business? Are you apprehensive that you dont have the right person to guide you? Dont worry. This discussion on various business jobs will help you to understand the opportunities you can explore in the world of business.

Business is quite a vast field with a number of areas that offer you a treasury of career opportunities.
The major areas that fall under business category are mainly accounting, consulting, finance, marketing and non profit segment. Lets discuss all these areas in detail and see what jobs they offer.

The first topic of discussion is accounting. Accounting offers you different areas to search jobs in accordance with your interest and capability. You can work in audit accounting in several roles. The roles may be as follows: as a budget analyst, financial accountant, management accountant, government accountant etc.

The next topic of discussion under business category is consulting. This is when you work as a consultant. You would be responsible to analyze, brainstorm and initiate processes to improve organizational performance. It is recommended to join small firms initially. Small firms provide a good foundation to begin with and enough chances to grow. The responsibilities would also be closely monitored so the quality of work would also be significant.

Relationship consulting has high career prospects. It involves service to a company for many years to ensure regular monitoring, discussion and idea implementation.

The finance department is another area of business that offers great job opportunities. Finance department provides with the opportunity to work for commercial banks, corporate finance, insurance, money management, investment banking and real estate. Corporate finance requires you to help a company to find investment possibilities for developing a business.

A job in finance department is stable and demands high performance. You should attempt to work with a point of view to make the company successful. Your professional credibility would also depend on that. You can also become a money manager who has to hold bonds and stocks for clients.

The jobs in insurance require your inputs to help the business manage risks and to protect them from losses. The work in this area can be extremely rewarding in terms of finance. These are some of the areas to explore in this department of business.

There is another department in any kind of business that also holds a position of importance. This is the job of marketing. This offers you opportunities to explore fields like advertising, market research, product management and retailing. In market research, you are supposed to understand how the markets work to promote a product.

Product managers have the responsibility to market and develop a product. The options in retailing include purchases, store management, central management and merchandising.

If you arent comfortable with business careers that are stressful, you can opt for an area of work that brings you a sense of work satisfaction. In such a case, the field of non profit is an ideal option for you. A career in non profit requires you to perform all functions that are found in other marketing careers.

To conclude, it can be stated there are numerous business jobs that you can choose. Based on your preference, you can proceed with confidence.

Nelson Taylor owns and operates http://www.fwcareers.com Career Options

Author: Nelson Taylor

NORTH EAST JOBS : BUSINESS JOBS: AN OVERVIEW is a post from: nemuntha.com

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by Kay Murchie

According to the Land Registry, house prices fell by 0.8% in February compared with January, putting the average cost of a home at £162,215 in England and Wales.

However, on an annual basis, the Registry said prices fell by 1.7% in February.

It must be noted that the Land Registry compiles its data from completed transactions and therefore lags behind other monitors of the housing market but is generally regarded as the most authoritative.

Meanwhile, the Registry said house prices in London were up 3.2% in the year, and in the East of England rose by 1%.

However, the largest fall reported was in the north-east of England, where prices fell 4% month-on-month in February.

House prices across England and Wales have gradually fallen over recent months and are expected to continue their downward trend – particularly in light of the uncertainty regarding the economy and the Government’s spending cuts.

Furthermore, mortgage approvals and house sales continue to fall and the housing market is expected to remain subdued throughout 2011 as a result.

Discuss this in the Finance Markets forums

Story link: Land Registry reports 0.8% fall in February house prices

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Universal Republic is stepping into the field of producer representation by partnering Twenty First Artists, which UMG acquired in 2007, with Worlds End Management. Effective immediately, the newly formed company will be known as Twenty First Republic. Worlds End’s stable of producers, mixers and engineers include George Drakoulias (Black Crowes, Tom Petty, The Runaways soundtrack), Peter Katis (The National), Gonzales (Feist) and Atticus Ross, who recently shared an Oscar win with Trent Reznor for scoring The Social Network.

Twenty First Republic (TFR) will be overseen by Worlds End president Sandy Roberton and Universal Republic evp of A&R Tom Mackay, who, along with Twenty First Artists CEO Colin Lester, conceived of the joint venture idea and brought it to Monte Lipman, President & CEO of Universal Republic, home to Amy Winehouse and Florence + the Machine.

“In a business where we need to continue to be innovative, take chances and search for other opportunities, it’s a great strategic alliance,” says Lipman. “If you go back in time, with every great album, you can usually cite a great producer that was associated with it. So the value of the producer is as strong as ever.”

Indeed, the new entity, which is part of a global initiative laid out by new UMG chairman Lucian Grainge, is very much a reflection of the times. “The music industry is predominantly pop-driven, it’s just where we are musically for the moment,” says Mackay. And with producers increasingly sharing in credits beyond mechanicals and points, another revenue stream that’s directly tied to their artists’ commercial success seems to make sense.

“In a lot of cases these days, producers are getting song credits,” says Lipman. “We have one now with Enrique Inglesias featuring Frank E, who is also the producer of the song. Frank showed up with the track, he did the production and Enrique thought it was only fair to give him that credit.” But Lipman cautions that the new company is not just a money grab. “It’s good for both of us — it’s about the strategy and it’s about offering more opportunities to these producers.”

Before you cry conflict, this is what Mackay had to say about the possibility of artists feeling pressured or influenced to work with producers on the TFR roster: “In all my years of doing this, I’ve never forced or made an artist work with somebody that they didn’t choose themselves.”

Lipman seconds that notion. “At Universal Republic, we empower the artist and ultimately they make the final creative decisions, and that’s something that we feel very strong about. The same applies here. We support these creative people we give them opportunity.”

Adds Lester: “We are in the business of ultimately selling records and are not going to jeopardize that just to make commission from a production. That would be very shortsighted and it’s certainly not what TFR is about. We are about developing long-term careers as we are with artists.”

So what is the end goal for TFR? Banking on the music fans of tomorrow, of course. “It makes perfect sense for us to work with contemporary producers as well as help develop the next generation who will produce the music of the future,” says Lester.

TFR will have offices in New York and Los Angeles.

 A Q&A with the Principals of Twenty First Republic:

The Hollywood Reporter: Why delve into the producer management business?

Tom Mackay: The answer is Sandy Roberton. He is a complete icon who’s been at the forefront managing some of the biggest producers in the business going on 30 years. And when Colin [Lester] and I came up with the idea of creating this venture, I thought about everyone that I deal with on a day-to-day basis; and who’s the best, hardest-working, most tenacious producer manager out there? That’s Sandy Roberton. One minute he’s at South By Southwest until four in the morning meeting people and pounding the pavement, then the next thing you know, he’ll be in Australia seeing bands and meeting with A&R guys there.

Colin Lester: It was simply based on the fact that Universal is one of the leading music companies in the world. In as much as they would be involved in making records and working with producers in developing these artists, they work to make the records great. Adding this business is a natural growth.

THR: If the core of a record company is to find artists, nurture them, and to bring music to the market place, how does this fit in?

Monte Lipman: The success of an A&R department in this culture is determined by the intimate relationship you have with the best producers that are out there. I think one of the reasons for starting this venture within Universal Music Group is to look for any way possible where we can to enhance that intimacy between UMG and the best producers and engineers that are out in the business.

Lester: Today synergy is very important, and the role of the record company is expanding, it’s changed, it’s not just to develop artists making records.

THR: So it this a reaction to the times and the fact that producers are almost at equal billing with the artists when it comes to pop songs in the Top 40?

Lipman: On a much broader level, the core of our business is based on the entrepreneurial spirit, and that’s what a lot of this is. It’s just a strategic alliance because these producers still have the opportunities to work with other artists outside of Universal. The idea is that it’s not just exclusive to the group but it’s an alliance that gives them increased opportunity. It’s more power to them and us.

THR: Explain how the process will work….

Mackay: Normally what ends up happening is that Colin, Monte myself, and Sandy, we’ll sit down and talk about someone who is available or interested in management. And much like Monte has taught me to do on the record side of things, we don’t sign artists if we can’t make a difference for that artist, the same rules apply. We have a discussion about a producer or a mixing engineer, we talk about their work, their discography and how we can help and provide a good service to the client. If we are able to do the deal, then Sandy becomes their day-to-day person, pushing them to the world.

THR: What if someone is already on the TFR roster, does it become an enticement to pair that producer or engineer up with a Universal artist?

Mackay: The way that that goes, and this is something that I’ve done from day one at TFR, A&R guys and producer managers can’t pair anybody up with anybody. My process is: when it’s time to record, we listen to demos, think about who would be good, we come up with a short list of four or five people, we put them in front of the artist and ultimately the artist makes that decision. The process is going to be no different. We’re not putting one in front of the other. As I say to the clients that we manage, “I can’t guarantee you work, we can guarantee you access….” It’s not like we’re going to play favorites and shove one of our clients down the throat of one of our artists.

Lester: It’s important to recognize that there is an entrepreneurial spirit to management. We only make money when our clients make money. And from our point of view, it’s not just putting our clients in situations where they can earn money, we are looking to develop long-term relations and careers for our clients.

THR: So it’s also contributing to the bottom line…

Lipman: To be completely transparent, of course it is. But it’s not just a money grab… So much of what we do is participate in the management of an artist’s career. We’re constantly involved in the process of developing the artist, everything from song selection, producer selection, what they wear on stage, what they perform, etc. So it’s something that we’ve already been doing. Yes, we do want to get paid, but this is a good opportunity for all.

Lester: I was told recently by a producer that as long as you are in the control room during the song’s inception, you get a percentage of the song that’s being recorded.

THR: What’s your end goal for the company?

Lipman: For me it’s a combination of wanting to make the creative statement and impact on pop culture, but we are also in it for the commerce. It’s a good balance.

Mackay: We just want to do good work. We want to represent good, talented people, we want to be proud of our roster in this venture just as we’re proud of our roster at the record label. When they have success, we have success, and vice versa.

Hollywood Reporter – 29th March 2011

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UNIVERSAL REPUBLIC VENTURES INTO PRODUCER MANAGEMENT WITH TWENTY FIRST ARTISTS, WORLDS END is a post from: nemuntha.com

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News

With funding drying up and compliance requirements increasing, the mortgage origination market faces an uncertain future. Janine Mace reports.

It has been a tough few years for participants in the mortgage market, with funding hard to come by and margins slashed. The future does not look like it will be any easier, even though the big banks are becoming more willing to lend and securitisation markets are slowly reviving.

Brokers are finding that the heady pre-global financial crisis (GFC) days of good margins and comfortable commissions are a distant memory. Add in a new and much more demanding regulatory environment under the National Consumer Credit Protection (NCCP) Act – with lenders and brokers required to undertake more checks before writing loans – and you have a very different working environment.

According to Deloitte Actuaries and Consultants banking partner, James Hickey, the competitive environment remains testing, particularly given that mortgage settlements fell in 2010 by around 10 per cent (compared to 2009 levels) due to the withdrawal of the First Home Owner Grant.

“Although 2010 was a slower year for settlements, encouragingly national settlements still averaged $20 billion per month of new lending, comparable to levels in 2007 prior to the GFC,” he says.

Tough competition is adding to the difficulties of a sluggish market. “Competition is rife among the big four as they aggressively chase market share and pull all the levers available to them to compete,” Hickey says.

“There were material price differentials across the big four in 2010 driven by distinct positioning strategies. This was a marked difference from pre-GFC where any price differential came from the non-bank lenders.”

Consumers the key

Even though the market slowed last year, 2011 is predicted to see market conditions improve.

“This is due to rising consumer confidence and stable, relatively low interest rates. The market had hoped investors would return, but they have not returned. However, consumer confidence is keeping the market steady,” Hickey explains.

“The important aspect is overall consumer confidence in the economy, and if that remains strong, the market will do well.”

According to participants in the annual Deloitte Australia Mortgage Report: 2011 Reforming the Agenda, consumer confidence is far more important than competition in driving mortgage growth. “Competition from the non-big four banks was not seen as being a key driver of settlement growth. There is very visible competition between the big four and the second tier banks due to greater funding access,” Hickey says.

Despite this, non-bank lenders have an important role to play in a truly competitive mortgage market, according to Mortgage and Finance Association of Australia (MFAA) chief executive Phil Naylor.

“How many of the non-bank lenders can get back into the market is critical,” he says.

“The big four have massive marketshare now – much higher than pre-GFC. Although credit unions and building societies are making a play in the market, it was the non-banks that really drove competition before the GFC. At the moment, the big four are circulating customers between themselves.”

The role of non-bank lenders is a major issue for the mortgage market, according to Advantedge Financial Services general manager for broker platforms, Steve Weston. Advantedge currently has around 40 per cent of all mortgage brokers on its three platforms and sees one in six of the mortgages taken out in Australia.

“In the origination space, we have seen quite a change post-GFC in the percentage of business non-bank lenders due to the closure of the securitisation market. Even now when it has reopened, the cost of money is still expensive and it is hard to obtain a margin,” he says.

“While the non-bank mortgage providers have bounced back a little since the GFC, it is not to as a big a level as in the past.”

Naylor believes further recovery in the credit markets is vital to the return of a healthy mortgage market. “The securitisation market has not come back fully as yet and until that happens, the non-bank lenders can’t really re-emerge.”

Although the decision by the Gillard Government to ban exit fees on mortgages has been promoted as a vital step towards increased competition and freeing up the mortgage market, research by Deloitte indicates the opposite may be the case.

“Removal of exit fees may reduce competition in the market. The ban may lead to non-banks charging higher interest rates of 15-20 basis points to compensate,” Hickey says.

Brokers feel the squeeze

Although competition and funding remain big issues, another major development in the market relates to mortgage brokers.

“The big change in the mortgage broking space is the decline in the number of brokers – especially in the past two years – where they are down 20 per cent due to the economies of lenders reducing commissions by 30 per cent and broker volumes slowing post-GFC,” Weston explains.

Naylor agrees the broker market has changed. “There have been some predictions [that] numbers in the industry will decline [due to the NCCP Act] – and we have seen a decline in MFAA membership numbers – but we see the rationalisation more due to factors such as the GFC and commission cuts which have meant marginal operators are exiting,” he says.

Weston agrees: “The 20 per cent who left the industry represented the low volume end of the market”.

Before the GFC, MFAA membership stood at 13,800 and is now around 12,000 – a drop which Naylor believes is not unexpected. “It is important to remember this is not an old industry as it has only been around about 15 years and it was always inevitable that there would be massive growth and then consolidation at some point. For those who survive it will be a very strong industry.”

Hickey agrees brokers still have an important part to play in the reshaped mortgage industry. “Brokers and third-party providers control up to 40 per cent of the inflows into the mortgage market, so they play a very key role. Brokers will be the recipients of moves by the big four banks and non-lenders to compete in the lending space,” he says.

Brokers falling by the wayside

Although the GFC and maturation of the industry are fostering consolidation in the broking industry, introduction of the NCCP Act has also been felt.

“The major event in the industry is the introduction of the NCCP Act, which has had an impact – it is not a major change, but it has changed the way some people do business. It will take six to 12 months to see the full impact,” Naylor says.

Many brokers are finding the new regime relatively straightforward.

“The MFAA has been working with the Federal Government for a number of years in this area and before that MFAA members had self-regulatory requirements in place, so MFAA members have not had too many problems from the new legislation,” Naylor says.

“There are additional costs and regulatory requirements in the legislation, but MFAA members have not had too many problems with it. The key points of the new Act are the same as our own criteria.”

Weston is less upbeat. “The mortgage market has not digested it all that well,” he says.

“The legislation requires brokers to change their processes to get a deeper understanding of the client’s needs. Typically brokers have relied on a benchmark for disposable income, but now they need to talk to the client about their deeper needs and particular lifestyle to obtain a clearer picture of their finances.”

The new regulatory regime may prove the final straw for some brokers.

“Thirty per cent of roundtable participants believed brokers were prepared for the NCCP regime, but felt the smaller ones would be put under considerable pressure,” Hickey says.

“The consumer protection element is at the heart of NCCP, and for the big broker groups it represents a continuation of what they have already been doing, but the smaller brokers will struggle and may fall by the wayside.”

According to Weston, views on the impact of the new regime are mixed. “Some people believe the changes will drive professionalism and drive the underperformers out of the industry. Another group think it will be a good thing but are uncertain, while others don’t want to change,” he says.

“Our view is to take the high road, but we also believe it is good customer practice. The legislation is a perfect catalyst for mortgage brokers to become more highly valued by their customers.”

Although some brokers have left the industry due to the increased compliance requirements, Naylor believes this is to be expected. “Some of it is due to the GFC and commission changes, but also the changes in the broker/lender relationship and the impact of the new credit legislation,” he says.

Weston believes the legislation will lead to a significant shift in the industry. “There is an increasing drive for professionalism, similar to the financial planning industry. Mortgage brokers need to get an in-depth understanding of needs and solutions to meet the client’s needs,” he says.”

Some groups are looking to the financial planning industry for ideas on how to cope. With common ownership by NAB, Advantedge has been utilising the experience of its sister company, MLC, in bedding down a new regulatory regime.

“We will see an increasing convergence of thinking and professionalism and increasingly mortgage brokers will take a holistic approach to their clients’ needs,” Weston says.

Continuing industry consolidation

Exiting brokers, sluggish volumes and rising compliance requirements sound like a perfect recipe for market consolidation and that is just what is happening.

The drop in broker numbers is one element in this trend. “While the total volume brokers write will not fall, the big groups are likely to get more while the others miss out,” Hickey notes.

Many lenders have introduced minimum volume amounts and limits – largely due to the cost of supporting low-volume brokers.

“The introduction of the NCCP has helped this process by adding compliance requirements. It reflects the natural evolution of the industry over the time and the increasing professionalism of the industry and those participants who have shown commitment by putting appropriate systems in place,” Hickey explains.

Weston agrees consolidation is occurring. “Consolidation is less about the legislation and more about the economics of the industry,” he says.

“I would expect to see more institutional ownership of the big mortgage aggregators in the future … Mortgage aggregators need to invest more to assist mortgage brokers to become increasingly professional, so institutional ownership makes sense and reflect trends in the wider finance industry.”

This view is in line with the Deloitte report, which found respondents believed the most likely developments for the industry were further acquisitions or buy-ins of mortgage aggregators by institutions and the disappearance of smaller operators. Moves by the Commonwealth Bank to take a stake in Aussie Home Loans, Macquarie Bank’s position in Australian Financial Group and Count buying a 17 per cent stake in Mortgage Choice indicate the trend is well underway.

“Most of the top 10 mortgage aggregators and groups are now owned by an institution or have a major shareholder who is an institution or wealth manager. This mirrors developments in the financial planning industry,” Hickey explains.

Naylor agrees there has been a steady process of consolidation and convergence. “Consolidation has been a gradual process for the last five to six years. We have seen loose alliances and some mergers and takeovers occurring.”

He sees this development as part of the broader trend in the financial services industry. “We are on a moving platform as circumstances change, and the industry will continue evolving.” 

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MORTGAGE ORIGINATION: A BRAVE NEW WORLD is a post from: nemuntha.com

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According to the Wedding Report, a bridesmaid can expect to spend an average of $1,009 on everything from dresses to traveling for a wedding.

And from another source:

The following estimates on what bridesmaids pay:

• Engagement gift – $50
• Shower gift – $50
• Wedding gift – $100-$150
• Travel to shower – $300
• Travel to bachelorette party – $300
• Travel to wedding – $300
• Dress – $150
• Alterations – $50
• Lingerie – $50
• Shoes – $75
• Jewelry – $60
• Hair and makeup – $100

All together the costs total $1,385

My thoughts:

• First of all, wow! Who knew it was so expensive? (Probably you ladies did.)




• Many of these expenses would be incurred anyway — if you went to the wedding but weren’t a bridesmaid, right? You’d still get them gifts, you’d still travel to the wedding, and so on.  So you really only have from the dress on down as extra costs. These add up to $485 (which is still a lot, but not as impressive as almost $1,400.)




• Someone is giving way too many gifts. Really? Do you give $200 to $250 in wedding gifts to a couple? We don’t.




• Aren’t some of these overpriced? Hair and makeup $100? And why do you need to buy new jewelry? And what if you’re within driving distance to the wedding, shower, etc.? Then those costs go down big-time.




• Looks to me as if you’ll spend $400 to $500 extra to be a bridesmaid and another $500 to $750 to attend the wedding and related events. If you have a couple of these per year, the costs can really add up.

What’s your take on these expenses? Too high? Too low? Anyone out there had recent experience being a bridesmaid?

OVER $1K TO BE A BRIDESMAID? is a post from: nemuntha.com

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I think it is a massive mistake to think you can get a Forex system from someone else and think you can trade it perfectly in a very short time.  There are just too many nuances to the systems themselves and the Forex market in general.  As much as you might not like hearing it, a “turn key” Forex solution is very hard to find.  (By turn key, I mean a system you can start using almost immediately and get consistent profits like a pro trader).

To be successful with any system, you need trader skills like money management, trader psychology and strict trading according to the rules.   Without this combination of skills, you are doomed to fail.   Even with a good system you will not get the results you should if you trade it with unrealistic lot sizes and don’t manage the trade according to the rules because of emotional issues when real money is involved.

Therefore, one of the things to look for is a system or service that goes over trader skill development as well as the particular rules of the system to be traded.   Just getting entry and exit rules is not enough to make you a successful trader.   For a Forex strategy to work for you, it must combine proper money management, strict trading rules and the development of the mental and emotional mindset to be able to trade the strategy perfectly under live maket conditions when real money is on the line.

When you boil it all down, what you really have to have is a Forex trading strategy with a positive profit expectancy.  This means that if you trade the strategy correctly, you should expect to be in profit.  The question you need to ask is, “Can you trade the strategy correctly?”

When you get right down to it, it is not all that difficult to find a Forex strategy with a positive expectancy.   The trick is finding a Forex system to trade that fits your trading personality, lifestyle and goals.   But once you find the system, the hard part is learning to trade it correctly when real money is at stake in live markets.   YOU are really the determining factor of whether the system will be profitable or not.    Unfortunately, most of the people complaining about Forex systems that don’t work on the Internet didn’t really spend enough time developing their trading skills to trade the system properly.

The next time you are disappointed with the results of a trading system, ask yourself, ” Is it really the trading system, or am I to blame for the poor results?”  If you are honest enough to recognize you need to work on your trader skill development, join Forex Insider Pips for free.

HOW TO FIND THE BEST FOREX STRATEGY FOR CONSISTENT PROFITS is a post from: nemuntha.com

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SEMINAR-WORKSHOP TITLE: HUMAN RESOURCE MANAGEMENT TRAINING
DATE:  April 5-6, 2011 – 2 days       
TIME: 9:00 am – 4:00 pm
VENUE: Suite 201 Richbelt Tower, 17 Annapolis St., Greenhills, San Juan City, Metro Manila
ORGANIZER: BusinessCoach Inc.

KEY TOPICS:

Day 1

I. Introduction (Interactive)
II. What is HR? (Interactive)
III. Components of HR
• HR Planning and Staffing
a. Interviewing Skills (Role Playing)
b. The Selection Process
• Compensation & Benefits Administration
a. Computation of Wages
b. 13th Month Pay
c. Overtime Work
d. Night Shift Differential
e. Holiday Computations
f. Rest Days
g. Service Charges
h. Meal Period
i. Service Incentive Leave
j. Weekly Rest Period
k. Paternity Leave
l. Maternity Leave
m. Solo Parent Act
n. Payroll
o. Coverage under SSS &ECP
p. SSS, Pag-ibig, BIR & Philhealth
• Performance Management
a. Key Result Areas (KRAs)
b. KRA Formulation
c. SWOT Analysis
d. Objectives-Setting Criteria
e. The Ethics of Employee Appraisal
f. Managing Performance

Day 2
• Talent and Career Management
a. Talent Management Defined
1. Role Success Profiles
2. Competencies
b. Career Management Defined
1. Career Development Process
2. Career Development Interventions
3. Career Development Players
4. Role of Employees on CM
5. Role of Managers on CM
6. Role of the Organization on CM
• Organization Development
a. OD Defined
b. Foundations of OD
c. The OD Process
d. 5 Pillars of OD
e. Organization Diagnosis
f. OD Interventions
• Labor Relations
a. Basic Rights of Employees
b. Definition & nature of Labor Relations
c. The NLRC
d. Labor Organizations
e. Unfair Labor Practices
f. Grievance Machinery and Voluntary Arbitration
g. Collective Bargaining Agreements (CBA)
h. Strikes & Lockouts
i. Termination of Employment

SEMINAR INVESTMENT: Php 6,000.00 per person (inclusive of snacks, lunch, drinks, handouts, seminar kit, certificate of attendance)
DISCOUNT: 10% Discount if FULL AMOUNT is paid at least five (5) days before the event.
RESERVATION: Phone reservation is required. Please call telephone 727-5628, 727-8860, or 496-6949.
SCHEDULE: Schedule may change without prior notice. Please call to confirm seminar schedule. BusinessCoach, Inc. is not liable for any expenses incurred by seminar registrant resulting from cancellation of any of our events.

For more information and to see other business seminars, Click Here>>> Business Training

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In this book cover provided by John Wiley & Sons Inc., “Debunkery: Learn It, Do It, and Profit From It – Seeing Through Wall Street’s Money-Killing Myths,” is shown.(AP Photo/John Wiley & Sons Inc.) NO SALES

TITLE: Debunkery: Learn It, Do It, and Profit From It — Seeing Through Wall Street’s Money-Killing Myths

AUTHOR: Ken Fisher

PRICE: $27.95

E-BOOK: Available for iPad, Kindle, Nook, Sony Reader

SUMMARY: “Debunkery” is the seventh book by Ken Fisher, the founder and CEO of Fisher Investments, a money management firm overseeing more than $32 billion. In his latest work, Fisher attacks common myths and misperceptions, and shows readers how to analyze and discredit them. He divides the discussion into five sections: Basic Bunk to Make You Broke; Wall Street “Wisdom”; “Everyone Knows”; History Lessons; and It’s a Great Big World! Each of the 50 chapters is dedicated to one misperception and is typically only three to five pages long. The short discussions enable you to pick and choose what’s most interesting for your financial situation.

QUOTE: “Once you intuitively accept that 1) lots of commonly accepted investing wisdom isn’t wise, and 2) you will still make mistakes anyway but can aim to lower your error rate and improve your results, actually doing debunkery can be easy. Simple really!”

PUBLISHER: John Wiley & Sons Inc.

— David Pitt

CUTTING THROUGH MONEY MISINFORMATION is a post from: nemuntha.com

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2 Ways to Put Your Children’s Money to Work
Recently I have been sharing tax strategies to get your children into the game and on the payroll. Now that you’ve put your children to work, the next step is to put their money to work!

There are many ways your children can put their money to work. Two of these ways: />
# 1, your children have paid for their
Extra /> One thing that most parents agree that children can be expensive! All the extras add up – sports, lessons, toys, games, the latest gadgets. All parents know this list can go on and on. Rather than pay for extras for your children with your tax dollars, have your children pay for their extras with their dollars, after taxes. dollars of your children after taxes are much cheaper than yours – especially if they are at a rate of 0% />
tax “What I like about this strategy is that it reduces taxes and give my children the real life experience in managing their finances.

# 2 Have Your Children Fund a Roth IRA

In general, because children are not IRA, contributing to an IRA, the owner IRA must have earned income. Like most children have no earned income, the IRA is not an option.

When you have your business hire your children, not only has the possibility of reducing taxes, but also the opportunity for your children to contribute to an IRA. Once your children have earned income, are likely to contribute to an IRA.

In most cases I find that a Roth IRA is a better fit for the children to a traditional IRA. One reason is that the distributions of a Roth IRA are tax free. In a traditional IRA, distributions are taxable. This means that all income earned in a Roth IRA are never taxed! Of course, the rules of the Roth IRA must be followed to receive this treatment, but I find that most of the time, the Roth IRA rules are easier to follow than those of a traditional IRA.

The power of time is huge in this strategy, because the contribution, however small, to a Roth IRA at a young age can reach substantial equilibrium with the time your kids are still half ages! Add to that the nature of the tax-free Roth IRA and it is easy to see why this strategy can be so powerful for your children.

Another reason I like the Roth IRA for children is that there are several exceptions to the early withdrawal penalty (which can make Roth IRA earnings and contributions tax). These exceptions make it possible for your child to take distributions without penalty of time before reaching the ‘retirement age.

2 WAYS TO PUT YOUR CHILDREN’S MONEY TO WORK is a post from: nemuntha.com

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