Archive for Banking Fees
Morgan Stanley (NYSE: MS) To Win Big in Government Sale of Citigroup (NYSE: C) Shares
Posted by: | CommentsInvestment banking giant Morgan Stanley (NYSE: MS) will be a significant beneficiary in the US government plan to sell off its stake in Citigroup (NYSE: C) over the course of 2010. A contract between Morgan Stanley and the Treasury Department allows the company to charge a management fee for assisting in the sale of Citigroup shares and advising the government on additional bailout procedures in the future.
The Treasury Department recently chose Morgan Stanley to manage the sale process of its 7.7 billion shares in Citigroup. The agreement between the government and Morgan Stanley, stipulates that the bank will receive fees of $0.003 and $0.0175 per share, which equates to a range of $23 million to $135 million of estimated fees on the transaction. (these figures reported here by the New York Times) In addition to these fees, Morgan Stanley also stands to collect a $500,000 “administration fee” for its role. You can review the contract between Morgan Stanley and the Treasury Department here, thanks to the New York Times.
The governments’ 7.7 billion shares represent approximately 27% of outstanding shares of Citigroup, which were acquired in an effort to stabilize the company by purchasing preferred shares under the Troubled Asset Relief Program (TARP). The preferred shares were converted into common shares last summer, making the US government the largest stakeholder in Citigroup, and the Treasury Department indicated last month that it would begin divesting itself of its stake in Citigroup over the remainder of 2010.
There are justified fears that selling such a large stake in Citigroup will cause volatility in not only Citigroup shares, but also in the broader market. To counter those fears, the Treasury Department stated during its announcement that it would conduct the sale in “various means in an orderly and measured fashion.”
Despite initial fears that the sale would result in a loss for the Treasury, it now appears the Treasury Department will likely realize a gain on the sale of the shares. The shares were converted to common stock at approximately $3.25 per share, and Citigroup stock is currently trading well above the $4 per share mark, which if the price remains in this range, would equate to a gain in the billions of dollars.
The sale of Citigroup shares will end the short, but extremely controversial, stint of direct ownership of a bailed out financial institution during the US economic crisis. The Obama Administration, the Treasury Department, and the head of the Treasury Department – Timothy Geithner, have endured blistering criticism over the TARP program and ownership of Citigroup shares, and likely look forward to putting this controversial period behind them.
This article (Morgan Stanley (NYSE: MS) To Win Big in Government Sale of Citigroup (NYSE: C) Shares) was originally developed by and is property of American Banking News. Checkout American Banking News for up-to-date banking news and peer to peer lending news.
Banks Targeting Debit Cards for Additional Revenue Stream
Posted by: | CommentsWith the Credit Card Accountability, Responsibility and Disclosure (CARD) Act to be instituted in February 2010, banks are starting to look at other revenue streams, as over the long term revenue from credit cards will be a smaller part of their overall business than in the past.
It isn’t a stretch to understand there’s a lot of potential revenue to be garnered with debit cards, which are a growing and significant tool used by consumers for their daily transactions. According to The Nilson Report, American consumers will spend approximately $1.64 trillion using their debit cards in 2010, a huge increase of about 66 percent from just 2006. Much of that comes from people cutting back on debt purchases and using cash as the preferred method of doing business.
As far as credit cards as an ongoing revenue stream, limitations from CARD, which will limit how lenders will be able to increase interest rates on the cards, as well as fees, has resulted in companies increasing interest rates on credit cards now in order to get back some of their future losses. While this will work for them over the short term, long term credit card revenue will decline as a percentage of their overall business.
How this will play out for debit cards as a revenue stream will be in relationship to loyalty rewards programs.
How the loyalty programs work when offering rewards is they charge a fee to debit card users for the privilege of using their points to buy goods or services.
While this is good for banks and some consumers, let’s face it, most of the time you have to spend so much it doesn’t really pay to enter into the program. Of course for some people it really works well because they indeed to spend into the thousands of dollars a year using their debit cards, and so can recoup a portion of their fees spent to receive the rewards.
In other words, these programs work for people that make a good living and will spend into the tens of thousands of dollars using their debit card, whether there is a reward program or not. A reward program just nudges them to spend a little more, which can generate more revenue for the banks from the fees connected to administrating the program.
To be useful for consumers, they will have to know their spending habits and how much they will use their debit card. Armed with that, they’ll be able to determine whether a program like this will pay for itself for them or not.
For banks it’s a good idea, as many people like to enter into reward programs, and many times they’ll do that and very seldom tap into the earned rewards, making it less expensive for the bank to provide for them.
Either way, we’ll see a push toward reward programs in 2010 in connection to debit cards as an additional way for banks to generate revenue.
In good news for JPMorgan Chase (NYSE:JPM), they almost doubled their fees generated from equity capital market (ECM) underwriting, as the company enjoyed an estimated $2.2 billion in revenue from the business.
Equity capital markets refer to underwriting and selling the stock of a company, a very lucrative part of the investment banking business. This is one of the reasons large banks will strongly fight against reinstating the Glass-Steagall act, which is being pushed by some lawmakers at this time.
What’s interesting on the investment banking side is the change in the main revenue generator, as in the past it has largely been fees generated from advising on mergers and acquisitions, which have largely dried up over the last couple of years.
Much of the growth in ECM came from the booming equities market over the last year or so, which helped drive the much-needed raising of cash after a dismal 2008.
Overall global growth for the ECM market came in just under $890 billion, which was up a huge 27.7 percent from 2008. A significant portion of that was of course related to the capital requirements of banks which needed to raise significant money during the economic crisis. Of the $689 billion in follow-on activity, close to 50 percent was connected to the capital needs of banks.
Along with J.P. Morgan Chase, which led the ECM field, was Goldman Sachs (NYSE:GS), which came in at the second spot, while Bank of America moved up one slot to number three on the list, a surprise to many considering the seemingly endless struggles the company experienced throughout 2009.
Some may be surprised at the large increase in the overall ECM, but when you take into consideration it was led primarily by IPOs from the Asian market, and it makes better sense. Of the top ten IPOs in 2009, eight of them were from Asia.
The type of IPO that excelled this year are what are called carve-out IPOs. What this means is a mature company with a proven track record replicates its business in another market; although there can be some differences from the parent company.
These are attractive in the current economic conditions as investors are looking for stability and something they can count on rather than an unproven entity.
While this is good news for ECM in general, the reality is business is still difficult in the sense of consistency, and going forward into 2010, it will still be that success will be determined on a case-by-case basis rather than an overall surge in the IPO market.