J.P. Morgan: Strategic Shifts Amidst Changing Consumer Behavior

Chase Mobile Banking Application

Today, J.P. Morgan & Chase updated its forecast regarding employment cuts, announcing expected reductions of 8,000 jobs from its mortgage operations and retail branches over the course of 2014. These cuts are over 2,000 more than original projections.Furthermore , this employment reduction is on top of the 16,500 cuts made last year by the U.S. banking giant. 

However, total employment will be reduced by only 5,000 jobs due to the addition of 3,000 new jobs to the bank's compliance department. Compliance departments of major banks have become increasingly crucial since the '07-'08 global financial crisis. J.P. Morgan has agreed to over twenty billion dollars in settlements over just the past year, with other federal probes waiting in the wings. However, it is an acknowledged reality that demand for compliance expertise currently exceeds the pool of qualified personal, suggesting that money, and perhaps jobs, will be shifting gradually toward that area.

Legal issues aside, a great deal of J.P. Morgan’s strategic shift can be attributed to changing consumer behavior amidst advents in consumer banking technology. In addition to the employment cuts the bank also announced today that it would be curbing the expansion of its branch network. Over the past three years, J.P. Morgan added 360 new physical locations. However, customers’ growing reliance on paperless banking and automated teller machines has undercut the utility of the once essential brick-and-mortar banking stations. Moreover, the recent spike in online banking, namely the ability to cash checks through photos on encrypted mobile applications, has reduced demand for representatives and teller transactions.
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Arthur Gosnell

Wyden Urges Extension of Tax Credits; Deductions

Despite indicating that there will not be any major tax changes for either individuals or businesses for this fiscal year, new Senate Finance Committee Chairman Ron Wyden has established extending U.S. tax credits and deductions as a priority.

U.S. SCF Chairman Ron Wyden

"Our hope is that we can get (the tax credits and deductions) reenacted promptly,” states Wyden. However, his plan does not end there, as he has admitted to using these tax credits as a bridge to “more comprehensive reform.” Regardless of his goals, Wyden has suggested that more substantial tax code changes are not close from occurring. This is reiterated by the fact that Republicans and Democrats alike are lowering their expectations of passing substantial legislation before the November elections that will determine which party controls Congress for the final two years of Obama’s reign as President. Wyden, an Oregon Democrat, supports a rule proposed by the IRS that could limit political spending from outside interest groups that are classified as non-profit social welfare organizations.

 This legislation, if passed, could be crucial for the upcoming elections. It would require all groups funding politics to disclose their donors. This change would impact Republicans as well as Democrats, which proponents argue would create a more democratic political environment.

Wyden has also recently expressed support for a lawsuit from Kentucky Republican Senator Rand Paul, which claims the U.S. electronic surveillance of telecommunications is illegal. Wyden stated this violates the Fourth Amendment. How this relates to his stance on tax-code revision is unclear, however it may be an attempt for Wyden to increase his popularity amongst a growing sector of libertarian-oriented Republicans.
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Chris Geary

Lenovo's Acquisition Spree; Vodafone Sells Back

Lenovo recently acquired IBM’s low server business ($2.3 billion) and Motorola Mobility from Google ($2.9 billion), wrapping the two deals up within a week. Lenovo is known for surpassing HP as the largest maker of personal computers; however, the PC market is in steady decline. This acquisition falls into Lenovo’s PC plus strategy—expanding into the international smartphone market with Motorola’s global brand (90% of Lenovo sales are from China). However, Lenovo is going to have to integrate Motorola, which reported losses of 384 million in their last quarter, and the servers that they hope will drive innovation and value in system and software areas such as cloud and cognitive computing, instead of just hardware. This is important in a market where several tech giants are phasing out low end servers for high end servers that can handle more complex tasks.

Vodafone recently approved the sale of its 45% stake in Verizon Wireless, returning $84 billion to Vodafone shareholders; the largest single return of value to shareholders in history. Verizon Communications now has complete ownership of its wireless industry, at the cost of $130 billion, the third largest deal in corporate history. Verizon executives assert that the purchase will give them the financial flexibility to invest in new mobile technologies. Verizon shares were down one cent at $47.68 on the New York Stock Exchange after the news. Vodafone shares closed roughly flat at 223.44 pence in London. After AT&T announced that it was not in talks to buy Vodafone (valued at more than $100 billion) and trading on Vodafone stock dropped 4% in London. Analysts are divided over whether Vodafone can prosper on its own or whether it is better off as a takeover target, especially as the European telecommunications sector faces regulatory uncertainty.
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Brandon Nesfield

Obamacare and Jobs, What's Really Going On?

This past week, the nonpartisan Congressional Budget Office (CBO) released a report that included its projection of Obamacare’s impact on the economy, specifically in labor markets. In Appendix C of the report, the CBO concluded that Obamacare will cause “…a decline in the number of full-time-equivalent workers of about 2 million in 2017, rising to about 2.5 million in 2024.”

Then, the media went crazy.

Headlines such as “ObamaCare could lead to loss of nearly 2.3 million US jobs” (Fox News) and “The Jobless Care Act,” (Wall Street Journal) popped up everywhere. These headlines grossly misrepresented the report and the CBO’s intent behind that statement. The Wall St. Journal should know better.

The CBO did not say 2.5 million Americans would be fired because of the Affordable Care Act (ACA), nor did they claim that employers would seek 2.5 million less employees. This statement means that 2.5 million Americans will voluntarily leave their jobs or not seek employment over the next few 10 years. In CBO Director Douglas W. Elmendorf’s words, “[there] is there’s a critical difference between people who like to work and can’t find a job or have a job that was lost for reasons beyond their control and people who choose not to work.”

Fewer Americans will look for jobs due to Obamacare’s incentives, which are both beneficial and detrimental to society. Democrats point out how an individual willingly leaving their jobs to pursue other things is a positive and that one should not work just to get health insurance. For example, mothers of young children or the elderly may happily leave their job because affordable health care is available elsewhere. Republicans discuss how the subsidies the ACA provides to the poor disincentive work because as income goes up, the amount of subsidies one receives goes down. In that case, it may be better to rely on the government safety net instead of actively seek a job.

For once, both the Democrats and Republicans are probably right. I say probably because the policies within the ACA have never been implemented on such a large scale and unintended and unpredictable outcomes in the labor market are to be expected. The CBO admits, “The actual effects could differ notably.” In the 6 years of debate about the merits of the ACA, there have been too many lies, misrepresentations and dishonesty from both sides. This CBO report could have easily been twisted as “2.5 million new jobs over the next 10 years” and that would have been a distortion of the truth as well. So, whatever the ramifications of the ACA are over the next 1, 10, even 20 years, I recommend following the old saying “believe none of what you hear, and only half of what you see.”
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Luke Wolf 

Analyzing the Sports Cable Bubble and Its Impact on Customers and Teams Alike

In recent years, revenues of many professional sports teams, particularly in Major League Baseball, have increased significantly because of a boom in local television revenues. The values have continued to rise in recent years because of the inflation of America’s collective cable and satellite bill. However, few people fully understand why this is the case. Even if someone had no association to a team or channel, simply by paying for cable television they would be contributing to the cause. Each time a cable bill is paid, the channels collect a small fee. The most highly demanded channels are able to bargain for higher fees. As it turns out, most of these are sports channels. For example, according to Wunderlich Securities, ESPN brings in a staggering $10 billion annually. They gain $3.5 billion from what expected sources, such as television, digital, and magazine advertisements. They bring in the remaining $6.5 billion from cable and satellite affiliate fees. ESPN charges cable companies $5.06 per month per subscriber, which when multiplied by 100 million subscribers gets you to the $6.5 billion figure. Much of this comes from consumers who never so much as think of turning the channel to ESPN. This is the genius, or scam, of the sports cable bubble: tens of millions of customers paying at least $100 a year for sports they never watch but indirectly giving billions of dollars to these industries.

The consequences of these seemingly endless streams of revenue is an example like Time Warner Cable being able to offer the Los Angeles Dodgers $7 billion for the rights to broadcast their games. As a result, the Dodgers payroll, in a league with no salary cap, is essentially infinite. The Dodgers were able to increase their 2013 payroll to a whopping $241.7 million, an unheard of 112% increase from the 2012 figure of $114.1 million. The franchise rises in value, the players make more money, the team wins more games, and, ironically, non-sports fans are paying for most of it. Because of the Dodgers deal, Time Warner is expected to launch a SportsNet LA channel that charges subscribers $5 monthly.

According to Bloomberg BusinessWeek, fees for televised sports are rising almost twice as fast as cable subscriber rates, which putting providers in a bind. They are forced to choose between hiking prices to compensate at the risk of customers leaving, or they must stay faithful to their customers and deal with smaller profits. Consumers and providers alike are beginning to complain publicly about the inequitable qualities. However, little appears to be changing in the near future.
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Frank Luby

A Directionless Sprint

Speculation stirring about whether telecom holding company Sprint Corporation will acquire competitor T-Mobile will soon be put to rest. It was reported yesterday, on February 14, that Sprint executives Masayoshi Son (Chairman) and Dan Hesse (CEO) regrouped their team to discuss the plausibility, or lack thereof, of the potential acquisition. This is after multiple meetings with anti-trust officials from the Justice Department and Federal Communications Commission in Washington, who displayed strong disapproval for the deal. Whereas Sprint believes a merger with T-Mobile will solidify a strong 3rd player to compete with conglomerates Verizon and AT&T in the telecommunications industry, regulators believe that healthy competition requires 4 players who should focus on organic growth. They view T-Mobile as a wild-card competitor that, though much smaller in operations, can put consistent pressure on the others with its speedy LTE network, cheap subscription plans, and ambitious offers to buy out contracts of customers from other. The regulators’ goal is to simply keep a balanced wireless marketplace that will benefit consumers in the long run with innovation and quality service.

Sprint, however, is slowly getting cornered and T-Mobile is ostensibly the most practical way out. The company lost 243,000 subscribers in Q4 2012, and analysts believed the company would lose over 350,000 in Q4 2013. This was primarily due to the fact that Sprint is taking its time with 4G LTE and is currently in the middle of a bumpy network upgrade aimed to handle more capacity at higher speeds for customers. The transition, though necessary, has led to poor voice quality and frequently dropped calls. Fortunately however, Sprint most recent quarterly showed that the company beat analyst estimates by actually adding 58,000 new subscribers and narrowing losses 44 cents per share in the year-ago quarter to 26 cents today. The news was characterized as “better than feared” by Wells Fargo analyst Jennifer Fritzsche, and the market responded as Sprint shares rose 7.4% to $8.26.

The future does not look too bright for the telecom giant. And because this deal is very unlikely to fall through – especially with T-Mobile’s aggressive tactics and recently reported gains – Sprint should target different, cheaper initiatives. The company’s recent Family Plan, a new $25 smartphone offer for large groups of family and friends, is a good start. But in order to truly keep up as a major player, Sprint needs to truly speed up its network restructuring and be creative. For a $30 Billion company, that is much easier said than done.
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Inder Takhar

SEC Lays Down the Law on Former SAC Capital Trade

SEC prosecutors have found former SAC Capital employee Mathew Martoma guilty of insider trading on Thursday February 6th. The prosecution was able to gather testimony from two doctors who have admitted to giving information about the drug to the former SAC employee. Martoma is the latest of eight SAC employee to be found guilty of charges brought about by the SEC. Martoma had allegedly received a tip about a new Alzheimer’s drug that had responded poorly in medical trials.

Prosecutors proved to the jury that Martoma acted illegally on this tip and encouraged SAC Capital to lower its stake in Elan Corp. and Wyeth, the makers of the drug. The results of this medical trial were not published until a month after Martoma received this tip, allowing SAC Capital to avoid nearly $275 million in potential losses on its holdings. The SEC stated that this was the largest insider trading case that they have ever found someone guilty of in a criminal trial. This case is no doubt a large step for the SEC in their campaign to put together a criminal trial against multibillionaire and SAC co-founder Steven A. Cohen.

Prosecutors allege that SAC Capital has, for a long time, encouraged an investing strategy of “gaining an edge” and gathering inside information on its holdings. Cohen was said to have had a twenty-minute conversation with Martoma after he had learned of the drug’s failure. SAC had also paid Mr. Martoma’s legal fees for the trial. SAC Capital is currently barred from managing clients’ money and only manages the money of co-founder Steven A. Cohen. Mr. Cohen is currently facing no criminal charges but is being charged in a separate civil trial for his inability to properly supervise two of his senior employees that have been convicted of insider trading.
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Jack McIlvaine