The number of public pension systems with a sole trustee might shrink to two from three, as North Carolina Treasurer Janet Cowell launches a wholesale review of the pros and cons of the approach.

On Jan. 16, Ms. Cowell named an independent group of 11 pension system representatives, legislators and industry experts to develop recommendations for the General Assembly to act on this spring. The new Investment Fiduciary Governance Commission’s assignment is a broad mandate to assess North Carolina’s current governance structure for all of the pension funds that make up the $83.1 billion North Carolina Retirement Systems, Raleigh. Commission members will evaluate best practices in public, private and non-profit investment sectors before advising Ms. Cowell on possible changes to suggest to the General Assembly.

If North Carolina moves away from a sole trustee arrangement, it would leave New York and Connecticut operating that way, rather than through boards of trustees. (In Michigan, the treasurer is the sole fiduciary.)…

Read the rest of the article at Pensions & Investments (free subscription site)

Uncertainties about what to do in rebalancing and the uncharted waters of central bank accommodation are among the things that’ll bring sleepless nights to investment executives and money managers in the coming year.

“The scary thing is the thing you don’t expect,” said James Keohane, president and CEO of the C$47.4 billion (US$44.6 billion) Healthcare of Ontario Pension Plan, Toronto. “It’s hard to know what there is in store.”

“Everything keeps me up at night,” said David Cooper, chief investment officer of the $28.3 billion Indiana Public Retirement System, Indianapolis.

“Asset allocations are probably out of whack right now,” generally overweight stocks and underweight fixed income, added Tim Barron, CIO at investment consultant Segal Rogerscasey in Darien, Conn. But given the 2013 jump in stock prices and the ongoing concern over core fixed income, he added, “how do you feel about selling stock and buying fixed income? That’s a struggle.”

What’s expected is the continued tapering of the Federal Reserve’s quantitative easing strategy, and that equities will continue to see growth, but not at a breakneck pace…

Read the rest of the article at Pensions & Investments (free subscription site)

Are the states up to the task of effectively regulating reinsurers?

That is one of the questions that remain following a highly anticipated report last week from the Federal Insurance Office, an entity formed under the Dodd-Frank Act.

FIO, tasked with deciding what changes are in order for insurance regulation, called in the report for greater cooperation among states and federal regulators.

“In the short term, the U.S. system of insurance regulation can be modernized and improved by a combination of steps by the states and certain actions by the federal government,” the report stated.

The report’s recommendations also included that “states should develop a uniform and transparent solvency oversight regime for the transfer of risk to reinsurance captives,” and that to help achieve consistent regulation of reinsurers across states “Treasury and the United States Trade Representative [should] pursue a covered agreement for reinsurance collateral requirements.” But, the report noted, this agreement would be based on a model law hammered out by the association of state regulators, the National Association of Insurance Commissioners.

Read the rest of the article at FierceCFO.com.

At a March 2012 meeting, a group of examiners at the Federal Reserve Bank of New York agreed that Goldman Sachs had inadequate procedures to guard against conflicts of interest — guidelines aimed at stopping firms from putting their pursuit of profit ahead of their clients’ best interests.

The examiners voted to downgrade a confidential rating assigned by the New York Fed that could have spurred costly enforcement actions and other regulatory penalties. It is not known whether the vote in fact led to a rating change. The former examiner who pushed for a downgrade, Carmen M. Segarra, now contends in a lawsuit filed on Thursday that just weeks after the vote, her superiors asked her to change her findings on Goldman and fired her after she refused.

The vote to downgrade, which has not been previously reported, could have been a big blow for Goldman.

“Goldman Sachs does not have a conflicts-of-interest policy, not firmwide, and not for any divisions,” Ms. Segarra wrote to Michael F. Silva, a senior executive at the New York Fed. “I would go so far as to say they have never had a policy on conflicts.”

The lawsuit, along with a review by The New York Times of confidential government documents and internal e-mails, raises questions about the success of Goldman’s efforts to police potential conflicts.

The bank has been buffeted by accusations that it has put its own interests ahead of its clients, a contention it denies. Goldman, for instance, faced accusations that in the run-up to the financial crisis that it sold billions of dollars in souring real estate assets to unsuspecting clients. Just weeks before the examiners’ vote last year, the bank was publicly excoriated by a federal judge who found that Goldman had conflicts in a huge energy deal.

The lawsuit also provides a look into the often-opaque relationship between federal regulators and Wall Street. After the financial crisis, banking regulators faced criticism that they were too cozy with the banks that they were overseeing — a familiarity that failed to thwart some of the risky behavior precipitating the housing crisis and ensuing recession…

Read the rest of the article at the NY Times.

Ruth Porat didn’t see it coming.

The Morgan Stanley (MS) banker who thought she understood the risks to the financial system in September 2008 was advising the U.S. Treasury Department on its rescue of Fannie Mae and Freddie Mac when she got a message: Would she come back to Washington to deal with the collapse of American International Group Inc. (AIG)?

“The call I got was ‘We worked on the wrong thing,’” Porat, 55, said in an interview last month at the New York headquarters of the bank where she’s now chief financial officer. That AIG “could vanish that quickly and the impact that could have throughout the country, and that nobody could see it coming, was just staggering.”

Porat’s own bank almost vanished when hedge funds, spooked by difficulties getting money out of bankrupt Lehman Brothers Holdings Inc., pulled more than $128 billion in two weeks from Morgan Stanley. To stay afloat it sold a 20 percent stake, became a bank holding company and borrowed $107.3 billion from the Federal Reserve on a single day.

Five years after Lehman Brothers sank on Sept. 15, 2008, triggering the worst financial crisis since the Great Depression, Morgan Stanley is safe enough to survive a shock that devastating, Porat said. She and Chief Executive Officer James Gorman, with prodding from regulators, led a drive to cut risk and boost capital to soften the next blow….

Read the rest of the article at Bloomberg.

Let’s play a game. It is called “What if … .”

As we observe the five-year anniversary of the financial crisis — Lehman Brothers filed for bankruptcy five years ago this coming weekend — the most intriguing hypothetical question about those fateful days is what would have happened had the government bailed out Lehman.

It would have changed the course of history, certainly, but maybe not for the better.

The collapse of Lehman has long been considered the domino that led to the tumbling of so many others: Merrill Lynch’s hasty sale to Bank of America; the bailout of the American International Group; the breaking of the buck in the money market; the near collapse of Goldman Sachs and Morgan Stanley that led them to become banking holding companies; and the decision by the government to pursue the $700 billion Troubled Asset Relief Program to bail out the entire banking industry.

The decision not to rescue Lehman has been called a mistake and worse. Christine Lagarde, the French finance minister at the time, called it “horrendous.”

No one suggested Lehman deserved to be saved. But the argument has been made that the crisis might have been less severe if it had been saved, because Lehman’s failure created remarkable uncertainty in the market as investors became confused about the role of the government and whether it was picking winners and losers. The government had bailed out Bear Stearns and then nationalized Fannie Mae and Freddie Mac but left Lehman for dead only to turn around and save A.I.G….

Read the rest of the article at the NY Times.

Class-action lawsuits are the bane of most financial firms, and many recoil at the prospect of paying out millions to groups of clients if investments go sour. Now, the discount brokerage firm Charles Schwab & Company finds itself at odds with regulators as it seeks to eliminate the option of such suits for its clients.

For Wall Street, the skirmish has inadvertently brought fresh and unwelcome attention to the investor arbitration process and its flaws, and could severely curtail efforts by investors hurt by widespread problems, including claims of being marketed unsuitable investments by brokers who gave a deceptive sales pitch.

Investors generally have not been able to use the public court system for their disputes with their stockbrokers since 1987, when the Supreme Court ruled in Shearson v. McMahon that a brokerage firm could force customers to agree to arbitration. Since then, virtually every firm has added a so-called mandatory arbitration agreement to its new-account documents.

One exception was for issues that were pervasive enough to warrant class-action status, that way allowing groups of investors to sue a firm or firms.

But in 2011, Schwab added a clause to its customer agreement that required clients to agree not to pursue or participate in class-action suits….

Read the rest of the article at the NY Times.

The Justice Department, as you’ll recall, has accused S&P (MHFI) of helping cause the 2008 financial crash by inflating its ratings of esoteric subprime-backed securities. The company’s purported motive: pleasing the investment banks that pay its fees. The rating agency’s first line of defense was that it couldn’t be held liable for its claims of integrity because no sensible investor would believe its “AAA” rubber stamp.

In July, a federal judge in Santa Ana, Calif., brusquely rejected S&P’s “mere puffery” defense. If one read between the lines of his ruling, U.S. District Judge David Carter seemed incredulous that a company that bases its reputation on independent judgment would maintain with a straight face that it’s immune from legal consequences because no one takes its judgment seriously. “If no investor believed in S&P’s objectivity,” the judge wrote, “is S&P asserting that, as a matter of law, the company’s credit ratings service added absolutely zero material value as a predictor of creditworthiness?” It seemed like something from the theater of the absurd….

Read the rest of the article at Bloomberg.

The trial over the merger of AMR Corp. (AAMRQ) and US Airways Group Inc. should wait at least until March instead of starting in November, the U.S. government told a court.

Rushing to try the antitrust lawsuit isn’t a good idea given the case’s complexity and the potential for the merger to hurt competition and consumers, the Justice Department said in papers filed yesterday in federal court in Washington.

Short-term costs and uncertainties must be balanced against “the need for a full and fair exploration of the claims at issue, and the merger’s potential for long-term harm to consumers,” the government said.

Given the volume of trial materials to be exchanged, including interviews, expert testimony and data, “that is hardly a leisurely schedule,” it said.

The Justice Department’s request for a trial date of March 3 “is entirely unreasonable” given that the department has already been investigating the merger for more than 16 months, Tempe, Arizona-based US Airways and Fort Worth, Texas-based American Airlines said in a joint statement. The airlines proposed a November starting date for the trial….

Read the rest of the article on Bloomberg.

The regulators, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, plan to announce the actions as soon as next month, according to people briefed on the matter. Under the terms of the civil orders, the bank will have to acknowledge internal flaws and dole out at least $80 million in fines, said the people, who spoke anonymously because they were not authorized to speak publicly about the matter.

The most costly cases for JPMorgan center on concerns that the bank duped its credit card customers into buying products pitched as a way to shield them from identity theft. In separate actions reflecting their varied jurisdictions, the consumer bureau will levy a roughly $20 million fine, while the comptroller’s office is expected to extract about $60 million.

In another set of actions, the regulators are aiming at the bank for the way it collected overdue bills from consumers, the people said. It is unclear whether those cases will yield any fines.

Even if some fines are assessed, those penalties will barely nick the bottom line of the bank, which earned record profits in recent quarters. Yet the actions represent one element of a broader federal crackdown on JPMorgan…..

Read the rest of the article at the NY Times.