Author Archives: Joseph S. Fichera

November 3, 2014

A Modest Proposal: Compensation and Securities Law Enforcement

by: Joseph S. Fichera


November 3, 2014

A Modest Proposal: Compensation and Securities Law Enforcement

By: Joseph S. Fichera

The Federal Reserve does not need to break up big banks. There’s a better way to incentivize good behavior.

The Wall Street Journal reported on October 20, 2014 that Federal Reserve Bank of New York President, William Dudley,  told Wall Street’s top management to essentially “Shape up or be broken up.” His draconian remarks were prompted by the view that there have been consistent and pervasive rule violations.  See Federal Reserve Website Enforcement Actions.

“(Dudley’s) comments, at a closed-door meeting at the New York Fed with big bank executives, continue his campaign of publicly and privately criticizing what he sees as Wall Street’s ongoing ethical lapses. Mr. Dudley said that if big banks don’t make significant changes to improve their ability to comply with laws, pressure to break up the banks will only increase.

“The inevitable conclusion will be reached that your firms are too big and complex to manage effectively,” he said. “In that case, financial stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively.”

Perspective

The late Ace Greenberg, former CEO of Bear Stearns in the 1980s and 90s (when I was a Managing Director at Bear Stearns), created the kind of culture that Dudley and most all of Wall Street should want now. (It is important to note that Ace gave up management of the firm in 2001.) Making money was the top objective, but not if it required breaking any rules. One of Ace’s great phrases was “We believe everybody is honest but they’re more honest if you watch them like a hawk.”

Ace also made it known that if any employee thought his/her superior was doing something wrong, turn him/her in and the person would be promoted to the job. He did that with the head of the preferred stock desk who miss-marked a position and the employee, AJ Cass, got the job (AJ is now at Goldman). Ace also said “The definition of good trader is someone who takes losses and moves on. The definition of an ex-trader is someone who takes losses and tries to hide them.” These were not threatening notes from a regulator; they were the words of the firm’s CEO.

Dudley suggests holding only top management personally accountable for some of the losses that would occur from bad behavior. That may have worked with Sarbanes-Oxley and centralized financial accounting. However, it would probably not be sufficient to create the type of culture throughout firms that both regulators and the majority of Wall Street executives want.

One major complaint about Wall Street that arose from the credit crisis is that profits are privatized and losses socialized. On the risk-reward tradeoff as investment bankers, we have tremendous upside, but if we lose big time, the public bails us out.

Yet, something similar is true within the financial institution’s ecosystem when it comes to compliance costs. Individual business units make the profits and divvy them up among themselves. While they are also affected by the firm’s overall profitability, and may take a hit in bad years, the majority of compensation comes from individual performance. However, when one of their own causes a loss to the firm, say from a regulatory penalty or fine, those losses are moved largely to shareholders and away from the individual business unit. This is particularly true if the penalty, though nominally substantial, doesn’t affect the firm’s overall profitability. The shareholder’s checkbook dilutes the effect of a penalty to the firm on business units and bankers.

A successful bank’s culture ensures that everyone is a stakeholder in compliance with the rules by establishing direct financial consequences. I learned early on that “Investment banking is about making money; compliance is about keeping it.” In other words, it is in your self-interest to comply with the rules. The key is that these financial penalties should apply to individual as well as to the business units as a team. Holding senior management accountable through a top down method is one approach, but a bottom up, team approach is probably more effective.

Proposal

So, here’s a practical idea on how to make that happen, my “Modest Proposal” (apologies to Jonathan Swift):

Whenever a financial penalty is assessed to a bank for any wrongdoing, as part of the settlement with the bank, the bank must agree to assign the penalty to the profit center or business unit from which the violation occurred. This means that it will affect the bonus pool of the business unit, which means it will affect the compensation of all individuals in the business unit.

Results

What would this do? In essence, it could bring back an element of the investment banking partnership culture that existed before they became public companies. In a partnership, there is shared reward but also shared liability.

After becoming public companies, investment banks became more a collection of “independent contractors” than an interwoven collection of employees. This is particularly true on the trading floor.

Individual banker behavior is driven by compensation, especially because so much of it is in cash and directly related to the banker’s revenue production. Moreover, there usually is no significant penalty to one managing director from another managing director’s bad behavior in the business unit. This isolation from compliance consequences permeates the organization.

With this proposal (whose details would need to be carefully worked out to ensure fairness), all employees in all business units would know that their personal compensation could be affected by the behavior of colleagues that violate rules and result in regulatory penalties. Whether the violators are rogue employees or not, all employees would become “bonus stakeholders” in compliance. The public shareholder checkbook would no longer dilute the effect of penalties.

Conclusion

By having the bank tell employees that “If we have to pay a fine because any one of you breaks the rules, you will ALL have to pay,” we will bring everyone into watching everyone else. The most effective policing of the firm will never be by bank examiners or SEC investigations but by employees, at every level of the firm.

So, let’s stop talking draconian approaches of breaking up banks to try to get at the bad behavior of the minority that have put the firms at risk. Let’s focus on setting the right compensation incentives to support the fundamental rules of integrity and honesty that are Wall Street’s bedrock principles.

For more on Wall Street compensation, see: Of Money and Merit: The Upside Down Effects of Wall Street’s Bonus System, 1988.


Post Published Date: November 3rd, 2014

June 5, 2014

SEC Changes Tone on Muni Issuers and Fair Dealing Enforcement

by: Joseph S. Fichera


June 5, 2014

SEC Changes Tone on Muni Issuers and Fair Dealing Enforcement

By: Joseph S. Fichera

New SEC Muni Enforcement Chief Signals Big Change in Enforcement Actions to Protect Municipal Issuers

New “Core Focus” is Issuer as Potential “Victim” not Just “Perpetrator”

On June 4, 2014 Bloomberg News published an interview with the Securities & Exchange Commission (SEC) Municipal Securities Enforcement Division chief, Lee Ann Gaunt.  She was “on the record” on several issues including “fair dealing” concerning issuers and broker-dealers.   In the interview she announced a new “core focus” and it is significant because the first intersection of Wall Street and Main Street is in the dreary municipal bond market.

According to Gaunt,We’re investigating cases where the posture is issuer as victim, as distinct from issuer as perpetrator.  Are they being dealt with fairly?…That’s a very high priority for us.  That’s a core focus.”

In 2012, the SEC was only focusing on protecting issuers when they were also investors according to Elaine Greenberg, then chief of the Municipal Enforcement unit as quoted in The New York Times. I don’t draw a distinction between protecting investors and protecting municipalities when they are in the role of investor,” Ms. Greenberg said. “Consistent with the S.E.C.’s mandate of investor protection, we will pursue cases both where the investor is a holder of municipal securities and where the investor is itself a municipality. (See  The New York Times, August 9, 2012, Gretchen Morgensen column Police Protection, Please, For Municipal Bonds.)

“Fair dealing”  involves the Municipal Services Rulemaking Board’s  (MSRB) rule G-17 that prohibits broker-dealers from engaging in “any dishonest, deceptive or unfair” practice with municipal issuers.

The SEC has always pursued potential securities law violations by municipal issuers particularly in the area of financial disclosure and other related issues. Gaunt emphasized that the SEC was stepping up activities in this area too.  But issuers have also been protected under MSRB rules including G-17 at least beginning in 1997 from a published interpretive letter on the subject.  Actual SEC enforcement actions, however, were sparse.

Ms. Gaunt’s comments are therefore a dramatic shift in tone from the SEC comments of 2012.   It seems to be signally a big change.  It is certainly something to watch.

####

See entire story Bloomberg below.  Here is the relevant excerpts and context.

“Q: During the financial crisis, municipalities were hurt by complex transactions. Since Dodd-Frank, the Municipal Securities Rulemaking Board has updated its rules to put added requirements on underwriters’ dealings with municipalities. What is the agency’s approach toward enforcing regulations aimed at protecting issuers?

A: We’re looking at the conduct of banks as it relates both to issuers and investors. What you sometimes see is that conduct that hurts issuers also hurts investors. We’re investigating cases where the posture is issuer as victim, as distinct from issuer as perpetrator. Are they being dealt with fairly? Are they getting competent advice from their advisers? Are these sensible structures? Are they getting the lowest possible borrowing costs? What are the risks? Are they getting unconflicted advice? That’s a very high priority for us. That’s a core focus.”

For context, here’s the past position of the SEC:  SEC’s Elaine Greenberg former SEC Muni Enforcement chief quoted in New York Times August 9, 2012

In an interview last week, Elaine C. Greenberg, chief of the S.E.C. enforcement division’s municipal securities and public pensions unit, said the commission was just as interested in protecting issuers as it was investors. “I don’t draw a distinction between protecting investors and protecting municipalities when they are in the role of investor,” Ms. Greenberg said. “Consistent with the S.E.C.’s mandate of investor protection, we will pursue cases both where the investor is a holder of municipal securities and where the investor is itself a municipality.” New York Times August 9, 2012

Joseph Fichera’s wrote in  “Were Detroit’s Swaps Unfair?”  Bloomberg View January 2014 about the SEC’s lack of interest in enforcing “fair dealing” rules by protecting issuers as victims rather than just perpetrators:

“This brings us back to fairness. Were the original deal and subsequent negotiations conducted according to the rules? Were they fair? The federal “fair dealing” rule sought to protect issuers such as Detroit and made them akin to a protected class. Yet, rules are only as good as their enforcement, which has been sparse, to say the least. The Securities and Exchange Commission is more likely to see governments as the perpetrators of security law violations than as the victims.” Bloomberg View, January 2014

Six months later, SEC Lee Ann Gaunt current SEC Muni Enforcement chief states to Bloomberg June 2014 in language similar to Fichera:

We’re investigating cases where the posture is issuer as victim, as distinct from issuer as perpetrator.  Are they being dealt with fairly?…That’s a very high priority for us. That’s a core focus.” Bloomberg News, June 4, 2014

FULL STORY 

Bloomberg June 4, 2014

SEC’s Gaunt Sees Fines for Muni Bond Breaches: Five Questions 2014-06-04 16:08:10.987 GMT

By William Selway

June 4, 2014 (Bloomberg) – Lee Ann Gaunt wants a confession

The head of the U.S. Securities and Exchange Commission’s unit overseeing municipal bonds and pensions is urging local governments to come clean if they failed to keep investors informed about the state of their finances.

If they do: Localities can escape fines, while Wall Street firms that sold their bonds would see them capped at $500,000.  If not: “They absolutely should be expecting harsher sanctions.”

Gaunt took over in November, policing a $3.7 trillion market coping with record bankruptcies, depleted pension funds and new rules aimed at protecting localities from banks and once-unregulated financial advisory firms.

The unit has charged New Jersey, Illinois, and Harrisburg, Pennsylvania, with fraud for misleading investors about deteriorating finances. In November, it took a new tack, fining a Washington authority that defaulted on hockey-rink bonds after hiding misgivings, marking the first financial penalty against an municipal issuer.

Following is condensed from a recent telephone interview about her priorities as the market’s top enforcement official:

Q: In March, the SEC offered leniency to municipalities and underwriters in cases where buyers were told that a borrower had been providing adequate updates on their financial affairs, even when they weren’t. They have until September to report violations. What has the response been?

A: On the one hand, it’s a little disturbing that they don’t know whether they have been in compliance. On the other hand, it’s great that people are trying to get their houses in order. We certainly hope that if they find problems, they take advantage of the initiative. They absolutely should be expecting harsher sanctions if they elect not to.

Q: Since last year the agency has been scrutinizing the disclosures of distressed borrowers. Can we expect enforcement actions to result?

A: We certainly are seeing situations where issuers would have strong incentives to be less than fully candid. We’re going to be prepared to bring enforcement actions when we find the right kind of cases. We are actively monitoring distressed issuers, including whether they are continuing to comply with their disclosure obligations. Our Harrisburg case was particularly instructive. Harrisburg had not been complying, creating a kind of information vacuum, which is particularly dangerous for an issuer that’s in distress.

Q: During the financial crisis, municipalities were hurt by complex transactions. Since Dodd-Frank, the Municipal Securities Rulemaking Board has updated its rules to put added requirements on underwriters’ dealings with municipalities. What is the agency’s approach toward enforcing regulations aimed at protecting issuers?

A: We’re looking at the conduct of banks as it relates both to issuers and investors. What you sometimes see is that conduct that hurts issuers also hurts investors. We’re investigating cases where the posture is issuer as victim, as distinct from issuer as perpetrator. Are they being dealt with fairly? Are they getting competent advice from their advisers? Are these sensible structures? Are they getting the lowest possible borrowing costs? What are the risks? Are they getting unconflicted advice? That’s a very high priority for us. That’s a core focus.

Q: Are there areas of the municipal market where you feel there aren’t sufficient regulations?

A: There’s a lot of work to be done around issues associated with markups in the secondary market, just in terms of ensuring there’s adequate disclosure to investors about what markups they’re paying.

Q: Your division also oversees pensions. What is the agency’s focus there?

A: There’s a substantial intersection between underfunded pension funds and municipal securities issuers. Accurately reporting the extent of the underfunding is important, and the failure to do so could be materially misleading to investors.  Separately, we’re focused on instances where pension funds have been victimized by bad behavior by other participants. We always have a very healthy stable of pay-to-play investigations. As we’re seeing more pensions investing in alternative investments, we’re interested in fee disclosures.  Many pension funds are sophisticated.  Many are not — and we’re interested in whether they’re receiving adequate disclosure about the fees associated with those types of investments.

For Related News and Information:

News About SEC Actions: NI SEC BN <GO>

Top muni stories: TOPM <GO>

U.S. municipal issuers: MIFA <GO>

To contact the reporter on this story:

William Selway in Washington at +1-202-624-1949 or

wselway@bloomberg.net

To contact the editors responsible for this story:

Stephen Merelman at +1-212-617-3762 or

smerelman@bloomberg.net

Mark Schoifet


Post Published Date: June 5th, 2014

December 15, 2013

In Memoriam: Santa Natalie Fichera, 1925-2013

by: Joseph S. Fichera


December 15, 2013

In Memoriam: Santa Natalie Fichera, 1925-2013

By: Joseph S. Fichera

My mother, Santa Natalie Fichera, died Saturday December 14, 2013 in the early morning hours at the age of 88. She died after losing a battle with a suddenly rapidly advancing leukemia.

Her death, during the Christmas season, a time of joy and celebration, is poetic. Christmas is likely the reason why my immigrant Italian grandparents named their daughter, my mother, “Santa Natale.” And, Christmas is likely why my parents named their son “Joseph” and their daughter “Virginia Mary.” Christmas is about a family and it is intertwined with my family.

Losing both parents in the same year and in less than four months makes me wonder why, the same as Job asked God why bad things happened to him and all that he loved in the Bible’s Book of Job. But as it is explained to him, there is no explanation and we must accept what we don’t understand and move on.

Throughout her life my mother’s love was to be the advocate for her children, particularly her only son.  No detail about me was insignificant to her (Sometimes I loved this; sometimes I didn’t.) While it may seem cliche, the center of our home was the kitchen. Here, all things were discussed and decided.  And my mother was the kitchen’s master, our source of nourishment physically, emotionally and intellectually. She loved the art of conversation, even when others may not have been good listeners.  My mother taught me so much.

She was the youngest of four daughters of Natale and Angelina Finocchiaro who came to America from Sicily about 100 years ago.  She took care of her parents as they got older (both died in their late 80′s) as well as raised her family with her husband, Sebastian.  She made sure God was in every room of our house.  She decorated our home with our redemption in mind.  In each room there was a reminder of our Catholic faith, of Jesus, the saints, the cross.

While my father was the family’s consummate general, my mother was its commander.  She ran the house and was the savvy buyer of goods and services for us.  She expected that the family’s hard earned money would receive the value for what she purchased.  She made sure that everyone delivered on what they promised.  Whether they be a large department store or a local handyman each had to live up to her informed standards and scrutiny.  (We all have heard of “Consumer Reports” magazine today but she subscribed to it in the 1960′s.)  Few salespeople, service providers or others, if any, could win an argument with my mother about the quality of a product or about his or her duty to her to perform as promised or expected.

When I was younger, my mother worked as a hairdresser and, though she didn’t finish high school and her own father was illiterate, for her children she willed it to be, and made it be, a far different story. Her son and her daughter went on to earn Ivy League degrees with the son earning one from Princeton and from Yale.   She and my father made personal sacrifices for this goal and to give us opportunities they didn’t have. They always focused their love on their children with little attention to their own needs. The only exception was that my father’s one directive to me was to take care of my mother, the woman he called his “Doll” thoughout their 65 years of marriage.

Oscar Wilde said, “All women become like their mothers. That is their tragedy. No man does, and that is his.”

With my father’s death in August 2013, my parents are now both at peace and reunited. There is much I still need to do to honor them. I don’t wish to burden friends at Christmas with my loss or sorrow; I only wish you will help keep me on the right path in the new year and for all the years to come.

In loving memory by her only son,

Joseph Sebastian Fichera

My father, Sebastian Joseph Fichera, died in August 2013.  Please see Sebastian Joseph Fichera


Post Published Date: December 15th, 2013

December 6, 2013

Mandela and Traveling “Great” Distances

by: Joseph S. Fichera


December 6, 2013

Mandela and Traveling “Great” Distances

By: Joseph S. Fichera

In the early 90′s, as South Africa was transitioning to freedom, I traveled there several times as an investment banker seeking to help South Africa with their first sovereign debt offering, the privatization of state assets as well as equity offerings for South African businesses that had been shut out of US markets because of apartheid.
There is a spot in Capetown called “Table Top” mountain and from there you can see the Robben island prison that housed Mandela for 27 years and if your turn ever so slightly you can see the president of South Africa’s house. the distance is remarkably close, maybe 4 miles or 80 or so blocks in Manhattan.
I always thought, in wonderment and awe, how much happened throughout the world that got one man to travel that short distance from prison house to president house.
And it was South Africa that led the way for racial harmony… teaching us a lesson about about tolerance and change. Below is a poem that Mandela has said was part of his inspiration…and I can see why.Out of the night that covers me,
Out of the night that covers me, black as the pit from pole to pole / I thanks whatever gods may be, for my unconquerable soul. / In the fell clutch of circumstance, I have not winced nor cried aloud / Under the bludgeonings of fate, my head is bloody, but unbowed. / Beyond this place of wrath and tears, looms but the horror of the shade / and yet, the menace of the years finds, and shall find me, unafraid. / It matters not how strait the gate, how charged with punishment the scroll / I am the master of my fate – I am the captain of my soul.
***

Let us all be thankful and inspired.


Post Published Date: December 6th, 2013

November 3, 2013

The “You Can Keep Your Health Plan” Pledge

by: Joseph S. Fichera


November 3, 2013

The “You Can Keep Your Health Plan” Pledge

By: Joseph S. Fichera

The President was wrong when he said you could keep your health care plan under the Affordable Care Act. He should have said you can keep your health care plan IF it meets the new minimum requirements that Congress believes are in the best interests of all Americans.

It’s ok to establish new minimum standards but nothing is free. And that’s what has been glossed over/distorted or whatever in the debate. Expanding coverage to the uninsured and expanding coverage of the insured while reducing costs are competing objectives. There are “efficiencies of scale” and “productivity gains” to be had but they rarely occur immediately.So what we are dealing with right now are called “transition costs” among other things. Obama the professor and policy wonk understands this. The rest of us don’t really. The President needs to speak in plain English. Keep his promises and fix the parts of thaw that need fixing. Yes, easier said than done…but he needs to begin the process rather than defend the plan at all costs.


Post Published Date: November 3rd, 2013

Obama-Biden or Clinton 2012

by: Joseph S. Fichera


November 3, 2013

Obama-Biden or Clinton 2012

By: Joseph S. Fichera

A new book (“Double Down”) says that Obama’s campaign staff explored the option of dumping Joe Biden for Hillary Clinton as VP. No confirmation that Obama knew of the “testing the waters.”

What’s most troubling for me is the lack of personal loyalty solely for political/personal gain. It is one thing to ask someone to step aside because of a specific issue that creates a liability, a hinderance to a larger objective. But that was not the case. Biden was/is an excellent VP as VPs go. The thought was “what do we get if we dump him and pick up Hilary?”….a win at any cost strategy…even the trust and loyalty of a colleague. Me first?

As for whether the President knew… Where was the “Are you nuts? The boss would never go for that!” or “Yes we can but no we shouldn’t?” It just is troubling. Nothing to do because all the alternatives were/are worse. Just disappointing I guess.


Post Published Date: November 3rd, 2013

August 18, 2013

In Memoriam: Sebastian Joseph Fichera, 1920-2013

by: Joseph S. Fichera


August 18, 2013

In Memoriam: Sebastian Joseph Fichera, 1920-2013

By: Joseph S. Fichera

My father, Sebastian Joseph Fichera died today on his 93rd birthday on August 18, 2013

He was the only son of Joseph Paul and Ignazia Fichera who came to America from Sicily 103 years ago. Sebastian continued the promise of the American dream that brought his parents here. That promise allowed his father, my grandfather, a barber, to create a family, become a community leader and, upon his death, leave his children with a better life and even more opportunity than his generation and the generation before.

“Honor your father and your mother” is one of the Ten Commandments. It is a lifelong commandment, to be shown in deeds not just words… and it is to be done before and after their death. An obituary does not fulfill the commandment. Yet, let me share some thoughts with you about someone you have never met.

Sebastian Joseph Fichera was a gentleman in all senses of the word. He was also a gentle man, kind, never a harsh word though still a demanding person especially about education and devotion to family. He got a business degree from an extension of Niagra University in Rochester, NY in 1940.

He fulfilled his duty to family in a quiet, dignified and diligent way. His profession for 30 years was a bookkeeper. Math, precision, and organization were his specialties. A pen would always be in his shirt pocket–which could make him an early nerd. The devices that his son uses every day put him out of work. He retired in 1984 no pension, only savings and Social Security.

Sebastian was loyal to family, firm and country. He served in WWII, came back, married his sweetheart (whom he met at a basketball game when my mother was heckling my father’s cousin in the row in front of him), started a family and worked to support them.

He loved his wife, Santa Natalie, unconditionally for 65 years. They raised a daughter and a son. Each went on and earned degrees from Yale and the son an undergraduate degree from Princeton.

After his workday, he was an extraordinary fan of sports (particularly baseball) and an accomplished sports writer and commentator (before the crazies took over talk radio). That moment in the movie “Field of Dreams,” when the father asks the son to play catch, taps the emotion in me, as many others, of the bind between father and son and sports that begins with playing catch.

His belief in God and the Catholic faith were also absolute. The Vatican II council opened the possibility for laymen to participate in the Mass and he did so not reluctantly but with a sense of honor. Yet, he did not wear his faith on his sleeve. He simply lived it and gave everyone an example of a religious, caring man.

His courage, tenacity and endurance were not bravura but the way that most Americans simply do, day in and day out. He eschewed material possessions that his son tried to give him… except the large TV and new car to retire the 15-year old Ford Torino.

And he had the most essential evolutionary human trait of all! This trait is so critical to human survival that without it, mere cognition, reasoning and feeling would not work very well. He had a great wit and sense of humor – from the subtle to the profound. He would find moments to enjoy life – whatever life brought on – and make you laugh with his wit and charm. I remember once as a child watching my dad shave, he finished and turned to my mother and said “It is a shame that I wasn’t born rich instead of just handsome.”

When diagnosed with colon cancer, Sebastian made no complaints. He underwent surgery and survived. When 10 years ago, a terrible fall down a staircase led him to the hospital with such trauma that the doctors thought he would not recover, he did. Though it required him to live in a skilled nursing home for the rest of his life, he continued to endure and show his wit within a harsh system.

His support of his son was absolute, though the son sometimes didn’t seem to make sense as the son grew up from being an alter boy to activist in the 1960’s. When the son wanted to transfer from a Catholic high school to an inner-city school to show support for some cause, he could have stopped it but didn’t. He didn’t understand it but he had faith in the son. What a great gift to give!

His bottom line was to just have his children make him proud in whatever endeavor they chose. Never dishonor the family. Take care of your mother. Among the many things he taught, three sayings were to keep us humble: “I complained I had no shoes until I saw a man who had no feet.” “There but for the grace of God go I.” And “When much is given you, much is expected from you.”

Life’s a circle…each day a circle; each month; each year. We enter frail and dependent on those who love us and we leave the same way. We know this. We try not to think about it.

My father completed that circle today with perfect timing on his 93rd birthday. Now, each year on this day, August 18, I will remember his beginning and his end. Throughout his life, he taught those who met him lessons about kindness, hard work, honor, humility and humor. I will miss him and, as his legacy, I hope to honor him through the life he gave me.

In loving memory by his son,
Joseph Sebastian Fichera

My mother, Santa Natalie Fichera, died soon after in December 2014. Please see: Santa Natalie Fichera


Post Published Date: August 18th, 2013

July 4, 2012

Chief Justice John Roberts Bipartisan Challenge

by: Joseph S. Fichera


July 4, 2012

Chief Justice John Roberts Bipartisan Challenge

By: Joseph S. Fichera

The Democratic party is missing a tremendous chance to change the tone in Washington by not praising Justice Roberts’ bold bipartisan move to support the President’s health care legislation.

The Chief Justice put aside the “no prisoners” approach of the Republican party from which he was nominated and grew up in. Judges are to be non-partisan but we also acknowledge the reality of the overlap of political and political philosophy which is why nominees to the court are fought over so furiously sometimes. We also know that Roberts could have easily gone the other way on the health care decision “predictably” based on the partisanship that is undermining our nation. He did the constitutional analysis on the commerce clause which was the government’s main argument and rejected it. The Obama Administration said it wasn’t a tax and never argued for that point.

So, he could have just stopped there, easily. Yet, he went the extra effort and found a way to support it, fully aware of the implications of either decision in the middle of an election on such a divisive issue. I know we wince at the commerce clause language. Yet, he showed that Republicans can see a bigger picture and get to common ground. That’s my point. The issue isn’t about “sides” but what we can do together somewhere on the field of common ground, the common good.

Whatever you think of the written opinion, and the two edged nature of calling it a “tax”, look at the bottom line. In the middle of an election year, on the most controversial plan that has been described by Republicans as socialist, freedom-ending and every other pejorative from the Republican party, he did not slap the President.

Instead of crowing at the “victory” or bemoaning the commerce clause language, we should see this as an opening to bi-partisanship and praise Roberts for finding common ground and reaching across the aisle. The President should do this. Politicians and pundits should do this. Every Democrat should do this. The country wants everyone to work together.

Yeah, yeah he’s not supposed to be partisan in the first place. He was just articulating the law. But, come on, if it went the other way we’d be all over cable news about the Republican cabal against the President.

This is an opening. Run with it. Not halfheartedly. Not with a pinched nose. This guy did something we have been wanting others to do since day one. Highlight it in a way that shows bi-partisanship, not defection or betrayal, but for the good of the nation…bi-partisan.

Unfortunately, I have not seen a word from the President about this or of anyone of import. Tom Friedman, columnist for The New York Times, comes closest with his column calling Roberts a statesmen and “Taking One for the Country.” But I’m not an avid watcher of all things political. That day job gets in the way as it does for most Americans.

The Roberts challenge also means both sides (that means supporters of the President too) must consider other bold bi-partisan moves. It’s not a one-way street.

Nobody is going to get everything. The two things we Americans will agree on is shared sacrifice and fairness. That is the path forward from this mess.


Post Published Date: July 4th, 2012

January 15, 2011

Gabby’s recovery

by: Joseph S. Fichera


January 15, 2011

Gabby’s recovery

By: Joseph S. Fichera

It is 1 week to the hour that I learned of the attack on my friend Gabby Gifford. I find it hard to return to “normal” chats here and elsewhere. But the miracles of prayers with her progress gives us hope. The discussion that has ensued is not about blame. It is about behavior. Those with access to a public forum (indeed a national forum) speak both to the serious and the delirious. They/we have a special responsibility not to speak recklessly, without regard for our words. Words have meaning. We can’t distance ourselves from those meanings and must act responsibly. A direct connection from a to b is not the point. The point is that our leaders must behave responsibly and not in hyperbole precisely because they are our leaders or they seek to lead us. So now we must carry on hopefully wiser and continue prayer for Gabby’s recovery.


Post Published Date: January 15th, 2011

January 9, 2011

Words have meaning

by: Joseph S. Fichera


January 9, 2011

Words have meaning

By: Joseph S. Fichera

Words have meaning. Gabby’s opponents have been reckless in their use of emotionally charged words and images. Here is a story from CNN that discusses this issue and how Gabby herself warned Palin and others to consider the consequences. We can only hope that Gabby’s personal sacrifice and pain will awaken Americans to stop those who seek to inflame. Let’s not just shake our heads in disbelief about this tragedy. Let us change the nation’s course and return to sanity. See http://politicalticker.blogs.cnn.com/2011/01/08/giffords-had-history-with-palin-tea-party/


Post Published Date: January 9th, 2011

December 7, 2010

Securing the Grid: Intelligent Financing Creates New Options for Grid Modernization

by: Joseph S. Fichera


December 7, 2010

Securing the Grid: Intelligent Financing Creates New Options for Grid Modernization

By: Joseph S. Fichera

Intelligent financing creates new options for grid modernization

By Michael Ebert and Joseph Fichera

Improving the delivery of electricity over the existing strained electric power grid through grid modernization-”smart grid”-is a national priority, but it is in danger of becoming another victim of the financial crisis. Federal economic stimulus funds from the American Recovery and Reinvestment Act (ARRA) directed toward the goal of smart grid will soon be depleted. The recent burst of investments and implementations will likely slow once the 50/50 federal-to-private sector cost-sharing comes to an end.

Yet from the financial crisis, certain lessons have been learned about raising private capital at a low cost to electricity consumers. Smarter financing techniques have been developed and proven that could be applied to securing the smart grid. Utility financing for hurricane and storm recovery in the South and environmental upgrades in the Midwest have saved hundreds of millions for ratepayers versus traditional financing methods. A new application of this financing technique-smart grid cost mitigation bonds, or SGBs-has a number of potential benefits.

Smart grid implementation an expensive undertaking

Because our economic recovery has been anemic, proposals to increase investment in smart grid technologies-indeed, most infrastructure investments not considered “urgent”-have met opposition due to concerns about increasing costs to already burdened consumers. Smart grid implementation is an expensive initial undertaking designed to pay for itself over time through energy cost savings and greenhouse gas (GHG) reductions, whether or not the U.S. puts a price on carbon. Much of the costs will be incurred in the more complex distribution segment of the grid’s three-legged stool of distribution, generation and transmission.

In rate-regulated environments, utilities and other smart grid industries must gain approval for investments made in grid modernization from state public service commissions (PSCs) if they want cost recovery for investments from rate-paying customers. Even with ARRA-financed 50/50 federal cost sharing for smart grid implementations, cost recovery from consumers has not been easy; in fact, in many cases there has been pushback from consumers in all customer classes, from powerful consumer advocacy groups and from PSCs.

The current fragmented U.S. regulatory paradigm will not undergo radical change anytime soon. Nor should we expect shareholders to volunteer to bear the entire cost of improving the grid. Ratepayers will continue to pay for PSC-approved smart grid investments, meaning higher electricity prices at a time of high unemployment, flat incomes and increasingly risk-averse investors.

Electric power utilities will, for most jurisdictions, continue to be rate-regulated entities, which at the state jurisdictional retail level may only recover grid modernization costs when PSCs deem that the investments meet the classic tests of reasonable and prudent, used and useful. In the context of smart grid, meeting these tests-especially used and useful-has been difficult for utilities because utilities and commissions struggle to qualify and quantify consumer benefits and any potential savings, particularly for the residential customers.

Proven financial techniques can reduce consumer burden

Investments in smart grid can continue, if not accelerate, even without another round of economic stimulus aid from the federal government. What can drive the pace of private investment is the use of proven financing techniques that can reduce the burdens on consumers while still attracting large sums of increasingly risk-averse private investment.

This option emerged from the mega-hurricanes of 2004 and 2005. Electric power infrastructures in Gulf Coast states from Florida to Texas incurred catastrophic damages. Operating under a grant from the U.S. Department of Energy, the Center for Infrastructure Protection at George Mason University studied how the states confronted cost recovery for storm losses that ran into billions of dollars.

The traditional approach would be for utilities to recover the costs of restoration and recovery through customer surcharges that recouped losses over 24 to 36 months. But in this instance, the losses were so substantial, and the underlying state and regional economies so devastated and frail after being hit hard by back-to-back storms, that traditional cost-recovery approaches were not economically or politically feasible.

Several Gulf Coast states responded by passing legislation that specifically authorized the option of “securitization” of storm-related utility costs. Securitization means that new or amended state authorities are created where a specially authorized charge is placed on electric consumption that creates a specific cash flow that can be packaged and sold as a security to private investors.

The special class of utility tariff bonds (UTBs)-in this case called storm recovery or hurricane bonds-would be sold to private investors. UTBs more generally are called ratepayer obligation charge (ROC) bonds. The laws created a unique and powerful form of credit enhancement for the new bonds to achieve the highest credit rating (AAA) and to be sold at the lowest interest rate. This combination significantly mitigated increases in customers’ electricity rates by using a long-term approach.

Securitization has great potential to finance grid modernization costs at an accelerated rate because this approach-carefully and correctly implemented-has many benefits for consumers and utilities. It imposes the smallest possible price increases for electricity for all ratepayers while not imposing any additional risk on utility shareholders or using the utility balance sheet.

Benefits are clear

The benefits of SGBs are the same as those found in the research project conducted four years ago in which states provided cost-recovery options for storm bonds. These are:

– Lowest-Cost Financing. Special state statutes or PSC financing orders based on the statute required ROC bonds provide the lowest customer cost through the sale of AAA-rated bonds to private investors.

– Credit Enhancement thru Bond Charge True-ups and True-Downs are reduced from cumbersome commission procedures to simple, mathematical calculations.

– Accelerated financing for long-term investments. Using traditional approaches such as short-term surcharges, utilities must wait two to three years after PSC approval of allowable, recoverable costs to recover investments; storm bonds provided more immediate infusions of cash. SGBs have the same potential.

– A more logical cost recovery strategy. The transformation to smarter, greener and more resilient power grids will occur over decades. Spreading the costs of state jurisdictional electric utility investments using SGBs with maturities (for example, 10 to 20 years or longer) is more logical, matched to life cycles of assets, and less onerous to the consumer than trying to recover such investments in a few years.

Some might argue that making analogies between storm bonds in the financial markets of 2006-2007 and SGBs in the context of today’s financial markets is a stretch. The facts are contrary. ROC bonds have been one of the few successful financial innovations of the past decade. A recent study by Standard & Poor’s entitled “The Recession Hasn’t Been Hard On `Ratepayer Obligation Charge’ Bonds” substantiates this. Despite the upheavals of the recent past, not one of these types of bonds ever was downgraded or even considered at risk of a downgrade.

SGBs make even more sense in today’s economy-that is, in the contexts of the credit crisis and costs of raising capital. Today’s cost of AAA debt capital (between 3 and 6 percent) versus the 10- to 12-percent cost of a mix of debt and equity in normal economic times makes the use of these new financial instruments even more attractive. If utilities are willing to accept less than a full return to shareholders as part of a political and technological balance since the consumer benefits in the near term for smart grid, investments seem difficult to quantify. The savings to all parties can be substantial.

But will investors have sufficient appetite for smart grid bonds in our current and likely near-term future economic and policy environments? Yes, provided that policymakers carefully create environments that allow SGBs to be implemented correctly to achieve the greatest financial benefits for investors, consumers and utilities alike.

Published In: Intelligent Utility Magazine November/December 2010


Post Published Date: December 7th, 2010

November 25, 2010

Thanksgving 2010

by: Joseph S. Fichera


November 25, 2010

Thanksgving 2010

By: Joseph S. Fichera

Today, generations from the Greatest to the Boomers to Generations X, Y and Z, will sit together and share a meal reminiscent of when all the generations were just known as a family. Our country has many difficult challenges ahead. Thanksgiving began as the celebration of the harvest which was the hard work of the family. Let’s be thankful for what we have and mindful that each harvest requires the hard work of many.


Post Published Date: November 25th, 2010

November 10, 2010

Bloomberg Washington Summit: Reform corporate governance and the way governments access the capital markets

by: Joseph S. Fichera


November 10, 2010

Bloomberg Washington Summit: Reform corporate governance and the way governments access the capital markets

By: Joseph S. Fichera

On Thursday November 12, Bloomberg LP is hosting a “Washington Summit.”

http://www.bloombergwashington.com/gatherings_participants.php?gathering=4

I have been asked to speak on the neglected crisis in corporate governance and public sector finance.


Post Published Date: November 10th, 2010

October 22, 2010

“Pension Reform a Red, White and Blue Issue” says Fichera on Varney & Co.

by: Joseph S. Fichera


September 11, 2010

9/11/01

by: Joseph S. Fichera


September 11, 2010

9/11/01

By: Joseph S. Fichera

About this time on 9/11/01 two of my colleagues and I had safely walked up the West Side Highway from the WTC. We didn’t leave when the planes hit only when the first Tower went down while we were in the World Financial Center directly across the street. The smoke and debris was difficult to navigate at first but quickly dispersed. As we walked from the site, emergency vehicle after vehicle speed down the highway to the site. When I saw the second building come down, I realized all those men speeding to rescue were now also victims. I knew the world had changed for Americans. They struck on our soil at our symbols to strike at our principles. Yet even today, some are trying to make this a religious war which it is not, and to turn our back on our principles for revenge. I was a lucky survivor. We must honor those that died for these precious principles of freedom, for our constitution and for our values by never abandoning those principles. We must not become the enemy to defeat them. When we fight, as with this enemy we must, at home we remain true to what it means to be an American. We must maintain our integrity with the strength and resolve to overcome adversity through virtue not violence.


Post Published Date: September 11th, 2010

August 20, 2010

“Targeted tax cuts are government programs”

by: Joseph S. Fichera


August 20, 2010

“Targeted tax cuts are government programs”

By: Joseph S. Fichera

Martin Feldstein wrote an important op-ed piece in the Wall Street Journalyou might have overlooked. We need to see that the popular positions of Democrats and Republicans for so called “targeted tax cuts” are really taxpayer subsidies and government programs. This is not a moral issue but one of efficiency and effectiveness. Whether we should subsidize the activity directly with oversight or indirectly by the tax code and without oversight is an important question that often gets overlooked. I don’t agree completely with Feldstein’s prescriptions but his point is critical to the discussion swirling around. As I noted in a Bloomberg News television commentary in May 08, one part of the solution to our economic crisis is comprehensive tax reform that will bring back a truly bi-partisan moment from 1986. Yet, as my friends counsel me, this is nostalgia (or worse “idealism”) on my part. Yet, we may ultimately get there because of the enormity of our problems we face and the fact that the new four letter word in Washington and in the nation’s states and cities is “math”.

http://saberpartners.com/press/articlepages/wsj_07_20_10.html


Post Published Date: August 20th, 2010

August 6, 2010

“But everybody is doing it.” Denver Board of Education and Synthetic Fixed Rate Swaps

by: Joseph S. Fichera


August 6, 2010

“But everybody is doing it.” Denver Board of Education and Synthetic Fixed Rate Swaps

By: Joseph S. Fichera

As I noted in Friday’s (8/6/10) front page NY Times article attached, the Denver Board of Education was another issuer of a complex derivative deal who took on risks and wasn’t prepared for a downturn. Can risks be better known and managed? One help would be if the advisors weren’t also on the other side of the transaction. But equally important to remember is that, in the long run, the deals we don’t do for our clients are as important as the deals we do.

http://www.nytimes.com/2010/08/06/business/06denver.html?emc=eta1


Post Published Date: August 6th, 2010

June 16, 2010

CEOs and Board Independence: Bloomberg Summit Discussion with Saber Partners and Wachtell Lipton

by: Joseph S. Fichera


June 16, 2010

CEOs and Board Independence: Bloomberg Summit Discussion with Saber Partners and Wachtell Lipton

By: Joseph S. Fichera


Post Published Date: June 16th, 2010

January 1, 2010

Happy New Year

by: Joseph S. Fichera


January 1, 2010

Happy New Year

By: Joseph S. Fichera

Oliver Wendell Holmes once said “Man’s mind, once stretched by a new idea never regains its original dimension.”  I am just ending 3 days of seminars and panels at Renaissance Weekend in Charleston.  Humbling to realize how little I know and enthused by everything I learned. Happy new year, new decade and to the new ideas… and energy we have to make a difference.


Post Published Date: January 1st, 2010

December 24, 2009

Have yourself a merry little Christmas…

by: Joseph S. Fichera


December 24, 2009

Have yourself a merry little Christmas…

By: Joseph S. Fichera

Ralph Blaine wrote the poem/lyrics in 1943 but it touches us today/tonight/tomorrow:.. “Have yourself a merry little Christmas, Let your heart be light. From now on, our troubles will be out of sight. Faithful friends who are dear to us, gather near to us once more. Through the years , we all will be together, if the fates allow. Hang a shining star upon the highest bough. And have yourself a merry little Christmas now.” To all my friends and more, Merry Christmas.


Post Published Date: December 24th, 2009

November 13, 2009

Fichera Proposes Independent Staff for Corporate Boards

by: Joseph S. Fichera


November 13, 2009

Fichera Proposes Independent Staff for Corporate Boards

By: Joseph S. Fichera

Joseph Fichera, chief executive officer at Saber Partners LLC, speaks about corporate governance and his proposal that U.S. boards of directors hire independent consultants.


Post Published Date: November 13th, 2009

October 10, 2009

World peace is not an achievement but a process.

by: Joseph S. Fichera


October 10, 2009

World peace is not an achievement but a process.

By: Joseph S. Fichera

President Obama just received the Nobel Peace Prize. As Americans, we pride ourselves on being the most powerful nation on earth. It is both joyous and sobering that one person, our president, can affect the world order with either action or attitude. A clenched fist can become an open handshake in an instant. World peace is not an achievement but a process.


Post Published Date: October 10th, 2009

September 20, 2009

I Will Remember You

by: Joseph S. Fichera


September 20, 2009

I Will Remember You

By: Joseph S. Fichera

The Emmy show just presented to the song “I Will Remember You” images of TV icons that have died this yr. It is a ritual segment we have all seen, a reminder and an awakening. Our generation has created a broader, deeper culture of celebrity and icons, than ever before; and w/ our new 24hr news cycle, the coming years …will be a constant reminder, in a way we haven’t experienced before, of our mortality and of change


Post Published Date: September 20th, 2009

April 8, 2006

The Risks, Benefits and Responsibilities of Issuing Ratepayer Obligation Charge Bonds in Securitization

by: Joseph S. Fichera


April 8, 2006

The Risks, Benefits and Responsibilities of Issuing Ratepayer Obligation Charge Bonds in Securitization

By: Joseph S. Fichera

Remarks before the Florida Public Service Commission

Thank you for the opportunity to address the Commission directly.

As a financial advisor, Saber Partners has completed 6 utility securitizations with 4 pending totaling about $7 billion. This includes assignments in Texas, Wisconsin, Vermont, New Jersey and West Virginia as well as Florida. In each case, we have a fiduciary duty to the Commission and to ratepayers.

Representing the Saber Partners team in this proceeding are a former regulator, Rebecca Klein, a former chief financial officer of a major investor-owned utility, Mike Noel, and a former underwriter and current investment banker, Joseph Fichera

As Mr. Noel pointed out, the fundamental characteristic of this financing — versus all other financings — is that the full economic burden of repayment falls squarely on ratepayers — not a penny of shareholder funds are spent or even at risk.

My testimony focuses on the unique situation this creates for the Commission to consider. Perhaps $1 billion will be raised and the natural question for the people who will be responsible for paying it back is —”at what cost”? If you told your brother-in-law that you would agree to pay his mortgage, wouldn’t you want to have final say over the interest rate and terms?

You are being asked to use your powerful regulatory authority in ways that have not been previously done in Florida and to forgo your future regulatory review in order to create a bond of unusual strength, a completely separate credit from FPL. The reason for this is… that, in doing so…. you expect to get the lowest cost of funds available in the market at the time. If cost doesn’t matter and the best deal possible doesn’t matter, then we can save much time and expense and fees and just sell these bonds at whatever rate underwriters and investors want.

But cost does matter.

The capital markets are often thought as a “black box” of buyers and sellers rapidly exchanging millions of dollars. They are thought to produce efficient results because each participant pursues it own economic interest and prices are determined through competition and the free flow of information.

But there needs to be a balance of competing interests in any negotiation. In this transaction, the balance is broken.

The people responsible for repaying the bonds, the ratepayers, are not, at present, represented at the negotiating table. They are not protected — unless the Commission acts to represent those interests, the results are likely to be skewed against ratepayers’ interests because that’s how the capital markets work. And all top rated securities, even AAA securities, do NOT price the same; there are differing views. Nothing is automatic except that self-interest rules. As Mr. Olson of Credit Suisse said to you yesterday, he represents his own interests as FPL does of its own interests. This lack of representation of ratepayer interests can affect the pricing, the transaction documents and every aspect of the deal.

Nothing will occur without the hard work and collaborative efforts of the parties involved. The company and the commission can work together and they can create the balance necessary to manage competition among underwriters and investors.

11 states have done these transactions and it has been a learning process ever since.

My testimony describes this evolution and the “best practices” available to the Commission. These “best practices” cover three principal areas:

Ratepayer representation and protection
The decision-making standard
Written certifications

The first element is effective REPRESENTATION of the interests of the Commission and ratepayers at every step through the conclusion of the process. Decisions affecting ratepayers should be made in conjunction with someone with a specific and direct fiduciary duty to ratepayers.

The next element is the DECISION MAKING STANDARD, a critical element. The standard should be the best possible deal for ratepayers at the time of pricing, the lowest possible cost of funds. Anything less, allows for less than optimal results….why is this? Simple common sense, without a lowest cost, best price standard “why bother?” There is little incentive for any additional effort.

I have been an underwriter for almost 20 years. I served on the other side of the table with issuers and with investors. I have been intimately involved in every aspect of the offering process in 6 ratepayer-backed transactions. The capital markets are full of risks and opportunities. The facts are that unless you negotiate hard on your behalf with Wall Street, with sophisticated and large investors with differing views, you will leave substantial amounts of money on the table. Each side is looking out for their own economic interests.

So, without a clear standard and a negotiating position that includes the potential for saying “no” when evaluating offers, underwriters and investors will have the negotiating leverage to dictate a final cost to ratepayers. Remember, the best way to lose control of the sale price of your house is to tell prospective buyers that you must sell your house today because you really need the money now. Pricing leverage will quickly shift.

The final element is for key transaction participants — FPL, underwriters, and financial advisors — to deliver WRITTEN REPRESENTATIONS to the Commission, certifying that what they have done has led to the lowest cost of funds consistent with market conditions at the time of pricing. It’s a basic business principle — “put it in writing.”

Any prudent person would want it in writing…for example, investors want documentation before they give up their money…they don’t rely on oral representations solely before investing… With Sarbanes Oxley and a heighten need to maintain public confidence in business, certifications have become a part of normal business “best practices.”

This certification process has been employed successfully in Texas and New Jersey, and is required in Wisconsin and West Virginia. 7 major underwriters have delivered these certificates on our transactions, along with all 4 utilities…The Florida ratepayers deserve no less.

We are completely committed to working with the Commission and Staff, FPL and underwriters to make this a successful and timely transaction.

Our goal is to work cooperatively in a collaborative process with all parties but to never sacrifice ratepayers’ interests for mere sake of expediency.

We believe that the Commission should be the final decision maker, and we will provide all the information and analysis that you will need to reach a fair and equitable resolution of these complex issues.


Post Published Date: April 8th, 2006