Week In Review
April 20, 2009
Fidelity May Cut Bonuses, Merit Pay as Profits Fall
Fidelity's net profits edged down 4% last year, and they may be weak again this year, despite cost-cutting measures and laying off 3,000 workers, Fidelity President Rodger Lawson warned employees in a recent memo. As a result, the company may scale back on year-end bonuses and merit pay for those in the middle and lower brackets of earnings.
Income may be "somewhat lower," Lawson wrote. Last year, Fidelity's revenue fell 4% to $12.9 billion, and assets under management fell 22%.
"Recent events have shown businesses face many challenges as the recession lingers," Fidelity spokeswoman Anne Crowley told The Boston Globe. "While Fidelity continues to do an excellent job, our industry and the economy in which we operate have undergone many changes that have impacted companies across all industries and will continue to do so for the foreseeable future."
Court Rules for Investors in Amerprise Case over Fees
The Eighth U.S. Circuit Court of Appeals has just ruled in favor of investors in a case against Ameriprise Financial over the fees of 11 of its RiverSource mutual funds. Coming on the heels of a similar case against Harris Associates that the U.S. Supreme Court will hear this fall, it could signal a new era in favor of investors.
"This is the first indication of where courts will go with these cases," noted William Birdthistle, assistant professor of law at Chicago-Kent College of Law.
In the Ameriprise case, Gallus et al v. Ameriprise Financial, shareholders in 11 of the firm's retail funds said they should not be charged higher fees than institutional clients. The court agreed with the plaintiffs that they were provided essentially the same services and advice as institutional clients.
In the Harris case, Jerry N. Jones et al v. Harris Associates, the Seventh Circuit agreed with a lower court on a standard that has been the norm for nearly 30 years, that the free market will determine that fees are not too high. But one judge dissented, saying the courts should have the right to compare fees in institutional and retail share classes of mutual funds.
Oregon Sues OppenheimerFunds Over 529 Loss
Following a three-month investigation, the state of Oregon is seeking $36.2 million in damages from OppenheimerFunds due to steep losses in one of its funds included in the state's 529 college savings plan; the Oppenheimer Core Bond Fund fell 36% in value last year, and is down another 10% year-to-date.
By comparison, the fund's benchmark rose 5% in 2008, according to state officials, who not only called the portfolio manager's investment choices inappropriate but "hedge-fund like." The lawsuit says the fund company was negligent, violated state securities laws, breached its contract and failed to meet its fiduciary duty. It also notes that Morningstar gave OppenheimerFunds an "F" in February for failing to communicate with investors about the true nature of its funds.
"We are taking action on behalf of Oregon families whose college accounts were battered-and their financial futures jeopardized-because of OppenheimerFunds," the state treasurer said. "Families were doing the right thing and saving for college, but unknown to them or Oregon, their money was invested in ways that were plainly inappropriate for those saving for college or already in college."
OppenheimerFunds said it would vigorously fight the charges.
CVC Acquires iShares From Barclays for $4.4B
CVC Capital Partners acquired the iShares exchange-traded-funds business of Barclays Global Investors for $4.4 billion, although the deal includes a go-shop agreement that will give rival bidders another 45 days to submit a better offer.
The asset management arm, Barclays Global Fund Advisors, had approximately $325 billion of assets under management as of December 2008.
According to a Collins Stewart research note, "The sale talks are somewhat of a surprise as management had indicated this business as being core for several years now. Tough markets evidently lead to tough decisions being taken."
NFL Retiree Gets $950K For Losses in Funds Run by Morgan Keegan
FINRA ruled in favor of an NFL retiree, Jerome Woods of the Kansas City Chiefs, who lost $1.7 million in Morgan Keegan mutual funds, but awarded him only $950,000. Woods is among dozens of investors who have filed lawsuits against the firm after losing 90% of their investments. In Woods' case, FINRA said Morgan Keegan breached his trust and was negligent by investing his money in risky junk bonds.
Morgan Keegan intends to defend the claims, a spokeswoman said. The firm believes its broker "acted appropriately given the limited investment options that the clients' goals and lifestyles allowed," she said.
"As far as the disclosure on risk, unfortunately these funds were on the leading edge of the credit crisis that developed into one of the most serious market and economic declines in the country's history. Unfortunately, these funds were caught up in that," she added.
Economy Drives Retirement Confidence To Record Lows