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Amex's Ax, Qualified Mortgage Misery, the Fed's Fuzzy Crystal Ball

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Amex Swings the Ax: The tectonic shifts that are reshaping finance struck American Express (AXP) late Thursday when it released its fourth quarter earnings ahead of schedule, along with the bombshell that it's planning to eliminate 5,400 jobs, or 8.5% of its staff. The Wall Street Journal describes the job cuts as Amex's biggest retrenchment in a decade. Most of the reductions will involve the New York-based company's (sorry, Mayor Bloomberg) travel business, which Chief Executive Kenneth Chenault said "is being fundamentally reinvented as a result of the digital revolution." The company will take $895 million in fourth-quarter charges to cover severance pay, the cost of revamping a membership-reward program and a slew of customer refunds linked to the regulatory settlement involving card practices that allegedly violated a range of consumer protection laws. All told, Amex took a $95 million charge that it said in a statement "deals with fees, interest and bonus rewards as well as an incremental expense related to the consent orders entered into with regulators last October." Thursday's plan is the fourth round of big job cuts at Amex since 2001, which together have eliminated more than 18,000 positions, the Journal reports. It's also the latest in a wave of financial-industry job cuts announced in recent weeks, including reductions at Citigroup (NYSE:C) and Morgan Stanley (MS). American Express's focus on affluent borrowers has enabled it to bounce back from the financial crisis more quickly than many peers, the Journal notes, but it has nevertheless seen demand suffer as consumers deleverage. Amex's customer card spending, its biggest revenue driver, climbed 8% in the fourth quarter, while card write-offs stood at 2%, the lowest rate among big card issuers, says Bloomberg News. "Against the backdrop of an uneven economic recovery, these restructuring initiatives are designed to make American Express more nimble, more efficient and more effective in using our resources to drive growth," Chenault said in the statement. Wall Street Journal, Bloomberg News, Financial Times, American Banker

Does QM = Qualified Misery?: It could have been worse. That's how the media is reporting the reaction that a lot of bankers are having the day after the Consumer Financial Protection Bureau unveiled its so-called Qualified Mortgage rule. As written, the rule, which was mandated by Congress, will offer lenders who follow it some legal protection for so-called qualified mortgages. It will also insulate issuers of qualified mortgages made at prime interest rates from future lawsuits — a so-called safe harbor. QM does, however, preserve the ability of consumers to sue under other federal statutes. The CFPB tried to find a middle ground in drafting QM, stopping short of giving banks the blanket legal protections they'd lobbied for, but also not giving borrowers broad powers to sue any time they feel their mortgages are a tad burdensome, Reuters reports. "A key first step of housing finance reform" is how QM was described by Tim Ryan, the outgoing head of the Securities Industry and Financial Markets Association, who is on his way to JPMorgan Chase (JPM). The CFPB was careful on Thursday to present a bank-friendly face at the Baltimore event it held to unveil QM. On hand was Wells Fargo's (WFC) deputy general counsel David Moskowitz to vouch for the view that the new QM standards are regarded as "Basic Underwriting 101" by his company and largely in line with current, relatively conservative industry practice. "It's entirely consistent with how we think about basic underwriting," Moskowitz added. "You've got some clear pathways to be able to do business, which I think has been lacking," Ron Peltier, head of the real-estate brokerage business at Berkshire Hathaway (BRK/A) told Bloomberg. Previously, banks "loaded with capital" didn't want to lend because rules weren't defined, he added. The New York Times described consumer advocates as seeing the CFPB's split-the-difference approach as leaving "wiggle room" for bank shenanigans. "While the bureau's new rules promote" affordable loans and better products, "they still leave the door open for abuses," Alys Cohen, a lawyer at the National Consumer Law Center told the Times. Bloomberg, New York Times, Reuters, American Banker

Royal Libor Mess at RBS: The rate-rigging scandal involving Libor, the London interbank offered rate, looks like it's about to overtake Royal Bank of Scotland Group. The part state-owned bank is expected to face a worse punishment than the $450 million paid by rival Barclays (BCS) following an investigation into the alleged manipulation of Libor and other benchmark rates, an unnamed source told Reuters. Meanwhile, the RBS board has held discussions with British regulators over whether two key executives should quit in connection with the scandal, according to the Wall Street Journal, which cited "people briefed on the matter." The discussions are focusing on John Hourican, chief of investment banking, and Peter Nielsen, head of markets, it adds. "RBS is looking to limit the kind of public and regulatory backlash that forced several top executives to quit Barclays PLC after it settled with regulators last year," according to the Journal. For those left in place, the deal could exact considerable pain; RBS is preparing to slash bonuses for its investment bankers this year to help pay fines, a source told Reuters. Wall Street Journal, Reuters

Wall Street Journal

As banks prepare to report fourth-quarter earnings, the flood of cash overflowing their coffers presents something of a dilemma, the Journal writes Friday. It notes that at $10.6 trillion, U.S. bank deposits stood at a record high at the end of 2012, even as outstanding loans have fallen 5.3% since 2008. That raises the question of what to do with all that cash, and how to spin it to shareholders. Wells Fargo (WFC) the largest U.S. bank by market value, which kicked off the industry's earnings parade this morning, has been among the hardest hit in recent quarters, the Journal notes. It's net interest margin fell to 3.66% in the third quarter from 3.84% a year earlier. Looking across the industry, "it is hard to argue for higher earnings estimates when the loan-to-deposit ratio is going down," Jack Micenko, an analyst at Susquehanna Financial Group told the newspaper. Undeterred, investors on Thursday continued to put bank stocks at the head of a market rally.

New York Times

The New York Times graced the upper-right spot above the fold on its front page with a story that will come as no surprise to American Banker readers. Namely, it describes how the $8.5 billion foreclosure settlement announced between 10 big mortgage banks and regulators earlier this week mercifully puts Office of the Comptroller of the Currency's gravely flawed foreclosure process out of its misery. Among the Rube Goldberg-esque review's flaws: more than $1 billion in fees for outside consultants and pitifully little for supposedly abused homeowners. In the end, the Times notes, the OCC declared defeat in its bid to have consultants sort through 4 million foreclosures individually in search of victims of abuse and instead opted for "spreading the cash payments over all 3.8 million borrowers — whether there was evidence of harm or not." Bruce Marks, the chief executive of the nonprofit Neighborhood Assistance Corporation of America told the Times that "It's absurd that this money will be distributed with such little regard to who was actually harmed." Added Sheila Bair, former chairwoman of the Federal Deposit Insurance Corporation: "This thing is a big mess which was dumped into the lap of the current OCC leadership. They are trying to make the best out of a very bad situation."

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