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Bank Earnings Rorschach; Geithner Postscript

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Breaking News This Morning ...

Earnings: SunTrust, Morgan Stanley, General Electric

Receiving Wide Coverage ...

Earnings Rorschach: Headlines foregrounded the relentless barrage of legal costs at Bank of America and Citigroup after their quarterly reports yesterday — "Citi and BofA fail to dispel concerns" in FT and "Mortgage Crisis Lingers On at Citigroup and Bank of America" in the Times. The Journal contrasted the pair's results with midsize banks like BB&T and Fifth Third: "a regionally diverse group of smaller lenders has been thriving with a mix of simpler businesses and sharper focus on local customers." A separate article in the Journal covered reports by Amex and Capital One saying that rising expenses are offsetting good credit quality. "Heard on the Street" also said that B of A and Citi "are coming up short" compared to rival behemoths JPMorgan Chase and Wells Fargo, but that at least the problems center on earnings outlooks and not capital concerns. "Their balance sheets, once the main worry for investors, continue to show improvement."

The Journal also took a look at Wells Fargo's launch of an aircraft-leasing business, "the latest attempt by a big U.S. bank to find new revenue sources." "Ahead of the Tape" previewed General Electric's earnings report, saying that investors seem to be "penalizing GE too aggressively" because of the outsize contribution of its finance component.

As for the poison cloud of uncertainty, which can be suffocating for sentiment but not so obviously for lending volume recently, it just may hang over the populace for some time longer. The papers reported that House Republicans could be coalescing around a short-term increase in the debt limit so that showdowns over sequestration and a continuing resolution would happen first. Another olive branch: Republicans chose to meet in Williamsburg, a place that bridges the cultural divide. At least, in both the Virginia and Brooklyn versions, the locals favor old-timey costumes and doing crafts. Wall Street Journal, New York Times

Geithner Postscript: Timothy Geithner's days as Wall Street stooge/elite-consensus automaton/fat-cat hater/tireless civil servant/crisis fixer extraordinaire/wearer-of-baggy-suits atop Treasury are numbered, and he gave an exit interview to the Journal. "You look like you're giving aid to the arsonist," he said of the bailouts. Of the prospect of federal default, he said the country "can't count indefinitely on the world having more confidence in our political system than is justified."

In a column in the Times, economist Simon Johnson wrote that Geithner was instrumental in entrenching a big-bank oligopoly, and that giving Republicans an opening to champion breaking it up is his "lasting legacy." The signal moment in stemming the financial crisis was not the stress tests in early 2009, Johnson wrote, but the simultaneous promise of "unconditional government support for troubled banks." Ordinarily, however, "such banks are 'cleaned up' as a condition of official assistance, either by being forced to make management changes or being forced to deal with their bad assets."

For more views on what to do with the big banks, turn to American Banker, where Thomas Hoenig, the vice chairman of the Federal Deposit Insurance Corp., argues that the "Banking Safety Net Makes Wall Street Dangerous."

New York Times

A DealBook column said JPMorgan Chase's London Whale review does not offer much help for prosecutors seeking criminal charges against individual traders. "The tone of the report makes is sound as if the trading blunder were the product of a series of bad — or even stupid — bets; it does not provide any guidance on whether any traders tried to deceive management by making false entries in the bank's records."

Editor's note ...

Morning Scan will not publish on Monday, Jan. 21 in observance of the Dr. Martin Luther King Jr. holiday. We'll be back on Tuesday, Jan. 22.

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The Justice Department announced a criminal plea and settlement with BNP Paribas on Monday, in which the French bank will pay nearly $8.9 billion to settle charges it willfully continued to do business with countries and entities on the U.S. sanctions list. It was the largest sanctions fine in the Justice Department's history more than four times larger than #2 on the list. The following are the largest penalties paid by banks for sanctions violations.

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