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CFPB Unveils Mortgage Rules; Morgan Stanley Plans Layoffs; Being Jack Lew

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Receiving Wide Coverage ...

Qualified Mortgage Rules: Several news outlets (American Banker included) are out with a breakdown of what is in the Consumer Financial Protection Bureau's new mortgage standards, ahead of its press conference on the subject later today. Key points of the rules include prohibitions from offering mortgages with deceptive teaser rates or ones that require no documentation from borrowers, restrictions from charging borrowers excessive upfront points and fees and a somewhat unexpected safe harbor legal protection for prime qualified mortgage loans. Notably, to meet the much-anticipated QM standard, in most cases, borrowers' total debt payments can't exceed 43% of their pretax income. No minimum down payment has been set. Strict documentation of a borrower's ability to repay a loan must be maintained if a lender is to take advantage of the safe harbor.

Industry reaction to the standards should pop up in the news cycle throughout the day as banks have more time to analyze them, but for now, we at least know CFPB director Richard Cordray is pleased with the results. "I firmly believe that if the ability-to-repay rule we are announcing today existed a decade ago, many people…could have been spared the anguish of losing their homes and having their credit destroyed," he said in remarks distributed to reporters. Wall Street Journal, Washington Post, New York Times

Morgan Stanley Layoffs: Morgan Stanley is set to cut 1,600 jobs, including some high-paying senior positions, in its institutional securities group in an effort to cut expenses. The cuts, which follow the investment bank's elimination of 4,000 jobs last year and, as some analysts predict, could precede others, have raised questions about the firm's future. "In recent years, the fixed-income department has not been able to make enough money to cover the cost [of the capital it ties up]," writes Dealbook. "Whether the company can avoid shrinking further … and revive the fixed-income trading business will have significant ripple effects in the financial world." Financial Times, Reuters

Jack Lew, Treasury Secretary: Yesterday, word got out that President Obama is expected to nominate White House Chief of Staff Jack Lew to replace Timothy Geithner as Treasury Secretary. This news wasn't all that surprising, given Lew has largely been considered the front-runner for the position for some time now. This could be one reason why, aside from the obligatory analysis of Lew's credentials, a few personal profiles and some blogs pointing out that Republicans don't really like him, the biggest general reaction, for better or for worse, has regarded his signature, which some say is more of a "doodle" that would look rather funny on our dollar bills. (New York Magazine actually has a mock up version of what this would look like.) "Should I take Lew signature fervor as just another sign we don't know much about his views on the financial industry?" tweeted American Banker Hill reporter Victoria Finkle, who was able to dig up several things Lew as treasury secretary means to banks.

Thank You, AIG?: The firm has decided not to join former CEO Maurice Greenberg's lawsuit against the U.S. government (and, subsequently, its taxpayers) over the terms of its $182 billion bailout. In a statement, AIG Board Chairman Robert S. Miller said the board considered the lawsuit in order to execute its "fiduciary and legal obligations to AIG and its shareholders" before adding "America invested in 62,000 AIG employees, and we kept our promise to rebuild this great company, repay every dollar America invested in us, and deliver a profit to those who put their trust in us." It should be noted that the announcement appeared to do little to quell the public backlash that ensued when news of the lawsuit's possibility broke earlier this week. "Boycott AIG," one Dealbook reader commented. Another wrote, "It seems they've already shown who they really are and their true 'core' values." Reuters, Washington Post, Wall Street Journal

Wall Street Journal

Internal bank documents show Deutsche Bank made at least $654 million in profit in 2008 from trades related to the London interbank offered rate and other benchmark interest rates under investigation by global regulators.

Financial Times

Many banks won't benefit from the easing of Basel III's liquidity rule, as the fine print indicates "almost all U.S. residential mortgage-backed securities will not qualify" and that the lowered requirement to hold liquidity equal to 3% of insured retail deposits "only applies to banks operating in countries where deposit protection schemes are funded ahead of a crisis, a requirement that appears to exclude banks in many countries including the U.K., Italy and Australia."

Corrections …

Yesterday's Morning Scan writer bungled the title of JPMorgan Chase's new hire T. Timothy Ryan Jr., who is president and chief executive at the Securities Industry and Financial Markets Association, not a senior lobbyist. The emailed version of the Scan also erroneously stated AIG's bailout totaled $182 million instead of $182 billion.

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Q1 Earnings Outlook to Put Focus on Lawsuits, Stress Tests, Lending
With JPMorgan Chase (JPM) and Wells Fargo (WFC) set to issue the initial round of first-quarter earnings reports Friday, big bank CEOs are bracing to answer questions about executive departures, capital shortfalls, seemingly unending legal risks and — oh, yeah — how they are going to make money.

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Comments (1)
Regarding to the decision by the AIG Board not to sue the US government for bailing-out the company: Robert H. Benmosche, AIG's CEO & director, wrote in an internal memorandum to employees: "The board's decision today was about continuing to move this company forward, not backward." The alternative, of course, was that they would all have to Move Out.
Posted by jim_wells | Thursday, January 10 2013 at 10:23AM ET
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