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Debt Ceiling Update; Chinese Investments Disappoint; Big Banks' Leverage Ratios Remain a Mystery

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Debt Ceiling Update: A Journal article this morning looks at Treasury's options for paying the nation's bills should Congress refuse to raise the $16.4 trillion federal borrowing limit. These option include "selling assets such as gold or mortgage-backed securities ... cutting all spending by 40% ... delaying trillions of dollars of payments to employees, Social Security recipients, contractors and others" or paying the government's bills only as tax revenue become available. The last proposal is considered "most viable," according to the paper, but the general takeaway seems to be none of these contingency options are good. This is problematic since another showdown over the debt ceiling is looking increasing likely. Recent estimates from the Bipartisan Policy Center, a Washington think tank, say Treasury will run short of cash between Feb. 15 and March 1 unless the debt ceiling is raised.

Over the weekend, Treasury also formally said it would not be minting a $1 trillion platinum coin in order to avert a crisis. Avid Scan readers may recall that this "somewhat fanciful idea" — the Journal's words, not ours — is based on an arcane loophole that permits the Treasury to mint platinum commemorative coins in any denomination. Many media commentators and some notable economists have actually endorsed this course of action over the last few weeks, arguing the president could have such a coin created by Treasury, deposited into the Federal Reserve and the prevent the expected debt ceiling fight with Congress. In other crazy idea news, the Obama administration over the weekend also rejected the notion that the U.S. should build a Death Star.

Wall Street Journal

Amex's decision to cut 5,400 jobs in an effort to cut expenses marks the "end of an era" for the company and its long-established consumer-travel business, as even corporate clients turn to booking trips online. "This is just another step in Amex reinventing themselves from what was an analog business to what is a digital business," one analyst told the paper.

Banks have been largely disappointed by their forays into China, says this article, which uses Bank of America's (now minor) investment into China Construction Bank Corp. and HSBC's (possibly sold) stake in Ping An Insurance as examples of deals that didn't pan out as expected. According to the paper, global firms sold about $44 billion worth of shares in Asian financial institutions to institutional investors or other strategic buyers in 2012, up from $32.7 billion in 2011, a retreat that is "gathering pace as a host of new regulations, including the so-called Basel III capital rules, make holding minority stakes in financial institutions more expensive."

Speaking of Basel III, this "Heard of the Street" column points out that, despite, "chest-thumping" from big banks over their estimates of Tier 1 common capital, large U.S. banks have chosen not to disclose estimates of their leverage ratios, which could ultimately prove problematic. "U.S. banks show the 'net' value of their derivative assets and liabilities on the face of the balance sheet. Under the Basel leverage rules, though, some of these will be included in their assets," author David Reilly writes. "That will potentially make them look more levered. This could call into question claims about how thick their fortress walls actually are, even as they look to return 'excess' capital to shareholders."

This Letter to the Editor points out that foreclosure delays are not solely based on whether or not a state is judicial or nonjudicial, though the author does acknowledge the distinction, highlighted in an earlier article in the paper, can play a part in the process. "From experience working in a judicial state, I know that fault also lies with lenders who delay proceedings once filed because they are reluctant to take title and assume all the responsibilities inherent in owning real-property," he writes. "As is often the case, the analysis needs to be taken further than face value."

Financial Times

Goldman Sachs is "considering delaying U.K bonus payouts until after April 6 when the top rate of income tax falls from 50 to 45%," a move that is expected "to prove controversial despite being perfectly legal."

Big U.S. banks are expected to report "the thinnest margins between the rates at which they borrow and lend since the 1950s," thanks largely to the Federal Reserve's ultra-low interest rate policy.

Bank of America is leading the way when it comes to selling off its mortgage servicing rights. Meanwhile, Wells Fargo is dominating post-crisis lending.

New York Times

Senior deal maker Piero Novelli is set to rejoin UBS as its global chairman of mergers and acquisitions.

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