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You Don’t Get More for Less, You Get Less for Less. Ask GMAC

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Receiving Wide Coverage ...

Landlord of America? Bank of America is testing a “mortgage to lease” program that lets struggling borrowers stay in their homes by signing over the deeds and renting the properties back from the lender, the papers report. The bank could eventually sell the homes to investors willing to keep them as rentals. It’s a small program for now — on Thursday, B of A sent 1,000 offers to homeowners in three states — but a big departure from the usual strategies for avoiding foreclosure (loan modifications, short sales, procrastination). Wall Street Journal, New York Times, Naked Capitalism.

Monetary Reflections: Central bankers from around the world will gather in Washington today to discuss whether they should continue the easy-money policies they’ve been using to defuse crises. The Journal’s headline — “Fed Hosts Global Gathering on Easy Money” — made us think for a second that the Federal Reserve was using its theoretically unlimited resources to throw a lavish party, but this is likely to be a serious affair. Separately, in his second lecture to undergrads at George Washington University, Fed chairman Ben Bernanke challenged the notion that his predecessor’s low-rate policies in the early aughts were responsible for the housing bubble.

Volcker Rule: Fed Governor Daniel Tarullo discouraged lawmakers from revisiting the Dodd-Frank Act provision that forbids banks to engage in proprietary trading. While there’s a “real possibility” the agencies will miss the July 21 statutory deadline for a final implementation of the Volcker rule, Tarullo said, they can and should provide guidance for firms that don’t want to run afoul of the law. Meanwhile, Barney Frank said he wants a simplified version of the Volcker rule by Labor Day. Wall Street Journal, New York Times

UBS’ Hiring Coup: The Swiss bank lured Andrea Orcel away from Bank of America’s London office to be a co-head of investment banking. He (yes, Andrea is a he) is widely described as a rainmaker, having advised on some of Europe’s biggest bank M&A deals, and was set to receive a promotion at B of A before he defected. Wall Street Journal, Financial Times, New York Times, Reuters, Businessweek, Daily Telegraph (U.K.)

Half Empty or Half Full? Credit Suisse said it cut CEO Brady Dougan’s compensation by more than half last year, reflecting the bank’s softer performance and headwinds facing the financial sector. Wall Street Journal, Financial Times, New York Times

JPMorgan in Court: American Century Investments won a $373 million judgment against JPMorgan Chase after arbitrators found the bank breached a revenue-sharing contract with the mutual fund company. The judgment was quietly awarded, paid and charged against JPM’s earnings last year but disclosed only this week when a court unsealed it, hence the news coverage now. Back in 2003, when JPM bought American Century’s retirement plan business, the bank agreed to sell and promote American Century mutual funds as part of the deal. Instead, JPM “stacked the cards” in favor of its in-house funds, arbitrators found. “Almost no one including the top executives down the chain of command paid any attention to what the revenue agreement said except for the effect it had" on the bank’s bottom line. All this happened on the watch of Jes Staley, then the head of JPMorgan’s asset management arm and now the leader of its investment bank. Staley, who is often spoken of as a potential successor to CEO Jamie Dimon, "misunderstood the revenue agreement he negotiated" and "believed that the damages for which JPM could be held liable were minuscule," the arbitrators found. Meanwhile, Bloomberg reports a strange case in which a currency trader is suing JPM over a typo in his employment contract that indicated he’d be paid 10 times more than the bank was really offering. After Kai Herbert accepted the gig in Johannesburg, “the original contract said Herbert’s annual pay would be 24 million rand ($3.1 million). JPMorgan blamed the mistake on a typographical error and said the figure should have been 2.4 million rand, according to court documents.” It’s another reminder for JPM about the importance of quality control, be it in employment contracts or credit card collections. Wall Street Journal, Reuters, Bloomberg

And Lastly ...

Huffington Post: Speaking of quality control, we’ve all read plenty of stories in recent years about how pinching pennies or cutting corners led to shoddy work in various corners of financial services. Think of home appraisals or mortgage servicing. Well, here’s an area where “pennywise and pound foolish” has much graver consequences: people die. An exhaustively researched investigative article in the HuffPo (stop snickering, there’s strong journalism there amid all the bloggorhea) shows how auto lenders’ cost-cutting has made repossession more dangerous for repo agents and borrowers alike. Big banks and finance companies have shifted to paying on a contingency basis and cut fees and reimbursable expenses, meaning repo men and women get paid only if they get the car, and they need to repossess a lot more cars to make a living. This gives them an incentive to take bigger risks to retrieve vehicles, resulting in violent confrontations with debtors that can end in injury or death. "It's turning good people into bad, making them do things they wouldn't normally do," one repo veteran says in the HuffPo article. Repo professionals put much of the blame on the rise of “forwarding” companies, which act as middlemen between them and lenders, for squeezing repo contractors’ pay (an echo of the criticism often leveled at appraisal management companies). Ultimately, the auto lender’s reputation and bottom line are at risk. Last year Ford Motor Credit settled a wrongful death suit for $1.2 million, and recently Ally Financial (the former GMAC), along with a forwarding shop and the repo man it hired, were found liable for $2.5 million in another case. You get what you pay for.

 

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Winners and Losers in CIT's OneWest Deal

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(Image: Bloomberg News)

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