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Will Credit Card Settlement Result in Cash Discounts?

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Receiving Wide Coverage ...

Assessing the Visa/MasterCard Settlement: Everyone digested news of the Visa/MasterCard settlement over the weekend, weighing who won and lost in the $7.2 billion pact. That $1.2 billion of the deal is attributed to a 10-basis point cut in fees that will expire after eight months shows how much the card companies managed to protect.

Some holdout merchants blasted the deal, with a trade association for convenience stores initially whining that the settlement wouldn't "introduce competition and transparency into a clearly broken market," then lawyering up. Wall Street Journal, New York Times, Washington Post, Financial Times

Still, though, it's quite a change, and there's simply no way that the importance of the deal could be overstated: the terms alter the country's fundamental payment infrastructure (though Discover and Amex's networks aren't a party to it.) One of the biggest switches may be the ability of retailers to offer discounts for cash customers. Whether that actually happens, though, is a good question — retailers are aware that people spend more if they pay with plastic instead of cash, and smaller retailers fear that customers might be irked by cheaper prices for a less convenient form of payment. In a statement, MasterCard openly called the merchants' bluff.

"We know that merchants care about their customers and anticipate that they will not impose checkout fees," the company said. Also in Bloomberg and the Times.

Libor Returns: While the $7 billion pact took the weekend news cycle's top slot, Libor ran a strong race as usual. At the lead should be the Times' report that law enforcement in the U.S. is viewing the manipulation of the rate as a criminal conspiracy:

While the paper reports that criminal charges are definitely on the table, we're skeptical. Perhaps there's a bit of room to pursue traders who manipulated Libor in ways that advantaged their trading positions, but even so going after Libor would be an extremely awkward exercise. Given that crisis-era Libor moves were simply not realistic, we would hope that no C-suite officers of major banks were in the dark. Besides, going after Libor would require a thorough investigation of regulators themselves: central banks at home and abroad were explicitly told that banks' submissions were at best "dirty clean." On that note, the Times reports lawmakers in the U.K. are shifting their attention to regulators, who seem to have been aware of the massive rigging.

Wall Street Journal

A story looks at how elementary the fraud at Peregrine Financial Group was — and how regulators missed it. Repeated warnings by investigators? Check. Simple fraud that could have been detected by a single phone call? Check. A high volume of customer complaints and arbitration disputes? check. One-man, no-name auditing shop? Check. It looks like Peregrine Financial was rich on traditional signs of fraud — and that the Commodity Futures Trading Commission and National Futures Association missed them.

HSBC is getting close to settling a drug money laundering probe with U.S. officials, the paper reports. Senate hearings on Tuesday!

The Consumer Financial Protection Bureau is finalizing its authority over credit reporting bureaus and is looking at whether they offer consumers a fair shot at challenging false reports.

Financial Times

Frank Portnoy has a proposal to repair Libor by requiring banks to lend at the levels they say they'd be willing to lend at. We're dubious that turning Libor into the equivalent of a claiming race at the horse track is the solution, but hey — the numbers couldn't get any less credible, right?

While an appellate panel got Citigroup's SEC settlement off Judge Rakoff's hook in the Class V Funding III CDO case, a relatively low-level employee involved in the deal is still getting sued. Brian Stoker — a CDO structurer who didn't come up with the idea of shorting the bank's own deal and didn't select the collateral — did cut-and-paste together the offering documents, which failed to note that the deal was designed to explode. Given the current state of securities law, he's the only one the SEC felt comfortable putting on trial.

That "temporary" 9% capital buffer imposed on Europe's banks is not looking so temporary anymore, as the chairman of the European Banking Authority says "capital conservation" is his main goal for the system.

Major banks are now competing to supply refiners with oil! Akin to similar moves to buy metals warehouses which brought traders closer to the physical market in recent years, the paper writes that Goldman Sachs, Morgan Stanley, and JPMorgan Chase have all struck deals with refiners, putting them into competition with the traditional merchants of physical oil. "Morgan Stanley and JPMorgan are also lobbying regulators to carve out 'forward' commodity contracts for future delivery of stock from the so-called 'Volcker rule,' which bans banks from proprietary trading."

New York Times

In what could be a very significant story, Gretchen Morgenson highlights hedge funds' habit of "surveying" analysts as a potential venue for frontrunning market news. Such a thing would be totally legal if all the funds were getting was public information, but that's a little hard to believe given the following: "In at least four cases, documents from Barclays Global Investors, now a unit of BlackRock, state the goal is to receive nonpublic information. Two documents state that the surveys allow for front-running analyst recommendations." Damnit Barclays, can't you be a little less obvious? In a world where everyone else appears to get by with winks and nods, the bank has recently seemed prone to putting its sins in writing.

The Times seizes on San Bernardino County's misguided (to put it mildly) plan to use eminent domain as a method of breaking vast numbers of mortgage contracts. Forgive our judgmental tone. But having lived and written about San Bernardino in the years directly preceding the financial crisis, your Monday Scan compiler feels confident in predicting: This isn't going to happen. The county is a regrettably dysfunctional place with a historical penchant for dubious extra-judicial schemes that land its senior executives in jail. Moreover, Berdoo County has a record of following poor legal advice. If the idea of overturning totally valid, performing contracts en masse (while leaving foreclosures as is) wasn't enough to render this plan DOA, the county's execution of it surely will be.

Also in the Times, Morgenson calls the housing market's non-bottom. With so many entities heralding the housing industry's arrival at rock bottom, The only way's up, right? Morgenson's not so sure. "Ten days ago, the Office of the Comptroller of the Currency published some frightening figures about the looming payments. In its spring 2012 'Semiannual Risk Perspective,' it said that almost 60 percent of all home equity line balances would start requiring payments of both principal and interest between 2014 and 2017."

Correction ...

San Bernardino city filed for bankruptcy protection last week, not the county, as erroneously stated in the email version of Friday's Scan. The usual Scan writer is in the doghouse today, and our muni-maven colleagues at The Bond Buyer will be mercilessly teasing him all week.

 

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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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