BANKTHINK

Wednesday, February 29

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Receiving Wide Coverage ...

The Loan Arrangers: Happy days are here again. Sort of. After a string of quarters pulling back from risk, banks are finally signaling the time is right to grow again.

That's the positive read on the Federal Deposit Insurance Corp.'s fourth-quarter earnings report. The Quarterly Banking Profile showed that the banking industry enjoyed a $130 billion rise in lending growth, due largely to gains in business loan demand. On the downside: The lending pickup comes on the heels of a 2011 revenue decline that was just the industry'ssecond in 74 years, notes Seeking Alpha. All told FDIC-insured banks posted a $119 billion profit for 2011. That figure was up 40% from a year earlier and the banks' biggest profit since 2006, when the housing boom was in full swing. So why not party like it's 2006? "Low interest rates, several years of anemic loan demand and new limits on fees that lenders can levy on their customers have eaten into the top line, leaving bankers searching for new ways to generate income without angering clients," notes the Wall Street Journal. "Earnings are still being driven by banks putting aside less cash to cover bad loans, rather than traditional activities of making loans and collecting interest," the Journal added. That trend "can't go on indefinitely," FDIC Chairman Martin Gruenberg warned at a press conference. The Journal's Heard on the Street column further notes that deposits continued growing at a brisk pace in the fourth quarter, hitting nearly $10.2 trillion, with 75% of the gains coming in non-interest-bearing accounts. Such accounts are typically used to invest corporate cash short-term, indicating managers have a growing appetite for negative real interest rates. That's a vote of no confidence in the state of the economy if ever there was one. Wall Street Journal, Reuters

House of Pain: In another sign that the economy's foundation remains shaky, U.S. home prices extended their slump in December, falling to their lowest level since the housing crisis began in mid-2006, the Financial Times writes. The S&P/Case-Shiller index of residential real estate prices in 20 metropolitan regions fell 4% year-on-year. Durable goods orders fell sharply — 4% — in January. That decline was considerably larger than economists had expected and marked the biggest one-month drop in three years, reports MarketWatch.

Wells' Wells: Wells Fargo and Goldman Sachs may face civil charges for allegedly misleading investors over the sale of mortgage-backed securities. The disclosure that the two firms received so-called Wells Notices from the Securities and Exchange Commission came via their respective annual SEC filings and comes at a time when the statute of limitations on lawsuits related to products originated in 2006 and 2007 is nearing its five-year deadline, notes the FT. Wells Fargo said the SEC's notice relates to disclosures in mortgage-backed securities offering documents, but did not point to a specific issuance. Goldman said the SEC was looking at disclosures in offering documents used for a 2006 underwriting of $1.3 billion of subprime mortgage-backed securities. "The firm will be making a submission to, and intends to engage in a dialogue with, the SEC staff seeking to address their concerns," Goldman said in its annual report. For Goldman, the tarnish to its once gleaming reputation seems to be getting thicker by the day, if not by the hour. In 2010, it agreed to a $550 million settlement on SEC allegations it duped investors into buying junky mortgage securities. Former director Rajat Gupta is under indictment for allegedly feeding convicted insider trader Raj Rajaratnam illegal tips. Today, along with the Wells notice, comes word that David Loeb, a managing director who handled some of Goldman's most important hedge-fund clients, is under investigation for insider-trading, writes the Wall Street Journal. It's almost enough to make a master of the universe wish he were running Bank of America. American Banker, Financial Times, Wall Street Journal

Wall Street Journal

Wonder what the nation's highest profile bankers do with their own money? It's a safe bet that Sallie Krawcheck isn't parking hers in money market funds. "Meaningful risk—and significant misunderstanding of this risk—remains in this business," warns Krawcheck, one of Wall Street's highest profile women executives, in an opinion column titled "Money-Market Funds Aren't What You Think."

Just to smush the faces of money markets' backers into the controversy, Krawcheck raises the Euro-specter, stating that last summer the largest money funds had an average of 45% of investments in European bank paper, with one major player at just under 70%. Let the record reflect that Krawcheck , who happens to be between banking jobs at the moment, is plunging into a controversy that's pitted anti-money market banks against pro-money market mutual funds and others in a multi-trillion dollar tussle. It's a dustup with which readers of American Banker's BankThink blog are well acquainted.

New York Times

That criminal code stuff about evidence having to prove guilt "beyond a reasonable doubt" sure does seem to be gumming up the wheels of justice in the MF Global debacle. So reports the New York Times, citing "several people involved in the case" (aka, ambitious prosecutors) in reporting that investigators "have been unable to find a smoking gun amid thousands of e-mails and documents." Instead of criminal intent, egregious incompetence seems to have been the culprit in the shop run by former Goldman Sachs boss, New Jersey governor and U.S. senator Jon Corzine. The feds increasingly suspect that "chaos and poor risk control systems prompted the disappearance of more than $1 billion in customer money," notes the Times. Poor risk management on Wall Street. Imagine that.

 

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