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Morning Scan

Wednesday, October 12, 2011

Receiving Wide Coverage ...

Volcker Rule Unveiled: …but it's hardly final. Regulators' official proposal requested public comments on hundreds of questions, sowing concern in some corners that financial industry lobbying could eventually result in a watered-down final rule. Indeed, the Journal's coverage includes a sidebar describing the behind-the-scenes wrangling between industry representatives and regulators thus far. "When it comes to face time, no one can top Wall Street," the story says. Critics also say the proposal "gives banks too much leeway to interpret the rule as they see fit and could permit exactly the type of activities the rule is supposed to prevent," according to a separate Journal article. However, the Times' "DealBook" says the proposal "contained a few unfriendly surprises for the banks," including a ban on paying bonuses to bank employees to "encourage or reward proprietary risk-taking." One of the authors of the Volcker section of Dodd-Frank, now an industry lawyer, is quoted as calling the proposed compensation rule a "huge" change. Pardon us for being dim, but if the Volcker rule is supposed to get banks out of proprietary trading, should anyone be surprised that it would forbid banks to give employees incentives to do such trading? Wall Street Journal, New York Times, Washington Post.

Reputation Insurance: Yes, such a thing exists. In the event of a PR crisis, the policies help cover the bills for outside image consultants. AIG is selling this coverage, and the irony is not lost on the papers. Wall Street Journal, New York Times.

Who’s ‘Important’? The Financial Stability Oversight Council, another Dodd-Frank creation, approved a proposal for determining which nonbanks are “systemically important” and thus require additional oversight and capital. The $50 billion asset threshold in the proposal means most hedge funds and private equity firms will escape the net, though a number of insurance companies won’t, the FT points out. Wall Street Journal, Financial Times, New York Times.

Wall Street Journal

A front page story identifies a (heretofore) secret whistleblower in the Bank of New York Mellon currency trading case. The article describes the steps Grant Wilson, a former BNY currency trader in Pittsburgh, took to remain undetected as he fed information about alleged overcharging and fraud to government investigators and to a private whistleblower legal group. Wilson worked with fraud investigator Harry Markopolos, best known as the man who unmasked Madoff when no one would listen.

"S&T Bancorp is among lenders getting into the gas-advisory business, helping farmers negotiate deals with energy firms that want access to natural-gas reserves."

New York Times

So much for synergy. In a Q&A with "DealBook," James Woolery, a co-head of JPMorgan Chase's M&A advisory business, disputes the notion that his company's balance sheet - its ability to finance deals for clients - plays a big role in landing assignments. "Clients are sophisticated. They can choose financing banks and M.&A. advisers. If it were otherwise, boutiques would not exist. So the notion that providing the balance sheet delivers the M.&A. role is just plain wrong - and the numbers bear that out. We have more sell-side assignments this year with no financing role than we have assignments with financing - and we still lead the tables when you take out deals with our financing."

Op-ed columnist Joe Nocera recommends reading a white paper from the New America Foundation that prescribes, among other treatments for this stubborn economic downturn, restructuring consumers' mortgage debt in various ways: principal reductions for some, bridge loans for others, rent-to-own arrangements for others still. We haven't yet read the white paper ourselves, but we plan to, since we know Nocera has impeccable taste in reading material.

Financial Times

Securities dealers stopped easing terms for financing clients' investments over the summer, after a year or so of steady loosening, according to a Fed survey. Investors also lost some of their appetite for risk and some securities became harder to trade, according to the dealer survey, which the Fed started "to match its better-known survey of commercial banks after being caught out by the problems in the 'shadow' banking system during the financial crisis."

"Two former top executives of San-Francisco based United Commercial Bank were indicted on securities fraud charges for allegedly misleading its external auditor, investors and regulators about the bank's mounting loan losses during the financial crisis." The acting special inspector general for TARP says the two executives - a former credit officer and a one-time risk manager - are "the first senior executives of a Tarp bank charged in connection with a scheme to defraud investors." That's yet another dubious distinction for UCB, which became the first Tarp-funded bank to fail (and the program's second loss, following the CIT bankruptcy). The two men also face civil charges from the SEC, as does the bank's former CEO, Thomas Wu (to be clear at the risk of being redundant, Wu was not named in the criminal case).

Speaking of Tarp, Roger Altman, the former deputy Treasury secretary, calls the program a model for rescuing Europe's banks in an op-ed.

The best-paid employees at the world's biggest banks still take home as much as 96% of their pay in the form of annual bonuses, the Financial Stability Board said. The finding is hard to square with banks' complaints that new compensation rules are burdening them with fixed costs, and the story suggests regulators (particularly in Europe) are warming to the idea of capping bonuses as a percentage of overall pay.

Washington Post

The Public Company Accounting Oversight Board proposed that audit firms should have to disclose the name of the partner who heads each audit. "Officials said the change could prompt individual auditors to approach their work with a deeper sense of personal responsibility." Like journalists' bylines? Okay, maybe that's not the best analogy.

Elsewhere ...

Vanity Fair: Writer Suzanna Andrews profiles Elizabeth Warren, the architect of the Consumer Financial Protection Bureau who's now running for Scott Brown's seat representing Massachusetts in the Senate. We'd been waiting for this piece since July, when we learned that an interview with Andrews was one of the meetings on Warren's calendar the afternoon she rushed to leave a Congressional hearing over the objections of Rep. Patrick McHenry. The article mentions that hearing, where McHenry accused her of lying, but not the scheduling dispute.


, with contributions from Katherine Kane.

In this episode of Breaking Banks: American Banker's Innovator of the Year, John Hope Bryant of Operation Hope; Richard Brown and Charley Cooper of the blockchain consortium R3; and Ravi Srinivasan, who describes India's drastic move to stamp out cash.