Morning Scan
Wednesday, June 30, 2010
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Receiving Wide Coverage ...
Reform Negotiations, Take Two: The papers reported on last-minute adjustments made to the financial reform bill on Tuesday, after Senate Republicans threatened to block final approval unless a proposed tax on big banks and hedge funds was removed. Negotiators voted to eliminate the proposed tax and instead adopted a new plan that would bring an early end to the Troubled Asset Relief Program and require large banks to pay higher deposit insurance premiums.
The Journal said congressional Democrats abandoned the proposed bank tax intended to pay for the financial overhaul bill in "a bid to pull the White House's legislation from the brink of collapse" by winning over centrist Republicans. The Journal said some of the targeted Republicans, including Sen. Susan Collins and Sen. Olympia Snowe — both of Maine — appeared comfortable with the likely changes, at least "at first blush." Still, the paper noted that "the FDIC assessment will impose a cost on banks and the money taken from Tarp would otherwise have helped to pay down the national debt, another GOP priority."
The Times said "the need to reopen negotiations was slightly embarrassing for Democrats and represented a price they had paid for rushing to complete the legislation," the Times said.
Meanwhile, an editorial in the Journal about the scrapping of the bank tax said, "the bigger news here is that Barney [Frank] and Chris [Dodd] need to impose a bailout tax for what they claim is a bill that will end bailouts." Limiting the administration's ability to make new commitments under the Tarp is a good idea, but, "As New Hampshire Sen. Judd Gregg pointed out … [it] should not be paired with a plan to spend the same dollars on a separate bailout program."
Citi's Blown Fuse: Shares of Citigroup Inc. fell as much as 17% Tuesday because of an apparent reporting error that triggered a single-stock circuit breaker. The Journal said the trading halt was only the second time that a single-stock circuit breaker has been hit since a pilot program started this month and the first to be triggered for a slide. The circuit breaker was put into place following a mini-crash in the market on May 6 that led to a rapid 1,000-point drop in the Dow. "Wall Street analysts said that the halting of Citigroup's shares on Tuesday highlighted the effectiveness of the mechanisms being tested to prevent disruptive movements in share prices," the Times said. Wall Street Journal, New York Times
Men Behind the Curtain: The papers focused on another wave of executives who are scheduled to take their turn today being grilled by the Financial Crisis Inquiry Commission.
The Journal said Goldman Sachs CEO Lloyd Blankfein, long the "whipping boy" for lawmakers and other Goldman critics, will get a break today when Gary D. Cohn, the firm's No. 2 executive, testifies before the commission about the role derivatives played in the near-collapse of AIG.
Meanwhile, the Post focused on Joe Cassano, whom it described as "the former leader of the unit that wrecked [the] insurance giant" who has for more than two years "remained hidden behind a veil of attorneys, silent and two-dimensional, a magnet for the anger and animosity generated by the bad choices and bailouts on Wall Street." Cassano already submitted to about five hours of interviews with staff ahead of the hearing, the Post reported.
Wall Street Journal
European governments intensified efforts to settle anxieties about the health of their banking systems, as Spain announced it would inject new capital into its problem savings banks and European Union officials agreed to at least triple the number of banks subject to public stress tests. The tests, designed to see whether banks have enough financial strength to deal with serious economic shocks, will for the first time examine whether they can withstand the effects of a sovereign debt default in the euro zone.
The lead story on the front-page of the Money & Investing section looked at the "high-tech, high-speed poker game" being played out in the stock market between high-frequency traders and big investors such as mutual funds. "The showdown has led to an escalating arms race, with players on both sides plowing money into ever-more-powerful technology to trade effectively. It also has led to growing tension between these camps as conventional investors call for greater regulation of their high-frequency counterparts."
Societe General CEO Frederic Oudea spoke out against bank taxes proposed by several European governments, saying they could hurt European economics at a time when growth is still fragile. "In Europe, financing the economy is a critical element of growth," he said. "We should pay attention so that the total burden on banks shouldn't be heavy."
An investor group including former B of A executives agreed to invest $175 million in TIB Financial Corp., a Naples, Fla., bank, in what the paper described as "the latest example of industry veterans looking to pour money into ailing U.S. banks." North American Financial Holdings Inc. is looking to buy other banks in Florida, either through TIB or North American's regulatory charter.
In "Common Sense," James B. Stewart condoned Fannie Mae's decision to deny government-backed mortgages for seven years to borrowers who walked away from their existing mortgages, had the ability to pay and didn't make a good-faith effort to avoid foreclosure by negotiating with their lender. "I say it's about time. These relatively affluent borrowers should pay a price — even if it is a modest one — for walking away from a contract," he said.
As more struggling property owners try to work out their debt woes, an increasing number are finding an unusual negotiator on the other side of the table: another real-estate company. That is what happened recently when Thomas Enterprises Inc. of Newnan, Ga., defaulted on $187 million in loans and had to work out a solution with its lender: Inland American Real Estate Trust, a nontraded real-estate investment trust.
A group of creditors is objecting to Lehman Brothers Holdings Inc.'s bankruptcy plan, the first shot in what the paper say could be a protracted court fight as creditors ready for battle over the remains of the investment bank.
AIG has picked David DeMuro, former head of compliance and regulation at Lehman Brothers Holdings Inc., as its new head of compliance and regulatory affairs.
New York Times
A story on the front page looked at the limited legal options of American International Group, which agreed, as part of its government bailout, to forfeit its rights to sue several banks "over any irregularities with most of the mortgage securities it insured in the pre-crisis years." That has left the insurer in a tight spot especially after the SEC filed a fraud suit against Goldman Sachs Group Inc. in April claiming the investment bank misrepresented a mortgage deal to investors. What's more, documents released last month by the House Committee on Oversight and Government Reform "indicate that regulators ignored recommendations from their own advisers to force the banks to accept losses on their AIG deals and instead paid the banks in full for the contracts. That decision, say critics of the AIG bailout, has cost taxpayers billions of extra dollars in payments to the banks."
Another story said the market for trading commercial mortgage-backed securities is starting to show signs of life after a two-year hiatus. "Attracted by more conservative underwriting and the perceived bottoming-out of property values, banks like JPMorgan Chase and the Royal Bank of Scotland are returning to the commercial mortgage-backed securities market, albeit cautiously."
A Reuters story said new rules planned in Europe would limit bankers there from taking home more than a third of their bonuses in cash, starting next year. It would "be a victory for European Union lawmakers who have otherwise become bogged down in efforts to regulate banking."
Washington Post
A $755,000 settlement between the SEC and former enforcement lawyer Gary Aguirre "represents the culmination of years of bitter confrontation that raised questions about whether the agency was ignoring the toughest cases of alleged Wall Street wrongdoing. "Aguirre accused the agency of botching a probe into the prominent hedge fund Pequot Capital Management, saying the SEC was overlooking clear signs he uncovered that the firm traded in shares of Microsoft based on insider information. The agency fire Aguirre for insubordination.
, with contributions from Allison Bisbey Colter and Sara Lepro.
