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Morning Scan

Tuesday, October 26, 2010

Breaking News ...

Earnings: UBS, Regions Financial

Receiving Wide Coverage ...

Foreclosure Crisis: The Post said FDIC Chairman Sheila C. Bair said at a conference Monday that the federal government and the financial industry should have seen the "warning signs" during the past several years that led up to the foreclosure document mess. At the same event, Federal Reserve Chairman Ben S. Bernanke said that next month bank regulators will issue the first formal assessment of the foreclosure crisis. "The joint effort by federal bank regulators is one of several government reviews of the mortgage industry," including the Department of Housing and Urban Development, which "is reviewing how the largest banks performed in modifying loans for struggling borrowers, and civil and criminal investigators are exploring possible legal violations." Another Post article profiled a Florida mortgage processor, Lender Processing Services, that is coming under scrutiny from criminal investigations into the foreclosure debacle. The Journal looked at research by two analysts who think bank shareholders have been overly spooked by foreclosure problems. Raymond James bank analyst Anthony Polini argued in a note Monday that B of A's slide has gone too far, saying that the recent selloff represents an "outstanding buying opportunity." Meanwhile, Goldman Sachs analysts added Citigroup to their "conviction list" of "buy" stocks, saying investors should be looking beyond the recent mortgage woes to potential growth areas.

More Housing Gloom … Home sales picked up in September, but the papers said the long-term picture for housing is growing grimmer. The Journal said analysts and economists are pushing back forecasts for a housing recovery until late next year or 2012. "The growing pessimism is attributed partly to rising inventory in many markets, a trend that doesn't bode well for prices," it said. It also noted that the latest data don't reflect the suspensions of some foreclosure sales. The Times' article on home sales also looked at data released by the Treasury showing that only 28,000 defaulting borrowers received permanent loan modifications in September - the lowest number since last fall. It said data collectively "indicate a period of continued stress for the housing market." The Post said existing homes sales are "bouncing back from their anemic levels last summer, but the gains might not be sustainable if the abrupt halt in foreclosures in some states drags out and pulls down future sales."?

… But Some Optimism about Economy: In a potentially positive signal about the economy, the Treasury sold $10 billion of five-year inflation protected securities, or Tips, with a negative yield. The Journal's "Credit Markets" column said the demand "is a sign the Federal Reserve is gaining some traction in its efforts to kick-start the economy and nudge inflation higher." Of course, if inflation doesn't appear, investors could end up paying to lend money to the government.Wall Street Journal, New York Times, Washington Post.

AIG Update: A report by the Tarp inspector general said the Treasury concealed $40 billion in likely taxpayer losses on the bailout of the AIG earlier this month, when it abandoned its usual method for valuing investments. "In our view, this is a significant failure in their transparency," Neil M. Barofsky told the Times. The paper said a Treasury official disputed Barofsky's conclusion, saying the department appropriately used different methods for different purposes; the smaller loss was a projection of future events, and the larger one was the result of an audit, which includes only realized gains and losses. The Post said the estimate "also could lowball the return for taxpayers, depending on how AIG's stock perform." The Journal reported that the AIG CEO Robert Benmosche, has been diagnosed with cancer and is undergoing "aggressive" chemotherapy, the government-controlled insurer said on Monday. The paper said the news "will force AIG's board of directors to plan for CEO succession sooner than expected." Benmosche has indicated he wants to stay in his job until the U.S. government is fully repaid, "which could be sometime in 2012 if all the pieces of AIG's restructuring fall into place by then."

BankUnited Plans IPO: The papers reported that BankUnited, the Florida bank acquired last year by private-equity firms, plans to file for an initial public offering this week. The Journal said one goal of the offering, is to give BankUnited a currency in the form of common stock to acquire other banks in Florida; eventually, it plans to open branches in New York. "Such a move would combine two of the nation's most attractive deposit markets," the paper said. The Times carried a Reuters feature saying any profits BankUnited's new owners make " will sound indecent next to the FDIC's projected losses on the deal."

Wall Street Journal

Moody's lead credit analyst on investment banks Goldman Sachs and Morgan Stanley switched coverages and will now rate Canadian banks for the bond-rating agency.

In an Op-Ed, John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute, called on the next Congresss to "undo the damage" the Dodd-Frank financial reform imposed on middle-class consumers by legislating free checking.

New York Times

An editorial said Bank of America's "repeated recalibration" of problems in foreclosure paperwork casts further doubt on its procedures "and the ability of the entire industry to clean up this mess." The paper said the Obama administration needs to ensure both that the taxpayers' interests, rather than those of banks, come first and that "no foreclosures proceed - not just those with questionable paperwork - without homeowners' first being offered fair and timely loan modifications."

Washington Post

The paper compiled a "Q&A" with Fed Chairman Ben Bernanke about the economy and monetary policy based on his recent public statements, rather than an actual interview.


, with contributions from Sean Sposito and Rachel Witkowski

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.