Monday, November 2, 2009

By Allison Bisbey Colter , with contributions from Maria Aspan, Emily Flitter, and Steven Sloan. Updated every business day, circa 9 a.m. ET. To receive by email, click here. Links may require registration/subscription.

Receiving Wide Coverage ...

CIT Update: CIT Group finally bit the bullet and filed for Chapter 11 bankruptcy protection. The papers looked at the impact for various stakeholders. The Journal said, "Now, the lender to nearly a million small and midsize businesses must maintain its customer base as it tries to rehabilitate." It noted that the plan "is among the first attempts to restructure a financial firm in bankruptcy court and have it emerge relatively intact." All four papers noted that the filing is likely to wipe out the $2.3 billion the government invested in the company. Wall Street Journal, New York Times, Financial Times, Washington Post

A separate story in the Journal said the bankruptcy filing "has the potential to turn off one of the nation's biggest spigots for loans to small and medium businesses."

Regulatory Overhaul Stalled? An article in the FT looked at the Senate's independent effort to draft financial regulatory reform, which "complicates the Obama administration's own plan for dealing with future crises" as well as its push for bipartisanship. The FT also carried an interview with Sen. Bob Corker, R-Tenn., who sits on the banking committee. "Mr. Corker believes there is unlikely to be a bipartisan approach to the markup of regulatory reform legislation. 'My sense is, my gut tells me…I'm afraid that we're moving towards a partisan mark-up.'" FT columnist Clive Crook said Congress shouldn't be worrying about "where regulatory responsibility should reside or how to draw legal boundaries around different kinds of entities," but instead "on how to specify those rules."

The Journal's story described the Senate's stalled efforts to craft a bipartisan deal on overhauling financial-market rules have stalled amid disputes over a proposed consumer-protection agency as "raising another hurdle in the White House's effort to revamp banking regulation."

A Times editorial said, "There's little disagreement over the need for systemic risk regulation and resolution authority. But as lawmakers and witnesses at the hearing pointed out, the proposal is flawed in its choices of who should wield the new powers and how they should be defined."

A story in Saturday's Post looked at the clout held by small banks, which the House exempted from oversight from the Consumer Financial Protection Agency

Fed Think: The weekend papers debated how and when the central bank will unwind economic stimulus and start raising interest rates. In the Journal's "Outlook" column, Jon Hilsenrath said "The contours of what a rate-boost cycle could look like are beginning to come into focus as the Fed's next policy meeting approaches … Three points emerge: First, an internal debate on tightening policy and how to communicate that to the market is only just beginning, and most officials don't believe the economy is near healthy enough yet to move toward tightening. Second, don't count on a tightening cycle to look like the last one. And third, the behavior of financial markets could take on added importance this time."

In the FT, Wolfgang Munchau wrote that exits from quantitative easing and other extreme monetary policies should begin "earlier than you think." Exiting will take some time, and it has to be underway before the latest bubbles get too out of control. An editorial said central banks should not be so concerned with inflation and instead focus on preventing deflation and depression. "Investors now foresee eight months of treading water before the Federal Reserve moves back to orthodox monetary policies." While this seems like a long time to keep the reins loose, "it would be madness to deepen the crisis." In "On Wall Street," Aline van Duyn described the methods investors and analysts use to interpret the Federal Reserve's intentions from its cryptic communication. "A year after central bankers had to be extremely creative by inventing new monetary policy tools in an effort to prevent major economies from collapsing, they now also have to become among the most adept and subtle communicators on the planet."

Fund Fees Under Fire: The editorial pages looked at a case being argued today in the Supreme court about the way mutual fund fees are set. Journal argued against overturning the current process, which it said "has worked well and fairly for decades. If it is thrown out, every mutual-fund fee arrangement could end up being litigated in a federal court. This will not benefit the vast majority of investors." The Times said "Congress wisely put limits on the ability of funds to overcharge investors. The Supreme Court needs to give the law the power that Congress intended" and "should rule that fund advisers have a responsibility to set fees that are comparable to those they charge other customers, and what would be negotiated in a fair, arm's-length deal." The Post said the case "contains natural parallels to the current controversy over executive compensation at publicly held companies" and might "set up what could be years of judicial review of the measures that the Obama administration and Congress have taken — and envision — to deal with the worst collapse of the economy in 75 years." Wall Street Journal, New York Times, Washington Post

AIG Update: The Journal said AIG canceled the sale of two Japanese units, among the largest assets the company has taken off the market since its new chief executive said in August he didn't want to rush sales. The nixing of plans to sell AIG Star Life Insurance Co. and AIG Edison Life Insurance Co. follows the giant insurer's improving fortunes and trouble finding buyers. The Times said lawyers in California asked a judge on Thursday to bar AIG "from transferring money out of the state for 90 days, out of concern that the company may not have enough readily available assets to back its policies, as required by law." Wall Street Journal, New York Times

Wall Street Journal

For GMAC, getting rescued by the federal government has been no picnic. In the 10 months since the consumer-finance company received its first dose of rescue financing, it has wrangled repeatedly with the FDIC over its turnaround plans. Currently the company is locked in debate with the Federal Reserve about the adequacy of its capital levels, with the Fed pushing GMAC to take billions more in federal aid from the Treasury Department.

A separate story said market forces already did much of the U.S. pay czar's task of cutting compensation at GMAC.

Goldman Sachs is in talks to buy millions of dollars of tax credits from Fannie Mae, but the potential deal is running into opposition from the U.S. Treasury, which could block the deal.

Bank of New York Mellon CEO Robert Kelly recently was approached — again — about becoming the next CEO of Bank of America, said people familiar with the situation. But Kelly has shown no interest in the job, said a person familiar with his thinking. The paper said the feelers "reflect growing interest in outside candidates by Bank of America directors."

A majority of the art works held by Lehman Brothers put on the block over the weekend sold for five times their expected price, "a resounding success that underscores the public's continued fascination with the storied bank that collapsed a year ago."

"Heard on the Street" said one of the biggest mistakes in finance — banks being over-dependent on short-term market borrowing to fund assets — isn't getting anywhere near the attention it deserves in discussions over how to heal the financial system. (Weekend)

Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount. Regulators said that the rules were designed to encourage banks to restructure problem commercial mortgages with borrowers rather than foreclose on them. (Weekend)

Several large financial institutions, including UBS and B of A, are in settlement talks with the SEC to resolve investigations into the awarding of municipal investment contracts, people familiar with the matter said. (Weekend)

An excerpt from Gregory Zuckerman's book, "Profiting from the Crash," details how John Paulson took home $10 million a day betting on home prices. (Weekend)

New York Times

An "Advertising" column considered marketing efforts of community banks and credit unions across the country that "are trying to tap into the public's outrage over Wall Street greed to lure customers from their big multinational competitors. The overarching message: You can trust us, because we did not cause the crisis and did not need bailouts."

A long article on the front of Sunday Business considered the history of Citigroup as it examined its current situation and asked, "Will Citigroup rise again from its recent near-death experience?"

Financial Times

The Obama administration's pay czar, Kenneth Feinberg is the FT's latest "Man in the News" profile. "The 64-year-old has been dashing around Washington in the past few weeks, explaining his thinking on bonuses at seminars, on television and in Congress." His "manner might even charm those executives whose pay he has cut." His "hammering of bankers has helped ease — for now at least — some of the public ire about pay."

The paper carries an interview with Brady Dougan, the Chief Executive of Credit Suisse. He's the first American head of the Swiss bank, and he "gives the impression that he would prefer to be anywhere else" besides Zurich, Switzerland . But he "refuses to be drawn on how his competitors have faired amid the tumult of the past 18 months."

"Lex" says lawmakers will have to go farther in their quest to get banks securitizing and selling their loans to really care about the quality of those securitizations. In addition to making them hold a portion of each securitization, regulators should specify which tranches banks must hold and also require the retention of "punitive levels of capital" if the bank chooses to retain certain slices of the securitization. Accountancy changes are in order, too.

New York University economist Nouriel Roubini argues in an op-ed that the global rebound in the prices of risky assets is a result of extreme government measures to reduce the cost of borrowing and avoid a depression, but it is in itself dangerous. "One day this bubble will burst, leading to the biggest coordinated asset bust ever."

Washington Post

House Financial Services Committee Chairman Barney Frank said he was open to a proposal calling on larger banks to contribute to a fund that could be tapped before a big bank failure. That is an evolution from legislation he and the Treasury Department released last week that would levy the assessment only after a bank failed. (Saturday)

Frank also threw his weight behind proposals giving consumers the choice to opt-in to overdraft protection programs. "Don't do people favors without asking them," he said. (Sunday)

 

, with contributions from Maria Aspan, Emily Flitter, and Steven Sloan.