Morning Scan
Tuesday, November 3, 2009
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Receiving Wide Coverage ...
Pay Curbs: Federal Reserve officials told top bankers Monday they should start overhauling their employees' pay packages as soon as possible, even before the Fed finalizes its proposed compensation rules. The Journal said people familiar with the meetings didn't describe them as confrontational or combative. Many of the banks aren't expected to push back aggressively against the proposal, in part because it stops short of direct caps on pay. The FT said "the timing of the Fed's move is important because it sets the tone on compensation just as financial institutions are deciding how to apportion their 2009 bonus pool to star bankers and traders." Wall Street Journal, New York Times, Financial Times, Washington Post
Analysis by the Journal shows pensions for top executives of all kinds of companies rose an average of 19% in 2008, with more than 200 executives seeing pensions increase more than 50%. The paper said growth of such supplemental executive retirement plans, or SERPs — which can be worth tens of millions of dollars to executives — largely has been overlooked amid a backlash against executive pay, particularly at banks and other companies receiving taxpayer bailouts. A separate story said companies are required to report the size of their top executives' pensions, but sizing up the IOUs can require sleuthing through financial filings.
Fund Fee Fight: The Supreme Court heard oral arguments Monday in Jones v. Harris Associates, in which investors have accused the managers of the Oakmark series of mutual funds of taking excessive fees. The papers noted the similarities, and differences, to the national debate about whether the marketplace can be trusted to set the pay of corporate executives. The Journal said the court "seemed likely to keep the current understanding of limits on fees investment advisers can charge mutual funds, rather than embrace a new approach proposed by a Chicago appellate-court judge." The Times said that, despite the court's apparent reluctance to allow judges to take on a major role in policing fund fees, "some justices nonetheless suggested that pay arrangements could be so outsized that the courts may have to step in." An editorial in the Journal described the lawsuit "the trial bar's latest attempt to paint a bull's-eye on the mutual fund industry."
CIT Update: A story in the FT examined the many challenges CIT Group faces in its execution of its prepackaged bankruptcy plan. A judge must sign off on it and a court must deem it feasible. Then its restructuring plan must actually work—observers have their doubts. The paper's "Lex" column noted the commercial lender's plan "is reliant on the blessing of regulators — among them the regulators that declined to come to CIT's aid earlier this year and have already slapped a disciplinary 'cease and desist' order on some of its deposit-gathering." Now CIT needs to find a way to collect low-cost deposits, but it "does not have the branch network, internet platform and retail banking expertise necessary."
An editorial in the Journal said CIT's bankruptcy is proving two things: "Bankruptcy works — even for financial firms — and the U.S. Treasury judges systemic risk out of its political hip pocket."
Breaking Up British Banks: The British government is moving to break up parts of major financial institutions bailed out by taxpayers, in a plan expected to be unveiled as soon as Tuesday. The Post said, "The move highlights a growing divide across the Atlantic over how to deal with the massive banks partially nationalized during the height of the financial crisis." But the Journal contrasted the very different outcomes for two institutions, Lloyds Banking Group, which will "dodge greater government control and large divestitures," and Royal Bank of Scotland, which will be "tethered more deeply than ever to the government and faces a bigger divestiture of assets." Wall Street Journal, Washington Post
Wall Street Journal
A front-page story said a shift in thinking about what causes boom and bust cycles "could change the way central bankers do their job, possibly leading them to wade more deeply into markets."
Citizens National Bank, of Teague, Texas, eked out a small profit in the third quarter and was well-capitalized by industry standards. But, "In a twist with roots in the savings-and-loan crisis, Citizens and another relatively healthy bank were seized by regulators, too, because they couldn't pay for the sins of" parent company FBOP's terminally ill banks.
The FTC ordered a National Association of Realtors' affiliate in the Detroit area to end practices that the agency found unlawfully discriminated against discount real estate brokers.
An article on the front of the Money & Investing section profiled Brian Sack, a 39-year-old economist who runs the markets group at the Federal Reserve Bank of New York. "The Federal Reserve pumped $1 trillion into the financial system during a year of harried efforts to rescue the economy. Brian Sack's job is to figure out how to get the money back out."
In "Bookshelf," James Freeman reviewed "The Sellout," in which Charles Gasparino describes the financial meltdown and tries to identify its causes.
The U.K.'s top central banker, Mervyn King, faces a tough call at a pivotal meeting this week: Whether to continue showering money on Britain's troubled economy while other countries consider dialing back emergency relief measures.
World leaders seem, at least for now, committed to better coordinating economic policies but the financial sector is returning too rapidly to "business as usual," the managing director of the International Monetary Fund said.
New York Times
A front-page article in the "Card Game" series looked at credit monitoring services like those sold at the freecreditreport.com site run by Experian, which the FTC believes "is deliberately diverting people from a government-mandated site where consumers can get free credit reports by law."
In an editorial, Mark Zandi, the chief economist at Moody's Economy.com, said that the fragile recovery from the recession rests on the government's efforts to help small businesses hire again.
An article on the front of the business section said that many states hit hard by the housing collapse are exploring consumer fraud suits against major mortgage lenders.
Financial Times
Morgan Stanley's foe in a derivatives battle in the Chinese legal system has been revealed to be Goldman Sachs. The two banks are fighting over a hedging contract related to China Haisheng Juice Holdings. Goldman owns a 20% passive stake in Haisheng; Morgan Stanley says it's owed $26 million now that the company has failed to post collateral related to a series of currency hedges between the dollar and the renminbi.
Ken Costa, who is the chairman of Lazard International and a professor at Gresham College in London , writes in an op-ed that finance must return to an ethical path. "If purveyors of sometimes dishonest subprime mortgages had followed" the golden rule of "do unto others as you would have them do unto you," then "a lot of misery would have been avoided."
Washington Post
Goldman Sachs is proposing to buy millions of dollars in assets from Fannie Mae, an offer a recent Treasury Department analysis found would not be advantageous for taxpayers, people familiar with the matter said.
, with contributions from Maria Aspan and Emily Flitter.
