Morning Scan
Friday, November 6, 2009
|
Updated every business day, circa 9 a.m. ET. To receive by email, click here. Links may require registration/subscription. |
Receiving Wide Coverage ...
Housing Aid: Fannie Mae reported a $19.8 billion loss for the third quarter and announced yesterday it would draw a fresh $15 billion from the Treasury Department. The Journal and the FT focused on a separate announcement that Fannie has reached an agreement to sell about $2.6 billion in unused low-income-housing tax credits to unnamed buyers. The Journal noted that Fannie has received approval for the deal from the FHFA, but said the Treasury Department has yet to approve the deal, "setting up a potential clash between two government agencies over how best the government should run Fannie and its smaller rival, Freddie Mac." The Post devoted the bulk of its coverage on the amount of federal aid the two GSEs have received, but it said the Treasury "balked" at Fannie's deal to sell housing tax credits. Wall Street Journal, Financial Times, Washington Post
A separate story in the Journal said Fannie will allow homeowners facing foreclosure to stay in their homes and rent them for as long as a year. The Times combined coverage of Fannie's "Deed for Lease" program with the extension and expansion of the homebuyer's tax credit. An editorial on the tax credit extension and expansion calls the move "wasteful" and said Congress should instead spend time and money on ways helping homeowners avoid foreclosures.
UBS Fined: The U.K.'s FSA fined UBS $13.3 million — one of the largest fines it has every imposed — for systems failures that led to unauthorized trades being made by employees using customers' money and allocating losses to their accounts. The papers noted that the Swiss bank's reputation has already suffered as a result of a government bailout and a battle with the U.S. government over claims it helped wealthy Americans evade U.S. taxes. Wall Street Journal, New York Times, Financial Times
A separate story in the FT said "the details of the improper trading could well make already skittish clients more nervous about the bank's wealth management division."
Accounting Rules: The IASB released a proposal yesterday that would require banks accounting under its rules to report their loan losses far earlier than U.S. banks. The FT said "The plans represent a virtual U-turn from the current system for banks. They would allow banks to provide for expected losses over the duration of a loan, rather than, as now, waiting until the losses have occurred — a practice criticized for exacerbating the crisis by increasing the cyclicality of bank accounting." The Journal's "Heard on the Street" said French minister Christine Lagarde plans to lobby other G-20 finance ministers at a meeting in Scotland on Friday to accept greater political control of the standard-setting process. "Few G-20 initiatives are more important to restoring trust in the global financial system than international accounting standards. Yet this critical project is hitting trouble." Wall Street Journal, Financial Times
Reshaping Citigroup: The Journal said "the dismantling of Citigroup continues" as the firm's Primerica life insurance and mutual fund unit said in a regulatory filing that it would sell shares of itself through an IPO. Unnamed sources told the FT that Citigroup is trying to relaunch its hedge fund unit, which has $14 billion under management, and change its name from Citi Alternative Investments to Citi Capital Advisors. The paper said "The move follows months of wrangling between CAI's management and some top bank executives about what to do with the unit, underlining the strategic dilemmas facing banks with hedge fund businesses that fell victim to the crisis." Wall Street Journal, Financial Times
Wall Street Journal
A looming federal rule to cap the interest rates paid by weak banks could accelerate their demise and make life even harder for depositors. Reining in such banks will force them to compete "with one hand tied behind their back," said Lawrence Kaplan, a lawyer with Paul, Hastings, Janofsky & Walker LLP. "This will cause deposit outflows" that could accelerate the rate of bank failures.
French Finance Minister Christine Lagarde unveiled plans for tougher regulation of bankers' pay, aiming to make the issue a priority for the Group of 20 leading economies at their meeting in Scotland this weekend. Ms. Lagarde on Thursday said the rules for French banks — which include a stipulation that banks publish some details of employee bonuses annually — will apply both at home and abroad.
State insurance regulators Thursday approved an insurance-industry proposal to adopt a new methodology for sizing up risk in insurers' big holdings of residential-mortgage bonds, eliminating for this year a longstanding use of ratings from the major ratings firms.
Investors' reliance on the Federal Reserve is declining, at least when it comes to buying bonds backed by consumer loans. Issuers that once leaned on the central bank's Term Asset-Backed Securities Loan Facility now are raising money without the Fed's help.
The director of the Centers for Disease Control and Prevention urged health officials around the country Thursday to ensure swine-flu vaccine is getting to high-risk groups, after criticism erupted over distribution to some Wall Street firms, including Goldman Sachs, Morgan Stanley and Citigroup.
David Shulman, a former head of real-estate research at Salomon Brothers and senior REIT analyst at Lehman Brothers, said in a letter that "the new regulations allowing banks to classify underwater commercial real-estate loans as 'performing' will create 'zombie' banks that will plague our economy well into the next decade … Simply put, weighed down with bad loans, 'zombie' banks don't lend."
Carl Schramm, Robert Litan and Dane Strangler, president, vice president of research and policy, and senior research analyst at the Kauffmand Foundation wrote in a letter to the editor that it is new business, not small business, is what creates jobs. To this end, they said, the government should provide easier access to capital through, among other measures, "a fundamental revision of bank capital standards, which do not vary with the economic cycle. In bad times like now, more flexible standards would allow prudent lending, when it is sorely needed by many firms to remain alive or meet demand when it begins to grow."
New York Times
An article used the performance of two European banks — France's BNP Paribas, which saw profit soar 45% in the third quarter, and Germany's Commerzbank, whose three-quarter would show a loss of around $1.5 billion — to contrast "the winners and losers of the financial crisis a little over a year after Lehman Brothers fell."
Floyd Norris' "High & Low Finance" column looks at what he sees as a further gutting of the Sarbanes-Oxley Act, with the most recent example the passing of an amendment by the House Financial Services Committee this week that would allow most companies to skirt compliance with the accounting law.
Financial Times
Banks are preparing to issue a new form of debt to add to their capital bases, but concerns are growing that if used improperly it could be dangerous. The new debt would convert to equity in the event of a crisis, thus giving banks an instant capital infusion when they most needed it. "Senior regulatory figures told the Financial Times that, if misused, the so-called contingent convertible bonds, the first of which were launched by Lloyds Banking Group this week, could prove "unsettling" and would add an "extra dimension of risk" to capital markets."
A separate story looks at Lloyds Group's issuance of the contingent convertible bonds and how it's being viewed by regulators and the market: "The move comes amid increasing regulatory concern over hybrid debt — a form of financing that banks and insurance companies have long relied upon to bolster their capital base. "The future of hybrid debt is doubtful," says one European policymaker."
Columnist Gillian Tett points out a flaw in the current approach to setting up derivatives regulation: "As so often in the regulatory debate, there is a crucial catch: a clearing house can only offer that all important sense of reassurance to investors if it is always perceived to be absolutely rock solid. What is notable about the reform debate this year, is that there has been remarkably little public discussion among politicians — or among regulators — about how to guarantee that any future clearing house will be strong enough to withstand future shocks."
An editorial praises the Federal Reserve and other central banks for their maneuvering of monetary policy so far and adds "Central banks can do little more than they are already doing to help recovery: pessimism and insolvency risk, not lack of liquidity, are holding output back. They can, however, derail it by tightening too soon or too late. That is why words matter: markets heed future plans as much as current actions."
The CBO reported that the overhaul of financial regulators currently underway in Congress would need an infusion of $872 million over four years to be successful. Agencies like the SEC and CFTC need more staff and better technology, while the proposed Consumer Financial Protection Agency must be built from scratch.
, with contributions from Emily Flitter, Steven Sloan and Christopher Wood.
