Morning Scan
Monday, November 9, 2009
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Receiving Wide Coverage ...
GSEs: The Treasury blocked Fannie Mae's proposed sale of nearly $3 billion in low-income housing tax credits to Goldman Sachs and Berkshire Hathaway on Friday after concluding that the deal was too costly for taxpayers. The Journal said, "The extraordinary move was the latest sign of tensions within the Obama administration over how to balance political and financial pressures resulting from the housing crisis." Wall Street Journal, New York Times
Also on Friday, Freddie Mac reported a loss of $6.3 billion and said it didn't need any additional federal aid for the second straight quarter, but it expected to ask for more handouts in the future. The Weekend Journal's "Heard on the Street" column said while Fannie and Freddie are burning a huge hole in the Treasury's pocket, "the Obama administration is getting something very valuable in return: the ability to provide immense support to the housing market with only limited interference from Congress."
AIG Still in Black: American International Group posted its second profitable quarter in a row. The papers focused on weak results at its main insurance businesses. The Times said, "the difficulty A.I.G. is having in maintaining its core insurance businesses underscores the challenge it faces in repaying its debt to the government, despite the lift it is getting from the investment markets." Wall Street Journal, New York Times, Washington Post
Bank Failures: Five banks failed Friday, bringing the total for the year to 120. The largest of the five was San Francisco's United Commercial Bank, the main operating subsidiary of UCBH Holdings Inc. After being seized by regulators, the bank was immediately sold to rival East-West Bancorp of Pasadena. The Los Angeles Times noted that this will create "by far the largest U.S. bank focused on the Chinese American market," not to mention the largest bank based in Southern California. The paper further noted that the failure "may cause a greater-than-usual stir" since UCBH received $299 million from the government through Tarp last year. Wall Street Journal, Los Angeles Times
Card Watch: A story in the Post's Sunday's Business section prepared customers for the effects of the sweeping new credit card law, including that disclosures from credit card companies will soon be more comprehensive than before. "Now that the credit card industry is required to warn you about any changes they're planning, you should be scrutinizing what you think is only junk mail."
A story in Sunday's Times looked at one industry that has benefited from the introduction of credit cards. "New York cabbies howled when the city began forcing them to take credit cards. Some even went on strike, calling the requirements a kowtow to tourists and a burden on drivers. But two years later, the back-of-the-cab swipe has emerged as an unlikely savior for New York's taxi industry, even as other cities' fleets struggle to find fares in a deep recession."
G-20: The U.S. and Britain voiced disagreement at a G-20 meeting Saturday over a proposal that would impose a new tax on financial transactions to support future bank rescues. Wall Street Journal, New York Times
A separate story in the Journal said EU finance ministers this week will discuss how to wean their economies and the bloc's banking sector off state support. One plan the ministers will discuss, according to a document reviewed by Dow Jones Newswires, could end government guarantees for bank debt before much of the aid is due to expire. A more analytical article looked at how the U.S. and Europe differ in approach to getting growth back on track. "For Europeans, a big dent to potential growth for at least the next couple of years, or even longer, would mean output lost during the recession is probably gone for good …. In contrast, stronger productivity in the U.S. gives it a better shot at recouping at least some of its lost output, with a helping hand from the Federal Reserve."
What Pay Curbs? A story in the Sunday Times said, "Even as Washington tries to rein in Wall Street pay, bankers are likely to make unusually large gains on the stock grants and options they received after shares in their companies fell sharply during the financial meltdown." The Journal's "Overheard" column said some banks have found an "innovative" way to offer lure talent away from other firms. "Take Citigroup. It trumpeted the recruitment of Barry Blake from JPMorgan Chase to head up health-care mergers and acquisitions. No multiyear guarantees there. So what lured him to Citi? A year's guaranteed payment, with juicy upfront signing bonus. Sound familiar?"
Housing Aid: In "Mortgages," the Times' Bob Tedeschi wrote about an initiative HUD is taking to combat discrimination against lesbian, gay, bisexual or transgendered people seeking mortgages and housing. He said the initiative was "welcomed by legal advocates, who say that so far, laws have largely failed to address the issue adequately. Some in the mortgage industry, meanwhile, contend that such discrimination is rare." And in "The Nation's Housing," Post columnist Kenneth R. Harney discussed HUD's new disclosure rules, which go into effect Jan. 1, that will force banks to be more upfront about mortgage settlement costs and provide a "good-faith estimate" of closing fees. "The rules have a blunt message for lenders and others who lowball estimates or lard on junk fees at settlement: Play games like that, and you — not your hapless customers — will have to eat the difference."
Wall Street Journal
A page one story details how, over nearly a year of battles with U.S. regulators and investigators, B of A CEO Ken Lewis lost control of a bank he had worked at for 40 years.
A separate story said B of A's board may reject Lewis' picks to succeed him.
S&P has begun estimating potential losses on certain battered residential-mortgage bonds, responding to criticism by banks, insurers and some regulators that its junk ratings are too broad.
Wall Street firms that agreed to pay $100 million to settle a lawsuit accusing them of propping up American Business Financial Services had doubts about the subprime lender's business practices long before it collapsed, according to court documents.
The head of the CFTC will support giving federal regulators, and not clearinghouses, the power to decide which swaps should be cleared, House Financial Services Committee Chairman Barney Frank (D., Mass.) said Friday.
"Heard on the Street" said investors don't get enough data to properly understand the largest investment banks.
An article in the weekend paper said that even the super-rich, who traditionally didn't bother with mortgages, are treating their houses like piggy banks.
New York Times
"BreakingViews" considered the obstacles to Wells Fargo repaying the $25 billion of government capital it got through Tarp. Using the cash it has would deplete the bank's capital ratios; using accumulated earnings could take a while, given current performance; and a big common equity raise would dilute shareholders. The column suggests a "middle way": repay just $9 billion through an equity raise, and the rest through cash.
"BreakingViews" also relished the irony that by advocating a breakup — rather than bailout — of the Too-Big-to-Fail institutions, Bernie Sanders of Vermont, the Senate's only self-described socialist, "has put forth the most capitalistic proposal yet for banking reform."
A feature inside the business section describes how a blogger has "started a debate that has people re-examining" the microlending Web site Kiva.org. The nonprofit Kiva's pitch is that it connects individual lenders with specific entrepreneurial borrowers in Third World countries. But the blogger, David Roodman, pointed out that when you read the fine print, it turns out the borrowers already have their loans by the time their photos appear on the site; the "lenders" are just backstopping microfinance institutions. Given that Kiva has arranged $100 million of "loans" over four years, Roodman's revelation has generated much buzz: dozens of comments on the blogger's post, 10,000 page hits and thousands of Twitter postings.
In "Fair Game," Gretchen Morgenson said many holders of auction-rate securities are still unable to liquidate their investments. "Not only are some brokerage firms still refusing to let customers redeem their securities — Oppenheimer and Raymond James are two examples — but also investors' efforts to be repaid through class-action lawsuits are being stymied." (Sunday)
The "Square Feet" column featured an interview with Howard Michaels, the chairman and chief executive of the Carlton Group, a real estate investment bank that specializes in equity and debt placement. His firm, which raises capital from family offices, has picked up business as a result of the demise of many leading investment banks. (Sunday)
Washington Post
Columnist Robert J. Samuelson cast some doubt on economist Nouriel Roubini's latest doomsday scenario.
In "The Color of Money," Michelle Singletary said MoneyGram's $18 million FTC settlement over charges that its operations let criminals commit fraud was a "cautionary tale" for money transfer businesses. (Sunday)
A story Saturday looked at the declining support for the Fed as the systemic risk regulator. The administration's regulatory reform proposal would give the central bank tremendous authority, but "key Democratic lawmakers are threatening to dismantle" the White House proposal.
, with contributions from Joe Adler and Marc Hochstein.
