Morning Scan
Thursday, November 12, 2009
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Receiving Wide Coverage ...
Benmosche Backpedals: The papers, citing people familiar with the matter, said AIG CEO Robert Benmosche told employees Wednesday he remains "totally committed to leading AIG through its challenges" while acknowledging frustrations with the government's stance on compensation at the company. The Journal, which broke the news this week that Benmosche had threatened to resign, partly due to the government's curbs on pay at AIG, said some members of AIG's board discussed the situation Wednesday night. It said one unnamed source described the situation as "volatile." The Times said Benmosche "tried to calm fears that he was about to jump ship." It noted that the bailout "has hastened the exodus of talent" from AIG, with many leaving to work directly or indirectly for former CEO Maurice Greenberg, who is building other ventures that can offer conventional, performance-based pay. Wall Street Journal, New York Times
The Journal's "Management" column said some observers think AIG might be better off without Benmosche. "He's done himself some lasting damage with Congress and regulators and this temper tantrum did not strengthen his hand," says Jeffrey Sonnenfeld, a senior associate dean at Yale's School of Management. "The board can't tolerate stare downs." "Heard on the Street" said the way the AIG bailout was structured makes friction with the CEO almost inevitable. "The fundamental flaw: The government's plan rests on the assumption that AIG could have a future as independent public company, which is why it has been given time to restructure. As a result, any AIG CEO is going to want the freedom to do things he or she thinks will make it viable and lead to a higher stock price."
Bear Impact: The papers considered the broader implications of acquittal of two former Bear Stearns hedge-fund managers on securities-fraud charges. The Journal said the outcome "could cause prosecutors to pause when considering whether to bring charges in some other cases that came out of the financial crisis," particularly for the investigations of former executives at Lehman Brothers AIG, which, according to unnamed sources, could be brought by the U.S. attorney in Brooklyn, where the Bear case was tried. Times' columnist-to-be William D. Cohan, a contributing editor at Fortune and author of "House of Cards," said the not-guilty verdict was "was at once surprising — for its failure to comport with the zeitgeist — but also entirely understandable, based on a close reading of the prosecution's arguments and the evidence the judge allowed to be introduced." One juror explained, "The entire market crashed. You can't blame that on two people."
Wall Street Journal
Fannnie Mae and Freddie Mac, already reeling in red ink, are warning they could face additional losses from the weakening condition of mortgage-insurance companies.
The Build America Bond program isn't set to expire until the end of 2010, but portfolio managers and other investors in this new class of taxable municipal securities already are arguing to extend it. The reason: The bonds, known as BABs, have done their job. They have helped states, cities and other local government entities tap new capital markets and lower financing costs.
Swiss banks and insurers will have to ensure that management bonuses are dependent on the institutions' long-term success, but bonuses won't be limited otherwise, Switzerland's financial-markets regulator said. New regulations that come into effect Jan. 1 will apply to Switzerland's seven biggest banks and five biggest insurers, the regulator said. The new compensation rules apply to all employees, not just those residing in Switzerland.
Top European banking executives and financial experts are working on a European Central Bank-supported project to revitalize the market for securities backed by pools of loans and other assets by creating a quality label.
An article in Money & Investing said a pickup in buyouts suggest the famine in the leveraged loan market is ending.
New York Times
An article considered Goldman Sachs' charitable donations and compared them to its much-discussed bonuses. Since 1999, Goldman has given about a billion dollars total to charity, according to the company, "but the money allotted for its foundation is dwarfed by the sums that will be doled out to its bankers. In the first nine months of this year, the firm set aside about $17 billion for bonuses and other compensation."
An article considered the impact that shipping industry woes are having on the banking industry, especially in Europe, where banks hold over $350 billion of increasingly dubious shipping industry loans. "And for Europe's struggling banks, already plagued by a toothless economic recovery and continuing losses in real estate, the emergence of yet another questionable category of loans adds to fears that many of them are lagging their counterparts in the United States in overcoming the financial crisis."
An editorial said that an expected surge in foreclosures next year should be a wake-up call for the Obama administration, whose plan to provide subsidies to lenders who modify troubled loans "has been flawed from the start. It has no teeth to compel lenders to participate. … American homeowners, and the economy, need an antiforeclosure plan that works."
Washington Post
A story looked at how the intense political debate over the Fed's role could influence its daily operations, particularly the setting of interest rates and other policies aimed at helping the economy out of its malaise. "Rate increases are always unpopular, particularly when the unemployment rate is still high. But the political environment could make the decision even tougher."
While Sen. Chris Dodd has "joined the generation of dreamers who have advocated for eliminating the nation's muddle of bank regulators," he faces a "broad range" of criticism over his legislative proposal. Among skeptics' points are that large and small banks need different kinds of regulators, and "various agencies possess meaningfully different perspectives."
, with contributions from Joe Adler and Maria Aspan.
