Morning Scan
Monday, August 31, 2009
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Receiving Wide Coverage ...
Price Tag for Bailout: A front-page article in the Times said that, according to the paper's own calculations, "nearly a year after the federal rescue of the nation's biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again. The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually." Meanwhile the FT reported that the Federal Reserve estimates that it has made a $14 billion profit through its various emergency lending facilities since the start of the financial crisis two years ago. "The figure is not a complete picture of Fed finances as it excludes its company-specific bail-outs and purchases of long-term assets." The Fed could still see losses on its mortgage-backed securities portfolio, and on its portfolios of assets held by AIG and Bear Stearns. But a front-page story in the Journal said while some of the emergency programs put in place last year, including TARP, have brought in billions of dollars for the government, a raft of deals to share losses on failed banks puts the FDIC on the hook for billions. "The agency's total exposure is about six times the amount remaining in its fund that guarantees consumers' deposits, exposing taxpayers to a big, new risk." Washington Post, Financial Times, Wall Street Journal
Policing the Fed: The weekend papers looked at the progress of legislation proposed by Rep. Ron Paul, R-Texas, a member of the House Financial Services Committee, to give Congress a greater check over the Federal Reserve. The Journal quoted Paul as saying he has a commitment from the chairman of the House Financial Services Committee, Barney Frank, to advance the legislation. The FT also said the legislation is gaining bipartisan support and predicted it will likely be debated in Congress before the end of the year. If Frank "succeeds in passing legislation that satisfies both ardent Fed critics and the central bank, he would remove one headache for" Fed Chairman Ben Bernanke, who was renominated last week. Wall Street Journal, Financial Times
Inflation Outlook: The Journal said business economists are split on whether the Federal Reserve's massive infusion of credit into the economy will lead to inflation in the next couple of years. Half of 266 members of the National Association for Business Economics surveyed in August said the Fed's decisions to increase the money supply won't lead to inflation in the next few years, the NABE said Monday. Some 41% disagreed, though, citing "lagged effects of policies now in effect," "monetization of the debt" and "ineffective exit strategy" as their primary concerns. FT columnist Wolfgang Munchau argued that central banks should start setting negative interest rates in order to bring real interest rates in line with price stability and inflation targets. But Munchau says not all interest rates can be set below zero — the deposit rate is the one that should break the bound, "to discourage banks to hoard their surplus liquidity in the form of central bank deposits, as opposed to lending it to customers."
AIG Update: A trio of articles in the Journal followed developments at the trouble insurer. A front-page story in the weekend edition of the paper said the company's newly appointed CEO Robert Benmosche, who previously sued and shunned his predecessor, Maurice R. "Hank" Greenberg, now wants to consult with the former executive in the hopes of better understanding and reviving AIG. The paper said AIG's new stance toward Greenberg could have consequences for its corporate strategy, since the former executive has been a forceful advocate of keeping the company intact. Two other stories examined potential sales of AIG units: an article in the weekend edition said four sets of bidders have submitted offers for AIG's Taiwan unit. A story in Monday's edition said the head of AIG's aircraft-leasing business is in talks to buy a piece of the unit amid growing frustration at AIG's delay in selling the company
Rating the Raters: The SEC's inspector general said in a report released Friday that the agency has been slow to act in regulating the nation's credit rating agencies and called for a broad range of improvements in oversight. Wall Street Journal, New York Times
Another Times' article said Jules B. Kroll, who built a big business as an aggressive corporate sleuth, is planning to create a competitor for the now-tarnished credit agencies.
Cerberus Exedus: The weekend papers, citing unnamed sources, said investors with more than $5.5 billion in hedge funds run by Cerberus Capital Management have told the firm they want their money back. Wall Street Journal, New York Times
Wall Street Journal
A story in Money & Investing profiled Direct Edge of Jersey City, N.J., a company led by the son of a NYSE seat holder and trader, that has become one of the exchange's top rivals through its advocacy of high-frequency trading. The paper said the Big Board is leading an attack against Direct Edge, and has found a sympathetic ear in Congress and the SEC.
The $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn't been pretty.
A front-page story in the paper's weekend edition said the patchiness of the economic recovery can be explained, in part, by the fact that access to credit is largely limited to big companies and banks, while smaller companies with slumping sales can't borrow or are facing stiff terms to do so.
Wall Street finally has agreed to put its brokers under the tougher fiduciary standard for their dealings with customers. Now a fight looms over how tough that standard will be. As part of its regulatory overhaul, the Obama administration proposed holding brokers who give investment advice to the higher fiduciary duty — a legal standard that would compel them to act in their clients' best interests. The paper said the changes could transform the brokerage industry by changing the way products are sold and marketed and even how brokers are paid. (Weekend)
Bradford Bank in Maryland and Mainstreet Bank in Minnesota were closed by regulators Friday, marking the 82nd and 83rd U.S. bank failures of 2009. (Weekend)
New York Times
A front-page article profiled a Brooklyn judge, Arthur M. Schack, who "fashions himself a judicial Don Quixote, tilting at the phalanxes of bankers, foreclosure facilitators and lawyers who file motions by the bale. … He has tossed out 46 of the 102 foreclosure motions that have come before him in the last two years. And his often scathing decisions, peppered with allusions to the Croesus-like wealth of bank presidents, have attracted the respectful attention of judges and lawyers from Florida to Ohio to California. At recent judicial conferences in Chicago and Arizona, several panelists praised his rulings as a possible national model."
An editorial considered the FDIC's "able" new rules to allow private-equity firms to buy failed banks (although it said the agency "could have gone further"). "Private equity firms should view the requirements as an opportunity to show that they can be responsible bankers. If they don't bid for failed banks because the rules don't suit them, the F.D.I.C. must not take that as a sign to loosen the rules further. Rather, it would signal that private equity firms are indeed unsuited for banking — a business that has a public purpose and regulatory obligations, along with the potential for profits."?
An op-ed by Alan Patricof, the director of a venture-capital firm, and Eric Dinallo, a former insurance superintendent for New York State and a professor of finance at NYU's Stern School of Business, considered the various pieces of legislation now making their way through Congress that would require private pools of investment capital to be registered with the SEC. "Unfortunately, however, with good intentions, the Obama administration and some members of Congress are aiming this legislation at all pools of private capital. That includes venture-capital funds, which pose no systemic risks and which, especially now, should be kept free of any new reporting rules and allowed the freedom to flourish."
"BreakingViews" advocated winding down the mortgage-back securities portfolios of Fannie Mae and Freddie Mac, which "would be a good first step toward eventually deflating them."
A front-page article in Sunday's edition considered the impact of Florida's record level of foreclosures and unemployment on the state's economy, which is shrinking after a century of growth.
"Fair Game" columnist Gretchen Morgenson considered new regulatory initiatives for the municipal bond market and said it "may finally be coming out of the Dark Ages."
Nomura has hired three senior executives from rivals this month for its fixed-income division in New York as part of an effort to win market share in the United States, almost a year after it expanded in Europe with the acquisition of part of Lehman Brothers' business." (Saturday)
"Talking Business" columinst Joe Nocera considered the anniversary of the Reserve Fund "breaking the buck." A year later, the money market fund business seems back to normal; "what very few people are talking about, however, is a more radical solution to the moral hazard question raised by money market funds. Maybe the right approach now is to acknowledge the truth. Money market funds are not, in fact, turbocharged bank accounts. They are investment vehicles. However "safe" the securities they invest in, they contain an element of risk." (Saturday)
Financial Times
"Lex" said banks are doing well to look for wealthier customers to make up for the loss of revenue they're facing thanks to new credit card rules. Charging poorer customers high fees isn't going to be so easy anymore, but there are plenty of niches among richer customers, whose credit card loyalty can be cultivated, and whose checking account balances offer bountiful opportunities.
Despite the recent penetration by the U.S. government of UBS' secrecy wall by obtaining names of some American clients the bank helped evade taxes, bankers at other private Swiss banks say they're not worried. "The Swiss government, which helped broker the UBS deal, has attempted to limit the damage to the Swiss financial industry by arguing it was a one-off case."
Fitch Ratings said credit cards losses decreased in July, with fewer charge offs by issuers and a leveling of the rate of late payments.
The Justice Department is charging bankers at the private bank Brown Brothers Harriman with helping Brazilian clients cover up money laundering and conceal income from fraud and tax evasion. The owners of the account that the DoJ froze as part of the case are business partners who formerly managed Citigroup's interests in Brazil. (Weekend)
In "On Wall Street," Michael Mackenzie writes that Bernanke will have to convince Congress to spend less money as the economy recovers. "The rising tide of red ink, combined with structural deficits from the retirement of baby boomers after 2010, will inevitably test investors' demand for U.S. Treasury debt. This is where the rubber of future Fed policy meets the intersection of the dollar, the economy and interest rates." (Weekend)
The European Central Bank warned Friday that "counterparty risk" in credit derivatives markets "remained a big concern among Europe's banks as credit default contracts, which pay out when a company defaults on its bonds, were increasingly concentrated in the hands of a few large institutions. The top 10 counterparties of the leading European banks, often other banks, accounted for 60% of CDS exposure, the ECB said." (Weekend)
A short item in "Lex" pointed out that while British financial industry participants are complaining about the proposed tax on financial transactions, markets in India and China, which had a similar tax imposed on their transactions following the Asian crisis in the '90s, are stronger than ever. (Weekend)
Washington Post
The average credit card debt for low- and middle-income senior citizens carrying a balance for more than three months has grown 26% since 2005 according to a recently released study by the public policy group Demos. It was the fastest increase of any age group. "It's a surprising reversal of fortune for a generation that had been considered more financially responsible than younger generations," the Post said. (Sunday)
Noticing that many failed banks received their charter relatively recently, the FDIC is stepping up its oversight of young banks, examining them every year instead of every 18 months. "And the FDIC will particularly watch for characteristics tied to bank failures in the current downturn, such as rapid growth and heavy reliance on volatile funding sources such as deposits obtained through brokers," the Post said. (Saturday)
The paper went, um, below the belt by looking to sales of men's underwear to demonstrate the severity of the financial crisis. In a theory that has won approval from none other than former Fed Chairman Alan Greenspan, men stretch the amount of time they go between buying underwear during a downturn.
, with contributions from Joe Adler, Maria Aspan and Emily Flitter and Steven Sloan.
