Jeanine Skowronski

Breaking News This Morning ...BAC Earnings: Bank of America's profit rose 63% in the second quarter, due largely to strong trading revenue and cost-cutting. Wall Street Journal, New York Times, American Banker

Breaking News This Morning ...Goldman Earnings: Goldman Sachs doubled its profit in the second quarter, thanks, in part, to strong trading revenue. Wall Street Journal, New York Times

Breaking News This Morning ...Citi Earnings: Citigroup profit rose 42% in the second quarter, due, in part, to cost-cutting and growth in emerging markets. Wall Street Journal, New York Times, American Banker

Breaking News This Morning ...JPM Earnings: JPMorgan Chase's profit rose by 31% in the second quarter, thanks, in part, to gains in its investment banking business. Wall Street Journal, New York Times, Bloomberg

Receiving Wide Coverage ...Beyond Basel: U.S. regulators proposed Tuesday that the nation's biggest banks adhere to a 5% leverage ratio with their FDIC-insured bank subsidiaries subject to a 6% ratio, double the requirement set by Basel III. The Journal calls the proposal "the first in a series of steps regulators plan to take to address ongoing concerns that banks remain so large, complex and interconnected that they could require another government bailout in the event of a future crisis." The FT notes "the U.S. plan could refocus pressure on other jurisdictions where banks continue to operate with relatively low leverage ratios." Several news outlets cite a Keefe, Bruyette & Woods analysis that shows only two of the eight firms affected by the U.S. proposal — Bank of America and Wells Fargo — currently meet the new threshold. Under the plan, banks facing capital shortfalls "have until the end of 2017 to comply with the higher requirements," the Times reports, but the article notes regulators' "latest push could meet fierce resistance, however." In fact, the proposal has already garnered criticism. "On one side are some top regulators, including Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig, and some lawmakers on Capitol Hill who argue the plan does not go far enough," reports American Banker's Donna Borak. "On the other are bankers and their representatives who contend the proposal is excessive."

Receiving Wide Coverage ...Low-Rate Bonanza: Breaking with tradition, both the European Central Bank and the Bank of England (separately) pledged to keep interest rates low indefinitely. The forward guidance "underscored the stakes as officials around the world try to safeguard fragile economies as financial markets swing wildly," reports the Journal. Per the FT, ECB President Mario Draghi said the timing of the two announcements, tied to meetings held by both central banks, was coincidental. He also "denied his institution had been forced into a more dovish communication policy by the Federal Reserve's recent hints that it would slow the pace of its" bond-buying program. Meanwhile, the Times notes "that the Bank of England even issued a statement after its monetary policy meeting was a departure from previous practice and showed that [Mark] Carney, the former governor of the Canadian central bank, is making his mark just days after taking office."

Receiving Wide Coverage ...Citi Settles: Citigroup has agreed to pay $968 million to settle claims it sold bad mortgages to Fannie Mae. Analysts tell the Wall Street Journal Citi may settle with Freddie Mac over similar charges as well, though official spokesmen for both parties are declining to comment. Citi did say that the settlement charges would be covered by its existing mortgage repurchase reserves. The bank plans to add $245 million to this reserve in the second quarter. Scan readers will recall Bank of America agreed to pay $10.3 billion to settle similar claims with Fannie Mae back in January. The FT notes the Citi deal "brings the banking industry a step closer to paying for past wrongdoing related to mortgages, which has cost tens of billions of dollars in claims for compensation, lawsuits and fines." Wells Fargo and JPMorgan Chase remain as the "banks with the largest demands from Fannie" that have yet to settle. New York Times, Washington Post

Receiving Wide Coverage ...A Deluge of EU News: You can tell that a U.S. holiday weekend is on the horizon as Monday's news is largely coming from overseas. Reuters reports that EU regulators have charged Markit, the International Swaps and Derivatives Association and 13 banks with breaching anti-trust rules by blocking rival exchanges in the credit derivatives business. The banks include Bank of America Merrill Lynch, Citigroup, Morgan Stanley, Goldman Sachs, HSBC and JPMorgan. Elsewhere, this FT op-ed criticizes the EU's failure to get its banking union, off the ground despite agreeing on rules to force losses on creditors in failed banks. "In theory, a bail-in rule should shift some of the financial burden away from the bank's home state. But this only works to the extent that some of those shareholders and bondholders are foreigners," writes columnist Wolfgang Munchau. "The trouble is that the banks have become more national since the crisis." And for those paying attention to the ongoing U.S. spying story, the Wall Street Journal and the FT report the National Security Agency has been accused of spying on European Union officials after a German magazine over the weekend cited secret documents obtained by former NSA contractor Eric Snowden.

Banks and regulators have proposed bail-in mechanisms for capital plans. Exposing creditors to losses could help protect taxpayers and depositors, but is long-term debt an adequate substitute for equity?

Receiving Wide Coverage ...Lawsky Strikes Again: Benjamin Lawsky has certainly had a busy week. The New York state regulator followed up his $10 million Deloitte settlement with a $250 million settlement with Bank of Tokyo-Mitsubishi UFJ over money-laundering allegations on Thursday. True to form, the settlement upstages an $8.5 million fine the Japanese bank paid to federal regulators last December. (Scan readers will recall that last year, Lawsky reached a $340 million money-laundering settlement with the U.K.'s Standard Chartered last August. The move preceded a $330 million settlement with federal agencies in December.) In the Bank of Tokyo settlement, "the disparity stemmed partly from the wider latitude that Mr. Lawsky has to dole out punishments on the banking industry," Dealbook explains. "The Treasury Department is somewhat hamstrung by a quirk in federal law that permitted certain transactions with Iran until 2008." Law quirks aside, Lawsky's latest action, which could unsettle regulators globally, has drawn ire from those on Wall Street and in Washington. "The contrast reinforces the perception that the feds are going light on large financial institutions, and that Lawsky is out to fill the vacuum where he can using New York state laws," argues Bloomberg columnist Jonathan Weil, following up an earlier op-ed entitled "World Needs More Hardheads Like Benjamin Lawsky." And New York magazine's Kevin Roose offered this more diplomatic assessment of New York's rebel regulator, prior to the Bank of Tokyo settlement: "There's a bit of populist grandstanding in Lawsky's approach, of course … But for years, many of the regulators who are supposed to be enforcing the law on Wall Street have been lulled into inaction by their fear of doing the wrong thing. And, in that context, Lawsky's hard-headed crusade for justice makes him one of the most fascinating people around." Financial Times, Wall Street Journal

Receiving Wide Coverage ...U.K.'S Capital Needs: British regulators have told their biggest banks to raise a combined $20.7 billion in capital by the end of the year to cover shortfalls. The announcement builds on earlier capital directives from the Prudential Regulation Authority, which has been attempting to bolster banks' balance sheets in an effort to stem off future financial shocks. Barclays, Royal Bank of Scotland and Lloyds Banking Group, which would need to raise the bulk of the $20.7 billion, told the Journal they "would sell assets and shrink parts of their businesses to address the shortfalls, and won't need to issue new shares." In other U.K. banking news, Chancellor of the Exchequer George Osborne said he would consider a proposal to split RBS into "good" and "bad" banks in order to deal with toxic loans. He also hinted that the U.K.'s stake in Lloyds was now being prepared for a sale. New York Times, Financial Times

Receiving Wide Coverage ...Consultant Crackdown: Deloitte Financial Advisory Services has struck an agreement with New York's Department of Financial Services that will see the advisory firm pay $10 million and receive a one-year ban from soliciting new work in the state in order to settle allegations it mishandled its anti-money laundering review of U.K. bank Standard Chartered. The agreement, which also requires Deloitte "to implement reforms designed to address conflicts of interest," is part of DFS leader Benjamin Lawsky's "unparalleled crackdown on independent consulting firms." According to the FT, Lawsky used an obscure state banking law "to revoke consultants' access to confidential supervisory information if the access does not 'serve the ends of justice and the public advantage.'" In a statement, New York Governor Andrew Cuomo said the move against Deloitte was laying the groundwork for broader change in the financial services consulting industry. However, there's no real consensus yet on whether other states or federal authorities will follow Lawsky's lead or if it's time to dust off his old nickname. While he was taking action against Deloitte, Dealbook notes, the Federal Reserve was ordering a large regional bank to hire a consulting firm to go through high-risk customer accounts. "It is unclear whether actions by state regulators like Mr. Lawsky — who has a history of irking his federal counterparts by running ahead of them — portend an overhaul of the consulting industry or a coming clash of state and federal banking regulators," the article (semi-)concludes.

Breaking News This Morning ...Charges Filed: The U.K.'s Serious Fraud Office has charged former UBS and Citibank trader Tom Hayes with eight counts of fraud in connection with the London interbank offered rate-rigging scandal. The charges represent the first time U.K. authorities have pursued criminal penalties against someone allegedly involved in the manipulation of Libor, says the Journal. Per the FT, the move sets up "a potential conflict" between the U.S. and the U.K. since Hayes is already facing charges from the Department of Justice and, generally, "criminal matters are resolved in a defendant's home country before any extradition request is considered." Dealbook notes Hayes "figured prominently" in the $1.5 billion UBS Libor settlement this December. The news outlets don't indicate whether other individuals will find themselves facing similar allegations, but the Journal previously reported that sometime this summer U.K. and U.S. authorities are expected to file criminal charges against former Barclays employees for their alleged roles in the Libor scandal.

Receiving Wide Coverage ...Co-op Bank 'Bails In' Bondholders: As part of its efforts to raise an additional $2.4 billion in capital, U.K. lender Co-operative Bank is asking subordinated bondholders to swap their debt securities for shares in the bank. "By requiring bondholders to exchange their debt securities for shares, Co-operative Bank is trying to avoid turning to the British government for help," Dealbook notes. Participation in the swap is currently voluntary. Analysts tell the Journal "there could be legal issues" if bondholders are forced to participate. Few details are being offered about the exchange, which is expected to take place in October. Co-op Bank CEO Euan Sutherland did issue this statement: "This solution, under which [bondholders] will own a significant minority stake in the bank, will then allow them to share in the upside of the transformation of the bank." The bank will gain a quote on the London Stock Exchange for shares given to debtholders, according to the FT's Lombard column, which notes "the Rochdale Pioneers, who created the Co-op in the 19th century as a proto-socialist counter balance to proprietary businesses, must be spinning in their nonconformist graves."

Straightening out bad actors is fine, but it won’t resolve the inconsistencies and consumer confusion about overdraft protection cited by the Consumer Financial Protection Bureau.

Law professor Saule T. Omarova is suggesting regulators require pre-market approval for complex financial instruments like derivatives to curb systemic risk in global markets. How effective would such a program be?

Receiving Wide Coverage ...Libor Update: Some big Libor news this Friday morning, courtesy of the Wall Street Journal — U.K. and U.S. authorities are preparing to file criminal charges against former Barclays employees for their alleged roles in the London interbank offered rate-rigging scandal. Sources familiar with the matter tell the paper charges are "likely to be filed this summer," but that "the plans aren't finalized and could be delayed or modified." The sources don't appear to be naming names (or specifying what the charges will be), but authorities are believed to be targeting "midlevel traders," not top-tier execs. The article notes "the planned criminal cases indicate that government investigations into Libor manipulation, which have been under way since 2008 and until now have targeted mostly institutions rather than individuals, are moving into a new phase." It also mentions that more legal settlements between regulators and other banks are expected this summer. In other Libor news, the Financial Times' banking editor Patrick Jenkins shares his thoughts on the European Union's push to move Libor out of London and under the oversight of the Paris-based European Securities and Markets Authority. "Esma … may not have the power or resources to intervene directly, according to one U.K. official," he writes. "Even if these proposals ever materialize as rule changes, it seems the consequences will be largely symbolic and political rather than material."

Receiving Wide Coverage ...SEC's Money Market Plan: The Securities and Exchange Commission has (finally) proposed rules to overhaul the money market fund industry. The rules present two alternatives. One would require prime funds to abandon their $1 fixed share price and use a floating net asset value, allowing share prices to reflect changing market-based value. The other permits stable share prices, but would impose temporary suspensions (or "gates") and 2% liquidity fees on redemptions in times of crisis. The proposals will now be subject to a 90-day comment period. "A key test will be whether they survive … continued efforts by the mutual-fund industry to scale them back," says the Journal. The industry could have faced a tougher battle. "The proposal is less sweeping than the approach initiated last year by then-SEC Chairman Mary Schapiro," the Washington Post notes, and general consensus from observers seems to be that the proposed reforms don't go far enough. This Journal op-ed criticizes, among other things, the plan's failure to remove endorsements of credit-rating agencies from money-fund rules and the SEC's alternate proposal to erect gates hindering investors from selling shares during a crisis. "These [gates] look like new triggers that could inflame a panic," the op-ed notes. "Just as 'breaking the buck' added to the drama of 2008, we wonder if regulators won't be on weekend conference calls fretting over a potential 'shutting of the gate' at some large fund in the future." On the plan as a whole, one consumer advocate tells Dealbook: "It is really worse than no reform at all because it's false comfort. It's like putting in a nice shiny fire alarm system in a building that doesn't work."

Receiving Wide Coverage ...HSBC Hit with Foreclosure Suit: Eric Schneiderman has struck again. This time it's at HSBC, which, on Tuesday, became the latest bank on the receiving end of a lawsuit from the New York Attorney General. This lawsuit accuses HSBC of ignoring a state law by failing to file forms that would have entitled homeowners facing foreclosure to loan modification negotiations. The Journal reports Schneiderman "may bring actions against other banks over the behavior he alleged against HSBC." He is also still "eyeing" lawsuits against Bank of America and Wells Fargo for violating terms of the national mortgage settlement. (American Banker readers will recall the NY AG's initial attempt to pursue the litigation against Wells and B of A was hampered by his own paperwork problems.) For HSBC, the suit is the "latest legal setback in the U.S.", the FT notes, following last year's settlement with regulators over money-laundering charges. Regarding Schneiderman's lawsuit, "the good news is that alleged offense is the kind that banks habitually get in trouble over," the FT's Lombard column argues. "And for HSBC that marks a kind of moral rehabilitation."

Receiving Wide Coverage ...Systemically Important: The Financial Stability Oversight Council took an important step toward implementing a key provision of Dodd-Frank when it voted on a proposal to designate a group of nonbank financial firms as systemically important on Monday. FSOC isn't saying what companies made the list just yet, but AIG, Prudential and GE Capital have disclosed that they received the designations. These firms now have 30 days to fight the proposal. Per reports, GE is reviewing the details and Prudential is evaluating an appeal. AIG wasn't commenting, but Bloomberg points out the insurer "previously said it wouldn't oppose such a ruling." The Journal cites "concern about companies forcing hearings or bringing lawsuits" as "one of the reasons it has taken regulators so long to name the first round of nonbanks." Of course, resistance may ultimately prove futile. As American Banker reported earlier, "While it's likely any number of the companies named will protest the decision, their ability to successfully reverse it is slim." And there's some debate over whether these companies should want to. Similar to arguments surrounding systemically important banks, some analysts suggest the designation serves as an implicit guarantee that the government will bail out the firm should it get into trouble, which, in turn, could create a competitive advantage, the Washington Post notes. Others, however, believe the additional oversight from regulators could help reduce risk in the financial sector and stave off another crisis. In either case, yesterday's vote is only the beginning. Per an unnamed source cited in the Post article, "Monday's vote is the first of many to come as the council considers whether to include several other nonbank firms." Insurer MetLife is also expecting to receive the designation at some point.