Jeanine Skowronski

A recent court ruling has put CFPB Director Richard Cordray’s job in jeopardy. But who should run the bureau if he has to step down?

Receiving Wide Coverage ...Charges Filed: The Justice Department is suing credit rating agency Standard & Poor's for allegedly ignoring their own standards and rating mortgage investments much higher than they should have been in years leading up to the financial crisis. Per the suit, filed by U.S. Attorney General Eric Holder: S&P "falsely represented that its credit ratings of RMBS and CDO tranches were objective, independent, uninfluenced by any conflicts of interest that might compromise S&P's analytical judgment, and represented S&P's true current opinion regarding the credit risks." According to Dealbook, prosecutors "have uncovered troves of e-mails written by S.& P. employees" that indicate concern over how mortgage investments were being rated. The complaint reproduces an internal instant message written by an S&P employee in April 2007 that reads "We rate every deal. It could be structured by cows and we would rate it."

Receiving Wide Coverage ...The Electric Ring Fence: Would the threat of a break up keep big banks from violating the law? U.K. regulators appear to believe so as they are set to announce new powers today that will give them the authority to break up banks that flout ring-fencing rules in their Banking Reform Bill. "In America and elsewhere, banks found ways to undermine and get around the rules," U.K. Treasury chief George Osborne is expected to say in a speech later today. "We could see that again — so we are going to arm ourselves in advance. In the jargon, we will 'electrify the ring fence'." News of the regulators' plans has already received pushback from bankers, with one unnamed senior banker telling the FT Osborne was "playing politics with the economy."

Several tech startups have made short-term credit the focus of their business models. But could a product so universally frowned upon ever achieve mainstream acceptance?

Receiving Wide Coverage ...The Enforcers: Reaction to President Obama's nomination of former prosecutor Mary Jo White as the new head of the Securities and Exchange Commission is a bit of a mixed bag. While headlines acknowledge the pick sends a message to Wall Street — as White is a former top prosecutor and defense lawyer with an impressive (and aggressive) record — their accompanying stories also point out she lacks knowledge of Wall Street arcana. "Regulatory chiefs are often market experts or academics," Dealbook notes. "The gaps in her résumé could complicate Ms. White's agenda in the face of fierce Wall Street lobbying." CNN senior editor Stephen Gandel echoes this sentiment, labeling White "the right woman at the wrong time" and pointing out that, while she might help to change the perception that the SEC was soft on Wall Street crime, she's unlikely to focus on regulating key areas of the market, like high-frequency trading. "What we need now, it seems, is someone who can lay down the rules, still not finalized from Dodd-Frank, that will not just hopefully limit Wall Street malfeasance but its propensity for stupidity as well," Gandel writes. And the Journal points out there's a potential glitch in White's resume: her prior representation of top Wall Street firms, including JPMorgan Chase and Morgan Stanley, while serving as a defense attorney with Debevoise & Plimpton LLP. "Obama administration ethics rules would bar Ms. White for two years from working on certain matters involving her former law firm or any clients handled in the prior two years," the article notes. "That might affect enforcement cases in particular."

Receiving Wide Coverage ...Cuts, Cuts … and More Cuts: Banks continue to downsize staff. According to three separate reports from the Financial Times, Commerzbank plans to cut between 4,000 and 6,000 jobs through 2016 in order to turn around its underperforming domestic retail business; UniCredit plans to cut 1,000 jobs at its German unit HvB by 2014 for similar reasons and Lloyds Banking Group is adding another 940 positions to previously announced job cuts set to take place "across the group" as part of a cost saving program. Meanwhile, the Journal reports the Barclays investments unit job cuts, mentioned in yesterday's Scan, are taking place in Asia. Reports of layoffs at big banks, unfortunately, have become a theme of late. Earlier this month, news broke that Amex was set to eliminate 5,400 jobs, or 8.5% of its staff. Citigroup and Morgan Stanley have also made moves to reduce staff recently.

Receiving Wide Coverage ...Highlights from Davos: The World Economic Forum just began in Davos, Switzerland, but has already produced plenty of interesting news for bankers. According to the FT, preliminary buzz around the event is that arriving executives "are plagued with concerns about growth, restive shareholders and declining margins." The article goes on to note that Goldman Sachs CEO Lloyd Blankfein is attending the event for the first time since 2008, though it's unclear how he specifically feels about his bank's balance sheet or the "fractious relationships with shareholders" the FT suggests is collectively percolating among top execs. JPMorgan CEO Jamie Dimon, who spoke earlier this morning, however, may have inadvertently nodded to investor concerns when he dropped this qualified apology for the London Whale: "If you're a shareholder might I apologize deeply. But we did have record results and life goes on." He also went on to criticize regulators, saying "It's five years after the crisis OK, we still have not fixed a lot of the things you are talking about. Part of the reason we are trying to do too much too fast." Meanwhile, a Dealbook article criticizes the forum itself for not devoting enough of its agenda to dissecting the financial crisis. "The World Economic Forum and its leaders appear to be moving on," the author writes. "but if the financial titans gathered there are really going to fight off the small but growing number of critics who are calling for the breakup of the big banks or even more likely a stronger Volcker Rule, they should put forth an alternative or an explanation for why these blowups keep occurring."

Receiving Wide Coverage ...Bank of Japan Fights Deflation: The Bank of Japan took steps toward a "monetary regime change" this Monday, announcing plans "to enact an ambitious program of further monetary easing" and raise its inflation target to 2%. The plan is intended to end "years of corrosive deflation" and was enacted under pressure from Japan's new Prime Minister Shinzo Abe. It involves (and this will sound familiar) "open-ended" asset purchases and a near-zero interest rate policy "as long as it is deemed necessary to achieve its price target." Asset purchases, however, are not set to begin until January 2014. The delay is one reason some analysts are ambivalent about whether this move will help curb deflation and bolster the economy. And, according to the Post, "popular magazines are already forecasting an 'Abe bubble' in share and real estate prices, driven by the money being pumped into the economy through government spending and monetary easing."

Receiving Wide Coverage ...Debt Ceiling Update: A Journal article this morning looks at Treasury's options for paying the nation's bills should Congress refuse to raise the $16.4 trillion federal borrowing limit. These option include "selling assets such as gold or mortgage-backed securities ... cutting all spending by 40% ... delaying trillions of dollars of payments to employees, Social Security recipients, contractors and others" or paying the government's bills only as tax revenue become available. The last proposal is considered "most viable," according to the paper, but the general takeaway seems to be none of these contingency options are good. This is problematic since another showdown over the debt ceiling is looking increasing likely. Recent estimates from the Bipartisan Policy Center, a Washington think tank, say Treasury will run short of cash between Feb. 15 and March 1 unless the debt ceiling is raised.

Receiving Wide Coverage ...Qualified Mortgage Rules: Several news outlets (American Banker included) are out with a breakdown of what is in the Consumer Financial Protection Bureau's new mortgage standards, ahead of its press conference on the subject later today. Key points of the rules include prohibitions from offering mortgages with deceptive teaser rates or ones that require no documentation from borrowers, restrictions from charging borrowers excessive upfront points and fees and a somewhat unexpected safe harbor legal protection for prime qualified mortgage loans. Notably, to meet the much-anticipated QM standard, in most cases, borrowers' total debt payments can't exceed 43% of their pretax income. No minimum down payment has been set. Strict documentation of a borrower's ability to repay a loan must be maintained if a lender is to take advantage of the safe harbor.

Receiving Wide Coverage ...Seriously, AIG?: We had a feeling the Internet was going to let out a collective groan once the news that AIG was considering a lawsuit against the federal government over its $182 billion bailout was picked up by news outlets and made the rounds on Twitter. (To summarize, the firm is being asked to join a suit originally launched by former CEO Maurice Greenberg, who claims the terms of the bailout were too harsh and deprived shareholders of billions of dollars.) And, oh, what a collective groan it was. "AIG, bailed out by U.S., may now sue U.S., claiming bailout terms were too harsh. We should counter-sue for stupidity," Berkeley professor and former U.S. Secretary of Labor Robert Reich tweeted with a link to an article from ABC news explaining the potential suit. "AIG considers suing government for bailing it out, world implodes in on itself," one Washington Post headline reads. Blogger Andrew Borowitz penned a satirical letter from AIG to the taxpayers for the New Yorker. (Sample line: "by suing … we are standing up for one of the most precious American rights of all: the right to sue someone who has just saved your life.") And David Weidner from MarketWatch goes so far as to suggest the government retaliate by charging AIG with treason.

Receiving Wide Coverage ...B of A Settlement: "An albatross that the bank has fought hard to loosen," that's what a Washington Post article on B of A's $11.6 billion settlement with mortgage giant Fannie Mae calls the bank's acquisition of Countrywide, which has now collectively cost B of A more than $40 billion in losses. It remains unlikely that the bank's most recent related payoff will help them shake that bird entirely. According to this American Banker article, several analysts think, moving forward, B of A's mortgage woes will linger with one writing in a research note that the bank's "financial penance for legacy issues will continue." And, even if the litigation is over, the apparently accursed acquisition's already had a lasting effect on the megabank's business model. Both the Post and the Times point out that the settlement represents B of A's continued efforts to pull out of the mortgage market, since the bank was required to sell off about 20% of its already scaled back loan servicing business to pay off Fannie Mae. This retreat, of course, isn't exactly a good thing. "This is part of a broader consolidation of banks and that is something that we should all be very, very concerned about," one analyst told Dealbook. "Anything that leads to less competition can only be bad for consumers." "You have less competition, and as a result the pricing has gotten worse," another told the Post. "Mortgage rates should probably be closer to 3.25 rather than 3.5. One of the reasons they aren't is because banks aren't that competitive and don't have to be to get business."

Some feel the looser standards will have a positive effect on the economy, while others argue the easing simply represents the latest example of regulators giving banks their way.

Breaking News This Morning ...B of A Settles with Fannie: B of A has agreed to pay $10.3 billion to settle claims that it sold bad loans to Fannie Mae. Under the terms of the settlement, the bank will pay Fannie $3.6 billion, and will also spend $6.75 billion buying back mortgages from the housing giant at a discount to their original value. The settlement is likely to wipe out B of A's earnings for the quarter, the FT reports. New York Times, Wall Street Journal

Holiday Notice: The Morning Scan will publish next on Thursday, Jan. 3, 2013. Happy holidays from all of us at American Banker.

Receiving Wide Coverage ...AIG Is Having (Another) Share Sale: The newly private (or perhaps newly re-private) AIG is set to sell its shares in Asian life insurer AIA. Prices have yet to be set, but the sale is expected to net the company anywhere from $6.4 billion to $6.7 billion, depending on what paper you ask. AIG told Dealbook it will "sell the shares to institutional investors" and "use the proceeds from the deal for general corporate purposes," but other news outlets point out the firm has been "shedding noncore assets" steadily — just last week, the insurer announced plans to sell its 90% stake in an airplane leasing business — as it continues to pay off government loans. News outlets also point out AIG isn't getting out of Asia entirely, however. Last month, the firm said it plans to launch a joint venture with the People's Insurance Company (Group) of China. Wall Street Journal, Financial Times

Receiving Wide Coverage ...Bonds, Bonds, Bonds: The FT and the Journal printed articles this morning that indicate the bond market is booming. According to the FT, "in order to lure conservative investors away" from the much maligned money market fund industry, fund management groups are launching (and pushing) "ultra-short" bond funds that will invest in short-term government and corporate paper. This type of investment vehicle, launched by six fund managers over the last few months and being eyed by several others, is worth considering because, as one manager told the paper, "it retains a lot of the features that give flexibility to money market funds, things like check-writing and no trading restrictions." But these investments may be short-term for a reason. According to the Journal's article — which also nods to a spike in investor interest in bonds over the past few years — some fund managers (perhaps, not the same ones the FT talked to?) believe there are "hidden dangers lurking" in the market. "Bond math dictates that losses will be magnified when interest rates are low, and when bond maturities are long, as they are now," the paper notes.

If prepaid card providers want to be taken seriously, please, please, please ditch your celebrity partners.

Receiving Wide Coverage ...StanChart to Settle … Again: Standard Chartered expects to pay another $330 million in order to settle claims by U.S. agencies that it violated U.S. sanctions. Negotiations with the U.S. Department of Justice, the U.S. Treasury Department, the Federal Reserve and the Manhattan district attorney's office are currently underway and expected to close "very shortly." You may recall that the U.K.-based bank has already paid $340 million to settle rebel regulator Benjamin Lawsky's anti-money-laundering allegations related to transactions with Iran earlier this year. That charge will affect the bank's earnings in March, but StanChart still expects pretax profit to be roughly 5% higher than last year's $6.78 billion and, according to Finance Director Richard Meddings, the bank remains "firmly in growth mode." Wall Street Journal, New York Times, Financial Times

Receiving Wide Coverage ...HSBC Sells Insurer: Well, we knew this was coming. HSBC has sold its entire stake in Chinese insurer Ping An to the Charoen Pokphand Group, a conglomerate backed by Thai billionaire Dhanin Chearavanont. (Interesting to note, as most papers do, the group is primarily known for its agribusiness, not financial services, empire, "particularly the production of livestock feed, chicken farming and rice trading.") The deal netted HSBC $9.4 billion, which means, over the long haul, the bank is "is making six times what it paid for" the insurer. The sale is part of HSBC's ongoing effort to shed assets, cut costs and streamline its business. According to Dealbook, the bank "has sold more than 40 noncore assets and has booked about $4 billion in gains on those sales this year alone" following chief executive Stuart Gulliver's takeover at the beginning of 2011. Following the deal, Gulliver said ''China remains a key market for the group.'' The bank has expressed interest in increasing its stake in China's Bank of Communications, though it will need regulatory approval to do so. Wall Street Journal, Financial Times