BankThink

To those of us with checking accounts, prepaid cards will never make sense. We're not used to seeing fees displayed and charged so prominently.

Receiving Wide Coverage ...Defending the Financial Sector: The Economist and the upcoming issue of the Times’ Sunday magazine both have articles warning against excessive banker-bashing. “Could fair criticism warp into ugly prejudice? And could ugly prejudice produce prosperity-destroying policies?” asks The Economist’s “Schumpeter” column, which offers historical evidence for the affirmative on both counts. The “ugly prejudice” part is salient – the piece notes that over the centuries, hatred of moneylenders has often been intertwined with anti-Semitism in the West and anti-Chinese bigotry in Asia. “This is not to say that the Occupy protesters are guilty of ethnic prejudice: they belong to a class and a generation that is largely free from such vices. But demonisation can easily mutate into new forms. … Railing against the 1%—particularly when so many of them work for companies with names like Goldman Sachs and N.M. Rothschild—can unleash emotions that are difficult to cage.” The Times piece focuses on the economic case – without “Wall Street,” writes Adam Davidson from NPR, “the poor would stay poor … there would be no middle class … [and] lots of awesome things would never happen” (e.g. the development of lifesaving drugs that require risk capital). We’ve put air quotes around “Wall Street” because Davidson defines it broadly to include commercial banks and even insurance companies along with investment banks. But he at least defines his terms, so we’ll refrain from our usual rant about the limited descriptiveness of this ambiguous category. The Economist, New York Times Magazine

A letter to the editor in response to "Citi’s Facebook App Exposes the Perils and Rewards of Social Media," published online Jan. 3 and in print Jan. 4.

Receiving Wide Coverage ...Force-Placed Insurance Probe: Citing anonymous sources, the papers report that New York State is investigating the force-placed insurance practices of the big banks, including JPMorgan Chase, Bank of America, Wells Fargo and Citi. According to the Times, the state’s Department of Financial Services “has already turned up instances where mortgage servicing units at large banks steered distressed homeowners into insurance policies up to 10 times as costly as the homeowners’ original plans. In some cases, those policies were offered by affiliates of the banks themselves, raising questions about conflicts of interest; in other cases, there may have been kickbacks between unrelated companies.” No one disputes that force-placed coverage is necessary to protect collateral when a borrower fails to obtain regular homeowners insurance. But the arrangements being probed pose potential conflicts “because companies may have an incentive to place homeowners in policies offered by their affiliates rather than looking for the best rates on the open market,” the Times writes. Fittingly, the probe is being conducted by an interdisciplinary regulator, which was created last year by combining the state’s separate banking and insurance agencies. A spokesman for Governor Andrew Cuomo tells the Times the merger was meant to address the “sometimes problematic overlap between banking and insurance.” The new agency, led by Benjamin Lawsky, issued subpoenas in October (nearly a year after American Banker ran an award-winning investigative article about the very same issues with force-placed insurance, we note modestly). New York Times, Wall Street Journal.

The CFPB can and should impose safeguards against predatory payday lending institutions. And big banks should take heed and stop providing these lenders with lines of credit.

The Dodd-Frank Act in general, and in particular its favorite child, the Consumer Financial Protection Bureau, represent sharp political disputes, as now with bypassing the Senate by the "recess" appointment of its director.

Conventional investor wisdom has it that a majority of bank mergers don't realize their promised synergies— leaving both the banks and their investors disappointed. Yes, there is plenty of anecdotal evidence of "in-market" mergers between two banks from the same country that did not live up to the hype.

Republican Jon Huntsman is putting a conservative imprint on the idea of breaking up the largest banks.

Receiving Wide Coverage ...Meet the New Boss… William Daley, a JPMorgan Chase alumnus, resigned as White House chief of staff after about a year on the job. He was succeeded by Jack Lew, a Citigroup alum, whom President Obama must really, really like and trust and respect given the optics of having another ex-banker in that job at a time when anti-Wall Street sentiment runs high. Exhibit A would be this headline from Gawker: “Citigroup Replaces JP Morgan as White House Chief of Staff.” It didn’t take long after the White House announcement for this Huffington Post story from July (when Obama nominated Lew to lead the Office of Management and Budget, a position he’s leaving to take the White House job) to show up on our Twitter feed. The article details the activities of Citi’s alternative investments unit during the years Lew ran it, and makes much of the fact that a “fund of funds” managed by said unit invested in John Paulson’s hedge fund. The implication is that Lew helped Citi indirectly profit from Paulson’s (prescient) bets against the housing market. But it’s not quite the same thing as the CDO shenanigans perpetrated by Citi’s investment bank, and even there we continue to wonder what any of the institutional investors on the other side of these trades was thinking when it was so obvious that the housing boom could not possibly end well. But we digress … The Journal’s editorial page reminds us that Daley came on to help Obama “repair relations with the business community and Republicans on Capitol Hill,” and clearly he did not succeed with the latter. You can find serious coverage of Daley’s departure in the Los Angeles Times, Wall Street Journal, Financial Times, New York Times, and Washington Post.

Bankers are frustrated by lackluster earnings and low stock prices despite improving balance sheets. Many long for the return of pre-crisis earnings growth and pricing multiples. Some will be tempted to pursue increased earnings through misguided expansion strategies rather than returning excess capital to investors.