Breaking News This Morning ...
Earnings: Citigroup
Receiving Wide Coverage ...
Housing Recovery: The refinancing surge and executives' upbeat comments about the housing market were prominently featured in coverage of the JPMorgan and Wells Fargo third-quarter reports. "J.P. Morgan and Wells Fargo: Housing on Mend" was the Journal's headline; "Dimon says US housing has turned corner" was the FT's. Another Journal story says families who lost their homes to foreclosure early in the housing crisis are buying again, now that the three-year penalty period has passed and they are again eligible for FHA financing. (Yep, it's only three years.) What's more, "Flipping houses is once again a booming business," according to the Post. (HGTV programming executives take note.) Mortgage underwriting standards remain tight, however, and Times columnist Peter Eavis challenges the refrain from executives like JPMorgan CEO Jamie Dimon that the government is to blame. Among other things, "government support to the housing market far outweighs any negative impact for banks," writes Eavis, pointing to the subsidies provided by the Fed, Fannie and Freddie, HAMP and HARP, etc. "All this aid has made it possible for banks like JPMorgan to carry out one of the most profitable, low-risk 'trades' that has ever existed in modern capital markets. They simply make mortgages and flip them to bond investors, after attaching the federal guarantee."
Ghosts of Mortgages Past: Not all is rosy in mortgage-land. A front-page story in today's Times says reverse mortgages, which are "supposed to help seniors stay in their homes are in many cases pushing them out." Often loan brokers pressure elderly couples to put only the older spouse's name on the loan (apparently the brokers gets higher fees that way) and when the borrower dies his widow can't afford to keep the home. Big institutions like MetLife, B of A and Wells Fargo have abandoned the reverse mortgage market, replaced by a "flood" of brokers "including former subprime lenders." Another Times story says the ACLU plans to file a lawsuit against Morgan Stanley, accusing the investment bank of assisting the now-defunct New Century in targeting expensive, risky mortgages to African-Americans. And the FT reports on a "pensioner whose home was repossessed" in Alabama, Annie Bell Adams, who's suing Barclays, Bank of America, UBS and other big banks "claiming that alleged Libor manipulation made mortgage repayments for thousands of Americans more expensive than they should have been." An FT reader is skeptical, writing in the comment thread: "Did the banks under-quote the Libor (which was the reason why Barclays was fined and [former CEO Bob] Diamond had to resign) or over-quoted it (as it seems to be claimed here). You can't blame them for both at the same time, or can you? The entire system (politicians, central banks, regulators, consumers, etc.) all benefitted and were very happy to see banks manipulating Libor on the down side. … Once the Pandora's box was so flagrantly opened … some probably used it to their benefit and to the detriment of the consumers. But if there were no Libor manipulations, these consumers would have paid so much more anyway."
Earnings Potpourri: A Journal story notes that even as JPMorgan's investment bank cut headcount 3%, its compensation expenses increased 12% in the third quarter, highlighting a challenge facing the sector: retain top talent while containing costs. The FT reports that the dreaded accounting quirk known as the debt valuation adjustment is rearing its head again this earnings season, "knocking $211m off [JPMorgan's] $5.7bn of third-quarter profits." And another FT story looks at the difficulty banks have been having putting depositors' money to work in an environment of perennially low interest rates. Lending is barely mentioned in the article. "Securities portfolios as a percentage of banks' total assets have risen from about 1 per cent in 2007 to more than 18 per cent as of the second quarter of the year, according to CreditSights data." CMOs, corporates and munis are favored instruments, but yield is scarce. The story notes that Wells Fargo opted to keep nearly $10 billion of mortgages on its balance sheet during the third quarter rather than sell them because profitably reinvesting the proceeds would have been too difficult.
Wall Street Journal
Thanks in part to the shadow banking system it's become harder to measure the money supply, which in turn complicates judging how well the Fed's monetary easing is working, according to the "Heard on the Street" column.
Financial Times
Here's a classic Bigfoot vs. Bigfoot story: "Sir Richard Branson and US private equity entrepreneur Christopher Flowers are set to go head to head for hundreds of branches being offloaded by Royal Bank of Scotland after the collapse of an agreement to sell the assets to Santander."
The FT covers the trial of Bruce Bent, founder of the crisis casualty Reserve Primary Fund, and his son, whom the SEC has accused of lying to investors, "telling them they intended to prop up the fund with their family's cash when in fact they had no such intention." The case is a reminder that money market funds are vulnerable to runs, the paper says.
New York Times
Columnist Gretchen Morgenson interviews former FDIC chairwoman Sheila Bair about her bailout memoir "Bull by the Horns."
