WALL STREET - (06/05/06) Four more investors werecharged in a civil suit Friday by the Securities and ExchangeCommission with a scheme that reaped almost $3 million in illegalprofits in the 2004 conversion of a mutual savings bank by payingnominee depositors of the bank to buy shares in the initial publicoffering for them. The practice is rumored to be widespread, butusually undetected, in the conversion of mutuals, in whichdepositors always get first crack at buying prized stock in IPOs.The case also highlights the practice of professional speculatorswho maintain deposits at numerous mutually owned institutions,including credit unions, in the expectation they will soon gopublic. The SEC charged the investors paid depositors of New HavenSavings Bank who were given first-tier rights in the IPO to buyshares in the mutual-convert and to assign those shares to theinvestors. The investors, identified as Jay Slesinger, a75-year-old Florida retiree who maintains deposits in numerousmutual savings banks in the expectation they will go public;Maurice Servetnick, a 72-year-old retired broker; Moshe Ariel, thenominee depositor; and Jay Rice, a Connecticut broker, consented torepay more than $800,000 in profits and interest without admittingor denying the charges. The four are the second set of investorscharged in the IPO, with five others agreeing last year to repayalmost $2 million of ill-gotten gains in the 2004conversion.
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The Cleveland-based bank is projecting steady growth in net interest income even as credit losses remain manageable. But Chairman and CEO Chris Gorman also said that he thinks a recession is likely.
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The first-quarter increase involved commercial real estate loans, including some problematic multifamily loans and an office credit, but none of the criticized loans were to consumers, officials at the Dallas company say. Further CRE deterioration is anticipated.
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The Detroit-based company is exploring ways to make more consumer auto loans without running afoul of stricter capital standards that are expected from the Federal Reserve. Possible approaches include more securitizations and the use of credit risk transfers.
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The House Financial Services Committee also sent to the full House two bipartisan bills, including one that would prevent large banks from opting out of having to recognize Accumulated Other Comprehensive Income in regulatory capital.
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Charge-offs and nonperforming loans rose at the Georgia bank in the first quarter. But it blamed the problem on one large client and said the matter has been resolved.
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Amid healthy first-quarter loan growth and improving credit quality, Discover Financial Services slashed its profits by $800 million to offset remediation costs from a 16-year period when it overcharged certain merchants.
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