Receiving Wide Coverage ...
Happy Birthday, Dear SOX: Remember that big financial law that came between the Gramm-Leach-Bliley Act and the Dodd-Frank Act? Policymakers and pundits have spent so much time lately debating whether to roll back those two laws that we (I'll omit the auditing department from this blanket reference) have forgotten the Sarbanes-Oxley Act that was supposed to clean up auditing conflicts, public disclosures and do other things to renew our faith in public companies' financial reports. Yeah, right. Well, today is the 10th birthday of the law spurred by the Enron and WorldCom crises and named after the chairman of the Senate Banking and House Financial Services committees of the time, and the recollections are harsh.
Sarbanes-Oxley's biggest weapon, jail time for executives who knowingly certify inaccurate financial reports, has gone largely unused in connection with the financial crisis, says a story in the "Law" column of the Journal. Prosecutors have not brought any criminal cases tied to the crisis, and regulators have mounted a handful of civil ones, the story says. Such charges are hard to prove, and the Securities and Exchange Commission argues it has brought civil false-certification charges against more than 200 parties such as executives at Fannie Mae and Countrywide, but the government has not used the power against "executives from any of the major banks suspected of misleading the public about their finances during the crisis," the story says. Experts urged more aggressiveness.
An FT editorial brands Sarbanes-Oxley a flat-out failure. Corporate audits are no more reliable than they were a decade ago and "audit companies too often deny responsibility for frauds that happen on their watch," writes Francine McKenna, who is also an American Banker BankThink columnist. She cites the folks who were supposed to be looking over the shoulder of Jamie Dimon at JPMorgan Chase (JPM) and his traders as an example. She calls for more reforms, such as time limits on the use of any one auditor and an overhaul of a system still filled with conflicts of interest.
Libor-ious Litigation, Probe: The fallout from the Libor scandal continues. Berkshire Bank, an $881-million asset bank in the New York area, has sued 16 banks that set the benchmark rate in recent years, accusing them giving mortgage borrowers a break at its expense, the Journal reports. The proposed class-action lawsuit in U.S. District Court in New York says that "tens, if not hundreds, of billions of dollars" of loans made or sold in New York were affected, according to the story. "Libor could well be the asbestos claims of this century," a law professor is quoted as saying. American Banker
Meanwhile, George Osborne, the chancellor of the exchequer in the United Kingdom, wants the independent review into the Libor scandal to be completed during September, the FT reports. British officials will announce today the terms of a review by Martin Wheatley of the Financial Services Authority.
In Other Bleeding: Speaking of ongoing scandals, HSBC Holdings (HBC) took a $700 million charge to cover the cost of U.S. regulatory fines for failure to prevent money laundering. Officials apologized again for the company's mistakes. The charge was a "best estimate," but the scandal's cost could end up being "significantly higher," Chief Executive Stuart Gulliver told the FT.
HSBC said Monday that net profit fell to $8.2 billion in the first half, because of the funds set aside for that liability and others, the Journal reports. [http://on.wsj.com/Qr8HkO] ]
More Big-Bank Bashing: The debate continued over whether to break up big banks, and the practicality of doing so. Bank of America (BAC) officials considered splitting up the company in recent years but decided not to various reasons, including the profitability of its Merrill Lynch unit, a Journal story says. Though the story quotes former banking executives such as Philip Purcell of Morgan Stanley and Edward Crutchfield of First Union as saying big banks are cumbersome and their pieces may be worth more than the sum of their parts, it suggests there is not a big appetite in Washington for reviving the Glass-Steagall Act.
Meanwhile, an op-ed in the Times questions whether former Citigroup (NYSE: C) boss Sandy Weill would be calling for the separation of commercial and investment banking if he were still in the business, and a Steven Pearlstein column in the Washington Post over the weekend warns that there are a lot of myths circulating in the pro kill-Glass-Steagall camp. Many people overlook facts, "such as that Bear Stearns, Lehman Brothers and Merrill Lynch — three institutions at the heart of the crisis — were pure investment banks that had never crossed the old line into commercial banking," the column says.
Wall Street Journal
Principal forgiveness might be made workable in helping underwater homeowners, a Journal story says. Three steps are discussed, including having "mortgage investors structure 'earned' forgiveness programs that effectively pay deeply underwater borrowers to stay current on their mortgages."
The head of financial services information company Markit Group has ruled out an initial public offering during the next 12 months.
An outlook piece on which sanctions Congress should impose on Iran recommends that Swift, the Belgian bank consortium that provides financial communications and clearing systems, should be pressured to cut off any financial entity facilitating Iran's oil trade.
The largest banks' risk-management systems are 20 years behind those in the aviation industry, according to an FT report on a study by the consulting firm Corven, which examined reactions to the Libor, money laundering and other scandals. Banks focus too much on checking off boxes on lists than analyzing root causes, the story says.