Another Day at Citi; B of A's Legal Woes

Receiving Wide Coverage ...

Citi's Shakeup, Day Two — Receiving Unsolicited Advice and Reassuring Everyone: Yesterday saw the introduction of new CEO Michael Corbat, and today Citi's rolling out the man who installed him atop the bank. Michael O'Neill "represents a new generation" of bank directors, the Times declares, citing his "unusual" decision to visit Citi's trading floors and take a close look at the bank's business lines after he became chairman of the bank earlier this year. O'Neill offers praise for former CEO Vikram Pandit to the Times, but declares that "Mike Corbat has a sort of single-minded data approach that is right for the job today."

Corbat's tenure could mark a turn for the better in Citi's relations with regulators, the FT reports, citing Corbat and O'Neill's sensitivity in Washington. According to the paper, Corbat told FDIC Chairman Martin Gruenberg about the change in management before telling even some of his senior executives. A separate FT article declares "New Citi chief seeks to reassure bankers."

A Financial Times editorial follows up on the "active chairman" theme, arguing that the board's ability to switch horses reflects an admirable independence. We're thinking that the appeal of "non-executive chairmen" who can lead coups against CEOs may have fallen to a new low at other banks.

Finally, the FT's John Gapper reminds everyone of Citi's awkward continued reliance on trading revenue from Citi Markets, the last major holdover from the ill-fated Citi-Travelers merger. The bank would be well served to sell the business, Gapper writes, putting it on a path toward the stabler, better-liked model of Wells Fargo.

"It remains implausible that better management will be enough. Citi's problem is that no one understands its business and investors don't trust its senior executives to run it safely," he writes.

In the Times, economist Simon Johnson argues for an even more radical solution, calling for Corbat to essentially put the entire bank into Citi Holdings by speedily breaking it up into pieces.

Profitable, But for Those Legal Bills: Writeups of B of A's earnings focus on the trouble that the bank has in settling its crisis-era legal tab, with the net $4 billion in adjustments and charges dwarfing the company's remaining $340 million in profit. B of A's chief financial officer, Bruce Thompson, can't quite bring himself to say it's over yet. "I think we've clearly begun to turn the corner, and at the same time you have to remain a little cautious because there are certain headwinds out there," he said Wednesday. Financial Times, Wall Street Journal

Wall Street Journal

Apparently states weren't so worried about the plight of foreclosed homeowners after all: only half of the $2.5 billion they received from the national foreclosure settlement has been set aside to help homeowners. The rest is going to close state budget gaps. In South Carolina, Gov. Nikki Haley tried to stop the funds from being diverted into a campaign to attract businesses from out of state. "The legislature overturned her veto," the Journal reports.

Home building has surged to the highest level in four years, promising some relief for unemployed construction workers and perhaps a bit of a tailwind on GDP.

Financial Times

The UK Treasury is going to be regulating Libor "without delay," the FT reports, which we suppose is a change from not regulating Libor despite indisputable evidence that the stat was getting gamed for years. A new regulated administrator will take over responsibility from the British Bankers Association. "Submitting false information or otherwise tampering with the interbank rate will be a criminal offence, the Treasury announced on Wednesday."

Collateral transformers, rollout! Bank of New York Mellon is going to rely on helping market participants convert lower quality assets that can't be used for collateralization purposes into higher quality assets that can. So much of the collateral getting posted with derivatives clearing houses won't actually belong to the entity that's posting it. This particular scan author would love to see a new name for this process: collateral laundering?

New York Times

The SEC voted 5-0 to pass rules setting capital standards for derivatives trading, which would force companies like JPMorgan and Goldman to boost their capital and post more collateral on trades. "Under the S.E.C.'s plan, banks and other so-called swaps dealers that arrange derivatives contracts would face a fixed-dollar capital threshold. The firms would also set aside a ratio equal to 8 percent of the collateral required for swaps contracts," the paper says.

Debtwatch: The average student loan debt for borrowers who graduated in 2011 reached a new high of $26,500 — that's up 5% year over year.