Wall Street Journal
In what is either an oversight or an extreme dislike of jargon, the Journal managed to write an 800-word article on the imminent expiration of the Transaction Guarantee Program (TAG) without once using the phrases "Transaction Guarantee Program" or "TAG." The gist is that the Senate would re-up the program, the Republican-dominated House won't, and small banks are seething and fighting for an extension.
Fannie Mae has thousands of $200,000-plus employees, and the Federal Housing Finance Agency's inspector general doesn't like it. 333 employees are "vice presidents" earning a median of $383,000 a year — which does seem like an awful lot for an institution that is a holding pen for government-insured loans. On the other hand, laying them all off before Congress gets around to figuring out what it plans to do with the GSEs might have a few drawbacks.
You know how most major banks are in trouble for rigging Libor? Well, the same's true for Euribor, a similar metric compiled by the European Banking Federation. With Barclays already having admitted it tried to game Euribor, the European Union "is expected soon to accuse multiple banks of collusion in the setting" of the rate. The highlight of the article is the feckless plea the EBF made to banks after the allegations of gaming arose: "I would be grateful if you could ensure that the contributions to the Euribor rates are accurate and truly reflect the market," EBF Chief Executive Guido Ravoet wrote. As a thought experiment, try to respect anything that comes after the phrase "I would be grateful if you could ensure…" It's hard!
US and UK regulators have come up with "the first cross-border plans to deal with failing global banks," according to the Financial Times. In a letter to the paper, FDIC chairman Martin Gruenberg and Bank of England Deputy Governor Paul Tucker proposed wiping out shareholders, passing remaining losses on to bondholders, and continuing the operations of functional subsidiaries. Intervention, if required, would occur at the holding company level. (So bring on capitalization and borrowing at the subsidiary level!) At first glance, the men's proposal seems to be as obvious as its title: "When global banks fail, resolve them globally." But coordination is certainly a good thing.
Now take the esprit de corps in the above paragraph and disregard it, please: A second story in the Financial Times detects rising "protectionism" in bank regulation. Both the U.S. and U.K. are working hard to force overseas banks to hold capital in-country and conform to local regulatory schemes. A recent proposal by the Fed's Dan Tarullo to force Barclays, Royal Bank of Scotland, and Deutsche Bank to hold local liquidity reverses "more than a decade of Federal Reserve policy," the reporters write. Blackrock's Larry Fink noted this trend at the Goldman Sachs financial services conference last week, and found it weighty: "If that is the new strategy among regulators, it really throws into question this whole globalization of these firms," he said.
Speaking of the spirit of cooperation: JPMorgan has asked 2,000 current and former employees to pay £500 million in back taxes on bonuses awarded through a Jersey-based tax scheme. The arrangement, which was at one point structured as a family inheritance trust, had previously operated with the full knowledge of UK tax authorities. But times change. Here's how this bizarre thing gets resolved: "Participants in the scheme said JPMorgan had given them until Friday to volunteer to pay tax at a rate of their choosing in a 'blind auction' that would be used to establish an average contribution rate."
When it comes to structured finance, major banks are finding there's something to be said for eating your own cooking after all (after it ages five years and its value is heavily reduced). U.S. banks have increased their holdings of structured financial products to the highest level since 2009. CMOs? CDOs? CLOs? Sure! Synthetic? Yes, please. The attraction is the relatively high yield amid persistent near-zero interest rates.
New York Times
Litigation forest and lawsuit trees: the New York Times does a review of mortgage litigation and concludes that banks are in more legal trouble than is widely acknowledged. "The banks are battling on three fronts: with prosecutors who accuse them of fraud, with regulators who claim that they duped investors into buying bad mortgage securities, and with investors seeking to force them to buy back the soured loans," the Times writes. All these things are true, but there's not much justification for the potential $300 billion exposure that the paper cites (to put that in perspective, it's well north of the combined market cap of Citigroup and Bank of America.) Realizing such a vast number seems difficult because private investors haven't really shown up in litigation, and regulatory settlements have all been geared toward settlements that the banks can tolerate. But it's equally hard to see how the industry's net repurchase reserves of less than $23 billion is going to see it through to the end of litigation.
"SEC's Aguilar Open to Proposals for Overhauling U.S. Money Funds," reads a Bloomberg headline. Of course, there are no new proposals for overhauling the funds — just writing on the wall. So Aguilar's at least partly walking back his previous opposition to floating net asset values and capital buffers: "Given the information that currently exists, it may be appropriate to consider the various proposals through the prism of the new information," he explained to a Bloomberg reporter.
A lawsuit against Bank of America and U.S. Bancorp over their actions as mortgage-backed securities trustees has been allowed to proceed by a federal judge, Bloomberg reports. U.S. District Judge Katherine Forrest in Manhattan found that the banks could be sued in their capacity as trustees for their alleged failure to ensure that "there were no missing or defective documents for the mortgages." Although the issue of trustee documentation work has come up before, a live suit over it is something new under the sun.