Receiving Wide Coverage ...
Auditors Disappoint: Initial audits of the auditors who inspect the financial statements of brokerage firms didn't go so well. In a report issued on Monday, the Public Company Accounting Oversight Board said it found deficiencies in all 23 of the broker-dealer audits from the 10 firms it reviewed as part of new duties allocated by Dodd-Frank. The Journal says two firms didn't adhere to Securities and Exchange Commission rules requiring independence among auditors, meaning they actually prepared or assisted in preparing the financial statements they were set to review. Regulators didn't name names in their report, but did say the results were "disappointing" and "disturbing" during a conference call.
According to the Times, most of the deficiencies were related to corner-cutting, meaning auditors didn't misrepresent the financial firms they were reviewing. Instead, they "failed to do the necessary work to ensure that the financial statements were accurate or that the firms had sufficient capital." Regardless of the nuance, Lynn Turner, a former chief accountant of the SEC, called the report "mind-boggling" and said it indicated audit firms had failed to respond to the fraud that had led Congress to mandate additional oversight: Bernard Madoff's Ponzi scheme. Brokerage auditors do have a chance to collectively do better. The board will look at 60 additional audits from 40 firms this year and, by the end of next year, will have reviewed 170 audits from 100 firms. The initial review focused on small auditing companies.
Wall Street Journal
The definition of subprime is going to play a large role in determining if three former Freddie Mac executives misled investors about loans backed by the mortgage giant before it went under. Lawyers for the executives have asked the judge to throw out the case because Freddie Mac never classified single-family loans using the words "prime" or "subprime." Instead, it provided investors with tables outlining the characteristics of loans and asked them to draw their own inferences. The judge has yet to decide whether the case will be dismissed, but did remark "the whole mess could have been avoided if someone decided to define the damn thing, don't you think?"
The semantics debate is not unique to this case; the definition of subprime is a long-standing issue in the mortgage market.
Warren Buffett's company Berkshire Hathaway is ending a wager it made on the municipal-bond market five years early, which is making people very, very nervous. Apparently, many investors believe Buffett's decision to terminate credit-default swaps insuring $8.25 billion of municipal debt means "one of the world's savviest investors has doubts about the state of municipal finances." These purported doubts could inspire several investors to prematurely end similar deals involving state, city and other public debt. Buffett had made the bet on state debts prior to the financial crisis. Neither he nor his company would comment on whether they had made or lost money on the wager.
Banks are starting to sell more prepaid cards. This is partially because consumer demand for the product has gone up and partially because more major issuers have gotten into the market.
Former Citigroup chief executive Sandy Weill may have decided Glass-Steagall was the best idea ever, but the bank's current executive Vikram Pandit doesn't feel that way. According to Pandit, "the emergence of new corporate champions outside the developed world and their trade and investment in other emerging markets" was essential to growing the bank's business.
Speaking of emerging markets, Barclays is overhauling the structure of its African businesses in order to take advantage of the region's growth opportunities.
Free checking accounts are also costing customers a lot of money in Great Britain.
New York Times
The paper is taking issue with the Treasury Department's assertion that its anti-foreclosure programs didn't work because "the mortgage banks were too messed up to put the plans into effect." According to the Times, this excuse oversimplifies the issue since, among other things, the Treasury had to deal with a very limited number of firms to get its plans in place and banks had more than enough money to invest in the systems needed to modify more mortgages.
Inertia is Bank of America's greatest friend. Or so this post in the Times' Bucks blog suggests. The author, responding to readers' dismay that she still did business with the "disgracefully subpar institution" (a paraphrase of the readers' words, not ours), had this to say: "I'm very busy. The bank's online banking system has worked well over all for me. And inertia is a powerful force in the absence of an imperative to act. Those may not be compelling reasons to switch to Bank of America if you're in the market for a bank, but the bank has done a good enough job to keep me from bailing."