Receiving Wide Coverage ...
More Cyprus: The FT surveys some of the fallout from efforts to shore up Cyprus' insolvent banks, noting that the damage is rippling in all directions and hitting businesses only loosely related to the country's formerly booming offshore financial sector. Some analysts are predicting the Cypriot economy will shrink 10% or more this year, the FT reports.
Businesses needs cash, which is scarce, according to the FT, which notes that banks have been closed for 11 days and are not expected to reopen until Thursday. A Cypriot businessman tells the FT the situation is severe because every company he dealt with had accounts at either Bank of Cyprus, which is being restructured, or Laiki, which is in liquidation. "As a result, uncertainty has spread to every corner of the commercial world," the FT reports.
The country is expected on Wednesday to impose capital controls for at least seven days, Cyprus' finance minister told the FT, noting that the measures would be "very differentiated" based on the situation of each bank and that some institutions could be exempted from them.
In an editorial, the FT says that if the bailout of Cyprus shows EU officials are serious about making investors who own financial firms bear the cost of bailing them out "the eurozone banking systems faces a better prospect of being cured than in a long time." The precedent will spur the market to scrutinize firms and reintroduce proper incentives for management, note the editors, who add that firms "who manage risks well will be rewarded rather than punished for other bankers' sins."
Commentator Martin Wolf draws four lessons from the bailout: the EU does have the capacity to do the right thing in the end; that "the value of a euro of bank liabilities depends on the solvency of the bank itself and the solvency of the government standing behind the bank;" that the relationship among banks, governments and the EU "is more complicated than it appears" and may not be a template for all EU states; and finally, that "old fears that the euro would undermine European unity rather than strengthen it seem more plausible."
The Journal reports that large depositors at Bank of Cyprus, the island's biggest lender, could lose as much as 40% on their deposits as a result of the bailout and that uninsured deposit holders at Cyprus Popular Bank could "see one-fifth of their money returned and could wait several years before being paid back."
The Journal's editorial page says there's "precedent to cheer" in the Cyprus bailout because it shows "that investors shouldn't think of their decidedly not-risk-free investments as risk-free." The paper's Holman Jenkins Jr. opines in a separate column that "Cyprus turns out not to be an island of special iniquity at all — just another instance of the European problem of insolvent governments trying to prop up insolvent banks."
With many economists now estimating that the Cypriot economy will contract this year by between 5% and 10%, "it could well be that the depositors will have to take a bigger loss so that the [Bank of Cyprus] can free up cash to protect its rapidly deteriorating loan book," writes the Times, which reports that the haricut still may be insufficient to shore up the bank given the condition of the country's economy.
Reuters reports that the $13 billion rescue of Cyprus by the European Union, International Monetary Fund and European Central Bank is stirring "anger within Cyprus at the country's partners in the EU, notably Germany, the bloc's main paymaster and fiercest advocate of austerity." On Tuesday, roughly 3,000 high school students protested at the Cypriot parliament, which the news service notes was largely sidelined in the deal.
Citigroup Faulted for Money-Laundering Lapses: As American Banker reported, the Federal Reserve on Tuesday ordered Citigroup to strengthen its anti-money laundering programs, charging the company "lacked effective systems of governance and internal controls" to monitor its compliance with the Bank Secrecy Act.
The Times' Dealbook notes that the action is the first anti-money laundering action against Citigroup since Michael O'Neill, "the bank's powerful chairman, abruptly deposed Vikram Pandit as chief executive last year and replaced him with Michael Corbat."
Buffett Gets Big Goldman Stake: Warren Buffett has become one of Goldman Sachs' biggest shareholders by swapping billions of dollars of warrants for shares in a deal announced Tuesday. The pact, which the Journal terms "one of Mr. Buffett's most lucrative bets in recent years," is said to be worth roughly $1.5 billion and, according to the Journal, "puts an exclamation point on [Buffett's] financial-crisis lifeline to Goldman."
The FT explains that the deal, which would supply Berkshire with stock equivalent to Buffett's paper profit on the warrants he held, "comes as the billionaire is on the hunt for more large acquisitions and is structured in a way that allows his conglomerate Berkshire Hathaway to take a stake in the investment bank without using the $5 billion cash that would be required to exercise the warrants."
Wall Street Journal
The European Commission is moving to charge 16 of the world's largest banks with collusion in the market for credit derivatives, the Journal reports. Antitrust authorities are said to exploring whether the group, which includes Bank of America, Citigroup and Wells Fargo, aimed to thwart competition from exchanges in the market for credit-default swaps. Some or all of the firms reportedly could face fines.
Speaking of fines, the Journal also reports that the world's biggest banks are facing as much as $100 billion in legal liability from the mortgage meltdown, the financial crisis and the Libor-rigging scandal. "Analysts and investors disagree over whether banks are sufficiently reserved for future claims, and bank disclosures on the subject are skimpy," the Journal writes. The publication also notes that uncertainty about banks' legal tab may be weighing on their shares because many of the largest banks are trading below their book value despite rising earnings and a growing U.S. economy.
From across the pond, the Journal reports that the Bank of England's Financial Policy Committee said Wednesday that British Banks must come up with roughly $37 billion in new capital to start filling an estimated $76 billion capital shortfall across the banking sector. "The committee, which monitors the financial system and the broader economy, said the immediate objective for banks should be to hold at least 7% in common equity against their risk-weighted assets by the end of the year, after making three key adjustments for potential loan losses, higher risk weights and the costs of past misconduct," reports the publication, which notes that although the committee is not allowed to name individual banks in its assessments the reviews could spur some banks to speed capital raises.
Financial Times
The U.K.'s Serious Fraud Office is promising "significant developments" within the next three months in the global investigation into whether banks conspired to manipulate Libor. Though regulators in the U.K. and U.S. have probed banks on both sides of the pond, David Green, the head of the fraud office, told the FT his priority is alleged wrongdoing "committed by British nationals at British banks." Green added that his agency has a "marvelous" relationship with the Department of Justice.
New York Times
JPMorgan Chase "increasingly finds itself in the cross hairs of federal authorities," according to Dealbook, which notes that at least eight federal agencies, including the FDIC, the SEC and the FBI, are investigating the company over matters ranging from losses in the company's chief investment office to whether the bank "failed to fully alert authorities" to suspicions about the investment firm of Bernard Madoff.
In a column, Steven Davidoff, the Times' "Deal Professor," finds lessons for assessing the likelihood of prosecutions over the financial crisis in the mixed success of attempts to prosecute executives charged in 2006 with backdating options at a company called Comverse Technology. "The first is that as memories fade, and what at the time seems like a big deal may not be so big with perspective," Davidoff writes. "It is also clear that the government remembers that it didn't get very far in the options backdating cases and has been much more cautious with the financial crisis cases as a result."
Washington Post
The Post reports on Tuesday's move by American Express to give its Bluebird checking account alternative more bank-like features, including FDIC insurance, higher deposit limits and physical checkbooks.
According to the Post, the move "could expand American Express' customer base" because Bluebird customers will be able to have Social Security, military pay and other government payments, which can only be put into FDIC insured accounts, deposited directly onto their cards.
Elsewhere ...
WXIA-TV, Atlanta: Wells Fargo is pooh-poohing a video of some of the company's employees dancing the "Harlem Shake" inside one of the bank's branches in the Buckhead section of Atlanta, the station reported.
The clip, which has garnered more than 147,000 views on YouTube, shows several dozen people joining in the dance routine. A Wells Fargo spokesman told WXIA the video was shot by employees who failed to get permission and called the clip inconsistent "with the corporate image the bank is trying to project."
