Breaking News This Morning ...
Citi Earnings: Citigroup profit rose 42% in the second quarter, due, in part, to cost-cutting and growth in emerging markets. Wall Street Journal, New York Times, American Banker
Receiving Wide Coverage ...
JPM, Wells Earnings Post-Script: Second-quarter earnings for JPMorgan Chase and Wells Fargo looked pretty good, but earnings season has been marred by interest-rate worries, particularly among bank execs. Still, the Journal's Heard on the Street column argues that big banks like JPM and Wells are well-positioned to take advantage of a higher interest-rate environment. "Rates have moved higher for a reason: The economy seems to be getting better," columnist David Reilly writes. "So even if there will be less refinance activity to come, an offset should be improved credit quality, better consumer confidence and, hopefully, loan growth." The FT's Lex column generally agrees: "The risk is that a jump in interest rates throws borrowers back into duress or squelches the housing market. But if rates rise gently with the economy, it could be a pretty good time to be a bank again." Meanwhile, Dealbook's second take on JPM earnings focuses on the bank's reluctance to offer details on how much extra capital it might have to find to meet regulators' proposed 6% leverage ratio for banking subsidiaries. "Analysts at Goldman Sachs and Keefe, Bruyette & Woods estimate a shortfall of as much as $47 billion," the article notes. "A capital hole of nearly $50 billion is significant even for a bank as big and profitable as [JPM]
The fact that its dollar deficit seems to dwarf that of other banks may also be a source of discomfort."
Goldman Trader Trial: The FT echoes (albeit with a different metaphor) a Journal article from Friday that asserted Fabrice Tourre's civil trial over allegedly misleading investors, set to start today, will cast a shadow over his former employer Goldman Sachs: "Whatever the ruling in the Tourre case, it will shine an unwelcome light on practices that have tarnished Goldman's public image." Meanwhile, Dealbook looks at Tourre's life after Goldman.
Glass-Steagall 2: More pundits are weighing in on a bipartisan Senate attempt, led by Sen. Elizabeth Warren, D-Mass, to reinstate Glass-Steagall. FT columnist John Authers, while noting that a new Glass-Steagall is needed, attempts to debunk the notion that the original legislation would have done little to prevent the last crisis. "Critics point out that it was specialist investment banks such as Bear Stearns and Lehman Brothers that brought the financial system to its knees, not financial supermarkets," he writes. "But this ignores the fact that no supermarket could possibly be allowed to fail." Elsewhere, New York magazine's Kevin Roose postulates the effort, which stands no real chance of succeeding, is a part of Warren's long game against Wall Street. "It's entirely possible that Senator Warren is proposing reforms she knows have no chance of passage, simply to widen the boundaries of debate," he writes. "By loudly advocating for policies that are outside the narrow confines of traditional political acceptability, she's
forcing other politicians to consider more moderate views that would have seemed fringe several years ago." But Bloomberg columnist Matthew C. Klein believes the bill essentially is just a waste of time. "It looks more like a distraction from more useful issues, such as raising equity capital requirements and protecting consumers from products designed to take advantage of them," he argues. In either case, the effort is frustrating some Wall Street bankers, the FT reports.
Wall Street Journal
Democrat and Republican senators are meeting today in an attempt to avert a clash over President Obama's executive nominations, including Consumer Financial Protection Bureau Director Richard Cordray. However, Senate Majority Leader Harry Reid has given "no signal" that the meeting will stop him from going "nuclear" to change the Senate's filibuster rules on nominations.
A group of investors is close to a settlement with Connecticut Community Bank over allegations the bank should have uncovered Bernie Madoff's Ponzi scheme years before it collapsed.
New York Times
Foreign banks have won another delay and will now have until next July to begin complying with requirements of the Foreign Account Tax Compliance Act.
Columnist Gretchen Morgenson weighs in on U.S. regulators' proposed rule on capital. "If the new rule goes into effect, it will trump the heavy reliance on risk-weighting that remains central to the Basel rules," she writes. "Once again, that would put United States banks in a better position than their foreign peers to survive future downturns."
Dealbook profiles "The Bankers' New Clothes" by Anat Admati and Martin Hellwig, (which appears on American Banker's Summer Reading List for Commercial Bankers): "The book is attracting attention not only for arguments that seem designed to give bankers nightmares but also for its attempt to make a dry subject appealing to ordinary people."
