Receiving Wide Coverage ...
Let’s Twist Again: The Federal Reserve said it would extend through yearend Operation Twist, the strategy of selling the short-term debt in its portfolio and using the proceeds to buy longer-dated paper in order to drive down long-term interest rates. Chairman Ben Bernanke said the central bank stands ready to take further action if the job market doesn’t keep improving, but there’s an ongoing debate about how much else the Fed can do to juice the economy. Wall Street Journal, Financial Times, New York Times.
Mortgage Morass: Bank of America may have to increase its loss estimates for loan-repurchase claims, the Journal’s “Heard on the Street” says. Recent court rulings repudiated the bank’s position that a bond insurer seeking to put back loans must demonstrate breaches of reps and warranties actually caused the assets to go bad, the column notes. Another Journal story says that housing markets are now local again. While real estate values soared in tandem across the country during the boom, and subsequently plummeted together nationwide, today prices are recovering “at different speeds” depending on location.
Shedding Some Blubber: Your Morning Scan is trying hard to stick to a reduced-JPMorgan diet, but news stories about the trading loss and pontifications about What It All Means remain as ubiquitous as junk food in America. First up, it appears that the bank has decided to bite the bullet and sell a good chunk of the losing credit default swap positions taken by Bruno Iksil, a.k.a. the London Whale. The FT says JPMorgan unloaded "the majority" of these positions, but the Journal only goes as far as to say the trades were "substantially reduced." CNBC broke the story, and pegged the chief investment office's weight loss at "65% to 70%." "However, the issue remains: Is there a management issue at JPMorgan?" asks the cable channel's Kate Kelly. It's "good news that they've been able to exit this thing, at least in large part, but bad news if you think about the fact that it really does seem like a management oversight" (forgive her clunky syntax; it's hard to talk like Churchill on live television). American Banker's editor at large, Barbara A. Rehm, delves into the management question in her column this week. "Risk management experts … are appalled by what they consider to be fundamental lapses at JPMorgan," she writes. Among other things, Rehm notes that when JPM switched risk models, it didn't run the old and new ones in tandem for a time, as required by federal regulatory guidance. "If the company ends up being hit with an enforcement action by regulators, it could very well be because it did not follow this guidance." It's a trenchant piece, with a lively conversation going on this morning in the comment thread ("something is horribly wrong with the risk management methods and systems the industry has developed with regulators guidance"). But now we've got Dimon indigestion again.
…And Speaking of Risk Management: A report released today by Ernst & Young and the Institute of International Finance (which is a trade association, despite the lofty, academic-sounding name) finds that “three quarters of banks and financial firms have not pushed improved risk management at senior levels down through their businesses,” Reuters reports. “Most firms were struggling to make all [in] the company aware of risk appetite, or the amount and type of risk a bank is able and willing to take.” Morning Scan translation: Not everyone got the memo. Meanwhile, the Financial Stability Board, an international coordinating body for regulators, presented a progress report to this week’s G-20 summit. Among other things, the report says 24 of the world’s 29 “most important” banks have established cross-border crisis management groups, but warns that more must be done before we can breathe easier about institutions’ preparedness for calamity. Mark Carney, the board’s chairman (his day job is running Canada’s central bank), “warned countries against going it alone on important regulatory issues,” the FT reports. Quoth the Canuck: “A return to a nationally segmented global financial system would reduce both financial capacity and systemic resilience, with major consequences for jobs and growth across our economies.” Morning Scan translation: America, don’t listen to Jamie Dimon.
New York Times
UBS is trying to “muzzle” Robert Wolf, an executive in the Swiss bank’s New York office who’s a big fundraiser for President Obama. “The bank’s powerful group executive board in Zurich recently presented Mr. Wolf with an edict directing him to report all his media inquiries to the firm’s press office. Since then, most of the requests to speak to Mr. Wolf have been rejected.” Wolf’s high profile as a top bundler for the president has been a source of discomfort for the Gnomes of Zurich, apparently.