FHA's $14.4B problem; Danske whistleblower to speak
Wall Street Journal
A steep price
Goldman Sachs, whose stock is down 11% since two of its former bankers were charged with helping a client steal money from Malaysia’s 1MDB government investment fund, could be looking at potential penalties of $1 billion to $2 billion, plus another $600 million in disgorged fees it earned in the deal. “Longer term, the reputational harm to Goldman may result in fewer mandates for business in Southeast Asia and from emerging-market sovereign and semi-sovereign issuers world-wide. While none of this will be disastrous for Goldman, its share performance nonetheless is likely to lag peers until the ultimate costs become clear.”
The Federal Housing Administration said it expects a $14.4 billion hit to its mortgage insurance fund in the coming years, much of it due to losses in its reverse mortgage portfolio. “But the agency’s chief, Brian Montgomery, says he fears inflated appraisals may also be lurking in its much-larger portfolio of traditional mortgage insurance. If the FHA’s insurance fund losses grow significantly, that could have broad implications for the housing agency and borrowers, who might see higher insurance premiums on FHA-backed mortgages.”
Lurking in the shadows
The paper takes issue with the Justice Department’s “farcical claims” in its lawsuit accusing UBS of misleading investors about the risks of mortgage-backed securities the bank sold before the 2008 financial crisis. “The case rests on an avant-garde legal interpretation [of the 1989 Financial Institutions Reform, Recovery and Enforcement Act] from the Obama administration, and UBS, to its credit, has decided to fight. The danger is that if the Obama administration’s broad reading of Firrea prevails, the Justice Department could act as a shadow securities regulator.”
Arbitrators for the Financial Industry Regulatory Authority have approved requests by thousands of stock brokers to “scrub their records clean of complaints by customers and employers, allowing them to hide information from potential investors, according to a new study. Expungement is meant to be a rare event, regulators say. But the study found that arbitrators granted requests nearly 70% of the time.”
Ready to testify
Howard Wilkinson, the Danske Bank whistleblower, has been given approval by the bank to speak to “a multitude” of American regulators and law enforcement agencies about the €200 billion money-laundering scandal at the Danish bank. The agencies include the Department of Justice, the Securities and Exchange Commission, and the Treasury’s Financial Crimes Enforcement Network.
Meanwhile, Deutsche Bank, Bank of America and JPMorgan Chase, which acted as correspondent banks to the Danish lender, “have become embroiled” in the investigation “as American prosecutors examine their handling of cross-border payments for the Danish lender.”
Simpler is better
What took Warren Buffett’s Berkshire Hathaway so long to invest in JPMorgan Chase when he had big investments in several other large American banks? It could be because the bank is no longer as complicated as it used to be. “For years, JPMorgan was mind-bogglingly complex and stuffed full of derivatives that Mr. Buffett has called ‘financial weapons of mass destruction.’ It is now closer to the banks that Mr. Buffett has favored since the 1950s when he was extolling the virtues of Commonwealth Bank in New Jersey — ‘a very well managed bank with substantial earning power selling at a large discount from intrinsic value.’”
Off the list
The International Financial Stability Board has removed Royal Bank of Scotland from its list of “the world’s most important banks, meaning it will no longer have to hold additional capital to offset the systemic danger it used to present to the global financial system. This could boost the amount of cash the majority government-owned bank will be able to return to U.K. taxpayers and institutional shareholders.”
Switzerland’s main stock exchange has approved what the paper says is “the world’s first exchange traded product tracking multiple cryptocurrencies.” The launch follows a sharp drop in digital currency prices recently to their lowest levels in more than a year.
Israel-based Bank Leumi is preparing to launch its “acclaimed” online-only bank Pepper in the U.S. “in what would mark the latest challenge to the high fees that America’s main street lenders have enjoyed for decades.” American banks “are very advanced in some areas but in some aspects they’re so behind in basic banking,” said Rakefet Russak-Aminoach, Bank Leumi’s CEO.
“The DoJ will be interested in whether the correspondent banks complied with anti-money laundering protocols; if $10 billion was moving through a small branch in a matter of weeks in Estonia, which is next to Russia, why did that not raise red flags? There are obligations on the banks to file correctly, but the bigger question for DoJ will be: was a blind eye turned to money laundering?” — Columbia Law School Professor John D. Coffee on the spreading Danske Bank investigation.