Breaking News This Morning ...
Fannie Mae Loses $2.9B in 2Q: The government-sponsored enterprise has asked the Treasury for another $5 billion of aid.
Receiving Wide Coverage ...
Cash Is Really King Now: As the markets tanked again amid mounting global economic fears, Bank of New York Mellon told large institutional customers it would charge them a 13 basis point fee simply for holding deposits of more than $50 million. According to the Journal, a letter to these clients "said Bank of New York finds its deposits 'suddenly and substantially increasing' as investors are in a mass 'de-risk' mode. The bank said the decision was driven by the fact that it cannot invest much of the new deposits because clients have the ability to move the funds out at any moment." The Times says that move is meant to recover some of the bank's own costs and to slow hot money "ricocheting between Treasuries, money-market funds and pure cash balances at the big banks." The paper quotes an analyst as saying BNY Mellon's move will force cash out of banks and into money market funds and Treasuries, potentially driving rates even lower. The Journal's editorial page calls the bank's announcement the one development most "suggestive of the depth of the desperation. … When even corporate treasurers are taking their money out of short-term securities and parking it in no-interest cash, you know the big boys are discovering the same anxieties Mom and Pop have known for a year." And the "Heard on the Street" column remarks that banks "have few attractive uses" for all the cash coming their way, and that the threat of quick withdrawal alluded to by BNY Mellon means "they aren't willing to use extra deposits to invest in instruments that are anything but super-short term in nature." Given that such instruments are paying paltry yields, banks' net interest margins are in for further squeezing. Wall Street Journal, New York Times
Across the Atlantic, the European Central Bank intervened in bond markets on Thursday, but the move did little to soothe worries over the debt crisis spreading to Italy, the Times reports. The central bank bought debt from Portugal and Ireland, which a German analyst said made little sense because both countries are insulated by their official bailouts.
Times columnist Paul Krugman writes that Thursday's 500-point drop in the Dow Jones confirms that "we are not now and have never been on the road to recovery." Job creation should have been the Obama administration's top priority from the get-go, Krugman says.
Schneiderman Butts In: New York's attorney general moved to block Bank of America's $8.5 billion settlement with private-label mortgage securities settlement. Erich Schneiderman singled out BNY Mellon, the trustee for the securities, accusing the bank of "repeated fraud and illegality." A spokesman for the custodial bank called the attorney general's claims "outrageous, baseless, unsupported by fact and law." You can read Scheniderman's court filing right here. Wall Street Journal, New York Times, Financial Times
Wall Street Journal
This small-business story is cast as a contrarian piece, but it jibes with what many bankers have been saying for months about the sluggishness of commercial lending. The headline kinda says it all: "Small Firms Hunger for Sales, Not Credit."
Bank of America CEO Brian Moynihan "has agreed to be interviewed by fund manager Bruce Berkowitz in a 90-minute conference call where 'skeptics are invited to participate.' Mr. Berkowitz 'will ask the toughest questions submitted' to him by email for next Wednesday's call, which is open to the public." The bank's willingness to submit to such grilling "underscores the lengths Bank of America is going to improve its relationships with skeptical investors," the Journal says.
New York Times
Royal Bank of Scotland lost $2.3 billion in the first half of the year on its exposure to Greek debt. Société Générale and BNP Paribas earlier this week reported losses for the same reason.
Industrial and Commercial Bank of China is buying an 80% stake in three business units in Argentina owned by the South African lender Standard Bank.
It was a rough July for Paulson & Co., the hedge fund that famously made a winning bet against subprime mortgages back when many investors were still drinking the home-price Kool Aid. A "Dealbook" story, citing two big investors, says Paulson's Advantage and Advantage Plus portfolios are down 15% and 21.6%, respectively. The biggest hit resulted from fraud at a Chinese timber company.
"Dealbook" also reports that AIG earned $1.8 billion for the second quarter. The story quoted Robert H. Benmosche, the insurer's chief executive, as saying that "A.I.G. is basically back in business." A year earlier AIG had a loss of $2.7 billion, and as Dealbook explains "the insurer has shed additional businesses and, perhaps most important, begun selling down the government's controlling equity stake." The story notes lower down that "A.I.G. still faced pressure on its core operations," giving the example of a subsidiary that had big losses from the Midwest tornados. Also worth mentioning: the disgraced insurance behemoth finished winding down its financial products division. (Bet they're glad to be done with that.)
So actually the Dow Jones had a good day yesterday. That would be Mr. Dow Jones, resident of Alma, Ark., a town known for its spinach festival. "Dealbook" had some fun to offset the otherwise dire stock news. And yes, at age 92, he's heard these jokes plenty of times before.
And Lastly ...
Russia Today: If you really think the U.S. media's coverage of the foreclosure crisis has been unfairly slanted against banks, you should see how Russia's state-funded equivalent of Fox News and MSNBC is telling the story. If you didn't already know that B of A has been demolishing a few hundred abandoned homes in three cities and deeding the land to the municipalities, you might get the wrong idea from this headline on the Russian network's English-language website: "Banks bulldozing towns across America."