Friday, December 2

Receiving Wide Coverage ...

Super Mario to the Rescue: Could Europe at last be on the verge of a final, conclusive, ultimate fix to its slow-motion train wreck of a financial crisis? Perhaps. Light has begun to emerge at the end of the Euro financial tunnel in the guise of comments from European Central Bank President Mario Draghi indicating a willingness to ease his opposition to a central bank bailout, a la the Fed's — if, that is, European Union states commit to a closer fiscal union with the will and authority to prevent member states from engaging in more rampant deficit spending. What seems to make a deal more workable than in the past is the face-saving nature of what's emerging. It would enable fiscal hawks like German Chancellor Angela Merkel to claim they'd administered a dose of bitter budget-balancing medicine to their profligate partners while at the same time, in the vernacular of the day, bring the "big bazookas" of the central bank and Germany to bear on supporting the troubled continent. Draghi hasn't committed outright to opening the spigots, but both the New York Times and the Wall Street Journal used the term "quid pro quo" to characterize his comments during a European Parliament speech. There's lots to like here for policymakers on both sides of the pond, but Europe still isn't China — meaning what makes eminent sense to cloistered elites still has to pass muster with pensioners in Athens and the unemployed in Madrid. Throwing a bucket of Teutonic cold water on the notion that a quick solution is at hand, Germany's Merkel was quoted in a speech saying "Marathon runners often say that a marathon gets especially tough and strenuous after about 35 kilometers (22 miles)… But they also say you can last the whole course if you're aware of the magnitude of the task from the start." Wall Street Journal, New York Times

In the all-news-is-local department, the Washington Post has an opinion piece by Bill Gross titled "The euro may fall — and take the U.S. recovery with it.

Right or not, it does raise the question why the euro has lost little ground against the dollar of late, despite the global hyperventilating about its existential issues. Could it be a case of the homely girl being the beauty queen in a contest among the butt-ugly? New York Times, Washington Post

Regulatory Capture: Financial regulators were on the Hill Thursday to talk about progress in implementing the Dodd-Frank Financial Reform Act. Instead, lawmakers on both sides of the aisle zeroed in on the collapse of commodities broker MF Global. Gary Gensler, Chairman of the Commodity Futures Trading Commission and Mary Schapiro, chairman of the Securities and Exchange Commission, were grilled on how $1 billion of investor assets could go missing for weeks in an era when the financial cops are supposedly on high alert. The regulators assured members of the Senate Agriculture Committee that new protective measures are being implemented. Senators were told that the CFTC will vote next week on a rule restricting the industry's use of customer money, while the SEC could soon enforce new accounting disclosures for brokerage firms." In fact the CFTC had plans for that in the works earlier this year, "but delayed the changes amid a fierce lobbying campaign by Jon S. Corzine," who argued that they were unnecessary. New York Times

A Total Mass: Massachusetts Attorney General Martha Coakley sued the five largest mortgage lenders — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and GMAC Mortgage — over allegations of improper foreclosure practices. The suit also faults MERS, the electronic mortgage registry, for having "corrupted" public records. The Times coverage says the move, "diminishes the likelihood of a comprehensive settlement between the banks and federal and state officials to resolve foreclosure improprieties." (Actually, the chances of a comprehensive settlement diminished to around zero some time ago, as American Banker has previously reported.) The story quotes several bank representatives, saying, predictably, that a collective AG approach is preferable. Taking the populist side in the Times story, a California professor declares that "so far the servicers have escaped any real review or punishment for their bad practices because federal regulators have by and large given them a pass on whether they followed the law in foreclosures." New York Times, Washington Post, Financial Times

Wall Street Journal

Risk management is proving to be risky business for managers these days. The new chief of Swiss bank UBS, Sergio Ermotti, has removed Maureen Miskovic as chief risk officer and is bringing back to the job Philip Lofts from his perch atop U.S. operations. The move follows a trading scandal in UBS's London office that cost the Zurich-based bank $2.3 billion in losses. If she's looking for sympathy regarding the daunting task of forestalling bum trades, Miskovic might consider stopping by the CFTC and SEC on her next U.S. visit.

America's barbell economy appears to be alive and well, given the continuing strength of retail sales at opposite ends of the retail food chain, the Journal reports. Word of strong spending at discounters like JCPenney, and at upscale stores such as Saks Fifth Avenue, is the ultimate good news-bad news story these days, given the need to prop up the economy in the short-term and have something set aside to pay for investment and old age down the road.

Financial Times

The FT has a thoughtful piece this morning that describes what sounds eerily like a death spiral at European banks. "The cost of borrowing from debt markets and interbank markets has risen sharply since the financial crisis of 2008 and during the ensuing Eurozone furore." Meanwhile, the banks are under pressure both to hold more and better capital and to keep lending. "The result is a vicious circle, whereby banks' earnings continue to fall, making it harder to attract investors and once again increasing lenders' cost of capital." Chalk up another in the column in support of those who think it's time for European Central Bank boss Mario Draghi to tear a page out of Helicopter Ben's flight manual and rev up the printing presses.

New York Times

SEC officials aren't about to sit back and wait for hedge fund fraud tips to roll in anymore. "A new "analytics" division tasked with mining hedge fund data has announced actions against six individuals and three hedge fund firms for alleged fraud," according to the Times. "We're using risk analytics and unconventional methods to help achieve the holy grail of securities law enforcement — earlier detection and prevention," said Robert Khuzami, director of the S.E.C.'s Division of Enforcement.

To readers for whom Khuzami's chest-pounding sounds a tad familiar, let the record reflect that nearly a decade ago then-SEC Chairman William Donaldson launched a similar Office of Risk Assessment to "look over the hills and around the corners." Madoff, apparently, was a mountain too high or a corner too blind for that initiative.

It'll soon be off with their heads at French bank Société Générale's New York offices, although no information is so far available on actual headcounts, according to an unnamed source. The official response: SocGen is "in the process of scaling down a certain number of corporate and investment banking businesses adversely affected by regulation, structural changes or with low cross-selling potential. Therefore the bank is adjusting its international setup accordingly." In case you got lost in translation, that's French for "pink slips."

Floyd Norris takes a swipe at the Obama administration for underestimating "the continuing damage to the economy from the mortgage crisis." Observes Norris: "It is Federal Reserve officials, who normally seek to avoid commenting on specific government policies outside the range of monetary policies, who have been sounding the alarm with increasing regularity." One such alarm-sounder is William C. Dudley, president of the Federal Reserve Bank of New York, who recently gave a speech supporting principal reductions. Norris' recounting of Dudley's idea was that, "borrowers who were under water on their loans …but were still making their payments should be able 'to earn accelerated principal reduction over time.'" Don't expect mortgage lenders to start waving the pom-poms.