Receiving Wide Coverage ...
Search Me: "I simply do not know where the money is," Jon Corzine told lawmakers of that missing $1.2 billion during a tense hearing on the collapse of MF Global. The man who once ran Goldman Sachs and the state of New Jersey "appeared as befuddled by what had happened to his firm as the regulators who have been attempting to resolve the matter for more than a month," the Journal says. (In a video embedded in the Journal's main story, the commentators make light of the placard in front of the former Senator's microphone, which read "the honorable Jon Corzine.") Corzine said he was "stunned" when he learned of the missing customer funds. At the same time, he defended his stewardship of MF Global, claiming that the firm failed not because he had it wager $6 billion on European debt but because "the marketplace lost confidence in the firm." (Would it be inappropriate if we reminded readers that nearly 10 years ago, another former CEO of a failed company - Jeff Skilling of Enron - told lawmakers his firm was victim to "a classic run on the bank"?) Intent was a major theme in Corzine's testimony - "I never intended to break any rules" and "never intended to authorize anyone" to touch customers' money. (And if he did "it was a misunderstanding.") Another refrain was the possibility that others might have fumbled: "Someone could misinterpret 'we've got to fix this,' which I said"; he didn't know "whether banks and counterparties have held on to funds that should rightfully have been returned to MF Global." Corzine seemed acutely aware he was doing a lot of blaming of other people. After reassuring a lawmaker he hasn't talked much with CFTC chairman Gary Gensler since they worked together at Goldman, Corzine said, "the buck stops here" … before adding "on that score." Meanwhile the Journal reports that George Soros's family fund bought $2 billion of European debt that belonged to MF Global, for below-market prices. The palindrome probably profited on this purchase, since these bonds have gained in value in the weeks since. In the bigger picture, the Journal says "the Soros move … is something of a wager that a wider collapse of euro-zone finances will be averted" by a renowned investor. Which brings us to …
The Crisis in Europe: Thirty banks in 12 European countries must raise a combined 115 billion euros (about $150 billion) by June, regulators said. This is slightly higher than the 106 billion euros estimated in October, reflecting tighter criteria for what may count as capital. The FT's story prominently notes that banks in Germany - considered the bedrock country of the euro-zone - were found to be "far weaker than previously thought" in the latest round of stress tests. Meanwhile, the European Central Bank cut rates again and said it would make unlimited medium-term loans to euro-zone banks, but dashed hopes of intervention in the sovereign debt markets. Mario Draghi, the ECB's chief of two months, suggested floating sovereign debt would violate the "spirit" of the central bank's charter, which prohibits it from financing governments. An editorial in the FT says Draghi "has followed a fairly orthodox view of the institution's responsibilities and limitations," though the paper doesn't blame him for doing so. The onus is now on the member states themselves to restore the euro-zone's credibility, the editorial says. To that end, at the two-day summit in Brussels that wraps up Friday, European leaders have been struggling to hash out an agreement to impose continent-wide fiscal discipline. Overnight, 23 of the EU's 27 member states, including all 17 that use the euro as their currency, reportedly agreed to a plan that would impose greater fiscal discipline on their governments. Satisfied with their night's work, the ministers left it to the European Central Bank to ensure the likes of Italy and Spain do not succumb to the same loss-of-confidence forces that felled MF Global, Bloomberg reports. An analytical story in the FT says there's a risk if the delegates agree on treaty changes that can't be ratified at home: "The summit's conclusions could lead to more uncertainty rather than less."
Nay on Cordray: The Senate voted 53-45, short of the 60 votes needed, to approve Richard Cordray, President Obama's nominee to be the first director of the Consumer Financial Protection Bureau. The president said he may consider making a recess appointment, though it is "unclear whether that move would be technically possible," the Journal says. Only two of the chamber's 47 Republicans did not vote to block Cordray's nomination: Olympia Snowe of Maine, who voted "present," and Scott Brown of Massachusetts, who voted in favor of approval. Brown, of course, is running for reelection against Elizabeth Warren, the architect of the CFPB. The bureau's newly hired staff needn't despair, nor should supporters of its agenda. "BreakingViews" in the Times says that the CFPB' "headless financial watchdogs needn't be toothless," and cites the FDIC's Marty Gruenberg and the FHFA's Ed DeMarco as examples of "acting" directors who had made an impact recently. Still, the column notes that provisional CFPB chief Raj Date has a unique handicap: his agency can regulate banks only until it has a permanent director. As American Banker reported in July, the limbo situation is arguably worse for banks than having even a firebrand like Warren atop the agency, since they remain at a competitive disadvantage to nonbanks that (for now) escape CFPB oversight. (For a dissenting view, our friend Andrew Kahr countered in his BankThink column that in the bigger picture, the longstanding advantages of a bank charter outweighed any regulatory arbitrage afforded to nonbanks.) Wall Street Journal, New York Times, Washington Post, Politico
Rating Agencies, Redux: So much for toughening up. Three years ago, Mark Adelson joined Standard & Poor's as chief credit officer "with the mandate to make it harder for issuers to earn the firm's top ratings." But "as an outsider at an insular company often managed by consensus," the veteran of Moody's and Nomura Securities "ruffled some colleagues' feathers, and … at times alienated colleagues with a direct manner and uncompromising views," the Journal says. Now he's been replaced as credit chief - by a longtime S&P employee. Adelson's staying at S&P, though; he "will lead critical new research projects as part of an expanded thought leadership initiative," according to the rating firm. Meanwhile, the Times profiles R&R Consulting, an upstart credit rater founded by two veteran analysts. The firm faces challenges getting the requisite 10 reference letters from customers that have used its ratings before it can be officially recognized by the government as a rating agency.
'We' Take Responsibility: Riddle us this: when does a bank admit wrongdoing in a settlement with the government? Answer: when the wrongs were done at another bank it acquired, by employees who no longer work there. This is the kind of admission Wells Fargo made in its $148 million settlement of a case alleging bid-rigging in the muni bond market by Wachovia, which Wells acquired in 2008. In a non-prosecution agreement with the Department of Justice, "Wachovia admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former employees," the department said (a rarity picked up on by the eagle-eyed FT). Still, a related agreement with the SEC included the boilerplate language that makes Judge Jed Rakoff's blood boil: Wellschovia did not admit or deny the allegations in the SEC's complaint. Financial Times, Washington Post
Wall Street Journal
"Heard on the Street" takes note of recent upbeat comments by JPMorgan chief Jamie Dimon about the prognosis for investment banking. It "is a great business," for which "demand is going to grow," as investors "are going to have twice as much money 10 years from now to invest," Dimon told investors during a presentation this week, rejecting the widely held view that the decline in this activity is "secular" rather than cyclical.
Attention bankers who still fear and resent Wal-Mart's incursions into financial services: there's a rollback on schadenfreude in Aisle Three! The Bentonville behemoth "has begun an internal investigation into whether some of its workers violated the Foreign Corrupt Practices Act, the U.S. law that prohibits bribery overseas."
New York Times
There are no comments on this story as we type, but if and when there are, we'll bet you a corned beef sandwich the phrase "revolving door" will be in at least one of them. After two years as the Treasury undersecretary for domestic finance, Jeffrey Goldstein is returning to the private equity firm Hellman & Friedman as a partner, where he'll once again focus on investments in financial services.
Speaking of private equity, columnist Paul Krugman is the latest commentator to point out that engineering leveraged buyouts was Mitt Romney's career before politics. "Romney made his fortune in a business that is, on balance, about job destruction rather than job creation," Krugman writes. Citing a recent analysis by the Los Angeles Times, Krugman says that Romney's former employer, Bain Capital, "seems to have been especially hard on workers." Krugman's point isn't to demonize Romney or private equity but to challenge the idea that wealthy businesspeople are "job creators," period. Incidentally, the L.A. Times piece features the same black-and-white Romney photo from 1990 we keep seeing in all the skeletons-from-his-PE-closet stories; although Krugman's column mentions Gordon Gekko, young Mitt's mug reminds us more of this guy. Anyone who finds all this too subtle should consider copping a peek at the Colbert Report's Mitt-as-Gordon segment.