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B of A — The Basics: Bank of America's fourth-quarter revenues were better than expected and its capital position strengthened, reassuring investors who've feared the company would need to dilute them by issuing shares. An analyst quoted in the Journal sounds like a doctor who's just performed a scarring, but life-saving, procedure: B of A "will be OK." But the profit relied heavily on one-time items, the loan book contracted during a period when competitors generated meaningful loan growth, and mortgage-related litigation remains a big worry. Wall Street Journal, Financial Times, New York Times
B of A — The Deeper Dives: "Heard on the Street" in the Journal gives Bank of America CEO Brian Moynihan credit for realizing the importance of building capital, albeit belatedly. When asked about returning capital to shareholders on the quarterly conference call, Moynihan replied that B of A will stay focused on strengthening the balance sheet - a far cry from those premature dividend promises he made last year. The paper's "DealJournal" blog provided a round-up of initial analyst reactions, which showed that they were confused by the clutter of one-time gains and losses. Most interestingly, an article by Henry Sender in the FT explores the possibility of B of A putting Countrywide out of everyone's misery by placing the subsidiary into bankruptcy. Moynihan's dodged the nagging question in public, but Sender writes that "he has been rather more forthcoming in private. More than a year ago, Mr Moynihan confided to a Wall Street chief executive that if he did not kill Countrywide by placing it in bankruptcy proceedings, he feared the mortgage unit would kill the bank."
Mayday for Payday? The Journal ran two articles in which Consumer Financial Protection Bureau director Richard Cordray talks about payday lending. The earlier one sounds like a straight New-Sheriff-in-Town story, starting with the headline — “Consumer Bureau Targets Payday Loans.” The second piece is more nuanced: while repeating his vow to crack down on illegal practices such as unauthorized deductions from a borrower’s checking account, this article also reports that “the bureau will research the payday-loan industry to find ways to protect consumers without making it harder for them to obtain quick cash in a pinch.”
RALs Are Dead. Or Are They? The Times’ “Bucks” blog reports that this is the last tax season that banks will be offering refund-anticipation loans. Republic Bank of Louisville, the last holdout in this regulator-disfavored market, has agreed to bow out under a settlement with the FDIC, the blog notes. However, the piece adds parenthetically that “It’s possible that some smaller payday lenders … may still offer some version of the loans.” Moreover, BankTalk.org, a site run by community-activist types with a nose for news, reports that two new banks are actually entering the RAL market – Citizen’s Bank of Sandusky, Ohio, and tiny Marshall County State Bank in Newfolden, Minn. The former is regulated by the Fed, the latter by – wait for it – the FDIC. Given that agency’s efforts to “stamp out the tax refund loan,” BankTalk says “it will be interesting to see how they respond to the activity by Marshall County State Bank.”
Legacy Liquidation: Credit Suisse won an auction of $7 billion of mortgage-backed securities from the New York Fed’s Maiden Lane portfolio, a collection of “souvenirs” from the 2008 bailout of AIG. Goldman Sachs originally approached the Fed with an unsolicited offer to buy the bonds, which make up about a third of the Maiden holdings, but the central bank felt obliged to seek competing bids. Auctioning a big slug of these assets to a dealer, which can then resell them piecemeal to investors on its own timetable, is a different approach from the one the New York Fed took with its Maiden Lane holdings last year. Then, it held a series of auctions of individual bonds but halted them after market prices worsened. The Journal and Times articles suggest that those earlier auctions were responsible for the worsening. And for any Credit Suisse clients reading this, to prepare for that call you’re going to get from your sales coverage about buying some of these bonds, see this “BreakingViews” column in the Times. It makes a case for steering clear of subprime mortgage debt, despite the alluringly fat yields. Even if you really want the securities, you’ll have ammo to talk down the price. Wall Street Journal, Financial Times, New York Times
Morgan Stanley: The investment bank posted a fourth-quarter net loss due to a large mortgage-related settlement with the bond insurer MBIA. But the loss was smaller than expected, and according to the FT Morgan Stanley distinguished itself as the only one of the big securities firms to post an increase in trading revenue for the full year. The Times says wealth management was the "main bright spot" among the company's businesses during the quarter. "Heard on the Street" in the Journal suggests that Morgan Stanley, along with other U.S. investment and commercial banks, have an opportunity to win market share in Europe from that continent's troubled institutions. The column notes the irony of this: U.S. banks' exposure to European debt — Morgan Stanley's in particular — has been a big worry for investors. Wall Street Journal, Financial Times, New York Times
Wall Street Journal
Blackstone is restructuring its investment in the (no-longer-for-sale) BankUnited so the private-equity firm’s CEO Stephen Schwarzman won’t have to disclose details about his personal finances to the Fed. BankUnited is converting from a thrift charter to a national bank; as part of that process the Fed asked PE firms that own 10% or more of the institution to provide financial information about their principals, so regulators can gauge whether the investors can be a “source of strength” for the (taxpayer-insured) depository. But the information wouldn’t be made public, and the Fed tells the Journal it wouldn’t accommodate a FOIA request for these records. So why is Schwarzman taking the trouble to convert some of Blackstone’s shares in BankUnited to nonvoting preferred stock? What does he want not even the Fed to know and keep under its hat? Itemized expenses from that infamous birthday party perhaps?
An editorial attributes MetLife’s decision to shutter its mortgage unit, and lay off 4,300 people, to federal regulation run amuck.
“Federal Reserve officials are waiting to see how the economy performs before deciding whether to launch another bond-buying program.”
New York Times
Capital One assured investors on a quarterly earnings call that it expects to complete the acquisition of ING Direct this quarter, despite the opposition from consumer activists.