Receiving Wide Coverage ...
Cordray's First Salvo: The day after his recess appointment as director of the Consumer Financial Protection Bureau, Richard Cordray vowed that the young agency "will make clear that there are real consequences to breaking the law." The bureau has several investigations underway, some inherited from other agencies, others that it initiated, he said. Some probes could end up being settled but others "may require enforcement actions." Cordray also dismissed doubts (expressed mostly by the administration's opponents) about the legality of the recess appointment and about the CFPB's right to police nonbanks without a Senate-confirmed director: "It's a valid appointment. I'm now the director of the bureau. … We now have our full authority to move forward." Indeed, the bureau has already begun supervising payday lenders, check cashers, and the like, he revealed. Republicans remained livid that President Obama bypassed the Senate, and business interests expressed fear of that old bogeyman: uncertainty. "We won't be sure what the rules are," the ABA's Wayne Abernathy told the Journal. "We'll know what Cordray wants the rules to be, but we won't know what they really are." Wall Street Journal, New York Times, Washington Post
Hawala Banking: OK, we realize the "wide coverage" of this one is mostly in Minnesota news outlets, but we think it merits attention. Members of the state's Somali immigrant community are having difficulty sending money to their impoverished families back home because most area banks have stopped serving the hawalas. These are informal remittance services that operate completely on an honor system (there are no promissory notes or legally enforceable claims, just trust between the brokers at both ends of the transaction that debts will be settled). Although an op-ed in the Minneapolis Star Tribune says this has been an issue since 2002, after the Patriot Act was passed, one local institution, Sunrise Community Banks, cut off the hawalas only last month, citing concerns about terrorist financing. And on Thursday local residents picketed a Wells Fargo branch in Minneapolis to protest the closing of hawala accounts. "Banks block me from feeding my family," one protestor's sign read. But to be fair, it's likely not entirely the banks' decision. "What Somali-Minnesotans cannot understand is why they have to take the brunt impact from the Patriot Act's expansion of the Secretary of the Treasury's authority to regulate financial transactions," the Star Tribune op-ed says. "I am sure that if Western Union or any other money-wiring shops were able to send the money to this region of the world, Somali-Minnesotans would have used them instead. I find it unfortunate that the most powerful country in the world cannot find acceptable and effective ways for this community to send money safely to Somalia while still denying terrorist organizations … an opportunity to benefit from these transactions." So now, we ask: Does this sad situation present an opportunity for some innovative financial services firm out there (bank or nonbank) to do well by doing some good? And assuming the CFPB is authorized to supervise money services businesses, could it surprise and maybe disarm its critics by finding a solution to this apparently regulation-driven problem? Star Tribune, Twin Cities Daily Planet, Somali Public Radio
Wall Street Journal
Citigroup ended talks to sell OneMain, its noncore consumer lending unit, without a deal. The prospective buyers, a group including Warren Buffett's Berkshire Hathaway and two private-equity firms, would have needed to securitize OneMain's loans to fund it, and that's tough to do in the current environment. (Curse you, uncertainty!) Recall that OneMain, formerly known as CitiFinancial (and before that, Commercial Credit) was Sandy Weill's original building block for the empire of acquisitions that eventually became Citigroup. Now the retail lending operation sits in the clearance bin known as Citi Holdings, available for sale, and has shrunk to half of what its size was in 2009.
Well, investors may be leery of consumer asset-backed debt, but several financial institutions, including Citi and GE Capital, are taking advantage of favorable market conditions for their debt. A total of nearly $12 billion of financial-sector corporate bonds may be issued this week, the most in nearly six months, the Journal reports. Why the rush to market? Aside from pent-up investor demand, the companies also want to raise funds to help repay soon-to-mature debt, much of which was issued with government guarantees in the wake of the crisis. The banks may also use cash on hand to pay down a chunk of their maturing obligations, given that they need to reduce leverage to meet the new Basel III standards.
Trial balloon alert: The still-in-progress $25 billion Foreclosuregate settlement now may force holders of mortgage-backed securities serviced by the major banks to eat some of the cost, in the form of principal reductions, anonymice tell the FT. Mind you, the terms being discussed by government and industry officials would theoretically give the banks an incentive to start by writing down the second liens they hold on their own balance sheets: "Each of the banks involved will have to meet a certain dollar target to fulfill their end of the deal. Each dollar of reduced payments or overall loan balances would be treated like a credit. A dollar of principal reduction on loans held on the banks' own books would get a higher credit … than reducing a dollar of loan principal on mortgages owned by bond investors." But it's still the banks' call how to earn that credit: "The servicers would have to determine that a mortgage restructuring would be more beneficial to the investor than a foreclosure, and the contracts governing the mortgage securities would have to allow for loan modifications. Investors probably would have no say in the decision." Oh, and the final settlement is now "weeks away"; didn't Iowa Attorney General Tom Miller say not too long ago there'd be a deal by Christmas?