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Earnings: SunTrust, General Electric, MGIC
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So, Would This Be QE3.5? Federal Reserve officials are once again talking about ways to recharge the housing market with yet another program of buying mortgage-backed securities, which would push down home loan rates. Fed Governor Daniel Tarullo made the case for such additional intervention in a speech Thursday. Wall Street Journal, Financial Times
Loan Growth in Ohio: Fifth Third, KeyCorp and Huntington all posted "solid growth" in C&I lending, "but profitability varied as much as bankers' conviction in expansion opportunities amid the slow economic recovery," the Journal says. Fifth Third CEO Kevin Kabat was at the bullish end of the spectrum, saying the double-dip recession worries of the summer had dissipated, while his counterparts at Huntington and Key were more cautious. The FT's story on the same trio of banks emphasized the role of cost-cutting in their results. All three Buckeye State banks beat analyst estimates.
B of A Blues: The Journal's "Heard on the Street" considers the ramifications of a judge's decision to move Bank of America's $8.5 billion mortgage-bond settlement to federal from state court. "The settlement was structured under a provision of New York state law that calls for an expedited proceeding, wouldn't allow for investors to opt out and would curtail objections to the terms," which would have allowed B of A to finalize the deal "quickly and cleanly. Now, everything's back up in the air." Meanwhile, B of A, which helped AIG obtain credit lines so it could escape government ownership last year, passed up participating in a new set of syndicated credits for the insurance company. The reason: AIG's suing B of A over ill-fated mortgage bonds sold by Countrywide (of course) and Merrill Lynch (two for two!).
Citi Settlement, Day Two: In the Times' "DealBook," law professor Peter J. Henning suggests that Citigroup's settlement of a CDO-related investigation "shows how much better it is to not be the first firm sued by the S.E.C." Although the agency's allegations against Citi are "almost identical" to those it made against Goldman Sachs last year, there hasn't been anywhere near the same level of outrage or shareholder anxiety about Citi's alleged conduct, and it agreed to pay a smaller penalty than Goldman. (We'd add: no one's compared Citi to a deep-sea cephalopod either.) However, it ain't over til it's over, and another "DealBook" story reports that Citi's settlement must be approved by Judge Jed S. Rakoff, who famously rejected the SEC's deal with B of A over its acquisition of Merrill Lynch.
Wall Street Journal
This story is giving us a serious case of déjà vu; we could have sworn we read it before sometime in the last few weeks, but it's dated Oct. 20, so we must be delusional. It reports that more than half of the $4 billion the government's disbursed under the Small Business Lending Fund has gone to repay Tarp. In defense of the newer program, the Treasury Department notes that for a recipient bank to get a lower interest rate than what it was paying on the refinanced Tarp investment, it must increase small-business lending.
"Capital One Financial reported a small increase in third-quarter profit as the bank's loan write-offs and delinquencies continued to fall, though those improvements showed signs of slowing."
Not all young people are as disillusioned with banking and finance as the crowd occupying Wall Street, it seems. Hiring by financial services firms from university MBA programs is at its highest level since the crisis. A comment posted by a Journal reader offers some practical advice to these recruits: "Don't be in the bottom 10% of ratings at GS. No matter how well you have done, you will be fired." That's life in the big city, kid.
Financial Times
Speaking of new hires, and the fact that few things in life are certain, guaranteed bonuses to such employees made up close to 9% of the average bonus pool last year for 51 large institutions. That's up from 5.5% in 2009 and 7.1% in 2007, right before the crisis, according to a survey by the Institute for International Finance, a trade group. Guaranteed bonuses, the FT says, "are one of the most controversial elements of banks' pay structures. Regulators have warned that they sever the link between performance and reward, potentially impairing risk management." Two years ago the G20 agreed to limit guaranteed bonuses to one year, but the institute tells the FT that "some banks are now using single-year guarantees to skirt tighter restrictions."
Want to end "too big to fail"? Then be prepared to let banks fail, and to accept that mom-and-pop investors will sometimes lose money. That's the message Lord Turner, chairman of the U.K. Financial Services Authority, delivered in a speech Wednesday. ("Mom and pop" is our phrase, not his, if you were wondering.) "There is no point in saying that we are abolishing 'too big to fail' status unless we mean it," Lord Turner said. (This is shaping up to be the "life is tough all over" edition of the Morning Scan.)
New York Times
Floyd Norris' latest column focuses on the Public Company Accounting Oversight Board's publication this week of previously confidential bits from its inspection report on Deloitte. As you'd guess, he's quite critical of the auditing firm, particularly its intransigence in the face of criticism of its audit work by the PCAOB over several years. But the party that probably comes off looking the worst is Congress, for including in Sarbanes-Oxley "provisions to protect the public images of audit firms" by giving them multiple ways to delay the release of adverse findings by the PCAOB. This is why "it took 41 months from the issuance of the report — more than three years — for Deloitte's clients to learn of the problem." Similarly the PCAOB can file enforcement charges against auditing firms, but these too have to be kept secret until the SEC rules on an appeal. "It is as if charges of robbery had to be kept confidential until all appeals had been completed."
The "Economix" blog looks at a New York Fed study that found "households underreport the magnitude of their credit card debts by at least one-third." Underreported to whom? The Fed's widely cited survey of consumer finances. (Gulp.) How do we know they underreport? The New York Fed's researchers "compared the debt levels reported by participants in that survey with data that lenders reported to the Equifax credit bureau. They found that consumers gave accurate testimony about most kinds of debt, including mortgages and student loans, but not when asked about credit card debt."
This country's come a long way since the 1980s, when schoolkids routinely cracked crude homophobic jokes with impunity. Today, "the gay community is more popular than Wall Street." At a campaign fund-raising event, House Financial Services chairman Barney Frank downplayed the role played by Wall Streeters in the affair, insisting it was "an LGBT fund-raiser."
"DealBook" covers the annual Women on Wall Street conference, and we feel like cutting straight to the reader comments. "They hold a conference on serious topics...and you feel the need to talk about their shoes. That says a lot." "Really, would a group of male executive been compare to The View?" To be fair, the writer's mention of Christian Louboutin shoes was in reference to coverage of last year's conference, and the story gives due attention to observations made at the conference about networking and career paths. We're just cranky because the shoe thing reminded us of the Times' profile of IMF chief Christine Lagarde a few weeks ago, an otherwise serviceable piece that was spoiled for us by the print caption mentioning her taste in shoes and clothes. And anyway, how can anyone tell from afar what make of shoe someone's wearing? Don't you need to look at the insole to see the brand name?
Washington Post
"J.P. Morgan Chase is giving $10 million to the Brookings Institution to underwrite an initiative aimed at quantifying and expanding the economic reach of the nation's 100 largest metropolitan areas."
And Lastly ...
BitcoinMoney.Com: Don't worry, we're not plugging yet another article about Bitcoin. Not exactly. This libertarian-leaning website informs us that Louisiana has enacted a law forbidding "secondhand dealers" of "junk" or any used merchandise from accepting cash as payment. Dealers are defined as those who buy or sell secondhand stuff more than once a month. They may take only checks, electronic transfers or money orders. And the dealers also must keep a record of every transaction over $25, which would defeat one of the chief purposes of paying electronically with Bitcoins — anonymity. "Is this really happening in America?" the website asks. "Today in Lousiana [sic] your [sic] are breaking the law unless you use a bank or a government institution (for a postal money order) when buying some used hand tools from your neighbor." We're still not sure about Bitcoin's prospects, and we probably don't share exactly the same worldview as this anonymous writer. Still, we have to say that typos to one side, he or she is spot on about this disturbing law. A natural migration to electronic payments is all well and good. But forcing people to transact under surveillance when the amounts are so piddling is downright creepy. If you're wondering why anyone who isn't a criminal would care, think about purchases you've made that you might not want your judgmental neighbors or overbearing relatives to know about. And with that, have a good weekend.
