Receiving Wide Coverage ...
Get Ready to Rumble: Morning Scan is brought to you today by two cups of coffee and the letter X, as in the big targets on the backs of several banks that are drawing the aim of Uncle Sam's legal eagles … A.M. radio jockeys couldn't stop blaring a Times report that the Federal Housing Finance Agency will sue more than a dozen big banks, including Bank of America and JPMorgan Chase, over the sale of mortgage securities. The story lead the paper and cited unnamed sources. Instead of demanding the banks buy back the original loans, in this lawsuit the agency seeks to be reimbursed for losses on the securities held by Fannie Mae and Freddie Mac. Some observers question whether such a lawsuit, when added to the state attorneys general settlement talks, might not push banks over a cliff.
The Journal followed the scoop that the Times posted Thursday night. The FHFA has to act by next week, when the potential statute of limitations on such actions would take effect, the Journal said, citing people familiar with matter. The agency has filed one suit already, against UBS, and the agency's acting director, Edward J. DeMarco, said in an interview last week there were "more to come."
Hang on today. Between this breaking story and the U.S. unemployment report, it could be a fun one in the markets. As Scan was being scrambled for serving, futures were down and Bloomberg News had reported that B of A shares dropped the most in three weeks in Tokyo (8.5%) on news of the possible FHFA lawsuit against it and other banks. "Bank of America, being at the epicenter of these problems, is going to get smashed," one expert said.
More Mortgage Fallout: The Federal Reserve hit Goldman Sachs with an enforcement action, saying the company's mortgage-servicing unit had engaged in "a pattern of misconduct and negligence" in its handling of home-mortgage loans, the Journal reported. http://on.wsj.com/ncZJPS … The Post reported the same news and caught up on Goldman Sachs' completion of the sale of its Litton Loan Servicing subsidiary to Ocwen Loan Servicing after reaching an agreement with the New York State bank superintendent regarding the robo-signing of documents.
Making Lemonade (And More Lemons) Out of BNY Mellon: Meanwhile, news cycles are short these days, but the Bob Kelly story spun on high for another day … Kelly, ousted as chief of Bank of New York Mellon, stands to receive a severance package of more than $36 million, and that figure likely won't be reduced by a shareholder initiative last year to reduce executive severance packages, the Times said.
Questions quickly arose about his replacement, Gerald L. Hassell, 59, who didn't know about Kelly's exit until after it happened late Tuesday, the Journal reported. Hassell is an old company hand who faces a multitude of tough legal business calls in coming months. Analysts question whether he is the right guy considering his age and long association with the bank. Laurence Fink of client BlackRock defended him as the "right person" for the job.
The Journal's Heard on the Street column added that Bank of New York Mellon's communication skills leave something to be desired. The announcement about Kelly was opaque, and its announcement last month that it would charge big depositors was "strangely handled" and unsettling.
Should Have Listened in Greek School: Speaking of stories that won't die … It makes sense why the banks that are representing the government of Greece in a major bond restructuring are promoting the plan — banks are in a position to get a really good deal on the restructuring if it goes through, the Times said. The Journal says Greece's economic situation is worsening, and the country faces even steeper budget cuts than planned.
Wall Street Journal
The Federal Reserve Board asked Bank of America executives to show how the bank would respond if conditions deteriorate, according to people familiar with the situation. B of A executives are said to have offered a list of contingency plans that includes the establishment of a separate class of shares tied to the Merrill Lynch unit. The shares could be a way for B of A to raise money from its most profitable division. However, like a lot of stories about B of A lately, you have to put them in perspective. "[Chief Executive Brian] Moynihan isn't giving the tracking stock serious consideration at this point … but he included it on the list to show the company has multiple levers to pull," a person familiar with the situation said. Heard chimed in that tracking stocks such as B of A proposed a "fairly dismal history" and could be seen as a desperate move.
JPMorgan Chase chief Jamie Dimon might as well be feeding Benjamins into a paper shredder, the Heard column colorfully explains in a story on the drawbacks of stock buybacks for bank stockholders. The Fed deserves some of the blame, too, the report says.