Breaking News This Morning ...
Morgan Stanley Earnings: Morgan Stanley's profit rose 66% in the second quarter due largely to strong trading revenue. The firm also announced it is buying back $500 million worth of its own stock. Wall Street Journal, New York Times
Receiving Wide Coverage ...
JPM to Settle with FERC: JPMorgan Chase appears poised to break a record Barclays set just yesterday. Various news outlets report the bank is in talks to settle allegations of energy market price manipulation with the Federal Energy Regulatory Commission. Current estimates (provided, of course, by a whole bunch of anonymice) put the fine around the $500 million mark, but, at one point, a $1 billion penalty was a possibility. (Barclays was slapped with a possibly $435 million fine, possibly $470 million penalty, which it plans to fight, for energy market manipulation on Wednesday.) It's unclear if JPM will admit wrongdoing as part of the settlement. It's also unclear if JPM commodities head Blythe Masters, who was previously accused of "giving false and misleading statements" under oath, will be included in the purported settlement. Scan readers will recall FERC banned JPM from trading electricity at market rates for six months back in November. The FT reiterates a sentiment the Journal previously put forth: "FERC has been newly zealous in recent months in pursuing investigations against large international banks and other market players." Meanwhile, Dealbook says the settlement talks "signal a shift in strategy" for the nation's biggest bank, which has been plagued by reputational and regulatory woes ever since the London Whale's $6 billion trading loss. "[JPM] appears to have taken a more conciliatory approach to Washington broadly, as it works to mend relationships with regulatory agencies," the news outlet notes. "Its new tack underscores the bank's realization that it was swiftly losing credibility in Washington." Per the Journal, the bank "has redeployed hundreds of employees to handle the regulatory requests, and its legal costs are escalating. [JPM] added $600 million to its litigation reserves in the second quarter, but it didn't give a reason why it did so."
Ben Bernanke Update: Federal Reserve Chairman Ben Bernanke appeared before the House Financial Services Committee Wednesday. The Journal leads with the fact that, during his appearance, Bernanke played down the unemployment rate's weight in determining its timetable for possibly raising short-term interest rates. The Times went a bit broader, asserting that Bernanke's statements reaffirmed the central bank's commitment to bolstering the economy. "Bernanke's message on Wednesday was that the Fed would cut back on its monthly asset purchases only if conditions were improving," writes the paper's Binyamin Appelbaum. Both news outlets note that this may be Bernanke's final appearance in front of the House Financial Services Committee as his term ends in January.
SEC Trader Trials: The Securities and Exchange Commission hit a snag in its case against former Goldman Sachs trader Fabrice Tourre yesterday, after one of its own witnesses turned hostile. "I thought you tried to trick me in some way," said Paolo Pellegrini, former Paulson & Co. managing director who helped architect the deal at the center of the case, when asked about an earlier deposition. In other trader trial news, Rajat Gupta, the former Goldman Sachs director who was convicted last year on insider trading charges, was ordered to pay a $13.9 million penalty and barred from ever serving as a director of a public company as part of a SEC civil lawsuit.
Wall Street Journal
Global regulators appear to be at odds over how to best regulate the financial system "Countries like the U.S., U.K. and Switzerland are demanding that banks build thicker capital cushions to absorb losses," the paper notes. "European and U.K. officials have shown a greater willingness than their U.S. counterparts to rein in bankers' pay and target bad behavior with criminal prosecutions."
New York Times
Columnist Jesse Eisinger gives some kudos to bank regulators. "For the first time since the financial crisis, the banks are losing some battles on tougher regulation," Eisinger writes. "By raising capital standards and installing tougher derivatives rules, regulators are helping banks that are too foolish (or rather, the top executives who are too narrowly self-interested in increasing their own compensation in the short term) to recognize their own interests."
PayPal made a $92 quadrillion error in the account of Chris Reynolds, a Pennsylvania PR executive. A screen shot of the account statement, which was corrected by the time the man logged in to review the account, is available on CNN. PayPal offered to donate an unspecified amount to Reynold's favorite charity to make up for the mistake.