Receiving Wide Coverage ...
Thar She Blows! JPMorgan Chase's chief investment office has taken a large bullish position in credit default swaps — large enough to move the market and thus earning the trader who placed most of the trades the nickname "the London Whale." There's a good chance these trades will be exempt from the pending Volcker rule's ban on proprietary trading by banks, the papers report. The CIO's mission is to hedge companywide risk, not to generate short-term profits, JPMorgan says. But critics of the Volcker rule have said the line between prop trading and permitted activities like hedging can be blurry. Meanwhile, hedge funds that have made bearish bets on the same corporate credits are fuming, since a rally (which they say the Whale's bullish position sparked) has forced them to meet margin calls. Wall Street Journal, Financial Times, New York Times, Bloomberg.
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MintChip: The Royal Canadian Mint is testing a form of digital money that's clearly influenced by the underground virtual currency Bitcoin. Like Bitcoin, Canada's MintChip offers cash-like privacy (the eponymous chips, which store and transfer value, can be purchased without ID) and transactions that cannot be reversed (which is appealing to merchants, if not to consumers). Unlike Bitcoin, MintChip relies on hardware (the chips) rather than software to prevent double-spending, has a central issuing authority (the Canadian government) and is backed by a traditional currency (the Loonie). There's already a lot of talk about MintChip's vulnerability to hackers, but it's interesting and noteworthy that a government is entering the fray here. The Royal Mint is also inviting software developers to create apps using the device, and will award $50,000 to the winner of the "MintChip Challenge." Skeptics of paper and electronic currencies alike will appreciate this: the prize money will be paid in gold. Fast Company, TechCrunch, Technology Review, Bitcoin Magazine (U.K.)
Wall Street Journal
Small, obscure banks in Russia and China are taking advantage of the sanctions against Iran, charging higher prices for what remains of the legal trade with the pariah state. European institutions have pulled back from doing business that is still legal with Iran, citing political risks and logistical hassles.
New York's banking and insurance superintendent, Benjamin Lawsky, is expanding his investigation of a field where those two industries overlap: force-placed homeowners insurance. He's found evidence of overcharging, and has subpoenaed documents from several insurers "demanding justification for how their rates and loss ratios were calculated." This follows subpoenas issued earlier to banks and mortgage servicing companies, whose relationships with insurers Lawsky's probe is scrutinizing. His office "also turned up evidence that mortgage servicers and insurers mistakenly forced 30% to 40% of homeowners whose cases were reviewed by the agency into getting coverage." Lawsky plans to hold public hearings on force-placed insurance in May. This should be interesting.
Financial Times
JPMorgan and other banks are looking for ways to securitize trade finance loans, an asset that is becoming expensive for institutions to hold under the Basel III capital standard.
Moody's downgraded General Electric, saying the conglomerate's huge finance unit, GE Capital, still relies too much on short-term funding.
New York Times
The Times previews upcoming first-quarter reports from megabanks Bank of America and Citigroup. Last year Citi was considered the rehabilitated one and B of A was viewed as the basket case, but those roles have been reversed since the Fed released the latest stress test results last month.
An editorial in the Times endorses a bill to require more detailed disclosures to student loan borrowers co-sponsored by that banker's bête noire, Senator Richard Durbin of Illinois.
The SEC accused two former executives at the failed Franklin Bank of fraud. The Texas lender's former chairman, Wall Street legend Lew Ranieri, was not accused of wrongdoing. The bank's former CEO and CFO used loan modifications "like a magic wand to change nonperforming loans into performing assets" and "misled investors into believing that Franklin was outperforming other banks during the height of the financial crisis," SEC enforcement director Robert Khuzami alleged.
Washington Post
John Delaney, the Democratic nominee for a Maryland Congressional seat, has resigned as CEO of CapitalSource, a commercial finance company that survived the crisis by acquiring a depository. He says he doesn't want his campaign to be a distraction for the company, which is still shedding assets and narrowed its net loss by half last year.
Columnist Barry Ritholtz doubts that the housing market is recovering. Among other reasons, he writes that down payments and other requirements to qualify for a mortgage make buying unaffordable for many people, low rates and the National Association of Realtors' abstract "affordability index" notwithstanding. He also notes that after any asset bubble, "assets do not merely stabilize. We have never seen a stock market run up into bubble territory and then revert to fair value. Instead, we careen wildly past that level, to deeply undersold and exceedingly cheap." Housing is hardly there yet: prices relative to incomes "remain slightly elevated relative to where they have been historically," for example.
