Receiving Wide Coverage ...
Ratings Rumble: This coming Friday is the deadline for public comments on a regulatory proposal that would forbid the use of credit ratings in determining capital requirements. The FT has a pair of stories in which bankers and other industry representatives complain that this plan would have adverse effects because risk weights on securitized assets, and therefore the amount of capital that must be held against them, would increase. One story emphasizes the potential to delay the housing market recovery; “punitive” capital charges would prevent the private mortgage securitization market from coming back, a bank lobbyist tells the FT. The other story focuses on the perception that the proposal is “anti-American” since banks here would have to hold more capital against mortgage- and asset-backed securities than their overseas counterparts are required to under the international Basel rules. Chimes in one FT reader in the comment thread: “[I] don't disagree with the point about the cost this will impose on US banks but struggle to see how it's anti-Americanism: these are US rules proposed by US regulators.”
Another B of A Re-Org: Christian Meissner is now the sole head of the corporate and investment banking business at Bank of America. He previously shared oversight of the division with two other executives, who have been given new jobs. Wall Street Journal, Financial Times
MF Global: More Congressional hearings on the collapse of Jon Corzine’s brokerage are scheduled this week. Rating agency officials will be grilled, and two of MF Global’s former chief risk officers will testify — both the one who questioned Corzine’s bets on European sovereign debt, and the guy who replaced him (and wielded considerably less authority than his predecessor). Meanwhile, the lead story in today’s Journal is a shocker: “Money from MF Global Feared Gone.” That money being the $1.2 billion of customer funds that went missing. “Many officials now believe certain employees at MF Global dipped into the ‘customer segregated account’ that the New York company was supposed to keep separate from its own assets — and then used the money to meet demands for more collateral or to unfreeze assets at banks and other counterparties,” the Journal reports. We’re sure people are already playing this clip on trading floors this morning. Wall Street Journal, Financial Times, New York Times
Wall Street Journal
Bank stocks are doing well so far this year, but skeptics say the bounce simply reflects how cheap they got last year and relief from signs of stabilization in Europe. The fundamentals for U.S. banks remain shaky — a fragile economy, consumer deleveraging, unquantifiable liability for the mortgage mess, and general uncertainty about long-term growth prospects.
“Richard D. Parsons, who as chairman of Citigroup helped steer the bank through its near-death experience in the financial crisis, is considering stepping down.” He’ll make a decision by March, anonymous sources tell the Journal. Parsons’ departure would be a vote of confidence in Citi’s stability and in Chief Executive Vikram Pandit’s stewardship, the story suggests. Either way, the company is keeping the chairman and CEO positions separate, and Pandit wouldn’t ascend to chairmanship. Parsons is best known today as a media executive, but some of us geezers remember his role in shoring up another financial institution that got into mortgage-related trouble, the old Dime Savings Bank of New York (now a part of Washington Mu, er, JPMorgan Chase), during an earlier crisis.
New York Times
Columnist Peter Eavis tallies the exposures of five large U.S. financial companies to Europe's PIIGS (Portugal, Ireland, Italy, Greece and Spain) at $80 billion, of which $50 billion is unhedged. The companies vary in the degree of potential protection purchased on their troubled eurozone debt portfolios, from 47% at Citi to just 12% at B of A. "Potential" is an important qualifier, one that Eavis is careful to use, since it remains unclear whether the counterparties that wrote the credit default swaps would be able to meet their obligations in a period of stress.
Somehow, since President Obama announced the creation of a new federal-state task force to look into mortgage wrongdoing, its name has changed from the Unit on Mortgage Origination and Securitization Abuses to the even more unwieldy Residential Mortgage-Backed Securities Working Group. In her Sunday column, Gretchen Morgenson advises this new group to look to private litigants for a "road map," since such plaintiffs have already done the "heavy lifting" by turning up "mountainous evidence" against lenders and securitizers.