Receiving Wide Coverage ...
Stress and Confidence: The Journal's "Heard on the Street" column deems the Fed's upcoming stress tests appropriately stringent. "The lack of investor confidence in banks justifies a harsh approach," the column says. The idea is the sector will need a credible assessment of its health, and/or more capital, so U.S. banks don't run into the same problems raising funds in the credit markets as their European brethren have recently. Separately, an op-ed in the Journal by two UCLA professors makes a similar argument but takes a somewhat more urgent tone. "The recent volatility in bank stocks is a signal that U.S. banks, large and small, are not as healthy as many analysts assume," the authors write. "The Fed's best shot is to apply this latest stress test broadly across banks both large and small and to insist that banks put forward clear plans to build up much stronger capital positions soon." The FT succinctly illustrates the aforementioned funding challenges for European banks with this statistic: "European banks have sold $413bn worth of bonds this year, equivalent to just two-thirds of the $654bn that is due to be returned to investors in 2011 as the debts mature" - making this year "the first time European lenders have collectively been unable to replace their maturing debt with new bonds for at least the past five years." Which brings us to …
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The Crisis in Europe: Judging just from the headlines, this long-running saga seems to be coming to a head: "Investors' confidence shows signs of crumbling," says the Post. "Time Runs Short for Europe to Resolve Debt Crisis," says the New York Times. "The eurozone really has only days to avoid collapse," says Financial Times columnist Wolfgang Munchau. The situation started to look particularly tenuous last week when Germany, considered one of the eurozone's strongest sovereigns, failed to float all of a planned bond issue and short-term borrowing costs jumped for the considerably weaker nation of Italy. To save the (currency) union, European leaders are seriously discussing a plan to "make budget discipline legally binding and enforceable by European authorities" for all member nations, according to the Journal. This is big, the paper notes: "As recently as this summer, measures such as a centralized fiscal-enforcement authority with power to seize control of national budgets would have been viewed in most capitals as an unacceptable invasion of sovereignty. That such steps are now under serious consideration reflects the perilous turn the crisis has taken."
Occupy Wall Street: Journal columnist Jason Zweig suggests that today's financiers don't realize how good they have it with the noisy but nonviolent protestors outside their offices. He notes that particularly in the nineteenth century, anti-capitalist uprisings were much more physically dangerous. "Wall Street rarely concedes that regulation has made the markets safer not only for investors but for Wall Street itself," Zweig writes. "Because the public believes that modern regulation enforces standards of fairness that were lacking in the past, bankers and brokers don't have to fear for their lives when they walk down the sidewalk." Meanwhile, last week's New Yorker (which didn't arrive in our mailbox until Friday, harrumph) featured a rich and nuanced profile of some of the Occupy movement's progenitors (we won't say "leaders," because, as the story illustrates, the highly diffuse and quite diverse Occupiers really don't have any). The Times followed with an article focusing on one of those progenitors, Kalle Lasn of the "anti-consumerist" magazine Adbusters, covering much of the same ground. The New Yorker also ran a funny satire called "We Are the One Percent," which, unlike previous inversions of OWS' "We Are the Ninety-Nine Percent" slogan, makes fun of the wealthy, not their critics.
Wall Street Journal
Put to one side the question of whether retailers will pass on to consumers the savings from the new cap on debit interchange fees. The Journal reported Friday that some merchants aren't even seeing much in the way of savings. Rather, these businesses are paying the same or more to take debit cards, for two reasons. First, merchant processors are "raising select fees while refusing to pass on to merchants the lower rates now charged by banks." (Regarding that refusal, we don't want to say we told you so, but…) Second, interchange rates are rising for small transactions because MasterCard and Visa have eliminated discounts for this category.
"Employees at big Wall Street firms could see annual compensation sink 27% to 30% from a year earlier to the lowest level since the 2008 financial crisis."
A Journal editorial picks apart the FHA's argument that its financial condition is sound.
Financial Times
"Banks in the US and Europe have started firing traders in equities and other markets as low volumes take their toll." The downsizing institutions include Citi and Bank of America Merrill Lynch.
New York Times
Columnist Gretchen Morgenson criticizes the financial industry and lawmakers for trying to thwart Dodd-Frank's mandate to make the derivative markets more transparent. At issue is a CFTC proposal to require any firm that wants to act as a "swap execution facility," per Dodd-Frank, to post prices on a "centralized electronic screen" and end over-the-phone dealings. Congressmen from both sides of the aisle have proposed a bill that would forbid the CFTC (and, for good measure, the SEC) from imposing such requirements. "Opacity hurts customers because they can't see a wide array of prices. But dealers can - so they have an edge that plumps up their profits," Morgenson writes, reiterating the same point throughout the column. It's a fair point, though. When we briefly covered interest rate swaps for a financial news wire service in the late 1990s, we ran into a conundrum. Part of the assignment was compiling daily price quotes for various swaps along the curve (one-year, two-year, five-year and so on). We didn't want to bug the same dealers every single day, for fear of wearing out our welcome. So we'd rotate which firms we'd call. But different dealers would often give wildly divergent quotes on the same day, so rotating sources from day to day would create the appearance of regular big swings in swap spreads. Once, we asked a trader why spreads had moved so much and he barked "that guy you talked to yesterday gave you a bum market!" No trader owes any journalist a living. But without centralized screens like those the CFTC wants, how can the CFO of an end-user corporation who enters into a swap agreement know she isn't getting a bum market?
