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Sticky Situation: Companies that strive for "stickiness" usually get glowing coverage in The New York Times' business section, but when big banks achieve it, they get a not-so-flattering story on page one. "The Internet banking services that have been sold to customers as conveniences, like online bill paying, serve as powerful tethers that keep them from jumping to another institution," says the second paragraph in the Sunday front-pager, continuing the captivity motif suggested by the phrase "on [the] hook" in the headline. It isn't necessarily news to bankers and longtime students of the industry that automatic bill payment, not to mention things like direct deposit of paychecks, can promote customer inertia. We remember retail banking executives from Washington Mutual, which was then a relative up-and-comer, making pretty much the same observation to us back in 1999. But, as the Times notes, the "Hotel California" nature of a primary checking account (we're thinking of the last two lines of that old ditty) is coming as an unpleasant surprise to many consumers who've been turned off by the onslaught of post-Durbin fees imposed by the megabanks and want to bolt. Meanwhile, what the New York Post describes as "a Facebook-driven crusade to get people to withdraw their money from regular bank accounts" has designated Nov. 5 Bank Transfer Day. They chose the date because it's Guy Fawkes Day, but instead of lighting bonfires or blowing up buildings, this movement (started by a Los Angeles art gallery owner) is merely encouraging people to move their money to credit unions. The Post also notes the stickiness factor: "For many customers using automatic bill payments or direct deposits, unwinding all their transactions and moving them to a different financial institution can quickly become daunting. … Banks are counting on the inconvenience."
Occupy the World: Speaking of people who like to brandish the Guy Fawkes mask as a symbol, Occupy Wall Street has gone global. The anti-capitalist demonstrations in other countries haven't all been as peaceful as the ones here - riots broke out in Rome over the weekend. Back in New York, according to the FT, "24 people were arrested for trespassing at a Citibank branch when, according to organisers, they went to close their accounts." (Talk about stickiness!) President Obama voiced support for the protestors, but warned them not to "demonize" people who work in finance. The Journal says that despite spreading worldwide, the movement has yet to forge a common goal, and the Times' "Sunday Dialogue" features a debate among readers about the usefulness of this lack of concrete demands. "Vietnam War protesters did just fine with stop the war and get out of Vietnam. Occupy Wall Street is doing just fine with stop the greed and get out of our pockets," writes one Times reader. Another counters: "the agenda of the Vietnam War protesters was to stop the war and remove the troops - clearly defined and obtainable objectives. 'Stop the greed' and 'get out of our pockets' are euphemisms for vague objectives."
The G-20 Meeting: Officials from the Group of 20 industrial and developing economies met in Paris over the weekend to discuss the Eurozone debt crisis and vowed to unveil a "comprehensive" rescue plan by Oct. 23. Wall Street Journal, Financial Times.
Peltz Pelts State Street: "Activist investor Nelson Peltz's fund has turned its sights to State Street Corp., publicly calling for the trust bank to become more profitable and consider a spin off or sale of its investment-management division," says the Journal. Wall Street Journal, New York Times.
Wall Street Journal
A feature story looks back on Enron, which collapsed 10 years ago this month. The story contrasts the swift prosecutions of that company's executives (and, we need hardly mention, its auditor) with the response to the recent financial crisis, and reminds us that "So far, no high-profile executive has been sent to prison for crisis-related wrongdoing." (Lee Farkas doesn't meet the threshold.)
Morningstar, best known for its stock research, is among those challenging the bond-rating triopoly of Moody's, S&P and Fitch. "The Big Three is soon going to be the Big Four," proclaims Robert Dobilas, who heads the Chicago research company's credit-rating unit, which has expanded into rating residential mortgage-backed securities. (His operation, formerly known as RealPoint, has been rating commercial MBS since before Morningstar acquired it.) The investigative firm Kroll is also among the other recent entrants in the field, as are some independent start-ups.
The inventory of homes listed for sale has substantially declined, but this hasn't helped housing prices, in part because of the "shadow" inventory of distressed properties that aren't on the market but will be sooner or later.
Michael O'Neill succeeded Jerry Grundhofer as chairman of Citibank. O'Neill is a former CFO of the old (West Coast) Bank of America and a former CEO of Bank of Hawaii. Grundhofer left Citigroup this year to join the board of Banco Santander's U.S. arm. He and O'Neill have been with Citi since the nadir of the financial crisis, when the company overhauled its board.
"Regulators ordered MF Global Holdings Ltd., the brokerage firm led by former New Jersey Gov. Jon Corzine, to boost its net capital in August after they grew concerned about its exposure to European debt." The regulator in question is FINRA.
"Regulators on Friday closed banks in Georgia, North Carolina, New Jersey and Illinois, pushing this year's national tally of collapsed banks to 80."
New York Times
Columnist Gretchen Morgenson savages Fannie Mae and Freddie Mac for spending a combined $140,000 to sponsor last week's Mortgage Bankers Association convention and sending an "army" of 87 people to attend the conference. Aside from the fact these companies have received $150 billion from taxpayers since they went into conservatorship, she points out, "today, Fannie and Freddie are about the only games in mortgage town. … So it's a mystery why Fannie and Freddie needed to help foot the bill for the gathering."
A "DealBook" article looks at the in-fighting among bank regulators that jointly issued a proposal for implementing the Volcker rule last week. For example, FDIC wanted to require executives to sign a Sarbox-style certification of compliance with rule; the OCC was dead-set against this. This may explain why the proposal merely asks the public to weigh on the wisdom such a requirement (see question 337).
Also in "DealBook," law professor Stephen J. Lubben dissects how a hedge fund that owned 13% of a dud CDO was able to get around the standard two-thirds voting requirement in securitizations and force the vehicle into liquidation.
An editorial touts the merits of Elizabeth Warren in her campaign for Scott Brown's Massachusetts Senate seat, calling hers an "informed and measured populism" that carries an “ability to shred Republican arguments." The piece wraps by noting the catchphrases Democrats intend to test in upcoming legislative fights — "Tea Party economics" and "Tea Party gridlock" — and concludes that they'd "be better off listening to Elizabeth Warren" instead.
The "Capital Business" section rounds up the challenges facing community banks and describes how some Washington-area institutions are meeting them. Interestingly, one of those local banks is offering "second-round venture capital funding." The story doesn't address whether the bank will be allowed to stay in that business under the Volcker rule. Then again, neither does the Volcker rule proposal that regulators released last week - see question 310.