Receiving Wide Coverage ...
Eye on B of A: Merrill Lynch is "thriving," but morale isn't so good, according to the front page of the Times' Sunday Business section. For one thing, the brokerage's profits are being overshadowed (and canceled out) by parent company Bank of America's whopping mortgage losses. Many bankers and traders get about half their pay in restricted stock, so the decline in B of A's stock price has amounted to a pay cut. And hundreds of layoffs in the past few weeks haven't helped the mood among the "thundering herd" either. Meanwhile, the Post reports that B of A has faced customer outrage over its new $5 charge for debit cards. It probably compounded customers' frustrations that B of A's website suffered sporadic outages over the weekend. The bank said the outages were not the result of hacking and went out of its way to add that the website problems had nothing to do with the debit fee. It's hard to imagine why the former would have anything to do with the latter, but "the response may reflect quite how much the resulting criticism has stung BofA," says "Heard on the Street."
Not Off the Hook: The Journal has a package of stories about lenders' increasing pursuit of deficiency judgments - that is, the portion of a delinquent debt not covered by the sale of the collateral. A lengthy feature story says it makes more sense these days for mortgage lenders to chase after borrowers for shortfalls, since the homes are worth so much less than the debt. A blog post notes that consumers can find themselves on the hook for deficiency judgments in other debt categories as well, such as auto loans and condo association fees. And there's an interactive map showing the high concentration of deficiency judgments in the town of Lehigh Acres, Fla.
The Protests: Hundreds of "Occupy Wall Street" protestors were arrested this weekend after blocking the car lanes on the Brooklyn Bridge. The incident drew attention to the protests, now entering their third week, and the media has begun to take them seriously. Well, more seriously in any event. "The movement is fuelled by continuing anger at rising income inequality and the profitability of Wall Street following government bail-outs in 2008 and 2009 at a time when the US is suffering 9.1 per cent unemployment," the FT reports. "While the goals of the demonstrations are vague - protesters cited the need for jobs, an enlarging of the middle class and more efficient health insurance, among other desires - they appear united mainly by anger at Washington and its alleged coddling of corporate America." Not all the demands are vague - one sign read "Bring back Glass-Steagall." On the other hand, another simply said "fire the boss." Times columnist Nicholas Kristof is impressed by the protestors' organizational and technological skills and sympathetic toward their frustrations with economic policy. But he too thinks they should be more specific in their demands. Among Kristof's recommendations is that they call for a "Tobin tax" on financial transactions like the one being discussed in Europe. The Wall Street Journal editorial page, though, doesn't mention the logistical or social-media savvy of Occupy Wall Street. The writers scoff at the (admittedly pompous) comparisons some have made to the Arab Spring and dismiss the stateside protestors as "a collection of ne'er-do-wells raging against Wall Street, or something." They're raging against a lot of things, actually, and not all of them amorphous: see this list of grievances from the "New York General Assembly," whatever that is (it's not part of City Hall or Albany).
European Contagion: European markets are tumbling this morning after Greece said it would miss deficit targets set three months ago. On Friday, fears about exposure to troubled debt in Europe shaved 10% off Morgan Stanley's stock price. According to the Journal's "Heard on the Street" column, the same investor concerns apply, to varying degrees, across the U.S. financial sector. "A big problem is varied, sparse or confusing disclosure about derivatives exposures." In particular, banks haven't made clear their gross, rather than net, derivatives positions. The net figure subtracts collateral and derivatives used as hedges - but hedges don't always work perfectly, and the derivative contracts depend on the performance of counterparties. Which may turn out to be, uhm, European banks. Yet Citi's chief financial officer, in response to an analyst's question, said flatly that he considers the gross number irrelevant (belying CEO Vikram Pandit's rhetoric about transparency). In Morgan Stanley's case, though, the gross number is known, not the net one. Another "Heard" item blames the drop in Morgan Stanley's stock in part on a report that mistakenly referred to its gross exposure to French banks ($39 billion, according to the firm's 2010 annual report) as the net figure. The net exposure is zero, the column and another Journal story say, both citing … anonymous sources. (No doubt these were courageous whistleblowers who were risking their jobs by revealing that their employer had perfectly hedged its risk, leaving nothing to worry about.) Let's zoom out to the bigger picture: In the New York Review of Books, George Soros argues that the one lasting solution to the European crisis would be the creation of a European treasury with taxation and borrowing powers. Such an entity would, among other things, "protect" bank deposits in the event that a country defaulted and quit the eurozone.
Wall Street Journal
“After putting hundreds of banks out of business since the 2008 financial crisis, the Federal Deposit Insurance Corp. is shuttering some of its own offices, a sign that the tidal wave of bank failures is ebbing.”
The Journal profiles Benjamin Lawsky, the head of New York state's newly created agency regulating banks and insurance companies.
New York Times
Columnist Gretchen Morgenson looks at a bizarre legal case involving a thrift that failed in 1992, whose former owners blame the government for its demise and have been trying to recover damages for decades.
A banking trade group warned that stricter capital requirements will hurt bank profits and the broader economy. Wait, we could have written that any day. This time, it’s the Clearing House Association issuing the warning.
Correction
The email version of Wednesday’s Scan incorrectly stated that the economist James Tobin had once served on the Federal Reserve Board of Governors. Shame on us for trusting Wikipedia.
