Receiving Wide Coverage ...
Rogue Trader Redux: UBS raised its estimate of its losses from allegedly unauthorized trades by a London employee to $2.3 billion from the initial figure of $2 billion. The U.K. authorities formally charged Kweku Adoboli with fraud on Friday and said his shenanigans had gone on undetected for three years. Meanwhile, according to the Journal, the scandal has caused some Swiss politicians to call for UBS' CEO, Oswald Grubel, to step down, and intensified pressure on the company to shrink or spin off its investment bank. Grubel refuses to step down, though. Another Journal story says Societe Generale is still haunted by a similar scheme perpetrated by the now-infamous Jerome Kerviel that was uncovered three years ago. The Financial Times delves into the similarities between the two — both traders allegedly disguised losses with fictitious countertrades. Both Kerviel and Adoboli worked on "Delta One" trading desks, which traffic in, among other things, exchange-traded funds. ETFs had already been a source of worry for regulators this year — see this report from the Financial Stability Board, and this one from the U.K. Financial Services Authority. The Adoboli affair has moved the issue higher on their agenda, the Journal's "Heard on the Street" column notes approvingly. The FT columnist Tony Jackson says the UBS debacle has been used as an argument to support the U.K. Vickers report's plan for reforming banks — which he says is all well and good, but there are plenty of other reasons to do so, as that report said, which he then goes on to enumerate. (Interestingly, Jackson, though wholeheartedly in favor of the Vickers recommendations, argues the proposed ring-fencing of investment banks won't work — a point of disagreement with his colleague Martin Wolf. The problem, according to Jackson: "The underlying premise is that the board can set the culture. But that is not how big corporations work" — see BP. But we digress….) British and Swiss regulators have hired Deloitte to investigate the events at UBS, which will pay for the audit firm's gig, the FT says. David Sidwell, a former chief financial officer at JPMorgan and the senior independent director on UBS' board, will head an internal probe. Finally, an article the Times' "Dealbook" provides a concise summary of this multifaceted drama so far, and in the process answers a question that's been on our minds since we saw that photo of a handcuffed Adoboli surrounded by British police: why is he smiling?
Mortgage Mayhem: It's now been a year since the robo-signing scandals broke, and the foreclosure process "remains snarled," according to a lengthy Journal story. "Mortgage-servicing companies are moving so cautiously that the number of properties entering the foreclosure pipeline is outpacing the total sold or taken back by banks." Another Journal article looks at the remedial steps taken by GMAC, which was the first company caught cutting corners on foreclosure documents. A third story in the paper homes in on the limitations on judges' ability to challenge lenders in foreclosure proceedings. Elsewhere, Washington Post columnist Steven Pearlstein says mass refinancings for homeowners who are current on their mortgages — the kind of refis President Obama spoke of in his recent speech — are "the president's best option … to deliver tens of billions of dollars in additional stimulus." Despite super-low rates, many people who are "in the money" to refinance have not done so, and Pearlstein puts much of the blame on Fannie Mae for raising guarantee fees (and the Federal Housing Finance Agency, for making Freddie Mac do the same), and on the banks that survived the mortgage shakeout, for "being not very competitive at all" on price.
Fed Watch: The Federal Reserve is expected to ease monetary policy at its two-day policy meeting this week, and many foresee it will implement "Operation Twist," the strategy of shifting its holdings from short- to longer-term Treasuries so as to push down longer-term rates. But it remains a question how far the central bank will twist, the FT says. (Incidentally, last week we missed David Wessel's Journal column, which pointed out that the government used the same strategy during the Kennedy administration, when the Twist was a popular dance step, and that this was not a coincidence.) This morning the Journal says Fed insiders are considering giving the public more detail about its targets for inflation and unemployment, to clear up confusion created by mixed messages. The Times describes the competing pressures on the Fed — investors want it to spur growth, but Republican presidential candidates and others don't want it to print money. The latter group might want to hear out Adam Posen, an American economist on the Bank of England's monetary policy committee profiled in the Sunday Times. He argues that the world's central banks should jointly undertake "a shock-and-awe display" of quantitative easing — well beyond what the Fed has done here.
The FT obtained a draft of the forthcoming regulations that would put into practice the Dodd-Frank Act's "Volcker rule" banning proprietary trading by banks. And it makes some pretty big exceptions: repo transactions, securities lending, and "near-term" commodities and currency trading would all be exempt.
A rebranding of former Wachovia branches in the Washington area with the Wells Fargo brand reminds the Post of a similar campaign Capital One undertook a few years ago after it bought Chevy Chase. "In each case, the acquirers had to assure their new customers that services would only get better." For any megabank built through acquisitions, we've got to think public skepticism will be high.