More Mortgage Suits, Troubled Britannia, Shrinking Citi

Receiving Wide Coverage ...

Mortgage Morass, Continued: Bankers can be forgiven for mistaking the mortgage cops for a pack of raving hyenas that just won't end its pursuit. In the latest twist, the Justice Department argued Wednesday that the $25 billion mortgage settlement finalized earlier this year between the federal and state governments on one side and five big banks on the other doesn't buy Wells Fargo (WFC) immunity from being sued by the feds yet again over mortgage foreclosure practices, Bloomberg reports. Wells had earlier declared that it no longer regards itself as liable for the claims — a view DOJ lawyers termed "flatly inconsistent" with the terms of the earlier settlement. The current case, in a New York federal court, is premised on accusations that Wells officials originated loans insured by the Federal Housing Administration that they knew failed to meet its requirements and resulted in "substantial losses," says Bloomberg. The DOJ submitted its claims to U.S. District Judge Rosemary Collyer, who earlier this year approved the $25 billion pact. In another sign that that deal has done little to end the stream of mortgage-related lawsuits, another federal judge earlier this week ruled that the Federal Housing Finance Agency may proceed with cases charging Bank of America (BAC), Citigroup (NYSE: C), HSBC and Credit Suisse (CS) of wrongdoing in the sale of securities backed by residential mortgages. Bloomberg, Reuters, American Banker

Gaining Pounds: It's time for British banks to shore up their reserves by raising "material" amounts of fresh capital or selling businesses, the Bank of England said in a report released Thursday. The declaration was the central bank's starkest warning yet that home-grown institutions must come to grips with bad loans and dodgy accounting ploys if they are to restore investor confidence and get credit flowing, the Journal reports. Analysts and bank executives had been expecting the BOE to issue more detail on the sector's capital needs, it added. Instead, the BOE offered the results of an "experiment" showing how banks are using various accounting gimmicks to overstate capital levels, the Journal says. The results indicate that RBS, Barclays, Lloyds and HSBC could be overstating capital levels by $8 billion to $56 billion (£5 billion and £35 billion). The FT came away from the report with firmer numbers, stating that the BOE believes British banks will have to raise between $32 billion to $80 billion or dramatically restructure. Given the likelihood that to regain their health the banks will be required both to exercise (raising capital) and diet (selling assets), the report is likely to have direct knock-off effects on this side of the pond. RBS has already held discussions with British authorities about the future of its U.S. business, Citizens, and other ways to slim down its investment bank, the Journal reports. Wall Street Journal, Financial Post

The Citi That Never Stops Cutting: Evidence continues to pile up that big banks' investment banking arms are nowhere close to regaining their former muscle. That's the broader message in the news that Citigroup's trading and investment-banking division plans to eliminate 150 more jobs and shrink bonuses by as much as 10%. The move adds to a larger wave of cuts at the nation's third largest bank by assets. Vikram Pandit, its CEO at the time, announced late last year that Citigroup would lay off 4,500 employees as "part of [...] ongoing efforts to control expenses," Motley Fool reports. This July the bank reportedly cutting an additional 350 jobs from its securities division. The latest moves appear to be part of new CEO Michael Corbat's vow to "remain extraordinarily focused on our efficiency ratios and our overall expense levels." At this rate, economic pressures may eliminate from government-insured banks a considerable chunk of trading risk long before the much-delayed Volcker Rule — aimed at the same task — is ever finalized. Bloomberg, Motley Fool

Bloomberg

The days when Goldman Sachs (GS) mortgage trader Fabrice "Fabulous Fab" Tourre was helping hedge fund billionaire John Paulson short housing appear to be long gone. Instead, Goldman has included in a report on its top 10 investment themes for 2013 a bullish call on housing, according to Bloomberg. Goldman has taken a more bullish view on the sector since at least March, when it was raising money for a new fund to buy home-loan bonds, it adds. Now the bank is arguing that homebuilder stocks have already priced in the recovery and investors need to look for the "ripple effects of housing stabilization." To their aid comes Goldman with a housing related index conveniently structured to offer exposure to just such a group of likely housing-rebound beneficiaries. Among those included are domestic banks, which Goldman analysts believe may be helped by more homeowner refinancing as credit conditions improve.