Receiving Wide Coverage ...
See You in Court: A lawsuit alleging that shareholders got a raw deal in the $184 billion government bailout of AIG goes to trial today, and pundits are abuzz with expectation but not because they think the central claim holds particular merit. In two separate columns in the New York Times, Gretchen Morgenson and Noam Scheiber shed no tears for AIG shareholders, including the insurer's former chief executive Maurice "Hank" Greenberg. But they each suggest the trial may shed light on the questionable logic of the government rescue, which has been widely criticized for providing a backdoor bailout to AIG's big bank trading partners. "Perhaps the government saw an opportunity in the insurer's liquidity crisis," Morgenson suggests. "It could become an enormous taxpayer-funded piggy bank from which the government could funnel billions to a throng of teetering banks." Scheiber concurs, adding, the alternative explanation is that former Treasury Secretary Tim Geithner "simply felt that Goldman and the like had a more legitimate claim to billions of dollars in funds than the taxpayers who were footing the bill." The Wall Street Journal's coverage includes a character study of Greenberg and describes the lawsuit brought by his firm Starr International as a quest for "revenge - and, as he sees it, justice." The Financial Times offers a rundown of the Wall Street and Washington heavyweights scheduled for depositions in the trial, including Geithner, former Treasury Secretary Hank Paulson, former Fed Chair Ben Bernanke, former Fed Vice Cchair Don Kohn and Rodgin Cohen of Sullivan & Cromwell.
Goldman's New Trading Restrictions: Goldman Sachs has barred its employees from trading individual stocks and bonds in their personal accounts in order to "help mitigate potential conflicts between firm personnel and clients ... while helping the firm better manage reputational risk," according to an internal memo reported in the FT. The restrictions arrive two years after a Delaware judge rebuked Goldman for having multiple conflicts of interest in its advisory role during an energy company merger. The Journal says the new rules "appear to go a step beyond what Wall Street imposes on many of its employees: Trading in individual accounts can be allowed if the transactions are vetted internally." Both papers note Goldman's Friday announcement arrived on the same day that ProPublica and "This American Life" released an exposé detailing a former Federal Reserve Bank of New York examiner's objections to the firm's conflict-of-interest policies. The Federal Reserve Bank of New York came out swinging on Friday in response to the report accusing the agency of going soft on Goldman Sachs. "The New York Fed categorically rejects the allegations being made about the integrity of its supervision of financial institutions," the Fed said in a statement. "Examiners are encouraged to speak up and escalate any concerns they may have regarding the New York Fed or the institutions that we supervise. The New York Fed provides multiple venues and layers of recourse to help ensure that its employees freely express their views and concerns."
Wall Street Journal
The Federal Reserve Bank of Richmond is pushing Bank of America to reduce the reputational and legal risks involved in "dividend arbitrage," a trading strategy that lowers clients' tax bills. "Banks temporarily transfer ownership of a client's shares to a lower-tax jurisdiction around the time when the client expects to collect a dividend on those shares," the paper explains. Bank of America is reportedly taking steps to address the Richmond Fed's concerns.
An anti-money laundering conference in Las Vegas is attracting staffers from companies like Amazon and MGM Resorts this year in a sign "businesses other than banks are concerned about staying away from dirty money." This week's conference, hosted by the Association of Certified Anti-Money Laundering Specialists, is also noteworthy because it will feature for the first time a panel on "what controls banks should put in place when taking on marijuana businesses as customers."
Macroprudential regulation is doomed because shifts in capital and liquidity requirements "have only the weakest detectable effects on lending," according to an op-ed by the American Enterprise Institute's Paul H. Kupiec. Moreover, Kupiec argues there is a "very real risk that macroprudential regulators will misjudge the market," since regulators "are no better than private investors at predicting which individual investments are justified and which are folly."
The paper's banking editor Martin Arnold cheers the appointment of new BNP Paribas chairman Jean Lemierre, describing him as an "unflappable, modest and hard-working" type who will be able to help the French lender right its ship in the aftermath of a $8.9 billion settlement with U.S. authorities over sanctions violations. BNP's former chair Baudouin Prot resigned last week in a move the FT implies was linked to the settlement
High debt and slow economic growth has the global economy on track for another wipeout, according to the latest report commissioned by the International Centre for Monetary and Banking Studies. The Geneva Report identifies "the continued rapid rise of public sector debt in rich countries and private debt in emerging markets, especially China" as a major threat.