Receiving Wide Coverage ...
Deal or No Deal: Bank of America and the Justice Department are at odds over how much the Charlotte, N.C., bank should pay to settle charges that it sold shoddy mortgage-backed securities in the run-up to the financial crisis. According to the Wall Street Journal, DOJ lawyers rebuffed B of A's offer to pay $13 billion in cash and consumer relief in a Tuesday meeting. The Financial Times' sources say Bank of America did not make a new offer in the meeting, while the New York Times merely notes that lawyers for the two sides are "far from reaching a deal." The DOJ is asking for up to $17 billion in cash and consumer relief, according to the Times. Associate Attorney General Tony West suggested in a Wednesday speech that the government is perfectly willing to take B of A to court, though he did not directly name the bank. "We do not investigate these matters intending to settle them," he said. "Resolving these cases will require more than simply seeking a meeting with the attorney-general." B of A's investors are worried that the settlement amount will wind up being higher than expected or lead to big litigation costs, according to a separate article in the Journal. The investors have plenty of additional things to worry about, according to Antony Currie's analysis of the bank's second-quarter results in Reuters Breakigviews. "The $2 billion earnings figure reported by the bank on Wednesday is, on the face of it, abysmal," he writes.
Funding Circle's Big News: Former Wachovia chief executive Bob Steel has turned up on the board of peer-to-peer business lender Funding Circle, according to the FT. Funding Circle also announced Wednesday that it had raised $65 million in new funding "the largest funding round to date for a peer-to-peer lender," the FT reports. The Times takes the news of Funding Circle's latest investment as an opportunity to profile the company and take a look at the increasing trendy peer-to-peer lending market.
Raising the Roof on Rates: Financial heavyweights are leaning on the Federal Reserve to raise interest rates. Larry Fink, chief executive of asset manager BlackRock, told the FT, "We have a central bank that has not admitted we have structural unemployment Factories that used to employ thousands now employ 200. For the U.S. to grow above trend, it has to be about government policy not central bank policy." Meanwhile, hedge fund managers at the CNBC Delivering Alpha conference repeatedly pushed for a rate hike, according to the Times. They argued that the economy has showed sufficient improvement in the years since the financial crisis and could withstand such an increase.
Wall Street Journal
Federal Reserve Chair Janet Yellen took a stand against a House bill that would require the Fed to determine its benchmark short-term interest rate with a mathematical formula, removing the central bank's ability to use discretion in making such decisions. "It is utterly necessary for us to provide more monetary-policy accommodation than those simple rules would have suggested," Yellen said. Several Journal commenters say that binding the Fed's decisions to a formula would obviate the need for the central bank, though they disagree about whether or not that would be a good thing.
What's the best way to deter corporate crime send blameworthy employees to jail or slap the companies with hefty penalties and bet that disgruntled shareholders will force reform? Top officials in the Justice Department and the Federal Bureau of Investigation have thrown their support behind the latter method after years of supporting the former, the Journal reports. The theory that investors can bring about major change is "unrealistic," according to John Coffee, director of the Center on Corporate Governance at Columbia University, because shareholders' "influence is so diffuse that it is usually difficult to direct specific actions by executives running the company." Investors' reactions to the news of Citigroup's $7 billion mortgage-backed securities settlement this week also seem to cast doubt on the deterrence theory. They're not mad about the settlement; in fact, the Journal says, most shareholders "now say the bank did the right thing."
Eurozone banks had better be good at fast fixes: they'll have two weeks to come up with plans to remedy problems identified by stress tests this fall.
New York Times
Banks are more willing to lend to small businesses than entrepreneurs might suspect, according to the Times. Industry observers say the economic recovery has improved the fortunes of many small businesses, while "business owners' personal cash flows have improved and the value of their homes, which are often used for collateral, has stabilized if not risen." A pair of Colorado restaurateurs looking to open a third location of their burger chain successfully negotiated a bidding war among multiple lendersand they didn't even have to put their home on the line.