Receiving Wide Coverage ...
Not B of A's Day: Bank of America pops up in Friday's news for several reasons, none of them flattering. Over at the New York Times, columnist Gretchen Morgenson questions the distribution of Bank of America's $16.7 billion mortgage settlement. The bank is required to forgive or reduce borrowers' mortgage debt as part of the settlement and the amount of relief it provides is then deducted from the bank's total tab. There's just one problem: according to Morgenson, the bank is sending some borrowers notices that is forgiving debt that's already been discharged. This goes against the intent of the settlement, she says, since forgiveness is meant to go to borrowers in need of help not those who've already found it. A separate news article in the Times reveals Bank of America and JPMorgan Chase have agreed to scrape debts discharged in bankruptcy from consumers' credit reports within the next three months. The move comes in response to a set of lawsuits in Federal Bankruptcy Court that allege the banks, along with Citigroup and former GE financing arm Synchrony Financial, "effectively" hold "borrowers' credit reports hostage" in an attempt to collect on debt that's already been wiped out. Lastly, the Wall Street Journal reports a third of shareholders voted against reelecting board member and corporate governance committee head Thomas May a marked turn from the 98% "yes" votes he received a year ago. This is a sign of shareholders' continued dissatisfaction with the bank's decision to override a 2009 rule and appoint Brian Moynihan to the dual role of chairman and CEO, according to the paper.
Wall Street Journal
Shareholder advisory firm ISS is in a contrarian mood. On Wednesday the firm urged investors to vote down JPMorgan's proposed payment package for Jamie Dimon, and now it's telling Deutsche Bank investors to vote against management's restructuring plan at the upcoming annual meeting. ISS is joined in this latter stance by fellow advisory firm Glass, Lewis & Co., which is recommending Deutsche investors abstain. At issue are Deutsche's recent legal and regulatory woes, including its $2.5 billion settlement with U.S. and British authorities over allegedly manipulating interest rates. The shareholder vote isn't binding, but a chorus of "nays" would still be a slap in the face for Deutsche's leadership team.
Banks have been waiting a long time for the Federal Reserve to raise interest rates, and it looks like their wish will soon be granted but "Heard on the Street" warns that any uptick in interest income will be incremental in the short term. "Following "liftoff" by the Fed, further rate increases will probably be gradual," they write.
Fannie Mae's $1.9 billion first-quarter profits look pretty weak compared to days of yore, actually down 64% from a year ago. John Carney of "Heard on the Street" notes the mortgage giant has been hacking away at its mortgage-backed securities portfolio, which necessarily tamps down profit potential. "This should be enough to put to rest the notion that Fannie Mae and Freddie Mac could be swiftly recapitalized with retained earnings and released from government control," he opines, though he admits this reality isn't likely to sink in for a while yet.
An unsigned editorial throws a little shade at former Fed chair Ben Bernanke, writing that his analysis of the financial sector as a blogger for the Brookings Institution is questionable given that he also depends upon the industry for a portion of his income. One commenter adds, "we should all take any opinion with a grain of salt," noting, "this is why it's important for commentators in the financial sector to disclose their holdings."
New York Times
Bitcoin exchange itBit has just become the first digital currency firm to receive a banking trust charter. Seeking out heightened regulation might seem to be an unexpected move for a digital currency firm, but itBit wants to prove its trustworthiness and emphasis on compliance to clients. We'll soon have the chance to see if customers are persuaded: the firm, which focuses on institutional and "sophisticated" investors, is now open for business in the U.S.
Forbes: The latest issue of Forbes has a feature on alternative small-business lender Kabbage, focusing in part on how it's achieved the low loan default rates that attract capital from investors. (The secret: a high-tech, automated underwriting model that looks beyond hard-and-fast financials to include metrics like the company's online reviews and Facebook likes.) One thing the article doesn't touch on is whether Kabbage and other online small-business lenders will be able to sustain minimal default levels: with the average annual percentage rate on alternative loans ranging from 40%-60%, according to one estimate, an economic downturn could spell trouble.
CNBC: Speaking of lending alternatives, CNBC writes hedge funds are the new banks for small businesses. Hedge funds are stepping in to fill the gap left by banks that tightened credit in the aftermath of the financial crisis, according to the article. It suggests private small-business lending is good for the stability of the financial system: "instead of a few big banks, there are lots of funds to share the risk, and the funds use relatively little borrowed money to amplify their bets' so-called leverage."