Receiving Wide Coverage ...
Big Changes at Citi: Citigroup probably won't want to include this week in its highlights reel. Its Mexican unit, Banamex, is embroiled in another scandal; not unrelatedly, reports are circulating that Manuel Medina-Mora, the bank's head of consumer banking and chairman of Banamex, is planning to step down; and in a separate decision, the so-called "everywhere bank" is shutting down businesses in 11 countries, including El Salvador, Japan and Egypt. The Times compares the $15 million fraud at Banamex to a "pulp thriller." "Citigroup employees in Mexico are suspected of pocketing millions of dollars in kickbacks from vendors," the paper reports. "And bodyguards for bank executives bought audio recordings of personal phone calls and created shell companies to disguise their fraud." This may be one scandal too many for Medina-Mora, who managed to survive news of a $400 million accounting fraud at Banamex just a few months ago. The Journal suggests that Medina-Mora has the backing of chief executive Michael Corbat and chairman Michael O'Neill but is being pressured to leave by other board members. The Financial Times says the fact that Medina-Mora's exit may be linked to the Banamex turmoil would be "a bitter pill for a man whose ambition had expanded beyond Mexico." Meanwhile, the FT opines that Citigroup's impending exits from some international markets also reveal its determination to maintain a stronghold in Asia: "Asia for Citi is its jewel in the crown," an anonymous rival banker observes. The paper also says the move is indicative of an era in which "seeking scale has given way to seeking efficiency (especially capital efficiency)."
Big Bank Earnings, Day One: JPMorgan, Citigroup and Wells Fargo kicked off the third-quarter earnings season with "results that showed continued progress in their lending and trading businesses, but a lingering squeeze on profits from low interest rates," the Journal reports. A "Heard on the Street" column takes a more sour view: "return on equity is mostly blah." The papers highlight the hefty sums that JPMorgan and Citigroup have set aside to cover legal costs as the banks prepare for potential settlements with U.S. and U.K. authorities over allegedly rigging benchmark interest rates. The FT and the Times also note that cybersecurity remains a major concern for JPMorgan, which was recently hit by a data breach that compromised personal information of 76 million households and seven million businesses. A separate article in the Times takes Wells Fargo's earnings announcement as an opportunity to reflect on tight lending standards in the housing market. "Why do banks not hold mortgages, rather than sell them with a taxpayer guarantee?" writes Peter Eavis. "That way, the banks could, in theory, lend to a wider selection of people without facing the risk of government repurchase requests."
Wall Street Journal
A Nevada court has ruled homeowners associations may foreclose on homes without going through mortgage lenders, a decision that could be a big win for investors who have snapped up heavily discounted homes in foreclosure auctions. The Mortgage Bankers Association says lenders could lose millions or billions of dollars if the decision stands and "banks will have to account for it by raising mortgage rates in Nevada."
Sluggish global economic growth and weak inflation have taken off the table the possibility the Fed will raise interest rates sooner than expected, according to a "Heard on the Street" column. "The Fed has long said that its policy is squarely focused on what's happening at home rather than what's happening overseas. But with weakness abroad threatening to cut into a U.S. economy that has only recently found its footing, it may need to change that calculus."
The Fixed Income Clearing Corp. plans to seek regulatory permission to increase its clearing and settling services of trades in the tri-party repo market. "The FICC, part of the Depository Trust and Clearing Corporation, clears tri-party and bilateral repo deals struck between banks and broker-dealers but wants to expand its tri-party service to include funds and other large investors," the paper reports. The move could make the repo market safer by preventing funding from drying up in the event of a firm's failure, according to the FICC.
New regulatory standards that impose minimum collateral requirements on shadow banks are "only an initial step towards more oversight," according to industry players.
New York Times
The Federal Reserve Bank of New York has a secret Doomsday Book it doesn't want to talk about, which is probably the best way to ensure endless speculation. American International Group shareholders suing the government over the terms of the insurer's bailout say that officials violated the policies outlined the Doomsday Book really a collection of "legal opinions that describe and delineate the [Fed's] ability to fight financial crises." With somewhat circular logic, the Fed says the contents of the book should remain private because their lawyer's advice is confidential. The Times points out the Fed has also "long regarded secrecy as a strategic advantage," lest companies be emboldened to take greater risks based on detailed knowledge of a federal safety net.
Nobel Prize-winning economist Jean Tirole says his work advocates for "regulation which is light enough in order to let innovation happen and to promote investment by the incumbents" in a Q&A with Binyamin Appelbaum.