Breaking News This Morning ...
CIT Buying OneWest for $3.4 Billion: "CIT Group Inc., the business lender led by Wall Street veteran John Thain, said Tuesday it had reached a deal to buy the parent company of OneWest Bank NA for $3.4 billion, a move Mr. Thain called 'transformational.' " Wall Street Journal, New York Times
Receiving Wide Coverage ...
Measuring Dodd-Frank's Impact: Both critics and fans of the Dodd-Frank Act agree that the financial law has changed Wall Street. A subject of more debate is whether those changes will help protect the U.S. economy in the event of another major banking crisis. "Banks are selling off profitable business lines, pulling back from the short-term funding market, cutting ties with businesses that could attract extra regulatory scrutiny, and building up defenses to help weather future crises," the Journal reports. But banks hungry for higher profits are also taking on more risk in the leveraged loan market, the paper notes. Meanwhile, policymakers on both sides of the aisle are discussing a number of measures aimed at resolving the problem of too big to fail banks. The problem is that "we have no way of knowing whether 'too big to fail' still exists until we have another crisis," Joe Nocera writes in the Times. While some government officials claim there's no way they'd use taxpayer money to fund another bank bailout, Nocera says, many people believe the government would be unlikely to take a hard line if faced with a real meltdown. Moreover, he says, it's hard to know if Dodd-Frank provisions would help troubled banks achieve a smooth resolution. "Although [banks] are now on their third round of living wills, the documents are thousands of pages, and the government hasn't yet told them whether the second round of living wills, filed a year ago, passed muster," Nocera writes.
Suisse Results Sour: Credit Suisse reported a loss of $779.4 million in the second quarter a decline largely driven by the Swiss bank's $2.6 billion settlement with U.S. authorities in May over charges that it helped Americans evade taxes. The Journal and the Financial Times highlight Credit Suisse's decision to exit commodities trading and scale back in other parts of its investment bank in the face of sluggish profits. The New York Times offers straightforward rundowns of the bank's results.
Wall Street Journal
Bigger isn't always better for banks hoping to dodge the "systemically important" title and accompanying regulations. New York Community Bancorp is nearing the $50 billion threshold, but the bank would then have to "comply with stiff rules on capital, submit to yearly 'stress tests' and create a road map to wind down the bank in the event of a crisis, moves that will add to its costs," the Journal reports. As a result, New York Community Bancorp is restraining growth while it hunts for a big deal that would make the added regulatory costs worthwhile.
Really big deals are hard to come by in the banking industry these days (though you may want to check the breaking section up top). "In the first half of 2014, there were just four bank deals with values of more than $250 million," the Journal reports, compared to six deals above that size in the first half of 2013. "The dearth of big transactions reflects a post-financial-crisis regulatory environment seen as hostile to deals adding heft to the largest firms."
The upswing in covenant-lite lending doesn't necessarily mean that mean that leveraged loans are getting more dangerous, according to "Heard on the Street." "The argument that loans with covenants are safer because they allow lenders to step in to preserve value in a deteriorating company doesn't seem compelling" given the comparative recovery rates for each type of loan, writes Richard Barley. He recommends that regulators devote themselves instead to the possibility that in the current low interest-rate environment, "more bad businesses will get financed, good businesses will overload on debt, and subordinated lending will grow."
Barclays and Deutsche Bank allegedly helped hedge fund Renaissance Technologies dodge more than $6 billion in tax payments, according to the Senate Subcommittee on Investigations. "These banks and hedge funds used dubious structured financial products in a giant game of 'let's pretend," costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation," said subcommittee head Carl Levin.
"Big U.S. banks reported the lowest loan losses in eight years in the second quarter, reflecting tighter lending standards since the financial crisis," the FT reports. While analysts say it's unlikely that credit performance can improve more than it already has, it could remain high for some time.
Wall Street's dollars are flowing to Republicans in the run-up to the November midterm elections. "The stakes are high as a Republican majority in the Senate would mean new heads of the powerful committees that hold hearings and originate legislation, including the Senate banking committee," the FT reports.
"Relying on cyclical patterns to judge economic and financial trends may not be as dependable as it once was because of the structural changes in financial markets," writes Henry Kaufman. This makes it harder to predict how the markets will respond to changes in Federal Reserve policy, he says.
Money can't buy us leisure time, writes Bilal Hafeez, managing director and global head of foreign exchange research at Deutsche Bank. He argues that while the U.S. has amassed a lot of wealth, it hasn't necessarily helped Americans achieve a rich quality of life. Vacations are scarce, work hours are long and most people spend what little leisure time they do have watching TV, he writes.
New York Times
Hackers may have stolen credit card information from customers at Goodwill thrift stores, according to the Times. Goodwill is investigating the possible breach, which was first reported by blogger and security expert Brian Krebs.