Did Morgan Stanley Urge on Subprime Lending?

Editor's note: Morning Scan will publish next on Jan. 5, 2015. Happy New Year from all of us at American Banker and SourceMedia.

Wall Street Journal

Goldman Sachs just got the fuzzy end of the lollipop in a dispute over an $835 million loan to failed Portuguese lender Banco Espírito Santo. Goldman Sachs' loan was originally transferred to Novo Banco, the "good bank" created after the government rescue of Espírito Santo in August. Now Portugal's central bank plans to move the loan back to the bad one, potentially sticking Goldman Sachs and its investors with millions of dollars in losses. The Bank of Portugal says the initial transfer of the loan to Novo Banco accidentally violated European bailout rules "forbidding a rescued bank from taking on obligations to shareholders owning 2% or more of the entity." Goldman Sachs had a stake of more than 2% in Banco Espírito Santo at the time of its collapse.

A November slowdown may portend a subpar housing market in 2015, according to John Carney. New home sales fell 1.6% year-over-year that month; existing home sales dropped 6.1%. Carney predicts relatively low inflation next year will stifle potential for home price appreciation. In the comments section, a few readers argue it's hardly surprising new-home sales have hit a stumbling block since Americans with middle-class incomes can't afford the prices.

Financial Times

A corporate structure that separates the roles of board chairman and chief executive offers no guarantee of good governance, according to the paper's Lex team. The column tackles the controversy over Bank of America's decision to appoint chief executive Brian Moynihan to the dual role of chairman in October, arguing against a "check-the-box" approach to governance. The overall capability of board members is equally important in determining the fate of a company, according to the authors. The comments section is pretty quiet on the subject.

How will attorney general nominee Loretta Lynch respond to political pressure to crack down on Wall Street? Her past prosecutions against banks have been tough but fair, according to the general consensus, although lawmakers including Sen. Elizabeth Warren have criticized her office for being too soft on HSBC in a 2012 money laundering settlement.

New York Times

Morgan Stanley may have played a larger role in the subprime crisis than it's been willing to admit, the paper reports. Documents filed in a lawsuit against Morgan Stanley show the firm "actively influenced [mortgage lender] New Century's push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments," according to the paper.

Columnist Peter J. Hennings gazes into his crystal ball and makes a few predictions about the future of white-collar crime cases in 2015. He argues the government will have to work harder to prove insider-trading charges in the aftermath of the United States Court of Appeals for the Second Circuit in Manhattan's decision to toss the guilty verdicts against two ex-hedge fund managers in December. He also predicts the Securities and Exchange Commission will continue its effort to try cases before administrative judges rather than in federal district courts.