Farming Fiesta, Targeting Cyber-Security

Receiving Wide Coverage ...

Farm Bill's Feast and Famine: In a rare bout of bipartisan unity, the U.S. Senate passed a farm bill that provides a cornucopia of goodies to the well-heeled and well-connected—including bankers—but a lump of coal for the poor. The long-stalled bill, which represents nearly $1 trillion in spending over the next decade, passed 68 to 32. At 949 pages, it expanded crop insurance for farmers by $7 billion over 10 years and created new subsidies for growers of rice, peanuts, sugar and catfish, reports the New York Times. Anti-hunger advocates warned, however, that 1.7 million people in 850,000 struggling households will lose an average of $90 per month in food stamp benefits. "Absolutely devastating" is how a United Way official described to the Times the bill's effect on the poor. Rural bankers were far more cheerful, thanks to the legislation's inclusion of key provisions they'd lobbied for. They include expansion of the farm industry's crop insurance system and removal of term limits to a Department of Agriculture loan guarantee program. The Independent Community Bankers of America "thanks the Senate for passing a five-year farm bill to provide stability to rural communities and the community banks that serve them," said Bill Loving, chairman of the Independent Community Bankers of America. New York Times, Wall Street Journal, American Banker

Off Target: Target Corp. officials took their mea culpas to the U.S. Senate on Tuesday, vowing to accelerate plans to add to its credit cards anti-fraud EMV chips already in wide use in Europe and elsewhere. The Senate Judiciary Committee hearing on privacy in the digital age provided the first venue where executives from Target and Neiman Marcus, another recently hacked retailer, had been subjected to detailed public questioning about their detection and handling of recent data security breaches. The hacks exposed the data of millions of customers. A key question involves the role the federal government should play in setting standards for safeguarding data and notifying consumers when data is stolen. With cyberthreats rapidly evolving, legislators are wary of setting a rigid minimum standard that hackers could one day exploit, reported the Wall Street Journal. Currently federal law requires banks to notify customers of data breaches but retailers have no such requirement and are subject to a patchwork of state laws instead, according to the Washington Post. On Tuesday, Senators Richard Blumenthal, D-Conn., and Ed Markey, D-Mass., introduced legislation that would require companies to protect consumer data from being stolen, encourage companies to share information about data breaches and allow consumers to recover damages. At the Judiciary hearing, Target chief financial officer John J. Mulligan confirmed the data thieves that attacked his company had gained entry via its computer system by stealing an outside vendor's credentials. That episode alone is believed to have exposed personal data of as many as 110 million customers, more than a third of the U.S. population. About 40 million of those affected shopped during the peak holiday season. "The banks have delayed; the retailers have delayed; the government has delayed," Sen. Elizabeth Warren, D-Mass., said. "And the ones who paid the price are the consumers whose data are being stolen." The quip has obvious populist appeal, although it is retailers and banks that are likely to end up paying for the cyber-hacks. Wall Street Journal, New York Times, Washington Post

Morgan Stanley: Morgan Stanley (MS) agreed to pay the top U.S. housing regulator $1.25 billion to settle a lawsuit that it sold mortgage bonds to Fannie Mae and Freddie Mac without adequately disclosing their risks. The Federal Housing Finance Agency filed suit against 18 of the world's biggest financial firms in 2011 seeking unspecified damages for their roles in selling more than $200 billion in securities with offering materials that misled Fannie and Freddie about the quality of loans backing those investments. According to the agency's lawsuit, Morgan Stanley sold $10.6 billion in mortgage-backed securities to Fannie and Freddie during the credit boom, while presenting "a false picture" of the riskiness of the loans. The firm became the eighth bank to settle those claims bringing the FHFA's take to $9.1 billion. Morgan Stanley's $1.25 billion deal ranks third behind those of Deutsche Bank, which agreed to pay $1.9 billion in December, and JPMorgan Chase (JPM), which reached a $4 billion settlement in October. The penalty would be the largest in recent memory for Morgan Stanley and was described by company executives as a "legacy" issue on a Jan. 17 conference call with analysts, the Wall Street Journal reports. The settlements have followed a series of legal rulings by U.S. District Judge Denise Cote that have gone against the banks, and those rulings have accelerated the pace of settlements in recent months, it adds. Of the outstanding lawsuits, Bank of America (BAC) faces the largest potential tab; The FHFA is seeking at least $6 billion from it to settle cases related to two firms it acquired—Countrywide Financial and Merrill Lynch. Far less scrutiny has been given to why controls were so lax at Fannie and Freddie, as well as at its overseer, the FHFA, that they purchased tens of billions of dollars worth of mortgages they now claim were unsuitable. Wall St. Journal, New York Times

Puerto Rico's Plight: Puerto Rico's financial plight deepened as a credit-rating firm lowered the territory's debt to junk, a move that could make it more expensive for the island to raise much-needed funds. Standard & Poor's Ratings Services said the cut was driven by Puerto Rico's limited ability to access funds over coming years as its obligations pile up. It said the island's ratings could be lowered again in the next "couple of months" if it can't raise funds or "otherwise improve cash flows." Puerto Rico's intensifying cash squeeze is of outsize importance to the rest of the U.S. because its debt is widely held by individual investors through mutual funds, the New York Times reports. "We are confident that we have the liquidity on hand to satisfy all liquidity needs until the end of the fiscal year, including any cash needs resulting from today's decision," said the Government Development Bank of Puerto Rico, the island's financial adviser. The U.S. government has had talks with island officials but a Treasury spokesman said "there is no federal financial assistance being contemplated," the Wall Street Journal reports. S&P's junk rating is unlikely to cause a wave of forced selling by investors because the other two major credit-rating firms still rate the island at the lowest level of investment grade, the paper added. Wall Street Journal, New York Times

Wall Street Journal

Small banks are facing a crunch-time decision over federal aid received during the financial crisis: repay the funds soon or face steeper interest rates. Most banks that accepted government funds paid them back long ago, but some 80 lenders still owe a total of roughly $2 billion disbursed under the U.S. Treasury's Troubled Asset Relief Program. If the banks don't reimburse taxpayers soon, the quarterly dividends on the amount borrowed will rise to 9% of the loan balance outstanding from 5%. For some banks, the change is scheduled to kick in as early as next week.

Financial Times

Deutsche Bank has appointed a new New York-based co-head of fixed income trading as the lender adds senior staff and billions in capital to its U.S. business. Its goal: Regain lost ground in the largest investment banking market in the world. The move comes as the institution's investment bank management is shifting some of its attention from cleaning up legacy problems to a more growth-oriented agenda. It forms part of a strategy to re-invest in its U.S. trading business after domestic rivals seized market share.

New York Times

JPMorgan Chase will be able to write off the $1.5 billion in debt relief it must give homeowners to satisfy the terms of a recent settlement. But the homeowners who receive the help will have to treat it as taxable income, resulting in whopping tax bills for many families that have just lost their homes or only narrowly managed to keep them. The quirk is the result of the Dec. 31 expiration of a tax exemption for mortgage debt forgiveness that had been put in place when the economy began to falter in 2007. Its sunset leaves hundreds of thousands of struggling homeowners in financial limbo, even as the Obama administration has tried to encourage such debt write-downs.

Washington Post

Janet Yellen made history on Monday when she was sworn in as the first woman to lead the Federal Reserve. But the seeds of change had been planted decades earlier. In 1978, Nancy Teeters became the first woman to serve on the Fed's influential board of governors, having been nominated by President Jimmy Carter. At the time, Sen. William Proxmire, the Wisconsin Democrat who headed the Senate Banking Committee, said it was a "disgrace" that the appointment took so long. Until Teeters, the Fed had been an all-boys' club without a woman on its board for 65 years. There have since been seven other female governors. Two of those—Yellen as chair and Sarah Bloom Raskin—are currently serving.