Wall Street Journal

In another attempt to prevent taxpayer-funded bailouts of large banks, the Fed is scheduled to vote today on proposal related to derivative contracts.

Hedge funds and asset managers like Pacific Investment Management Co. would lose their contractual right to terminate financial contracts with big banks. As it currently stands, asset managers can terminate contracts with a bank if the bank files for bankruptcy, and the asset manager doesn't have to get in line with other creditors to be repaid.

But regulators are worried that situation is partly what led to the destabilization of markets in 2008 that led to Lehman Brothers' collapse. Lehman's trading partners, at the sign of weakness at Lehman, terminated derivative contracts with the bank, complicated authorities' efforts to unwind the bank.

The Fed may also make the new rule retroactive. Details will be released today for the first time.

Not surprisingly, hedge funds and asset managers stand in opposition. The Managed Funds Association argues the proposal would encourage financial instability by pushing investors to run for the exits at the slightest sign of trouble.

The Journal noted that the rule is a "rare example of the central bank indirectly regulating investment firms that don't fall under its direct authority."

It appears that, through the first quarter, the largest banks seem to be successfully remaining on the sidelines in the energy-lending crisis.

It's a relative success, however. The measurement pertains to unfunded lines of credit to oil and gas companies, as investors and analysts have been worried that cash-crunched borrowers might start tapping out their lines of credit. But that doesn't appear to have happened to a huge degree.

In fact, at the four largest banks, their unfunded exposure was greater than their funded exposure at the end of the year, totaling $117 billion. Citigroup had the largest total exposure (the combination of both funded and unfunded exposure) at about $57 billion, followed by JPMorgan and Wells Fargo, each at about $41 billion, and Bank of America at about $35 billion.

Some borrowers did start drawdowns of their credit lines during the fourth quarter, but not at aggressive rates.

 If oil prices remain low for an extended period, or fall from current levels, projected losses at the largest banks appear to be "painful but manageable." As a percentage of Tier 1 common equity, they would range from 3.6% at JPMorgan to 5.9% at Citigroup.

New York Times

Officials at the Securities and Exchange Commission appear to have purposely stalled pursuing cases against Goldman Sachs related to securities transactions, raising questions whether the SEC treats the bank with kid gloves.

Eventually, the SEC pursued a case against only one Goldman exec, Fabrice Tourre, related to a collateralized debt obligation. Goldman eventually settled the case for $550 million, but the SEC dropped the most serious charge against the firm.

In another case involving mortgage-backed securities, in which investors lost about $500 million, the SEC eventually decided to drop the case. Later, Goldman paid $5 billion to settle all probes into its sale of MBS from 2005 to 2007.

Recent articles in The New Yorker and Fortune raise questions that the SEC may not have the stomach to take on a well-funded defendant like Goldman.

Elsewhere ...

MarketWatch: It's an open debate among investors whether stock buybacks are a good thing or a bad thing. If you subscribe to the bad theory, then Wells Fargo has been one of the most egregious offenders.

Wells spent about $29.3 billion on share repurchases over the five-year period ending 2015. That's one of the highest amounts of any company.Over that period, the total return Wells achieved on those shares was about 72%, averaging about 11.5% per year.

While those numbers sound like a decent return, they actually underperformed the S&P 500 over the same period. The S&P 500 rose 73% over the same time period, averaging about 11.6% per year.

Which ostensibly means Wells could've put that $29.3 billion in the Vanguard S&P 500 Index mutual fund and gotten a better return.

The argument against stock-buybacks centers on the concept that if a company says it's "returning capital to shareholders," how can that be the case if they are actually losing money?

But there are extenuating circumstances that can make share-buybacks a good thing for investors, even if they lost money compared to the S&P 500. Perhaps the buybacks have offset dilution in massive stock-based compensation packages to top executives, for example. Or, maybe the company's revenue has been falling and its profit margins narrowing.

Also consider that while Wells' shares did underperform the S&P 500 during the period, at least they're not IBM. Big Blue spent $59.1 billion on stock-buybacks during the same 5-year period, and its shares produced a total return of 4%, averaging 0.8% per year.

Ouch.

Automotive News: Ally Financial, the largest auto lender, has increased its originations of used cars.

Used cars as a share of Ally's total loan originations rose to 45% in the first quarter of this year, compared to 25% in the first quarter of 2013. Also during this year's first quarter, Ally originated $4.1 billion of used-car loans, the highest amount in its history.

Ally expects that it's reached the near-peak of its used-car loan originations, its chief financial officer told investors last week.

Ally has also started a new used-car leasing product, called SmartLease.

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