Goldman to Pay $5B Fine; Basel Committee Eases Trading Rules

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Breaking News This Morning ...

Earnings: It's a banner day for 4Q reports from megabanks and regionals: Citigroup, Wells Fargo, U.S. Bancorp, PNC and Regions Financial. And there are two M&A deals in Chicago, from buyers Wintrust and Royal Financial.

Goldman Sachs Faces Huge Fine: Goldman Sachs will pay the largest regulatory penalty in its history as part of a settlement regarding its sale of mortgage bonds before the financial crisis. Goldman settled with the complainants, which included the Justice Department and a host of other federal and state entities, for more than $5 billion. Altogether, the bank said it expects litigation legal expenses to put a $1.5 billion damper on fourth-quarter earnings. Much of the $5 billion will go toward a $2.4 billion civil monetary penalty paid out to the Justice Department. Another $1.8 billion will be paid in relief to distressed borrowers and underwater homeowners to finance affordable housing and support other programs in the housing sector, while $875 million will be made in cash payment to other agencies. While still a staggering penalty, the total bill shrinks in comparison to the likes of JPMorgan Chase and Bank of America, reflecting the relatively smaller role Goldman had in the lead up to the crisis.

Receiving Wide Coverage ...

Can JPMorgan's Hot Streak Continue?: JPMorgan Chase & Co. continues to draw praise from observers following the announcement of its fourth quarter results Thursday. The largest bank in the country by assets, earned kudos from the Wall Street Journal for "its ability to nimbly adjust its balance sheet." The bank managed to slash its assets to $2.35 trillion from $2.57 trillion a year ago while improving its return on assets, showing management's successful strategic trimming. Of course such a strong quarter leads to the inevitable question: how long will it last? While cost-cutting boosted the quarter's earnings, it was based on strong performances in the credit cards, commercial banking, midsize and large corporations lending divisions. Those divisions' returns will fall, inevitably, as will energy lending, which is taking a hit from falling oil and gas prices. So how can the bank ensure stronger quarters ahead? The answer lies in financial technology, according to the Reuters Breakingviews. While the bank's focus on cost-cutting certainly paid off this quarter, the article argues JPM could see an ever better return on its cost-cutting if it were to advance in financial technology.

Basel Committee Softens Trading Rules: The Basel Committee on Banking Supervision has taken steps to ease rules that require investment banks to hold more capital against their trading books, after being lobbied by the banking industry, the Financial Times reports. The rules were aimed at tempering the risk-taking by investment divisions, and in turn decreasing the likelihood of a bank collapse. While earlier the committee was considering increasing the capital demand by a weighted average of 74%, it settled on 40%. Regulators will also have more say over banks' decision making and how they account for risk, the Wall Street Journal writes, which could prove to be both a blessing and a curse. The Basel Committee argues for regulators to be able to look at individual trading desks, which could mean far more work – but also could make trading far less risky.

Bitcoin Backer Makes an Exit: Mike Hearn was once one of bitcoin's brainchildren. As the New York Times notes, he left Google to become a full-time devotee to bitcoin, becoming one of the few programmers worldwide who maintained the software underpinning the virtual currency. But now, Hearn has left the world of bitcoin, selling his remaining holdings in the currency and taking on a new job elsewhere, soured by the in-fighting that has broken out among its supporters. In a post to the site Medium detailing his choice to leave, Hearn argues the bitcoin experiment has reached its resolution – one of failure. He argues a small group of people have turned the currency from an alternative to the existing financial system into something else. Plus, he says, the blockchain is now full due to an artificial capacity cap, which threatens to make payments unreliable and to create huge backlogs. Overall, the divide in the bitcoin community on how to run the currency doesn't show any signs of letting up – some back the new version of the currency's software called Bitcoin Classic, while Hearn says it's all too late. Nonetheless, Hearn's opinion is just one in a much larger community, so naturally opposing opinions have risen to the surface since his post went live.

Wall Street Journal

The Federal Reserve can start worrying now. Falling energy prices, trouble with foreign economies and weakness against the dollar appear to be on track to become more perennial problems than the central bank previously anticipated, the Journal suggests. The paper points to a 1.2% drop from November to December in import prices, putting them more than 8% below where they were last year. Consequently, concerns are growing that inflation is being stymied by the range of troubles mentioned above, with possibly more problems to come. This mess could resolve itself before the Fed's meeting in March, when it's expected to approve another rate hike. But if they continue, it could foil the central bank's attempts to continue raising interest rates in 2016.

Financial Times

A U.S. hedge fund is angry over reports that authorities asked for the resignation of the chief of Greece's Piraeus Bank. American billionaire John Paulson's hedge fund, Paulson & Co., has written to the head of the Greek bank rescue fund over the report, which claimed that the Hellenic Financial Stability Fund asked for Piraeus CEO Anthimos Thomopoulos' resignation shortly after giving it 3.3 billion euros ($3.62 billion) in relief funds. Paulson invested in Piraeus prior to last year's crisis, and has sustained heavy losses as a result of the investment. The hedge fund argues the bank rescue fund is only a minority stakeholder in the bank and consequently should not have the power to force out an executive. The country's left-wing government is the suspected culprit behind the moves to force Thomopoulos out, stoking fears of government interference in the banking industry, and if the fund is supporting the move (which it denies) then it's the first time that it has looked to fire a bank executive. Overall, the scuffle indicates the pressure the fund faces to institute real changes at Piraeus and other Greek banks, even when faced with investor pushback.

New York Times

State Street's banking unit has settled pay-to-play charges with the Securities and Exchange Commission. The company will pay $12 million to settle charges that an executive and an outside lobbyist ran a pay-to-play scheme to win contracts from Ohio pension funds. The individuals reportedly struck a deal with Ohio's deputy treasurer to make cash payments and campaign contributions, receiving contracts for three of the state's public pensions in exchange. The former State Street executive in question, Vincent DeBaggis, was fired and is also settling with the SEC for roughly $275,000, including a $100,000 penalty. The lobbyist, Robert Crowe, meanwhile is being sued by the SEC and is fighting the charges. State Street, did not admit or deny the charges in the settlement.

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