Receiving Wide Coverage ...
B of A to Pay for 'Hustle': Federal Judge Jed Rakoff ordered Bank of America to pay $1.3 billion for selling toxic mortgages to Fannie Mae and Freddie Mac, as part of its so-called "Hustle" program. The $1.3 billion penalty was less than the $2.1 billion the government sought, but "greatly in excess of what the bank hoped to pay," the Financial Times reported. Rakoff, who called the scheme "brazen fraud," also levied a $1 million fine on Rebecca Mairone, the Countrywide employee who led the "Hustle" program and later moved to JPMorgan Chase. Mairone's fine may be a "rare example" of a Wall Street banker being forced to pay a fine out of his or her own pocket, the Wall Street Journal noted. Ken Lewis' fines, for example, were covered by B of A. The FT reported that Mairone no longer works for JPMorgan. Meanwhile, talks continue between B of A and Justice Department over how much the bank will pay to settle the investigation into its mortgage practices. The DOJ now is seeking about $17 billion, with $10 billion of it coming in cash and the rest in "soft-dollar payments" to help struggling homeowners, the New York Times reported. B of A last offered $13 billion, including $4 billion in cash.
Synchrony IPO: Pricing for the IPO of General Electric credit card spin-off Synchrony Financial came in at the low end of expectations. It's a sign of weak demand from investors for companies involved in consumer finance, following the lackluster IPOs of auto lenders Ally Financial and Santander Consumer USA Holdings. (Shares of both Ally and Santander Consumer have fallen since their IPOs, the FT notes.) Also, because Synchrony is a private-label issuer of credit cards, some worried that its assets may be seen as less attractive than those of Capital One or Discover Financial Services. Even with those negatives, Synchrony's IPO is the biggest so far this year, raising about $2.9 billion as of Wednesday night, and the Times noted the offering was oversubscribed.
Wall Street Journal
The regulatory costs of being a too-big-to-fail bank have more than doubled since before the financial crisis, according to a Federal Financial Analytics study. The total price tag rose to $70.2 billion last year, from $34.7 billion in 2007. Bank of America ranked highest at $8.6 billion in extra regulatory costs and lost profits. JPMorgan Chase had the lowest cost among the six mega-banks, with "just $4.3 billion," the paper said.
Fewer familes are taking out loans to pay for college, and those borrowing are taking a smaller portion of costs in loans, a Sallie Mae study found. The typical family paid 22% of college costs through borrowing, down from 27% the past two years. The Sallie Mae study also found that a fifth of families used no borrowing, grants or scholarships to pay for college.
As the Fed stayed the course on gradually halting its quantitative easing program, reported by American Banker, economists and business executives chimed in with words of optimism about the U.S. economy's rebound, the Journal reported. The Journal quoted BNP Paribas economist Laura Rosner saying the latest numbers "resolve the puzzle around strong labor market growth and the poor performance of economy in first quarter." U.S. Steel CEO Mario Longhi said, "There is a resiliency in the economic fundamentals that are now beginning to manifest themselves."
Banks are trying to estimate the levels of deposit runoff they will see when the Fed ends its quantitative easing program and rates begin to rise, as American Banker reported this week. The big concern for banks is that they could lose a low-cost source of funds. The FT points out that one bank (which it didn't name) is encouraging money market funds to leave deposits seen as more stable with them, but move "less sticky" deposits to the Fed. To do this, money market funds can use a new Fed tool called the reverse repo facility, the paper says. The RRP allows money market funds and other non-banks to hold reserve accounts at the Fed.