Receiving Wide Coverage ...
Ocwen Under Fire: New York financial watchdog Benjamin Lawsky is turning up the heat against mortgage servicer Ocwen Financial. The superintendent of New York's Department of Financial Services is accusing Ocwen of routing as much as $65 million worth of fees each year to an affiliated insurance company, Altisource. In a letter to Ocwen's general counsel Lawsky also highlights "serious concerns about the apparently conflicted role played by Ocwen executive chairman William Erbey and potentially other Ocwen officers and directors in directing profits to Altisource," the Financial Times reports. Erbey, who is also chairman of Altisource and owns a stake in both firms, had previously pledged to recuse himself from Ocwen's decisions about doing business with related companies. Wall Street Journal, Financial Times
HSBC's Flint Rocks the Boat: HSBC chairman Douglas Flint continues to get plenty of attention for suggesting that fear of regulatory smackdowns is causing the bank's employees to be overly cautious. Flint expands on this notion in an interview with the Journal, saying, "We're in a business that takes risk and manages risk and we have to avoid getting to a state where people believe there is a zero risk tolerance." Both the Journal and the FT note that it's rare for bank executives to take such an explicit stance against what they see as overregulation. Perhaps Flint's comments will distract industry observers from HSBC's other challenges? The company's increasing focus on global banking and markets has made its earnings more volatile, according to "Heard on the Street." And Flint's request that British authorities push back the deadline by which banks must separate their retail and investment banking businesses in case of additional regulatory demands "suggests the bank is preparing for the worst," according to the FT.
Wall Street Journal
Corporate executives are at odds over whether it's better to go public with security breaches as soon as they happen or disclose them on a need-to-know basis. Some argue that "many breaches don't lead to harm and can be handled quietly" and that shouting security issues from the rooftops can make companies a target of future cyberattacks. Others say that companies are obligated to be upfront about breaches, and "many computer-security experts say disclosure helps others respond to an attack and deter future hacks."
More banks loosened mortgage-lending standards for prime borrowers in the second quarter, though standards remain stricter than the pre-crisis norm. Banks also appear to be more willing to lend to companies with junk ratings because of increased competition for business loans, according to the Federal Reserve's quarterly survey of banks' senior loan officers.
JP Morgan's second-quarter litigation costs may be as much as $4.6 billion higher than the amount it has in legal reserves, according to a regulatory filing. The company's excess litigation costs were estimated at $4.5 billion in the previous quarter. "The estimate is closely watched by investors as a way to gauge whether legal costs are rising or falling versus a bank's previous expectations," according to the Journal. The bank recently reported legal expenses of $669 million in the quarter ending June 30, down off from $678 million in the same quarter of 2013.
The Securities and Exchange Commission is authorized to act as judge and jury on the cases it prosecutes, but that doesn't make it a good idea, according to former SEC assistant director of enforcement Russell Ryan. "A surge in administrative prosecutions should alarm anyone who values jury trials, due process and the constitutional separation of powers," he writes in an op-ed.
Prosecuting bankers is likely a less effective deterrent against wrongdoing than broad regulatory reform, but why not have both? That's the conclusion drawn by FT banking editor Martin Arnold in an op-ed. He cites a paper by law professor and former federal prosecutor Daniel Richman, who argues that "there's a place for individual prosecutions" but "if simplistic clamoring for more heads keeps us from considering more systemic regulatory reforms that better handle dangerous market 'innovations,' this will have been one expensive cathartic exercise."
New York Times
"Federal prosecutors have begun a civil investigation into the booming business of subprime auto lending, focusing on the packaging and selling of questionable loans to investors," according to the Times. The Justice Department and the office of U.S. attorney Preet Bharara are investigating whether General Motors' finance unit misled investors about the quality of the auto loans backing securities. Other subprime auto financers are also under scrutiny, according to the paper.
Federal judge Jed Rakoff's decision to fine Bank of America $1.26 billion for soured loans sold by Countrywide Financial demonstrates the success of an obscure enforcement tactic, according to law professor Peter J. Henning. The Financial Institution Reform, Recovery, and Enforcement Act "has turned out to be a powerful weapon for pursuing settlements from banks that played a role in fueling the housing boom that contributed so much to the financial crisis," Henning writes.
Michael Winship of Moyers & Company rounds up reactions to the Government Accountability Office report on big bank subsidies, highlighting two recent BankThink pieces by Camden Fine and Mayra Rodriguez Valladares. Takeaways from the Times' Gretchen Morgenson and Paul Krugman also made the cut, along with responses from the Treasury Department's Mary J. Miller and Senators Sherrod Brown and David Vitter.