Lenders' Private Equity Counsel Conflict; Sanders' TBTF Plan

Wall Street Journal

Bank stocks, measured by the KBW Nasdaq Bank Index, rose 35% in 2013, boosted by hope that then-Fed Chairman Ben Bernanke would raise interest rates, David Reilly writes in a short "Overheard" column. Then 2014 arrived and the waiting game began. The KBW index rose only 7% for the year, trailing the overall market's performance. Things got worse last year, as bank stocks lost 1.6% for the year.

Economic worries led to Monday's rout of bank stocks, Reilly opined. If the Fed hesitates in its plan for gradual, measured increases in rates, it could spell more bad news for banks. The market's performance on Monday did not bode well for bank stocks, or any other stocks for that matter, as it posted its worst first session of the year loss since 2008.

In a potentially good sign for commercial real estate lenders, demand for office space has taken off in the past several months. "Employers added 15.3 million square feet of office space in the fourth quarter," according to Reis Inc. That's the metric's highest level since the third quarter of 2007. Rents grew fastest on the West Coast, namely Seattle, San Francisco and Silicon Valley. Houston's office market, in contrast, saw an increase in its vacancy rate.

SunTrust Banks will advertise during the Super Bowl for the first time this year and it's going to eat up most of the Atlanta's company's annual ad budget. CBS will run a 30-second SunTrust ad during the Feb. 7 game. The ad, SunTrust said, will "inspire people to take control over their finances."

In addition to its first Super Bowl ad, it will also be SunTrust's first national ad buy. SunTrust operates retail branches in the Southeast and Mid-Atlantic. SunTrust spent about $16.7 million on ads in the U.S. in 2014, according to Kantar Media. SunTrust did not disclose how much it will spend on its Super Bowl ad, but advertisers are paying up to $5 million for 30-second ads this year.

"Super Bowl is the most effective platform for us to get the word out," Susan Somersille Johnson, SunTrust's chief marketing officer, told the Journal. "I looked at it not from an emotional standpoint but from an analytic one."

New York Times

Dealbook columnist Andrew Ross Sorkin takes a look at an emerging trend in the private equity world that raises questions about conflicts of interest. It's the emergence of private equity firms ordering the banks that are lending them money for their leveraged buyouts to take advice from a law firm of the private equity firm's choosing.

The "designated lender counsel" concept is akin to an employer showing you, the employee, an employment contract and telling you that the only lawyer who could look it over and give you advice is the employer's lawyer. Private equity firms say the practice is no big deal and if it was a big deal, banks would be complaining about it. In fact, the designated lender counsel practice has been used for years, private equity firms say.

But bankers privately complain about it; they're unwilling to complain publicly because of the potential to lose the private equity firms' business. One public complaint came in 2013 from the Securities Industry and Financial Markets Association, which raised concerns about the use of designated lender counsel in municipal bond offerings.

Elsewhere ...

CNBC: Bernie Sanders, the Democratic presidential candidate, plans to say later Tuesday that he would break up the biggest banks and insurance companies his first year in office, if elected. Sanders would create a "too big to fail" list of companies within the first 100 days of his administration, unnamed sources said. He would force these institutions to reorganize within one year.

BBC: For the second straight day, millions of HSBC banking customers in the U.K. are experiencing outages with their online banking service. On Monday, some customers were unable to access their accounts for up to nine hours. HSBC still had not identified the problem as of Tuesday morning.