Receiving Wide Coverage ...
Practice Makes Perfect: Have U.S. banks finally cracked the code on stress tests? Whatever your opinion, there's an article that will reaffirm it. The Wall Street Journal suggests the Fed's annual capital review still keeps banks guessing, pointing out that Goldman Sachs, JPMorgan Chase and Morgan Stanley all overshot their proposed shareholder payouts by a significant margin. They collectively shaved off at least $11 billion in payouts in order to meet the Fed's requirements, according to the paper, which says that some banks "were shocked by the disparity between their expectations and the Fed's, such as projections for how banks' assets and net income would fare in a severe economic downturn, said people close to the banks." One noteworthy example: the Fed reportedly thought JPMorgan would lose almost $55 billion in a crisis; JPMorgan thought its losses would be closer to $30 billion. On the other hand, as an anonymous banker tells the Journal, "it doesn't hurt you to be aggressive": banks want to maximize their returns to shareholders and they can readjust plans deemed excessive one time without failing the tests. On the other hand, the Financial Times says the fact that all 31 U.S. banks managed to pass the qualitative and quantitative tests this year shows they're learning to swim with the tide and figure out what the Fed wants. Meanwhile, the New York Times takes a gander at estimating how much JPMorgan, Goldman and Morgan Stanley cut their proposed shareholder payouts after getting the Fed's feedback. Based on publicly available data and an anonymouse interviewee, the paper thinks JPMorgan Chase "probably lopped around $6 billion off its request." A separate FT article notes Banco Santander and Deutsche Bank have vowed to bolster their capital planning after the U.S. units of both institutions failed the tests this year.
Black Eye and Embarrassment: Commerzbank's reputation will take a hit for its $1.45 billion settlement with U.S. authorities over alleged sanctions violations and aiding a money-laundering scheme, according to the papers. The settlement is a "black eye" and an "embarrassing blow to a lender that is partially owned by the German government" the New York Times and the FT report. Five senior staffers have stepped down from Commerzbank as a result of the deal, including the former head of anti-money-laundering compliance in its New York branch and four employees implicated by U.S. investigations. Particularly damning, according to New York financial watchdog Benjamin Lawsky, is "employees sought to alter the bank's transaction monitoring system so that it would create fewer 'red flag' alerts about potential misconduct, which highlights a potential broader problem in the banking industry." The Journal has a more cut-and-dried take on the settlement, including the possible impact on Commerzbank's capital ratios. Finance chief Stephan Engels said the bank will be able to meet its minimum capital requirements after paying the penalty, "countering analysts' concerns that the lender looks thinly capitalized compared with its European rivals."
Too Big to Bar? Critics have accused the Securities and Exchange Commission of distributing waivers from bad-actor bans with a liberal hand. But SEC chief Mary Jo White says the facts show the agency is selective in deciding whether to free financial firms from bans that would restrict their securities businesses after the firms pled guilty to or settled legal cases. In a speech at Georgetown University, the SEC head explained that "the S.E.C. rejected 14 'bad actor' waiver requests and granted 13 over the last year and a half," the Times reports. A number of pending SEC settlements are facing delays because of controversy over the waivers, according to the Journal. "Some SEC officials and defense lawyers said companies are now unwilling to finalize settlements without assurances they'll get a requested waiver for fear of harming their businesses."
Citi's Tough Call: A Manhattan judge has rejected Citigroup's request to make interest payments to bondholders of Argentinian debt, "putting the U.S. bank in the position of facing possible sanctions in Argentina or violating his ruling," the FT reports. The same judge had earlier ruled Argentina could not receive interest payments on its debt unless the country paid a group of New York hedge-fund creditors, "a move that caused the country to default last summer and has locked Argentina out of the international debt markets ever since," according to the Times.
Change is in the air at Credit Suisse after Tidjane Thiam's appointment as the bank's next CEO, the paper reports. Anonymice say several high-level executives likely to follow outgoing head Brady Dougan as he steps down, making room for Thiam to assemble a team of "more client-focused executives."
New York Times
A column by James B. Stewart takes a lighthearted look at the Fed's use of the word "patience" to convey its rough timeline for an interest-rate increase, talking with linguists about the word as a "term of art." The linguists agree the word's meaning varies according to the context and seem largely at peace with the Fed's purposefully ambiguous usage. "When Yellen speaks of patience having its limits, she is saying that while the Fed will not raise interest rates as soon as doing so is justifiable, neither will it wait until raising rates is an immediate necessity," says one professor. "This tells us very little, of course. But it tells us much more than nothing, which is why there is so much chatter about it."