Wall Street Journal
Fresno, Calif.: home of raisin farms, a college football team called the Bulldogs, and (who knew?) a federal prosecutor's office that dug up the memo that led to $37 billion in bank fines stemming from the subprime mortgage crisis. The Journal reports on Richard Elias, an assistant U.S. Attorney who discovered JPMorgan Chase documents while working in the Justice Department's Fresno office that led to successful prosecutions of big banks. The JPMorgan memos indicated that bank employees knew the loans they were packaging into securities were some of the worst loans they'd ever seen, but chose to proceed with the securitizations anyway. The discovery of the memos also helped DOJ use a law from the era of the savings-and-loan crisis to pursue big fines against banks. (Attorney General Eric Holder's goal of nabbing a big win against banks by the end of 2013 was also a motivating factor, too, the Journal notes.)
The Journal reports on a Bain study on mobile banking that's due to be released today. Bain says that while mobile banking is an area of rapid growth for banks, mobile users are demonstrating less loyalty than customers than those who visit branches. Thus, Bain's authors argue, banks shouldn't completely discard the physical branch model, as it needs to work in conjunction with mobile and online banking. The Journal emphasizes high up in the story that mobile banking usage doesn't really generate much in the way of fee revenue. Only farther down in the piece does the Journal say the obvious, which is that mobile banking offers a financial boost to banks by allowing them to cut back on expensive real estate.
Hong Kong officials said they found no evidence of collusion among banks to rig foreign-exchange markets. The announcement stands in contrast to the $4.3 billion in fines assessed against six banks, including Bank of America and JPMorgan Chase, by U.S., U.K., and Swiss officials last month.
New York Times
In the latest development in the growth industry of investigating subprime auto lending, the Justice Department has issued a subpoena to Ally Financial. Ally already received an inquiry from the Securities and Exchange Commission in October. And the DOJ isn't a newcomer to the area either, as it had previously sent a subpoena to Santander and GM Financial, looking for subprime-auto information. Preet Bharara, the U.S. Attorney for Manhattan, is looking into how banks and lenders securitize subprime auto loans. Ally has issued $2.75 million in subprime-auto loan securitizations this year, through Oct. 31.
Floyd Norris, in his final column for the Times, takes a look at how the dearth of financial regulation in the 1990s came home to roost starting in 1997. Not just former Fed Chair Alan Greenspan's "market fundamentalism" theory (that markets are always smarter than governments and should be left alone), but the lack of regulation in Asia and elsewhere led to financial problems worldwide. As the economy surged in the 1990s, companies were essentially allowed to keep doing what they were doing, with little regard for potential problems down the road. "Bank capital rules came to allow the banks to use their own presumably sophisticated models to calculate how much capital was needed for any asset they owned," Norris writes.
The "Breaking Views" column compares and contrasts Bank of America with Morgan Stanley, five years after Brian Moynihan and James Gorman, respectively, were put in charge of each bank. The column compares the two bank's capital levels, expenses and perceived strength of their underlying businesses.