Receiving Wide Coverage ...
Nothing But Stress: Foreign banks are stressed about the stress tests. Deutsche Bank and Santander are both expected to be called out by the Federal Reserve on Thursday, when the stress test results are announced, for lapses in risk management. Capital isn't the issue with foreign banks. Instead, it's how they measure and predict risks and losses. DB, Santander, Barclays, Credit Suisse, HSBC and UBS are "now spending heavily and recruiting project managers, data experts and other staff needed to run the complex computer models involved in the Fed's annual exercise," the Wall Street Journal reported. Does that mean the foreign banks didn't employ these kinds of experts before this year's round of stress tests? While foreign banks are burning the midnight oil to get ready, former FDIC chair Sheila Bair says the Fed itself needs to do a better job of explaining what it's looking for. In a public comment letter, Bair argued the Fed needs to be more forthcoming in explaining the specific risks it's examining when determining extra capital requirements. "As long as the GSIB surcharge is 'just a number', understood by only a handful of specialists, it will be subject to attack as being ill-conceived, unduly burdensome, and a barrier to economic recovery," Bair wrote in her capacity as a member of the Systemic Risk Council.
Wall Street Journal
Citigroup announced a deal to sell its OneMain Financial unit to Springleaf Holdings, the Journal reported. The combination creates the largest U.S. subprime lender. Citi has been trying to unload OneMain for some time, and last year flirted with holding an IPO for the subsidiary. The deal with Springleaf, valued at $4.25 billion, allows Citi to completely exit OneMain. One interesting note: OneMain has about 1,140 branches more than Citi's 850.
Be nicer to delinquent mortgage borrowers, please. The Federal Housing Finance Agency issued new rules Monday that require private investors who take over GSE-backed mortgages to try harder to work with delinquent borrowers before evicting them. A set of new requirements is imposed on private investors, like extending loan terms to past-due borrowers. Another rule would require that during the first 20 days a foreclosed property is for sale the investor can only sell it to nonprofit groups or people who intend to live in it.
Barclays raised its provision to $1.92 billion for potential losses tied to alleged foreign-exchange rigging. The increase led Barclays to report a loss for 2014. But CEO Antony Jenkins said Barclays is in its best shape since the financial crisis, thanks in part to a restructuring program.
New York Times
As the fortunes of JPMorgan Chase's investment bank have slipped and the prospects of its retail bank have risen, so have the projected career trajectories of each side's respective leaders. Gordon Smith, head of consumer banking, is now thought to be the front-runner to succeed Jamie Dimon as CEO, unnamed sources tell the Times. Daniel Pinto, head of the investment bank and once thought to be Dimon's heir apparent, is now mired in cost-cutting and reducing financial projections, and thus his number in line to the throne is thought to have slipped a notch. (It wouldn't have fit in the article's narrative of consumer bank-versus-investment bank, but shouldn't Chief Financial Officer Marianne Lake also rank among at least the top three potential candidates to succeed Dimon?)
The Times takes a look at the tightrope that Warren Buffett walks when it comes to investment banks. Reading Buffett's latest letter to Berkshire Hathaway shareholders, you'd think Buffett would want nothing to do with Wall Street hucksters. He slams them for encouraging unnecessary mergers and acquisitions, as they're doing it only to generate fees for themselves. But at the same time, Buffett has publicly praised Wall Street CEOs like Jamie Dimon and Lloyd Blankfein. And, Berkshire is a major investor in Goldman Sachs and in Merrill Lynch, via his Bank of America shareholdings. The Times column wraps up its analysis by saying Buffett's message is less to his shareholders, and more to the executives of family-owned companies, whom he would like to convince to sell to him.