Receiving Wide Coverage ...
The Fed’s Reserve: In the minutes from the last policy meeting, “Federal Reserve officials sent new signals they are seriously considering more actions to bolster the economic recovery but disappointed many investors by not indicating they are committed to taking action,” the Journal says. The Times and the Post play up the divisions among Fed officials on whether, how and when to act. Wall Street Journal, New York Times, Washington Post.
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The New York Fed: With lawmakers asking tough questions about the New York Fed’s knowledge of Libor manipulation, the regulator will release documents tomorrow showing it “took prompt action four years ago to highlight problems … and press for reform," an unnamed official tells the Journal. (At least the official is identified as such, and not as the usual pusillanimous “person familiar with the situation.”) The Times reports that the New York Fed replaced nearly all of its 40 examiners at JPMorgan last year, in part to “prevent regulators from forming cozy ties with executives.” While that’s a laudable goal, the shake-up “left the New York Fed’s front-line examiners without deep knowledge of JPMorgan’s operations for a brief yet critical time,” and ill-equipped to ask the smart questions that might have flagged the London Whale’s disastrous trades. Wall Street Journal, New York Times.
Liborama: Another issue U.S. lawmakers are looking at is Libor manipulation’s effect on consumers, the FT reports. Now, our knee-jerk reaction was “it would have benefited them, however inadvertently, right?” We at the Morning Scan had assumed that whether the motivation was to conceal an individual bank’s distress during the crisis or to enrich a trading desk’s profits, the direction of the rate-rigging was always down. Well, you know what happens when you assume. (The family-friendly version is “it leads to embarrassment for one or more parties.”) The profit-driven rate-rigging may have gone both ways, evidently. So, according to the FT, “During periods when banks were allegedly attempting to push Libor higher, households with loans tied to the gauge may have paid higher rates than necessary. However, if the rate was manipulated lower, households may have benefited from paying below-market interest rates.” For us, this situation raises all kinds of interesting questions. If it turns out that some consumers overpaid at times but on a net basis came out ahead from all the distortions, would they still be eligible for restitution? (We doubt anyone will suggest such households should have to disgorge their interest savings.) And it’s important to remember that consumers weren’t the only affected parties. In the Times’ “Economix” blog, Simon Johnson writes: “Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. That may have been investors, who received lower returns than they would have otherwise. … Some local governments have also lost heavily, at a time when these losses put pressure on essential services and will tend to increase taxes.” There’s one group, however, that we’re certain will be net beneficiaries from this: lawyers, for plaintiffs and defendants alike.
Swiss Banks: “German tax inspectors in recent weeks have been raiding the homes of Credit Suisse Group AG clients suspected of evading taxes, according to bank and German government officials,” the Journal reports. Meanwhile, in this country Democrats have been making hay of a recent investigative report in Vanity Fair detailing Mitt Romney’s offshore accounts in places like Switzerland and the Cayman Islands. (Warning to readers who dislike the Morning Scan’s occasional rants: we advise you to skip ahead to the next item.) Now, any would-be commander-in-chief’s finances are fair game for public scrutiny, and tax evasion is certainly deplorable. But we think Senator Dick Durbin might have been unfair to Swiss bank clients when he recently asserted on television that "You either get a Swiss bank account to conceal what you're doing, or you believe the Swiss franc is stronger than the American dollar." There may well be other, legitimate reasons. We recently obtained a musty copy of Harry Browne’s 1976 “Complete Guide to Swiss Banks” (the postage cost more than the book) and the first two sentences say it all: “By 1934, Hans Lubich, a prosperous Jewish businessman, understood what kind of future the Nazi government was preparing for him. He decided to take his family to Switzerland for a ‘vacation.’ …” You can guess the rest of that story. Browne was a hardcore libertarian, but you don’t have to wear a three-cornered tinfoil hat to believe that governments are capable of anything — even here — and that people might have valid reasons to want to keep a portion of their wealth outside the country where they live. Just sayin’…
JPMorgan: But it’s not the Whale in the spotlight today. Federal and state regulators are examining JPMorgan’s sales tactics “after claims that the nation’s largest bank pushed its own mutual funds over competitors’ investments,” according to the Times. Meanwhile, JPMorgan still loves the climate in London, apparently. The FT says the bank “is aiming to take the number one slot in the lucrative prime brokerage market in Europe by the end of next year, after launching a London-based operation only 12 months ago.”
Wall Street Journal
Bankers dislike rising regulatory capital requirements, but they are making bank debt more attractive to fixed-income investors, who’ve been bidding up for the bonds, despite the recent Moody’s downgrades.
Financial Times
HSBC’s penalties for anti-money laundering compliance failures may total as much as $1 billion, analysts tell the paper. Expect contrition when HSBC executives testify before Sen. Carl Levin’s Permanent Subcommittee on Investigations next week. The FT got its hands on an internal memo to bank employees from CEO Stuart Gulliver saying “we failed to spot and deal with unacceptable behaviour” and that it’s “right that we be held accountable and that we take responsibility for fixing what went wrong.”
