Tepid Profit Picture for Banks; Watch Out for 'Citizens Arrests'

Receiving Wide Coverage ...

Mixed Bag: The FDIC's quarterly banking profile showed loan growth (encouraging), continued loan-loss reserve releases (nice, but unsustainable) and continued squeezing of net interest margins (not so good) for the second quarter. "The lack of wind in banks' sails ... helps explain why [stock] valuations are downbeat," says the Wall Street Journal's "Heard on the Street" column. Straight news stories in the Journal and Washington Post.

How Much Is Smith Barney Worth? We'll have to wait another two weeks for the answer. Perella Weinberg, the firm hired to referee a dispute between Morgan Stanley and Citigroup over the valuation of their brokerage joint venture, was originally going to deliver an assessment Thursday, but delayed its report until Sept. 10. "Morgan Stanley has been gradually buying out Citi's stake in the venture, but the two sides have failed to agree on the price of the next 14 per cent stake due to be sold next month, after which Morgan Stanley will own 65 per cent of Smith Barney," notes the FT. Wall Street Journal, Financial Times.

Wall Street Journal

An op-ed extols the wisdom of mandatory two-week vacations for employees of financial institutions — not as a perk but as a safeguard against fraud. The FDIC has recommended this policy to commercial banks for years, and the idea has since spread to investment banks. How does insisting that workers take some time off protect against fraud? The money quote comes from Jerome Kerviel, the rogue trader who lost some $7 billion for Societe Generale: "A trader who doesn't take vacation is a trader who doesn't want to let anyone else look at his book."

Financial Times

Sen. Bob Corker, a Tennessee Republican on the banking committee, urges Fed chairman Ben Bernanke to "show some humility" about what monetary policy can achieve. While Corker wants to change the Fed's charter to end the "unsound" dual mandate of price stability and full employment, in the meantime he says Bernanke should "stop punishing savers" with near-zero interest rates.

New York Times

The CFTC gave derivatives dealers an extension until Jan. 1, instead of October as originally planned, to comply with certain Dodd-Frank regulations. The delay was buried in a 254-page document outlining final rules on things like trade confirmation and documentation.

The "White Collar Watch" column looks at the potential legal liability for HSBC from ongoing investigations of potential money laundering, sanction violations and Libor-rigging.

The Times runs an obituary for Willard C. Butcher, former head of Chase Manhattan (a predecessor to JPMorgan Chase).

Elsewhere ...

Bloomberg News: Sept. 17 might be a good day for bankers and traders in New York to take some of that aforementioned mandatory vacation time. According to columnist Max Abelson, the Occupy Wall Street movement plans to commemorate its one-year anniversary by blocking traffic in the "financial district," encircling the New York Stock Exchange and attempting "citizens' arrests of bankers. … [S]ome activists intend to bring handcuffs." We put air quotes around "financial district" because we wonder how many of the Occupiers realize that most of the major investment banks left "Wall Street" a long time ago. While financial services is still the main industry in the neighborhood, hopefully no one working in the media and law firms that have moved downtown will be mistaken for financiers and "arrested."