The boom after the storm; Berkshire exercises B of A warrants

Wall Street Journal
Making a silk purse…: Hurricane Harvey is likely to cause short-term pain but long-term gain for Texas banks, say bankers in the Houston area. As in previous storms, economic disruptions are likely to be modest, while the storm could fuel a longer-term boom.

“What we’ve typically seen, because of insurance money and federal assistance and construction, it will provide somewhat of an economic boom for the community over the next year or two,” said Geoff Greenwade, CEO of Green Bancorp. “In the long run, this will create a robust economy for the state. You’ll see deposits increase in Texas banks because of the insurance money,” added David Zalman, CEO of Prosperity Bancshares.

Bankers were assessing the damage and raising money to assist.

Playing politics?: House Financial Services Committee Chairman Jeb Hensarling accused Consumer Financial Protection Bureau Director Richard Cordray of playing politics with the agency’s rulemaking. Hensarling, R-Texas, was responding to reports that Cordray was rushing to implement rules on payday lenders before he leaves the agency to run for governor of Ohio.

“These reports, which have not been rebutted by the bureau, suggest that your personal political ambitions may be informing decisions you are making regarding what is supposed to be a nonpartisan and objective agency rule-making process,” Hensarling wrote. The Texas Republican wants Cordray to confirm whether he plans to serve out his term or reveal when he plans to resign.

Top dog: Berkshire Hathaway officially became Bank of America’s largest shareholder on Tuesday after it exercised warrants to buy 700 million shares at below-market prices, part of its deal to support the bank after the global financial crisis. And Berkshire Chairman Warren Buffett has no intention of selling. “Berkshire is going to keep every share for a very long time,” he told the paper.

Berkshire bought $5 billion of B of A preferred shares in 2011. The deal included warrants to buy 700 million shares of B of A common stock at $7.14 apiece, less than a third of Tuesday’s closing price $23.58 a share. Berkshire has made about $13 billion on the deal.

Out of bounds: Federal Reserve Chair Janet Yellen and Vice Chair Stanley Fischer made a “brazen” intrusion into the political debate with their recent comments about the need for continued tight bank regulation, according to an editorial. “This is extraordinary,” the editors say. “Fed officials are launching a political campaign to retain their vast discretionary control over the American financial system. The brazenness of the effort shows how far afield central bankers have roamed from their traditional remit of monetary policy.”

Are you crazy?: “Why would anyone sane be a bank director?” That’s the question Thomas P. Vartanian, a partner at the law firm Dechert LLP and a former general counsel of the Federal Home Loan Bank Board, asks in an op-ed. But he offers a solution. “Recalibration of the regulatory demands on and potential liabilities of bank directors would give them the tools, incentives and freedom to be more effective overseers of the backbone of the U.S. economy and better avoid future financial crises,” he recommends. “Holding bank directors financially responsible only for the actions they can control, rather than the economic events they cannot, would strengthen the banking system, improve corporate governance, and deepen the pool of qualified bank directors.”

HUD reverses: The Department of Housing and Urban Development is increasing insurance premiums and lowering loan limits in the federal reverse mortgage program in the face of rising loan losses. “Given the losses we’re seeing in the program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers,” HUD Secretary Ben Carson says.

Quotable
“In 2011, we welcomed Berkshire Hathaway as a shareholder, and we appreciate their continued support now as our largest common shareholder.” — Brian Moynihan, Bank of America CEO.

Andrew Harrer/Bloomberg