Breaking News This Morning ...
Earnings: "Citigroup's second-quarter profit jumped 24% as provisions for loan losses declined sharply from a year earlier but revenue fell 7%."
Receiving Wide Coverage ...
Consumer Protection: Elizabeth Warren on Thursday made her third trip this year to Capitol Hill to answer questions about her brainchild, the Consumer Financial Protection Bureau, which begins work in a week and still has no permanent leader in place. The Journal said Warren told Congress the agency does not plan to ban specific financial products, including payday loans. This was the most explicit detailing of the scope of the agency's powers. Wall Street Journal, Washington Post
Bad Times for Credit Suisse: Credit Suisse said it's the object of a Justice Department inquiry into cross-border services that its private banking arm provided to American citizens, the Times reported. The bank is also going to cut 1,500 jobs, about 3% of its workforce, the Journal said. The strength of the Swiss franc erodes profits. Wall Street Journal, New York Times
Debt Ceiling and Downgrade Possibilities: Standard & Poor's said late Thursday that it could downgrade the U.S. credit rating as soon as this month, and there is a 50% chance it will do so within three months, if Washington fails to come to an agreement over the nation's debt, the Post reported. In a statement, S&P indicated a "substantial likelihood" of downgrading the U.S. credit rating, citing a stalemate in Washington over raising the federal limit on borrowing. The statement adds a sense of urgency, according to the Journal, which noted some lawmakers believe "Congress could wait until after Aug. 2 to raise the debt cap and avoid having the government's debt downgraded." Separately, the Journal reported that Senate leaders Harry Reid, D-Nev., and Mitch McConnell, R-Ky., have been making progress toward a debt deal in private negotiations. And, the Post reported Obama administration officials have been privately exploring with major banks and foreign investors whether the government could devise a way to avoid a severe disruption in financial markets if the federal debt ceiling is not raised, according to several people familiar with the matter. Officials have discussed suspending some domestic spending in order to make payments to investors in U.S. bonds — which include domestic pension funds and the Chinese government — and possibly selling assets such as gold.
Stressed Ahead of Tests: Europe's top banking supervisor will announce results of stress tests today, and the European Union hopes the results will calm investor fears over European banks, the Times reported. Some banks have very small margins of error. Crédit Agricole's Greek holdings are about equal to its equity and the same is true of for Royal Bank of Scotland's Irish loans. The Journal said the IMF warned that European banks are insufficiently funded. Wall Street Journal, New York Times
Wall Street Journal
Nothing lasts forever. With banks' overnight borrowing off by nearly two-thirds in the past three years, the importance of Libor is diminishing. "Libor these days is less representative of banks' health and could mask deeper problems in the credit markets, analysts say," the Journal reported.
JPMorgan set the bar high with powerful profits and rising revenue in the second quarter. The paper said, the results put pressure on Citigroup, Goldman Sachs and Morgan Stanley. The paper's "Heard on the Street" column noted the banks tier 1 common capital ratio was 7.6%, above the current requirements of 7%, but below the 9.5% that will be mandated in 2019. CEO James Dimon was quoted as saying the bank will slowly raise its ratio to 9.5%, which takes the pressure off Citigroup and bank of America to raise their ration to match JPMorgan's.
Deutsche Bank Chief Executive Josef Ackermann is being urged to remain on as the bank's supervisory board chairman after his contract expires in two years. Ackermann said in April that he's not on board a move to the board, but a spokesman would not comment on this push by the union.
All that glitters is not gold. Double-A-rated residential mortgage-backed securities may be the next attempt to grow the mortgage market. BlackRock and Two Harbors Investment, a REIT managed by veteran Goldman Sachs and Citigroup traders, are considering this, which would hearken back to the 1980s when AA was the standard.
New York Times
Financial Services Roundtable chief Steve Bartlett, in a closed-door Capitol Hill meeting this year, "barked orders to surprised Congressional staff members, urging them to delay" the Durbin amendment, and "acted as if he were someone running the meeting, they said, rather than as an invited guest," the Times reported, citing two unnamed sources. Bartlett did not apologize, saying, "We are trying to reform the reform." Visa and Bank of America executives gave presentations to Congressional staff members during a February forum that the Roundtable sponsored.
Gary Lynch, the new global head of legal, compliance and regulatory relations at Bank of America, received a $4 million stock award this week.
In the Times' Economix blog, former International Monetary Fund chief economist Simon Johnson says he opposes U.S. Rep. Bill Posey's proposal to force bank examiners to term all loans "accrual" as long as payments are still being made. The "regulatory forbearance" approach that Posey favors led to the 1990's savings and loan crisis, Johnson says. Community banks are not at the core of today's problems, but many community banks made very bad decisions, he says, and regulators applied the same accounting principles as before.
Theresa Edwards and June Clarkson had headed up investigations on behalf of the Florida attorney general's office for more than a year into the fraudulent foreclosure practices that had become rampant in the Sunshine State. On a Friday afternoon in May they were called into a supervisor's office and forced to resign abruptly and without explanation.
Foreclosure marketplace Web site RealtyTrac estimates that 1.17 million homes received foreclosure notices in the first half of 2011. That's down 25% from the previous six months, but the group said that no one should take this as a sign that foreclosures are on the decline. Instead, the report indicates that paperwork and other processing delays have simply delayed foreclosures that otherwise would have gone through.
According to a Post editorial amending the Constitution to require a balanced budget is a bad idea that never dies. A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies. It would revise the Constitution in a way that would give dangerous power to a congressional minority.