Receiving Wide Coverage ...
Contemplating Disaster: Regulators are giving banks scant guidance on how to deal with a possible government default or downgrade, the Journal reports this morning. The big banks "are spending hundreds of hours on contingency planning scenarios," the article says. But without certain answers, it's hard to plan. For instance, "Fed officials haven't said if their collateral requirements would change after a default, which would affect banks' ability to borrow from the central bank's discount window." Indeed, "several bankers said they have been surprised how little federal regulators have been prodding them for details of their plans. [Italics added by Morning Scan.] Federal regulators are most likely trying to take a hands-off approach to avoid promoting a panic." On the bright side, the lead story in the Journal reports that Obama and Boehner are close to a budget deal, so maybe this whole exercise will turn out like Y2K. Maybe.
Take That, Goldy: Not only did Morgan Stanley report its highest quarterly revenue since 2007 in the second quarter, it reported a fatter top line than archrival Goldman Sachs for the first time in more than two years. Morgan Stanley's "surprise performance was driven partly by its decision to take on more risk when trading on behalf of clients during the quarter — a move that contrasts with Goldman's risk-aversion during the same period," the Journal says. In light of Goldman's disappointing results reported earlier this week, "Morgan looks like a star," asserts the "Heard on the Street" column, which argues that Morgan Stanley's shares are undervalued. Not to rain on anyone's parade here, but we would like to acknowledge a comment posted by a Journal reader who was incredulous that so little attention is being paid to the bottom line: " 'Improved performance across the firm'? Huh? Morgan Stanley lost money! Its cash flow from operations has been negative for 3 out the last 5 years!"
And in fairness to Goldman, we should note that another Journal story today reports that a judge threw out a high-profile securities fraud suit against the firm. This case concerned "Timberwolf," the infamous deal that a Goldman trader once described as demonstrating manure-like properties (but not in so many words).
Greek Drama: In its lead story on the European rescue plan for Greece, the Times notes that European taxpayers' exposure to Greek debt is expected to grow further, while at the same time banks have reduced their Greek holdings. Separately, the Institute of International Finance said the deal is expected to reduce Greece's debt burden by 13.5 billion euros, and possibly more. Times columnist Floyd Norris writes that the Greek rescue plan will force banks to choose one of two options: accept lower interest rates and extended maturities, or higher rates on bonds where the principal will be reduced by 20%. Bank regulations in Europe maintain a fiction that debt from Greece, Ireland, Portugal or other European nations is risk-free, the Times wrote in an analysis piece. Even after this week's deal on Greek debt, European Commission rules provide an incentive for banks to buy government debt. "It's totally crazy," said Center for European Policy banking expert Bert van Roosebeke. Europe decided that Greece will undergo a "selective default" on its debt, but that's a term few investors have ever heard. Ratings agencies in the past have classified similar plans as a default.
Wall Street Journal
Some lawmakers want to keep the conforming loan limit from declining to $625,500 from $729,750, as it is scheduled to do on Oct. 1. But that's a boring way to say it. The Journal's editorial page puts it more colorfully: "A scheme is afoot to keep taxpayers guaranteeing $700,000 mortgages." As you might guess, the writers aren't too keen on the idea.
The New York Fed "again is facing scrutiny over stockholdings held by a senior official during the 2008 financial crisis. Then-New York Fed President Timothy Geithner issued a waiver that allowed William Dudley … to work on the controversial bailout of American International Group Inc. even though he held shares in the company, according to a congressional audit report."
"The world's largest currency-dealing banks have embarked on a new arms race: developing a new generation of high-tech trading tools to gain and retain clients."
New York Times
Bank of America and Chase have not yet decided to take advantage of a provision of Dodd-Frank to offer interest checking accounts to businesses. Capital One, Citibank, TD Bank, and Wells Fargo are among the large banks that are offering interest checking accounts.
Now open for business, the Consumer Financial Protection Bureau is accepting consumers' complaints about credit cards on its website, the "Bucks" blog reports.