Breaking News This Morning ...
Earnings: BB&T, Fifth Third, Huntington, KeyCorp, TCF
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Receiving Wide Coverage ...
'Best Short Ever': Citigroup agreed to pay $285 million to settle an SEC investigation of a CDO the bank marketed in 2007. There are many echoes of the Goldman Sachs Abacus deal and similar cases in this one: investment bank sells mortgage-related securities to investors; investment bank bets at the same time that the underlying mortgages will default; investment bank fails to disclose this information to the bond buyers; investors lose money while bank rakes in trading profits and fees. Naturally, the first thing we looked for were the inevitable embarrassing emails, and we were not disappointed, though in this case the howler comes from a sophisticated outsider who evaluated the deal, not from Citi employees. This "experienced CDO trader," whom the SEC did not identify, likened the investment Citi was marketing to canine excrement (though not in so many words), and remarked that the deal could be "the best short EVER!" OK folks, not to defend the securities firms' sales practices, but we have to ask: lack of disclosure of the short positions to one side, what were any of these institutional investors thinking, going long on consumer mortgage credit in 2007? If they'd been reading American Banker as early as 2005, they'd have known to run screaming when Goldman and Citi came knocking. Anyway, for those keeping score … you're in good company because both the Journal's "DealJournal" and the Times have infographics putting Citi's settlement in context of other financial crisis-related cases. Wall Street Journal, New York Times, Financial Times
Regionals' Earnings: PNC and U.S. Bancorp beat estimates, reflecting "improved credit quality despite a turbulent economic environment," the FT says. However, the Journal notes that Comerica and M&T "reported fewer new loans than expected and higher costs amid acquisitions, sending shares of the banks near their 52-week lows."
Morgan Stanley Beats (Low) Expectations: Unlike Goldman Sachs, Morgan Stanley actually made money in the third quarter — though, like its peers, Morgan Stanley got a big boost from recognizing a gain on the fall in value of its own debt. (Despite our snotty and ill-informed aside in Tuesday's Scan, this gain is properly referred to as a debit valuation adjustment — the word "debit" here is used in the bookkeeping sense, nothing to do with payment cards — and it is not the same thing as a credit valuation adjustment. We're eating a second helping of crow after Monday's Connecticut-Massachusetts switcheroo.) Morgan Stanley also provided more details about its exposure to dodgy European debt. The Journal's "Heard on the Street" says the results should put fears about Morgan Stanley's viability to rest, and reflect in part the "stabilizing effect" of its brokerage business. Wall Street Journal, Financial Times
Earnings Potpourri: American Express cardholders "ratcheted up spending and losses from bad loans continued to decline, driving a solid profit gain," the Journal says. Bank of New York Mellon posted "a 4.7 per cent rise in profits to $651m amid a turbulent quarter under a new chief executive," reports the FT.
The Mess at UBS: After the recent alleged rogue trading scandal, the Swiss bank "is trying to shrink its investment banking business enough to satisfy investors and Swiss regulators without disrupting its other operations," the Times says. Wall Street Journal, New York Times
Wall Street Journal
Well, that's one way to juice the housing market we haven't tried yet. "Two U.S. senators are preparing to introduce a bipartisan bill Thursday that would give visas to foreigners who buy a house in the U.S."
The headline for this op-ed kind of says it all: "Ron Paul: Blame the Fed for the Financial Crisis."
From a different end of the spectrum, columnist Alan Blinder rebuts the arguments made by some that foreclosures should be allowed to proceed so the housing market can clear. On a humanitarian level, "foreclosures are ruining millions of lives and devastating many communities. We can do better than Social Darwinism." And on economic grounds, he argues, the housing slump is contributing to overall stagnation. He recommends that policymakers pursue more robust refinancing, principal-reduction and rental-conversion programs than the "halfhearted" efforts the Obama administration has made so far.
New York Times
Blinder's not alone, according to an article in the Times. "A growing number of economists … argue that the collapse of housing prices, a defining feature of this downturn, is also a critical and underappreciated impediment to recovery."
On the "Economix" blog, former IMF economist Simon Johnson lauds GOP presidential hopeful John Hunstman's Journal op-ed (which we missed yesterday, shame on us) on the dangers of "too-big-to-fail" and regulatory capture. "This message could work politically," Johnson writes.
Financial Times
Metro Bank, launched in the U.K. last year by American retail banking iconoclast Vernon Hill, plans to start a private bank after being "'pleasantly surprised by the number of significant high net worth individuals' who had switched to it in recent months." Like the former Commerce Bank (now TD Bank) that Hill built in the U.S., "Metro prides itself on longer opening hours and speedy account opening — services that may not typically rank highly on the demands of millionaires." Well, time is money.
Washington Post
"Obama has raised far more money this year from the financial sector than GOP candidates," the paper reports. Wait, didn't the New York Times say pretty much the opposite last week? Scan's over folks, we need a cup of coffee.
