Receiving Wide Coverage ...
Steve Jobs Dies: The visionary founder of Apple, who famously said “It's not the consumers' job to know what they want," was 56. As American Banker noted when Jobs stepped down as CEO in August, Apple has had a substantial influence on the financial world. Wired, Fast Company, Financial Times, Wall Street Jornal, New York Times.
Administration vs. Banks, Cont’d: Asked on CNN Tuesday night whether new fees like Bank of America’s $5 charge for debit cards are necessary, Treasury Secretary Tim Geithner said: "The banks are blaming the reforms and the government for everything, including lots of problems that they themselves were central to causing. Most people are terribly angry and frustrated with that and they want to see things change." Speaking a day after the president told ABC News that banks have no “inherent right” to “a certain amount of profit,” Geithner vowed that the Obama administration would “push back harder.” Yesterday, Geithner said at a conference that he found the financial industry’s animus toward the administration “inexplicable.” “They react to what [are] pretty modest, common sense observations about the system as if they are deep affronts to the dignity of their profession. And I don’t understand why they are so sensitive,” he said.
Pay Practices: The top U.S. banks have made progress overhauling them, the Federal Reserve said. In particular, the big banks are deferring 60% to 80% of bonuses for senior executives over a number of years, a finding that the FT made prominent in its story. In theory the deferrals should give these managers a stronger incentive to focus on long-term performance rather than short-term gains, and hence to avoid reckless risk-taking. But the Fed identified areas that still need work, a caveat that the Times played up more than other papers. “Some of the potential conflicts of interest that regulators initially flagged — like having risk managers report to executives who have influence over their year-end bonuses — still remain,” the Times says.New York Times, Financial Times, Wall Street Journal.
Europe Gets Real: The European Banking Authority plans to subject the continent’s banks to a third round of stress tests and is looking at ways to force them to raise capital so they can weather potential sovereign defaults. The plan to reassess (or, rather, re-reassess) the banks’ financial strength is “a tacit admission” that the first two rounds “were not sufficiently robust,” the FT says. And if you were still under any illusions that those stress tests could be trusted, consider that Dexia, the Franco-Belgian bank that’s become a symbol of the European financial sector’s woes, passed the last stress test with flying colors. (The FT also has a snappy interactive graphic showing Dexia’s exposure to the debt of various high-risk countries, and a Q&A-format article explaining how much and what kind of capital the European banks might have to raise.) The British paper’s editorial page welcomed regulators’ newly hard-minded stance on the health of the banking sector, but cautioned that the underlying problem – the shaky finances of certain EU member countries – must still be addressed. Reports of a run on deposits at Dexia served as an ominous backdrop as German chancellor Angela Merkel vowed to press her country’s banks to recapitalize, the New York Times says. There’s also talk of the IMF stepping in to support weaker sovereigns’ bonds, the Journal reports.
The Defense Rests: By the third and final public hearing on Capital One’s application to the Fed to buy ING Direct, the debate apparently had shifted to the buyer’s lending practices, away from the potential of creating another too-big-to-fail bank. Consumer advocates assailed Capital One’s flagship credit card business, and repeatedly dropped the “s” bomb – subprime, that is. “Is the Federal Reserve really prepared to turn a blind eye again and watch a new subprime crisis unfold?” asked one activist. “Capital One’s risky and subprime credit cards generate stellar earnings three times the size of their asset base through predatory interest rates, questionable fees and confusing terms.” (Italics are ours; we’re going for a Safire effect.) The Times story asserts, matter-of-factly, that this dirty word is “defined as loans to borrowers with credit scores below 660,” but as we’ve been saying for years, there’s really no universally agreed upon definition of subprime. (We distinctly remember a credit card executive telling us sometime in the mid-aughts that the cutoff for prime was 620). This is why, when the credit boom started unraveling, it was easy for many companies to say “oh, we don’t do subprime.” (We don’t write sensationalistic stories. We don’t think.) Capital One, however, acknowledged yesterday that it lends to people with less-than-perfect payment histories, and it declared that this is something to be proud of. "Responsible lending to these borrowers is not only acceptable, but also provides a source of credit and purchasing power for these customers, and is thus necessary to the functioning of our economy," its general counsel said. New York Times, Wall Street Journal.
More Heads Roll at UBS: The Swiss bank’s two co-chiefs of global equities resigned in the wake of the alleged rogue trading discovered last month. There were no face-saving claims of “spending more time with family,” “pursuing other interests,” or “streamlining the organizational structure to better serve our clients.” Rather, “François Gouws and Yassine Bouhara handed in their resignations because ‘they assume overall responsibility for the effective management of the equities business,’ the bank said,” according to the Times. This followed CEO Oswald Grubel’s departure, and the bank told employees Wednesday that it “will also be taking appropriate disciplinary measures against responsible individuals in our operations and control functions in the coming weeks.” Candor and accountability are all well and good, but seeing a new photo of Kweku Adoboli in handcuffs, surrounded by flashing camera bulbs and escorted by dour-looking British police (and this time he’s not smiling, either), reminds us to remind readers of something: The man deserves a fair trial. (He was arrested for fraud and false accounting.) Yes, we know it should go without saying, but sometimes we worry that the blink-and-you’ll-miss-it adverb “allegedly” doesn’t adequately convey the principle of presumption of innocence. This is, after all, a human being we’re talking about. We’re just saying…Wall Street Journal, New York Times.
Wall Street Journal
“A botched technology upgrade was responsible for online banking problems that spilled into a sixth day at Bank of America Corp., inconveniencing customers and handing the biggest U.S. bank by assets fresh image problems.”
Following up on the charges against Bank of New York Mellon regarding currency trades, the paper noted the bank's stock price fell 2.9%, 54 cents, as the currency exchange was a profit center that may dry up.
More than half the $4 billion the federal government gave to banks to spur small business lending was used to repay Treasury for bailout money the banks received under TARP, the paper said, adding that as many as three out of five small business loan requests were rejected. 137 of the 332 banks that received money from the Small Business Lending Fund used at least a portion to repay TARP, which was not a prohibited use of the money.
Morgan Stanley executives are going out of their way to prove to investors that the firm is on solid ground. The executives point to changes in the prime brokerage business, which serves hedge funds to soothe the fears of jittery investors who expect trouble to cross to the U.S. from Europe.
New York Times
While companies generally agree that they dislike Dodd-Frank, they don’t necessarily agree on how to mitigate its impact. Take the Consumer Financial Protection Bureau. The American Bankers Association, resigned to the agency’s existence, wants it to have “broad authority over large debt collectors and the like,” the Times reports. But the Chamber of Commerce, which represents a broader spectrum of businesses, not just banks, wants the bureau to hold off from asserting such authority until Congress confirms a director. Which could be a long, long time.
A big reason why loan modifications that reduce homeowners’ principal have been so rare is that Fannie Mae and Freddie Mac are reluctant to grant them. “Fannie and Freddie say reducing the principal is bad for business, and as a result bad for taxpayers.”
The New Yorker: The magazine’s annual “money issue” includes a fascinating article about Bitcoin, the alternative virtual currency devised by a mysterious and by all accounts preternaturally brilliant computer programmer. The story’s behind the paywall but well worth reading, both for the detective yarn (the writer tries to find out the real identity of Bitcoin’s progenitor, “Satoshi Nakamoto”) and for the disruptive implications for the financial industry (a stack of homemade computers that “mines” Bitcoins from inside a garbage-hauling facility in Kentucky, and helps clear transactions in the currency, “functioned as a kind of bank.”)
And Lastly ...
Footnoted.com: This financial-sleuth site, owned by Morningstar, has turned up a letter (dated May 11 but released only last week) in which the SEC reprimands Wells Fargo for issuing disclosures about its risks that are “too vague to be meaningful to investors.” For example, Wells helpfully informed investors that “our financial results and condition may be adversely affected by difficult and business economic conditions” and that “our ability to grow revenue and earnings will suffer if we are unable to sell more products to customers.” No kidding, Columbo.