Receiving Wide Coverage ...
Legacy Liabilities: Statutes of limitations are looming for investors with potential legal claims against firms that sold them dodgy mortgage-backed securities during the boom years, helping to explain a recent uptick in bondholder suits, the Journal reports. The Federal Housing Finance Agency's suits against various securitizers, filed just before the three-year anniversary of the agency's takeover of Fannie Mae and Freddie Mac, was only the most prominent example of such litigants racing to beat the clock. Meanwhile, another Journal story reports that the SEC is widening its probe into collateralized debt obligations, those mutant cousins of mortgage-backed securities. Among other actions, the agency is pushing Citigroup to settle a civil case for $200 million, the story says. The charges concern a $1 billion CDO that Citi created in 2007, right around the time cracks were beginning to show in the housing market façade; citing anonymous sources, the Journal says investigators are looking at whether Citi had short positions. In the Times, "Dealbook" takes a TARP tally and finds that nearly three years after the emergency program was created, 500 banks still owe the government a combined $19 billion of bailout money. (For perspective: that outstanding balance is just 8% of the total that the government invested through TARP.) The largest bank that still owes TARP: Regions Financial. Finally, Countrywide is the acquisition that just keeps on giving for Bank of America. The Department of Labor ordered the bank to rehire and pay $930,000 to a whistleblower it improperly fired. The employee, whose name has not been disclosed, had reported "pervasive wire, mail and bank fraud" at Countrywide, and illustrating the adage "no good deed goes unpunished," B of A "used illegal retaliatory tactics against this employee," a government official said. B of A insists the termination was solely related to the worker's "management style" and it plans to appeal. For now we'll just have to speculate on whether there's a "welcome back" card being passed around for everyone in the office to sign.
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A Specter Haunts Europe …: More signs things are getting worse across the Atlantic: two banks resorted to asking the European Central Bank for a combined $575 million in U.S. currency so they could fund loans to customers here and pay their own dollar-denominated debts. The fact that the banks (which weren't identified) had to go to Brussels to get the greenbacks reflects the increasing difficulty European banks face borrowing from traditional sources like U.S. money market funds. European companies worried about their local lenders' liquidity are starting to turn to other sources, including U.S. banks like Citigroup, for financing. Meanwhile, Moody's downgraded two French banks, citing in part their exposure to Greece's sovereign debt. According to the Post, the downgrades "added fuel to a debate among European and U.S. policymakers over whether the continent's banks are mostly healthy or instead need billions of dollars in additional capital to withstand likely losses on loans made to countries like Greece, Portugal and Italy." But never fear, help is on the way, from … China? The country's premier, Wen Jiabao, said he was prepared to "extend a helping hand and increase our investment" in the troubled continent, provided that the European Union designate China a "market economy," and thus make it nearly impervious to tariffs from EU member nations. He was vague on the details of what form the investment would take. Wall Street Journal, New York Times, Washington Post, Financial Times
Cops on the Street: In testimony prepared for a hearing Thursday, SEC chairman Mary Schapiro plans to warn that a bill proposed by Rep. Scott Garrett, a New Jersey Republican, would make it harder for her agency to do its job. The bill "calls for the SEC to weigh a variety of factors before issuing regulations, including, potentially, whether the rules are tailored 'to impose the least burden on society.' The term 'society' includes 'businesses of differing sizes,' the bill says," and it "guides the SEC to assess 'the best way of protecting' both the public and 'market participants.'" Schapiro's rejoinder: "The SEC's mission is to protect investors, which in some cases means protecting them from certain market participants." (Emphasis is hers.) Schapiro and her counterpart at the CFTC, Gary Gensler, did score what Dealbook calls "a rare victory" for financial regulators in the upper chamber - a Senate subcommittee voted to increase the two agencies' budgets. New York Times, Washington Post
Wall Street Journal
U.S. banks have been deploying part of their stockpiles of depositors' cash in leveraged loans, helpfully defined here as floating-rate loans to junk-rated companies, usually made to finance buyouts or refinance debt. "Banks are sitting on a ton of deposits and, within reason, they're trying to put that to work," a Wells Fargo executive says. The boundaries of "reason" are starting to tighten, though. Leveraged loan volume in the first eight months rose by nearly three quarters from a year earlier, but the August total was only half this year's monthly average. Pricing for these loans has started to become more expensive for borrowers, too. Still, even August's leveraged loan volume dwarfed that of the IPO and junk bond markets.
Here's what passes for a "green shoot" these days: The FDIC is closing a temporary resolution office in Illinois ahead of schedule as bank failures slow.
Even some of those who dislike government subsidies for the housing sector say Congress shouldn't let the conforming loan limit drop to $625,500 in the priciest markets, from $729,750, as is scheduled to happen next month. "The market's just in too poor shape" to allow a reduction in the limit right now, a professor from George Mason University told a Congressional hearing, voicing the consensus opinion among expert witnesses.
Did we just wake up in 1998? According to this story, FINRA has deemed it necessary to remind its members "they are prohibited from offering companies positive research coverage—or implicitly promising it—while pitching roles underwriting stock offerings or advising on other deals." The self-regulatory industry body cited a Journal report last month that AIG's CEO, Robert Benmosche, while considering potential underwriters for a stock offering, had complained to senior investment bank executives about critical research reports by analysts. False alarm, then; the last decade and a half, including the 2003 Spitzer settlement over biased stock research, was not a dream. Feel better now?
New York Times
In Dealbook, ProPublica journalist Jesse Eisinger flags a discrepancy in the financial reporting by Wells Fargo: its mortgage book looks much worse in regulatory call reports than in SEC filings. Though Wells offers several explanations for why the SEC figures should be considered more reliable, the fact that Eisinger had to ask illustrates his broader point about banks' financial disclosures: "The numbers and presentation differ slightly in all of them and often differ from other banks' presentations, stirring a struggle among outsiders to compare apples and bananas. No professional admits this publicly, but many investors and analysts privately acknowledge that they can't fully track the data gushing each quarter from the nation's banks."
