Receiving Wide Coverage ...
Less than a Lincoln: Bank of America’s share price fell below $5, as part of a broader selloff in financial stocks sparked by a warning from the European Central Bank about dangers for the Eurozone economy. The Charlotte, N.C., megabank’s shares closed at $4.99, the lowest level since March 2009. Mortgage-related litigation risk remains a dark cloud over the company, and $5 was a “bad psychological barrier” to break, an analyst tells the FT. Another analyst is paraphrased as saying that “some funds could become forced sellers of BofA shares due to pressure from clients and fund consultants, leading to further declines.” In a Bloomberg story picked up by the Washington Post, a money manager explains that the threshold is more than psychological: “We have screens that usually prohibit us from buying stocks under $5. If we own it, we would not kick it out automatically, but generally we tend to avoid stocks like that.” The trading-focused blog iBankCoin suggests those holding the stock may have an incentive to buy: “There have been reports that the $5 level in Bank of America’s stock must be defended by institutions in order for them to continue to hold the stock, else face forced selling.” And a finance professor quoted in the Bloomberg/Post story appears to damn Bank of America with faint praise. After saying the “real danger” for a public company is falling below $1 a share, which typically means delisting, he adds that in such cases “it is usually some fundamental problem with the business model and it may go to zero, but I think Bank of America is very different from your typical small failing company.” Quips the blog DealBreaker: “That’s Your Big Pump Up Speech?” Financial Times, iBankCoin, Washington Post/Bloomberg, DealBreaker
Jefferies Group: This morning the investment bank posted a $39 million profit for its fiscal quarter that ended Nov. 30, and earnings per share of 17 cents beat the average expectation of analysts. “Jefferies’ quarterly results were anxiously awaited by analysts and investors, hoping to scrutinize how well the bank had fared after weeks of pressure over its European sovereign debt holdings,” the Times’ “DealBook” says. The Journal’s “Ahead of the Tape” says that even though CEO Richard Handler’s recent actions – disclosing information about positions, selling some holdings – appear to have calmed shareholders and clients, “investors will remain sensitive to Jefferies's European exposure—even if it is hedged with offsetting positions rather than derivatives.” A Bloomberg News profile of Handler focuses on his efforts to defend the firm by opening the kimono on its trading book, and is chock full of fun facts about the “intensely private” CEO (he once appeared on “The Newlywed Game”). New York Times, Wall Street Journal, Bloomberg News
Tom Braithwaite, the paper’s U.S. banking editor, provides a concise and cogent round-up of the industry’s objections to the proposed implementation of the Volcker rule, the main one being that despite all the formulas regulators provided, “it is still difficult to distinguish between banks’ soon-to-be banned buying and selling for their own account and ‘market making,’ the permitted buying and selling on behalf of customers.” The problem, Braithwaite writes, is that even though they have a point when they say the rule threatens market liquidity, “the banks have cried wolf so often on financial regulations that they are likely to be ignored.” Their best hope is that lobbying by “less-tainted financial institutions” like BlackRock and AllianceBernstein will convince Washington to keep the final rule from overreaching.
New York Times
Op-ed columnist Joe Nocera debunks the meme that Fannie Mae and Freddie Mac “caused” the mortgage crisis. “Fannie and Freddie got into subprime mortgages, with great trepidation … in 2005 and 2006 … only because they were losing so much market share to Wall Street,” he writes. Damn straight, we say. Their ambivalence about nontraditional lending, and the pressure for them to embrace it, were abundantly clear to those of us who were parsing the GSEs’ every burp and cough at the time. One quibble: you could argue that while Fannie and Freddie certainly resisted, and eventually and disastrously succumbed, to the lure of sub/non/whatever-they-were-they-weren’t-prime mortgages in their core business, the GSEs were at the same time fueling these products through their investment portfolios’ purchases of senior bonds from the Wall Street securitizations Nocera mentions. But his general point is spot on. Fannie and Freddie surely contributed to the problem, but calling them the prime movers is an oversimplification.