Receiving Wide Coverage ...
‘Raked’ over the Coals: “The company neither admitted nor denied the SEC’s charges.” That stock disclaimer is nearly as common in the financial pages as “terms of the deal are fluid and the talks could still fall apart.” But a ruling Monday by U.S. District Court Judge Jed S. Rakoff could discourage boilerplate settlements in which the defendants pay a fine without addressing the substance of the case. Rakoff rejected the SEC’s proposed $285 million settlement with Citigroup over allegations the bank misled investors in the sale of a CDO that went kablooie. While he dismissed the settlement amount as “pocket change,” the judge’s main beef was what he described as “the SEC’s long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into consent judgments without admitting or denying the underlying allegations.” Such deals, he wrote, are “frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies.” The case may now head to trial; the parties could appeal, but doing so would risk “a ruling that would enshrine Judge Rakoff's tough stance for use by other courts,” the Journal says. The paper’s “Heard on the Street” column approves of the judge’s refusal to rubber-stamp seemingly weak settlements. To serve the interests of investors and the public, “some cases need to go to trial for the facts to be established, whether that means a win for the SEC or not,” the column says. But an analysis in the Times’ “DealBook” identifies some practical issues with this approach: “Requiring some acknowledgment of wrongdoing by defendants is likely to result in fewer settlements and more trials, which are costly for an agency already laboring under budgetary constraints.” A comment posted by a Times reader goes further: “The flaw in the judge’s reasoning is that he misunderstands the public interest as consisting solely of the resolution of this one case, rather than in the SEC's overall effectiveness in enforcing the law. … The time it will now spend either appealing this order and/or trying a case that could have been resolved by consent is time that [it] will not spend looking for and prosecuting other violations of the law.” Aside from saving face, a big reason companies like to settle without admitting or denying they broke the law is that admitting violations would prevent them from denying them in subsequent private litigation, the “DealBook” article notes. Wall Street Journal, New York Times, Financial Times, Washington Post
Barney Frank Retiring: The 71-year-old Massachusetts Congressman, former chairman and ranking Democrat on the House Financial Services committee and co-author of the Dodd-Frank financial reform law, won’t seek reelection after 16 terms in office. The Post has a broad retrospective on Frank’s impact on economic policy and the gay rights movement. “DealBook” offers a compilation of some of the lawmaker’s most memorable witticisms and broadsides against the financial industry. (Our personal favorite, from a New Yorker profile that ran in early 2009, before most banks had paid back their TARP money: “You know Hegel. Thesis: No regulation at all. Antithesis: Now the government owns the banks. What I gotta do next year is the synthesis.”) The Times’ “Loyal Opposition” blog argues that despite his fiery liberal rhetoric, Frank has in practice been a moderate on economic issues. The Journal’s editorial page sees his record a bit differently, and reiterates the conservative critique of Frank that by supporting Fannie Mae and Freddie Mac and affordable housing programs he bears much responsibility for the subprime mortgage debacle.
Wall Street Journal
Who’s bailing out whom? A story on the Journal’s front page says some European countries, including Italy, Portugal and Spain, are leaning on their banks to either lend to, or float the bonds of national and local governments, which you might think is the last thing these banks need to be doing. “While investors and regulators want the banks to sell off their holdings of European sovereign debt, local politicians are twisting arms to make sure they don't.”
“Seven large financial firms, including Bank of America and Morgan Stanley, are in talks aimed at reaching a truce with bond insurer MBIA that could end a legal battle over billions of dollars in losses.” Benjamin Lawsky, head of New York’s new banking and insurance regulator, is spurring the talks, the Journal says.
An article looks at the challenges banks face getting consumers and merchants to adopt mobile payments. Despite the hype over contactless cards a few years ago, that payment method never quite took off, the story notes; “banks didn't explain or promote the new technology to customers, who didn't know that the card was different. Merchants stuck the new industry-funded card readers on counters, but didn't encourage people to use them.” Hence, there’s skepticism about the prospects for the NFC-chip smartphones and digital wallets that companies are promoting today.
“Ten leading US lenders may have unlawfully foreclosed on the mortgages of nearly 5,000 active-duty members of the US military in recent years,” the FT reports, citing data released by the OCC last week. The 10 lenders reviewing foreclosure actions include Bank of America but not JPMorgan, even though both banks have reached legal settlements over the issue this year.
“The US regulator overseeing Fannie Mae and Freddie Mac has displayed ‘ undue deference’ to the mortgage groups’ decision-making,” according to an audit due out today from the Federal Housing Finance Agency’s inspector general.
New York Times
"The antibank fervor of the Occupy Wall Street movement has entered college campuses, complicating the on-campus recruiting process for applicants and recruiters," according to a "DealBook" story. Yale professor Robert Shiller is quoted making the inevitable analogy: "I teach financial markets, and it's a little like teaching R.O.T.C. during the Vietnam War."