Receiving Wide Coverage ...
Not So Dexterous: The European debt crisis has a new poster child: Dexia. The French- and Belgian-based bank, which specializes in lending to municipalities on the continent, held an emergency board meeting Monday to discuss a possible break-up after Moody's put its credit rating on review for possible downgrade. The news of Dexia's woes, as well as Greece's continued fiscal strains, contributed to a global stock selloff. Under the plan being discussed, Dexia's shaky assets (which also include Greek and Italian sovereign debt) would be placed in a "bad bank," whose obligations could be guaranteed by the French and Belgian governments. Those governments indicated they would stand behind Dexia, which they partly own. Although hardly a household name in the United States, Dexia is a significant player in our municipal bond market, as a guarantor for a type of short-term debt that is rolled over daily and weekly. If investors refuse to float the debt when it comes due, Dexia is obliged to purchase much of it, and in such an event it has the right to demand from these municipal clients a much higher interest rate and accelerated payoff. "Such a worst-case scenario is equivalent to an adjustable-rate mortgage on a house where the borrower suddenly faces a huge balloon payment," the Journal says; the test will come later this week when many debt issues are due for remarketing. Dexia also relies on short-term funding, though less so than when it was first bailed out in 2008. Hmm… short-term funding to finance long-term financing, with exposure to European sovereigns and U.S. munis? What could go right? The FT's Lex sums up the situation nicely: "If any bank epitomises the eurozone's bank-sovereign conundrum, it is Dexia." Wall Street Journal, Financial Times
Occupy Wall Street: The campaign against, well, a lot of stuff has spread to dozens of cities across the country, including Los Angeles, Boston, and Chicago, where protestors gathered outside the local Federal Reserve Bank. A video on the Times' "DealBook" notes that Wall Street (the actual street in lower Manhattan, not the loose abstract idea of finance) has been a popular spot for picketers and angry crowds for centuries. On the Washington Post's WonkBlog, Suzy Khimm joins the growing list of journalists sympathetic to the protestors who say they should come up with a more specific agenda. Another Post blogger, Ezra Klein, notes that so far "the unifying idea has been drawing attention to 'the 99,'" as in those not among the wealthiest 1% of the population — we agree with Klein's description of the "We Are the 99" Tumblr site, which features stories of personal struggle during tough economic times, as "moving." But we also smiled when we read a letter to the editor in the Journal from a lower Manhattan resident describing his attempts to explain the protests to his two small children.
Wall Street Journal
The paper gives a progress report on Citi Holdings, the unit that Citigroup set up two years ago for its unwanted businesses and assets: more than half the inventory is sold. But the remaining $308 billion may be harder to sell; nearly 40% of it is home mortgages, not exactly a favored asset given the state of the housing market.
In the next few weeks regulators may unveil the "look back" process for reviewing foreclosure mistakes, which banks and mortgage servicers must do under consent orders issued in April.
A lengthy front-page story looks at "political intelligence" firms, also known as "expert networks," staffed by former government officials and lobbyists, who sell their Beltway insiders' knowledge to hedge funds.
A consumer-finance niche that uses life insurance policies as collateral for loans to senior citizens is coming under scrutiny after a federal raid on one of the specialists in the field. The reason the FBI descended on the offices of Imperial Holdings in Boca Raton isn't clear.
New York Times
After Dodd-Frank mandated the creation of "swap execution facilities," or marketplaces where derivatives can openly trade, some wag decided to name the first conference focused on these exchanges "SefCon." Not to be outdone, "Dealbook" put this headline on its dispatch from the second conference: "Wall Street Goes to Sefcon II on Swaps." And if you don't get the reference, here's a refresher.