Receiving Wide Coverage ...
Freddie Flub? Freddie Mac may have missed out on billions of dollars it could have recouped from claims on defaulted mortgages, according to a report due today from the Federal Housing Finance Agency's inspector general. The report also criticizes the $1.3 billion settlement Freddie reached with Bank of America in January, calling the deal inadequate. Wall Street Journal, New York Times
Audit Attack: The European Commission wants to force the Big Four accounting firms to spin off their consulting businesses and share audit work with smaller rivals, the FT reports, citing a draft regulation its reporters obtained. The ambitious proposal "aims to transform the accounting sector in the wake of the financial crisis and restore 'trust' in financial reporting." A separate FT story says the audit industry did not see this coming at all. The paper's "Lex" column gives the proposal itself a mixed review — it says breaking up the audit giants is ill-advised because "crossover with a firm's other teams such as its actuaries and tax experts is actually desirable in improving auditors' expertise and helps retain the brightest staff" — but commends Michael Barnier, the EC's internal market commissioner, for rekindling the debate about auditors' relationships with their corporate clients. "Regardless of whether long relationships get too cosy — and there is evidence they can — auditors must understand that they appear that way, eroding trust." Over on this side of the pond, the bankruptcy trustee for Taylor, Bean & Whitaker is suing Deloitte, saying the firm's "grossly negligent audits" contributed to the mortgage lender's demise. Taylor Bean, you'll recall, is the company whose former chairman is now serving 30 years in prison for fraud, which the suit says "could have been brought to a halt earlier had auditors not 'willfully' ignored 'numerous red flags,'" according to the Journal.
That Was Close: Just as we started to worry that another federal shutdown was in the offing, the Senate approved a stopgap budget bill. If you've been wondering what such an event would mean for banks, here's a reminder of how the industry was affected in '95, and let's hope this conversation remains hypothetical. Wall Street Journal, New York Times, Washington Post, Financial Times
… And This One's Still Close: There was also good news, in a manner of speaking, out of Europe: political leaders indicated they were working on a plan to strengthen the bloc's rescue fund. The rumblings buoyed stocks. But story in the FT says eurozone leaders now have weeks to make some tough calls about Greece and the euro that were previously thought to be a long way off. "Once-unthinkable proposals for fiscal union and shared responsibility for sovereign debt are now being hurriedly readied for ministerial discussion." As for the continent's banks, the Journal notes that while last-resort lending by central banks may have eased short-term concerns about liquidity, there's a "mountain of debt" coming due next year and the markets remain inhospitable to European bank borrowing. In his "Current Account" column, the Journal's Francesco Guerrera prescribes contingent convertible bonds as the best path for European banks. "It would enable EU institutions to support banks without having to own them," he writes. "And it would offer investors a belt-and-suspenders approach: a tasty dividend every year and free equity if banks' capital levels slip," deal terms that should sound familiar to students of Warren Buffett. Although some have questioned whether there's much of a market for so-called co-cos, Guerrera interviewed two investors who indicated interest, to differing degrees. New York Times, Financial Times
Housing Crash Dummies: The SEC sent McGraw-Hill, the parent of Standard & Poor's, a Wells notice, indicating the company could face civil charges over (what else?) a mortgage-related security S&P rated in 2007 as the housing market was falling apart. According to the Journal, S&P rated the deal AAA on the basis of hypothetical "dummy" assets, and didn't change that assessment even after the investment bankers stuffed the collateral pool with real, and lower-quality, assets. Wall Street Journal, New York Times, Financial Times
Occupy Wall Street: Actually, the organizers of this protest in lower Manhattan, now well into its second week, would probably say they haven't received wide enough coverage, and that what little has been reported about them was fairly condescending. To us, their cause seems a bit inchoate, if not muddled (starting with our pet peeve, the kitchen-sink phrase "Wall Street"). But we respect the protestors for their tenacity, and are withholding our usual snark until we learn a little bit more. For now, some links: New York Times, Huffington Post, Business Insider
Wall Street Journal
The Basel Committee meets in its namesake city today, and the member regulators are likely to hold the line in the face of heavy bank lobbying against the proposed capital surcharge for big institutions. Consider the recent public statements by the New York Fed's William Dudley and the Bank of Canada's Mark Carney, both staunchly defending the surcharge plan. And if you were wondering, after haranguing Carney in a closed-door meeting, JPMorgan CEO Jamie Dimon subsequently called the central banker to apologize.
New York Times
"Dealbook" profiles Jim Himes, a Democratic congressman from Connecticut and Goldman Sachs alum who "has been playing the part of a Wall Street whisperer, trying to bring well-heeled Democrats in the financial industry back to the party that has made villains of them." Himes' district includes Greenwich and Stamford, the Mecca and Medina of hedge funds, so his party affiliation has been a bigger liability than his finance background — "each new instance of fiery rhetoric meant more phone calls and e-mails from financiers angry about their status as left-wing punching bags." But think about it — is Obama's offhand comment some two years ago about "fat cats" really that confrontational compared to some of the signs those folks camped out on the street are holding? We're just saying …