Receiving Wide Coverage ...
A Somber Commemoration: As the 10th anniversary of 9/11 approaches, the Journal and the Times have published "look-back" stories focusing on financial services companies that were located in the Twin Towers: Keefe, Bruyette & Woods and Cantor Fitzgerald, respectively. Both firms are thriving despite the recent financial crisis, but the scars from the attack, both figurative and in some cases literal, remain.
Euro Crisis Deepens: The U.S. market was closed Monday, but across the pond stocks — particularly bank stocks — took a beating on concerns about the global economy, European sovereign debt, and financial sector liquidity. The current and incoming chiefs of the European Central Bank urged political leaders to act quickly to stanch the crisis, and the latter, Mario Draghi, notably called for a "quantum step up in economic and political integration." This is significant, the Times said, because "politicians now acknowledge [that] a root cause of Europe's crisis … [is] the lack of a federal fiscal union that would make the euro zone look more like the United States. The idea is something that Germany and others are wary of because it could undermine their national authority. The calls for what defenders of sovereignty have called the 'F word' — federalism — are growing louder, however, as investors warn that volatile financial markets are starting to look similar to the days surrounding Lehman Brothers' collapse." However, another Times story says the continent's leaders are in fact discussing a deeper sort of integration: "a central financial authority — with powers in areas like taxation, bond issuance and budget approval." Wall Street Journal, Washington Post
Wall Street Journal
The Journal rounds up all the recent news and trends that are weighing on bank stocks — the federal mortgage suits filed last Friday, nonexistent job growth, tightened regulatory scrutiny, tepid loan demand. A Southern community banker is quoted summing up the situation: "It just couldn't be more challenging."
It takes a few paragraphs to get to it, but this Journal story gives us a preview of the defense that the banks are likely to marshal in the aforementioned suits filed Friday by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac. The general drift is: The GSEs were big boys. "The banks are likely to argue that Fannie and Freddie knew that the loans were risky and that losses were due to underlying economic conditions, not faulty underwriting," the story says, quoting industry lawyer Andy Sandler as saying: "It will become clear that the plaintiffs knew as much as the defendants about the quality of these loan portfolios."
A package of retrospective stories looking at Jeffrey Immelt's 10 years as CEO of General Electric includes a temperature-taker on its financial-services arm — a unit that the story says "nearly sank" the conglomerate during the financial crisis. "Mr. Immelt acknowledges that he let the lending operation grow too large, calling that lapse the biggest regret of his 10 years as CEO. He also says many investors, including some big ones, would rather the company get rid of the operation." Still, "he believes GE can make lots of money from a safer GE Capital, focused on business loans to midsize companies." Next year will be a key turning point; Immelt says GE Capital will resume paying a dividend to the parent company. Meanwhile, as a result of Dodd-Frank, GE Capital is adjusting to life under its new regulator, the Fed, which the story notes "which is expected to be more demanding than the unit's previous regulator, the Office of Thrift Supervision."
A personal finance story looks at the gap between the super-low rates mortgage lenders are advertising and the not-quite-as-low rates many consumers are actually getting. The gap between the lowest and the average rate "is as high as it has been in two years, save a single week last September," reflecting lenders' raising profit margins in a market that's less competitive than it was a few years ago.
The attorneys general negotiating with the big banks over mortgage-servicing abuses have offered a deal that would limit the companies' liability for poor documentation of loan transfers in securitizations, the paper reports, citing anonymous sources. But the banks call the proposal a "nonstarter," and even some in the states' camp see their latest offer as too generous, making this whole situation somewhat reminiscent to us of Middle East peace negotiations. The two sides are to meet again this week; according to the FT, "They are close to an agreement on future standards governing the servicing of home loans, yet remain far apart on other issues, such as legal liability claims, compliance and enforcement, and the amount of cash it will take to settle the allegations."
Meanwhile in Europe, members of the Basel Committee are working to soften the liquidity requirements in Basel III, the FT reports, again citing unidentified insiders. Specifically, overall liquidity requirements would be smaller and more corporate and covered bonds could count toward the total.
Gotcha! In a letter last year the SEC reassured the National Archive that its enforcement division was "not aware of any specific instances" of destroying documents related to inquiries into potential wrongdoing that never grew into full-blown investigations. But the Post has turned up drafts of that letter that indicate destroying documents on closed cases — or non-cases, as it were — was routine, and that some of these destroyed records were supposed to have been kept for 25 years (something the SEC has never publicly acknowledged). Great digging, but did they have to be so coy in the headline ("A different story emerges on SEC record purges")?