Receiving Wide Coverage ...
Too Big to Tolerate: This morning’s Journal includes an op-ed by Warren A. Stephens, the head of the investment bank Stephens Inc. For decades his firm and family long supported the establishment of interstate and national banks (and invested in merger-bait institutions), but now he appears to regret having helped created a monster. Despite what Stephens and others once thought, “banks that are national in scope are no more immune to financial and capital problems than regional banks,” he writes. And unlike regionals, national banks that get into trouble can threaten the whole U.S. economy. Stephens calls for the maximum share of nationwide deposits any one bank can hold to be lowered to 5% from the current 10%, with no grandfathering; any bank above that cap would have to be broken up. He also wants commercial banks out of his business, complaining that “the large integrated banks have exercised undue influence over corporate executives by pressing them to use their investment banking services to retain access to the bank's commercial lending services.” Meanwhile, in her Sunday Times column Gretchen Morgenson interviews former Fed Governor Kevin Warsh, another big-bank critic. He stops short of advocating break-ups, but calls for stronger disclosure requirements for the megabanks. Most interestingly, Warsh questions whether the U.S. ought to be working on capital standards with all of the Basel committee countries, since a number of them explicitly stand behind their largest banks and thus have less motivation to demand thick capital buffers. Rather, maybe we should work exclusively with countries that don’t (at least officially) consider financial institutions too important to be allowed to fail, and thus a greater impetus to insist on “market discipline and real capital levels.” Wall Street Journal, New York Times
Wall Street Journal
“Heard on the Street” looks at mortgage subsidiaries’ performance in big banks’ first-quarter results and finds the sector is now disciplined about pricing and underwriting, resulting in stronger profits, even for banks whose origination volume has shrunk. A far cry from the heady days of 2005, when the competitive pressure to lower standards was so great that lenders who publicly disparaged questionable products would start offering them months later, saying (literally verbatim, in at least one case) “if you can’t beat ‘em, join ‘em.”
Another “Heard” item says activist shareholders making a stink about executive pay on both sides of Atlantic are doing banks a favor. “A bit of hardship” for individual bankers who are accustomed to living high off the hog “might go some way to satisfy the public clamor for retribution.”
Corporate America is grooming more women to be CEOs, the Journal reports. The article identifies 10 female executives whom recruiters say are likely to be running a Fortune 1000 company in the next five years. There are no bankers on the list, but of course you don’t need the Journal to know which women to watch in financial services — just read American Banker Magazine’s annual listing. Also conspicuously absent from the Journal’s list is Facebook executive Sheryl Sandberg, because the social network isn’t in the Fortune 1000. Besides, it’s hard to see anyone ascending to the CEO spot at Facebook in the near future, given Mark Zuckerberg’s reputation for dictatorial control and the fact that he’s nowhere near retirement age. (Is he even drinking age?)
Speaking of undulating playing fields, the FT reports that big investment banks want to prevent smaller rivals from exercising their newfound powers under the JOBS Act to publish research about clients ahead of stock offerings. The Wall Street giants aren’t sure whether the JOBS Act overrides the 2003 global securities settlement they signed with then-New York Attorney General Eliot Spitzer, forbidding pre-IPO research on companies they underwrite. Until they have clarity on which regime will prevail, the major underwriters are lobbying their trade group to alter the industry-standard “master underwriting agreement” in a way that “would make it difficult for brokerages not bound by the global settlement to use the act’s relaxation of the rules.”
But big institutions sometimes help out their smaller brethren, too — at least when there are investment banking fees to be had. Another FT story says large banks are planning to structure “regulatory capital trades” for “second and third tier banks,” which would get capital relief by offloading risk from their balance sheets through synthetic securitizations.
New York Times
The “Room for Debate” section features a discussion of whether banks are making too much money off consumers from fees. The debaters include New York Attorney General Eric Schneiderman, the ABA’s Nessa Feddis, NEDAP’s Sarah Ludwig, National Consumer Law Center’s Chi Chi Wu and Jennifer Tescher of the Center for Financial Services Innovation.