Receiving Wide Coverage ...
"Close to Faltering": That was Federal Reserve chairman Ben Bernanke's description of the economy in Congressional testimony yesterday. Such blunt talk from a Fed chairman is a calculated risk, according to the Journal. "Bernanke wants to spur action in Washington, but he doesn't want to undermine fragile household and business confidence with gloomy talk." Specifically, he called for fiscal moves that would reduce the deficit in the long term, without resorting to growth-squelching austerity measures in the short term. Wall Street Journal, Financial Times, New York Times, Washington Post
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Interchange Rage: Bank of America's $5 debit card fee has reignited the debate about the Durbin amendment in the Dodd-Frank Act specifically, and about bank fees broadly. President Obama kicked things into high gear on Monday night in an ABC News interview. He suggested the administration could stop the charges, "if you say to the banks, 'You don't have some inherent right just to - you know, get a certain amount of profit.' " His use of the second person was somewhat slippery (instead of an accountable "we" representing the government, it's an abstract "you"), but the remarks were blunt enough to inflame industry representatives and Republicans. The latter group reiterated the argument that consumers will shoulder the increased costs imposed on banks by Dodd-Frank. Meanwhile, the amendment's namesake, Senator Richard Durbin, openly encouraged community banks and credit unions to court consumers frustrated with the big banks. And, emboldened by their victory in the debit fight, retailers have started lobbying for a cap on credit card interchange, according to The Hill. "Debit is step one. Credit is next. We are heading there very aggressively," a merchant lobbyist tells the legislative newspaper. Amid all the Beltway bluster, you might have missed this: JPMorgan Chase, Wells Fargo, SunTrust, and Regions are all trying out variations of the debit card fee, according to the Journal. Finally, U.S. News & World Report blogger Rick Newman offers some perspective on B of A's debit card fee, which he says is just one example of a broader trend in consumer goods and services: "the end of free stuff." Think of airlines charging for pillows and blankets, Netflix's new fee for streaming video (once a freebie for those who paid for the DVD deliveries), or … uhm … paywalls on online news sites. "Those years of free checking and other small perks trained many consumers to think of basic banking services as a birthright-which they're not," Newman writes. "If they hadn't become free at some point, hardly anybody would be complaining about fees now." If you look at the reader comments on Newman's post, you'll notice that they focus on banks (and they're not as forgiving about the fees as he is).
BNY Mellon Sued: "The New York attorney general and the United States attorney in Manhattan filed separate lawsuits on Tuesday against the Bank of New York Mellon, accusing it of cheating state and municipal pension funds nationwide out of foreign exchange fees over the last decade," the Times reports. The New York suit may perhaps be in some ways a bigger problem for the bank - and not only because AG Eric Schneiderman is seeking a bigger amount ($2 billion versus the feds' nine-figure demand). The state's Martin Act "allows him to sue companies for fraud on behalf of investors in all 50 US states without having to prove intent," the FT notes. "Federal securities regulators lack such broad powers." You can find BNY Mellon's rebuttal to Schneiderman's suit here. (And we just remembered that he's recently been a thorn in the bank's side on a different matter.) New York Times, Wall Street Journal, Financial Times
Eye on Morgan Stanley: News of a possible European bailout plan boosted the investment bank's shares and caused the prices of credit default swaps on its debt to fall, the FT reports. The logic being that saving European banks will spare Morgan Stanley the pain of defaults on the debt it holds, and make it less likely that the firm will itself default on its obligations. This is as good a place as any to draw readers' attention to a Journal story we missed last week, which cast some doubt on the usefulness of credit default swaps as a barometer of investors' sentiment about creditworthiness. The problem, the article says, is they're so thinly traded. Back to Morgan Stanley: to calm employees nervous about the firm's exposure to Europe, management sent around a memo, obtained by the Journal, recommending they read two "balanced" reports on the company by analysts at separate firms. Also, a big Morgan Stanley shareholder, Mitsubishi UFJ Financial Group, publicly reaffirmed its support for the company.
That Darn Book: We haven't yet had a chance to read "Confidence Men," Ron Suskind's Woodward-style potboiler about the Obama administration's managing of the financial crisis, and we may not get to for a while. (The New York Public Library system has 233 holds on its 49 copies, and we're at the back of the queue; we refuse to accept the end of free stuff.) But we've gleaned a few juicy nuggets from reading the (mixed) reviews. Most explosively, Suskind claims that early on, the White House wanted to unwind the then-wobbly Citigroup. "Obama liked the idea," Joe Nocera writes in the New York Times Book Review, summarizing Suskind. "It would show, he thought, that the government was willing to tackle the predicament of the banks and their toxic assets head on, and would set the proper tone for the way his administration planned to treat the banks." But Treasury Secretary Timothy Geithner blew off the command, Suskind alleges. (Geithner has vehemently denied this account.) Of the administration's support for the Dodd-Frank rule named after him, Paul Volcker is quoted as saying: "They say they're for it, but their hearts are not in it." And Elizabeth Warren reportedly says of Obama: "He meets with bankers. He doesn't meet with me." Before you run out and buy a copy, be forewarned: one reason some reviewers have panned the book is that Suskind apparently gets a number of small facts wrong (for instance, "the Federal Reserve is a board, not a bureau," notes Slate's Jacob Weisberg, who goes on to point out seven other errors like that in "Confidence Men"). These goofs, the critics argue, should undermine the reader's trust in Suskind's more shocking claims. No word yet on who's got the film rights.
Wall Street Journal
"Bank of America Corp.'s website continued to experience slowness for a third business day on Tuesday even after the bank said late Monday that the problems had been fixed and that it wasn't under a hacker attack."
The paper profiled Standard & Poor's chief credit officer Mark Adelson, the driving force behind the agency's tougher rating standards. The article details his input of the release of the downgrade of the United States' credit rating and compares the number of downgrades S&P has made in the past three years, with other rating agencies' actions.
A lease for 600,000 square feet of office space on Water Street may haunt Goldman Sachs for the rest of the decade. Soon after leasing the space in 2000, Goldman decided not to move in, and has had trouble subleasing the space since then, with most of the space vacant until two years ago. Even now, the paper reports, Goldman doesn't take in the $21 million a year it pays in rent. And that doesn't include the upgrades Goldman made in an effort to find tenants.
Finally, some good news for UBS: the bank said Tuesday that it should post a modest profit in the third quarter despite $2.3 billion in losses from an alleged rogue trader.
New York Times
Law professor and "DealBook" writer Stephen J. Lubben explores the implications for bondholders should Bank of America decide to place Countrywide into bankruptcy (a scenario that seems less hypothetical by the day).
Washington Post
"Some of the nation's biggest banks and mortgage companies have defrauded veterans and taxpayers out of hundreds of millions of dollars by disguising illegal fees in veterans' home refinancing loans, according to a whistleblower suit unsealed in federal court in Atlanta." The whistleblowers are mortgage brokers who allege the banks told them to surreptitiously pad borrowers' charges with fees that the Department of Veterans of Affairs expressly forbids on the loans it guarantees.
