Receiving Wide Coverage ...
Consumer Finance: The Times on Saturday reported that while corporations are eagerly taking advantage of ever-falling interest rates, consumers by and large are not. Business borrowing in the first quarter grew the most since the 2008 financial crisis, while household debt levels kept shrinking. The consumer deleveraging is partly voluntary, as cautious households pay down and avoid taking on debt in a fragile recovery, and partly involuntary, as homeowners claiming spotless credit complain that no lender will refinance their underwater properties. Still, refi volume is up, and a story in today's FT says the surge "is divisive, benefiting the largest who issue most new mortgages, but hurting smaller rivals and investors who own the original loans, that are being repaid." Megabanks, which dominate originations, will reap the gain-on-sale income, while thrifts that held the old mortgages will be hit with prepayments that erode their net interest margins, since the principal cannot be reinvested at such high rates.
Wall Street Journal
Lee Bollinger, the chairman of the New York Fed’s board, tells the paper that Jamie Dimon shouldn’t have to resign from his directorship. Critics talk about apparent conflicts of interest, but Bollinger, whose day job is president of Columbia University, notes that the law requires regional Fed banks to have bankers on their boards.
General Electric “is considering breaking off big chunks of its lending business, heeding the wishes of investors who are uncomfortable that the conglomerate owns what amounts to one of the country's largest banks.”
A front-page article on Saturday surveyed the potential aftershocks should Moody’s make good on its threat to downgrade 17 global banks, including five of the top six U.S. institutions. Some money market funds, for example, will have to stop extending short-term credit to any bank that loses the top-grade P-1 rating for its commercial paper. Even without downgrading banks, Moody’s has caused them to lose business: Municipalities are already trying to replace watch-listed banks backstopping their auction-rate securities, since ratings cuts for such institutions would cause these local governments’ borrowing costs to spike. Cleveland, for example, cashiered Bank of America as the guarantor of $90 million of water department bonds, and hired Bank of New York Mellon (whose Moody’s rating is not under review) to take over the job.
In an op-ed, Thomas Hoenig, an FDIC director and the former president of the Kansas City Fed, rebuts criticisms of his proposal for a “Glass-Steagall for today.” Those who argue the crisis would have occurred even if banking had remained separate from brokerage miss that “the largest bank holding companies and broker-dealers were engaged in high-risk activities supported by explicit and implied government guarantees.” Big banks could fund these activities with insured deposits, and big brokerages could borrow from money market funds and other investors that assumed the government would not let them fail. And to those who say forcibly breaking up the banks or reforming the money market fund and repo businesses would be anti-capitalist, Hoenig replies that doing so would remove a safety net and subsidies for risky endeavors.
Silicon Valley Bank has opened a branch in the U.K., “hoping to exploit a gap in the market as many UK early stage companies complain of being unable to access financing.”
Metro Bank, the U.K. retail bank founded in 2010 with backing from American industry iconoclast Vernon Hill, plans to go public in 2014. It recently raised 126 million pounds (about $196 million) and is adding branches and employees.
And speaking of U.K. IPOs, New Trend Lifestyle Group, which “offers feng shui, Tarot and matchmaking services,” plans to list its shares on the London Stock Exchange’s Alternative Investment Market. The FT says Citigroup has been a client of this Singapore-based company, but doesn’t say which services the bank purchased from it, and we’re not sure we want to know.
New York Times
Columnist Gretchen Morgenson suggests bailed-out megabanks could “return the favor” to the public by waiving or reducing exit fees for municipalities that entered into interest-rate swaps tied to bond issues. The high costs of unwinding these swaps are preventing the cities and public authorities from refinancing their debts at today’s lower rates.
Self-explanatory: “Banks Look to Burnish Their Images by Backing Green Technology Firms.”
To bankers’ chagrin, Congress is again considering legislation to increase the federal cap on the amount of business loans credit unions can make as a proportion of their total assets. This article lays out, for a general audience, the arguments for and against doing so (credit unions lend to entrepreneurs whom banks won’t touch; credit unions use their unfair tax advantage to undercut banks and win loans.)
And, Lastly …
The Onion: The headline in this satirical paper pretty much says it all: "Goldman Sachs Hires Single Morally Decent Human Being To Work In Separate, Enclosed Cubicle." As Morning Scan readers know, some financial institutions refer to that position as the "chief risk officer."