Receiving Wide Coverage ...
JPMorgan: The bank’s Chief Investment Office has been under the media microscope ever since the first stories emerged about the London Whale’s risky derivative trades last month. Today a front-page Journal story focuses the lens on the Special Investment Group, a team within the CIO that makes equity investments in distressed companies. This would seem an odd activity for a group within the CIO, whose job is ostensibly to manage risk, and the story says Matt Zames, the office’s new chief, is reconsidering whether the SIG belongs there. But later on in the story, there’s a quote from an SIG employee’s LinkedIn page that explains the group “seeks to take controlling stakes in companies J.P. Morgan has lent money to and are experiencing some degree of financial distress." So maybe you could argue that trying to get some upside in a bad situation where JPM is already exposed as a lender is a form of risk management? Though you could also argue it’s potentially throwing good money after bad. In any event, JPMorgan tells the Journal that the SIG doesn’t invest FDIC-insured deposits; the group is funded with debt and equity issued at the holding company level. In the Times, columnist Peter Eavis argues that JPMorgan doesn’t disclose enough about its hedges, value at risk measures, and other things investors would probably want to know right now. Also in the Times, economist Simon Johnson joins others in calling for JPMorgan CEO Jamie Dimon to step down from the board of the New York Fed. Johnson considers both sides of the issue at length, but he feels so strongly that Dimon should resign from the Fed board that he’s drafted an online petition.
Processing Content
Losing Steam: The FDIC’s Quarterly Banking Profile showed bank lending in aggregate declined on a quarter-to-quarter basis for the first time in nearly a year, an inauspicious development for the economic recovery. And while lending to big corporations kept rising, credit contracted in most other categories, including small business. The Journal’s “Heard on the Street” column takes a deep dive into the deposit data. Banks still have way more deposits than they can, or want to, lend out — loans as a share of deposits fell to a nearly 20-year low of 70%. But there are signs that large customers, which have been taking advantage of the TAG program’s unlimited guarantees for noninterest-bearing deposits (set to expire at yearend), are starting to feel confident enough to put the money to work elsewhere, the column says. Wall Street Journal, Financial Times
CSI, Wall Street: New York Attorney General Eric Schneiderman tells the Journal that he needs more hands for the special task force he’s heading up to investigate potential wrongdoing in the mortgage-backed securities market during the bubble era. "Do I want more resources? … Yes. Am I asking for more? Yes. Do I believe we'll get that? Yes." (Do we wonder why so many public figures talk this way? Yes.) Right now the state and federal task force has about 100 people. Another Journal story says Wells Fargo turned over to the SEC “hundreds of emails” and other documents related to its MBS business after the agency dragged the bank into court. The paper’s “Developments” blog reports on a Department of Justice website where people can submit tips about MBS fraud, with the promise of “substantial rewards” if the information helps the government to recover money. Bloomberg News got its hands on an SEC memo that said the agency’s staff completed its probe of possible fraud at Lehman Brothers without recommending enforcement actions. But the Times reports that charges are still possible, citing anonymice who said the memo is outdated.
Wall Street Journal
Another front-page story looks at the U.S. Department of Agriculture’s Rural Housing Service — specifically the mortgage program’s collection activities. The agency is aggressive in this area, garnishing federal tax refunds and Social Security checks before foreclosures are completed, and afterward pursuing deficiency judgments, which it’s allowed to do even in states where private lenders are not.
Money market funds, which had been tenaciously fighting any attempt at further regulation of their industry, are now open to a compromise with the SEC over its proposal for strengthened oversight. Though the fund companies still oppose the floating NAV and capital buffer requirements that the SEC wants, the industry can live with a watered-down version of the proposed limits on withdrawals.
Editor’s Note: The Morning Scan will not publish on Monday, May 28, Memorial Day. We’ll be back on Tuesday, May 29.
