Banco Popular de Puerto Rico

Receiving Wide Coverage ...Who Speaks for the Savers? The Times and the Journal offer critiques of the Fed's zero-interest rate policy. In her Times column, Gretchen Morgenson frames the argument in moral terms and implicates the financial sector: "The Fed drove down interest rates to almost zero to shore up big banks and an economy that those banks helped drive off a cliff. Now savers, who did nothing to create the financial crisis, are being punished." In a Journal op-ed, Andy Laperriere of the investment research firm ISI Group makes an economic case against ZIRP, arguing that encouraging consumption at the expense of savings will hurt growth: "Prosperity does not come from spending; it comes from work, saving and investment." Wall Street Journal, New York Times

Receiving Wide Coverage ...Money Market Funds: Luis Aguilar, a Democratic member of the Securities and Exchange Commission who usually sides with its chairman, Mary Schapiro, tells the Journal in an interview that he’s wary of her proposal to tighten regulation of money market funds. He doesn’t quite come out and say he’d vote against it, but if he did, it’s likely to fail: The five-member commission consists of Schapiro, Aguilar, one other Democrat and two Republicans, neither of whom is expected to support the chairman’s plan. Meanwhile, the Journal’s “Heard on the Street” column says that of two reforms she’s pushing, the one to make money funds trade at a floating share price rather than a fixed $1 per share is eminently more sensible. The other idea, to require the funds to hold capital buffers, sounds great in theory except that “capital is a regulatory construct” that can create a false sense of security. Such a false sense of safety is the problem with money funds to begin with. “New regulations should dispel the myth that these funds can't suffer losses and are akin to bank accounts, a fallacy that could turn them into a systemic threat.”

Receiving Wide Coverage ...Housing Stimulus No. 4,080: The Obama administration is cutting FHA mortgage insurance premiums on “streamlined” refinancings — those that replace FHA loans in good standing and thus don’t require appraisals, credit checks or income verification. The cuts could save borrowers $1,000 a year, not counting the savings from refinancing into a lower interest rate. “It’s like another tax cut that will put more money into people’s pockets,” the president said. The catch: The lower fees only apply to refis of FHA loans originated before June 2009. This excludes an estimated two-thirds of the FHA’s portfolio. But unlike the mass refi plan Obama announced in his State of the Union address, this comparatively modest one doesn’t require legislation. Wall Street Journal, New York Times, Washington Post

Receiving Wide Coverage ...Pandit on the Pulpit: In a speech at an investor conference yesterday Citigroup CEO Vikram Pandit played the goody two shoes, defending much of the Dodd-Frank regulatory reform law that his peers have complained about. For some time, “Pandit has struck a more humble tone than his competitors, perhaps because his bank relied so heavily on taxpayers to stay afloat at the height of the financial crisis,” the Times notes. In a separate Times article, columnist Peter Eavis politely calls Pandit’s bluff on transparency. The CEO reiterated his call for regulators to require new disclosures from banks that would help investors make apples-to-apples comparisons. “That’s an admirable aim, but Citigroup could start by catching up with other big banks and releasing how much capital it has supporting its investment banking unit” as JPMorgan does, Eavis writes. To be fair, he notes that the figure at JPM “has been at $40 billion exactly for several quarters, raising questions about the number’s usefulness.” Meanwhile, FT columnist Robert Shrimsley makes light of Citi’s deal to use IBM’s Watson supercomputer. Among the questions raised by this arrangement, he writes, “will be whether Watson is executing unauthorised trades and covering them up thanks to its personal relationship with the database server at the Federal Reserve — the two were Intel chips together when young.”

Receiving Wide Coverage ...B of A’s Side Deal: Bank of America has pledged to make bigger cuts to borrowers’ mortgage balances than the other servicers in the $25 billion robo-settlement, the papers report. In return, federal and state officials agreed to reduce B of A’s fines under the pact. The Journal notes there is likely to be some controversy about this side deal because, like the broader settlement, it allows B of A to reduce principal on loans it services for others but doesn’t own. An anonymouse from the Obama administration assures the paper that “principal reductions will be done only when there is a benefit to investors, meaning that the cost of the principal reduction will be less over time than taking the loan through foreclosure.” A Journal reader responds in the comment thread: “We shall see.” Of course, as we’ve said before, all of this information is as reliable as hearsay until the settlement documents are made public. Both the Journal and the Times say the legal papers could finally be filed today — nearly a month after the press conference fanfare. Also coming as soon as today is a report from HUD’s inspector general, which anonymice tell the Times “is likely to find a broad pattern of mistakes, and … could ignite fresh outrage toward the banks.” Meanwhile the Post analyzes the various housing policy changes the administration has announced in recent months and finds the White House has softened its stance against providing relief to those who didn’t “deserve” it — i.e. speculators and people who took on too much debt. Administration officials “have concluded that it is important to prevent homes from going into foreclosure whether owned by an investor or a family — because rising foreclosures of any kind hurt communities,” the Post says. Maybe the president’s advisers dusted off one of their Ivy League economics textbooks and brushed up on “negative externality,” a concept that’s at least as powerful as moral hazard. Or maybe they visited a forlorn neighborhood in Florida or Nevada. Or just studied the poll numbers. Like Clint Eastwood says in “Unforgiven,” “deserve’s got nothing to do with it.” Also in the Times, “BreakingViews” defends Ed DeMarco, the head of the Federal Housing Finance Agency, who’s been criticized for resisting principal reductions. Other types of loan modifications often work just as well, without producing as big a loss for Fannie and Freddie, the column says. “Critics are also ignoring DeMarco’s mandate to minimize losses from bailing out the two mortgage agencies. By attacking him, they are trying to force him to put struggling homeowners’ needs ahead of all taxpayers.” Wall Street Journal, New York Times, Washington Post

Receiving Wide Coverage ...Stress Tests: The results of the latest round of regulatory assessments of big banks’ ability to withstand economic shocks are due out this week. The test results “are expected to show broadly improved balance sheets at most institutions,” says the Times. According to the FT, the average share of profits that large banks are permitted to pay out as dividends is seen doubling to 48%. New York Times, Financial Times

Breaking News This Morning ...BB&T modifies its agreement to acquire BankAtlantic

Receiving Wide Coverage ...The Muppet Show: Greg Smith is leaving Goldman Sachs today, and oh man is he going out with a bang. In an incendiary op-ed/open resignation letter in the Times, Smith, who was an executive director and head of equity derivatives for Europe, the Middle East and Africa, laments that the firm’s “moral fiber” has deteriorated. “I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.” In addition to reporting the use of standard trader slang like “ripping eyeballs out” and “hunt[ing] elephants” (wasn’t that one in Oliver Stone’s original Wall Street movie?), Smith reveals that his former colleagues have coined a wryly condescending name for their unwitting clients: “Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail.” In response, Goldman Sachs is telling reporters: “We will only be successful if clients are successful. This fundamental truth lies at heart of how we conduct ourselves.” The op-ed is naturally generating a great deal of blogosphere buzz this morning. There’s already a parody on the U.K. humor site The Daily Mash, entitled “Why I am leaving the Empire, by Darth Vader.” Speaking of Goldman’s treatment of clients, the CFTC has fined the firm $7 million “for failing to diligently supervise accounts that it carried for a brokerage client.”New York Times, Wall Street Journal, Financial Times, Reformed Broker, Business Insider, The Daily Mash.

Receiving Wide Coverage ...Stress Relief: As banks announced a wave of dividend increases and stock repurchase plans after getting their stress test marks from the Fed, an article in the Times foregrounded criticism that the capital payouts are too much and too soon. Luminaries, including Stanford's Anat Admati, denounced the central bank for irresponsibility and appeasement, and faulted the process for failing to reckon with potentially nightmarish legal liabilities. In the Journal, an article focused on the egg on Citi's face after the Fed blocked it from delivering on its long-time promise to begin returning capital to shareholders this year. "Heard on the Street" looked at leverage ratios under the most severe stress scenario, and commented that they appear "eerily reminiscent of levels seen at investment banks before the crisis."

Receiving Wide Coverage ...More ‘Muppets’: Greg Smith’s not-so-fond farewell to Goldman Sachs remains the talk of the town. Over at JPMorgan, CEO Jamie Dimon emailed colleagues on the operating committee to warn them against indulging in schadenfreude. “I want to be clear that I don’t want anyone here to seek advantage from a competitor’s alleged issues or hearsay — ever,” he wrote, according to the FT. “It’s not the way we do business ... We respect our competitors, and our focus should be on doing the best we can to continually strengthen our own standards.” The headline for another FT story says some of Goldman’s clients are “stand[ing] by” their investment bank, though it turns out these customers are not so much defending the firm as acknowledging they have no illusions about whom they’re dealing with. “They are indeed very aggressive and you better not turn your back on them,” one industrial executive says of Goldman. In other words, these clients won’t be taken for “muppets,” the term Smith says his former colleagues used to describe gullible clients. FT columnist Frank Partnoy (whose 1990s Morgan Stanley memoir “F.I.A.S.C.O.” described traders bragging about “ripping faces off,” rather than just the figurative eyeballs that Smith claims his Goldman colleagues gleefully gouged), says that beyond the visceral reactions, the Smith kiss-off points to a fundamental issue in financial reform: “What does it mean to be a client? … There are clients, and there are clients.” He means there are fiduciary relationships and non-fiduciary ones. The “clients” in the latter arrangement are really just counterparties, and a trader “is not obliged to act in a disadvantaged counterparty’s best interests, any more than a savvy poker player is obliged to show a poor player his good cards,” Partnoy writes. “The tough question for the future is whether less sophisticated institutions should be entitled to more protection. In other words, should they be treated as true clients?” The discussion is more than just theoretical, since Dodd-Frank requires regulators to write standards of conduct for derivatives dealers that trade with municipalities, pension funds, and other potential rubes. In the Journal, “Heard on the Street” considers the Smith critique of Goldman’s culture in an even broader context. “More Than Culture Shifted On Wall Street,” declares the headline for a column that’s really about the outsized role the financial sector has come to play in our economy. Indeed, we at the Morning Scan long thought that having an economy driven by finance was at least one step too far removed from the real world. Kind of like … well … watching a cartoon about the Muppets. In the Times, which got the whole meme started a few days ago when it ran Smith’s op-ed, a news article reports that the bad publicity for Wall Street is yet another impediment to financial firms’ recruitment efforts on college campuses, and columnist Floyd Norris is incredulous that, despite everything, Congress is seriously considering a rollback of regulations for IPOs and private placements. On American Banker’s BankThink blog, our own columnist Joel Sucher says that homeowners who tried to get loan modifications from Litton Loan Servicing, a former Goldman unit, were also treated like muppets. And finally, Southern California Public Radio points out that the Muppets actually were Goldman clients once — in 2003 the firm advised Jim Henson’s family on the acquisition of a merchandising company.