Banco Popular de Puerto Rico

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.

Receiving Wide Coverage ...Clearing Inventory: Private-equity, hedge fund and securities firms are weighing bids on a portfolio of 2,500 foreclosed homes Fannie Mae is auctioning, according to the lead story in today's Journal. Buyers will be required to rent out the properties and refrain from selling them for several years. The auction will be a major test case for the GSEs and for banks, as both groups have generally been selling their repossessed residential properties one at a time. "Selling properties in bulk to large investors could require Fannie Mae to sell at a big discount, leading to larger initial costs. It is unclear which would be least costly ultimately to taxpayers," the Journal says. Banks, meanwhile, "could be reluctant to unload properties in bulk if it means selling for much less" than what they're currently getting. Another Journal story says the Treasury will announce today it turned a profit on mortgage bonds it purchased at the nadir of the financial crisis; it unloaded the last of these GSE-guaranteed securities last week.

Receiving Wide Coverage ...Goldman Reflections: Columnists and bloggers keep parsing Greg Smith’s bombshell op-ed in the Times last week, in which he announced he was quitting Goldman Sachs because in his view the firm had ditched “customer focus” for a profit-at-all-costs mentality. The Journal’s Francesco Guerrera has a somewhat jaded reaction: “Those who venture on Wall Street should, by now, expect to be treated more like counterparts than clients.” Goldman erred by denying this reality and publicly insisting it puts clients first, Guerrera argues; its executives would have done better by dropping such pretenses and “explain[ing] how the business of finance really works.” In the FT, Tom Braithwaite compares Smith’s broadside to the campaign waged by a group of former Morgan Stanley executives and directors against its then-CEO Phil Purcell seven years ago. Smith’s “fretting over the ‘toxic’ culture at Goldman appealed to the consciences of his banks’ stakeholders; the Morgan Stanley group appealed to their wallets,” and largely for this reason Smith probably won’t have as much impact, Braithwaite writes. He also reminds readers that despite the portrait Smith painted of Goldman as a ruthless, bloodless profit machine, its recent financial performance has been so-so. CEO Lloyd Blankfein “should worry less about the criticism of Mr. Smith and more about making money,” Braithwaite writes. In the Times, law professor and “White Collar Watch” columnist Peter J. Henning uses the Smith allegations, and a recent court ruling assailing Goldman’s work advising El Paso on its sale to Kinder Morgan (a company in which the investment bank held a large stake), as a springboard to look broadly at how Wall Street firms manage conflicts of interest. The Times separately profiles Three Ocean Partners, a new boutique investment bank that has insulated itself from Kinder Morgan-style conflicts by taking on just one client per industry.

Receiving Wide Coverage ...Class Is in Session: Ben Bernanke reprised his old role as college professor in the first of an unusual (for a sitting Fed chairman) series of economics lectures at George Washington University. While taking care to note he wasn’t giving a policy speech, the Journal emphasized the window the lecture offered on Bernanke’s thinking. He noted the Great Depression is often thought of as two recessions, the second one brought about by premature monetary tightening — suggesting he’s in no hurry to raise rates as the current recovery continues to gather strength. The Times depicted the lecture as part of Bernanke’s campaign to burnish the Fed’s public image, while the Post made much of his dated cultural references (“It’s a Wonderful Life,” Life magazine) that went over the heads of his undergraduate students. And in a year when the presidential campaign has raised Ron Paul’s stature, Bernanke explained the problems with the gold standard, noting it did not prevent financial panics and actually promoted booms and busts. It took us way too long to find the 50 slides from his talk — a Google search turned up a lot of clutter — so we’ll spare you the trouble by linking to them right here. Coverage in the Wall Street Journal, New York Times, Washington Post.

Receiving Wide Coverage ...Deutsche Ditches Dodd-Frank: When it comes to avoiding the odious capital requirements of the Dodd-Frank Act, those who can are voting with their feet. Germany's Deutsche Bank (DB) has become the latest big non-U.S. financial institution to ditch the bank holding company status of its Yankee subsidiary, Taunus Corp. That's according to disclosures by the bank and Federal Reserve's website, as reported in the Wall Street Journal.

Receiving Wide Coverage ...Landlord of America? Bank of America is testing a “mortgage to lease” program that lets struggling borrowers stay in their homes by signing over the deeds and renting the properties back from the lender, the papers report. The bank could eventually sell the homes to investors willing to keep them as rentals. It’s a small program for now — on Thursday, B of A sent 1,000 offers to homeowners in three states — but a big departure from the usual strategies for avoiding foreclosure (loan modifications, short sales, procrastination). Wall Street Journal, New York Times, Naked Capitalism.

Receiving Wide Coverage ...Backdoor Bailout? The campaign to make Fannie Mae and Freddie Mac write down principal balances is a stealth attempt to bail out the big banks. So says Federal Housing Finance Agency acting director Edward DeMarco in an interview with the FT. That’s because the megabanks are holding large quantities of second mortgages, which are supposed to be wiped out before the first mortgages held by Fannie and Freddie take any hit. Writing down the first mortgage on an underwater home without touching the second would restore the latter asset’s value, transferring wealth from Fannie and Freddie (and hence the U.S. taxpayer) to the banks, DeMarco tells the FT. Gretchen Morgenson makes the same argument in her Sunday Times column. Financial Times, New York Times.

Receiving Wide Coverage ...Jobs Slow, Rates Low, Get Used to It: Chairman Ben Bernanke indicated the Fed must continue its easy-money policies, notwithstanding the strong employment gains of recent months. “Further significant improvements in the unemployment rate will probably require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” he said, dashing speculation that the Fed might start tightening monetary policy as soon as next year. Wall Street Journal, Financial Times, New York Times, Washington Post

Receiving Wide Coverage ...MF Money Still Gone, Congress Still Piqued: A congressional hearing today offers up JPMorgan's view of the MF Global meltdown, with a deputy counsel for the bank describing JPM's haggling over the source of the transferred funds. Diane Genova is expected to testify that, after JPM noticed that it was being paid with $200 million in customer funds, "it would be prudent and appropriate to ask MF Global to confirm that these transfers had been made in compliance" given that the company was tanking. Evidently the response was so convincing, Genova's prepared remarks say, that JPMorgan "reached out to Mr. Corzine to explain J.P. Morgan's understanding of how the London overdrafts had been covered," and to request confirmation that everything was on the up and up. When the letter was not returned signed, JPM called MF Global's deputy general counsel, Dennis Klejna, who assured that the funds were tranferred from excess money in company accounts and the leeter went unsigned because it was too broad. Meanwhile, it looks like some MF Global employees were aware of a stated shortfall in customer accounts well before the company's collapse. But key officials say they were assured it was just an accounting mishap. Wall Street Journal, New York Times

Receiving Wide Coverage ...Lord Blankfein: The financial commentators pan Goldman Sachs' "compromise" of appointing a "lead" director to avoid a shareholder vote on severing the chairman and CEO roles, currently both held by Lloyd Blankfein. While the lead director will do some of the things a nonexecutive chairman would, "BreakingViews" in the Times notes that the investment bank "has in the past argued that one reason it was opposed to splitting the chairman and chief executive roles was that it had a presiding director, John Bryan, who effectively performed these duties already. … Goldman appears to be doing little beyond changing the name of the role." And "Heard on the Street" in the Journal provides a nice précis of why having a nonexecutive chairman is considered a best practice for corporate governance: "The chief executive runs the business and is the main advocate of management's view. The chairman has a primary interest in long-term strategy and protecting the interests of shareholders. While those goals are usually aligned, they can diverge. This is particularly true at financial firms where executives can pursue risky short-term plays in the hope of securing bigger payouts, even if doing so comes at the long-term expense of the firm and shareholders." Yet among the six largest U.S. financial firms, the column notes, the only two that have separated the chairman and CEO jobs are the damaged goods: Citi and B of A. Wall Street Journal, New York Times.