Banco Popular de Puerto Rico

Receiving Wide Coverage ...Too Big to Tolerate: This morning’s Journal includes an op-ed by Warren A. Stephens, the head of the investment bank Stephens Inc. For decades his firm and family long supported the establishment of interstate and national banks (and invested in merger-bait institutions), but now he appears to regret having helped created a monster. Despite what Stephens and others once thought, “banks that are national in scope are no more immune to financial and capital problems than regional banks,” he writes. And unlike regionals, national banks that get into trouble can threaten the whole U.S. economy. Stephens calls for the maximum share of nationwide deposits any one bank can hold to be lowered to 5% from the current 10%, with no grandfathering; any bank above that cap would have to be broken up. He also wants commercial banks out of his business, complaining that “the large integrated banks have exercised undue influence over corporate executives by pressing them to use their investment banking services to retain access to the bank's commercial lending services.” Meanwhile, in her Sunday Times column Gretchen Morgenson interviews former Fed Governor Kevin Warsh, another big-bank critic. He stops short of advocating break-ups, but calls for stronger disclosure requirements for the megabanks. Most interestingly, Warsh questions whether the U.S. ought to be working on capital standards with all of the Basel committee countries, since a number of them explicitly stand behind their largest banks and thus have less motivation to demand thick capital buffers. Rather, maybe we should work exclusively with countries that don’t (at least officially) consider financial institutions too important to be allowed to fail, and thus a greater impetus to insist on “market discipline and real capital levels.” Wall Street Journal, New York Times

Receiving Wide Coverage ...Devil Advocates? The Journal reports this morning that the SEC is turning its sights on companies’ in-house and outside lawyers for obstructing investigations and for green-lighting questionable mortgage bond deals. The stonewalling includes tactics like “witnesses ‘forgetting’ what happened and companies conducting internal investigations that scapegoat junior employees and let senior managers off the hook.” Usually the agency only pursues lawyers for active involvement in fraud or misconduct, the paper says, but the SEC is getting fed up with what enforcement director Robert Khuzami calls “less-than-candid testimony.” Khuzami tells the Journal that SEC staff members have been reporting more lawyers to the agency’s general counsel, which can take action against them for misconduct on the job. The article briefly acknowledges the possibility that the SEC may be stepping on a slippery slope, and a Journal reader articulates this concern in the comment thread: “Whenever an unpopular defendant winds up in the dock … you will find unprincipled fanatics and opportunists going after his lawyers, including prosecuting attorneys and the news media. …In the United States defendants are entitled to legal representation to defend themselves against criminal and civil charges. This is the American way of life and it distinguishes us from dictatorships and authoritarian regimes. … Attacking a defendant's attorney is a backhanded way of attacking his rights under the constitution.” Separately, the Times reports on the growth of the “litigation finance” business, in which third-party investors pay plaintiffs’ legal expenses in exchange for a piece of the potential winnings from the case. These investments are apparently quite profitable, but some warn the activity could encourage frivolous suits and inappropriately influence cases. Responds one successful litigation financier: “This really is just corporate finance. … It just happens that the underlying asset is a litigation claim instead of an airplane or a photocopier.” Except you can know with certainty before you write a check whether the plane flies or the machine makes copies, but not whether the claim will prevail in court. Speaking of ethereal assets, we guess we ought to mention the Dewey & LeBoeuf situation here; the latest story in the Times says partners are now being encouraged to leave the wobbling global law firm. A rash of prior partner departures caused Dewey to breach its loan covenants, and bankruptcy is now a possibility.

Receiving Wide Coverage ...Counterparty Credit Limits: Today several financial services CEOs will meet with Fed Governor Daniel Tarullo to plead their case against (among other things) the regulator's proposed rule limiting banks' exposure to one another. Under the rule, credit to any counterparty would be capped at 25% of regulatory capital for most institutions and 10% for the biggest ones. The FT reports on "strident" comment letters about the proposal sent to the Fed by Goldman Sachs and Morgan Stanley. The former investment bank sounds familiar warnings about the threat to the U.S. economy and jobs. In his Times column, Peter Eavis parses another comment letter arguing against the rule, this one filed by the Clearing House, a trade group that's been taking on a higher profile and a broader agenda in the last few years. American Banker's Donna Borak has written a helpful explainer about the Tarullo meeting, which will also cover the recent stress test results that confused and angered the bankers and other regulatory proposals under Dodd-Frank that make them nervous. And for an opinionated take on the pow-wow, go to BankThink, where Akshat Tewary, a lawyer, FINRA arbitrator and member of Occupy the SEC (a "subgroup" of the Occupy Wall Street movement) argues that counterparty limits will ultimately benefit the financial services industry itself along with taxpayers, consumers and nonfinancial firms.

Receiving Wide Coverage ...Tarullo, in Private: As planned, major bank CEOs laid out their concerns about the recent stress tests, proposed counterparty exposure limits, and other regulatory issues to Federal Reserve Governor Daniel Tarullo in a closed-door meeting in New York. The FT says the meeting was "relatively calm," unlike the one last year in which JPMorgan Chase's Jamie Dimon reportedly chewed out Bank of Canada chief Mark Carney. "The banks came away hoping for some concessions from the Fed," the paper says. The Journal has a slightly different take, saying the concerns about new rules were "met with silence," though the article notes that the Fed is not allowed to comment on proposed regulations. "At least one CEO went in with low expectations and emerged from the meeting with a lukewarm view of the event," the Journal says. The Fed itself issued a statement saying Tarullo told the bankers that "their comments would be considered together with all other comments and feedback received from other interested parties," which could either be read as a polite way of blowing them off or taken at face value. Wall Street Journal, Financial Times

Receiving Wide Coverage ...Treasury's Bad-News Blog: How do you get out word that you're throwing in the towel on the Troubled Asset Relief Program and conceding that unloading stakes in hundreds of bailed-out small banks is going to cost taxpayers real money? In the case of the U.S. Treasury, the answer as of yesterday was to get an underling to blog about it. The federal agency let word fly Thursday that most of the small banks bailed out by Uncle Sam during the financial crisis likely will not be able to repay the Treasury Department—something the Financial Times described with terms like "conceded" and "admission." In contrast to the government's profitable investments in big banks—including Citigroup (NYSE:C), JPMorgan Chase (JPM) and Goldman Sachs (GS)—it has received back only $8.5 billion of the $15 billion invested in smaller institutions, the FT notes. Its new strategy for recouping losses: "Make it the private sector's problem," according to the New York Times. Until now, small banks looking to exit Tarp did so by trying to raise outside capital. However, the 343 banks that remain mired in Tarp are finding ever fewer willing investors. As a result, the Treasury does not expect the majority that are still partly owned by American taxpayers to manage in the next 12 to 18 months to repurchase the preferred stock that Treasury received in exchange for bailing them out. Enter Plan B. It started with recent public auctions, essentially test-runs, when Treasury sold preferred stock in six banks to private investors. As part of its new-and-improved divestment strategy, Treasury will pursue restructurings and sales of its holdings, including combining ownership stakes in various banks into pools that will be sold as securities. Treasury does not expect to recoup the face value of its investments; it has already reduced the value of many of its holdings to below par. "The government shouldn't be in the business of owning stakes in private companies for an indefinite period of time," blogged Timothy G. Massad, assistant Treasury secretary for financial stability. "Replacing temporary government support with private capital is an important part of continuing to restore financial stability." Financial Times, New York Times, American Banker

Receiving Wide Coverage ...Europe: The euro fell to its lowest level against the dollar since January this morning, and the continent's equity and bond markets sold off, following elections in France and Greece in which voters repudiated incumbents' fiscal austerity policies. The Journal reports that European banks "are increasingly hoarding their cash at central banks, anxious the continent's crisis could intensify." According to the Times, two of Spain's healthiest banks, Santander and BBVA (both owners of significant retail banks here in the U.S.) are resisting a government plan to bail out their country's financial sector by creating a "bad bank" to acquire toxic assets. Wall Street Journal, Financial Times, New York Times, Washington Post

Breaking News This Morning ...HSBC Earnings: The British global bank’s profits, excluding that nettlesome debt valuation adjustment, rose 26% year-over-year in the first quarter, aided by the investment banking and emerging markets divisions. None of the early news takes we’ve seen go into much detail on HSBC’s U.S. operations, but you can find the quarterly SEC filing from the empire’s main outpost in the colonies right here. The FT story has some interesting comments from HSBC chief executive Stuart Gulliver about the recent political developments in Greece and France — he says he’s “quite sanguine.” Wall Street Journal, Financial Times, New York Times.

Receiving Wide Coverage ...Mortgage Morass: Low interest rates and the revamped Home Affordable Refinancing Program have turbocharged demand for mortgage refis. But given tighter underwriting standards and leaner capacity than in previous refi waves, delivery of the product takes a while: 70 days to close on average, up from 45 days a year ago, according to an Accenture study cited in a front-page story in today's Journal. The article is chock-full of anecdotes about borrowers frustrated by the wait, and it points out that lenders are using the tried-and-true refi boom strategy of lowering their rates less than they otherwise might, mainly to keep from getting swamped with applicants. (This has the added benefit of juicing profit margins, as our American Banker colleague Kate Berry reports here.) A sidebar to the Journal story notes that closing costs are on the rise, limiting the savings for borrowers who refinance. Meanwhile, bad loans and bad blood from the bubble years continue to haunt the banking sector. An FT story concisely describes recent examples: the Treasury Department has okayed a plan for Ally Financial to place its stepchild mortgage unit ResCap into bankruptcy; if that goes well enough, Bank of America could theoretically do the same with Countrywide; Wells Fargo has increased its reserve for repurchases of soured mortgages and has been examined by the Justice Department for potential fair lending violations. Finally, Beazer Homes is one of the most recent companies to try to seize an opportunity created by the mortgage mess — the Journal reports that the homebuilder has formed a REIT that will buy and rent out single-family homes that went into foreclosure or short sales, including houses that Beazer built and sold in the first place.

Receiving Wide Coverage ...Big Fat Fannie Swings to Black: Mortgage-finance giant Fannie Mae reported a $2.7 billion first-quarter profit, its strongest performance since Uncle Sam rescued it nearly four years ago. The financial turn-around will enable Fannie to repay $2.8 billion to the U.S. government. That will shave Fannie's bailout bill to a mere $93 billion out of the $116 billion originally received from taxpayers. All told, bailouts of Fannie and its sibling, Freddie Mac, will cost taxpayers $53 billion between 2011 and 2020, according to the New York Times, citing a Congressional Budget Office estimate. Fannie said it had benefited in the first quarter from the slowing pace of home-price declines and that it lost less than in recent quarters on sales of foreclosed properties. "We expect our financial results for 2012 to be significantly better than 2011," Susan R. McFarland, Fannie Mae's chief financial officer, said in a statement. "Fannie has a lot more bailing to do," the Journal warned in its Heard on the Street column. "The first quarter shows continued profitability isn't assured. Part of the profit is due to gains that resulted from an upswing in interest rates earlier in the year." That's according to Jim Vogel of FTN Financial, who pegs the contribution to profit at around $1 billion. "With rates having retreated recently, this could reverse in the current quarter," he warned. Sustainable or not, the upswing extended to Freddie Mac as well, which last week posted a $577 million first-quarter profit. The black ink at the duo could complicate what is already a politically charged debate in Washington over whether they should put up with greater short-term losses to help stabilize the housing market, the Journal reports. The Obama administration has offered to subsidize the cost of those write-downs, and Fannie's federal regulator, Federal Housing Finance Agency, has weathered heavy criticism from Democrats for resisting modifications that forgive debt. On Wednesday Fannie Chief Executive Michael Williams came down on the side of the FHFA when he told the Journal it isn't necessary for his firm to participate in programs to write down principal for homeowners who owe more than their homes are worth. Other forms of relief are available, he said, including reducing homeowners' payments by dropping the interest rate or waiving payments on part of the loan without forgiving any debt. "Candidly, I think we've got the right tools now. Principal reduction is not part of it," Williams said. As his FHFA overseer, Edward DeMarco, can tell him, such views could turn Williams into a lightning rod. Wall Street Journal, New York Times

Receiving Wide Coverage ...A Crack in the ‘Fortress’: By now, you’ve probably heard about JPMorgan Chase’s revelation of a $2 billion trading loss in the Chief Investment Office (home of the notorious “London Whale”) and CEO Jamie Dimon’s display of contrition in a hastily scheduled conference call. It probably occurred to you that this played right into the hands of a whole bunch of pundits out there who want to strengthen regulation, even before you read Dimon’s quote that it “plays right into the hands of a whole bunch of pundits out there." It may also have occurred to you before any journalist started typing that the “egregious” (Dimon’s oft-quoted descriptor) blunder undermines his image as the exceptional CEO of the exceptional large bank with the exceptional “fortress balance sheet,” and that the news is especially awkward for JPMorgan given that a month ago Dimon had dismissed all the news reports about the Whale’s risk-taking as “a tempest in a teapot.” Not to mention the CEO’s increasingly cocky public pronouncements about overreaching regulators and poor put-upon bankers. You may have even spent some time trying to piece together what exactly went wrong from the details that JPMorgan disclosed and the previous market chatter about CIO trader Bruno Iksil’s position on an index of corporate credit default swaps. To help you navigate the sea of media coverage, we’re going to break it down for you by theme. Here goes.