Banco Popular de Puerto Rico

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.

Receiving Wide Coverage ...Controller of the Comptroller? A hard-hitting Times piece Saturday depicts JPMorgan as an institution that runs roughshod over its regulators. Although there are “embedded” examiners (40 from the New York Fed and 70 from the Office of the Comptroller of the Currency) on site at the bank, there were none in the Chief Investment Office’s London or New York locations prior to the unit’s multibillion-dollar trading loss. The bank dismissed regulators’ concerns about the CIO’s risk-taking, kept them in the dark about salient developments like changing the VaR model, and belittled field examiners by going over their heads, according to the story. Jamie Dimon’s charisma, and track record as the CEO who steered JPMorgan through the crisis relatively unscathed, made it harder for supervisors to second-guess management (and Dimon’s seat on the board of the New York Fed couldn’t have made it easier to challenge his bank, although he and the Fed are quoted insisting his role there is strictly as an economic adviser). The article relies heavily on current and former regulators who spoke on condition of anonymity (probably warranted in this case). At the end, there’s an amusing quote from an unnamed OCC official who tries to explain the vagaries of hedging during a meeting with Congressional staff members: “I know in college they teach you everything is black and white. … but it’s not that way in the real world.” Not only does this sound like a line from a Tom Clancy thriller, but it makes you wonder where the speaker went to college, since one of the few things we remember learning from our undergraduate days is that everything is not black and white. In a blog post, William K. Black, an economics professor and former thrift regulator, cites the Times article’s revelations as evidence that “embedded examiners do not work. They get too close to the bank officers and employees. In the regulatory ranks we called this ‘marrying the natives.’” And speaking of Tom Clancy-era flashbacks, Black has a memorable term for what regulators call “systemically important” banks — he refers to them as “systemically dangerous institutions (SDIs),” an acronym that evokes images of satellites shooting laser beams.

Receiving Wide Coverage ...Realty Check: The Journal's "Ahead of the Tape" column notes that the Mortgage Bankers Association has boosted its industry forecast for 2012 residential refinancing volume to $870 billion. Volume is still half what it was during the salad days, but loans are more profitable as there are fewer competitors to squeeze gain-on-sale margins. Another Journal story reports that the S&P/Case-Shiller Index of home prices in 20 major markets barely declined in March, and these days a flat report counts as good news on this front. Still another article in the paper says Wells Fargo settled a foreclosure-related discrimination suit from two municipalities in Tennessee by agreeing to spend $7.5 million on down payment and renovation grants as well as financial literacy programs. The bank also pledged to write $425 million of loans in Memphis and Shelby County over five years. Post columnist Michelle Singletary alerts consumers who've lost their homes to foreclosure that the July 31 deadline is fast approaching to have their cases reviewed for errors or improper actions under the federal banking regulators' consent order. And on the commercial side of the mortgage business, a story in the Journal says investors in securitizations are complaining about potential conflicts of interest at "special" servicers. These outfits play no role when things are going well; they're paid to step in when a loan runs into trouble, and to try to work out a restructuring deal or seize the property on bondholders' behalf. Among other complaints, critics say that the special servicers have sometimes sold assets to affiliated companies for less than the properties could fetch on the market.

Receiving Wide Coverage ...Euro-Zone Woes Travel Abroad: The knock-off effects from the continent's worsening financial crisis took a new and troubling turn on Wednesday as rising doubts about whether policymakers can contain Spain's banking meltdown led to a global equities sell-off. World stock markets have lost about $4 trillion this month as the turmoil in Europe was reignited by inconclusive Greek elections and the threat to Spain's finances, according to Bloomberg. The euro, meanwhile, fell below $1.24 for the first time in just under two years. "Most ominously on Wednesday, the yield on Spanish 10-year bonds … rose sharply to its levels of November, before the European Central Bank stepped in with €1 trillion ($1.3 trillion) of lending to banks to ease the crisis," reports the Wall Street Journal. "The market slump—driven by the latest worries over the euro zone's fourth-largest economy—underscored investors' concerns that European policy makers don't have the capacity to cope with the euro-zone crisis. The growing angst has, at least temporarily, bolstered the status of U.S. and German government debt as safe havens; sovereign bond markets posted strong rallies in both markets, with Treasury yields hitting historic lows. Rather than celebrate Uncle Sam's near-zero cost of borrowing, or bask in schadenfreude, President Obama conferred via videoconference with German Chancellor Angela Merkel, French President François Hollande and Italian Prime Minister Mario Monti. Few are taking comfort in the high-tech powwow. "The financial markets wonder what's left in the arsenal," Bill Gross, founder and co-chief investment officer of Pacific Investment Management Co., told the Journal. The worse things get, the louder grow the calls for Europe's notoriously timid and disjointed policymakers to take bold new action. The European Commission, which serves as European Union's executive arm, called on Wednesday for the Euro-zone to consider setting up a "banking union" that would jointly prop up vulnerable banks—-rather than push their home countries into full-blown bailouts, says the Journal. The EC also raised the idea of a pan-European deposit insurance fund, which would further shield individual governments from the cost of bank failures. Just how desperate have things become? So desperate that the famously stingy Germans didn't "rule out allowing European bailout funds to inject capital directly into banks rather than channeling funds via national governments," according to the Journal's Heard on the Street column. World Bank President Robert Zoellick likewise weighed in on Wednesday, calling for euro-zone nations to take larger leaps in policy, such as issuing some version of euro bonds. Zoellick also said direct recapitalization of European banks by the continent's rescue fund—as euro-zone officials are now debating—would help avoid "the drip, drip, drip of bad news and uncertainty." No drip, drip, drip would certainly be a change. Wall Street Journal Bloomberg

Receiving Wide Coverage ...No Habla Espanol: What’s it like to feel unwanted, the tuberculosis-ridden street urchin of the monetarily civilized world?

Receiving Wide Coverage ...Interest Rates: The recent and rapid flattening of the yield curve could put a renewed squeeze on banks’ net interest margins in second quarter results, the Journal’s “Heard on the Street” column warns. On the bright side (from the banks’ perspective), the FT notes that consumer mortgage rates have fallen more slowly than the rates on their benchmark instruments, Treasury and mortgage-backed securities, juicing the profit margins in mortgage banking. Also in the FT, an op-ed by Harvard professor and former Treasury Secretary Larry Summers advises those governments that can do so to issue more long-term debt to lock in the current, “epically low” interest rates.

Receiving Wide Coverage ...The Worldwide Willies: Bank lending across national borders shrunk $799 billion in the first quarter, driven by a $637 billion decline in cross-border credit extended to banks, the Bank for International Settlements reported. Notably, cross-border claims on banks in the Eurozone fell $364 billion, the sharpest contraction since the scary final months of 2008. The Journal’s “Heard on the Street” column suggests this was symptomatic of a lack of mutual trust among banks, and surmises that the pullback must be continuing now, given the recent resurgence of fears about Europe. But the U.K. Daily Telegraph emphasizes the role played in the fourth-quarter shrinkage by deleveraging to comply with Basel III capital rules. (You can read the BIS’ report here.) In the FT, columnist Gillian Tett interviews an executive at a firm that operates cash machines across the Eurozone, whose team is “in a state of high alert, battling to ensure that the ATMs will always be stocked, in case consumers ever panic and rush to grab paper notes.” Tett makes some interesting points about the enduring psychological hold of physical cash in a world where money has become largely an abstraction. Wall Street Journal, Daily Telegraph, Financial Times

Receiving Wide Coverage ...JPM Hearing Previews: Today the Senate Banking Committee will question regulators about JPMorgan Chase's $2 billion trading loss. Comptroller of the Currency Thomas Curry says in prepared remarks that his office is looking at whether the bank provided examiners with sufficient information about its trades before they went south, the papers report. The OCC is also looking at potential clawbacks of pay from traders and managers responsible for the blunder, and at what the regulator itself could have done differently, Curry is expected to say. We'd love to link to the actual testimony, but as we type at 7:19 a.m. Eastern, the actual testimony isn't up on the OCC or Senate Banking websites, so for now you'll have to get it filtered through the media outlets that received advance copies. The Morning Scan can vouch that at least one of these publications is reliable: American Banker, Wall Street Journal, Financial Times, New York Times.

Receiving Wide Coverage ...J.P. Mea Culpa: At yesterday’s Senate Banking Committee grilling, er, hearing, Comptroller Thomas Curry confessed “it does not appear” his office’s examiners at JPMorgan Chase “met the heightened expectation” for supervising large banks. Fed Governor Daniel Tarullo told lawmakers that the Volcker Rule, had it been in effect, would have required JPMorgan to document for regulators how its ill-fated trades qualified as hedges. As usual, Matt Levine of the blog “Dealbreaker” wrote our favorite headline on the matter: “Volcker Rule Would Have Required JPMorgan Whale to Look Himself in the Mirror and Ask ‘Is This Really What I Want to Do with My Life?’” Levine reads Curry’s testimony as “a reminder that, even without the Volcker Rule, the OCC, Fed and others had pretty complete access to data on JPMorgan’s whale-sized positions, and basically signed off on them as a hedge until Bloomberg [News] suggested there might be a problem,” which was about a month before JPM disclosed the big trading loss. Democratic Senator Robert Menendez admonished the panel of regulators (who all look really uncomfortable in the hearing photos, even by Congressional witness standards) that “if huge trading losses happen at banks after Volcker, the blood will be on all of your hands.” If you think that sounds hyperbolic (money being recoupable, unlike a life), remember he’s from New Jersey. Even Republicans on the committee walked away from the hearing talking about the need for higher capital requirements. Wall Street Journal, Financial Times, New York Times

Receiving Wide Coverage ...Capital Punishment: "Shocked" is what bankers were on Thursday by a decision to force even the smallest lenders to comply with elaborate Basel III bank-capital standards. That was the Wall Street Journal's take, anyway. Our own view is that among close followers of the banking world, the Federal Reserve's decision to apply international capital standards to all 7,300 U.S. banks was about as shocking as finding gambling going on in a casino. What's beyond dispute is that the Federal Reserve Board's unanimous approval of the capital standards set by the Basel Committee on Banking Supervision is a big deal; it proposes setting a minimum capital requirement for all banks of 7%. The Fed estimates the banking industry would face a capital shortfall of almost $60 billion if the proposed capital buffers of Basel III were in effect today, according to Bloomberg. That compares with a Basel committee survey's finding that the largest global banks would confront a $640 billion shortfall if forced to have a 7% core capital buffer last year. Regulators anticipate U.S. banks could meet their requirement — which will be fully in place by 2019 — by retaining earnings rather than raising capital. Fed Chairman Ben Bernanke on Thursday described the proposal as an "attractive package." Community bankers — who broadly believe Basel III is punishment for the misdeeds of far larger peers — used less glowing adjectives to describe the new capital requirements. The 7% capital requirement "feels like an awful lot of capital held by institutions that, by and large, have done an excellent job in this crisis of managing their problems and their capital," Cathleen Nash, chief executive Citizens Republic Bancorp, a midsized institution headquartered in Flint, Mich., told the Journal. In addition to the main capital rules, the Fed unveiled a proposal that would reduce the role of credit ratings in how banks measure risks in their assets. That proposal calls for swapping in risk classifications developed by the Organization for Economic Cooperation and Development to evaluate the debt issued by other countries. Another set of new rules proposes that banks hold more capital against over-the-counter derivatives and would apply only to the large, internationally active banks or those with significant trading activity. The Fed's action opens up a 90-day comment period during which banks of all sizes are likely to pressure regulators to make changes to the details.