Banco Popular de Puerto Rico

Receiving Wide Coverage ...Consumer Finance: The Times on Saturday reported that while corporations are eagerly taking advantage of ever-falling interest rates, consumers by and large are not. Business borrowing in the first quarter grew the most since the 2008 financial crisis, while household debt levels kept shrinking. The consumer deleveraging is partly voluntary, as cautious households pay down and avoid taking on debt in a fragile recovery, and partly involuntary, as homeowners claiming spotless credit complain that no lender will refinance their underwater properties. Still, refi volume is up, and a story in today's FT says the surge "is divisive, benefiting the largest who issue most new mortgages, but hurting smaller rivals and investors who own the original loans, that are being repaid." Megabanks, which dominate originations, will reap the gain-on-sale income, while thrifts that held the old mortgages will be hit with prepayments that erode their net interest margins, since the principal cannot be reinvested at such high rates.

Receiving Wide Coverage ...Europe: An IMF report gave “a clean bill of health” to Spain’s two largest banks, BBVA and Santander (which both have significant operations here in the U.S.), according to the FT. That, combined with about $124 billion of emergency loans to Spain’s otherwise ailing banking sector, calmed nerves in the industry, the paper says, although markets remain jittery, as shown by a widening of Spanish and Italian government bond yields, a development the Journal calls “ominous.” (Yes, Italy is the new focus of economic agita, according to the Times.) Germany’s Bundesbank warned that the proposed integration of the European Union’s banking systems, through cross-border supervision and deposit insurance, could indirectly subsidize the borrowing costs of weaker countries, curtailing “market discipline” for those governments. (The French central banker, however, favors such a union, and lays out the case for it in a Journal op-ed.) In the Times, “DealBook” prodigy Andrew Ross Sorkin argues that the Spanish bailout won’t work. One more FT story says the continent’s securitization industry is trying to rebrand itself with a Good Housekeeping-style seal of approval. Asset-backed bonds would have to meet certain criteria for “quality, transparency, simplicity and standardization” in order to rate as “Prime Collateralized Securities.” This project is funded by two financial trade groups in Europe and managed by a “PCS Secretariat,” whose name sounds like something out of a right-wing dystopian fantasy. But then one could argue that Europe today is such a fantasy, come true. …

Receiving Wide Coverage ...JPM Hearing Previews — The Script: This morning Jamie Dimon will testify before the Senate Banking Committee on “what went wrong” that led to JPMorgan Chase’s recent $2 billion trading loss. The lawmakers should probably go straight to Q&A and skip his prepared remarks (which you can read unfiltered right here), because the testimony has already been parsed six ways from Sunday. Media outlets either play up the contrition (e.g. the Associated Press headline, “Dimon to Apologize…”), emphasize his insistence that the beaching of the London Whale was “an isolated event” (the Times: “JPMorgan Chief Is Expected to Play Down Trade Risks at Hearing”), or lead with the CEO throwing his subordinates under the bus (the FT begins by saying he’ll tell the senators that “the bank’s chief investment office was instructed to reduce its risk exposure last year but did the opposite”). Wall Street Journal, Financial Times, New York Times, Forbes, Bloomberg, Associated Press, American Banker

Receiving Wide Coverage ...All Dimon, All the Time: Yesterday’s two-hour Senate Banking Committee hearing on the JPMorgan Chase trading losses, starring CEO Jamie Dimon, dominates the morning papers’ banking coverage. Given the complexity of the topic and the competing interests and personalities involved, the contradictions in the storyline are probably inevitable, but still striking:

Receiving Wide Coverage ...Europe, Again: On Sunday, Greece will hold elections that may determine whether the troubled country stays in the Eurozone. European governments are fearful that the election results could spark another round of financial market turmoil. The U.K. said it plans to flood its banks with cheap money to protect the British financial system from the continent’s worsening problems. The European Central Bank’s president, Mario Draghi, said it stands ready to intervene if needed. Amid all of this, we were amazed by a Tweet this morning from the doomsday-trader blog ZeroHedge pointing out that the London Interbank Offered Rate had not changed for 21 days straight. Granted, this morning’s three-month LIBOR was nearly double the year-earlier level, according to Bloomberg, but is it plausible that no bank’s short-term borrowing costs have appreciably risen in recent weeks, given all that’s been going on? (e.g. in Spain and Italy)? Your Morning Scan will entertain rational explanations and give the benefit of the doubt to the banks that report their hypothetical borrowing costs for the British Bankers Association’s LIBOR survey.

Receiving Wide Coverage ...New Democracy Wins: But wins what? The helm of an unraveling economic and political order, a spot many believe no government can hold onto for long?

Receiving Wide Coverage ...Fed Watch: The Federal Open Market Committee meets today and tomorrow, and will weigh whether to take additional steps to juice the economy, given the threat of contagion from Europe and general uncertainty about domestic growth. A lengthy front-page story in the Journal says a “credit divide” has prevented millions of Americans with blemished payment histories from taking advantage of the Fed’s low interest rate policies. Nearly 90% of new mortgages, for example, now go to households with credit scores of 700 or higher, versus a nearly 50-50 split between that group and the below-700 club in early 2007. “The problem for the Fed is that the pipes in the financial system through which its easy money travels are clogged,” the story says. And Roto-Rooting ain’t the central bank’s job. Wall Street Journal, New York Times

Receiving Wide Coverage ...Mexican Standoff: "Meeting in the desert scrub of Mexico's Baja region in an effort to lift the sputtering world economy, the leaders of the so-called Group of 20 eschewed specific commitments, instead limiting themselves to more generalized promises to invest in public works, overhaul labor markets and use innovation, education and infrastructure investment to fuel economic growth." That's how the New York Times described the hugely anticlimactic result of a gathering of heads of state in Mexico. The Wall Street Journal was equally downbeat, reporting that "world leaders papered over their differences after clashing over the euro-zone debt turmoil, deferring concrete decisions to other meetings amid worries about another global crisis." As in the past, left-leaning pols like Barack Obama and most of Europe lined up on one side to agitate for deficit spending; on the other side was eternal party-pooper Angela Merkel, insisting that the rest of Europe follow Germany's lead and live within its means. What passed for bold talk at the gathering was a joint statement that if things get far worse, "those countries with sufficient fiscal space stand ready to coordinate and implement discretionary fiscal actions to support domestic demand." Feel better? The good news, at least by European standards, is that its leaders are expected to take another whack at putting together a detailed recovery plan in Brussels next week. For the moment, the forces of European austerity appear to be on the march. "Elections cannot call into question the commitments Greece made," Merkel told reporters. "We cannot compromise on the reform steps we agreed on." On this side of the pond, that's bad news for President Obama. "With his own re-election chances directly tied to the European economic crisis as it drags down growth in the United States, Mr. Obama desperately wants Ms. Merkel to loosen the reins on spending and the austerity programs that have been imposed on Greece and the other struggling euro zone economies," according to the Times. Back in the old world, the clock is ticking loudly. Spain is already on the edge of losing access to debt markets. On Tuesday it paid 5.074%, or around two percentage points more in interest rates than a month ago, to lure investors to its 12-month Treasury-bills, the Journal reports. In the secondary market, the yield on 10-year Spanish bonds breached 7% — the level regarded as having triggered the bailouts of Greece, Ireland and Portugal over the past two years, notes the FT. Spanish Prime Minister Mariano Rajoy, meanwhile, has relaunched a previously failed campaign to allow the euro zone's rescue fund to directly channel the aid money into the country's lenders, rather than through the government. Another idea knocking around is for the euro zone's rescue fund to buy government debt, rather than orchestrate a traditional bailout, as a way to ease the pressure on sovereign borrowers. Italian Prime Minister Mario Monti—who's close behind Spain's Rajoy in the cause-for-worry department—went into full spin mode to emphasize that "This should be sharply distinguished from the idea of a bailout." Call it what you will. Europe remains on the edge of crisis and world leaders are as divided and clueless as ever about how to solve it. New York Times, Wall Street Journal, Financial Times

Receiving Wide Coverage ...Let’s Twist Again: The Federal Reserve said it would extend through yearend Operation Twist, the strategy of selling the short-term debt in its portfolio and using the proceeds to buy longer-dated paper in order to drive down long-term interest rates. Chairman Ben Bernanke said the central bank stands ready to take further action if the job market doesn’t keep improving, but there’s an ongoing debate about how much else the Fed can do to juice the economy. Wall Street Journal, Financial Times, New York Times.

Receiving Wide Coverage ...Downgrades: As had been widely expected for some time, Moody’s lowered its ratings on more than a dozen global financial companies, including five of the six largest institutions in the U.S. Although they remain investment-grade credits, the three diversified megabanks (Bank of America, Citi and JPMorgan) and two pure-play investment banks (Goldman, Morgan Stanley) will have to post more collateral and stand to lose trading revenue because of counterparties’ credit requirements. The downgrades will have spillover effects on money market funds (which generally can only buy top-rated commercial paper, and thus can no longer lend to the now-“Prime-2” Citi and B of A) and municipalities (which have relied on banks’ guarantees to lower their own borrowing costs). Moody’s rationale for the cuts is that the business of being a large, trading-oriented bank has permanently changed for the worse, including “the removal of the ‘too big to fail’ maxim,” according to the FT. Even if you doubt that this maxim has truly been removed, you gotta love the British paper’s “sell on the rumor, buy on the news” headline (“Moody’s downgrades end uncertainty”) as well as this on-the-record quote from a stout-hearted analyst at one of the downgraded banks: “We think some of the changes by rating agencies are not motivated from credit considerations, but rather are meant to protect them legally in the future.” Wall Street Journal, Financial Times, New York Times.