Banco Popular de Puerto Rico

Receiving Wide Coverage ...Volcker Haters: Woe is Paul Volcker, the former Fed boss who came up with the eminently sensible and elegant idea of banning taxpayer-backed banks from acting like Las Vegas card sharks. Enter Washington pols and the Dodd-Frank Act's Volcker Rule has been turned into a multi-hundred page monstrosity that its recently silent namesake almost assuredly hates. So too do most of the world's leading financial policymakers. Their gripe is that as the Volcker Rule's rules take shape, it's beginning to look like it will have a chilling effect on liquidity and market activity. So chilling, in fact, that the U.S. government has been left with only one logical option—exempt its own debt from the Volcker restrictions. That ploy has left foreign government officials hopping mad, as the New York Times reported out of Davos late Monday. This morning the Wall Street Journal reports that the U.K. Chancellor of the Exchequer, George Osborne, has added his voice to the chorus rising up against Volcker. The regulation, "would appear to make it more difficult and costlier" for banks to buy and sell non-U.S. sovereign bonds on behalf of clients, Osborne, said in a recent letter to Federal Reserve Chairman Ben Bernanke. Osborne's critique follows similar objections from the European Commission, Japan and Canada. Under Dodd-Frank, five regulators, including the Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission, are charged with crafting the rules. With its initial implementation set for July, and with banks having several years to comply, this kerfuffle is likely to be around for a long, long time. New York Times, Wall Street Journal

Receiving Wide Coverage ...Refis, for Real? President Obama unveiled the details of the new refinancing plan for underwater borrowers he mentioned in the State of the Union address last month. (Or rather, the new new refi plan, since it’s only been three months since HARP 2.0 came out.) Close to 15 million homeowners would be eligible for the latest initiative. To qualify, one would need a credit score of at least 580 and have missed no more than one mortgage payment over the last six months. The new loans would be insured by the FHA, whose loan limits (which range from $271,050 to $729,750, depending on the region) would apply. Interestingly — and barely mentioned in the coverage we’ve read — the plan would encourage people to refinance into mortgages with a 20-year term instead of the customary 30 years, so they can rebuild equity faster. As an incentive, the government would cover closing costs for those who choose the 20-year option “with monthly payments roughly equal to those they make under their current loan.” Of course, this means the borrower’s cash flow wouldn’t improve off the bat, which doesn’t sound like much of a Keynesian spending stimulus to us, but it’s a nice contrast to the heady days when people were seriously talking about 50-year amortization schedules to make mortgages more “affordable.” The administration reiterated that the cost of the new refi program (estimated at $5 billion to $10 billion) would be paid for by a “financial crisis responsibility fee,” assessed on “the largest financial institutions.” It’s still unclear how many of “the largest” ones would have to pay the tab, but the fee would be based on a company’s size and “the riskiness of their activities.” (By what measure? VaR?) Back to reality: We’ve been careful to use the conditional “would,” because all this requires legislation, and Congressional Republicans are having none of it. Here’s House Speaker John Boehner, talking to reporters: “One more time? One more time? How many times have we done this?” (Hey, that could make a catchy song!) This reaction probably explains why a lot of the news coverage is focused on Machiavellian political analysis — the Journal suggests the President is “setting up a contrast with Republicans over government's role in helping Americans who, in Mr. Obama's words, ‘play by the rules.’” You know, it’s an election year and all that. But isn’t it a lot more interesting to think about the socioeconomic implications of 20-year mortgages than listen to another Washington horse-race narrative? No? Anyone? Wall Street Journal, New York Times, Washington Post

Receiving Wide Coverage ...‘A Lowly Clerk’: Lawmakers grilled Michael Stockman, who was chief risk officer of MF Global when the brokerage collapsed last year, in a tense hearing Thursday. (OK, that sounds a little hackneyed – are these hearings ever anything other than “tense” and “testy”?) One lawmaker called Stockman a “yes man.” Another said Stockman was apparently hired to tell Jon Corzine “what he wanted to hear,” and chided him that he should have controlled the CEO’s risk-taking: “You were not a lowly clerk.” Some of the headlines make much of the revelation that in early October, weeks before its bankruptcy filing, MF Global drew up a “break-the-glass” emergency plan mapping out what the firm would do if it got downgraded to junk. But this kind of what-if contingency planning seems fairly standard, or at least we’d think it should be; what’s more surprising to us is that, according to the Journal, Stockman told lawmakers “he had little role in its preparation and didn't see it before MF Global's Oct. 31 bankruptcy declaration. He said the firm's treasury and finance departments were primarily responsible for the document but added that a senior member of the risk-management team was involved in its preparation.” Uh, isn’t this exactly the kind of exercise the chief risk officer should be intimately involved in preparing? Also at the hearing, Stockman’s predecessor, Michael Roseman, described his unsuccessful attempt to warn the board about the dangers of Corzine’s gambles on European sovereign debt (which was around the same time Corzine began the search to replace Roseman, a search that ultimately led to Stockman's hiring). Even though we’ve already plugged not one, but two, DealBreaker stories this week, we’re going to give the last word on this to that site’s Matt Levine, because we can’t resist a headline like this: “Jon Corzine Was The Mark Zuckerberg Of MF Global, But In A Bad Way.” Noting that only about six months ago Corzine “was viewed as essential to MF Global’s business plan, so much so that they were going to pay bondholders more if he left,” Levine quips: “in hindsight maybe they should have paid bondholders more when Roseman left.”

Receiving Wide Coverage ...The Home Stretch? Today is the deadline (extended from Friday) for states to sign on to the nationwide robo-signing settlement, and that is one of the few things the papers seem to agree on. The Times says California attorney general Kamala Harris is back at the table. Her state’s “participation would result in having more money available for many other states, including an estimated $500 million in additional money for Florida,” the paper says. But the Journal says the negotiators have offered Harris “a commitment that a certain portion of the deal's benefits go to California,” and suggests that other AGs, including Florida’s Pam Bondi, may balk precisely at this carve-out.

Breaking News This Morning ...UBS Profits Tumble: The Swiss bank’s “wealth management unit failed to make up for a loss in investment banking” in the fourth quarter, according to the Times. Wall Street Journal, Financial Times, New York Times

Receiving Wide Coverage ...Double Duty: Fed chairman Ben Bernanke defended the central bank’s dual mandate — control inflation and unemployment — in testimony before Congress. He reassured Republican lawmakers that the Fed is balancing the two goals rather than giving employment a higher priority. New York Times, Washington Post

Receiving Wide Coverage ...The Servicing Settlement: It’s apparently really, finally happening, with an announcement expected today. The holdout attorneys general, including New York’s Eric Schneiderman and California’s Kamala Harris, have been brought back into the fold, the papers report. To win over the dissident AGs, “the banks and other government negotiators preserved regulators’ and prosecutors’ ability to use facts assembled from foreclosure-related probes in their securitisation investigations,” the FT says. “While the banks would be released from claims involving foreclosure abuses, securitisation claims would remain.” Indeed, the Journal reports that the SEC plans to send Wells notices to several major financial institutions, warning it intends to sue them for misrepresenting mortgage-backed securities sold during the go-go years. (It's not clear which companies will get the head's up, but the agency's been looking at Bank of America, Citi, Ally Financial, Goldman Sachs and Deutsche Bank, the paper says.) Also, Schneiderman’s suit against MERS and three banks will be allowed to proceed, and he retains the right to sue other servicers for using the mortgage registry system, according to a very informative and detailed post by David Dayen on the FireDogLake blog. The papers give conflicting figures on the size of the settlement — it’s either $26 billion or $40 billion, depending on the headline. That’s because the bulk of the settlement ($17 billion) is not cash but principal reductions, and “the banks will not get dollar-for-dollar credit for every write-down,” according to the FireDogLake post. (Remember that the banks were supposed to get more credit for eating the loans they hold on balance sheet than for writing down mortgages they service for investors, though there’s still skepticism whether this incentive will work.) “Housing and Urban Development Secretary Shaun Donovan believes that they will be able to get between $35-$40 billion in principal reduction in real dollars out of the settlement,” Dayen writes. The Times appears to be the only one of the major news outlets to provide an infographic breaking down the settlement amount, which a story like this cries out for. Some more interesting tidbits: a chunk of the cash portion of the settlement is to go to the states, and according to Dayen they will use at least some of that money to fund legal aid services for borrowers facing foreclosure; he also reports that Oklahoma’s attorney general isn’t participating in the settlement, because he doesn’t think the banks should be penalized at all. Since we’re quoting so profusely from his post, we should also acknowledge that Dayen regards the settlement as still overly broad in releasing banks from liability, and still insufficient in compensating borrowers. As other consumer advocates probably will, too. Wall Street Journal, Financial Times, New York Times, Washington Post, Politico.

Receiving Wide Coverage ...Interpretations of the Mortgage Deal: Depending on which story you read, the $25 billion settlement between the federal government, 49 state attorneys general and the largest mortgage servicers is: A potential boon to the housing market and the economy (Wall Street Journal, Financial Times, Los Angeles Times); a shot across the bow for the banks (Washington Post); a source of limited relief for the banks (“Heard on the Street” in the Journal); already largely reserved for by the banks (Journal again); a source of limited relief for homeowners (New York Times); an egregious shakedown of banks by politicians (Journal editorial page); too soft on the banks and not generous enough to homeowners (Los Angeles Times again, Matt Taibbi in Rolling Stone, Adam Levitin at CreditSlips.org); and/or the denouement of a long-running drama (Journal, Post). And yes, the Journal’s “tick, tock” story reliably tells you what they ate at the negotiating table (cookies this time). A more interesting insider detail is the role played by Wells Fargo executive Mike Heid, who’s profiled, along with the more obvious government figures, in a Journal sidebar on key players in the talks. Heid “helped close ranks and find consensus” among the five megaservicers, the piece says. This was probably quite a feat considering that Wells also argued to the regulators “that it should be treated differently because its mortgage-servicing operation wasn't nearly as troubled as” B of A’s or JPMorgan’s.

Receiving Wide Coverage ...PE Probe: The SEC has begun an informal inquiry into the private equity business, the papers report, citing anonymous sources. While Mitt Romney’s candidacy has sparked a national debate about whether PE firms are net creators or destroyers of jobs, the SEC is more concerned with in-the-weeds matters. “One focus of the inquiry is how private equity firms value their investments and report performance,” according to the Times. “The S.E.C.’s concern … is that some private equity funds might overstate the value of their portfolios to attract investors for future funds.” The papers also briefly mention the fee structures of PE firms as an area of interest for the Feds. Wall Street Journal, New York Times

Receiving Wide Coverage ...Volcker Rule: A flurry of comment letters, both for and against the ban of proprietary trading by insured commercial banks, were filed by the midnight deadline — including one by the old lion who conceived the rule, rebutting critics’ “futile stonewalling.” Paul Volcker also wrote an op-ed in the FT responding specifically to foreign governments that have complained the rule will hurt liquidity for sovereign debt. Noting that the regulation will allow market making and underwriting of securities, the former Fed chairman writes that banks also “can continue to purchase foreign sovereign debt for their investment portfolios — should I say à la MF Global? What would be prohibited would be proprietary trading, usually labelled as ‘speculative.’ How often have we heard complaints by European governments about speculative trading in their securities, particularly when markets are under pressure?” In the Times, “DealBook” columnist Andrew Ross Sorkin reiterates the industry argument that the line between acting as a middleman and acting as a principal is sometimes hazy: “Historically, [a] bank could buy, say, 1,000 bonds and hand over the 889 that its client had requested. The 111 other bonds would sit on the firm’s balance sheet until it could parcel them out to other clients who wanted to buy them. Now, such trades may become impossible — or at least, impossibly expensive.” In a Fox Business interview, a casually dressed Jamie Dimon makes this same point, likening his bank’s securities operations to “these stores down the street — when they buy a lot of polka dot dresses, they hope they’re gonna sell. They’re making a judgment call. They may be wrong.” The JPMorgan chief is also reliably irreverent: “Paul Volcker, by his own admission, says he doesn’t understand capital markets. Honestly, he’s proven that to me.” Dimon’s bank submitted a 67-page comment letter that said the regulation “appears to take the view that banking entities, their customers, and the economy must pay almost any price in order to ensure absolute certainty that there can never be an instance of prohibited proprietary trading,” and that the Volcker rule could "chill legitimate market making and impose needless costs." The pension giant CalPERS was one of the rule’s notable defenders, calling the costs of the rule “acceptable” in light of the reduced risk to the financial system. Wall Street Journal, Financial Times, New York Times.