Banco Popular de Puerto Rico

Receiving Wide Coverage ...Fault Found in STARS: The feds are fighting five domestic banks over transactions Barclays arranged that allegedly exploited discrepancies in U.K. and U.S. tax laws to stiff Uncle Sam for billions, a joint investigation by the Financial Times and ProPublica found. The deals, known as "structured trust advantaged repackaged securities," or STARS (one of those names that makes us suspect the investment bankers started with the acronym and then decided what words it would stand for), were so complex that a Harvard-educated federal judge adjudicating one of the court cases couldn't make heads or tails of them. So we're not even going to try to give you a pat summary, but the FT has a nifty interactive feature that explains the structures in relatively simple terms. "Foreign tax credits are designed in US law to prevent double taxation of companies that do business overseas," the FT says. "Because US companies are taxed on their worldwide income, they are allowed to claim credit for taxes paid in foreign jurisdictions so as to keep their tax bill essentially neutral." But the IRS alleges the STARS deals "were 'foreign tax credit generator' schemes to reap credits even when there was no double taxation." Aside from the four U.S. banks that used STARS - BB&T, Bank of New York Mellon, Sovereign and Wells Fargo - the government is also tussling with AIG over a different kind of a foreign tax credit deal that dates back to the 1990s. One of the masterminds behind these transactions was a young Joseph Cassano, who would go on to lead the infamous Financial Products group whose gambles led to AIG getting bailed out by the government in 2008. Finally, on a related topic, Washington Post columnist Allan Sloan proposes that the FASB require U.S. companies to disclose how much federal income tax they pay "so that we could have an informed discussion" -- he notes that some well-intentioned press stories have blundered by confusing accounting and tax figures.

Receiving Wide Coverage ...Freddie Flub? Freddie Mac may have missed out on billions of dollars it could have recouped from claims on defaulted mortgages, according to a report due today from the Federal Housing Finance Agency's inspector general. The report also criticizes the $1.3 billion settlement Freddie reached with Bank of America in January, calling the deal inadequate. Wall Street Journal, New York Times

Blogosphere reactions to a self-described trader's BBC interview range from “what a jerk” to “well, at least he’s candid” to “that guy’s smart” to “this has to be a hoax.”

Receiving Wide Coverage ...The Tobin Tax: Momentum appears to be building in the European Union for a tax on financial transactions. The idea is referred to as the “Tobin tax,” after the late James Tobin, an economist who suggested a tax on currency transactions after the Bretton Woods system broke down in the early 1970s. The aim, in Tobin’s words, is to “throw some sand in the wheels” of the markets as a check on volatility. The tax European leaders are now discussing would cover much more than currency trades, though, and while supporters do still cite the potential stabilizing effects for markets, replenishing public coffers in the midst of the sovereign debt crisis is also a goal. In an address to the European Parliament Wednesday, José Manuel Barroso, the European Commission president, framed the issue as “a question of fairness”: “It is time for the financial sector to make a contribution back to society.” Critics of the proposal have said it could drive business elsewhere. As one of the writers for the FT’s “Lex” puts it in this video, “you might want to buy shares in property for Bermuda.” (Warning: aside from losing some of the mystique around “Lex” by seeing the people who produce it identified on camera, you’ll have to sit through a treacly ad for Goldman Sachs before the actual clip starts. Nevertheless, we felt smarter, on balance, after watching.)

Receiving Wide Coverage ...No European Vacation: As The Scan was being prepared, German lawmakers approved a bill to expand the euro zone's bailout fund, the Times reported. Finland's parliament did so a day earlier. But talk has already begun on "a more radical increase in the scope of bailouts" and possible debt restructuring for Greece, the Journal said. Debate on that subject is expected to gain more momentum in October, and it could get dicier. German Chancellor Angela Merkel is taking heavy political flak in pushing the current bailout, and a revolt among lawmakers "underscores a broader shift among Germans about their nation's role in Europe since the crisis erupted nearly two years ago." Meanwhile, the European Union detailed its plan for a tax on financial transactions. It would cover all transactions among financial institutions when at least one party is located in the EU, the Journal reported. Financial and business groups are already mounting an attack, the FT reported.

Receiving Wide Coverage ...Eurozone Crisis, Chapter 42: German Chancellor Angela Merkel mustered a political victory by winning approval of the expansion of the European bailout mechanism in a parliamentary vote that would have passed on the stregth of her coalition's support alone. The Times said Slovakia "is the only remaining wild card" in a process that requires the assent of all 17 European Union countries. But even though the paper predicted that opponents in Slovakia would cave under pressure from the rest of the bloc, a fraught road lies ahead to secure the further amplification of the European Financial Stablitity Facility that many analysts believe is necessary to resolve the crisis. The Journal said, "As deputies emerged from the assembly in the Reichstag in central Berlin, a number of lawmakers predicted Ms. Merkel would have to ask parliament for more money soon." Wall Street Journal, New York Times, Washington Post

Receiving Wide Coverage ...Eye on B of A: Merrill Lynch is "thriving," but morale isn't so good, according to the front page of the Times' Sunday Business section. For one thing, the brokerage's profits are being overshadowed (and canceled out) by parent company Bank of America's whopping mortgage losses. Many bankers and traders get about half their pay in restricted stock, so the decline in B of A's stock price has amounted to a pay cut. And hundreds of layoffs in the past few weeks haven't helped the mood among the "thundering herd" either. Meanwhile, the Post reports that B of A has faced customer outrage over its new $5 charge for debit cards. It probably compounded customers' frustrations that B of A's website suffered sporadic outages over the weekend. The bank said the outages were not the result of hacking and went out of its way to add that the website problems had nothing to do with the debit fee. It's hard to imagine why the former would have anything to do with the latter, but "the response may reflect quite how much the resulting criticism has stung BofA," says "Heard on the Street."

Receiving Wide Coverage ...Not So Dexterous: The European debt crisis has a new poster child: Dexia. The French- and Belgian-based bank, which specializes in lending to municipalities on the continent, held an emergency board meeting Monday to discuss a possible break-up after Moody's put its credit rating on review for possible downgrade. The news of Dexia's woes, as well as Greece's continued fiscal strains, contributed to a global stock selloff. Under the plan being discussed, Dexia's shaky assets (which also include Greek and Italian sovereign debt) would be placed in a "bad bank," whose obligations could be guaranteed by the French and Belgian governments. Those governments indicated they would stand behind Dexia, which they partly own. Although hardly a household name in the United States, Dexia is a significant player in our municipal bond market, as a guarantor for a type of short-term debt that is rolled over daily and weekly. If investors refuse to float the debt when it comes due, Dexia is obliged to purchase much of it, and in such an event it has the right to demand from these municipal clients a much higher interest rate and accelerated payoff. "Such a worst-case scenario is equivalent to an adjustable-rate mortgage on a house where the borrower suddenly faces a huge balloon payment," the Journal says; the test will come later this week when many debt issues are due for remarketing. Dexia also relies on short-term funding, though less so than when it was first bailed out in 2008. Hmm… short-term funding to finance long-term financing, with exposure to European sovereigns and U.S. munis? What could go right? The FT's Lex sums up the situation nicely: "If any bank epitomises the eurozone's bank-sovereign conundrum, it is Dexia." Wall Street Journal, Financial Times

Receiving Wide Coverage ..."Close to Faltering": That was Federal Reserve chairman Ben Bernanke's description of the economy in Congressional testimony yesterday. Such blunt talk from a Fed chairman is a calculated risk, according to the Journal. "Bernanke wants to spur action in Washington, but he doesn't want to undermine fragile household and business confidence with gloomy talk." Specifically, he called for fiscal moves that would reduce the deficit in the long term, without resorting to growth-squelching austerity measures in the short term. Wall Street Journal, Financial Times, New York Times, Washington Post

Receiving Wide Coverage ...Steve Jobs Dies: The visionary founder of Apple, who famously said “It's not the consumers' job to know what they want," was 56. As American Banker noted when Jobs stepped down as CEO in August, Apple has had a substantial influence on the financial world. Wired, Fast Company, Financial Times, Wall Street Jornal, New York Times.