Banco Popular de Puerto Rico

Receiving Wide Coverage ...SEC to the Rescue: If awards were handed out for Most Reliable Lagging Indicator in U.S. financial markets, the Securities and Exchange Commission, sad to say, would likely walk away with the gold. (Such are the vagaries of overseeing financial markets with a revolving-door staff and politically polarized Commission.) Now, in the wake of the flash crash, Knight Capital Group's near suicide and the Nasdaq-Facebook IPO flub, comes word that the SEC has gotten around to looking into HFT "kill switches." The agency has in recent days requested details from major broker-dealers about internal controls for the automated trading systems involved in electronic trading, according to the Wall Street Journal, which cites "people with knowledge of the review." The chief securities overseer is also reportedly seeking information on any recent malfunctions, how they were handled and how firms can override their computers and shut them off. The new inquiries are said to go far beyond typical audits of financial firms carried out by the securities industry's self-regulator, the Financial Industry Regulatory Authority, or Finra. They also seek details on "automatic shut-offs or kill switches" that would turn off trading programs. It may be notable that the Journal's "people with knowledge of the review" decided to share their insights the same day the New York Times reports that regulators in several other countries, including Canada, Australia and Germany, have gotten a jump on the SEC and already adopted or proposed high-frequency trading limits. "The flurry of international activity is particularly striking because regulators have been slow to act in the United States, where trading firms and investors have been hardest hit by a series of market disruptions," the Times reports. Wall Street Journal, New York Times

Breaking News This Morning ...$2.4B to Make It Go Away: Bank of America agreed to pay $2.43 billion to settle a class-action lawsuit brought by investors who claimed, among other things, that the bank misled them about the health of Merrill Lynch, which B of A was in the process of buying. B of A denies the allegations, but said it just wanted to put the dispute to rest. "Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders," said CEO Brian Moynihan. New York Times, Wall Street Journal

Receiving Wide Coverage ...Battle over Money Market Funds Intensifies: A recent push by regulators to reform money market funds has become about much more than revamping a risky industry. According to the Journal, the showdown is "turning into a major test of a key change to the U.S. financial architecture after the most severe financial crisis in half a century" since the establishing new rules regarding the funds has now fallen to the Financial Stability Oversight Council, the "superregulator of sorts" created by the Dodd-Frank Act. Meanwhile, another Journal article points out money market funds are poised to receive an influx of cash between now and year-end since the Dodd-Frank Deposit Insurance Provision, which guarantees "an unlimited amount of non-interest-bearing deposits at banks" is set to expire.

Receiving Wide Coverage ...A Bear of a Case: In the first action by his task force on mortgage securitization fraud, New York Attorney General Eric Schneiderman sued JPMorgan over bonds that Bear Stearns sold before JPM acquired it. Naturally, the complaint quotes from embarrassing, obscenity-laced emails, and one Bear Stearns trader allegedly coined a phrase that would make Henry Blodget blush (the Huffington Post saw fit to put this innovation of profanity in its headline). More significantly, the suit will serve as a blueprint for other cases against big banks totaling tens of billions in potential damages, according to the Journal. "We intend to follow up with similar actions," an official in Schneiderman's office tells the paper, showing a true commitment to accountability by refusing to attach his or her name to the vow. Oh, and did you notice this is coming out a month before Election Day? "Banking lawyers are not too pleased" about the timing, writes Politico's Ben White. "Typically, according to these lawyers, the Justice Department goes dark on such cases near a major election so as not to be seen as acting out of political motivations. No such informal strictures apparently apply to Schneiderman, even though his task force includes federal resources. … Will Obama mention the new case in the debate tomorrow?" Start your office pools … Wall Street Journal, Financial Times, New York Times, Washington Post, Huffington Post, Politico

Receiving Wide Coverage ...Schneiderman vs. JPMorgan, Day Two: JPMorgan Chase tells the Journal that New York Attorney General Eric Schneiderman's lawsuit alleging securities fraud by JPM predecessor institution Bear Stearns "recycle[s] claims already made by private plaintiffs." Specifically, a lot of the profanity-laced trader emails and statistics cited by Schneiderman were also in a suit filed against JPM by the bond insurer Ambac. Moreover, a member of Schneiderman's staff worked on the Ambac case at a previous job with a private law firm. An anonymouse tells the paper that after JPM pointed out this connection in a meeting, the staff member was recused from working on the investigation "out of an abundance of caution." The FT says the case "is expected to be the first in a new wave of US regulatory action against banks for alleged wrongdoing in the run-up to the financial crisis." The Journal's "Heard on the Street" column similarly calls the Schneiderman suit "a reminder that the mortgage boom and bust remains a live issue," even if "the worst losses from housing may be behind banks." The Times' "White Collar Watch" columnist Peter J. Henning parses the complaint and finds "little new information" about the boom-era Wall Street mortgage securitization machine that wasn't already public. However, he spots one novel allegation: that Bear Stearns pocketed the money it collected when forcing originators to buy back loans that defaulted early, rather than passing these proceeds on to investors. "If true, that goes beyond just shoddy practices to something much more akin to theft," Henning writes. Another Times article notes that Schneiderman brought his claims under the Martin Act, a long-time weapon of choice from the arsenal of Empire State prosecutors.

Receiving Wide Coverage ...An Actual Romney Reboot? The papers are awash with recaps of the first presidential debate, in which Obama and Romney argued over healthcare, taxes… and banks! Being who we are, we'll stick to the outlets that covered the banking news. Romney hit Obama on the slow pace of establishing a definition for a qualified residential mortgage (undeniable even if the immediately beneficial effect of having a rule in place is unclear) and Dodd-Frank, which the Republican described as "the biggest kiss that's been given to New York banks I've ever seen." (We can think of several executives of large banks who would disagree.) From across the pond, the Financial Times declares Romney the winner.

Receiving Wide Coverage ...JPMorgasbord: Barry Zubrow, JPMorgan Chase's head of regulatory affairs, is leaving his job before the end of the year, and may or may not stay with the bank in an advisory role, the Journal reports, citing anonymous sources. The article also reveals that Jes Staley, the chairman of JPM's corporate and investment banking unit, was a candidate to run Barclays after the Libor scandal forced the British bank's CEO to step down. (Anthony Jenkins, a long-time Barclays banker, ultimately landed that gig.) Noting that Staley was kicked upstairs during a July executive reshuffling at JPM, and that several other long-time associates of CEO Jamie Dimon have left or been demoted in recent years, the Journal says, "The prospect of additional movement at the top levels of J.P. Morgan underscores how much change is occurring at a bank that has been known for unity and continuity." The new Vanity Fair profile of Dimon plumbs the implications of the turnover, among other things. "Very few of the Dimon loyalists are still at his side at JPMorgan Chase. … But with Dimon, loyalty is not a formula for job security. 'It isn't,' he admits, 'because then you're being disloyal to the company. If you aren't performing anymore, it's time to make a change.'" Magazine writers William D. Cohan and Bethany McLean paint a rich portrait of Dimon that is well worth reading. (Fun facts we either didn't previously know or must have forgotten: During his 18-month hiatus between being fired at Citigroup and taking the reins at Bank One, Dimon was a contender to lead Home Depot; after he lured several Citi executives to Bank One, his former mentor Sandy Weill threatened to sue.) And this is no puff piece. The article recounts JPMorgan's legal issues in various businesses (mortgages, securities, energy trading, credit card collections, munis) and the familiar but salient details of the London Whale debacle. The big question is whether JPMorgan is too big to manage, even for the most capable and perspicacious of managers. "How did one of the most anal, numbers-oriented C.E.O.'s on Wall Street allow a bunch of traders in London to make such a huge, concentrated—and losing—bet and not know about it until it was too late? It is a conundrum. … Because of JPMorgan's size it was able to distort the market, not just briefly but for months. And Dimon didn't notice any of it." And speaking of long-form narratives of the Whale tale: In case you missed it in yesterday's Scan, check out the New York Times Magazine's profile of Ina Drew, JPMorgan's former chief investment officer.

Receiving Wide Coverage ...Bluebird Alights: The Bluebird debit card Walmart rolled out Monday marks another phase in the retailing giant's aggressive push into financial services, the Journal reports. The Bluebird card doesn't have a monthly maintenance fee, annual fee or activation fee, whereas other prepaid cards carry fees of $5 or more a month, as well as a nest of other charges, notes the Journal, which adds that Bluebird arrives as checking account fees reach record highs. The Journal also reminds readers that Wal-Mart has pushed aggressively into financial services despite failed attempts to obtain a U.S. bank charter. The Post notes that Walmart officials predict the card will have appeal beyond the unbanked. Anyone wondering how Walmart and American Express, Bluebird's other backer, plan to make money on the card may have to wait. On a call Monday with reporters, the companies declined to detail the financial relationship, although both said they would profit from the card, Times reports. Bluebird also may represent a realization by Walmart that consumers aren't connecting with its MoneyCard, run by Green Dot. "This market is growing, and it's moving beyond just that chunk of people that we consider to be underbanked," David Robertson, publisher of The Nilson Report, told the Times. "It includes people who might be wanting to buy a prepaid card for other reasons, like budgeting purposes." Green Dot's stock declined roughly 20% on Monday, though Walmart executives said the retailer would continue to offer Green Dot's MoneyCard. Though Bluebird represents "a direct challenge" to U.S. banks, according to the FT, some bankers may not regret losing Walmart customers to Bluebird, as many have weak credit scores and average household incomes from $30,000 to $60,000 a year, according to the report. JPMorgan Chase said this year that four out of five customers who hold assets of less than $5,000 with it were unprofitable, the FT notes. Still, there are 10 million unbanked households in the U.S., according to the FDIC, the FT's "Lex" column reminds readers. Prepaid debit cards also have come under scrutiny from regulators, who are said to be tightening controls on them, the article recounts.

Receiving Wide Coverage ...'Yet Another Bank': One week after New York Attorney General Eric Schneiderman filed a civil case against JPMorgan Chase alleging fraud in how Bear Stearns packaged and sold mortgage-backed securities, Wells Fargo finds itself being sued by the government for nearly a decade's worth of "reckless" mortgage lending. U.S. prosecutors (not affiliated with Schneiderman's mortgage task force, though he has promised more suits are on the way) are seeking "hundreds of millions of dollars" in civil damages from the bank on behalf of the Federal Housing Administration, alleging Wells "made false certifications" about the condition of their mortgage loans so that the government agency would insure them. FHA then had to foot the bill when the bank's alleged "mortgage factory" — Dealbook's interpretation of the complaint — output went belly up. "Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," United States attorney in Manhattan Preet Bharara said in a (perhaps obvious) statement.

Receiving Wide Coverage ...The JPMorgan Shuffle Continues: JPMorgan cannot stop revamping its organization chart. One month after an overhaul of its corporate and investment banking division and a week after two upper-level departures, multiple news outlets are reporting the bank's chief financial officer Douglas Braunstein will step down by the end of the year. The move isn't all that surprising given Braunstein found his role significantly diminished during another major executive shake-up back in September due largely to the botched London Whale trades. Both Braunstein and JPMorgan have yet to comment on the news, broken initially by the Journal and credited to "people close to the company." Braunstein is not expected to leave JPMorgan completely, but, instead, will take on a different job at the bank. Sources say this new role could be at the firm's corporate and investment division. New York Times, Financial Times