Banco Popular de Puerto Rico

Receiving Wide Coverage ...ECB Inspections Start in November: The European Central Bank said Wednesday that it will begin a thorough review in November of the balance sheets of around 130 financial institutions from Latvia to Germany. Some news outlets are calling this a "bad loan" test. The goal is to remove doubts about the strength of European banks in the wake of the European recession. Along with stress tests, the central bank is also requiring all the banks it's assessing to set aside 8% of risk-adjusted capital as buffers against losses. The New York Times opines that the central bank, with its credibility at stake, must show that it can succeed in eliminating doubts about European banks where other national and European authorities have failed, and needs to make clear who will pay to recapitalize weak banks and how terminally ill banks will be shut down without unleashing market turmoil.

Receiving Wide Coverage ...Bank of America Found Liable: The verdict of a New York jury Wednesday holding Bank of America liable for alleged mortgage misdeeds at Countrywide may go down as an important turning point in the federal government's belated push for financial crisis accountability. The major papers list several reasons why this civil trial matters: it marks the first time a bank has been held liable for fraud in connection with the mortgage boom; the jury pinned some of the responsibility on an individual executive; the decision is likely to spur class-action lawsuits that could cost Bank of America billions of dollars more; and the victory is likely to embolden the government to bring more such fraud cases against banks.

Receiving Wide Coverage ...Unveiled: The Federal Reserve proposed stricter liquidity rules for the biggest U.S. banks on Thursday. (American Banker's Donna Borak breaks down the proposal's specifics here.) The Journal notes the proposed rules, which will be open for public comment for 90 days and would go into full effect in 2017, are "unlikely to cause major changes at U.S. banks, which have largely improved their funding positions since the 2008 financial crisis." But the Times suggests the liquidity rule "could dent the profits of banks, particularly Wall Street firms that rely on huge amounts of short-term market borrowing" and also warns that additional measures to reduce risk at the big banks should be expected. The FT notes "at times, the U.S. has been tougher on standards than regulators in Europe."

Receiving Wide Coverage ...JPM Settlement(s) Update: In case you missed it, late on Friday, JPMorgan Chase agreed to pay $5.1 billion in a deal with the Federal Housing Finance Agency to settle allegations it sold bad mortgages to Fannie and Freddie in the years leading up to the financial crisis. The deal is part of the broader, reported $13 billion mortgage-related settlement the bank has been trying to broker with federal regulators and the Justice Department over the last month or so. Negotiations, however, over that broader settlement have stalled after the DOJ asked the bank to agree not to pass liabilities from the failed Washington Mutual, which JPM bought back in 2008, to the Federal Deposit Insurance Corp. The stakes over the ultimate outcome here are high. "Wall Street executives and some lawyers warn that if [JPM] is found liable for the WaMu bonds, otherbanks will think twice before buying failed rivals," Francesco Guerrera of the Wall Street Journal explains. "But if [JPM] prevails and gets the FDIC to pay, it could wipe out most of the $2.7 billion reserved for bondholders and other WaMu investors." The FHFA deal, meanwhile, represents a kind of, sort of victory for JPM. A provision in the settlement essentially allows JPM to try to recoup about $1 billion from the FDIC. The bank was also not required to admit wrongdoing as part of the settlement. "The results show that, even as [JPM] is facing an onslaught from the government, the bank is seeking to contain the fallout — and is succeeding on some fronts," Dealbook notes. "The government may be split over how to punish the bank for misrepresenting the quality of mortgage securities it sold to investors before the 2008 financial crisis." A Journal review of the FHFA settlement, meanwhile, concludes thatJPM's subprime troubles ran deep: "The bank dealt with some of the biggest subprime lenders of the time, including Countrywide Financial Corp., Fremont Investment & Loan and WMC Mortgage Corp., a former unit of General Electric." And JPM's legal woes are far from over. The bank still faces, among other things, a criminal investigation of its role in Bernie Madoff's Ponzi scheme and a probe into its Chinese hiring practices. Financial Times, American Banker

Breaking News This Morning ...Rabobank CEO to Resign: Anonymice tell the Journal that Rabobank CEO Piet Moerland is poised to step down Tuesday as the bank reaches a $1 billion settlement with global regulators over rate-rigging allegations. The expected settlement would be the second largest Libor settlement to date, behind UBS's $1.5 billion agreement last December.

Receiving Wide Coverage ...Sins of Financial Crises Past: The year of crisis-era legal reckoning may indeed be upon us. According to the Wall Street Journal, regulators have brokered another settlement with a financial firm over allegations it sold bad mortgage-backed securities to Fannie Mae and Freddie Mac leading up to the financial crisis. No, we're not talking about JPMorgan Chase, but Ally Financial, which said on Tuesday it will take a $170 million charge in the third-quarter related to settlements with the Federal Deposit Insurance Corp. and the Federal Housing Finance Agency. As for JPM and its widely known, but still unresolved, $13 billion mortgage-related settlement, well, that may not happen at all. The Journal reports that, per its anonymice, the settlement is "at risk of collapsing because of disagreements related to a criminal probe of the bank and its effort to get penalties reimbursed by a government-controlled fund." We're going to echo The Guardian's Heidi Moore here and say that it may be best, at this point, given all the twists and turns, not to talk about the JPM deal until, you know, it's actually a done one. Meanwhile, across the pond, regulatory relations aren't much better. Following a string of disclosures regarding future legal problems from foreign banks during earnings season, Dealbook concludes: "European banks still face years of effort and billions of dollars in legal charges before they can restore their reputations and reconcile accusations of past wrongdoing." This FT column notes: "The bad news for the sector … is that the regulatory storm shows no sign of abating." Case in point: Barclays announced on Wednesday it was reviewing its foreign exchange trading operations after receiving inquiries related to an ongoing probe of currency market manipulation from global regulators.

Receiving Wide Coverage ...B of A Lawsuit Looming? And the financial crisis reckoning continues. Bank of America disclosed in a regulatory filing on Wednesday that a U.S. attorney's office (no word on which one yet) plans to recommend the Justice Department file a civil lawsuit against the bank over bad mortgage-backed securities. The bank also said it has raised its estimate of potential losses from litigation to $5.1 billion, from $2.8 billion. News of a potential lawsuit shouldn't come as too much of a surprise. American Banker's Rob Blackwell and Kate Berry predicted B of A would face the hatchet next, following reports of JPMorgan's (now possibly defunct) $13 billion mortgage-related settlement. According to the FT, "the threat of new civil action is fuelling speculation that B of A will seek to settle U.S. government mortgage cases against it in one hit, like rival JPMorgan."

Receiving Wide Coverage ...Sued Over Libor: Fannie Mae is suing nine banks for an estimated $800 million in losses it incurred as a result of alleged manipulation of benchmark interest rates, including Libor. Defendants include Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, JPMorgan Chase, Rabobank, Royal Bank of Scotland and UBS. Fannie is also suing the British Bankers' Association. Fannie's counterpart, Freddie Mac, filed a similar lawsuit against more than a dozen banks in March. The Journal dubs Fannie's suit "the latest legal salvo by the mortgage-finance giants." Earlier this week, Rabobank CEO Piet Moerland stepped down following a $1.07 billion settlement over Libor rate-rigging allegations. UBS, Barclays and Royal Bank of Scotland have also reached settlements with global regulators. But Times columnist Floyd Norris argues the hefty fines associated with these settlements have done little to fix the system. "Unfortunately, nothing fundamental is being changed," he writes. "Libor lives on. Regulators who wanted to change that … have been outmaneuvered by those who did not want to risk damaging one of the biggest and most lucrative markets around." Washington Post, New York Times

Receiving Wide Coverage ...HSBC Discloses Probe During Earnings: HBSC reported a 28% rise in third quarter net profit on Monday largely related to falling loan charges. The bank also became "the latest to admit that it was the subject of an investigation by several authorities into its conduct in the foreign exchange market," Dealbook notes. Per the Journal, "HSBC had not suspended anyone in connection with the probe and ... none of the traders named by regulators still work at the bank." Financial Times

Receiving Wide Coverage ...SAC Brought Down: The papers reported late Monday that hedge-fund group SAC Capital Advisors will plead guilty to insider trading and pay $1.2 billion as part of a decade-long investigation, which included a previous $600 million payment, bringing the total fees to $1.8 billion. Though it was a record fine and high-profile win for U.S. prosecutors, the Journal and the Times focused on how the firm's founder, Steven Cohen, appeared off the hook from personal charges. The FT took a more optimistic approach in saying that "a cloud remains over the trading impresario" as investigators are still looking into Cohen's trades, citing sources familiar with the matter. The Washington Post largely credits Preet Bharara, the U.S. attorney for the Southern District of New York, for helping bring SAC to its knees. The Times also looked at the government's "aggressive" tactics that would likely spur other actions against Wall Street firms. Though SAC Capital must close its investment advisory to outside investors, the Journal says several big name banks such as Morgan Stanley and JPMorgan Chase will somehow continue doing business with the "beleaguered firm."