Banco Popular de Puerto Rico

Receiving Wide Coverage ...Deriving Pleasure: Too many price quotes will increase trading costs and reduce liquidity. That is the curious (if not spurious) story megabanks successfully stuck to in lobbying financial regulators to water down a key provision of the Dodd-Frank Act aimed at governing derivatives trading. The result was a 4-to-1 vote by the Commodity Futures Trading Commission on Thursday in favor of reducing the number of price quotes buyers must seek before conducting swaps trades from the originally proposed five down to two. "A paradigm shift" is how CFTC Chairman Gary Gensler (formerly of Goldman Sachs) characterized the result. "The bare minimum," quipped CFTC Commissioner Bart Chilton, a Democrat. Republicans had pushed for even fewer restrictions. Bloomberg quoted Sandler O'Neill & Partners' analyst Richard Repetto splitting the difference: The rules represent "the start of a process that could eventually lead to a seismic change in trading of over-the-counter derivatives ... It is a switch from an opaque, bilateral market to something where there is some price transparency and a more open and automated market." Any way you size them up, the trading regulations are the bid by the CFTC and Securities and Exchange Commission to curb risk and increase transparency in the $633 trillion (notional value) swaps market, which has previously operated in an unregulated, over-the-counter fashion. Critics charge that market and its Wild West structure were major contributors to the 2008 financial crisis. The new rules require at least two quotes before trades are conducted and establish trading platforms that will require all prices to be made public after a deal is done. As too many quotes and too much liquidity have commoditized the trading of stocks and bonds, Wall Street has turned to murkier markets to fuel profits. The new rules may erode bank profits by reducing banks' ability to carry out bilateral trades directly with other banks and clients. The trading, clearing and other rules may cost JPMorgan Chase $1 billion to $2 billion in revenue, Bloomberg said, referencing a Feb. 26 bank presentation. Five banks dominate the U.S. swaps business. JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC) , Citigroup (NYSE:C) and Morgan Stanley (MS) controlled 95% of cash and derivatives trading for U.S. bank holding companies at the end of last year, Bloomberg reports, citing the Office of the Comptroller of the Currency. Wall Street Journal, New York Times, Bloomberg

Receiving Wide Coverage ...JPM … Again: News outlet continue to closely monitor JPMorgan Chase ahead of Tuesday's shareholder vote on a proposal that could see Jamie Dimon stripped of his dual title as chairman and CEO. Dealbook reports the Council of Institutional Investors has asked the Securities and Exchange Commission "to intervene" after Broadridge, the firm that provides tabulations on these types of votes, stopped giving updates to the investors sponsoring the proposal, though the article gives no indication of whether the SEC is likely to do so. Another Dealbook column classifies the forthcoming vote as a test of stockholder power. Per the article, "a victory against a bank that prides itself on its 'fortress balance sheet' would go a long way toward proving that shareholders can push for changes even at strong companies." Meanwhile, the Financial Times has its own ode to the bank's executive, entitled "Jamie Dimon, the Last King of Wall Street," — see here and here for prior versions — though this rendition does end on a semi-somber note. "Maybe these are grey days," U.S. banking editor Tom Braithwaite writes. "The best hope for Mr. Dimon's large coterie of supporters is that this backdrop gives him something to prove for the first time since the crisis and that, whether he retains his chairmanship or not, all the hurdles and criticism might provoke another lease of life."

Receiving Wide Coverage ...National News: A devastating tornado swept through Oklahoma yesterday. Full news coverage: Wall Street Journal, New York Times, Financial Times

Receiving Wide Coverage ...Dimon's Big Day: The votes are in and it's Jamie Dimon by a landslide. After all the hoopla, the still chairman and CEO of JPMorgan Chase won the support of 68% of shareholders who rejected a proposal to strip him of the dual roles. For those keeping score, that means 32% voted in favor of separating the titles, a decrease from the 40% of shareholders who supported a similar proposal last year. "Vote Strengthens Dimon's Grip" at JPM, this Journal article proclaims. "The victory leaves Mr. Dimon, 57 years old, in a stronger position to grapple with his No. 1 priority: getting [the bank] through a thicket of regulatory problems threatening to hamstring the company for years." What led Dimon to such a decisive victory? Lobbying efforts? No doubt. Threats of resignation? Those could have helped, but Washington Post columnist Jena McGregor offers this explanation: "Despite big questions about Dimon's role in the 'London Whale' trading scandal and potential changes to the make-up of JPMorgan's board, the bank still posted record profits last year even after posting huge losses. And JPMorgan's shares have risen by more than 50% in the last 12 months." Still, it's not all sunshine and roses at JPM. While Dimon won his vote, three board members — David Cote, James Crown and Ellen Futter, who was conspicuously absent from the meeting — drew less than 60% support, leading many news outlets to predict a board shake-up may be on the way. "The vote created enough waves that JPMorgan might have to do something," the FT's Lex column argues. "Both JPMorgan's board and management are implicated in the Whale debacle (and presumably responsible for the bank's long-term success) but board members are more expendable." And the bank "is facing inquiries on multiple fronts," another Washington Post article notes, including, but not limited to a Federal Energy Regulatory Commission probe into its bidding practices and a lawsuit from California Attorney General Kamala Harris over alleged credit card abuses. As for Dimon himself, some news outlets note he still has a reputational issue to overcome. "The vote's outcome can't erase the months of harsh spotlight it focused on Dimon's power, his board's composition and governance style, and the London Whale trading losses that, a year later, continue to nip at Dimon's once-pristine reputation as the industry's best CEO," American Banker reports. But others see the vote as a sign that JPM's exec is made of Teflon. "No matter what happens, it seems that as long as Jamie Dimon is making money for JPMorgan, he can get away with basically anything," New York magazine columnist Kevin Roose concludes. And others were quick to label the proposal's failure an overall defeat for corporate governance. "The episode perfectly illustrates the common sense behind separating the two roles," write Agnes T. Crane and Antony Currie at the Times.

Receiving Wide Coverage ...Fed's Mixed Message: The Federal Reserve sent a "garbled message" about the fate of its QE3 program on Wednesday. First, Chairman Ben Bernanke endorsed ongoing stimulus efforts while testifying at a congressional hearing, though he did reveal the central bank could begin to slow down bond-buying in its "next few meetings," labor market conditions permitting. Then, just hours later, April meeting minutes revealed some Fed officials were hoping to pare down the program as early as June. Markets spiked, and then tumbled as a result of the information, illustrating "the communications challenge facing the Fed as it ponders the next steps for its historic stimulus efforts," the Washington Post reports. Now that the dust has settled, some analysts are predicting the slowdown — which, Bernanke noted was different than a complete wind-down of the program, since the Fed could always raise purchases if the economic outlook worsens — will begin in a few months, most likely around September. Several news outlets cite this statement William C. Dudley, president of the Federal Reserve Bank of New York, made on Bloomberg TV as evidence of this scenario: "I think three or four months from now you'll have a much better sense of is the economy healthy enough to overcome the fiscal drag or not." Wall Street Journal, Bloomberg

Editor's Note: Morning Scan will not publish on Monday, May 27, in observance of the Memorial Day holiday.

Receiving Wide Coverage ...A Little Something for Dimon Withdrawal: Feeling bereft now that the shooting has died down in the tabloid war over the House of JPMorgan Chase? Jamie Dimon may not really "want any more press," but the press isn't quite cooperating. In "Current Account" in the Journal, Francesco Guerrera offered a homily about how Dimon should think about succession and board expertise after his victory in retaining the chairmanship. In "Fair Game" in the Sunday Times, Gretchen Morgenson highlighted a real estate investment trust that appointed a former trustee to fill "the vacancy created by his resignation" after the majority of shares voted against him this month. (Most of the column was about a fight over board diversity at Urban Outfitters.)

Receiving Wide Coverage ...Laundering Charged: The creators of Liberty Reserve, a cross-border virtual currency exchange, have been arrested and charged with laundering $6 billion. That's "what prosecutors believe to be the largest online money-laundering case in history," the Times reports, with the word "online" being key. $6 billion is 0.9% of what HSBC allegedly failed to control the transmission of between 2006 and 2009, leading to a $1.9 billion fine.

Receiving Wide Coverage ...Sallie Mae to Split in Two: The FT emphasizes the growth prospects of the banking and private student loan business that will be separated from the legacy government-backed loan servicing operation. The Times plays up the context of rising student loan defaults and tightening regulatory scrutiny. The Journal plays it pretty straight. Wall Street Journal, Financial Times, New York Times

Receiving Wide Coverage ...More Time for Mortgage Modifications: The Obama administration's announcement Thursday that it will extend the Making Home Affordable Program for another two years comes "despite signs of revival in housing," the Times notes. The program, which gives financial incentives to lenders to modify the loans of eligible borrowers, "did not come near to fulfilling the administration's promise of relief for several million homeowners," according to the publication. As of March 31, the program had helped 1.1 million borrowers, although the administration initially had anticipated aiding three million to four million homeowners. The new deadline for the program, Dec. 31, 2015, aligns it with other mortgage relief that has been extended, including the Home Affordable Refinance Program and the Streamlined Modification Initiative, for mortgages that are guaranteed by Fannie Mae and Freddie Mac, the Times notes. New York Times, American Banker