Today's Top Stories Also Noted: Spotlight On... A fresh look at overdraft fees News From the Fierce Network:
Today's Top News1. Capital relief structured finance gathers steam
Bloomberg BusinessWeek offers an interesting article on "regulatory capital relief transactions," a move to use artful structured financing to lower capital requirements by banks. The idea seems sound in theory, as long as the bank can find a counterparty willing to put up the dough if the underlying investments sour and as long as the AAA rating is taken with a grain of salt. "Using techniques similar to the ones that packaged mortgages into bonds, lenders are turning holdings of corporate loans, export-import credit or derivatives-trading gains into triple-A securities." The deal transformation -- usually requiring a cash infusion from investors -- "makes the assets look safer so banks can hold less capital as a loss reserve." So who would hold these AAA securities in the wake of the RMBS CDO crisis? Well, you've got to be compensated accordingly, and the rates on these products are as high as 15 percent. One of the more interesting uses comes from Credit Suisse, which handed out $750 million worth of these deals in the form of employee bonuses. They scored some media point because it looks like a giant clawback mechanism, as it requires holders (employees) to actually put up money if the underlying securities move against it. The bank did agree to absorb some of the first losses. To be sure, it's unclear what's in the bonds (it could be fairly stable stuff), so there's no way to know how good a bet this is for employees, who didn't have much say in the matter. I doubt we'll see this take off in the U.S., as employees might raise a huge stink. For more:
Read more about: Structured Finance, Capital Relief 2. Ex-Morgan Stanley exec pleads guilty to FCPA charges
There has been speculation as of late that banks and private equity companies were in the prosecutorial crosshairs regarding the Foreign Corrupt Practices Acts (FCPA), which prosecutors have been zealous about in recent years. Much of the chatter has focused on sovereign wealth funds and their dealings with bank executives and private equity officials. The SEC has apparently sent requests for information to top banks, as part of its information gathering process. In this light, the guilty plea of Garth Peterson, the former head of Shanghai office of Morgan Stanley's global real estate business, is certainly interesting. Peterson was charged with illegally buying property for himself and a Chinese government official--the former chairman of the Yongye Enterprise Company, a state-owned entity--who in turn steered business to Morgan Stanley's funds. Peterson has been barred from the securities industry and will pay more than $250,000 in disgorgement. He faces up to five years in prison and his sentence will be delivered on July 17. Morgan Stanley was not charged, as it cooperated with the investigation and self-reported the violations. Peterson was fired in 2008. Before that, he was given extensicve FCPA training. The overseas real estate investment game is rough and tumble, and some think that corruption is the cost of doing business. Banks would be wise to follow the lead of Morgan Stanley and root this out before the government does it for them. For more: Related articles:
Read more about: Fcpa, Foreign Corrupt Practices Act 3. Long-running inside traders settle with SEC
One of the more compelling insider trading plots broken up by authorities involved a deal lawyer at big-name firms, who passed tips to a middle man, who passed them on to a flashy day trader. The arrangement worked for 11 years, allowing the three to garner millions. But it all fell apart when the middle man started trading on those tips himself, which quickly brought his downfall. Hubris can do that. In the end, the middleman, Kenneth Robinson, turned on his former friends, Matthew Kluger, the lawyer, and Garrett Bauer, the day trader, who at some point started flaunting his cash, to the chagrin of his partners. After years of dead ends, the FBI finally got to Robinson, thanks to his personal trades. They pressured him, and he agreed to tape record phone conversations with his conspirators, who never suspected their friend was working for the Feds. At one point, they discussed burning $175,000 in cash, out of fear that their fingerprints were on the money. This week, the trio settled civil charges with the SEC, agreeing to give up $32 million, which represents ill-gotten profits plus interest. The trio has also pleaded guilty to criminal charges, which could land them in jail. They will learn their fate in early June. Kenneth Robinson may be in line for a lighter sentence, given his cooperation. For more: Related articles: Read more about: insider trading 4. Meredith Whitney defends Citigroup call
"It certainly doesn't mean I am running into the loving arms of Citigroup. I'm not worried about anything at the company, but I'm not excited about anything in the company." So says analyst Meredith Whitney, aiming to explain her views on the banks in the wake of her move to upgrade the bank to "hold" from "sell". According to Deal Journal, the analyst caught some by surprise after upgrading Citigroup earlier this month, the first time she'd raised the bank from sell since her well-publicized downgrade in late 2007. Whitney manages to generate publicity no matter what she does. She's become a huge figure in the industry, and a lightning rod for criticism. One CNBC commentator said this in discussing Whitney's move: "Financials are looking a little bit better but not blowing anyone's socks off...Let's remember the 4th quarter tends to be weaker than the 1st quarter, which is often a robust time...Citigroup... despite Meredith Whitney making a modest upgrade of her perception of the stock, and we'll take that with a grain of salt after her muni call." All in all, this is a lot of drama about a call that seems fairly non-controversial. Going from sell to hold at a time like this is not exactly going out on a limb. When she goes to "buy," it will likely spark another round of discussion, for better or worse. For more: Related articles: Read more about: Stock Research, Equity Analysts 5. Checking account "loans" spark criticism
In the wake of the Durbin Amendment, we've discussed the need for new fee revenue--and the difficulty banks have faced in generating it. Some big banks treaded into a tricky area when they decided to set up new services to compete with payday lenders, a vilified group of credit providers if there ever was one. Some critics consider them as nothing less than loan sharks preying on desperate people. But they are of course fabulously profitable, and that lure proved compelling for Wells Fargo and US Bank, which have moved into the market with services they would prefer to call checking account advance loans. It's been previously suggested that these banks run the risk of public criticism by offering these services, and indeed, a group of consumer advocates have now issued a scathing report about these banks, calling on them to get out of the market, suggesting that the effective interest they charge is usurious. As described by Minnesota Public Radio, the up-to-$500 loans carry some "considerable fees." A US Bank customer "who takes out a $100 cash advance pays $10 in fees. If the customer pays the loan back in 10 days, the fees are the equivalent of a 365 percent annual interest rate, the report said." The banks respond that the service is intended for emergencies only. They do not consider themselves payday lenders, in part because they do not allow debts to be rolled over from month to month, which really jacks up the interest. The banks might therefore argue that they offer a good alternative to payday lenders, and thus offer a decent service. That might win over some critics. In any case, the banks have decided apparently that the added revenue is worth the criticism. I do not think Bank of America and the other big consumer banks will enter the market, but you never know. For more: Related articles: Read more about: Checking Accounts, Payday Loans Also NotedSPOTLIGHT ON... A fresh look at overdraft fees All of a sudden, overdraft fees are a big issue, all over again. In previous years, the controversy raged, peaking with the passage of various Reg E rule changes that forced banks to offer an opt-in to its overdraft protection program, which remain huge revenue generators at many banks. Now, the CFPB is taking a fresh look, and more settlements have been announced. Citizens has just agreed to pay $138 million to settle charges it bilked customers. Most of the top banks have already settled. Article Company News: Industry News: Regulatory News: And Finally…Groupon CEO apologizes for beer at company bash. Article
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Friday, April 27, 2012
| 04.27.12 | Meredith Whitney defends Citigroup call
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