Today's Top Stories Also Noted: Spotlight On... Credit Suisse urged to boost capital News From the Fierce Network: Today's Top News1. Private equity funds can't buy enough foreclosed houses
Private equity firms and hedge funds, in their bid for much-needed new sources of profits, thought they had a winner with a new concept: Buy foreclosed homes in bulk and then rent them out. Such funds--from the likes of Colony Capital, GTIS Partners, KKR, Oaktree Capital, Och-Ziff Capital and the Alaska Permanent Fund--raised nearly $6.5 billion collectively. But there have been fewer deployments of capital than expected at this point. Bloomberg reports, "The number of low-cost foreclosed homes coming to market has dropped, bulk sales have been slow to materialize and prices are recovering in markets such as Phoenix, making it hard for private-equity firms, hedge funds and pension systems to buy as many homes as they need." Indeed, "the largest pending bulk sale is a portfolio of 2,490 properties by Fannie Mae, the Washington-based mortgage-finance company controlled by the U.S. government. Final bids, announced in February, are still being reviewed." Similarly, other bulk sales from the government are not likely to be consummated in timely fashion. At the same time, there's a lot of anecdotal evidence that prices in certain segments of the market has improved measurably altering the ROI perspective substantially. At some point, we may see more funds return capital to investors. For more: Related articles: Read more about: Private Equity, mortgages
2. Wells Fargo's fair-lending debacle
Beth Jacobsen profited handsomely from the Wells Fargo mortgage machine. As top producer, she was responsible for roughly $50 million in loans annually, making as much as $700,000 in a good year. Unfortunately, much this was in subprime loans. The Washington Post offers an interesting profile of the women, who has emerged "as a defining character in the ongoing saga of the country's housing crisis, from the headiest days of the bubble to the current flood of foreclosures. Her scathing affidavit detailing 'the stagecoach to hell' at Wells Fargo is a key part of the groundbreaking lawsuit filed by the city of Baltimore against her former employer. The case spawned copycats across the nation, and federal regulators launched investigations mirroring its allegations. The company flatly denies any wrongdoing, especially when it comes to Jacobson's claims. It calls her testimony misleading at best and, at worst, outright lies." The most incendiary charges concerns the extent to which African-Americans and other minorities were steered to costly subprime mortgages, even if they qualified for traditional mortgages. "The consequences are still unraveling. Wells Fargo is under investigation by the Justice Department over alleged fair-lending violations, and it has spent millions of dollars to put similar charges to rest." For Jacobsen, the fallout has been severe. She has lost her fortune and all her trappings of wealth, including all her real estate. She eventually had a crisis of conscience that led her to repudiate all her work, and testify against the bank, which says that subprime never accounted for more than 10 percent of the business. Jacobsen has also started a new business that helps people work through the modification process and grapple with loans in general. It's unclear to what extent she has sought a payoff under various whistleblower statutes. That might have been a missed opportunity for her. For more:
Read more about: Foreclosures, Fair Lending 3. JPMorgan's influence pays off
So how did Jamie Dimon fare in his appearance before the Senate Banking Committee? DealBreaker quotes Jim Cramer: "He didn't win. He's a loser. How? You lose when you go in front of Congress and you lose when you go out. Anyone that declares him a winner is wrong…He walked in a loser. Testified. Walked out a loser. And by the way, he agrees with me. He knows he's a loser with no control and doesn't even know what happened in his own bank…A loser. Crisis PR is psychiatry. You go in there as a guy who is stupid, you don't come out being smarter. You don't. You come out just as stupid…He's a loser…This is not Michael Corleone with Frank Pentangeli in the back of the room. This is not Nevada gaming licenses…He's a loser.It's okay, man. He's a loser. Maybe next year he'll be a winner but he is a loser." That's colorful, but the point is well taken. In such circumstances, the witness by definition will look bad--unless you're Oliver North. Still, the reality is that this is not going to be career-harming setback for Dimon. In some ways, he was treated with kid gloves. The senators were deferential to say the least. One even sought advice on fixing the federal budget deficit. And this reflects some solid work by the bank to lay a groundwork for influence in Washington. That effort has now paid for itself. JPMorgan, and Dimon, personally have contributed handsomely to more than half of the members of the committee. Not to mention that the bank's lobbying staff is stock full of influential former Congressional staffers with strong ties back to the committee. No doubt some chits were called in. In the end, this is how the power game is played these days, for better or worse for society. Let it be said that JPMorgan has played the game well. Dimon got as close to a pass by the committee as possible. For more: Related articles: Read more about: Lobbying 4. Jury begins deliberations in Gupta trial
The defense has rested, and now the jury can begin the work of voting to convict or exonerate alleged insider trader Rajat Gupta. Gupta obviously has his life hanging in the balance, as he faces up to 25 years if convicted. The government also has a lot riding on this. It has racked up a remarkable string of victories in its insider trading crack down, perhaps the greatest enforcement victory amid a stream of financial services industry disappointments. It hasn't erased the memory of Bernard Madoff, but nothing could have done that. The Gupta case may well turn out to be watershed of sorts, a test case of whether juries will convict insider trading defendants based on circumstantial evidence. There was no smoking gun in this case, no directly incriminating wiretaps that could be played. To be sure, there was lots of other evidence, but in the end the jury has to connect the dots and come away convinced that the only reasonable interpretation of events was one that entailed a crime. The case is important because going forward there may well be lots of other cases that rely on non-wiretap evidence. Unless you can get someone directly implicated to turn and finger the others, phones records and the likes are about all that prosecutors will be able to rely on. In the end, the prosecutors probably would have preferred a settlement. As the jury deliberates, you have to wonder what effect the frequent breaks and tedious testimony had on the jury. In any case, it's in their hands now. For more: Related articles: Read more about: insider trading 5. Blankfein emerges as Dimon stumbles
There have been many lessons learned from the financial crisis and its aftermath. One big lesson from a PR point of view is that public image matters more than some executives, especially those at non-consumer-facing banks, might have previously thought. Goldman Sachs was certainly dragged through the mud as the crisis unfolded. JPMorgan Chase used that as an opportunity to position its CEO, Jamie Dimon, as the elder statesman in the industry, the top dog so to speak. But the recent near-scandal involving a multi-billion dollar "hedging" loss has tarnished the reputation of Dimon and his bank, and the power pendulum may have swung back in Goldman Sachs' favor. The gilded bank has been on a push to raise the public profile of Blankfein, and the effort is bearing fruit. "The recent public emergence of Mr. Blankfein has taken many Wall Street insiders by surprise — and raised questions about whether the 57-year-old executive, who just celebrated his sixth year at the helm of the company, is now managing his image with an eye to his legacy," according to DealBook. That may not be the best interpretation. It may be that Blankfein and his PR employees have decided that becoming the face of the financial crisis was not a good thing, and that a better image was needed. There will always be a negative perception as far as the crisis is concerned, but the image doesn't have to be vampire-squid negative. So I'm not sure that this presages a CEO transition. But I do think that Blankfein will leave once he's convinced that he will not be perceived as leaving under a cloud. The near-scandal at JPMorgan actually that makes day seem sooner rather than later. For more: Related articles: Read more about: CEO, Pr Also NotedSPOTLIGHT ON... Credit Suisse urged to boost capital The Swiss National Bank has singled out Credit Suisse, making clear that the bank needs to substantially boost its ability to absorb losses via higher capital ratios. "Despite progress achieved, the big banks' loss-absorbing capital is still below the level needed to ensure sufficient resilience given the high risks in the environment. The big banks' importance for the Swiss economy and for financial stability requires that they further strengthen their resilience," the central bank wrote in a report noted by DealBook. We could be in for more of the same across Europe. Article Company News: Industry News:
And Finally…Most dangerous cities in America. Article
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Friday, June 15, 2012
| 06.15.12 | Private equity funds can't buy enough foreclosed houses
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