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Today's Top News1. New York Fed's regulatory shake-up criticized
Especially in the wake of the financial crisis, critics of the banking industry have warned of overly cozy ties between regulated entities and their regulators. But can the effort to prevent such ties backfire by leaving regulators dangerously short of critical institutional knowledge that becomes necessary in a crisis situation? The New York Times weighs in with an interesting look at the Federal Reserve Bank of New York and its efforts to improve the way it examines JPMorgan Chase. "The Federal Reserve Bank of New York in mid-2011 replaced virtually all of its roughly 40 examiners at JPMorgan Chase to bolster the team's expertise and prevent regulators from forming cozy ties with executives, according to several current and former government officials who spoke on the condition of anonymity. But those changes left the New York Fed's front-line examiners without deep knowledge of JPMorgan's operations for a brief yet critical time, said those people, who spoke on the condition of anonymity because there is a federal investigation of the bank. Forced to play catch-up, the examiners struggled to understand the inner workings of a powerful investment unit, those officials said. At first, the examiners sought basic information about the group, including the name of the unit's core trading portfolio." The Fed bank did try to retain some institutional knowledge, but the issues surrounding the "hedging" losses proved to be tricky. To be sure, the regulators within the bank--from the OCC especially--were routinely getting stonewalled at that point, according to the article. Meetings were pushed back. Information was not forthcoming. The Treasurer left at a critical moment. All this needs to be rethought. For more: Related articles:
Read more about: Fed, bank regulators 2. Bank of America's customers slow to accept principal reduction offer
Has it come to the point that homeowners so confused, fatigued and angry that big banks can't even give away money? Bloomberg offers an interesting article on the slow rate of progress when it comes to modifying mortgages. "When Bank of America Corp. sent letters to 60,000 struggling homeowners offering to slice an average $150,000 off their loans, the lender got an unusual response from most of them: silence. Homeowners who fell behind on their payments began receiving the mailings in May, part of the bank's effort to meet terms of the $25 billion industry settlement over foreclosure abuses." The bank says the reason that the more haven't responded is that they are, as a group, "fatigued." To be sure, just about all major modification efforts have proven to be underutilized, frustrating bank officials and regulators alike. So once again, what should be a golden opportunity for underwater mortgage holders isn't turning out that way. One problem here is that mortgage holders now think of their lenders or servicer as the enemy. They may be tuning out all communication, which has admittedly been confusing over the years, in general. This has been highlighted by some housing advocates who say that having banks, with their tainted reputations (which may or may not be fair) lead modification efforts will doom such efforts to failure. The reality is that there is no choice. The banks must somehow fix the issues. Bank of America will offer principal reductions to more than 200,000 clients by August, the banks says. Other offers and programs, including cash incentives and rent options, are coming as well. It remains unclear how Bank of America can boost its response rate. For more: Related articles: Read more about: mortgages 3. JPMorgan under investigation for proprietary funds
JPMorgan seems to be on the verge of becoming banking regulators' favorite target. There are multiple probes underway, involving its multi-billion "hedging" fiasco, alleged manipulation in the energy market and alleged manipulation in the LIBOR rate setting process. To be sure, other banks have had to face waves of scrutiny at multiple levels. Still, we're seeing a lot of action that just might lift the bank into the realm of Goldman Sachs and Bank of America, when scrutiny of those banks crested. It seems like all activity under the microscope right now. The latest is a raft of regulators that are taking a look at the possibility that JPMorgan may have violated laws as its Chase Wealth Management unit marketed proprietary mutual funds over other products that may have been more appropriate for customers, or at least cheaper. We discussed this recently. DealBook reports that "the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Manhattan district attorney and officials in New Jersey and Delaware, have opened inquiries into JPMorgan's sales practices…. The S.E.C. and New Jersey's Office of the Attorney General have scheduled several interviews related to the case." Chase has been relatively successful in attracting new clients in the wake of the financial crisis, but the sorry performance of its in-house funds have raised brows. They tend to be more expensive than other off-the-shelf funds, as is often the case with proprietary offerings. Other banks have shied away from promoting their own funds aggressively, in part due to the tricky regulatory issues. My guess is that the investigations will look closely at the sort of disclosure that the unit was proving customers about the fees the bank and the broker were collecting. For more: Related articles: Read more about: Mutual Funds, brokers 4. Goldman Sachs stock continues to vex
Here's a headline that will make the PR managers at Goldman Sachs cringe: "Should Goldman Sachs go out of business?" The Reuters columnist notes that, "Among those who believe that Goldman is basically the devil's spawn, there's of course only one answer to the above question: Yes! But there's another group that seems to be asking the same question, and that's investors." It took longer than expected, but Goldman Sachs shareholders are starting to get antsy. No one wants to own a stock long-term that trades at 70 percent of its tangible book value. To be sure, there are other banks that trade at even larger discounts. Some have argued that breaking up banks represents the best shareholder solution. In the end, a break up is not going to happen at any of the big banks, including Goldman Sachs. And Goldman Sachs is certainly not going to liquidate itself in the name of returning value to shareholders. The bank is biding its time, waiting for the financial crisis to truly end, for the economy to recover, for regulators to end their inquiries and return prosperity to banking. That will take a while, and in the meantime we may get some restive shareholders. But which activist fund is going to publically go up against Goldman Sachs? That may not be wise move, and I doubt we'll see such a challenge. That leaves the board in a tough position. One issue it has to ponder is whether management changes would do anything to help the stock? For more:
Read more about: Goldman Sachs, break up 5. Small banks still struggle with TARP
It's all too easy to forget TARP. The big banks have long since satisfied their obligations and the political controversy has waned, but there are still roughly 330 banks that still have not repaid the government a collective $11 billion. o be sure, in the scheme of things, this is a small sum. Unfortunately, not all of these small banks are in good shape in terms of repaying their loan, or in some cases, of even paying the interest due on the preferred shares the government owns. The government may be inclined to wind down the program sooner rather than later. It certainly doesn't want to end up a long-term shareholder of these banks. At this point, the most likely scenario is that the Treasury will auction of its stake in these banks, a quite interesting auction. So at some point, we may see some taxpayer-borne losses. Hopefully, these losses will not be enough to offset the gains that have previously been booked. There is some wiggle room here, that to the previous profits TARP made. This is all very reflective of the very long-term nature of the financial crisis. For more: Related articles: Read more about: regional banks, TARP Also NotedSPOTLIGHT ON... Wall Street's top analyst crowned Greenwich Associates has crowned the top analyst on Wall Street: Noelle Grainger, the managing director in charge of JPMorgan Chase's analysts. Among her top research analysts, eight were ranked No. 1 among 35 industry sectors, including Ken Worthington, who was rated as the top analyst for brokerages. Eight others were No. 2 in their industries. Following Grainger, Bank of America's Brett Hodess, followed by Morgan Stanley's Stephen Penwell. Article Company News: And Finally…The era of the giant tablet? Article
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Friday, July 13, 2012
| 07.13.12 | Bank of America's customers slow to accept principal reduction offer
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