Today's Top Stories Also Noted: NexJ News From the Fierce Network:
Today's Top News1. Ex-JPMorgan employees deny hiding trade trade losses
One of the biggest questions to emerge recently in the JPMorgan Chase "hedging" fiasco, which cost the banks $5.8 billion in the first and second quarters, is whether traders went rogue to cover the extent of the losses. The bank said as much when it released its second quarter earnings, suggesting that some traders sought to hide their imploded trades in ways that reduces their impact on the bottom line. But former employees of JPMorgan are somewhat baffled by that contention, according to Bloomberg Businessweek. "JPMorgan requires traders to mark their positions daily so the firm can track their profits, losses and risk (JPM). An internal control group double-checks the marks against market prices monthly and at the end of each quarter, said three former executives from the CIO and a senior executive in market risk. The firm uses the control group's prices, not what individual traders submit, to calculate earnings (JPM), making it difficult for one trader or trading desk to rig prices." To be sure, the bank is not blowing this up as a huge scandal. It's more a case of the bank concluding that traders marked their deals aggressively but generally within the bid-ask spread. All this raises the stakes on the issue of internal controls. It will be interesting to see what regulators conclude about the bank's efforts in this regard. For more: Related articles: Read more about: proprietary trading, hedging
2. Mortgage putback concerns weigh on Bank of America
Bank of America has a long way to go to clean up its mortgage mess. After some tantalizing suggestions of improvement in previous quarters, the specter of additional losses due to putback-related claims reared its head in the second quarter. The big GSEs Fannie Mae and Freddie Mac boosted the volume of bad loans they want the bank to buyback by $3.1 billion to $11 billion. Claims from private investors rose by $3.7 billion to $8.6 billion. Bank of America now faces $22.7 billion in claims over mortgage-related disputes, up from $16.1 billion in the previous quarter. TheStreet.com reports that, "During a tense conference call Wednesday during which time Bank of America shares moved steadily lower despite a rising market, CFO Bruce Thompson appeared unsuccessful at allaying analyst concerns. Thompson said the increase was 'primarily due to claims we received from trustees that we fully anticipated at time of the (Bank of New York Mellon) settlement a year ago and were largely reflected in the increase in reserves at that time.' Thompson was referring to a proposed $8.5 billion settlement between Bank of America and several large institutions, including Goldman Sachs, BlackRock, PIMCO and the Federal Reserve Bank of New York, among others." We'll likely see loss estimates by analysts move higher. The bank will certainly face the need to reserve against future losses at some point. At some point, we may see the effects of loan-loss reserve reversals undercut. In the second quarter, the bank released $1.9 billion in reserves against losses, accounting for 76 percent of second-quarter earnings. In general, reversals were thought to be a big source of profits in coming quarters. Additional reserves for putbacks could negate the effects. For more: Related articles: Read more about: Bank of America, mortgages 3. BlackRock beats estimates amid tough market
In tough market conditions, BlackRock, the biggest of all asset managers, has managed to fare well. Low expectations certainly help. The company reported earnings of $558 million in the quarter, excluding one-time charges, or $3.10 a share versus the average analyst estimate of $3.00 to $3.02 a share. Revenue, however, fell 5 percent, to $2.2 billion. Assets under management dipped 3 percent sequentially, driven mainly by $94.7 billion of market-driven declines. The company was able to attract $3.7 billion in net inflows, however, aided in part by continuing strength in its iShares product line. To be sure, it's been a tough year on the revenue front. Second quarter revenue fell $20 million from first quarter. While investment advisory, administration fees and securities lending revenue in second quarter 2012 increased, performance fees fell to $41 million in second quarter from $80 million in first quarter, reflecting weaker fees from alternatives and equity products. BlackRock Solutions and advisory revenue increased to $131 million from $123 million in first quarter, reflecting higher revenue from additional Aladdin business wins higher one-time revenue pops from advisory mandates in second quarter. All in all, the company fared well with its diversified business lines. When market conditions turn up, it will be poised to benefit. For more: Related articles: Read more about: earnings, BlackRock 4. HSBC compliance official resigns amid scandal
Anti-money laundering compliance has once again moved to the center of the stage, engulfing several top banks. Some big drama played out earlier this week when an HSBC compliance executive tendered his resignation in the midst of testimony before a Senate hearing. In a surprise move, David Bagley, head of compliance for the bank since 2002, "broke from his prepared testimony" to tell the Senate Permanent Subcommittee on Investigations that "now is the appropriate time for me and for the bank for someone new to serve as the head of group compliance," according to DealBook. The subcommittee had previously generated media coverage for its report that accused HSBC "of serving as a conduit for money flowing into the United States from Mexican drug traffickers and Middle Eastern banks with ties to terrorists." The bank has pledged to make progress in this area, and top management has been turned over since the scandal broke in 2010. But some Senators took a few of the executives who were at the bank at the time of the infractions to task for allowing such practices to flourish. Christopher Lok, for example, the former head of HSBC's banknotes department, "was said to have pressed other executives at the bank to reopen the account of a Saudi Arabian bank with suspected ties to Al Qaeda. During the hearing, Mr. Lok said that "there were some occasions when I communicated with my colleagues in compliance in a manner that was unnecessarily aggressive and harsh. These communications were unprofessional, and I deeply regret them.' " It remains to be seen if banks will be punished for their AML sins more formally. For more: Related articles: Read more about: Anti Money Laundering, AML 5. Bank of America exceeds earnings estimates
Bank of America on Wednesday continued the recent spate of big banks exceeding analysts' estimates. The troubled bank reported net income of $2.5 billion, or $0.19 per diluted share, for the second quarter, beating expectations of $0.14 a share. Revenues, however, were slightly behind expectations. The company reported $22.2 billion versus estimates of $22.9 billion. The comparison with the year-ago quarter was favorable. The second quarter of 2011 included some massive hits, including $18.2 billion in pretax charges for certain mortgage-related items and other selected adjustments, including provisions for representations and warranties and goodwill impairment. Those charges did not recur, powering strong year-over-year performance. The bank also made huge progress on expenses, which fell 26 percent to $17 billion. In terms of business lines, consumer and business banking reported net income of $1.2 billion, down $1.3 billion from the year-ago quarter; revenue was $7.3 billion versus $1.4 billion. The Durbin Amendment continues to be a huge factor. Consumer real estate services lost $768 million, compared to a net loss of $14.5 billion for the same period in 2011, when it took the big hits. Investment banking, as well as sales and trading, was weak. Such revenue, excluding DVA losses, was $3.3 billion in the second quarter, compared to $5.2 billion in the first quarter and $3.6 billion in the year-ago quarter. FICC revenue was flat year over year. Wealth management held its own, posting a 4 percent decline in revenue and a 6 percent rise in net income. For more: Related articles: Read more about: Bank of America, earnings Also Noted
SPOTLIGHT ON... CFPC settles with Capital One The CFPB, in its first enforcement action, has settled charges of credit card abuse with Capital One for $210 million. The CFPB said its actions "were based on an examination of Capital One Bank, which identified deceptive marketing tactics used by the bank's call center vendors to pressure or mislead consumers into paying for "add-on products" such as payment protection and credit monitoring when they activated their credit cards," reports Reuters. There's a new cop on the beat, to be sure. Article Company News: Industry News:
And Finally…Bury the hatchet with office rival. Article
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Thursday, July 19, 2012
| 07.19.12 | HSBC compliance official resigns amid scandal
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