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Today's Top News1. Muni bid-rigging case unfolds in New York
There's an interesting trial playing out in Manhattan. It's one that hasn't received a lot of attention, yet holds lots of implications for the municipal bid-rigging scandal that has been in and out of the news over the years. Three former UBS executives have rolled the dice, electing to go to trial over criminal charges that they conspired to defraud municipal-bond issuers and U.S. tax authorities by fixing prices on investing agreements. The three defendants are Peter Ghavami, former head of UBS's municipal derivatives group, Garry Heinz, and Michael Welty, both vice presidents and municipal reinvestment marketers. The evidence presented by prosecutors includes lots of recorded phone calls, the type of evidence that has proven powerful in insider trading cases. There are some cooperating witnesses as well. One of them, a former JPMorgan Chase banker, told jurors last week "about a dinner meeting at a Manhattan restaurant where municipal derivatives executives from his firm and UBS AG agreed not to compete with one another. Alexander Wright took the witness stand...and told jurors about a dinner where bankers from the two firms agreed to 'forestall head-to-head competition.' He said the meeting took place at Veritas, possibly in early 2001. He also testified about plans to keep competition "dulled" and keep other competitors at bay, according to Bloomberg. Wright has already pleaded guilty and is cooperating in hopes of winning a reduced sentence. Still, he told jurors about several transactions where "JPMorgan and UBS disclosed their secret bids to one another or agreed not to compete against each other." This is high stake stuff, and will likely influence other potential defendants in similar cases. For more: Related articles: Read more about: fraud, Munis 2. New CFPB rules may prompt some banks to sell units
Are big banks set to give up on the mortgage servicing industry? The question is relevant in light of last week's announcement by the CFPB of the new rules it will seek to impose on the mortgage servicing industry, which is dominated by the top five. These proposals go beyond what the banks agreed historic settlement between the states and the servicers, imposing new requirements. The public will have until October 9, to comment on the proposed rules. The CFPB will review the submissions before issuing final rules in January 2013. The Washington Post notes the views of Isaac Boltansky, an analyst with Compass Point Research and Trading, who said in a research note that the new rules would support a "secular shift in the mortgage servicing industry" away from big banks toward specialty servicers like Ocwen." He also said that, "We expect the big bank servicers to offload a sizable portion of their servicing assets." That remains to be seen, and I'd frankly be surprised if all big banks moved to end their servicing business. The reality is that the banks were planning major operational, and system changes were in the works. Complying with the new CFPB will not necessarily represent a major cost over and above the work necessary to comply with the settlement with the states. In addition, the mortgage business looms as a real bright spot for 2012, as evidenced by the strong performance of big banks in the second quarter. Even with added regulations, servicing will likely remain a net positive for the balance sheet. That said, smaller servicers may end up having an even more costly experience in terms of compliance. For more: Related articles: Read more about: Consumer Financial Protection Bureau, CFPB 3. Senator not backing down on Goldman Sachs
Senator Carl Levin led a highly charged attempt to prod the Department of Justice to prosecute executives of Goldman Sachs for a range of wrong-doing regarding the marketing and sale of at least 4 CDOs. The most salacious charge was that Goldman Sachs CEO Lloyd Blankein and other executives were guilty of perjury before a Senate committee. When he referred the issue to the DOJ, Senator Levin said that, "In my judgment, Goldman clearly misled their clients and they misled the Congress." That prompted the executives at issue to hire criminal attorneys personally. Blankfein ended up hiring Reid Weingarten, a well-known Washington attorney whose past clients include former WorldCom CEO Bernard Ebbers. It was a setback for Levin when the DOJ announced that it had looked into the issues and that it will not bring any charges against Goldman Sachs. Levin issued a statement after the news broke, which said that Goldman Sachs's "actions did immense harm to its clients, and helped create the financial crisis that nearly plunged us into a second Great Depression. Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs' actions were deceptive and immoral." He also said "Yesterday's announcement makes it even more important that regulators implement Dodd-Frank with rules that do not water down it down, and that they enforce those rules with vigor. The integrity of our financial markets and the strength of our economy demand that we make sure that actions such as Goldman Sachs' and other recently discovered misdeeds by financial institutions are ended." On a more practical note, the news from the DOJ makes it more likely that Blankfein will agree to a transition at the top. For more: Related articles:
Read more about: Goldman Sachs, investigation 4. BofA continues touchy relationship with Democrats
The politics of banking have been really tricky as of late. The lobbying has been intense, but not as intense as the rhetoric. While the banking industry has yet to explode as a front-page election issue, it is simmering just below the surface and its fair to say that the Democrats have been tough on banks, especially Bank of America. It's rare that you have an elected official essentially state publically that customers of a national bank should switch to a new one. The fact that the DNC will holds its nominating convention in Charlotte, home of ailing Bank of America, has highlighted the tricky spot that banks are in. The DNC has been loath to even identify itself with the bank. Not too long ago, the Democrats referred to Bank of America stadium as Panther Stadium. Still, Bank of America has made several quiet contributions to convention planning, including donations to a nonprofit fund the host committee is using to promote Charlotte. As for the Democrats, they would like to put their money where their mouth is. Media reports hold that the DNC is moving most of its banking to Amalgamated Bank, the only union-owned bank in the country. But the re-election organization is sticking with Bank of America as it did in 2008, because of the national services it is able to offer. In the end, service trumps politics. For more:
Read more about: campaign contributions, Politics 5. DOJ's unusual annoucnement on Goldman Sachs
Goldman Sachs truly has clout in Washington, and it's no secret that the bank has stepped up its lobbying activity. The bank spent $4.6 million on federal lobbying efforts in 2011, more than any other company in the securities industry, according to the Center for Responsive Politics. Goldman's lobbying expenses in 2011 were four times higher than in 2005, when the firm was merely sixth in industry spending in Washington. Goldman Sachs appears to be on track to set a new high this year. In the first four months of the year, it spent $1.3 million on lobbying. Was the bank's efforts on display last week when the Department of Justice announced that it will not be bringing criminal charges against the bank? The public announcement raised eyebrows "because under most circumstances criminal inquiries are shrouded in secrecy. When the Justice Department decides to end a criminal inquiry without prosecuting, it usually does not disclose that decision to the public — or even to the target of the investigation." It also noted: "The Goldman case, however, fit within an exception to these secrecy rules because of the immense publicity surrounding the investigation of the bank. Justice Department lawyers are permitted to comment on investigations that have leaked to the public or received substantial media attention, according to department guidelines." Other examples of "no charges" announcements: the case of prominent politicians like Eliot Spitzer and the cyclist Lance Armstrong. Still, many will suspect that Goldman Sachs' clout prevailed. For more: Related articles: Read more about: Goldman Sachs Also Noted
SPOTLIGHT ON... Knight Capital incident shows why banks shouldn't split The Knight Capital software snafu means different things to different people. Here's the view of analyst Brad Hintz, of Bernstein Research, as noted by Bloomberg. "Perhaps the Knight story will put an end to the speculation that spinning off the trading units of the universal banks would increase shareholder value. Attempting to free a trading unit from these rules by returning to the independent broker-dealer model will sharply increase the wholesale funding and contingent liquidity risk of these firms." Then again, the fact that it was saved via a private bailout might be raised. Article Company News: And finally … RIMS says Blackberry 10 will be ready soon. Article
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Tuesday, August 14, 2012
| 08.14.12 | Muni bid-rigging case unfolds in New York
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