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Today's Top News1. Bank of America break up idea piques interest of some
The idea that big bank breakups will unlock shareholders value has come back into vogue, which means there's going to be lot of speculation about the big banks. One idea that will make a comeback concerns Bank of America Merrill Lynch. There have been calls for the bank to spin off this unit over the past year, and there's ikely to hear more. Bloomberg Businessweek notes that the Charlotte-based megabank is nearing an agreement to sell Merrill's non-U.S. wealth management business to Swiss company Julius Baer. "Could this trumpet the beginning of the end of BofA Merrill? When it signed on the dotted line to buy Merrill, BofA was trading at $27 and then rallied to nearly $40 within a month of the announcement. Today the shares are at less than $8. It took no time for then-BofA Chief Executive Officer Ken Lewis to publicly regret the mega-merger, claiming the feds pressured him to consummate despite Merrill's deteriorating financials." Lewis's predecessor Brian Moynihan has been a bit more circumspect, and has yet to throw in the towel on the merger. But it's tempting to think that he might change his tune at some point. "If he's now amenable to selling off such a chunk of Merrill Lynch (the non-U.S. operations), how much of a stretch would it be to suggest he could be persuaded sell off or spin off the rest?" Bank of America has certainly studied the concept--and rejected it. It will take a lot for management to be convinced, testing shareholders' patience. For more: Related articles: Read more about: Bank break ups, Bank of America 2. Standard Chartered settles with NY regulators
Standard Chartered appears to have made a tactical decision to pay $340 million in order settle the charges by NY State regulators. The charges claimed that the bank helped launder money and consummate illegal transactions for Iranian banks. "The resolution also came after London-based Standard Chartered's chief executive, Peter Sands, flew to New York to take control of negotiations and less than 24 hours before the bank was scheduled to defend itself at a high-stakes hearing," according to Reuters. The state's charges were controversial in large part because they seemed to conflict with conclusions by federal regulators, which have yet to bring charges against the bank. The crux of the case was Standard Chartered's use of "a so-called U-turn mechanism which until November 2008 was permitted by the U.S. Treasury," notes Bloomberg. "The U-turn applied to transfers involving Iran which originated and ended in non-Iranian foreign banks. The New York agency accuses Standard Chartered of deleting information which would have identified a transaction as linked to Iran." But the bank has held that nearly all of the transactions complied with federal regulations on U-turns. It's fair to say that the bank had at least a decent case to be made. Many thought the bank would fight the charges, especially after the CEO flew to New York for a hearing. The reason the bank decided to give in remains unclear. For more: Related articles: Read more about: Iran 3. Wells Fargo eyes Ally in auto loans
Big banks sense bigger business in the auto loan sector, which has fared relatively well since the financial crisis set in. That's leading to some interesting market maneuvers, the most notable of which is the move by Wells Fargo to assert itself more aggressively. Bloomberg reports that Wells Fargo is planning to carve out more market share specifically by targeting customers of General Motors. "GM, the biggest U.S. automaker, already had chosen Wells Fargo, the bank with the biggest branch network, to provide financing to Chevrolet, Buick, GMC and Cadillac dealers and customers in its U.S. west marketing region. The agreement has since broadened to include the south central region, and San Francisco-based Wells Fargo wants more." The GM deal "allows Wells Fargo to bid on 'subvented' loans, made to consumers at below-market rates for the automaker's marketing campaigns.... the automaker pays the lender to make up the difference." The deal also calls for Wells Fargo to provide commercial services such as treasury or wealth management to dealers. The big loser might by Ally Financial, which appears to be weakened by dint of the fact that it owes the government more than $17 billion in bailout credits. It didn't help that Ally's residential mortgage unit entered bankruptcy court in May. Ally still has a contract that allows it to be GM's preferred lender, but that contract expires at the end of 2013. For more: Read more about: Ally Financial, Wells Fargo 4. Alternative investment manager runs strong in Wisconsin
The alternatives investment industry has taken some lumps in the Presidential election, as both Republicans and Democrats have pilloried Republican challenger Mitt Romney over his private equity career. Recall that Newt Gingrich went so far as to call the private equity industry "immoral." Plenty of executives are fuming, and some are contributing to Romney. But one industry executive has gone a step farther: he was a candidate to run for the Senate. To be sure, Eric Hovde, the founder of Hovde Capital Management, faced a long-shot road in Wisconsin. Former Gov. Tommy Thompson ended up winning a tight race for to become the Republican nominee, with Hovde and a Tea Party candidate running close behind. FINalternatives writes, "Hovde's bid was seen as somewhat quixotic when he announced it in August. Hovde has lived in Washington, D.C, where both Hovde Capital and Hovde Private Equity Advisors are based, for most of the last 25 years, and the political neophyte was going up against three veterans of the Wisconsin political scene. But Hovde trumpeted his business acumen and poured millions of his own fortune into the race." His private equity roots was not really an issue, as he has mainly invested in community banks. For more: Read more about: Politics 5. Other banks in line of fire by NY regulators
New York state attorneys generally have a rich tradition of breaking with federal financial regulators and pursuing their own independent course--often to the chagrin of regulated entities. State regulators in such cases can look a bit overaggressive, but that's a price they have always been willing to play. The Washington Post notes the tricky politics of the Standard Chartered $340 million settlement with the state's new Department of Financial Services. The department was created just last year, to much local fanfare. New York Gov. Andrew Cuomo put a respected aide, Benjamin Lawsky, in charge. Together, they quite likely wanted to make a big splash early on. It's fair to say they have succeeded wildly. The onus is now on federal prosecutors to come up with a set of charges that make sense in light of the state settlement, and they have to be aware that they might come off looking effete. As for the state, there are other banks to be settled with. Standard Chartered may well have set a precedent. UBS, Credit Suisse, Barclays and Lloyds are among the others that stand accused of seeking to bypass restrictions on transacting with Iran. None can afford to lose its New York banking license. It would appear the costs of settlement just went higher. For more: Related articles: Read more about: Iran, Standard Chartered Also Noted
SPOTLIGHT ON... Investors giving up on Bank of America? Over the past six months, Bank of America's stock price has fallen 6.4 percent, while the SPDR S&P Homebuilders XHB has risen 9.1 percent, notes TheStreet.com. Meanwhile, Regions Financial, "a bank with big exposure to troubled mortgages, but without Bank of America's European exposure," is up 21.6 percent. "If investors won't look beyond Bank of America's exposure to Europe or to rules that punish big banks in order to see it as a play on a U.S. housing recovery, the case for breaking it up will grow ever stronger." Article Company News: And Finally…Companies score with Olympics. Article
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Thursday, August 16, 2012
| 08.16.12 | Bank of America break up idea piques interest
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