Today's Top Stories News From the Fierce Network:
Today's Top News1. Justifying low-level layoffs
The Des Moines Register reports that banks are laying off lower-level employees in the name of new regulations that "forbid the employment of anyone convicted of a crime involving dishonesty, breach of trust or money laundering. Before the guidelines were changed, banks widely interpreted the rules to exclude minor traffic offenses and some other misdemeanor arrests." New rules "eliminated exceptions for expunged crimes and certain minor offenses and expanded the categories of employees covered." Obviously, the goal of the rules was to prevent people with abject crimes in their pasts from making high-level decisions at banks, part of an effort to clean-up the banking industry. Banks say that they have no choice but to comply with the rules, which is an understandable position. This would appear to be another case of unintended consequences. The FDIC does provide an appeals mechanism, but that may be more trouble than it's worth for some let-go employees. And the number of people going through the FDIC appeals process has spiked recently. The paper focuses on the case of Richard Eggers, who "speaks deliberately, can't remember the last time he got a speeding ticket, and favors suspenders, horn-rim glasses and plaid shirts. But the 68-year-old Vietnam veteran is still too risky for Wells Fargo Home Mortgage, which fired him on July 12 from his $29,795-a-year job as a customer service representative. Egger's crime? Putting a cardboard cutout of a dime in a washing machine in Carlisle on Feb. 2, 1963." For more: Read more about: jobs, banks 2. Bank of America launches new checking account disclosure
Bank of America has made good on its pledge to improve the clarity of checking account disclosures, which have been criticized by consumer groups as being ornate and confusing. The bank embarked on a similar program three years ago, but it has recently incorporated suggestions from The Pew Charitable Trusts and from customers. The new form reflects those improvements. The goal was to come up with a concise explanation of basic terms and fees in user friendly fashion. With the move, Bank of America joins Citigroup and JPMorgan Chase in moving toward plain language, notes the LATimes. Wells Fargo has an online form that it says embodies the same principles. These moves obviously were driven partly by public relations, but mainly by regulatory concerns. All banks are keenly aware of the legislative and regulatory interest in this very populist issue. I have long suggested that in this and other areas, the industry would be wise to formulate standards voluntarily rather than risk formal regulation. Last November, amid the furor over Bank of America's proposed debit card fee, recall that two senators prodded regulators to require banks to provide a one-page explanation to allow easy fee comparison among different bank and thrifts. The Consumer Financial Protection Board has also shown some interest in the issue. For more: Related articles: Read more about: disclosure, Checking Accounts 3. HSBC's legal liability set to soar
While JPMorgan has generated lots of attention for the many legal risks that have cropped up recently, the bank that perhaps is most at risk to regulatory proceedings is not even American. HSBC has set aside $700 million to settle potential legal claims related to possible AML charges in the U.S., but some estimates put the final costs at about $1 billion at least. As noted by The Deal Professor, "HSBC has been ensnared by some of the largest federal inquiries into the banking industry. The government is looking into whether the bank ran afoul of restrictions on dealings with countries subject to economic sanctions, including Iran and Cuba. It is investigating HSBC for possible violations of regulations against money laundering." If the bank were to pay $700 million to settle AML charges that would be stunning. It's eminently possible at this point. The final costs would soar due to private litigation perhaps. There are several British and European banks that faced added costs due to a range of activity. The settlement by Standard Chartered for $340 million may only be the tip of the iceberg. The Libor scandals have also to be factored in. For more: Related articles: Read more about: Legal Risks 4. John Paulson loosing investor support
The future of John Paulson's flagship funds is very much in question right now. The news that Citigroup's private bank is redeeming more than $400 million from several funds is more bad news, but not at all surprising. The performance of the funds has been woeful, especially by Paulson's standards, and, as Deal Journal reports, the firm's assets under management have fallen to less than $20 billion, from $36 billion a year and a half ago. You can't blame limited partners from pulling the plug. Citigroup apparently will redeemed funds from the Advantage and Advantage Plus funds, the merger fund and the recovery funds.The standard take from Paulson, as noted by Deal Journal, is that the firm is accustomed to both inflows and outflows. Some possible new limited partners have apparently contacted the company. Would this be wise right now? Well, some might be inclined to think that Paulson's streak of bad luck is bound to end soon, and this may well be a good time to get in. The firm may be willing to extend some deals right now on management and performance fees. Existing investors, assuming they've written off the losses, might take some comfort in the fact that the firm will not come even close to the high water mark for many years. For more: Related articles: Read more about: Hedge Funds, John Paulson 5. Fight over Morgan Stanley Smith Barney coming to a head
Bloomberg notes that the stakes are high when it comes to the valuation showdown over Morgan Stanley Smith Barney. The valuation fight is coming down to an independent valuation of the joint venture by Perella Weinberg Partners, which will soon render a decision. I expect the ultimate valuation to be fall somewhere between Citigroup's and Morgan Stanley's valuations. The former values the JV at about $22 billion, while the latter values it at about $9 billion. Most of this can be chalked up to negotiating. You can see why Morgan Stanley wants a low valuation, as it would like to buy low. With that said, "the Morgan Stanley valuation contradicts the bullish targets it has laid out to investors." The reality would appear to be that a low-ish valuation may be in line with recent performance. For the other side, the stakes are also high. "A low valuation also threatens Citigroup, which risks a writedown that could wipe out all its profit for the third quarter and serve as another embarrassment for CEO Vikram Pandit, 55, after his firm failed part of the Federal Reserve's stress test this year. The writedown could top $6 billion if Morgan Stanley's valuation is accepted. That's twice Citigroup's $2.9 billion estimated third-quarter net income, according to the average of 13 analysts surveyed by Bloomberg." All in all, the suspense is mounting. We'll know soon how each bank fared with their JV gambits. For more: Related articles: Read more about: Morgan Stanley Smith Barney News From the Fierce Network:
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Thursday, August 30, 2012
| 08.30.12 | HSBC's legal liability set to soar
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