Today's Top Stories Also Noted: Spotlight On... Second thoughts about hedge funds? News From the Fierce Network:
Today's Top News1. Freddie Mac to collect up to $3.4 billion more
For a while, it looked like the put back doldrums that had caused so much carnage at banks had finally hits it low point. Big settlements with big bond consortia created an impression that great progress was being made, but there are plenty of reasons to think that more liability may crop up fairly soon. Case in point is Freddie Mac. Recall that in January of last year, Bank of America and Freddie Mac reached a $1.35 billion settlement to resolve current and future loan put back requests. The deal covered loans sold by Countrywide Financial, which Bank of America bought in 2008. "But in September 2011, the inspector general found Freddie Mac's review process for repurchase requests was lacking," notes Reuters. "Freddie Mac had reviewed loans that had become delinquent or had payment problems in only the first two years after they were made. This excluded loans that it had purchased or guaranteed during the housing boom years of 2005 to 2007, which were defaulting in high numbers." The bottom line is that banks will be liable for even more put back demands, which will cost it $2.2 billion to $3.4 billion to satisfy claims with Freddie Mac along, according to the Federal Housing Finance Association, which regulates the big GSEs. Fannie Mae has been slowly hiking its requests as well. Additional put back requests could be on the way from the private sector, notably insurers. So we likely haven't seen the end of banks' moves to hike reserves to cover these losses related to put backs. We'll likely see this issue crop up in income statements very soon. For more: Related articles:
Read more about: Bank of America, Freddie Mac 2. Non-bank SIFIs to be named soon
Bloomberg reports that the Dodd-Frank-created Financial Stability Oversight Council (FSOC) is poised to name its first set of non-bank SIFIs, which stands for systemically important financial institutions. The biggest U.S. banks--Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley are already defined as SIFIs, but it is unclear still who else will be on the list. One would think that AIG is a no-brainer, as that insurer's massive CDS liabilities pushed it to the brink of failure. It avoided going under largely because of a massive government bailout, which is winding to an end, as the U.S. sells of its stake in pieces. Prudential, Met Life and GE Capital also apparently meet the criteria to at least be considered for SIFI status. Bloomberg says that the FSOC will ask five unnamed companies for information at a meeting later this month. The companies would then have 30 days to comply with the data request. One big issue is whether an asset manager will ultimately be designated a SIFI. The notion that another Long-Term Capital Management looms large in the market has lost some urgency as of late. The biggest hedge fund firm by far is Bridgewater Associates, followed by JPMorgan Asset Management. My guess at this point is that funds will avoid such a designation, which would carry stringent disclosure requirements in addition to Form PF. For more: Related articles:
Read more about: Systemically Important Financial Institution, SIFIs 3. Most negatively influential people on Wall Street
If you put together a rogue's list of Wall Street personalities for 2010-2011, it might have been replete with U.S. bank executives, but 2012 saw a distinct change in the wind. The negative emotions over big bank practices have receded a lot. So who were the most negatively influential people on Wall Street this year? Bloomberg Markets anoints five people: Jon Corzine, ex-CEO of MFGlobal, Bob Diamond, ex-CEO of Barclays, Raj Gupta, former head of McKinsey, Phil Falcone, CEO of Harbinger and Bruno Iksil, the infamous former London Whale of JPMorgan Chase. All five who made the list stumbled badly, from bone-headed investment that took down an entire firm to Libor machinations, to insider trading convictions to hedge fund mishaps and to botched "hedges" that stuck a bank with $5.8 billion (and counting) in losses. It's not insignificant that the CEOs of Goldman Sachs, JPMorgan and Bank of America were all spared. It seems as though the PR and image crisis that engulfed big banks in the wake of financial crisis has entered a new phase. The worst may be over, but it may be a long time before the CEOs of big bank are jacked up really high on the pedestal. For more:
Read more about: Bank Executives, CEOs 4. Ex-Goldman Sachs exec to publish book soon
Remember Greg Smith? He was the Goldman Sachs mid-level executive who resigned from the company after 10 years, making a lot of noise on his exit. On his last day on the job, he published an op-ed piece in the New York Times that thoroughly ripped the Wall Street heavyweight, making clear that in his view the firm treats customers like "muppets." He was the toast of the industry and of bank critics for a while, but he also sparked a backlash, as some insiders suggested that he may have been bitter for never having made MD and for never making more than $750,000. No matter what you think of his noisy exit, you will be unsurprised to learn that his memoir, Why I Left Goldman Sachs, is scheduled to be published on Oct. 22. Is seven months after he stepped down from Goldman Sachs really eough time to write a thoughtful book? He might have been at work on it even before he resigned. DealBook notes that, "Many in the publishing industry, including several people who met with Mr. Smith in March, have their doubts, and question whether the book has the makings of a best seller. Was Mr. Smith, a midlevel derivatives salesman who failed to become a managing director and had no one reporting to him, privy to Goldman's inner workings? Does he have access to the firm's previously untold secrets?" The book apparently primarily details his personal experience at the bank, and it remains to been seen just how compelling the content is. Hopefully, I'll be able to bring you a review soon. For more: Related articles: Read more about: Book, Goldman Sachs 5. Collateral at issue with swap rules
Wall Street hit a regulatory milestone recently when the CFTC finally agreed to a formal definition of a swap. Once published in the Federal Register in August, a chain of event was set in motion that will culminate with the creation of an all-new OTC derivatives market. This arguably is one of the more profound regulatory actions of Dodd-Frank. The idea here is to banish the classic OTC features of the old market—phone based trading, paper-based execution and so on—and create a modern, electronic market featuring strong collateral requirements, central clearing and efficient settlement. The scope of change is evident from the expected improvement in settlement time. The new rules require T+0, compared with T+10 before the rules take full effect. But the Washington Post notes that a collateral controversy has already broken out. The new rules require much more capital to backstop trading. Unfortunately, such collateral, especially in the form of Treasury bonds, may be in short supply at some trading outfits. Not to worry, as at least seven big dealers "plan to let customers swap lower-rated securities that don't meet standards in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed 'collateral transformation.' That's raising concerns among investors, bank executives and academics that measures intended to avert risk are hiding it instead." There are lots of fees to be had here, so is the collateral any less sound because it is borrowed? Already, dealers are lowering the standard for securities pledged as capital. They now accept much lower-rated securities than in the past. For more: Related articles:
Read more about: OTC Derivatives, Collateral Also NotedSPOTLIGHT ON... Second thoughts about hedge funds? One pundit suggests that the hedge fund industry is moving toward "a more appropriate capital base." Amid some signs of hedge fund outflows, "mediocre returns delivered at great expense for several years may be starting to focus attention on the $2TN size of the industry and perhaps cause investors to question their previously held return expectations," according to the essay. I'll believe a lasting outflow when I see it. Limited partners will yank assets from underperforming funds no doubt, but those assets will likely flow right back into other funds. Article Company News: And Finally…How to improve your golf swing. Article
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Friday, September 14, 2012
| 09.14.12 | Freddie Mac to collect up to $3.4 billion more
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