Today's Top Stories Also Noted: Spotlight On... Is Peregrine CEO a flight risk? News From the Fierce Network:
Today's Top News1. QE3's looming flaw: Big banks' mortgage operations
The Federal Reserve's decision to launch QE3 was greeted with fanfare around the country, as hopes rose that the economy was due for another kick start. But the plan to bid up MBSs and thus lower interest rates at the long end of the yield curve has also raised some questions about just how efficient this will be. The Financial Times reports that the Fed's "attempt to push aid into the heart of the US economy is being blunted by banks struggling to process mortgage applications fast enough, keeping rates on home loans elevated." The issue is that the top mortgage originators are capacity-challenged at this point. They cannot meaningfully boost their output, no matter how strong demand is. Wells Fargo and JPMorgan, which are responsible for almost 50 percent of new loans, "are moving thousands of staff to the frontline of mortgage origination but are still struggling to cope." I've noted, however, that Bank of America has scaled back its home mortgage ambitions and doesn't loom as the market force it once was -- understandable given its Countrywide woes. One expert was quoted saying, "There's nothing that will force mortgage originators themselves to lower the rates that they're offering to consumers. Right now they have their hands pretty full in terms of the pipeline and managing paperwork and making loans. These folks are busy. There's not a bunch of people on long cigarette breaks." This is certainly an opportunity for strong regional banks and credit unions. All in all, I think the benefits of QE3 may be underplayed a bit. For more: Related articles: Read more about: mortgages, Foreclosures 2. SEC cracking down on exchange companies
Since the exchanges started going public, people tend to think of them more as for-profit financial technology companies than as SROs aligned with regulators. That change was highlighted last week when the SEC levied its first ever fine against an exchange. Recall the SEC hit the NYSE with a $5 million fine for various compliance and "technology" lapses that allowed data to be released early to select customers in violation of Reg NMS. The fine was small, but the meaning was large, symbolizing a whole new era. More enforcement actions of this ilk are likely in store. The Facebook IPO fiasco, the Knight Capital code disaster, the Flash Crash of May 2010 and countless lesser incidents have focused regulatory attention on the interconnected market system and the vulnerability of all to bad technology. I certainly expect some sort of action against Nasdaq OMX. The SEC last year took action against DirectEdge for two incidents in which technology snafus led to a variety of problems that affected customers, though no fine was levied. All in all, the quality of code has exploded as an issue at exchanges and dealers alike. Several initiatives are underway to address this, at the private and public levels. The SEC, as it ponders thorny market structure issues, is sending a message that it will not tolerate buggy code that spills out into the entire system. I discuss these issues often over at FierceFinanceIT. For more: Read more about: exchanges, SEC 3. Goldman Sachs kills 2-year new analyst contracts
Is there less cachet in working at Goldman Sachs these days? That's a fair question in light of the move by the gilded bank to change the way it hires fresh-out-of-school analysts. The time-honored two-year track is being retired. No longer will kids sign on for two years of abuse and long hours, which bank have long pitched as the perfect way to get some experience. The far majority of these young analysts were never hired full-time, but some were. The goal for many was to come in and find a mentor, who would go to bat for them. But times have changed, and Goldman Sachs found that all too many signed on with other banks quickly or simply declined permanent offers. Here's the reaction of one youngster: "It's not surprising to me that Goldman is having trouble retaining the best and the brightest. Yes, there is the general disenchantment with the finance world over the last few tumultuous years, the late nights spent in cubicles with Excel spreadsheets and takeout Chinese, and the reduced bonuses (although the annual salary, at $70,000 to $80,000, is enough keep food on the table of a modest New York apartment). But I suspect a major reason more trainees were leaving is that they weren't there for the right reasons in the first place: Many of my peers went into banking and consulting because they didn't know what else to do." In the end, Goldman Sachs hopes to laser in on those who really want to work there. That said, getting an offer right out of school doesn't mean you've made it. They can get rid of people as they please and they likely will for those who don't work out. At the same time, new hires will still be willing to pack up and leave for a better situation if it arises. In the end, the change will likely not be dramatic. For more: Related articles:
Read more about: Goldman Sachs, analysts 4. PNC markets debit cards to students
Over the years, banks have been roundly criticized for their aggressive marketing of credit cards on college campuses. In the boom years, banks were willing to take such hits, which revolved mainly around elevated interest rates, but things may be changing in this era of reform. The Washington Post notes that the Credit Card Accountability Responsibility and Disclosure Act of 2009 included provisions "that limited banks' presence on university campuses and prohibited them from giving out gifts in exchange for credit cards." But there were no similar measures for debit cards. Consider PNC efforts to market debit cards more aggressively to students at Georgetown University. The bank is making available "GOCards," which are being marketed to students as well as faculty. The card also doubles as a student ID, allowing customers to use a single card for a whole lot of purchasing and other activities. PNC waives the first overdraft fee (and I don't doubt there will be overdrafts!) and students are allowed one free incoming wire transfer a month (good news for parents). The bank also provides an online management site and on-campus financial workshops. We'll likely see other banks take the leap. PNC has already signed up 25 universities. This is a great idea to develop customers early. For more: Related articles: Read more about: banks, Debit Cards 5. Bank of America settles discrimination against disabled charges
Grudgingly, Bank of America has settled charges by the Justice Department that it discriminated against loan applicants with disabilities. These applicants were apparently asked "to document his or her Social Security Disability Insurance income. Some applicants were asked for a letter from a doctor providing information about the nature and severity of the applicant's disability; other applicants were asked for a letter from a doctor indicating the duration of their disability," according to the complaint. The Washington Post reports that it is unclear how many loan applicants were affected, but the bank has agreed to hire an outside auditor to review about 25,000 loan applications. The settlement covers borrowers who applied for a loan between May 1, 2007, and April 30, 2012. The bank will also overhaul its training methods and alter other practices. Bank of America, which did not admit or deny wrong-doing, hit back at the charges. "The bank seemed indignant about the charges as officials accused the government of being 'inconsistent' about whether a doctor's note should be requested," the Post notes. The bank released a statement saying that, "HUD determined this policy is in compliance for its loans, yet suggests it somehow violates the Fair Housing Act for non-HUD loans,' the bank said. Same statute, same alleged conduct, different result. We're being accused of wrongdoing by the government for following a policy that the government approved." Read more about: banks, discrimination Also NotedSPOTLIGHT ON... Is Peregrine CEO a flight risk? Russell Wassendorf, the architect of the alleged Peregrine Financial fraud, could be out of jail soon. A judge has issued an order to set disgraced CEO free as he awaits sentencing. He' currently in a county jail, which is where federal prosecutors would like him stay. They have a petitioned a judge to reverse the order, saying he is a flight risk. Article Company News: And Finally…Apple close to $700. Article
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Tuesday, September 18, 2012
| 09.18.12 | QE3's looming flaw: Big banks' mortgage operations
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