Today's Top Stories Also Noted: Spotlight On... Credit Suisse's new asset-backed bonus plan News From the Fierce Network:
Today's Top News1. Will MBIA be next to settle with Bank of America?
Bank of America CEO Brian Moynihan has made clear recently that he would like to start fresh regarding the bank's thorny legal problems. He made a definitive statement with his bold move to settle with Fannie Mae this week, a deal that will stick the bank with $2.7 billion (pretax) in a representations and warranties provision to be recorded in the fourth quarter. That will pretty much wipe out earnings. Fannie Mae wasn't the only entity embroiled in nasty litigation with the bank. The nastiest dispute likely remains the MBIA vs. Bank of America blood battle. It's fair to say that Bank of America has wrangled the upper hand. TheStreet.com notes that, "MBIA has sued Bank of America, arguing the bank's Countrywide unit made false representations in mortgages it sold and MBIA agreed to insure. Meanwhile, Bank of America has challenged the insurer's separation into two separate legal entities in an attempt to protect its municipal insurance business from mortgage-related liability. If MBIA can't separate itself and can't recoup money from Bank of America, it could be in serious jeopardy. While such a scenario seems unlikely, Bank of America has far deeper pockets. So far, at least, the giant bank has succeeded in delaying the legal proceedings as MBIA continues to bleed cash." All three MBIA sell-side analysts are bullish on the company, but the bull scenario requires the bank to settle with Bank of America, which isn't in position to pay a great deal right now. There isn't a consensus as to when a deal will be reached. The bank may first seek a deal to settle private label mortgage representation issues. In any case, the last thing either entity wants is to go to trial. The longer the dispute lingers, the worse MBIA's position becomes relatively. For more: Related articles: Read more about: Bank of America, MBIA
2. Hedge funds face suspicious activity reporting requirement
Banks and brokerages have grown accustomed to laws requiring them to report suspicious financial activity, an area in which they have been forced over the years to invest heavily. Are hedge funds about to be hit with similar requirements? Reuters reports the Financial Crimes Enforcement Network (FinCEN) "is working on a rule that would require U.S. hedge funds to file formal reports notifying U.S. authorities of any suspicious trading by employees or outside parties." The rule being crafted by FinCEN, part of the Treasury Department, would force the $2.2 trillion hedge fund industry to police itself in ways similar to banks by filing suspicious activity reports (SARs) regularly. A proposed self-reporting rule for the hedge fund industry could be released for comment in the first half of this year. Compliance will not be easy nor cheap. Then again, hedge funds have grown accustomed to more regulations, such as Form PF and the more detailed Form ADV Part II, but this one could well prove more onerous. The systems work would be costly, and more staff would definitely be required. The idea of hiring people to essentially monitor employees, including portfolio managers, and customers may not sit well. This one might generate opposition from the industry, depending on the details. For more: Read more about: Compliance, Suspicious Activity Reports 3. Bank of America's lost opportunity
It's been no secret that Bank of America has lost its appetite to compete for the top spot in the consumer mortgage market and has ceded the top position to Wells Fargo. Bank of America has fallen from first to fourth and it is apparently happy with being a laggard. As DealBook notes, "The bank, which already has sharply scaled back in making mortgages, on Monday sold off about 20 percent of its loan servicing business as part of its agreement to pay the housing finance giant Fannie Mae more than $11 billion to settle a bitter dispute over bad mortgages." One analyst said that, "Bank of America is sending a clear message that the bank only wants to be the mortgage lender to a select, small group of people." This raises an obvious question: Is the bank exiting a market that is poised to soar? No one can faulty CEO Brian Moynihan for wanting to wash his hands of mortgages. The Countrywide deal may have proven a bit too traumatic, but the reality is that mortgage loom as a huge revenue source for consumer banks. The market is hardly the drag it once was in the aftermath of the recession. A refinancing boom seems to be continuing. Wells Fargo and JPMorgan Chase seem to be the best positioned to take advantage of this, while Bank of America exits, leaving lots of revenue on the table. It will be hard for the bank to reassert itself now, but it may have to before too long. Recall former CEO Ken Lewis's words in 2007 after a tough investment banking quarter: "I never say never, but I've had all the fun I can stand in investment banking at the moment." People thought that meant he would never buy an investment bank, but he ended up buying Merrill Lynch. For more: Read more about: Bank of America, mortgages 4. Banks win in effort to change Basel III coverage rule
The big issue driving regulatory decisions right now may be shading toward the economic impact of regulations and away from the raw safety of the banking system. This is not to say that the Group of Governors and Heads of Supervision, or GHOS, isn't interested in global systemic financial soundness. There's no doubt it is. But it has to acknowledge that there are some procyclical elements of Basel III's liquidity coverage ratio, and the last thing the Basel regulators wanted was to be accused of being a drag on economies. Certainly not at a time likes this. The result is that banks have won a significant reprieve on the liquidity coverage ratio (LCR). They'll have four more years to meet key targets, and they'll be able to use a longer list of assets that will satisfy the requirement, including mortgage-backed securities. The additional securities, however, will be marked down more aggressively than those that would have been eligible under the original LCR, and they will only be able to count for up to 15 percent of a bank's LCR buffer, notes Bloomberg. Banks would only have to meet 60 percent of the original LCR obligations by 2015, and the full rule would be phased in annually through 2019. This is a significant win for banks, who have lobbied hard for a more amenable LCR. They argued successfully that the LCR, as originally written, would have crimped lending and economic growth. For more: Related articles: Read more about: capital ratios, Basel III 5. Filling the mortgage market void
Even as it shows signs of gathering strength, the mortgage market remains somewhat fragmented, dominated by a few players. Wells Fargo is now tops in the industry. The bank now controls about one-third of the market, and some think it is aiming to control about 40 percent. Conditions are favorable for the mortgage market. Interest rates are low and the job situation is improving. Home prices are rising. Buyers seem to be more interested. But the market could be even more competitive if more banks were to reassert themselves. The Washington Post quotes one expert who notes that, "You have less competition, and as a result the pricing has gotten worse. Mortgage rates should probably be closer to 3.25 rather than 3.5. One of the reasons they aren't is because banks aren't that competitive and don't have to be to get business." I think that this situation will slowly correct itself. The fact is that the mortgage business provided some nice offsets to the weakness in investment banking last year for several top banks, which are starved for revenue growth. The settlements seen in this week for Bank of America and other top banks will hopefully create more certainty about the market going forward, emboldening more than Wells Fargo and JPMorgan. For the market to thrive, more competitors will have to rush in to fill the void left by Bank of America. Hopefully, there will be a surge in smaller lenders becoming more aggressive. For more: Related articles: Read more about: mortgages, Foreclosures Also NotedSPOTLIGHT ON... Credit Suisse's new asset-backed bonus plan Credit Suisse generated lots of interest back in 2008 with its asset-backed bonus plans, which basically paid employees in toxic securities. The plans ended up being quite profitable, in addition to helping the bank offload some assets. Its 2012 pay plans will involve more asset-backed securities, but will be available to fewer managers, reports Reuters. Article Company News:
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Wednesday, January 9, 2013
| 01.09.13 | Will MBIA be next to settle with Bank of America?
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