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Today's Top News1. Skepticism grows over Bank of America settlement
Immediately after Bank of America (NYSE:BAC) announced it had inked a deal to settle with various MBS-holders for $8.5 billion in 2011, people were buzzing about what a coup the bank had pulled off. But the magical settlement, which settled a dispute over $108 billion of securities for just 8 cents on the dollar, quickly ignited a round of criticism from other MBS-holders, who felt excluded from the process and felt they were getting a bum deal. The settlement has been mired in litigation ever since. TheStreet.com weighs in with a fresh look at the settlement, and notes the views among some analysts that the bank needs "to set aside another $16 to $22 billion in reserves against what could prove to be substantially more exposure to MBS liability." Even if the additional reserves were set aside, it might not be enough if the $8.5 billion settlement is ultimately rejected by the New York State Supreme Court. A recent conference organized by veteran analyst Mike Mayo delved into this issue with a fresh look at the firm that conducted the valuation analysis on behalf of trustee Bank of New York Mellon. The small, three-person consulting firm RRMS took a lot of criticism at the event, including oddly enough some criticism of its less-than-tony office space in the Diamond District. Mayo and others clearly think that the firm lacks the resources and heft to conduct an adequate analysis of the securities at issue. All in all, on the more substantive issue of whether the original settlement was fair, the momentum seems to have shifted against Bank of America and its trustee. A recent case involving Flagstar and Assured Guaranty suggests that critics of the original deal may have firm legal ground on which to make a stand. For more: Related articles:
Read more about: Bank of America, MBS
2. VARs decline across big banks
Big banks seem to be taking chips off the table. Consider Goldman Sachs (NYSE:GS). The trend-setting bank's average daily VAR was down to $86 million in 2012, a 24 percent reduction from the preceding year, according to a filing noted by Reuters. Goldman Sach's VAR was also the lowest since 2005, when it reported was $70 million. It was less than half the $218 million of average daily VAR at the bank's peak in 2009. The other big investment banks were apparently de-risking as well. Morgan Stanley (NYSE:MS), JPMorgan Chase, (NYSE:JPM) Citigroup (NYSE:C), and Bank of America (NYSE:BAC) all cut their daily VARs by 21 percent on average. So what's going on? One perhaps overly charitable interpretation would be that banks have responded to the financial crisis and subsequent regulation by de-risking in accord with the wishes of Congress and other government officials. But the more likely interpretation, at least for 2012, is that banks are responding to looming market risks. The interest rate climate to be sure is a bit hard to call right now. The fixed-income risks could be phenomenal or they might merely be elevated. Either way, the risks are higher. At the same time, operating climate has been tightening, with trading margins coming down fairly significantly since the financial crisis. Some argue, however, that the trend toward less risk is partly a reflection of updated VAR models, which might make it simply appear as though risk has been reduced. "Regulators, for example, approved a new model for Morgan Stanley last year that increased emphasis on short-term volatility. As a result, losses that occurred in 2007 and 2008 had less of an impact on value-at-risk. Its figures are also now more comparable to competitors," Reuters notes. For more:
Read more about: risk, VAR 3. Are more affinity, branchless accounts on the way?
Is there any way to offer a free checking account these days? Many credit unions and smaller banks remain committed to the idea, but even they would have to admit that free checking seems increasingly nostalgic these days. One way to offer such an account is to start from the ground up and build a realistic business around the idea. Toward that end, BBVA Compass recently launched a new fee-less checking account, one that offers a debit card and some services that can be accessed online and via smartphone. The account was launched in partnership with the NBA at around the time of the all-star game. It's kind of a low-cost affinity account for the online and mobile banking set. "The NBA Banking accounts can be funded through ACH, credit cards, debit cards or mailed-in deposits. Customers can end up putting cash into the accounts as soon as the next day. Those new customers will also have access to Cardtronics' Allpoint network of roughly 50,000 ATMs," notes American Banker. What most of the account holders won't have is a branch to walk into. This new business is a variation on the resurgent idea that branchless banking can work. For all the intuitive appeal, however, a pure online bank has never really succeeded. The launch is also a play on the incipient move toward mobile banking that so many experts are predicting. Some expect traditional online banking (not an oxymoronic term anymore) to fade as the mobile channel heats up. The industry will be closely watching this launch for any signs of success. For more: Related articles:
Read more about: fees, Checking Accounts 4. Blackstone offers "regulatory capital trade"
Financial engineering using derivatives may have taken some lumps in the court of public and regulatory opinion since the financial crisis. But the creativity is not about to cease. For proof we can turn to Blackstone's latest innovation, a technique that uses credit default swaps to effectively sell insurance to banks in order for them to keep certain loans on their balance sheets. The point is to make it easier for banks to comply with the Basel III capital ratio requirements and to allow banks to reduce requisite capital set-asides to a minimum. According to Bloomberg, Blackstone has effectively insured Citigroup (NYSE:C) on $1.2 billion of shipping loans with this trade. The trades, also known as synthetic securitizations, allow banks to transfer credit risk on some assets to a third party vehicle via CDSs. "Deals range from simple transactions between two firms to more complex structures, where special-purpose companies are set up to provide protection to the bank and are in turn funded through the sale of notes to investors. Blackstone has set up a separately capitalized company, which has written the credit-default swaps on the loans," Bloomberg reports. One risk for Blackstone is that this is seen as a trade constructed from the same cloth as all those trade that imploded in the financial crisis. The use of CDSs as part of CDOs allowed the vehicle to earn strong credit ratings, which ultimately turned out to be a joke in some cases. Similarly, mortgage insurance in many cases, allowed various RMBSs to earn the highest credit ratings, which also turned out to be risible. Still, in some lending areas, where default risk may be poised to soar, this will approach will likely prove very attractive as a way to keep assets on the balance sheet longer. At some point, if the loans implode completely, however, they will have to come off the books and the regulatory capital trade will merely add to the costs. For more: Related articles: Read more about: Citigroup, bonds 5. South Carolina pension dispute gets nasty
If you've ever vacationed in South Carolina, you know that the state can boast some of the nicest, most polite people in the country. Of course, that doesn't mean the state doesn't have it fair share of ills. For example, there is an increasingly impolite battle going on over at the South Carolina Investment Commission, which oversees the state's $27 billion pension fund. The commission has just voted to censure the outspoken state Treasurer Curtis Loftis for his recent criticism of the state's investments strategy, which has invested heavily in alternative investments. The resolution raps Loftis for essentially crossing the line into downright nastiness by choosing, mainly on a local radio show, "to publicly and vehemently criticize the Investment Commission, often using data cited as factual" and to level "charges of dishonesty and fraud." He was also said to have accused the commission be being "deceptive" and lacking a "moral core." All that is grounds for extreme discomfort in the state capital, and the commission has decided to respond. Its resolution publicly "condemns and censures the South Carolina State Treasurer for engaging in false, misleading, and deceitful rhetoric." One commissioner who voted for the censure then sought to a softer spin on their move, saying, somewhat humorously, "This is not a personal attack on the treasurer," as reported by The State. Rather, the formal censure was "s an attack on a method of communication." As for Loftis, he says the censure was a "badge of honor." How nasty is this going to get? This same debate is playing out all over the country in various forms. With future obligations mounting amid middling performance, the controversy is only going to generate more heat, even in states that prize politeness. For more: Related articles: Read more about: State Pensions, public pensions Also NotedSPOTLIGHT ON... Goldman Sachs leads merge league table Goldman Sachs (NYSE:GS) finished on top of the league table for mergers and acquisitions advisors. According to Bloomberg Markets, the bank earned $1.77 billion in fees in 2012. "The firm's work on four of the largest mergers of 2012 helped it retain its No. 1 position for the 10th straight year. Goldman advised copper producer Xstrata Plc in its announced sale to Glencore International Plc (GLEN) for $47 billion -- the biggest hookup of last year." The current year looks to be one of intense competition for all banks. Article Company news:
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Monday, March 4, 2013
| 03.04.13 | Skepticism grows over Bank of America settlement
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