CBLOG

2. Can City Hall fight a big, powerful bank?

It was huge news back in November 2011 when U.S. District Judge Jed Rakoff threw down the figurative gauntlet and said, essentially, that enough is enough when it comes to civil settlements with federal prosecutors. He rejected a hard-won $285 million settlement between the SEC and Citigroup over mortgage-related fraud, questioning the practice of allowing companies to settle without admitting or denying guilt.

The Economist suggests that this conundrum ranks as one of the more vexing challenges for incoming SEC chairman Mary Jo White.

At the heart of his decision was simple common sense: How can you ask a bank to pay $285 million to settle allegations that it broke the law and then allow it to maintain that it hasn't done anything wrong? And once Rakoff had broken the floodgates, other U.S. district judges followed suit.

This month, Judge Victor Marrero rejected the landmark $616 settlement agreed to by the SEC and SAC Capital Management over insider-trading charges. Later, he provided conditional approval, based on the outcome of the appellate court decision in the Citigroup case. Also this month, Judge Sidney Stein rejected another Citi settlement, a $590 million deal to resolve shareholder charges again related to mortgage losses.

The arguments have been hashed out ad nauseam over the last year, and there is merit to both sides of the debate. The incongruence of no-admission-of-guilt settlements is obvious, and galling, especially to critics of big bank practices, some of whom seem to be lusting for justice. Then again, one can understand the argument that forcing banks to admit guilt would result in the sort of litigation that could quite effectively impose a death penalty on a company. It's fair to say that the SEC simply does not have the resources to try complex cases, so its no-admission-of-guilt practices allow it to settle many more cases.

An important milestone in this debate looms: an appellate decision on one of the Citigroup rulings is due soon, possibly this month.

For more:
- here's the article

Read more about: Judge, settlements
back to top

This week's sponsor is Oracle.
	eBook: Smarter Service: The Contract Center of the Future This eBook explores the challenges facing traditional contact centers and the benefits of deploying the contact center of the future. You'll find links to further resources on the final page. Download today.

By Jim Kim

Comment |

3. Another mortgage settlement for Bank of America

As the old cliché goes, you can't fight City Hall.

But can City Hall fight an investment bank, and is it worth it to pick that fight? Those questions are playing out in Oakland, Calif., right now, as the city council ponders what to do about Goldman Sachs. Recall that the relationship between the city and the bank is pretty strained due to a swaps dispute that started back in 1998, when the city took the bank's advice to invest in some interest rate swaps that soured when rates moved the wrong direction. The hedge against rising rates turned into a financial black hole, as the contracts required big payments if rates sank, which they did. Now the city owes roughly $4 million per year, as reported by New York Magazine.

The city has asked the bank to cancel the payments due, but the bank has steadfastly refused. A contract is a contract, after all. The issue now is whether it's worth it to try to punish Goldman Sachs. The city has elected to proceed with a debarment process that would eventually disqualify the bank from future business with the city. But this month, the "Oakland city council's finance and budget committee met to hear a progress report on the debarment process. The news wasn't good: A representative for the city administrator told the council members that a full investigation by a hired outsider would take a minimum of three months, followed by another several months to weigh the evidence and conduct a hearing. And some city council members are getting sick of waiting," reports the story.

Some question whether revenge on this scale is worth the costs. One councilmember has "expressed that while banning Goldman would be a meaningful symbolic gesture, it wouldn't necessarily accomplish much. There have been no lawsuits filed alleging fraud or misrepresentation of the swap's terms."

For more:
- here's the article

Read more about: derivatives, Interest Rate Swaps
back to top

By Jim Kim

Comment |

4. Premier firms differ on approach to junior analysts

Bank of America has apparently agreed to settle a class-action suit over tainted mortgage-backed securities led by several public pensions.

The lawsuit was initially filed in 2007 and was consolidated a few years later. It sought damages of more than $351 billion for holders of downgraded Countrywide MBS, which collapsed in value after the 2007 collapse in the subprime market. Bank of America said in a filing that the deal will allow it to resolve 80 percent of all the claims filed against Countrywide MBS for securities disclosure issues and 70 percent of the claims filed against Bank of America-originated loans, as noted by MoneyBeat.

The $500 million settlement was a minor surprise for analysts, as many were counting on lower litigation expenses for the first quarter. The bank's overall litigation expenses were $881 million for the quarter, up from $793 million a year ago. However, the overall story on expenses for the quarter was a positive one, as the bank says it reduced costs by $1 billion in the quarter. So this was perhaps a good time to include added litigation costs, as they were more than offset by the cuts.

The suspense in terms of additional mortgage settlements remains high. The $500 million settlement did not encompass any bonds at issue in another high-profile legal showdown, one that was originally settled for $8.5 billion, which some bondholders saw as a sweetheart deal for the bank. That legal drama continues to play out.

For more:
- here's the item

Read more about: Mortgage Settlement
back to top

By Jim Kim

Comment |

5. Bank of America misses estimates

Morgan Stanley and Goldman Sachs are both having to grapple with the fact that their eager, fresh hires are in demand.

Working at either firm is so prestigious that these just-out-of-college employees often find themselves starting at pretty high salaries. Given that the odds of landing a permanent job at either of the power banks are slim, some have opted to leave after just a short time.

The banks have taken different approaches to dealing with this issue.

Goldman Sachs decided to get rid of the tradition of offering entry-level analysts two-year positions. In an effort to retain potential-laden employees, they offered permanence, though there is nothing stopping the firm from firing them for whatever reason.

Morgan Stanley, in contrast, opted to ban junior analysts from corresponding with headhunters for a portion of their first year. The goal, according to Bloomberg, was "to delay outside recruitment to prevent distractions and productivity loss, said one of the people with knowledge of the decision. Junior bankers were interviewing elsewhere after only six months at the firm and securing other jobs with more than a year left in the program,"

But after employees complained, the company backed off the ban.

My sense is that Goldman Sachs likely has started a trend, and other top banks will gradually do away with the two-year tradition. But that said, it's still unlikely that junior analysts will last for much longer at top banks. There will never be a guarantee of success and longevity. In fact, making MD still remains a long shot for many.

For more:
- here's the article

Read more about: Junior Positions, jobs
back to top

By Jim Kim

Comment |