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Today's Top News1. Bank of America's Countrywide deal still criticized
So just how bad was Bank of America's 2008 deal to buy Countrywide? Many people refer to it as one of the worst deals in the history of the banking industry. But every so often, people return to the theme with a new metric. I recently noted, for example, data from the CFPB showing that Bank of America accounted for 30 percent of all mortgage-related complaints logged by the bureau, a "level of customer discontent " that was "far greater than at home-lending rivals Wells Fargo & Co. and JPMorgan Chase & Co." In keeping with that idea, Daily Finance points out another information nugget from the bank's annual report. The data breaks down the performance of the loan originations sold to the GSEs -- primarily Fannie Mae and Freddie Mac -- between 2004 and 2008, showing Countrywide originations versus the "other" originations, mainly legacy Bank of America production. "The numbers are pretty stark. On a percentage basis, 8.1% of 'other' originations during that period have defaulted or are severely delinquent. It's 13.1% among the Countrywide originations. But the sheer size of the origination machine at Countrywide makes this gap even worse, because the total GSE originations from Countrywide during that period was nearly $850 billion versus just $272 billion at legacy Bank of America," it noted. The results, in terms of litigation and settlements, were disastrous. The essay also makes the point that Bank of America suffered just as much in the court of public opinion as it became the face of the mortgage madness. For more: Related Articles: Read more about: Countrywide, CFPB
2. Is the "Abe trade" still a winner?
It's not often that a no-brainer investment idea comes along. The Abe trade seemed to be one of those rare instances. Japan's Prime Minister, Shinzo Abe, was bent on a super-aggressive monetary policy (QE3-like in some regards) to reflate a moribund economy. Many hedge funds piled into an obvious trade of shorting the yen and longing equities -- especially those that would benefit from a rise in exports. The trade worked out well for the most part, until the trade hit a speed bump recently, when fears over a China slowdown crated the Japanese stock market and sent the yen upward. Fortune lists four Abe trade proponents who took a big hit: Dan Loeb, Paul Tudor Jones, Stan Druckenmiller, and Louis Bacon. These are some big names. The big winner in all this was Kyle Bass, who made a fortune a few years ago by betting against U.S. real estate right before the implosion. He's now betting on a similar implosion in the Japanese central bank's efforts to reflate the economy. "They will have a bond crisis in the next couple of years. A bond crisis doesn't mean spread widening. It means they lose control of rates and their currency," he was quoted by the Financial Times. The article notes that, "He demurs on the details of his Japan bets, but the suggestion is option positions that, like those on pre-crisis mortgage-backed securities, trade at the wrong price." The net effect is the same as being short on bonds and long on the yen. Bass even commissioned a survey of Japanese investors, which found that few would buy bonds out of patriotism if the securities were to tank. For more: Related Articles: Read more about: Abe Trade, Kyle Bass 3. Moody's more upbeat about banks
The economy has improved, rates will likely remain low, and banks have their balance sheets in order. And that combination bodes well for the banking industry, according to Moody's. So a year after it made headlines by downgrading 15 banks , just as many though they were gaining traction, Moody's has changed its views. In terms of credit risk, the outlook is now "stable," up from "negative," according to Bloomberg. The median Moody's rating for U.S. banks remains below pre-crisis levels, however. The median rating now hovers at A3, down from A1 in June 2007. When looking at the biggest banks, the credit rating company remains slightly less upbeat. And the reason has to do with the old issue of too big to fail. Regulators like to argue that Dodd-Frank has ended the idea of too big to fail, as detailed wind-down plans make it less likely that taxpayer money will be required should these banks run into severe trouble, as they did in the financial crisis. Moody's takes that view seriously. In their view, the perceived lack of future bailout support is a huge negative. This has been an issue with other credit rating firms as well. It's a big reason why Bank of America and Citigroup remain just notches above junk status, despite much progress on the capital ratio front and stronger operating performance. For more: Read more about: Economy, Credit Rating Companies 4. Goldman Sachs' report cynically received
The financial crisis is over for Goldman Sachs (NYSE: GS). It took many years of course, but it is now firmly in past. One sure sign is that the bank's Business Standards Committee, which was once so newsworthy, generates hardly any attention these days, even when it issues annual reports. The committee was formed three years ago as part of the bank's rehabilitation initiative. It was one of many efforts made to restore the bank's reputation. At the recent annual shareholder meeting, the Utah venue got much more attention than the latest Business Standards Committee Impact Report, which was released at the time. Still, some have received the report with cynicism. New York Magazine writes that, "There's probably no Business Standards Committee in the world that could both completely reassure Goldman's clients they won't be taken advantage of while also allowing Goldman to perform its core business functions profitably. But the report is a good CYA move; now, when accused of its next offense against muppets, Goldman can point to the chart above and say, 'See? We have a matrix!' " DealBreaker weighed in, noting, "But these committees do serve an important purpose, which is to double-check that the customer understands, not necessarily the trade, but the overall context of how these things work. Clients who understand that context don't, y'know, sue. You don't necessarily want a customer who can model up how much edge you're taking in a trade, but you do want a customer who understands that such a thing is possible and that the harder it is to model the more edge you're probably taking. You don't necessarily want a customer who knows John Paulson is on the short side of your synthetic CDO, but you certainly want a customer who knows that there's gotta be someone on the short side. What you want, ultimately, is a customer who, when things go wrong for him in a normal way, says, 'yeah, sucks, but I guess this is pretty normal.' Not one who says 'wait, this is a normal way for things to go wrong? That's messed up.' " All in all, the report's release was a non-event, for which the bank was thankful. For more: Related Article: Read more about: Goldman Sachs, conflicts of interest 5. Banks still fighting Walmart
Banks have been fighting Walmart for the longest time. In 2007, the industry scored what many saw as a significant victory when the giant retailer, in the face of great opposition, gave up on its attempt to start an industrial bank in Utah. But the retailer has continued to chip away at the industry ever since. Walmart de México opened its first consumer bank, Banco Walmart, in November 2008. The company quickly opened many more. In the U.S., it has made progressively aggressive moves to enter financial services via various card offerings. Indeed, it has been active in the pre-paid card market since at least 2008, when it launched the Walmart MoneyCard, a prepaid card aimed at lower income customers. It was to be launched with GE Money under the Visa brand. Banks continue to fight these efforts. Bloomberg reports that the Federal Advisory Council, a body of bankers, lobbied the Fed recently asking for it to provide more oversight of the retailer. Bloomberg noted that, "'Wal-Mart has sought to enter banking formally for over a decade,' council members told the Fed, according to the meeting minutes. 'Faced with opposition, Wal-Mart now appears to have entered banking through the back door, without the regulatory framework that applies to banks.'" The spike in concern reflects in part the success of Bluebird, a prepaid card launched recently by Walmart in partnership with American Express. The fear is that these card services amount to a powerful competitor to traditional checking and banking services by less regulated entities. Adding injury to insult, these cards are exempt from normal debit card interchange fees. For more: Related Articles:
Read more about: Federal Reserve, Walmart Also NotedSPOTLIGHT ON... VC returns improve As of the end of 2012, venture capital returns over the previous decade averaged 6.9 percent a year compared to 8.5 percent return for the Nasdaq, according to Cambridge Associates and the National Venture Capital Association. That may seem dismal, but it's actually an improvement over 2011, when the previous-decade average was just 3.3 percent. On a rolling 10-year basis, the returns have moved from negative territory at the end of 2010 to solidly positive territory. Article Company news:
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Thursday, May 30, 2013
| 05.30.13 | Bank of America's Countrywide deal still criticized
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