Also Noted: Spotlight On... Commercial loan bubble building?
Today's Top News1. Proposal on SGEs might crimp Wells Fargo
Now that Fannie Mae and Freddie Mac are faring so well, the once loud chatter about shutting them down permanently has subsided. Indeed, they are both projected to make massive payments this year on the $187.5 billion in bailout funds that they received in bailout funds. And that has proven to be a wonderful budget windfall for the government. But the idea that the housing GSEs should be shuttered has not gone away. The Los Angeles Times notes a recently leaked Congressional plan to "replace them with a new backer of housing debt, the Federal Mortgage Insurance Corp., as a bridge to creating a fully private mortgage market." The idea is to stimulate home lending at small banks and credit unions by maintaining a secondary market in more limited form. No single lender could account for more than 15 percent of mortgage securities backed by the new agency. As it turns out, in the first quarter of this year, Wells Fargo accounted for nearly 18 percent of Fannie and Freddie MBSs, according to Inside Mortgage Finance. "That was down from even bigger market shares for the San Francisco bank after the mortgage meltdown crippled many home lenders." So it would appear that the transition might end up crimping the mortgage giant, which has soared to become the No. 1 mortgage lender in terms of market share. To be sure, this latest Congressional proposal is not likely to go anywhere. The fact that the two GSEs are generating revenue at a rapid clip for the government has bought them some time. In the short-term, the revenue windfall will keep reform on the back burner, though it will crop up as political issue now and again. For more: Read more about: GSEs, GSE 2. Saga of a Goldman Sachs janitor
Financial professionals at Goldman Sachs probably do not know the janitorial staff well, and most janitors are contractors, working through a third-party firm. But that doesn't mean the janitors aren't loyal. During Superstorm Sandy, many janitors bunked on the seventh floor, staying through the nights to make sure the building remained business ready. One janitor, however, ended up out on the streets in the aftermath of the storm, and he has decided to sue. Mike Zecevic blames ABM Industries, the third-party contractor that provides janitorial services for the bank, for what turned out to be a harrowing night. According to the New York Daily News, Zecevic claims that AMB tossed him out of the building, for "allegedly stealing $100 from the discarded shirt of a co-worker who now has his job — a charge he denies." Zecevic, 42, is suing ABM for $10 million. He says that after he was kicked out of the building, he was forced to walk back to his apartment in Staten Island. It took him 15 water-filled hours to get home. To this day, he told the paper, "I still have nightmares dreaming that I'd step on an electric wire or drown." Zecevic does not think Goldman Sachs did anything wrong. In fact, he has nothing but praise for the bank and would like his old job back. Says his lawyer: "Goldman Sachs is not to blame, they have been very supportive of Zecevic's case." For more: Read more about: Goldman Sachs 3. Icahn, Southeastern reach out to potential Dell CEOs
One way to subtly remind the world that they remain relevant in the Dell leveraged buyout saga is to leak the short-list of candidates for CEO. Not too long ago, when Blackstone was actively considering a bid, media reports were rife with possible candidates. Now, Carl Icahn and Southeastern Asset Management, who are contending with Michael Dell and Silver Lake to buy the ailing computer maker, have leaked their own list. According to Reuters, several well-known computer industry executives have been identified, including: Cisco Systems director Michael Capellas, former IBM Corp. services head Michael Daniels, Oracle President Mark Hurd and Hewlett-Packard exec Todd Bradley. Icahn and Southeastern have also put together a list of director candidates. To be sure, the CEO list is not an earth-shattering one. But for the camp of Icahn and Southeastern, it does serve a purpose. It feeds the media beast in a way which underscores that it remains a viable bidder with big plans to turnaround the company. The next really big milestone will likely be July 18, when shareholders are scheduled to vote on whether to accept Michael Dell's $13.65 a share ($24.4 billion) offer. You can bet that Icahn and Southeastern are working feverishly to line up support to oppose the recommendation by the special committee to support the founder's proposal. The dissidents will have to challenge at some point the conclusion by the committee that they are $4 billion shy of the funding necessary to pull of the sort of special dividend Icahn has proposed. For more: Read more about: lbo 4. Hedge fund exec marries Princess, declines royal life
A U.S. hedge fund executive has nabbed what might be the ultimate trophy wife. Christopher O'Neill, a partner with hedge fund Noster Capital, married Princess Madeleine of Sweden this weekend at Stockholm's Royal Chapel. It was quite an event, one that even the Wall Street A-list would have had trouble securing an invitation to. According to the Washington Post, "Madeleine, 30, was wearing a stunning silk organza dress with a lace top and four meter (13 foot) trail, designed by Valentino Garavani, when she tied the knot with British-American O'Neill on Saturday. Around 470 European royals, top New York socialites and celebrities were in attendance." It will be interesting to see how this marriage is perceived by the Swedes. Madelein's sister, Crown Princess Victoria, married a commoner and remains quite popular, apparently. O'Neill couldn't be called a commoner. He "was born into a wealthy family. His late father, Paul O'Neill, set up the European head office of Oppenheimer & Co. in London in the 1960s." But in terms of the hedge fund industry, he might be seen as much more of a commoner. In any case, the royal life may not be for him. O'Neill "has declined a royal rank in Sweden, which would have required him to become a Swedish citizen. He has chosen to continue working and the newlyweds are expected to move back to their apartment in Manhattan." She will continue to work for the World Childhood Foundation, an organization her mother set up. For more: Read more about: Royal Wedding 5. Lawsuits target fraud that provides big fees to banks
Revenue growth has been hard to come by in recent years. Most banks have been boosting profits mainly by slashing costs, but that will only get you so far. At some point, the top line has to start increasing again. Against that reality, bank executives face some tough choices about proven revenue generators that have them tiptoeing a fine ethical line. In the area of direct deposit loans, for example, more banks are moving into dubious payday lending. JPMorgan, which has not entered this market directly, was nevertheless roundly criticized for being a willing enabler of usurious online lenders that hit customer accounts for automatic withdrawals, generating fat fees for the bank. So loud was the criticism that JPMorgan was forced into some big changes, making it easier for victimized customers to halt withdrawals and close accounts and cutting the fees it charges abused accounts. The issue is relevant in light of a New York Times article about Zions Bank of Salt Lake City and First Bank of Delaware, both of which stand accused in civil suits of aiding and abetting fraudulent organizations that dupe seniors into forking over bank account information. First Delaware has already settled for $15 million with the Justice Department, which charged the bank with allowing merchants to illegally debit accounts more than two million times and siphon more than $100 million. Banks need to rethink their policies in this area. True, the fee revenue is massive and much needed, but executives who think they can plead ignorance to the criminal nature of such activity are sorely deluded. "Officials at the Justice Department say they are taking aim at banks' role in giving predatory lenders and fraudulent merchants access to the United States financial system," noted the New York Times article. "The department is considering civil and criminal actions against a number of banks for allowing tainted money to flow through branches, for failing to safeguard against suspicious merchants, and for originating transactions on behalf of businesses that they know make unauthorized withdrawals from customer accounts, according to people with direct knowledge of the matter." Banks need to figure out just how dependent they are on such activity for revenue--and then make appropriate changes. Risk committees, please take note. For more: Read more about: Payday Lenders Also NotedSPOTLIGHT ON... Commercial loan bubble building? U.S. banks reported $1.53 trillion in commercial and industrial loans in the first quarter, a 12 percent year-over-year gain. This is in keeping with recent growth: As noted by Reuters, banks reported double-digit gains in 2011 and 2012 as well. This isn't necessarily translating into new economic activity, however. "Mid-size companies and publicly traded corporations are not using the loans to grease the skids of the economy for expansion," noted the article. "=Instead, they're mostly getting cheaper credit lines or refinancing the replacement of obsolete factory equipment by dictating easy terms to banks clamoring for their business." Article Company News: Industry News: Regulatory News: And finally…New radio service coming from iPad. Article
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Tuesday, June 11, 2013
| 06.11.13 | Lawsuits target fraud that provides big fees to banks
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