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2. 5th anniversary of Lehman Brothers: Where are they now?

A common refrain about the top banks is that while they have faced higher costs stemming from private and public litigation, earnings were strong enough that the costs were eventually absorbed without too much pain.

No one really blanched for example when Goldman Sachs agreed to a pay $550 million to the SEC to settle CDO-related fraud charges. It was at the time the highest civil fine ever levied by the agency, thought it hardly dented the financial strength of the bank. In some cases, banks have struggled to get to the point where they have their litigation costs under control. Bank of America perhaps falls into that category.

As of now, of all the banks that have emerged as veritable magnet for lawsuits, JPMorgan Chase raises the biggest questions.

It faces some huge liabilities. For example, the FHFA apparently the bank to cough up more than $6 billion to settle charges it sold faulty loans to the GSEs. That would represent a significant share of the bank's 2012 net income of $21.3 billion.

We raise this issue in light of the news from JPMorgan CFO Marianne Lake that the bank will add to litigation reserves in the third quarter. Those additions will "more than offset the $1.5 billion or so of consumer reserve releases" that the bank is forecasting, Lake was quoted by Bloomberg. "Things are still evolving. There's three more weeks" in the quarter, she said.

In the end, the specter of additional costs in this area cannot be ignored. Unfortunately, it appears less likely that the bank will grow its net income fast enough to make litigation costs a non-issue. Lake also said that profit margins had turned negative for the quarter.

For more:
- here's the article

Read more about: JPMorgan Chase
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By Jim Kim

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3. Banks suffer at hands of local subcontractors

The media right now is obsessed with the 5^th anniversary of the collapse of Lehman Brothers. I personally have enjoyed the coverage and the many opinions expressed. Among the staples of this sort of coverage have been the "where are they now" slideshows that bring people up to date as to the fate of the key players. Some have fared well. Others remain pariahs. Some are struggling still to put the events of that fateful year behind them.

The Financial Times and the WSJ have both weighed in with "look backs." What's funny is the artful spin that they sometimes put on the capsules.

Goldman Sachs CEO has fared well, suggests the FT. "He remains one of the most powerful and influential figures on Wall Street, so much so that his new beard late last year was interpreted as a more easy-going style." As for Richard Fuld, the maligned former CEO of Lehman Brothers: "He steered Lehman deep into the business of subprime mortgages and was largely blamed for its collapse. He is now retired."

And then there is Ken Lewis, the just as maligned former head of Bank of America. "He helped engineer the merger with Merrill Lynch and resigned from his position in 2009. His retirement package has been the subject of shareholder anger." What no mention of Countrywide, considered one of the worst mergers in the history of the banking industry?

The WSJs snippets contain a bit more information about each person.

Both lists leave off Erin Callan, the former CFO of Lehman Brothers, who was sacrificed by her boss as the pressure mounted. Judging from recent reports, she seems to be doing fine, moving on to new opportunities, hopefully just as fulfilling.

For more:
- here's the WSJ slideshow
- here's the FT slideshow

Read more about: financial crisis
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By Jim Kim

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4. Goldman Sachs pushes small employee accounts away

Banks have become easy targets for local media, which are perpetually in hunt of good stories. There have been plenty of mediagenic stories as of late featuring a classic storyline, defenseless citizens being ravaged by oppressive corporate powers. Unfortunately, banks have been typecast as villains.

To put it more precisely, citizens have been victimized by the contractors and even subcontractors of banks, hired to handle unsavory tasks, such as eviction. In the thousands of cases every year, some have definitely gone awry; more than a few contractors have evicted or secured the wrong house. That's when the media loves to get involved.

Some may have been inclined to give banks the benefit of the doubt in these situations, thinking about these incidents as the exception. But recent enforcement action in Illinois suggests that these aren't exactly black swan events.

Illinois has become "the first state to take on the property management firms legally." The state AG charges that a Ohio-based Safeguard, a contractor for many of the top banks including Bank of America and JPMorgan Chase, "wrongfully dispossessed hundreds of homeowners in the state." The AG says that "the company broke into homes despite stark evidence that homeowners still lived in them, bullied tenants into leaving even though they had no legal obligation to do so and, in some instances, damaged the very homes they were sent to protect, according to the suit," according to DealBook.

Anecdotal evidence has been plentiful, and complaints have mounted in a host of other states, notably California, Nevada, Michigan and New York. No one would be surprised if other state AGs decided to act. This seems tailor made for the New York AG. The CFPB just might get involved as well.

Banks need to redouble their efforts before they too are implicated. They are between a rock and hard spot obviously. They certainly want to take care of properties that they own, but perhaps they offered the wrong type of incentive to the contractors, who make more money based on the number of homes they can secure.

For more:
- here's the article

Read more about: Foreclosures, Evictions
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By Jim Kim

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5. Bank of America to shave mortgage jobs

There once was a day when loyalty existed in a pure sense. Employees really believed in their companies, and there was a strong predisposition to staying put. These days, free agency reins. It's all about the paycheck. Interestingly enough, some of the most loyal employees are at the lower end of the pay-scale. They are not wooed like sports stars, and they have put in many years.

But that may not necessarily account for much. Faced with punishing expense imperatives, companies may not be able to take care of employees like they once did. Case in point: Goldman Sachs's move to move small-ish accounts held by employees to Fidelity, which was reported by DealBook.

Goldman Sachs only targets the highest net worth investors of course, so an account with say a mere $500,000 simply doesn't fit with the business plan. That said, are these accounts really that expensive to maintain?

I'm not sure what the cost benefit analysis turned up, but this move sends a strong message, especially in light of the fact that at many brokerage firms, employees are required for regulatory purposes to keep their funds in form brokerage accounts.

It would be interesting to know how many people this new policy affects.

In some ways, as the company notes, they may be better off, as Fidelity offers a lot of individual trading tools that Goldman Sachs doesn't. Still, depending on how this was couched internally, it could come off like a slap in the face.

For more:
- here's the article

Read more about: Goldman Sachs, Brokerage Accounts
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By Jim Kim

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