Senate Democrats prepared for the end game on a sweeping financial regulation bill Wednesday, sidestepping some fights and girding themselves for a handful of remaining difficult votes.
The key vote Wednesday would seek to end Senate debate on the financial overhaul and clear the way for final passage later in the week.Republican leaders argued for a delay, saying the bill represented an expansion of federal government. But some in the party were expected to break ranks, including the Senate's newest Republican, Sen. Scott Brown of Massachusetts. If Democrats band together, the vote would remove the last major Senate obstacle to the bill, the broadest rewrite of the rules governing Wall Street since the 1930s. Passage later in the week would represent a major victory for President Barack Obama, but the Senate bill would still have to be reconciled with a House version, which contains some significant differences. Besides the vote on ending debate, the Senate on Wednesday also was scheduled to vote on a proposal that would allow states to impose their interest rate caps on financial institutions that issue credit cards. Currently, banks and credit card companies are only required to charge the interest rate permitted in the state where they are headquartered. Banks, which have flocked to states with the most permissible rates, have vigorously fought the proposal, offered by Sen. Sheldon Whitehouse, D-R.I. Under an agreement with Republicans, the measure will require 60 votes to pass. At the same time, Democratic Sens. Jeff Merkley of Oregon and Carl Levin of Michigan succeeded in getting a vote on their proposal to ban commercial banks from trading in speculative investments with their own accounts. The measure, also opposed by financial institutions, would toughen an existing provision in the bill. While those measures would increase regulations on banks, senators also were scheduled to vote on a measure that would let auto dealers avoid any regulations passed by a proposed consumer protection agency. The Senate was expected to let stand a contentious restriction on the ability of banks to carry out their lucrative business in complex securities known as derivatives. Senate Banking Committee Chairman Christopher decided not to propose a two-year delay on a requirement in the bill that banks spin off their derivatives business into subsidiaries. Dodd had sought to break an impasse over how to regulate derivatives. But Sen. Blanche Lincoln, an Arkansas Democrat who has insisted on the spinoff measure, indicated she would oppose Dodd's effort. And the financial industry promptly signaled it would not support the effort. Republican Sen. Judd Gregg of New Hampshire also blasted Dodd's proposal Wednesday, likening it to a "Mad Hatter's tea party."
The maneuvering came as an exhausted, occasionally cranky Senate turned into the home stretch on a weekslong effort to pass the massive bill that would impose new controls on Wall Street. The legislation would set up a mechanism to watch out for risks in the financial system, create a method to liquidate large failing firms and write new rules for complex securities blamed for helping precipitate the 2008 economic crisis. It also would create a new consumer protection agency, a key point for President Barack Obama. Republicans this week have escalated their attacks on the bill, arguing the bill had grown worse and did not address root causes of the 2008 financial meltdown. The Democratic majority, said Senate Republican Leader Mitch McConnell, "uses this crisis as yet another opportunity to expand the cost and size and reach of government."
Thursday, June 10, 2010
Senate breaks impasse on financial regulation bill
Prodded by national anger at Wall Street, the Senate cleared the way Thursday for the most far-reaching new restraints on big banks since the Great Depression. President Barack Obama cheered from the White House. Breaking a Senate blockade by a single vote, lawmakers voted 60-40 to end debate and advance the massive financial regulation bill, which has become a priority for Obama after the passage of his health care overhaul in March.Obama said the financial industry had tried to stop the new regulations "with hordes of lobbyists and millions of dollars in ads." Noting the near-meltdown of big Wall Street investment banks and the resulting costly bailouts, he said, "Our goal is not to punish the banks but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years."
The legislation calls for new ways to watch for risks in the financial system and makes it easier to liquidate large failing financial firms. It also writes new rules for complex securities blamed for helping precipitate the 2008 economic crisis, and it creates a new consumer protection agency.
"We'll soon have in place the strongest consumer protections in history," Obama declaring, covering credit cards, student loans, mortgages and more. Senate Majority Leader Harry Reid, D-Nev., expressed hope of completing the legislation late Thursday. Two amendments stood between the bill and final Senate passage. One would ban commercial banks from carrying out speculative trades with their own money. The other would exempt auto dealers from oversight by a new consumer protection bureau. Those proposals were to be combined, but support for each came from a different faction in the Senate, with some overlap. That meant that senators who wanted to exclude car dealers from the rules of a consumer protection bureau, mostly Republicans, would have to accept the bank trading limits, a Democratic proposal. The Obama administration expressed support for the trading restriction, but said it would accept its demise if that meant killing the auto dealer measure it opposes. Three Republicans -- Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine -- voted to end debate and move ahead on the bill. Two Democrats -- Russ Feingold of Wisconsin and Maria Cantwell of Washington -- voted with other Republicans against it. Democrats succeeded in breaking through the Republican block by winning Brown's backing. The Massachusetts Republican, who had voted against ending debate on Wednesday, met with Reid Thursday morning to voice his concerns regarding the bill's effect on Massachusetts banks such as State Street and insurance firms such as MassMutual. House Financial Services Committee chairman Barney Frank, also of Massachusetts, weighed in Thursday with letters to Reid offering his own guarantees that the final bill would resolve Brown's concerns. Cantwell and Feingold continued to object to the bill. Cantwell protested her inability to get a vote on an amendment that she said would toughen regulation of complex securities known as derivatives. Feingold has said the bill does not go far enough to restrain Wall Street.
The legislation calls for new ways to watch for risks in the financial system and makes it easier to liquidate large failing financial firms. It also writes new rules for complex securities blamed for helping precipitate the 2008 economic crisis, and it creates a new consumer protection agency.
"We'll soon have in place the strongest consumer protections in history," Obama declaring, covering credit cards, student loans, mortgages and more. Senate Majority Leader Harry Reid, D-Nev., expressed hope of completing the legislation late Thursday. Two amendments stood between the bill and final Senate passage. One would ban commercial banks from carrying out speculative trades with their own money. The other would exempt auto dealers from oversight by a new consumer protection bureau. Those proposals were to be combined, but support for each came from a different faction in the Senate, with some overlap. That meant that senators who wanted to exclude car dealers from the rules of a consumer protection bureau, mostly Republicans, would have to accept the bank trading limits, a Democratic proposal. The Obama administration expressed support for the trading restriction, but said it would accept its demise if that meant killing the auto dealer measure it opposes. Three Republicans -- Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine -- voted to end debate and move ahead on the bill. Two Democrats -- Russ Feingold of Wisconsin and Maria Cantwell of Washington -- voted with other Republicans against it. Democrats succeeded in breaking through the Republican block by winning Brown's backing. The Massachusetts Republican, who had voted against ending debate on Wednesday, met with Reid Thursday morning to voice his concerns regarding the bill's effect on Massachusetts banks such as State Street and insurance firms such as MassMutual. House Financial Services Committee chairman Barney Frank, also of Massachusetts, weighed in Thursday with letters to Reid offering his own guarantees that the final bill would resolve Brown's concerns. Cantwell and Feingold continued to object to the bill. Cantwell protested her inability to get a vote on an amendment that she said would toughen regulation of complex securities known as derivatives. Feingold has said the bill does not go far enough to restrain Wall Street.
Lower U.S. estimate of bailout cost is questionable
The Treasury Department indicated Friday it expects taxpayers will lose billions less from the financial bailouts than earlier estimated. The problem is, its revised forecast assumes Treasury's shares of bailed-out companies are gaining value despite this week's plunge in stock prices.
Treasury predicts the bailouts will cost taxpayers $105.4 billion, according to a letter to lawmakers from Assistant Secretary Herb Allison. That's down $11.4 billion from a February projection by the Obama administration.Most of the expected cost savings depend on Treasury's ability to profit once it sells its stakes in Citigroup Inc., General Motors and Chrysler, Allison wrote. Treasury received those investments in exchange for pumping billions into the companies to rescue them. Treasury's analysis is based on market conditions as of March 31. That was weeks before a European debt crisis roiled global markets. The broad tumble in stock prices makes Treasury's projected gains appear far less likely. For example, Allison notes that Treasury's shares of Citigroup were worth $4.05 on March 31 -- 80 cents more than Treasury paid for them. But by Thursday's close, Citigroup shares were trading at $3.63. At that price, Treasury's gain is only 38 cents per share. If Treasury sold all its shares at Thursday's price, its estimate would undercount the cost of the bailouts by $924 million. Treasury is one of several agencies that have produced conflicting estimates of the bailouts' cost. The Congressional Budget Office said in March that the final cost would be $109 billion. That was well below the White House budget office's number. The new forecast assumes Treasury's stakes in the automakers will be worth more than earlier estimates because the auto industry has begun to recover. Still, the biggest bailout losses will come from the rescues of the automakers and insurance giant American International Group Inc. Administration programs to help homeowners avoid foreclosure also will cost billions. Treasury has made more money than it expected on dividends, fees and other proceeds from banks that took bailout money.
Treasury predicts the bailouts will cost taxpayers $105.4 billion, according to a letter to lawmakers from Assistant Secretary Herb Allison. That's down $11.4 billion from a February projection by the Obama administration.Most of the expected cost savings depend on Treasury's ability to profit once it sells its stakes in Citigroup Inc., General Motors and Chrysler, Allison wrote. Treasury received those investments in exchange for pumping billions into the companies to rescue them. Treasury's analysis is based on market conditions as of March 31. That was weeks before a European debt crisis roiled global markets. The broad tumble in stock prices makes Treasury's projected gains appear far less likely. For example, Allison notes that Treasury's shares of Citigroup were worth $4.05 on March 31 -- 80 cents more than Treasury paid for them. But by Thursday's close, Citigroup shares were trading at $3.63. At that price, Treasury's gain is only 38 cents per share. If Treasury sold all its shares at Thursday's price, its estimate would undercount the cost of the bailouts by $924 million. Treasury is one of several agencies that have produced conflicting estimates of the bailouts' cost. The Congressional Budget Office said in March that the final cost would be $109 billion. That was well below the White House budget office's number. The new forecast assumes Treasury's stakes in the automakers will be worth more than earlier estimates because the auto industry has begun to recover. Still, the biggest bailout losses will come from the rescues of the automakers and insurance giant American International Group Inc. Administration programs to help homeowners avoid foreclosure also will cost billions. Treasury has made more money than it expected on dividends, fees and other proceeds from banks that took bailout money.
Regulators shut small Minnesota bank
Regulators have shut down a small bank in Minnesota, bringing the number of U.S. bank failures this year to 73. The Federal Deposit Insurance Corp. on Friday took over Pinehurst Bank, based in St. Paul, Minn., with $61.2 million in assets and $58.3 million in deposits. Coulee Bank, based in La Crosse, Wis., agreed to assume the assets and deposits of the failed bank. The failure of Pinehurst Bank is expected to cost the deposit insurance fund about $6 million.
Thrifts post first-quarter net income of $1.82 billion
U.S. thrifts posted a first-quarter profit in the latest sign the industry is stabilizing as the economy recovers, the government reported Monday. The federal Office of Thrift Supervision said savings and loans had net income of $1.82 billion in the January-March period. That compared with a net loss of $1.62 billion a year earlier.It was the thrift industry's third profitable quarter in a row. The Treasury Department agency said the industry's net income in the latest quarter was the highest since the April-June quarter of 2007. The OTS, which oversees 757 institutions, said about 60 percent of thrifts posted an increase in net income compared with the previous three months. But it said the number of "problem" thrifts rose to 50 as of March 31 from 43 three months earlier. The industry's improvement came despite high unemployment and soured loans as many Americans struggle to pay their mortgages. "The health of the thrift industry is improving but we cannot say the industry has fully recovered from the financial crisis," the agency's acting director, John Bowman, said in a statement. "Until America gets back to full employment and more families are able to pay their monthly mortgages on time, the thrift industry will continue to face significant challenges." Thrifts' troubled assets -- loans that are overdue and repossessed property -- slipped to 3.27 percent of total industry assets in the first quarter from 3.29 percent in last year's fourth quarter. Thrifts differ from banks in that they are required by law to have at least 65 percent of their lending in mortgages and other consumer loans. That has made them particularly vulnerable to the housing slump and high unemployment. The first-quarter report by OTS also showed:
--New mortgage loans extended by thrifts during the quarter totaled $32.4 billion, only about a third of the level a year earlier, $96.1 billion, and down 20 percent from $40.7 billion in the fourth quarter. That compares with the $553 billion in mortgage loans provided by thrifts at the peak of the housing boom in 2006.
--The thrift industry set aside $2.7 billion in reserves to offset expected losses, down sharply from $3.9 billion in the fourth quarter. Setting aside large amounts in reserves depresses the industry's earnings.
--The industry's assets fell to $949.8 billion from $1.2 trillion a year earlier.
Last week the Federal Deposit Insurance Corp. reported that the number of troubled U.S. banks -- including thrifts -- on its confidential list jumped to 775 in the first quarter from 702 three months earlier.
Bank failures are expected to peak this year and exceed the 140 that fell in 2009. That would mark the highest annual tally since 1992, at the height of the savings and loan crisis. So far this year, 73 banks have collapsed. The two biggest bank failures, which occurred in 2008, both involved thrifts. Big California lender IndyMac Bank, with about $30.2 billion in assets, failed in July; Seattle-based Washington Mutual collapsed in September, the largest U.S. bank failure ever with $307 billion in assets. Many lawmakers and consumer advocates have criticized the OTS for what they say was lax oversight of the thrift industry in the run-up to the financial crisis. The previous OTS director, Scott Polakoff, was put on leave pending an investigation into improper backdating of cash infusions at six thrifts including IndyMac. He later left the government. Sweeping legislation to overhaul financial regulations that passed the Senate last week calls for abolishing the OTS.
--New mortgage loans extended by thrifts during the quarter totaled $32.4 billion, only about a third of the level a year earlier, $96.1 billion, and down 20 percent from $40.7 billion in the fourth quarter. That compares with the $553 billion in mortgage loans provided by thrifts at the peak of the housing boom in 2006.
--The thrift industry set aside $2.7 billion in reserves to offset expected losses, down sharply from $3.9 billion in the fourth quarter. Setting aside large amounts in reserves depresses the industry's earnings.
--The industry's assets fell to $949.8 billion from $1.2 trillion a year earlier.
Last week the Federal Deposit Insurance Corp. reported that the number of troubled U.S. banks -- including thrifts -- on its confidential list jumped to 775 in the first quarter from 702 three months earlier.
Bank failures are expected to peak this year and exceed the 140 that fell in 2009. That would mark the highest annual tally since 1992, at the height of the savings and loan crisis. So far this year, 73 banks have collapsed. The two biggest bank failures, which occurred in 2008, both involved thrifts. Big California lender IndyMac Bank, with about $30.2 billion in assets, failed in July; Seattle-based Washington Mutual collapsed in September, the largest U.S. bank failure ever with $307 billion in assets. Many lawmakers and consumer advocates have criticized the OTS for what they say was lax oversight of the thrift industry in the run-up to the financial crisis. The previous OTS director, Scott Polakoff, was put on leave pending an investigation into improper backdating of cash infusions at six thrifts including IndyMac. He later left the government. Sweeping legislation to overhaul financial regulations that passed the Senate last week calls for abolishing the OTS.
Treasury gets $6.2 billion from Citigroup sales
The Treasury Department said Wednesday it raised $6.2 billion from the sale of 1.5 billion shares of Citigroup stock it received as part of the government's rescue of the bank. The government sold the shares at a profit as it seeks to recoup the costs of the $700 billion financial bailout.The sales took place over the past month and represented 19.5 percent of the government's holdings of Citigroup common stock. Treasury said it has triggered a second round of stock sales through its agent, Morgan Stanley. That will involve an additional 1.5 billion shares. The government said it would not sell shares during the blackout period set by Citigroup in advance of its second quarter earnings release. That period is expected to begin on July 1. Treasury has previously said it hopes to sell all of its Citigroup shares this year. The stock sold for an average price per share of around $4.33, Treasury said, which would represent a profit from the $3.25 price Treasury paid to obtain the shares. Citi stock finished at $3.86 in regular trading Wednesday, up 8 cents from Tuesday's close. The stock has traded in a range of $2.55 to $5.43 over the past 52 weeks. The Financial Times reported Wednesday that the Qatar Investment Authority was considering buying a portion of Treasury's stake in Citi. Treasury purchased the common stock in the summer of 2009 at a share price of $3.25. It received the original 7.7 billion shares of Citigroup common stock, which amounted to 27 percent of the company, in return for an investment of $25 billion in the company. Citi, one of the hardest-hit banks during the financial crisis, received $45 billion in bailout money. That was one of the largest rescues by the government. Of the $45 billion, $25 billion was converted to a government ownership stake in Citi last summer. The bank repaid the other $20 billion in December.
Lehman Brothers estate sues JPMorgan Chase
The estate of Lehman Brothers has sued JPMorganChase, claiming JPMorgan helped drive Lehman into bankruptcy by forcingit into giving up needed cash reserves. Lehman alleges that JPMorgan forced the now-failed bank to put up billions of dollars incollateral that sapped Lehman of the cash it needed to stay afloat. Lehman filed for bankruptcy in September 2008, helping spark one of the worst financial crisis in U.S. history. A spokesman for JPMorgan said lawsuit is without merit and JPMorgan plans to defend itself from the claims. Abankruptcy examiner's report released earlier this year pins the blamefor Lehman's collapse on executives and the bank for taking too manyrisks and misrepresenting its financial health.
Federal Reserve details plans to let banks set up CDs
The Federal Reserve announced details Friday of a program that allows banks to set up the equivalent of certificates of deposit at the central bank. It's a new tool that will help the Fed drain money from the economy when it decides to tighten credit.The Fed said investors shouldn't read the announcement as a step toward higher borrowing costs. The upcoming operations are a "matter of prudent planning and have no implications for the near-term conduct of monetary policy," the Fed said. The Fed will give banks three opportunities over the next two months to try out the program. It will conduct an operation on June 14, offering $1 billion worth of deposits with 14-day maturities. A second operation will be conducted on June 28 for 28-day deposits. A third will be held on July 12, offering 84-day deposits. Amounts weren't provided for those operations. Those details will be provided at a later date, the Fed said. Now that the economy is recovering from a deep recession, the Fed is getting its tools ready to soak up the unprecedented amount of money it injected into the economy during the crisis. The Fed's balance sheet has ballooned to $2.3 trillion as the result of its efforts to nurse the economy back to health. That's more than double the pre-crisis amount.
3 Florida banks, 1 each in Nevada, California shut down
Regulators on Friday shut down three banks in Florida and one each in Nevada and California, bringing the number of U.S. bank failures this year to 78. The Federal Deposit Insurance Corp. took over the Florida banks, all owned by holding company Bank of Florida Corp. They are Bank of Florida-Southeast, based in Fort Lauderdale, with $595.3 million in assets; Bank of Florida-Southwest, based in Naples, with $640.9 million in assets; and Bank of Florida-Tampa Bay, based in Tampa, with $245.2 million in assets.The FDIC also seized Las Vegas-based Sun West Bank, with $360.7 million in assets, and Granite Community Bank, located in Granite Bay, Calif., with $102.9 million in assets. EverBank, based in Jacksonville, Fla., agreed to acquire the assets and deposits of the failed Florida banks. Los Angeles-based City National Bank is assuming all the assets and deposits of Sun West Bank, and Tri Counties Bank, based in Chico, Calif., is assuming those of Granite Community Bank. In addition, the FDIC and EverBank agreed to share losses on the three Florida banks' loans and other assets. Losses will be shared on $437.3 million of Bank of Florida-Southeast's assets, $568.1 million of Bank of Florida-Southwest's assets and $210.8 million of Bank of Florida-Tampa Bay's assets. The federal agency and City National Bank agreed to share losses on $280 million of Sun West Bank's assets. The FDIC is sharing with Tri Counties Bank losses on $89.3 million of Granite Community Bank's assets.
The failures of the three Florida banks are expected to cost the deposit insurance fund a total of about $203 million. The failures of Sun West Bank are expected to cost around $96.7 million, while losses at Granite Community Bank are expected to cost $17.3 million. The three Florida closures brought to 13 the number of bank failures this year in Florida, a state with one of the highest concentrations of bank collapses and where the meltdown in the real estate market brought an avalanche of soured mortgage loans. Fourteen banks in the state failed last year.
California is another state with a heavy concentration of bank failures, and Granite Community Bank was the sixth bank to fall in the state this year, following the shutdown of several big California banks in the last months of 2009. Seventeen banks failed in California last year.
Georgia and Illinois also are high on the list of states with concentrated bank failures. With 78 closures nationwide so far this year, the pace of bank failures is more than double that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 36 banks. The pace has accelerated as banks' losses mount on loans made for commercial property and development. The number of bank failures is expected to peak this year and to be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007. As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.
The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.
A majority of institutions posted profit gains in the January-March quarter. But many small and mid-sized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects. The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund. Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government.
The failures of the three Florida banks are expected to cost the deposit insurance fund a total of about $203 million. The failures of Sun West Bank are expected to cost around $96.7 million, while losses at Granite Community Bank are expected to cost $17.3 million. The three Florida closures brought to 13 the number of bank failures this year in Florida, a state with one of the highest concentrations of bank collapses and where the meltdown in the real estate market brought an avalanche of soured mortgage loans. Fourteen banks in the state failed last year.
California is another state with a heavy concentration of bank failures, and Granite Community Bank was the sixth bank to fall in the state this year, following the shutdown of several big California banks in the last months of 2009. Seventeen banks failed in California last year.
Georgia and Illinois also are high on the list of states with concentrated bank failures. With 78 closures nationwide so far this year, the pace of bank failures is more than double that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 36 banks. The pace has accelerated as banks' losses mount on loans made for commercial property and development. The number of bank failures is expected to peak this year and to be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007. As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.
The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.
A majority of institutions posted profit gains in the January-March quarter. But many small and mid-sized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects. The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund. Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government.
Congressional overhaul of financial regulation is down to the wire
The fate of the biggest overhaul of the nation's financial regulatory system in generations now rests with a small group of Capitol Hill lawmakers who are known for their ability to compromise.In early June, negotiators from the Senate and the House of Representatives are expected to begin work on merging two competing but similar visions for revamping the way the government regulates banks and financial markets. The Senate passed its version of the legislation on May 20; the House approved its bill last December. "This is one of the rare occasions when the two bills are really very close to each other. There's not a great deal of difference," said Senate Banking Committee Chairman Christopher Dodd, D-Conn. Even if they're in the ballpark on the big issues, the two bills have some significant differences. For example, while both chambers favor the creation of an equivalent of the Consumer Product Safety Commission for consumer credit products such as mortgages, student loans and credit cards, they'd go about it differently. The House would create a new, standalone agency called the Consumer Financial Protection Agency; the Senate envisions a Bureau of Consumer Financial Protection within the Federal Reserve. The U.S. Chamber of Commerce hopes to weaken the bill during the negotiations, arguing that the new consumer panel's leader would have powers beyond those of other government agency heads. "I don't know that I'm going to persuade people that my approach to consumer protection is the right way, but we should have a debate about having this much power concentrated in one individual," said David Hirschmann, senior vice president at the chamber. Assistant Treasury Secretary Michael Barr, an intellectual author of the consumer panel, countered that there are numerous checks built into the creation of the new independent agency. It'll have public rulemaking, must conduct cost-benefit analyses on measures it proposes, and the agency head would serve at the pleasure of the president and require Senate confirmation. "We're in fundamental disagreement with the Chamber on this point," Barr said. Also contentious is whether auto dealers should be subjected to the consumer panel's rules. Consumer advocates argue that some auto dealers make more money from lending than they do from selling cars. "The whole point of this agency is to make sure that lenders have to play by better rules and be fairer," said Travis Plunkett, legislative director for the Consumer Federation of America. Pointing to support from the Pentagon, which thinks that auto lenders have preyed on servicemen and servicewomen, Plunkett added that resolving the dealer exemption "is going to be all about raw political power." House and Senate lawmakers agree with the auto dealers, who argue that they didn't cause the financial crisis and aren't financial institutions. The House bill exempted car dealers; the Senate bill didn't, but a majority of senators have voiced support for the exemption. Another battle will be over complex financial instruments called derivatives, which helped cause the near meltdown of financial markets in 2008. The Senate bill would force banks to spin off their derivatives businesses, but the Obama administration and House lawmakers think that goes too far and could prove disruptive.
The Senate language came out of the Agriculture Committee, where Arkansas Democrat Blanche Lincoln, the chairman, faced a primary challenge and wanted to show voters she was tough on Wall Street. Lincoln now faces a June 8 runoff, a day after the Senate returns from its Memorial Day recess -- freeing her, and Democrats, from having to keep up the appeal to Arkansas liberals. Congressional leaders, with the help of the White House, have chosen a bipartisan team of negotiators, called conferees, who're likely to find common ground on these issues quickly.
"It sounds obvious, but you look at everything and try to find the best approach," said Sen. Jack Reed, D-R.I., part of the Democrats' negotiating team. While conferee Sen. Judd Gregg, R-N.H., said, "there are a lot of places where we can make progress," but he wasn't overly optimistic that his or other Republican views would be heard. "If the same party controls the House, Senate and presidency, they don't need anybody in that room except the two chairmen and administration officials . . . to make all the decisions," he said. "This is very much a vehicle of the majority."
The conferees are expected to write the final bill in coming weeks, with final votes in each house likely by late June. "I understand the urgency for the financial stability of the country ... it's hard for me to think it's going to make us much more than a month," Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee and Dodd's negotiating counterpart, told reporters on May 21. The White House isn't expecting a bumpy road. "Any single provision I think is crazy to discuss as a veto threat," Farrell of the National Economics Council told reporters on May 26, adding that there's nothing on the horizon that would warrant a veto threat. Among the reasons for the unusually conciliatory mood surrounding the talks:
--Politics: "If I were a Republican, I'd be hard pressed to vote against financial regulation," said Burdett Loomis, professor of political science at the University of Kansas, especially less than six months before congressional elections. Politicians must show they can get tough with Wall Street, erasing voters' memories of the unpopular 2008 bailouts of troubled financial firms.
--Bipartisanship: Dodd and Sen. Richard Shelby of Alabama, the top committee Republican, made sure during this month's debate that the two parties alternated offering amendments. As a result, some major GOP changes were accepted, such as Florida Sen. George LeMieux's plan to instruct government agencies to stop relying solely on credit ratings when measuring creditworthiness.
--The Players: Dodd and Frank will lead the committee, and both have a long history of working with Republicans on major legislation. Sen. Bob Corker, R-Tenn., will participate, even though it's unusual for a junior member of the Senate to be included in such talks. Corker was involved earlier this year in compromise efforts, complaining later that his views were largely ignored.
The Senate language came out of the Agriculture Committee, where Arkansas Democrat Blanche Lincoln, the chairman, faced a primary challenge and wanted to show voters she was tough on Wall Street. Lincoln now faces a June 8 runoff, a day after the Senate returns from its Memorial Day recess -- freeing her, and Democrats, from having to keep up the appeal to Arkansas liberals. Congressional leaders, with the help of the White House, have chosen a bipartisan team of negotiators, called conferees, who're likely to find common ground on these issues quickly.
"It sounds obvious, but you look at everything and try to find the best approach," said Sen. Jack Reed, D-R.I., part of the Democrats' negotiating team. While conferee Sen. Judd Gregg, R-N.H., said, "there are a lot of places where we can make progress," but he wasn't overly optimistic that his or other Republican views would be heard. "If the same party controls the House, Senate and presidency, they don't need anybody in that room except the two chairmen and administration officials . . . to make all the decisions," he said. "This is very much a vehicle of the majority."
The conferees are expected to write the final bill in coming weeks, with final votes in each house likely by late June. "I understand the urgency for the financial stability of the country ... it's hard for me to think it's going to make us much more than a month," Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee and Dodd's negotiating counterpart, told reporters on May 21. The White House isn't expecting a bumpy road. "Any single provision I think is crazy to discuss as a veto threat," Farrell of the National Economics Council told reporters on May 26, adding that there's nothing on the horizon that would warrant a veto threat. Among the reasons for the unusually conciliatory mood surrounding the talks:
--Politics: "If I were a Republican, I'd be hard pressed to vote against financial regulation," said Burdett Loomis, professor of political science at the University of Kansas, especially less than six months before congressional elections. Politicians must show they can get tough with Wall Street, erasing voters' memories of the unpopular 2008 bailouts of troubled financial firms.
--Bipartisanship: Dodd and Sen. Richard Shelby of Alabama, the top committee Republican, made sure during this month's debate that the two parties alternated offering amendments. As a result, some major GOP changes were accepted, such as Florida Sen. George LeMieux's plan to instruct government agencies to stop relying solely on credit ratings when measuring creditworthiness.
--The Players: Dodd and Frank will lead the committee, and both have a long history of working with Republicans on major legislation. Sen. Bob Corker, R-Tenn., will participate, even though it's unusual for a junior member of the Senate to be included in such talks. Corker was involved earlier this year in compromise efforts, complaining later that his views were largely ignored.
3 former Diebold executives accused of accounting fraud
The Securities and Exchange Commission on Wednesday filed a lawsuit formally accusing three former Diebold Inc. executives of using fraudulent accounting practices to misstate the company's earnings by at least $127 million. The complaints, filed in U.S. District Court for the District of Columbia, were the culmination of a years-long SEC investigation into Diebold's accounting practices from at least 2002 to 2007. Diebold, which was the subject of a separate SEC complaint, agreed in May 2009 to pay a $25 million civil penalty to settle the SEC's accusations against the company "without admitting or denying securities fraud charges." Diebold also agreed as part of the settlement not to violate any federal securities laws in the future. Diebold, which designs, manufactures and maintains automatic teller machines and bank security systems, recorded the charge in the first quarter of 2009. But the SEC is still separately pursuing civil charges against former Diebold Chief Financial Officer Gregory Geswein, former Controller and later CFO Kevin Krakora, and former Director of Corporate Accounting Sandra Miller. Geswein and Miller no longer work for Diebold, but Krakora remains an employee in a non-financial reporting role. "Diebold's financial executives borrowed money from many different chapters of the deceptive accounting playbook to fraudulently boost the company's bottom line," said Robert Khuzami, director of the SEC's Division of Enforcement, in a statement.
Attorneys for the three former executives called the accusations both inaccurate and unfair. "We are deeply disappointed that almost five years after Mr. Geswein voluntarily left Diebold of his own initiative, the SEC has made these stale allegations," said Geswein's attorney, Stephen S. Scholes of McDermott Will & Emery law firm in Chicago. "Mr. Geswein strongly disputes the SEC's charges and looks forward to defending himself in the courtroom, where he is confident he will successfully defend the unblemished professional reputation he has built over the years."
Krakora's attorney, John J. Carney of Baker Hostetler LLP in New York, said via e-mail that "Mr. Krakora is an honest and well-respected financial professional with an unblemished record for integrity. We strongly disagree with the SEC's allegations and conclusions." Miller's attorney, Virginia Davidson of Calfee, Halter & Griswold LLP in Cleveland, said via e-mail that "Sandra Miller is an honest, hardworking person. She did nothing wrong. She never should have been dragged into this case, and we are certain the courts will agree." The SEC also filed a separate enforcement action against former Chief Executive Walden O'Dell seeking reimbursement of the money he received during the period in question. The SEC has not accused O'Dell of fraud, but he has agreed as part of a settlement to repay $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock. "We are pleased that the settlement with the SEC is final," said Thomas W. Swidarski, Diebold's president and chief executive, in a statement, referring to the charges specifically against the company. "Moving forward, we will continue to direct our energy and focus toward the essential work of improving our competitive position and creating value for all our stakeholders while maintaining effective financial controls within our processes." Shares of Diebold rose 88 cents, or 3.1 percent, to close at $29.08 in Wednesday's trading.
Attorneys for the three former executives called the accusations both inaccurate and unfair. "We are deeply disappointed that almost five years after Mr. Geswein voluntarily left Diebold of his own initiative, the SEC has made these stale allegations," said Geswein's attorney, Stephen S. Scholes of McDermott Will & Emery law firm in Chicago. "Mr. Geswein strongly disputes the SEC's charges and looks forward to defending himself in the courtroom, where he is confident he will successfully defend the unblemished professional reputation he has built over the years."
Krakora's attorney, John J. Carney of Baker Hostetler LLP in New York, said via e-mail that "Mr. Krakora is an honest and well-respected financial professional with an unblemished record for integrity. We strongly disagree with the SEC's allegations and conclusions." Miller's attorney, Virginia Davidson of Calfee, Halter & Griswold LLP in Cleveland, said via e-mail that "Sandra Miller is an honest, hardworking person. She did nothing wrong. She never should have been dragged into this case, and we are certain the courts will agree." The SEC also filed a separate enforcement action against former Chief Executive Walden O'Dell seeking reimbursement of the money he received during the period in question. The SEC has not accused O'Dell of fraud, but he has agreed as part of a settlement to repay $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock. "We are pleased that the settlement with the SEC is final," said Thomas W. Swidarski, Diebold's president and chief executive, in a statement, referring to the charges specifically against the company. "Moving forward, we will continue to direct our energy and focus toward the essential work of improving our competitive position and creating value for all our stakeholders while maintaining effective financial controls within our processes." Shares of Diebold rose 88 cents, or 3.1 percent, to close at $29.08 in Wednesday's trading.
Treasury sells First Financial warrants for $2.97 million
A sale of First Financial Bancorp warrants has brought the government $2.97 million, the latest move to recoup costs for taxpayers from the $700 billion financial bailout. The Treasury Department said it sold 465,117 warrants at a price of $6.70 per warrant. Treasury had set a minimum bid price of $4. Warrants give the purchaser the right to buy common stock at a fixed price.The auction of the warrants, which was conducted Wednesday, represents an additional return for the government on the $80 million in support it provided the Cincinnati bank at the height of the financial crisis in December 2008. The warrant auction represented First Financial's last link to the bailout fund, known as the Troubled Asset Relief Program or TARP. The bank had repaid its $80 million in support in February of this year. Financial institutions have been eager to cut ties to the bailout program to escape various restrictions imposed on banks including limits on executive compensation and dividend payments. The First Financial Bancorp warrants give the holders the right to buy an equal amount of shares of First Financial stock at a price of $12.90. The auction price of $6.70 means that the stock would need to be selling above $19.60 for an investor to recoup the $6.70 paid for the warrant and the option price of $12.90 for the stock.
Federal Reserve Chairman Ben Bernanke pushes loans for sound small businesses
Getting loans flowing more normally to creditworthy small businesses will help the economic recovery, Federal Reserve Chairman Ben Bernanke said Thursday. Small businesses -- more so than big companies -- rely on bank loans to expand operations and hire. Small businesses usually help drive job creation during recoveries but credit clogs have hurt hiring.Lending to small businesses is declining even though the economy is improving. Lending has dropped from almost $700 billion in the second quarter of 2008, a period when the country was embroiled in a financial crisis, to $660 billion in the first quarter of this year, Bernanke said in prepared remarks in Detroit. Many lawmakers on Capitol Hill have complained about small businesses wanting to take out loans but having trouble getting them. Bernanke, however, said it's difficult to divine whether the decline in lending to small businesses was being driven more by weaker demand or reduced supply because loans are harder to get. Lenders and borrowers have different perspectives the problem, he said. "For example, some potential borrowers have been turned down because lending terms and conditions remain tighter than before the financial crisis, perhaps reflecting banks' concerns about the effects of the recession on borrowers' economic prospects and balance sheets," Bernanke said. "From the potential borrowers' point of view, particularly a borrower who has been able to obtain loans in the past, these changes may feel like a reduction in the supply of credit," he added. "From the lender's point of view, the problem appears to be a lack of demand from creditworthy borrowers," he said. Getting bank lending flowing more normally again is a delicate dance for the Fed and other banking regulators.
As regulators encourage banks to make loans to sound borrowers, they are also working to make sure banks get back on firmer footing after suffering through the worst financial and economic crises since the 1930s. The Fed has been reaching out to small businesses in an effort to come up with ways to help ease the credit problem. Bernanke's meeting in Detroit was one of a series of such sessions the Fed has been conducting. The findings from the meetings will be presented in a conference at the Fed in the summer. Bernanke didn't talk about the future course of interest rates. The Fed has pledged to hold rates at record lows near zero to support the recovery. It meets next on June 22-23. In separate remarks delivered in Georgia, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said he supports the Fed's current stance on rates. "The conditions that require a change of policy are not yet at hand," he said. However, at some point the Fed will need to start pushing up rates to prevent inflation, he said. Bernanke did observe that the country in now in an "economic expansion, with jobs once more being created rather than destroyed." However, he said persistently high unemployment, now at 9.9 percent, is a "difficult issue" that imposes "heavy costs on workers and their families as well as society as a whole."
As regulators encourage banks to make loans to sound borrowers, they are also working to make sure banks get back on firmer footing after suffering through the worst financial and economic crises since the 1930s. The Fed has been reaching out to small businesses in an effort to come up with ways to help ease the credit problem. Bernanke's meeting in Detroit was one of a series of such sessions the Fed has been conducting. The findings from the meetings will be presented in a conference at the Fed in the summer. Bernanke didn't talk about the future course of interest rates. The Fed has pledged to hold rates at record lows near zero to support the recovery. It meets next on June 22-23. In separate remarks delivered in Georgia, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said he supports the Fed's current stance on rates. "The conditions that require a change of policy are not yet at hand," he said. However, at some point the Fed will need to start pushing up rates to prevent inflation, he said. Bernanke did observe that the country in now in an "economic expansion, with jobs once more being created rather than destroyed." However, he said persistently high unemployment, now at 9.9 percent, is a "difficult issue" that imposes "heavy costs on workers and their families as well as society as a whole."
Fed lends $6.64 billion in 'swap' program
The Federal Reserve says it lent $6.64 billion through a program aimed at easing strains from the European debt crisis. Most of the money -- $6.4 billion -- went to the European Central Bank. The rest went to the Bank of Japan.The Fed is lending much-in-demand dollars to other central banks in exchange for their currencies. In turn, the central banks can lend the dollars out to banks in their home countries to prevent the crisis from spreading further. The Fed's "swap" program was revived in May as fears rose that Greece's debt crisis could engulf other European countries. European banks need dollars to lend to companies across the Continent. European companies that have operations in the U.S. pay their employees in dollars and buy raw materials with the U.S. currency.
Regulators shut banks in Illinois, Nebraska and Mississippi
Regulators have shut down banks in Nebraska, Mississippi and Illinois, boosting the number of U.S. bank failures this year to 81. The Federal Deposit Insurance Corp. on Friday took over TierOne Bank, based in Lincoln, Neb., with about $2.8 billion in assets. Great Western Bank, based in Sioux Falls, S.D., agreed to acquire the assets and deposits of the failed bank.The FDIC also seized two small banks: First National Bank, based in Rosedale, Miss., with $60.4 million in assets, and Arcola Homestead Savings Bank in Arcola, Ill., with about $17 million in assets.
Dueling over debit card fees
Swipe your debit card at the supermarket and you've placed yourself at the heart of a contentious congressional debate. On one side are banks like JPMorgan Chase and Bank of America and credit card networks like Visa and MasterCard. On the other are retailers, including giants like Wal-Mart and Target.At issue: The "swipe" fees banks charge merchants for one of today's most commonplace conveniences. At stake: up to $20 billion in potential bank losses and merchant gains. For consumers, it could mean lower prices at the local store or restaurant, or it could result in higher bank charges, fewer "rewards" for credit card users or even the imposition of an annual debit card fee. The fight over plastic has been raging for years -- a federal appeals court once called it "a clash of commercial titans." Now it's landed in the middle of a massive financial regulatory bill primarily aimed at restraining Wall Street. Both sides have unleashed potent, well-heeled lobbying operations. Their efforts will converge on two weeks or more of negotiations between House and Senate lawmakers who are working to blend two separate financial overhaul bills into one. The Senate bill contains a measure that would require the Federal Reserve to set limits on what fees banks and credit card networks can charge merchants for a debit card payment. The House bill has no such provision. First, a quick lesson in shopping. A debit card payment taps directly into a customer's bank account and, as such, is akin to writing a check. A credit card payment, on the other hand, is in effect a loan from the bank. One carries more risk than the other. As a result, banks and credit card networks generally charge merchants up to 3 percent for credit card use. For debit card use, the charge to merchants is one-fourth to one-half as much. Merchants maintain that the fee charged for debit cards, also called an "interchange" fee, is too high. Banks and Visa and MasterCard say the fee takes into account the cost of setting up and maintaining a secure and sophisticated debit payment system. Last year, $1.21 trillion in purchases were paid with debit cards processed through the Visa and MasterCard networks, generating in $19.7 billion in fees paid by merchants, according to data from The Nilson Report, a trade publication. Most of the fees went to banks that issue debit cards. While the largest banks and the largest retailers have the most dollars riding on the congressional outcome, the two combatants have cast the debate in terms of hurting small community banks and credit unions on one side or small businesses on the other.
The Senate proposal, written by Sen. Dick Durbin, D-Ill., would require the Federal Reserve to set "swipe" fees for debit cards that are "reasonable and proportional" to the cost of processing the transaction. To win votes for it, Durbin exempts banks that have assets of $10 billion or less.
But small banks and credit unions argue they would still be hurt, saying they, too, would have to lower their fees to remain competitive with larger institutions whose fees would be lowered by the Fed. "Currently, the smallest credit union and the largest bank in the world receive the same interchange fee when their respective customer uses their debit card," Fred Becker, president and CEO of the National Association of Federal Credit Unions, wrote last week to Fed Chairman Ben Bernanke. "The interchange amendment, however, destroys this equal footing." Durbin's success in the Senate stunned banks and their lobbyists. Years of lobbying by retailers for limits on credit or debit cards had failed to generate a single House or Senate vote. But banks aren't popular these days and the pressure from home-state retailers tilted the scale. Of the 64 senators who voted for Durbin's proposal, 17 were Republicans -- a strong bipartisan signal to lawmakers blending the larger financial regulations bill. Both sides claim that placing limits on the fees will have direct consequences for consumers -- banks, Visa and MasterCard say it will be for the worse; merchants say it will be for the better. Australia cut credit and debit card fees on merchants by half and debit card holders particularly benefited from the change, according to the Reserve Bank of Australia. But credit card holders saw an increase in their bank fees and a reduction in cardholder rewards, such as fewer points or airline miles. Merchants also started imposing surcharges on some credit card transactions. Banks and credit card networks warn of similar ill effects in the United States, ranging from higher fees on credit cards to service fees on charge accounts. "We are convinced that fees to consumers would go up and services would be reduced," William Sheedy, group president of the Americas for Visa Inc., said in an interview.
Retailers dismiss that claim as a cynical attempt to sway lawmakers. "Their response to being told that they're doing something wrong is to say, 'OK, if you keep us from doing something wrong to this person, we're going to go do something wrong to somebody else,'" said J. Craig Shearman, vice president for government affairs at the National Retail Federation.
The Senate proposal, written by Sen. Dick Durbin, D-Ill., would require the Federal Reserve to set "swipe" fees for debit cards that are "reasonable and proportional" to the cost of processing the transaction. To win votes for it, Durbin exempts banks that have assets of $10 billion or less.
But small banks and credit unions argue they would still be hurt, saying they, too, would have to lower their fees to remain competitive with larger institutions whose fees would be lowered by the Fed. "Currently, the smallest credit union and the largest bank in the world receive the same interchange fee when their respective customer uses their debit card," Fred Becker, president and CEO of the National Association of Federal Credit Unions, wrote last week to Fed Chairman Ben Bernanke. "The interchange amendment, however, destroys this equal footing." Durbin's success in the Senate stunned banks and their lobbyists. Years of lobbying by retailers for limits on credit or debit cards had failed to generate a single House or Senate vote. But banks aren't popular these days and the pressure from home-state retailers tilted the scale. Of the 64 senators who voted for Durbin's proposal, 17 were Republicans -- a strong bipartisan signal to lawmakers blending the larger financial regulations bill. Both sides claim that placing limits on the fees will have direct consequences for consumers -- banks, Visa and MasterCard say it will be for the worse; merchants say it will be for the better. Australia cut credit and debit card fees on merchants by half and debit card holders particularly benefited from the change, according to the Reserve Bank of Australia. But credit card holders saw an increase in their bank fees and a reduction in cardholder rewards, such as fewer points or airline miles. Merchants also started imposing surcharges on some credit card transactions. Banks and credit card networks warn of similar ill effects in the United States, ranging from higher fees on credit cards to service fees on charge accounts. "We are convinced that fees to consumers would go up and services would be reduced," William Sheedy, group president of the Americas for Visa Inc., said in an interview.
Retailers dismiss that claim as a cynical attempt to sway lawmakers. "Their response to being told that they're doing something wrong is to say, 'OK, if you keep us from doing something wrong to this person, we're going to go do something wrong to somebody else,'" said J. Craig Shearman, vice president for government affairs at the National Retail Federation.
Treasury sets Sterling Bancshares warrant auction
The government said today it will auction 2.62 million warrants it received from Houston-based Sterling Bancshares Inc. as part of its effort to recoup costs of the $700 billion financial bailout.The auction of the warrants will take place on Wednesday, the Treasury Department said. It set a minimum bid price of 85 cents per warrant. A warrant gives the purchaser the right to buy common stock at a fixed price. The government obtained the warrants when it provided Sterling Bancshares with $125.2 million at the height of the financial crisis in December 2008. The bank repaid its bailout in May 2009. Financial institutions have been eager to cut ties to the bailout program, known as the Troubled Asset Relief Program, or TARP, to escape various restrictions imposed on banks receiving support. Those include limits on dividend payments and executive compensation. The government received the warrants as a bonus to taxpayers for rescuing the banks during the financial crisis. By purchasing the warrants, holders have the right to buy an equal amount of shares of Sterling Bancshares at a price of $7.18 per share. Sterling Bancshares stock closed trading Monday at $4.87 per share. Over the past year, the bank's stock has ranged from a low of $4.50 a share to a high of $8.69 per share. Last week, the government raised $2.97 million through an auction of 465,117 warrants of Cincinnati-based First Financial Bancorp. Those warrants sold for $6.70 per warrant.
Swiss lawmakers reject deal with US in UBS tax row
Switzerland's effort to end a tax-evasion dispute with Washington hit a major setback Tuesday when lawmakers blocked a treaty that would have seen the largest Swiss bank give U.S. authorities files on thousands of American clients.The Swiss government and Washington had painstakingly crafted the treaty last August to resolve a long-standing dispute over UBS AG's alleged role in aiding tax evasion, but 104 nationalist and left-wing lawmakers in Switzerland's lower house, the National Council, voted against the deal, compared to 76 in favor, after their demanded amendments were refused. Sixteen lawmakers abstained.The government and industry groups had urged lawmakers to sign off on the treaty to avert harm to the Swiss economy, which is heavily dependent on the country's banking industry."With today's negative decision the National Council has unfortunately done a disservice to Switzerland's standing as an economic and financial center," said the Swiss Bankers Association, which has pushed for the UBS case to be concluded so the industry can move forward.The association called on lawmakers to change their minds and approve the treaty, claiming that failure to do so "would strain even further the important bilateral relations between Switzerland and the United States."U.S. Justice Department spokesman Charles S. Miller declined to comment on the matter. Sen. Carl Levin, a Democrat who has led a congressional investigation of UBS and other banks, criticized the move and called for the U.S. to go ahead in its case against UBS."Rejection of the treaty is an international embarrassment that can be laid at the feet of Swiss legislators who are willing to continue to allow their banks to facilitate U.S. tax evasion," he said. The deal is crucial to UBS, which has faced intense pressure from U.S. authorities since 2007, because it allows the bank to bend Switzerland's strict banking secrecy rules as an exception without committing others to do so. Last year UBS agreed to turn over hundreds of client files and pay a $780 million penalty in return for a deferred prosecution agreement, after admitting that it had for years helped U.S. clients hide money from the International Revenue Service using offshore accounts. Washington has signaled that unless UBS reveals a further 4,450 American names by August as demanded in the U.S.-Swiss agreement, it may face a crippling civil investigation just as the bank is recovering from the subprime crisis and seeking to rebuild its U.S. business. Shares in UBS AG fell 2.2 percent to close at 14.40 Swiss francs ($12.52). The U.S. deal was blocked by lawmakers from Switzerland's two biggest parties, the People's Party and the Social Democrats, and the Greens. The Social Democrats had tied their consent to stricter regulation for big banks and a binding government commitment to tax bankers' bonuses. The People's Party wanted parliament to vote against such a tax before dealing with the U.S. tax treaty. Both parties' demands were rejected by the government. The bill will now be passed back to the upper house for further debate and could be voted on again by the lower house later this month.
But lawmakers also decided Tuesday to put any eventual compromise to a popular referendum, making a further delay likely. A spokesman for UBS would not say what the bank would do if a second vote goes against it as well. "We wait for the vote, let parliament decide, and then we will see further," said Serge Steiner. Hans Geiger, an emeritus professor of banking at Zurich University, said UBS would likely have a backup plan. "They will not just sit on their hands and wait till the good guys from Bern help them," Geiger said. One possibility would be for UBS to simply refuse to hand over the names of suspected tax cheats to the IRS, and risk prosecution, he said. Geiger, a critic of the government's decision to negotiate the treaty with Washington, also warned that the one-off exception to Swiss banking secrecy foreseen in the treaty could become the norm. "If parliament agrees then it's a sign that you can blackmail Switzerland and other countries will try the same," he said. Switzerland has made many compromises in recent years to fend off demands by Germany, France, the United States and others for an end to its treasured banking secrecy rules, but the treaty that failed Tuesday would have gone far beyond those measures. Last year, the government agreed to do away with the difference between tax evasion and tax fraud -- a key legal distinction that has allowed foreigners with accounts in Switzerland to avoid having their details handed over to investigators back home.
But lawmakers also decided Tuesday to put any eventual compromise to a popular referendum, making a further delay likely. A spokesman for UBS would not say what the bank would do if a second vote goes against it as well. "We wait for the vote, let parliament decide, and then we will see further," said Serge Steiner. Hans Geiger, an emeritus professor of banking at Zurich University, said UBS would likely have a backup plan. "They will not just sit on their hands and wait till the good guys from Bern help them," Geiger said. One possibility would be for UBS to simply refuse to hand over the names of suspected tax cheats to the IRS, and risk prosecution, he said. Geiger, a critic of the government's decision to negotiate the treaty with Washington, also warned that the one-off exception to Swiss banking secrecy foreseen in the treaty could become the norm. "If parliament agrees then it's a sign that you can blackmail Switzerland and other countries will try the same," he said. Switzerland has made many compromises in recent years to fend off demands by Germany, France, the United States and others for an end to its treasured banking secrecy rules, but the treaty that failed Tuesday would have gone far beyond those measures. Last year, the government agreed to do away with the difference between tax evasion and tax fraud -- a key legal distinction that has allowed foreigners with accounts in Switzerland to avoid having their details handed over to investigators back home.
Lawmakers begin merging Wall Street regulatory bills
House and Senate lawmakers began assembling a massive financial regulation bill on Thursday, dividing sharply along partisan lines as Democrats vowed to fend off efforts to weaken its major provisions."This is a very strong bill and it is time we get it to the president's desk for his signature," Senate Banking Committee Chairman Christopher Dodd said, kicking off a meeting of lawmakers selected to blend House and Senate versions into one bill.Such a House-Senate panel, called a conference committee, is a relatively rare occurrence in Congress. Though it is the textbook means of reconciling competing bills, congressional leaders in recent years generally have bypassed conferences and worked out legislative differences in private.
With Democrats aiming to wrap up their work before the end of the month, banks, retailers, consumer groups -- even car dealers -- all mustered a final lobbying thrust to influence the 1,900-page legislation.The Obama administration, meanwhile, looked for quick completion of the bill, eager to have a House-Senate agreement in time for President Barack Obama's trip to Toronto later this month to meet with the Group of 20 nations. The world's largest economies are working to coordinate their financial regulatory schemes.Expedience could run headlong into a potentially chaotic process. Rep. Barney Frank, D-Mass., who will chair the conference committee, promised efficiency."I will put forward one qualification for this job -- my impatience," he joked. "I think it will serve us all very well."The far-reaching regulatory bills aim to prevent a recurrence of the financial crisis that precipitated the 2008 recession from which the country is only now recovering.The bills would allow regulators to liquidate large, failing financial companies, create a new consumer protection entity to safeguard borrowers and impose new regulations over complex securities that had previously traded in shadow markets.
Republicans cast the bill as an overreaching effort to control the private marketplace and complained that Democrats failed to include any regulation on the giant, government affiliated mortgage companies Fannie Mae and Freddie Mac."The American economy will once again become the laboratory for another grand Democrat experiment in big government and central management," Sen. Richard Shelby, R-Ala., said.Much of what ends up in the final bill will still be negotiated behind closed doors, mainly by Democrats. But Dodd and Frank vowed to hold public votes on final changes in the legislation.From the outset, though, House and Senate Democrats privately worked out the base bill, relying mainly on the Senate-passed version, adding technical changes and incorporating some provisions from the House bill. None of the changes affected the central elements of the legislation.Among the additions was a House-approved mortgage lending bill that prohibits lenders from steering borrowers into higher cost loans. The measure would extend protections for tenants in foreclosed properties from December 2012 to December 2014. Displaying the influence of black lawmakers, the House additions also would require federal financial agencies to set up an office of Women and Minority Inclusion to promote diversity.
Shelby complained that that House-Senate agreement came with no Republican participation.
"It appears we're off to a rocky start," he said.One of the key issues facing the conference is a tough provision that would force banks to spin off their lucrative derivatives business. Its leading proponent is Sen. Blanche Lincoln, D-Ark., a member of the conference.Obama administration officials and a number of banking regulators say Lincoln's provision goes too far. But on Thursday Lincoln delivered a strong defense of her proposal, which primarily would strike at the nation's largest financial institutions, including Goldman Sachs and other firms that dominate Wall Street."It is this economic activity that contributed to these institutions growing so large that taxpayers had no choice but to bail them out to prevent total economic ruin," she said. "This provision makes clear that derivatives dealing is not central to the business of banking."
Frank and Dodd have voiced a preference for strengthening other limits of bank activity. But Lincoln's support is key in the conference. With the Senate represented by five Republicans and seven Democrats, a single Democratic defection would stall the bill.Lincoln is coming off a surprise primary election victory this week over a Democratic opponent backed by liberal groups and labor unions. Lincoln campaigned by highlighting her opposition to Wall Street, and her success appears to have given her proposal new life.
With Democrats aiming to wrap up their work before the end of the month, banks, retailers, consumer groups -- even car dealers -- all mustered a final lobbying thrust to influence the 1,900-page legislation.The Obama administration, meanwhile, looked for quick completion of the bill, eager to have a House-Senate agreement in time for President Barack Obama's trip to Toronto later this month to meet with the Group of 20 nations. The world's largest economies are working to coordinate their financial regulatory schemes.Expedience could run headlong into a potentially chaotic process. Rep. Barney Frank, D-Mass., who will chair the conference committee, promised efficiency."I will put forward one qualification for this job -- my impatience," he joked. "I think it will serve us all very well."The far-reaching regulatory bills aim to prevent a recurrence of the financial crisis that precipitated the 2008 recession from which the country is only now recovering.The bills would allow regulators to liquidate large, failing financial companies, create a new consumer protection entity to safeguard borrowers and impose new regulations over complex securities that had previously traded in shadow markets.
Republicans cast the bill as an overreaching effort to control the private marketplace and complained that Democrats failed to include any regulation on the giant, government affiliated mortgage companies Fannie Mae and Freddie Mac."The American economy will once again become the laboratory for another grand Democrat experiment in big government and central management," Sen. Richard Shelby, R-Ala., said.Much of what ends up in the final bill will still be negotiated behind closed doors, mainly by Democrats. But Dodd and Frank vowed to hold public votes on final changes in the legislation.From the outset, though, House and Senate Democrats privately worked out the base bill, relying mainly on the Senate-passed version, adding technical changes and incorporating some provisions from the House bill. None of the changes affected the central elements of the legislation.Among the additions was a House-approved mortgage lending bill that prohibits lenders from steering borrowers into higher cost loans. The measure would extend protections for tenants in foreclosed properties from December 2012 to December 2014. Displaying the influence of black lawmakers, the House additions also would require federal financial agencies to set up an office of Women and Minority Inclusion to promote diversity.
Shelby complained that that House-Senate agreement came with no Republican participation.
"It appears we're off to a rocky start," he said.One of the key issues facing the conference is a tough provision that would force banks to spin off their lucrative derivatives business. Its leading proponent is Sen. Blanche Lincoln, D-Ark., a member of the conference.Obama administration officials and a number of banking regulators say Lincoln's provision goes too far. But on Thursday Lincoln delivered a strong defense of her proposal, which primarily would strike at the nation's largest financial institutions, including Goldman Sachs and other firms that dominate Wall Street."It is this economic activity that contributed to these institutions growing so large that taxpayers had no choice but to bail them out to prevent total economic ruin," she said. "This provision makes clear that derivatives dealing is not central to the business of banking."
Frank and Dodd have voiced a preference for strengthening other limits of bank activity. But Lincoln's support is key in the conference. With the Senate represented by five Republicans and seven Democrats, a single Democratic defection would stall the bill.Lincoln is coming off a surprise primary election victory this week over a Democratic opponent backed by liberal groups and labor unions. Lincoln campaigned by highlighting her opposition to Wall Street, and her success appears to have given her proposal new life.
Friday, May 21, 2010
Stocks mixed a day after biggest drop in a year
Stocks turned higher a day after posting their biggest drops in more than a year.
Trading has been volatile Friday and there are still worries about Europe is handling its debt crisis. Analysts said a bounce back after the slide Thursday wasn't surprising.
The Dow Jones industrial average rose about 115 points in midday trading after falling below 10,000 in morning trading.
The volatility comes after major indexes entered "correction" mode, having dropped more than 10 percent from their 2010 highs set last month.
Investors again looked to Europe for direction. The German parliament approved the country's share of a $1 trillion plan to help contain debt problems in the European Union. Major stock indexes in Europe were mixed but pulled well off their lows. Traders have been worried that stronger countries like Germany and France will be saddled with heavy debts to help weaker EU countries.
The euro rose to $1.2543 from $1.2464. The 16-nation currency has been a big driver of trading for weeks but many traders have been skeptical that any advances will be short-lived.
World markets have been falling on concerns that European debt problems will slow or maybe even stop a global rebound. The fear is that huge deficits in countries including Greece and Portugal will cause a wave of bad debt to race through the world's financial system. Even if that is prevented, the prospect of heavier borrowing and sluggish growth has traders concerned.
Some fear 'double dip' recession
It's impossible to know whether the market is in for more than a correction but analysts say that the fear hasn't turned to panic like it did during the market's slide in late 2008 and early 2009.
"The likelihood of a double dip here is, I think, being really exaggerated," said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank in New York, referring to the prospect of another recession.
Schweitzer also expects the market will stabilize.
"It's a very tough call to make, but I come down on the side that it's more likely to be a correction," he said.
In midday trading, the Dow rose 105.95, or 1.1 percent, to 10,174.42. The broader Standard & Poor's 500 index rose 15.61, or 1.5 percent, to 1,087.20. The Nasdaq composite index rose 33.55, or 1.5 percent, to 2,237.56.
The Dow had last fallen below 10,000 on May 6 when it lost nearly 1,000 points in an afternoon rout that was the biggest ever intraday slide. Regulators have said they are still unclear on what caused the brief drop.
The Dow tumbled 376 points Thursday. The Dow and the S&P 500 index fell more than 3 percent, while the Nasdaq lost 4.1 percent. The drop has erased the gains major indexes had made in 2010.
Bond prices slipped after surging Thursday when investors dumped anything seen as risky, including stocks and commodities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.23 percent from 3.22 percent late Thursday.
Crude oil dropped 96 cents to $69.84 per barrel on the New York Mercantile Exchange.
The Chicago Board Options Exchange's Volatility Index fell 14.5 percent. The VIX, which is known as the market's fear gauge, closed Thursday at its highest level since March 2009. The jump signaled that traders were bracing for more drops in the market.
Even with the drop of 12 percent from its 2010 high, the S&P 500 index is still up 58 percent from the March 2009 bottom and is down 31.5 percent from its record close of 1,565 in October 2007.
Financial stocks in spotlight
Corrections can be scary but they can be good for markets. Analysts say major stock indexes had become overheated in their climb from a 12-year low in March 2009. Corrections also aren't unusual. Drops of 10 percent occur in most years and don't necessarily that stocks will keep sliding.
"We don't think there is any predictability that just because we've had a 10 percent correction now that suddenly we're in for another 10 percent drop," said Bill Urban, principal with Bingham, Osborn & Scarborough, based in San Francisco.
Financial stocks also drew attention. The Senate late Thursday approved its version of a financial overhaul bill that contains the biggest regulatory changes for banks since the 1930s. The bill will now be reconciled with a version that passed the House.
Goldman Sachs Group Inc. rose $6.65, or 4.9 percent, to $142.75, while Wells Fargo & Co. rose $1.31, or 4.6 percent, to $30.
The Treasury Department said after the slide in world markets Thursday that Treasury Secretary Timothy Geithner would head to Europe next week to meet with finance officials in Britain and Germany on how to boost confidence in the financial system.
Britain's FTSE 100 fell 0.9 percent and briefly dropped below the psychological threshold of 5,000. Germany's DAX index slid 1.6 percent, and France's CAC-40 fell 0.7 percent. Earlier, Japan's Nikkei stock average fell 2.5 percent.
In corporate news, Dell Inc. reported after the closing bell Thursday that its first-quarter net income increased but the company's gross profit margin fell from a year earlier. The stock fell 81 cents, or 5.7 percent, to $13.51.
Gap Inc. reported a 40 percent increase in first-quarter net income. The company boosted its profit forecast for the year but the outlook fell short of analysts' forecasts. Gap rose 61 cents, or 2.8 percent, to $21.76.
Wednesday, May 5, 2010
Geithner open to adding bank tax to financial bill
Treasury Secretary Timothy Geithner says he is open to including a new tax on large banks as part of a bill that would overhaul the nation's financial regulations, but he will defer to congressional leaders.
Sen. Chuck Schumer of New York wants to include the tax in the financial regulations bill. But the New York Democrat acknowledged Tuesday that most other senators oppose the approach, which could make the financial regulations bill harder to pass.
The bank tax, which President Barack Obama first proposed in January, would raise an estimated $90 billion over the next decade. Geithner said the tax is justified to recoup billions spent bailing out Wall Street.
If the tax is not included in the financial bill, it could be passed separately.
Friday, April 30, 2010
U.S. nets $320.3 million on sale of PNC Financial warrants
The government has received $320.3 million from the sale of warrants it held from PNC Financial Services Group Inc. as part of the support it provided the bank during the financial crisis.
The Treasury Department said Friday that it sold 16.9 million warrants in an auction with a sales price of $19.20 per warrant. Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.
Financial institutions have been eager to cut all ties to the $700 billion bailout program, known as the Troubled Assets Relief Program, to escape various restrictions imposed on institutions receiving government support including limitations on executive compensation.
PNC, which is based in Pittsburgh, received $7.6 billion in government support from the bailout fund in December 2008.
The $19.20 auction price was above the $15 per warrant minimum bid price that had been set by Treasury.
The PNC warrants give the holders an option to buy an equal amount of shares of PNC stock at a price of $67.63. The warrants expire in December 2018.
The auction price of $19.20 for the warrants means that PNC stock would need to climb to $86.83 for the holder of the warrant to be "in the money" in terms of recouping the $19.20 price paid for the warrant and the option price on the stock of $67.63 per share.
PNC stock rose $1.10, or 1.7 percent, to $67.16 in morning trading Friday.
Linus Wilson, a finance professor at the University of Louisiana at Lafayette, said that the latest results showed that Treasury is continuing to have success using the auctions to get better prices for taxpayers than the government would have received through negotiations with the company on a price for the warrants.
PNC is the first warrant auction among a group of six banks that includes Wells Fargo & Co., Comerica Inc., Valley National Bancorp, Sterling Bancshares Inc. and First Financial Bancorp.
Treasury has not announced the specific dates for the remaining five auctions but has said it expects to complete all of them within the next six weeks.
The warrant auctions are held when Treasury and the banks cannot agree on a price for the warrants. The warrants are designed to give taxpayers an additional return on the government's investment.
On Monday, Treasury announced that it had authorized the start of sales of the first 20 percent of the 7.7 billion shares of Citigroup stock that it owns. The government received those shares last summer for a purchase price of $25 billion or $3.25 per share.
Wednesday, April 28, 2010
Senate GOP blocks financial reg bill again
Senate Republicans, attacked for twice blocking legislation to rein in Wall Street, floated a partial alternative proposal Tuesday and said it could lead to election-year compromise on an issue that commands strong public support.
The 20-page outline would prohibit the use of taxpayer funds to bail out failing financial giants of the future and impose federal regulation on many but not all trades of complex investments known as derivatives. It also calls for consumer protections that appear weaker than Democrats and the White House seek, and it would create new regulations on mortgage giants Fannie Mae and Freddie Mac.
The outline surfaced shortly before Senate Republicans united for the second straight day to block action on White House-backed legislation designed to prevent any recurrence of the ills that led to the economic calamity of 2008. The 57-41 vote left the measure three shy of the 60 needed to advance.
Senate Majority Leader Harry Reid, D-Nev., said he would hold additional votes later in the week, and, he, President Barack Obama and other Democrats have spent days accusing Republicans of doing the bidding of the big financial firms on Wall Street.
"It's one thing to oppose reform but to oppose just even talking about reform in front of the American people and having a legitimate debate, that's not right," the president said in Ottumwa, Iowa. "The American people deserve an honest debate on this bill."
Reid said, "More than two years after the financial collapse that sparked a worldwide recession, Senate Republicans are claiming we're moving too fast. "Two-thirds of Americans support us cracking down on big bankers' reckless risk-taking. And a majority supports us asking banks to pay for their own funerals -- that's the fund financed by the big financial firms to cover the cost of their liquidation."
The events unfolded in the Capitol as Republicans and Democrats alike spent hours at a committee hearing criticizing current and former officials at Goldman Sachs for seeking profits from the collapse of the housing market two years ago.
But the Senate Republican leader, Mitch McConnell of Kentucky, said Democrats were going too far, coming up with a bill that "reaches into every nook and cranny of American business." Moments before the vote, his second-in-command, Sen. Jon Kyl of Arizona, predicted that unlike the recent health care battle, this time bipartisan legislation eventually would pass.
The current stand-off follows months of fitful bipartisan negotiations that have failed to yield agreement.
The Republican summary, obtained by The Associated Press, differs from the Democratic measure on several key points.
While banning the use of taxpayer funds in liquidating large financial firms, it calls for the cost to be borne by creditors and shareholders. Democrats favor a fee on banks to cover those expenses.
Republicans suggested a council comprising bank regulators and independent appointees to ensure that large banks and other financial institutions do not take advantage of consumers, as opposed to a Democratic proposal for an independent agency with broader powers.
Derivatives, which are complex investments that contributed to the 2008 economic collapse, would be brought under federal supervision for the first time, but not to the extent Democrats seek.
Republicans also called for restrictions on government assistance to Fannie Mae and Freddie Mac and want the president to submit a reorganization plan. Both are essentially owned by the government, which took control when they lurched toward failure during the collapse of the housing market.
Friday, April 23, 2010
Democrats set showdown vote on Wall Street bill
Declaring themselves short of patience, Democrats set an initial showdown vote for next Monday on legislation to clamp new regulations on the financial industry while Republicans insisted on more bargaining. President Barack Obama admonished Wall Street leaders "to join us instead of fighting us" to prevent a future national financial collapse.
The test vote loomed in an election-year climate, with lawmakers ready to campaign this summer on the results of this legislation -- written in reaction to the economic crisis that threw the nation into recession -- as well as the hard-fought health care overhaul.
"The time for stalling is over," declared Senate Democratic leader Harry Reid of Nevada. That drew a quick response from the Republican leader, Mitch McConnell of Kentucky: "I don't think bipartisanship is a waste of time."
Without an accord with the GOP, which was blocking the start of formal debate on the bill, Democrats would need 60 votes to move ahead in the Senate. Despite some signs of wavering, all 41 Republicans in the 100-member Senate remained publicly opposed on Thursday.
Reid was eager to test the Republican resolve, even as bipartisan negotiations continued. Reid conceded that the timetable for a vote could change if the talks bear fruit. Without a bipartisan bargain, Democrats were determined to portray Republicans as Wall Street allies and put them through test votes until enough senators agreed to proceed.
Emerging from a late afternoon meeting with Banking Committee Chairman Christopher Dodd, the committee's top Republican, Richard Shelby, said chances of an agreement before Monday's vote were "probably not probable." He predicted Republicans would vote as a bloc to put off action on the bill.
At the same time, senior Democrats signaled Thursday they hope to ease day-old restrictions a Senate committee slapped on the trading of financial derivatives, the complex investments blamed as a contributing factor to the economic near-meltdown of 2008.
The sweeping regulations represent the broadest attempt to overhaul the U.S. financial system since the 1930s. A House-passed bill and the pending Senate version would create a mechanism for liquidating large firms, set up a council to detect systemwide financial threats and establish a consumer protection agency to police lending, credit cards and other bank-customer transactions.
Opinion polls show the public is receptive to new federal curbs on Wall Street after twin catastrophes -- the recession that has driven unemployment to double-digits and a banking crisis that has led to huge losses in Americans' retirement accounts.
No details were immediately available on possible changes on derivatives. But the Obama administration and some Senate Democrats have raised concerns over provisions cleared by the Senate Agriculture Committee, including one that would effectively require banks to spin off their derivatives business.
Reid said the heads of two Senate committees had met to discuss combining competing proposals on derivatives, financial products such as corn futures or stock options whose worth depends on the values of underlying investments. Companies use them to hedge against risks, such as interest rate swings or oil price spikes. But they became a vehicle for speculation and helped trigger the financial crisis when the underlying investments -- mortgage-backed securities, for example -- plunged in value.
Reid's comments were the first official word that the measure approved on Wednesday by the Agriculture Committee would not go directly to the Senate floor -- even though the committee's chair, Sen. Blanche Lincoln of Arkansas, had told reporters she had assurances it would.
Lincoln, who faces a difficult re-election race, reacted with barely disguised anger. The committee "has passed not only the strongest, but the only bipartisan Wall Street reform bill," she said in a statement released to The Associated Press. "This legislation will only strengthen the broader reform bill and it should be incorporated as is and sent straight to the Senate floor."
Obama has made the broader legislation one of his congressional priorities, and in a speech in New York he chastised Wall Street for risky practices at the same time he sought its help for "updated, commonsense" banking regulations to head off any new financial crisis.
At a news conference during the day, top Democrats accused Republicans of falsely claiming a bill approved earlier in the Senate Banking Committee included a $50 billion fund that would be used to bail out failing banks.
"The lies are not taking hold," said Sen. Chuck Schumer, D-N.Y.
Earlier, McConnell challenged Democrats to disprove his claim. "This bill would give the administration the authority to use taxpayer funds to support financial institutions at a time of crisis," he said.
"Yes, that bill says taxpayers get the money back later, but that sounds awfully familiar," he added.
As for derivatives, the Agriculture Committee legislation would require bank companies to spin off those operations, barring them not only from trading in the instruments themselves but also from creating deals for other clients. The objective is to avoid exposing commercial bank operations to the risks of the more speculative business.
The Banking Committee version would prohibit bank companies from engaging in speculative trades with their own accounts, but it would not do away with the ability of banks to create derivatives markets for clients.
Last week, a senior Treasury official indicated a preference for the approach taken by the Banking Committee, and there is additional concern that the alternative could lead to greater concentration in a market where a handful of firms conduct about 80 percent of derivatives business.
Wednesday, April 21, 2010
Taxpayers got even bigger windfall from Fed
Taxpayers got a record $47.4 billion last year from the Federal Reserve, new documents released Wednesday showed.
The payment to the Treasury Department is slightly higher than the $46.1 billion first estimated in January. The new figure is based on more complete information contained in audited financial statements for the Fed's 12 regional banks and related units.
The amount handed over to Treasury last year is $15.7 billion more-- or a 50 percent increase -- from 2008, the Fed says.
The bigger windfall to taxpayers reflects gains from the Fed's efforts to fight the financial crisis and revive the economy. Critics have worried that the Fed's actions could put taxpayers at risk by reducing the amount turned over to Treasury coffers.
Interest earned from the Fed's portfolio of mortgage securities came to $20.4 billion last year. The Fed had bought mortgage securities from Fannie Mae and Freddie Mac to lower mortgage rates and bolster the housing market. The program -- a centerpiece of the Fed's efforts to turn around the economy -- ended last month.
Two programs the Fed set up during the crisis to ease credit clogs, along with assets it took over with the bailouts of Bear Stearns and American International Group in 2008, generated net earnings of $5.6 billion last year. That marked a turnaround from the net loss of $1.7 billion in 2008.
Of those two crisis-era programs, one involved strengthening the commercial paper market, a crucial short-term financing mechanism companies rely on to pay for everything from salaries to supplies. The other was designed to spur more lending to consumers and small businesses. Virtually all of the Fed's crisis-era programs have wound down. The one program still in place, which aims to aid the troubled commercial real-estate market, will shut down at the end of June.
Monday, April 19, 2010
Citigroup earns $4.4 billion in first quarter as trading rebounds
Citigroup Inc. provided more evidence Monday that the nation's big banks may have turned a corner. The bank reported a surprise first-quarter profit as trading revenue offset losses from failed loans.
Citigroup said it earned $4.4 billion after payment of preferred dividends, compared with a loss of $696 million a year earlier. That was the bank's biggest quarterly profit since the second quarter of 2007.
The company cited strong trading of bonds, stocks and other securities for its big profit. Citigroup, one of the hardest hit banks during the credit crisis and recession, said losses from bad loans fell for the third consecutive quarter. It also set aside less money for loan losses.
"Loan losses coming down with growth of top-line revenue speaks to the overall recovery," said Oliver Pursche, executive vice president at Gary Goldberg Financial Services. Pursche a co-portfolio manager of the GMG Defensive Beta Fund, which holds shares in Citigroup, but is not currently buying shares.
Citigroup earned 15 cents per share on revenue of $25.4 billion. That easily beat analysts expectations of a slight loss, according to Thomson Reuters.
Citigroup's strong showing follows similarly impressive results last week by Bank of America Corp. and JPMorgan Chase & Co. That has boosted hopes that the worst of the credit crisis has passed and banks may be entering a period of sustained profitability.
Yet CEO Vikram Pandit sought to dampen short-term expectations for Citigroup, saying the bank remained cautious "given the uncertain economic recovery and high unemployment in the U.S."
"Realistically, we do not expect our performance to follow an invariable trendline upward," he said. "Longer-term, however, the prospects for Citigroup are clear and bright."
Pandit sounded a little less upbeat about the economy than his counterparts at JPMorgan Chase and Bank of America. But Citigroup's recovery from the devastation of the financial markets has been more difficult.
The bank's stock jumped 21 cents, or 6.1 percent, to $4.77 in afternoon trading. Shares briefly reached $5 last week for the first time in six months.
Other financial stocks were mixed as investors continued to digest news that the government charged Goldman Sachs Group Inc. with civil fraud for mortgage-related transactions.
Citigroup said its total reserves to cover losses from bad loans fell 22 percent, or $2.4 billion, from the fourth quarter to its lowest level in two years. The company said its credit losses fell 15 percent to $8.4 billion from almost $10 billion in the fourth quarter. Citigroup reported improvement across nearly all its loan portfolios.
John Gerspach, Citigroup's chief financial officer, said the bank's loan losses appear to have peaked in the second quarter last year and have been declining since.
"Perhaps the worst is behind us," he said of the loan losses during a conference call with reporters.
"I think what this quarter demonstrates is that we have turned a corner and are executing our strategy," he added.
Citi Holdings, the division Citigroup created during the credit crisis to hold noncore assets and businesses it planned to sell, showed significant improvement from previous quarters. The division lost $887 million during the first quarter, compared to a $2.58 billion loss during the last three months of 2009, and a loss of $5.47 billion a year earlier.
On a conference call with investors, Pandit said Citi Holdings' "results reflected improving credit, asset reductions and lower risk."
Citi Holdings set aside $5.8 billion for loan losses, down 27 percent from a year earlier. That drop was tied to a decline in losses on North American real estate lending. Private-label credit card losses fell slightly during the quarter.
Overall profit at the bank was driven by the $8 billion Citi made in its securities and banking operations, which includes its trading business. That was up $4.7 billion from the fourth quarter.
Those operations are a part of Citicorp, the division that holds Citi's primary businesses.
Bonds accounted for a big chunk of the trading gain. Like other companies' investment banking operations, Citigroup's benefited from very low interest rates that allowed it to borrow cheaply to buy higher-yielding investments.
Citigroup's stock has been rising lately following the government's announcement last month that it would start selling the 27 percent stake in the bank it acquired as part of its bailout of the bank during the credit crisis.
The sale by the government will end the last remaining ties Citigroup has to the Troubled Asset Relief Program. Citigroup received a total of $45 billion from the government during the credit crisis. It repaid $20 billion in December and the remaining $25 billion was converted into the minority stake the government is now selling.
"All of us at Citigroup recognize that we would not be where we are without the assistance of American taxpayers," Citigroup Pandit said.
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