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.

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.

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.

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.

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.

WaMu

The chairman of a Senate panel investigating the causes of the financial crisis is blasting federal bank regulators who ignored mounting risk at Washington Mutual and then fought among themselves as the bank collapsed in the largest U.S. bank failure.

Sen. Carl Levin said Friday that regulators "saw the shoddy lending practices, saw the high-risk lending, saw the shoddy securitizations, understood the risk, but let the bank do it anyway."

The Michigan Democrat chairs the Permanent Subcommittee on Investigations. Friday's hearing focuses on regulatory failures that contributed to WaMu's failure. It follows an 18-month investigation by the subcommittee.

Levin aimed his harshest criticism at the Office of Thrift Supervision, WaMu's main regulator, which he said "was more of a spectator on the sidelines, a watchdog with no bite, nothing problems and making recommendations, but not trying to correct the flaws and failures it saw."

"OTS wrung its hand as the bank sank into deeper and deeper waters," he said.

A Treasury Department watchdog told the panel that regulators trusted the executives of Washington Mutual to correct risks at the bank but did little to force a change -- leading to the biggest U.S. bank failure.

Treasury Inspector General Eric Thorson said that OTS officials "accepted assurances from WaMu management and its board of directors that problems would be resolved."

Thorson said "OTS did not ensure that WaMu corrected those weaknesses."

WaMu engaged in increasingly risky lending starting in 2002. The bank originated some of the highest-risk mortgages -- those that allow borrowers to pay so little their debt level actually increases over time.

It also bought loans from outside mortgage brokers, often without ensuring the loan applications were complete and accurate, the Senate panel charges.

The mortgages had high rates of default but WaMu nevertheless packaged them into investments and resold them through the financial system.

"Together, WaMu and (its mortgage lender) Long Beach dumped hundreds of billions of dollars of toxic mortgages into the financial system like polluters dumping poison in a river," Levin said.

Decrying the cozy relationship between regulators and bankers, Levin pointed to an e-mail in which then-OTS chief John Reich called WaMu CEO Kerry Killenger "my largest constituent assetwise."

OTS was funded with fees from WaMu and other regulated banks. WaMu's fees made up 12 to 15 percent of the agency's budget -- more than any other bank's.

Reich will testify later Friday. Also appearing will be OTS acting director John Bowman and Sheila Bair, chairman of the Federal Deposit Insurance Corp.

The hearing is part of a series of probes into the causes of the financial crisis. The panel sparred with WaMu executives Tuesday.