Thursday, June 10, 2010
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.
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