BANK OF AMERICA RAISES LEGAL COSTS | Bank of America said in a news release on Thursday that it was nearing a deal with federal regulators to settle an investigation into the bank’s suspected manipulation of the currency market, saying it had increased its legal costs to deal with the inquiry, Michael Corkery and Ben Protess write in DealBook. The increased legal bill resulted in a $400 million charge that cut into the earnings that Bank of America reported for the third quarter a few weeks ago. The charge resulted in the bank’s reporting a loss of $232 million, or 4 cents a share, in the quarter.
The bank did not name the regulators, but people briefed on the investigation identified the agencies as the Office of the Comptroller of the Currency and the Federal Reserve. The legal costs came into focus between when the bank reported earnings on Oct. 15 and Thursday, when the bank filed its official quarterly report with the Securities and Exchange Commission. With the disclosure, Bank of America becomes the latest bank ensnared in the foreign exchange investigation to retroactively increase its expected legal costs ‒ and lower its earnings ‒ after reporting third-quarter results last month. Citigroup and JPMorgan Chase also announced in the last two weeks that they were increasing their estimates for legal expenses.
In addition to the comptroller’s office and the Fed, British regulators are separately closing in on deals with six banks, including Citigroup and JPMorgan, and are aiming to announce settlements by the end of the month. The Commodity Futures Trading Commission may join those civil agreements, while the Justice Department in Washington is pursuing a different route with a potential criminal case against at least one bank by the end of the year. Bank of America is a smaller player in the currency market than many of its peers and its penalties are expected to be smaller. In August, Bank of America agreed to a $16.65 billion deal with federal and state authorities to settle civil charges related to its sale of shoddy mortgage securities.
DETAILS ON LOW-DOWN-PAYMENT MORTGAGE PLAN |Seeking to bring more people into the housing market, the government said last month that it planned to expand the availability of mortgages with low down payments. On Thursday, the chief executive of Fannie Mae, the largest government mortgage entity, provided some crucial details on what the program would look like, DealBook’s Peter Eavis reports. In an interview, the executive, Timothy J. Mayopoulos, said that Fannie would accept more low down payment mortgages but would also require private mortgage insurance. In theory, that stipulation could limit the size of the program.
Even as the government is moving ahead with the changes, some housing analysts had concerns, contending that the program could lead to higher defaults. Since the financial crisis of 2008, some 80 percent of mortgages have had some form of taxpayer guarantee. Most of that backstop comes from Fannie and Freddie Mac, which typically only guarantee mortgage amounts that are equivalent to around 80 percent of the value of the underlying house. As a result, borrowers who take out loans backed by Fannie and Freddie often have to have the cash to make a down payment of some 20 percent of the value of the house. As part of a wider effort to increase the flow of housing credit, Melvin L. Watt, director of the Federal Housing Finance Agency, said last month that he wanted Fannie and Freddie to back loans with down payments as low as 3 percent of the value of the home.
The question now is whether private mortgage insurers have the desire to take on this business. A down payment of 3 percent would, in theory, leave the insurer taking a substantial amount of the risk if the borrower defaults, Mr. Eavis writes. But Mr. Mayopoulos expressed confidence the program would work. “Everything I am hearing from private mortgage insurers is that they have capital to put to work and they are expressing to us that they have an appetite to do that,” he said. Still, the push for low-down-payment loans will no doubt intensify the debate over how far to go in making mortgage credit more available. Many studies show that borrowers who make down payments of at least 20 percent usually have much lower default rates. As down payments fall, lending gets riskier.
MORE TWISTS IN BATTLE FOR ALLERGAN | The latest court ruling in the war over Allergan was a mixed bag for the Botox maker, which has been trying for months to fend off a hostile takeover by Valeant Pharmaceuticals, Peter J. Henning and Steven Davidoff Solomon write in the White Collar Watch column. This week, a federal court ruling went in favor of Valeant and William A. Ackman’s hedge fund firm, Pershing Square Capital Management, deciding against Allergan’s efforts to prevent them from voting at a special shareholder meeting on Dec. 18 over whether to remove Allergan’s directors. But the decision may open up a new line of attack against Mr. Ackman from shareholders who sold their Allergan stock in the weeks leading up to the disclosure of Valeant’s bid for the company in April.
Allergan premised its claim on showing that the shares were acquired in violation of Rule 14e-3, a rule adopted by the Securities and Exchange Commission in the 1980s to stop insider trading in connection with hostile offers. The judge found that Allergan could not sue for a violation because it did not sell any of its shares during the period when Pershing Square was buying its stake. Still, the caseraises interesting issues about whether the insider trading rules were violated. “Valeant could have avoided all of this by simply not moving to a tender offer for Allegan,” Mr. Henning and Mr. Davidoff Solomon write. “If it would have just kept its bid open while seeking to remove the directors, then it would not have raised the insider trading question.”
So what’s next for Allergan? For one, the company is appealing the judge’s decision. But Allergan also seems to be trying a new tack in its attempt to fend off the hostile takeover. According to Bloomberg News, Allergan is said to be in active talks with Actavis on a potential alternative deal. The discussions may not lead to an agreement, said unidentified people with knowledge of the matter. Allergan said in a filing that it was in talks with a third party that may lead to merger negotiations, without providing further information. Actavis is unlikely to make a formal offer for Allergan unless it thinks Allergan’s shareholders will probably approve it, one of the people said.
IT’S JOBS DAY | Economists expect the unemployment rate tohold steady at at 5.9 percent when the Labor Department releases its October figures at 8:30 a.m. The consensus is for employers to have added about 234,000 jobs in October.
ON THE AGENDA | In addition to the jobs report, data onconsumer credit comes out at 3 p.m. The Bank of France holds an international symposium titled “Central Banking: The Way Forward” in Paris. Janet L. Yellen, chairwoman of the Federal Reserve, sits on a panel on macroeconomic policy at the conference at 10:15 a.m. Daniel K. Tarullo, a Fed governor, gives a speech on community banking at the 10th Annual Community Bankers Symposium at 2:30 p.m. in Chicago.
DEALBOOK CONFERENCE 2014 | On Dec. 11, The New York Times will hold its third-annual DealBook conference. This year, the daylong event will be at the new One World Trade Center. Past speakers have included Lloyd Blankfein, Jamie Dimon, Elon Musk, Preet Bharara, Eric Schmidt, Indra Nooyi, Dick Costolo, Daniel Loeb, Valerie Jarrett and many others. Invitation requests areavailable online.
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