Showing posts with label Wall Street Journal. Show all posts

Wednesday, July 25, 2012

Sandy Weill Regrets Breaking Glass

By DAVID REILLY

Even for bankers, who love taking things apart and putting them back together, Sanford Weill's U-turn is striking.

The former Citigroup C +2.18% chairman now believes it was a mistake to scrap the Glass-Steagall separation of commercial and investment banking, once seen as one of his crowning achievements. As stunning as this admission was, he was only catching up with what markets already think.

Former Citigroup Chairman and CEO Sandy Weill turned the financial world on its ear when he said it's time to split up investment banking from regular banking. WSJ's David Reilly visits Mean Street to explain. Photo: Getty Images.

While too-big-to-fail banks may enjoy lots of supposed advantages, outsize market valuations aren't one of them. The three, big U.S. banks with substantial commercial and investment banking operations—J.P. Morgan Chase,JPM +1.27% Citigroup and Bank of America BAC +0.43% —trade at a substantial discount to many, far smaller peers.

Citi and BofA trade at prices that are equal to only around half their tangible book value, or net worth. J.P. Morgan just trades at tangible book.

Meanwhile, a group of about 50 regional banks with market values between $1 billion and $25 billion trade at an average of 1.5 times tangible book, according to data from FactSet. And even bigger banks that lack substantial investment-banking and trading operations trade at a premium. U.S. Bancorp, USB -0.52% for example, trades at 2.6 times tangible book, while Wells Fargo WFC -0.21% is at about 1.8 times.

The higher valuations afforded to more focused banks reflect a variety of factors. The biggest, most interconnected banks will be forced to maintain higher levels of capital, under new regulatory regimes. New rules also look set to make trading operations less profitable. And bigger banks are being assessed a sort of conglomerate penalty for their complexity and the inherent risks that poses.

Given this, any move to resurrect Glass-Steagall potentially could unlock value. J.P. Morgan's consumer and commercial bank businesses, for example, likely would trade at a multiple nearer to that of Wells Fargo. If the investment-banking segment didn't trade too far below tangible book value, such a split might make sense.

Most importantly, a restructuring of the biggest banks would reduce banking concentration and the risks it poses to the financial system and taxpayers.

The biggest banks, for their part, have insisted there are advantages to having integrated businesses that reach across the banking spectrum and the world, both for customers and their own shareholders. They also claim that any move to break up big, U.S. banks would simply leave an opening for foreign banking behemoths, which often enjoy greater government support.

In any case, calls to break up the biggest banks aren't likely to lead to any quick legislative action. With presidential and congressional elections looming, Washington isn't about to tackle such a politically fraught topic. Nor is it clear that Glass-Steagall would be a silver bullet—any reincarnation would require new regulatory structures to insure that new stand-alone investment banks don't themselves become a threat to financial stability.

But Mr. Weill's change of heart, no matter how late in the day, should prompt soul searching among bank board members and executives. It may also prod shareholders to become more aggressive in seeking change.

That would be good for markets and taxpayers. It might even benefit banks. After all, better for them to change in an attempt to become more attractive investments, than to risk having change thrust upon them.

Write to David Reilly at david.reilly@wsj.com

Sunday, July 1, 2012

Banks Face Foreclosure Regulation by States

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By NICK TIMIRAOS
States across the country are proposing a range of new rules that would make it more difficult for banks to foreclose on troubled homeowners.
The moves have been prompted by concerns that lenders have been inefficient in restructuring mortgages, which results in unnecessary foreclosures, while using shoddy paperwork to repossess homes.
Lenders are strongly resisting the measures, arguing that they will introduce new bottlenecks in the foreclosure process that could obstruct the incipient housing recovery.
"Should all 50 states decide to go down their own path, lenders are going to have multiple processes, each with their own little nuances, and every single penny of that cost will be borne by tomorrow's borrowers," said David Stevens, chief executive of the Mortgage Bankers Association.
Such legislation is precisely what the nation's largest banks hoped to head off in February when they agreed to pay $25 billion in fines and borrower aid to settle allegations of foreclosure abuse with federal agencies and 49 state attorneys general. That settlement laid out standards for how banks must treat borrowers.
The biggest showdown between lenders and lawmakers could occur as soon as Monday in California, when the state legislature is set to vote on an overhaul detailing new requirements banks must follow in the foreclosure process. While similar measures have failed in each of the last two years, the state's attorney general, Kamala Harris, has pushed strongly for the bills, improving the odds the bills will pass.
Nationwide, 25 states have bills contemplating changes to various laws governing the foreclosure process, according to the National Conference of State Legislatures. In Oregon, the state's outgoing attorney general proposed new rules covering how banks handle loan modifications. New York's assembly is considering a measure that would criminalize foreclosure paperwork forgeries.
California is getting the most attention because of the volume of homes lost to foreclosure every month, and because of its bank-friendly foreclosure process. The California bill would prevent foreclosures from moving forward while a borrower is trying to modify a mortgage, require large lenders to provide a single point of contact for borrowers seeking modifications, and allow homeowners to sue mortgage companies that fall short of the new rules.
"Most fundamentally, this legislation is about having a clear process, getting to a simple 'yes' or 'no' answer on a loan modification application before they start the foreclosure process," said Paul Leonard, California director of the Center for Responsible Lending, a borrower-advocacy nonprofit.
Equally important, they say, is a new right for borrowers to sue banks, which they hope will make it harder for lenders to dodge new rules. With voluntary loan-modification programs, "there have not been any reliable consequences for anybody's failure to follow the rules," said Mr. Leonard
The mortgage industry says the bills will do little to provide more help to borrowers, while making it easier for borrowers to drag out negotiations. "It would allow consumers to extend, in theory payment free, the entire proceeding for months while waiting for the deliberation of the modification effort," said Mr. Stevens. California's measures have also drawn criticism from the federal agency that regulates mortgage giants Fannie Maeand Freddie Mac.
The measures come at a time when price declines appear to be easing in more housing markets, which is partly a function of fewer homes being repossessed and sold by lenders. Nationally, foreclosures slowed down after the "robo-signing" scandal, when banks were caught routinely using bogus paperwork to process foreclosures. A loan in foreclosure in April had been delinquent for an average of 22 months, up from 14 months two years ago, according to Lender Processing Services Inc.
Due to its size, California has among the largest volumes of foreclosures, and is second only to Florida. At the end of March, the share of loans in foreclosure in the California fell to 3.3%, the 24th highest rate in the country. Less than three years ago, the rate stood at nearly 5.8%, then the fourth highest, according to the Mortgage Bankers Association. Economists attribute that drop in the share of loans in foreclosure to the fact that California has an administrative, or nonjudicial, foreclosure process that doesn't require banks to foreclose through the courts. With less scrutiny, banks have been able to foreclose faster.
In Nevada, which is also a non-judicial foreclosure state, the governor last fall signed a much stricter law that made it a felony for bank employees to make false representations when signing off on foreclosures. New foreclosure filings plunged, creating a glut of severely delinquent mortgages.
Write to Nick Timiraos at nick.timiraos@wsj.com

Friday, May 4, 2012

Jamie Dimon: Occupy Wall Street has ‘legitimate complaints

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May 3, 2012, 3:16 PM

Jamie Dimon, the outspoken head of one of America’s biggest banks, said Thursday that the Occupy Wall Street protesters have some “legitimate complaints,” but that investment banking has a bright future and will remain a highly paid industry.

The chairman and CEO of J.P. Morgan Chase & Co. made the comments after receiving the Executive of the Year award presented to him by the University of Rochester’s Simon Graduate School of Business at a hotel ballroom in midtown Manhattan. Dimon stuck around to answer a few questions.

Asked about the Occupy Wall Street movement against financial greed and economic inequality, Dimon acknowledged that the protesters have some “legitimate complaints.” He argued, however, that it’s unfair to paint all institutions with one brush: “It was everyone guilty. That’s another form of discrimination.”

He expressed optimism about his industry: “Investment banking is going to have a bright future. [...] It will always be a highly paid industry.”

“When things go wrong, finance gets blamed,” just like blaming speculators for high oil prices, Dimon said. The remark was an apparent reference to President Barack Obama’s recent call for new measures to prevent manipulation of oil markets.

The J.P. Morgan CEO discussed a number of other pressing issues such as the euro-zone debt crisis, the U.S. fiscal situation, the potential for recovery in the U.S. housing market and the prospect for more quantitative easing from the Federal Reserve.

As usual, he was critical of attempts to regulate the financial industry, saying the banks are getting rules from regulators in Washington, Brussels, London, Tokyo and Basel: “Honestly, no one is in charge,” he said, arguing that while J.P. Morgan will figure things out given its fleet of lawyers and other resources at its disposal, the regulations are “going to kill the smaller banks.”

Dimon’s sense of humor was on display throughout his appearance, eliciting occasional roars of laughter from the audience.

He took a question from a young man attending Browning, a private prep school for boys in New York City. “I went to Browning,” Dimon said, proceeding to tell a story about an award the school had given him some time ago.

“I was surprised [to get that award],” he said. “They didn’t like me that much when I was there.”

– Polya Lesova

Tuesday, April 3, 2012

Former Morgan Stanley Unit Cited for Foreclosure Violations

By ALAN ZIBEL And IAN TALLEY

WASHINGTON—The Federal Reserve on Tuesday ordered Morgan Stanley MS -2.75%to review thousands of foreclosures conducted by a mortgage-servicing unit it sold this year and said it would levy fines against the investment bank.

The consent order requires Morgan Stanley to hire an independent consultant to review foreclosures handled by the firm's former Saxon Mortgage Services unit between 2009 and 2010. It adds to a list of mortgage-servicing firms that U.S. bank regulators have ordered to overhaul their mortgage-servicing operations and compensate borrowers who were harmed.

Last October, Morgan Stanley agreed to sell Saxon to Ocwen Financial Corp.,OCN -1.01% ending the investment bank's foray into subprime-mortgage servicing. That deal closed Monday.

Saxon was the 34th-largest loan servicer in the U.S., collecting payments on more than 225,000 home loans, the Fed said. Saxon processed more than 60,000 foreclosures in 2009 and 2010. Morgan Stanley declined to comment.

The Fed alleged that Saxon employees filed numerous foreclosure documents without personally verifying their contents and filed in courts mortgage documents that were not properly notarized and, in response to the surge of foreclosures, failed to devote enough resources to handle homeowners' requests for help on their mortgages.

The Fed said in a statement that the Morgan Stanley review is intended to "provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process."

Morgan Stanley has already agreed to pay for any civil financial penalties bank regulators may assess against the Saxon unit, the central bank said. The Fed has not disclosed the size of any penalties.

The Fed's agreement with Saxon is similar to one reached last year with Goldman Sachs Group Inc., GS -2.03% which also sold its Litton Loan Servicing business to Ocwen.

A year ago, the Fed and the Office of the Comptroller of the Currency ordered 14 large mortgage-servicing companies to hire independent consultants to review foreclosures and overhaul foreclosure practices. Consumers who suffered "financial injury" could be in line for compensation after the consultants review homeowners' cases.

The nation's mortgage-servicing companies have been under federal and state scrutiny since revelations emerged in fall 2010 that banks used "robo-signers" to file foreclosure documents without personally verifying their contents.

Federal and state officials earlier this year reached a $25 billion settlement of foreclosure-abuse allegations with the nation's five largest mortgage-servicing firms:Bank of America Corp., BAC -2.38% Wells Fargo WFC -0.43% & Co., J.P. Morgan Chase JPM -1.85% & Co., Citigroup Inc. C -1.89% and Ally Financial Inc. As part of the state-federal settlement, the Fed announced $766.5 million in fines against the five large banks.

Suzanne Killian, senior associate director of the Fed's division of consumer and community affairs, said last month that eight more institutions will be fined. The Fed did not disclose the size of the new fines.

—Brett Philbin contributed to this article.

Write to Alan Zibel at alan.zibel@dowjones.com and Ian Talley atian.talley@dowjones.com