(Reuters) - The European Central Bank faces resistance from Germany to allowing any extra emergency lending for Greek banks, people familiar with the matter said, increasing pressure on Athens to sign up to an extended aid-for-reform program.
After talks between Greece and euro zone creditors broke down acrimoniously on Monday, the ECB's policymaking governing council will review on Wednesday how far the country may support its weak banks, which face rising deposit outflows.
While the ECB is unlikely to lower the ceiling on emergency lending assistance (ELA) by the Greek central bank, a refusal to increase it would nonetheless be bad news for Greek banks, which are close to using up the full 65 billion euros granted so far.
Bundesbank chief Jens Weidmann, who has warned against the misuse of the emergency funding to indirectly finance the Greek state, is set to stick to this stance at the ECB meeting, the sources said. Some other governors have similar reservations.
They are also determined to insist that Greek banks should not use ELA to increase their holdings of short-term Greek government treasury bills, since that would be tantamount to back-door illicit monetary financing of the state.
Unless Athens agrees an extended aid program soon, keeping ELA capped would put lenders in a funding squeeze that could require the introduction of capital controls to limit savers taking out more of their money, the sources said.
A senior Greek banker told Reuters up to 500 million euros ($571 million) had been withdrawn from Greek bank accounts on both Thursday and Friday last week.
There was a lull on Monday but deposit outflows picked up again on Tuesday after talks collapsed, the banker said.
CAPITAL CONTROLS?
"The situation of the banks is getting more and more difficult every day," said a European official. "In the end, in order to safeguard the banking system, capital controls will probably have to be imposed."
It is not clear whether the ECB will issue any statement after Wednesday afternoon's meeting.
While they are loath to pull the plug on funding that is keeping Greece afloat, central bankers say allowing its banks to draw down more is equally problematic.
The ECB's chief economist Peter Praet has cautioned that the funding is for the short term only, although Austria's central bank chief Ewald Nowotny recently signaled that the ECB would resume direct funding if Athens struck a deal to extend its EU/IMF bailout.
Frustration with Greece is growing. Euro zone finance ministers have given Athens until the end of the week to request an extension or lose financial assistance when the bailout expires at the end of February.
Were the ECB to cancel all emergency funding for Greek banks, as it threatened to with Cyprus in 2013, it would leave Athens with no choice but to strike a new deal with its international backers or face bankruptcy.
But the ECB would be very reluctant to take such a step.
"Pulling the plug on Greece would have potentially catastrophic consequences," said Ashoka Mody, a former IMF official who helped design Ireland's bailout.
"The ECB's threats are completely empty. Despite all the bluster, it has no choice. The ECB has to ask itself how it can stabilize the financial system, not undermine it."
($1 = 0.8757 euros)
(Additional reporting by George Georgiopoulos in Athens; Editing by Paul Taylor)
House Republicans are accusing the Obama administration of letting millions of dollars from recent mortgage-lending settlements go toward politically favored advocacy groups, in turn "shortchanging" the people originally harmed by the financial crisis.
The separate deals were reached with the Justice Department in summer 2014, with Citigroup agreeing to pay $7 billion for misleading investors over mortgage-backed securities and Bank of America paying $16.65 billion for similar actions.
But of the $24 billion, roughly $150 million is tabbed for financial-counseling agencies -- a category that includes liberal-leaning groups such as the National Council of La Raza.
While some Americans likely will need help figuring out how to recover money through the settlement -- help these organizations could give -- Republicans on the House Judiciary Committee are questioning why certain activist groups are on the Department of Housing and Urban Development-approved list.
“The Obama administration is shortchanging victims by using these settlements to send money to their pet projects rather than allowing it to go to directly to the people who were harmed in the first place,” House Judiciary Committee Chairman Bob Goodlatte, R-Va., told FoxNews.com on Monday.“Furthermore, the administration is also abusing the separation of powers by using these cases to funnel money to their preferred special interests in an attempt to do an end run around Congress, which the Constitution grants the power of the purse.”
Goodlatte pointed specifically to groups such as La Raza and NeighborWorks America -- a network of community development organizations that his office compared to the defunct, controversial low-income advocacy group ACORN.(ACORN disbanded in 2010 after losing government funding amid a controversy over misconduct captured in hidden-camera videos. NeighborWorks is not affiliated and has declined to even work with groups that are.)
Goodlatte said the settlement deal also could result in banks having to pay an additional half-billion dollars to the “controversial activist groups.” A House Judiciary subcommittee will hold a hearing Thursday on the matter.
Concerns about the HUD-approved groups have been raised since at least 2012, when the agency announced the release of $42 million for mortgage counseling, with groups like La Raza and the National Urban League being eligible service providers.
The Urban League received $1 million and La Raza received roughly $1.7 million from HUD, according to the conservative website WesternJournalism.com.
La Raza supports administration-backed, comprehensive immigration-reform legislation that would provide a pathway to citizenship for an estimated 11 million illegal immigrants and President Obama's recent executive actions that suspended deportation for millions.
La Raza’s nonprofit 501(c)4 group, the NCLR Action Fund, spent $147,521 exclusively on Democratic candidates during the 2014 election cycle.
Group spokeswoman Lisa Nauarrete said Monday that La Raza, though, has been an approved counselor since the first Bush administration and has yet to "receive a dime" of settlement money.
"The argument seems terribly speculative to us," she said. "And the amount is less than 1 percent [of the settlement]. That's a minuscule part."
Goodlatte and House Financial Services Committee Chairman Jeb Hensarling, R-Texas, have been pursuing issues related to the settlements since last year, including sending a letter in November to Attorney General Eric Holder requesting additional information about the “questionable terms” of the deal.
The Justice Department did not return a request Monday for comment on the eligible groups and the deal itself.
Documents provided to FoxNews.com by HUD show hundreds of national and local housing-counseling groups are approved by the agency for settlement money.
A La Raza affiliate was listed in at least five states and the District of Columbia. A NeighborWorks group was listed in five states, and a National Urban League group was listed in nine.
Goodlatte and Hensarling also have raised concerns about the incentive structure in the settlements with Citigroup and Bank of America, which were preceded by a similar one in 2013 with JP Morgan for $13 billion. They argue the deals have an incentive clause in which banks earn $2 worth of credit for every dollar donated to the groups above a certain threshold, compared with a dollar-for-dollar credit for government-mandated consumer relief.
“This makes donations to activist groups far more attractive to banks than providing relief to injured consumers,” Goodlatte and Hensarling said in their 2014 letter to Holder. “As a result, the settlement appears to serve as a vehicle for funding activist groups rather than as a means of securing relief for consumers actually harmed.”
Preet Bharara, the United States attorney in Manhattan, racked up more than 80 convictions related to insider trading.Credit Justin Lane/European Pressphoto Agency
Updated, 8:52 p.m. | When an appeals court overturned the convictions of two hedge fund managers last month, the ruling reverberated throughout the legal world and rewrote the government’s insider trading playbook.
Now, federal prosecutors in Manhattan are disclosing their strategy to reverse the ruling, or at least narrow it.
In a filing late Friday, the prosecutors mounted a two-pronged challenge to the appellate ruling. Preet Bharara, the United States attorney in Manhattan, is asking the same three-judge panel that issued the ruling to revisit its decision, which imposed the greatest limits on insider trading prosecutions in decades.
“The opinion breaks with Supreme Court and Second Circuit precedent, conflicts with the decisions of other circuits and threatens the effective enforcement of securities laws,” prosecutors said in a 25-page petition.
As an alternative, the spokesman said, Mr. Bharara’s filing will propose the legal equivalent of a do-over in a process known as en banc. The process would require every judge on the United States Court of Appeals for the Second Circuit to hear the case.
While both requests could be long shots — since 2012, the Second Circuit has held only one en banc hearing involving as many as 15 appellate judges — the prosecutors’ requests might lay the groundwork for an appeal to the United States Supreme Court. That route could fail as well, or even generate a worse outcome for the government, but it might also nudge the three-judge panel to voluntarily clarify aspects of its ruling.
For Mr. Bharara, the outcome is critical. His office has won more than 80 convictions from his campaign to root out insider trading on Wall Street.
And now, his decision to appeal will escalate a battle that will shape the boundaries of insider trading law for decades to come.
If successful, it could also curb the broader fallout from the three-judge panel’s decision to overturn the convictions of Todd Newman and Anthony Chiasson, the hedge fund managers who were tried together in 2012.
The panel ruled that the judge who presided over their trial set too low a bar for conviction when instructing jurors. Its decision not only dismissed the cases against Mr. Newman and Mr. Chiasson, it also threatened a number of Mr. Bharara’s other signature convictions.
The insider trading conviction of Michael Steinberg, a onetime rainmaker at SAC Capital Advisors, the once-mighty hedge fund that Mr. Bharara indicted in 2013, would most likely be overturned if the three-judge panel’s ruling goes unchallenged. The judge who presided over Mr. Steinberg’s trial and provided the jury instruction, Richard J. Sullivan, also handled Mr. Chiasson and Mr. Newman’s trial.
The ripple effect has spread to other cases — and other jurisdictions.
After the appellate ruling — written by Judge Barrington D. Parker, Judge Ralph K. Winter Jr. and Judge Peter W. Hall — a number of defendants convicted of insider trading in New York and elsewhere have sought to have the charges against them dismissed. For example, lawyers for some of the cooperating witnesses who pleaded guilty and testified against Mr. Newman, Mr. Chiasson and Mr. Steinberg have signaled they might consider reopening those guilty pleas if the appellate ruling stands.
And on Thursday, a federal judge threw out guilty pleas from four men charged with trading on inside information involving shares ofIBM. The judge, Andrew L. Carter Jr. of the Federal District Court in Manhattan, cited the appellate ruling in entering not guilty pleas. He is still deciding whether the charges in that case should be dismissed in light of the appellate ruling.
The developments fulfilled Mr. Bharara’s predictions at the time of the appellate ruling in December, when he warned of a chilling effect. The ruling, he said then, “interprets the securities laws in a way that will limit the ability to prosecute people who trade on leaked inside information.”
At the heart of the three-judge panel’s decision to overturn the convictions of Mr. Newman and Mr. Chiasson is a question of what the two traders knew about a leak of inside information. Rejecting Judge Sullivan’s instructions to the jury, the appellate panel ruled that Mr. Chiasson and Mr. Newman needed to know that insiders at technology companies were improperly leaking confidential information to hedge funds in exchange for some “personal benefit.”
In the case, the tips started with insiders at Dell and Nvidia and ricocheted around the country before reaching Mr. Newman and Mr. Chiasson. Those extra layers, the panel concluded, meant that Mr. Newman and Mr. Chiasson would not have known of any such benefit.
The panel then took its ruling a step further, challenging the very notion of what constitutes a benefit. It is this aspect of the ruling that has disturbed prosecutors the most.
In this case, prosecutors had argued that mere friendship, or even something as simple as career advice, was enough to prove that a Dell employee received a benefit from leaking inside information. But the appellate court rejected that standard as low, saying the government must also show that the tipper expected to receive something “of some consequence,” although it did not specify what that must be.
“The panels’ erroneous definition of the personal benefit requirement will dramatically limit the government’s ability to prosecute some of the most common culpable and market threatening forms of insider trading,” the petition said.
Federal prosecutors have suggested, both publicly at legal conferences and privately, that this new definition could produce some extreme and unwanted results. Prosecutors have said this more constricted view of a benefit might make it difficult to file charges against, say, a parent who passes on a confidential stock tip to one of his children without receiving anything in return. Others have invoked the classic case of the corporate chief executive whispering to a friend on the golf course about a coming acquisition.
A number of defense lawyers have dismissed the nightmare situations that prosecutors have raised.
But in Los Angeles, James V. Mazzo, the executive of a medical device company accused of providing inside information to the former professional baseball player Doug DeCinces, has asserted that the indictment against him should be dismissed given the appellate ruling. He contends the government has not shown that he received any direct personal benefit for purportedly tipping Mr. DeCinces about an impending corporate deal.
Mr. Bharara still has time to appeal the ruling to the United States Supreme Court, but to do so, he would need the approval of the United States solicitor general, Donald B. Verrilli Jr., who also signs off on requests for en banc proceedings. But such an appeal, a process known as a writ of certiorari, is seldom granted.
Former prosecutors and criminal defense lawyers had said before the filing that Mr. Bharara’s best course of action would be to ask the same three-judge appellate to rehear the case to modify its ruling. A rehearing by an appellate panel rarely results in the final decision being overturned but sometimes does lead the panel to make adjustments that clarify its ruling.
Other legal experts have called for Congress to intervene, noting that the act of insider trading is not explicitly prohibited in a federal statute. Instead, a patchwork of legal opinions and regulations constitute the law.
“The decision is a reasonable interpretation of bad law that yields a bad result,” said Erik Gordon, a professor of business at theUniversity of Michigan Ross School of Business. “Insider trading is a term that doesn’t even appear in securities law. The law of insider trading has been built and rebuilt on a rickety tower.”
A court’s reversal of two insider trading convictions has been the equivalent of dropping a big rock into a calm lake as the waves spread to other cases
Updated, 8:59 p.m. | As JPMorgan Chase reported sluggish earnings and potential new legal costs on Wednesday, its chief executive,Jamie Dimon, lashed out at regulators and analysts, including some who are calling for the breakup of what is the nation’s largest bank.
The bank announced that both its revenue and profit were down during the fourth quarter of 2014, with few bright spots across its many business lines.
The bank’s profits were also dragged down by $1 billion it put aside to deal with a government investigation of wrongdoing on its foreign currency trading desks. The bank has also begun preparing for new rules that are expected to be tougher on JPMorgan than any other financial firm.
During conference calls with reporters and analysts, Mr. Dimonsounded like a chief executive under siege.
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‘Banks Are Under Assault,’ Says Dimon
‘Banks Are Under Assault,’ Says Dimon
“If the regulators — at the end of the day — want JPMorgan to be split up then that’s what will have to happen,” said Jamie Dimon, the banks’s chief. “We can’t fight the federal government.”
Publish DateJanuary 14, 2015. Photo by CNBC.
“Banks are under assault,” Mr. Dimon said in the call with reporters. “In the old days, you dealt with one regulator when you had an issue. Now it’s five or six. You should all ask the question about how American that is, how fair that is.”
This is not the first time that Mr. Dimon has publicly criticized the new scrutiny and rules that banks have dealt with since the financial crisis. But in the past, Mr. Dimon was often confronting skeptics from outside the banking world. On Wednesday, he faced off against several industry analysts who questioned whether the costs associated with JPMorgan’s heft are outweighing the benefits.
“This is not Elizabeth Warren asking the questions,” said Mike Mayo, a bank analyst at CLSA, referring to the Massachusetts senator and outspoken critic of big banks. “Investors are talking about this.”
Mr. Dimon and Marianne Lake, JPMorgan’s chief financial officer, rebutted any suggestion that JPMorgan would need to be broken into smaller parts to be more valuable, and argued that the bank’s size gave it many advantages against competitors — “the model works from a business standpoint,” Mr. Dimon said.
But some of the analysts questioning Mr. Dimon and Ms. Lake did not seem to be satisfied by the answers and suggested that they expected to hear more about the bank’s efforts to change itself.
The company’s share price ended the day down 3.5 percent, at $56.81.
Mr. Mayo, who was one of the first analysts to call for the big banks to be broken up, pointed out on Wednesday that as JPMorgan had continued to grow it had actually become somewhat less efficient, as measured by the ratio between its expenses and revenue.
When the questions about the bank’s future kept coming on Wednesday morning, Mr. Dimon sounded increasingly frustrated with the analysts.
“This company has been a fortress company,” he said. “It has delivered to clients and its diversification is the reason why it’s had less volatility of earnings and was able to go through the crisis and never lost money ever, not one quarter.”
The bank’s fourth-quarter results, while disappointing, were not terrible for shareholders. The bank said its earnings fell 7 percent, to $4.9 billion, or $1.19 a share, from $5.6 billion, or $1.30 a share, in the period a year earlier. The results fell short of the $1.31 a share expected by analysts surveyed by Thomson Reuters.
Net revenue at the bank dropped 3 percent, to $22.5 billion, from the fourth quarter of 2013. On a so-called managed basis, revenue was $23.55 billion, slightly below the $23.6 billion anticipated by analysts.
For 2014 as a whole, JPMorgan reported profit of $21.8 billion, a 21 percent increase over 2013, and the highest ever annual profit for the company.
In the third quarter of 2014, JPMorgan’s Wall Street operations bolstered the results of the bank. But in the fourth quarter, the difficult trading conditions that have hurt profits at Wall Street firms over the last few years returned.
Revenue from JPMorgan’s once-lucrative fixed-income trading business fell 32 percent from the previous quarter and was down 23 percent from the period a year earlier. Much of the decline was because of businesses that JPMorgan had sold. But core trading was also down 14 percent.
JPMorgan’s enormous consumer bank also had a drop in revenue in several areas, including credit cards and mortgages, which has slowed down as the national housing market has cooled off.
The bank has been able to attribute some of its disappointing results in recent years to the enormous fines that it has had to pay for wrongdoing before and during the financial crisis.
But while those legal expenses were expected to eventually recede, they have kept coming. This quarter, JPMorgan set aside $1.1 billion — $990 million after taxes — to deal primarily with an industrywide investigation of manipulation in the foreign currency markets. It set aside a similar amount in the previous quarter, but the potential severity of the wrongdoing appears to have increased since then.
Mr. Dimon said that the bank was still bracing for more fines. “It’s going to cost us several billion dollars more somehow plus or minus another couple billion before we get to normal.”
Mr. Dimon said the bank took responsibility for some of the problems that have led to penalties, but he complained that it had been unfair when multiple regulators had come after the bank for the same issue.
The more enduring challenge for the bank, though, may be the new requirements that the bank maintain higher levels of capital than other banks because of its size.
A Federal Reserve official said in December that JPMorgan would most likely to have to raise over $20 billion of new capital, either by holding on to profits or selling more shares to investors. The bank is the only one that is expected to have to raise significant amounts of new capital.
A bank analyst at Goldman Sachs said this month that because of the price that JPMorgan was paying for its size, it may be worth less in its current form than it would be if it was broken apart. On Wednesday, multiple analysts said that regulators seemed to want JPMorgan to be smaller.
Mr. Dimon acknowledged that there could be a point when the additional costs could force it to spin off some businesses. “If the regulators at the end of the day want JPMorgan to be split up, then that’s what will have to happen,” he said. “We can’t fight the federal government if that’s their intent.”
But Mr. Dimon said that his team was confident that the bank would manage to comply with the rules as they have currently been outlined without any major changes. Invoking patriotism, he warned that if his company was forced to shrink, it could open the door for foreign competitors, especially those from China.
“America has been the leader in global capital markets for the last 50, 100 years,” he said. “I look at it as a matter of public policy. I wouldn’t want to see the next JPMorgan Chase be a Chinese company.”
