Loans Borrowed against Pensions Squeeze Retirees
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BofA Seeks to Toss DOJs 1 Billion Faulty Mortgage Suit
Bank of America Corp. asked a federal judge to dismiss a $1 billion fraud lawsuit filed by the U.S. alleging that it sold defective residential mortgage loans to Fannie Mae and Freddie Mac that defaulted, Bloomberg News reported yesterday. The Justice Department filed the complaint last year claiming the bank and its Countrywide Financial unit generated thousands of defective loans and sold them to the two home-mortgage finance companies now under government control. To boost revenue in the tightening credit market in mid-2007, Countrywide sold the loans to boost revenue, according to the complaint. Charlotte, N.C.-based Bank of America argued that the suit was based on a single alleged factual scenario and fails to state a claim. U.S. District Judge Jed Rakoff said after hearing arguments yesterday that he intends to issue a ruling in about two weeks.
National Credit Union Administration Suits Paused by Court
Eight lawsuits by the National Credit Union Administration (NCUA) Board aimed at recouping losses on mortgage-backed securities were halted by a federal judge pending an appeals court ruling, Bloomberg News reported yesterday. U.S. District Judge John Lungstrum yesterday put the litigation on hold until the U.S. Court of Appeals in Denver rules on a challenge by RBS Securities Inc. to another judge’s decision last year denying its request to dismiss a lawsuit by the board. NCUA, an Alexandria, Virginia-based federal agency responsible for recovering losses to minimize costs to its industry-funded stabilization fund, sued units of Royal Bank of Scotland Plc, JPMorgan Chase & Co., Barclays Plc and other banks, claiming they used misleading documents to sell the securities to credit unions that later failed.
Insider-Trading Probe Trains Lens on Boards
Federal prosecutors launched a criminal investigation into whether corporate directors misused government-sanctioned trading plans to sell company shares for investment funds they run, the Wall Street Journal reported today. The U.S. attorney's office for the Eastern District of New York issued subpoenas requesting information from companies and funds cited in the Wall Street Journal that highlighted trading at three companies by directors who also run funds. The investigation is an outgrowth of another criminal probe, led by the U.S. attorney for the Southern District of New York and the Securities and Exchange Commission, into trading by company insiders. At issue are preset trading arrangements known as 10b5-1 plans, initiated by the SEC in 2000. The plans allow corporate executives and nonexecutive directors a way to sell some shares despite potentially having knowledge of nonpublic information about their companies, though such plans must be set up when the executive does not possess inside information. Prosecutors are interested in whether insiders are using such plans to shed their positions when they are privy to private information about companies. There have not been any allegations of wrongdoing.
Brokerage Ills Stir Auditor Scrutiny
U.S. regulators are tightening their scrutiny of accountants in an effort to crack down on firms bungling "red flags" that signal fraud and imperil customer money, the Wall Street Journal reported today. The increased attention is occurring largely at the Commodity Futures Trading Commission, where investigators and top officials were rattled by the collapses of Peregrine Financial Group Inc. and MF Global Holdings Ltd. At both firms, rules that are supposed to protect customer funds were allegedly broken without being detected by accountants. The CFTC has not accused the auditors for MF Global and Peregrine of wrongdoing. But their inability to spot problems is spurring the agency to examine more closely whether accountants, under CFTC’s existing rules, are properly policing the financial controls at thousands of U.S. futures and swaps firms.
MBIA Fails in Bid for Pretrial Ruling in Countrywide Lawsuit
MBIA Inc. failed to win a pretrial ruling against Bank of America Corp.’s Countrywide Financial unit in a lawsuit claiming the mortgage lender breached its obligations to repurchase loans, Bloomberg News reported yesterday. New York State Supreme Court Justice Eileen Bransten denied MBIA’s request for a ruling that Countrywide is obligated to buy back loans that the insurer claims were riskier than represented by the lender. The Armonk, New York-based company guarantees payments to investors that bought securities backed by pools of Countrywide’s loans. Judge Bransten said that there are “sufficient facts in dispute” about the loans to preclude a ruling in MBIA’s favor at this point in the litigation, which began in 2008.
Drop in Borrowing Squeezes Banks
U.S. companies are pulling back on borrowing, which could put a drag on the limping U.S. economy and make it even harder for banks to break out of their long slump, the Wall Street Journal reported today. Outstanding loans by the biggest banks to U.S. companies declined 9 percent in the first two weeks of April compared with the end of March, according to Federal Reserve data. The slip followed a 2.7 percent rise in the first quarter, the smallest quarterly gain in two years. Bankers and corporate executives said that the reluctance is a sign of uncertainty about rising health care costs, fear of another economic downturn and a brutal winter in the Midwest that delayed new investment. Companies also rushed to borrow and spend late last year ahead of anticipated tax increases.
S&P Dealt a Setback in Connecticut Case over Credit Ratings
A federal judge handed a legal defeat to Standard & Poor's, ruling that a lawsuit in which Connecticut accused it of fraudulently inflating credit ratings to win business should be moved back to the state court where it began, Reuters reported yesterday. U.S. District Judge Stefan Underhill, in a decision reached on Wednesday, said S&P and its parent, McGraw-Hill Cos., waited too long to move the March 2010 lawsuit by Connecticut Attorney General George Jepsen to federal court from state court. He did not rule on the case's merits. The decision came two days after the largest U.S. credit rating agency asked a federal judge in Los Angeles to dismiss the U.S. Department of Justice's $5 billion civil fraud lawsuit filed in February over its ratings.
High-Cost Loans Seeing Tremendous Growth
Payday loans, pawn shops and other high-cost methods of financing have experienced tremendous growth over the past two decades, and in recent years, nearly one in four Americans have used them, according to a new paper from the National Bureau of Economic Research, the Washington Post reported today. Given the price of such borrowing, it may also be a measure of desperation: The financing fees on the loans are often very high, with annualized percentage rates on common payday loans reaching more than 300 percent, according to the Consumer Financial Protection Bureau. In the agency’s research, the median amount borrowed was $350. The research paper comes as U.S. regulators are preparing to issue new rules for banks offering the short-term, high-interest loans tied to direct deposits of salary or government benefits. The proposed regulations reportedly would restrict borrowers from taking more than one such loan a month. Those rules would not affect the loans offered by storefront vendors, pawn shops and other services, however.
Too-Big-to-Fail Bill Seen as Fix for Dodd-Frank Acts Flaws
"Too-big-to-fail" legislation unveiled yesterday is needed to rein in the biggest U.S. banks because the Dodd-Frank Act has failed to guard taxpayers against future bailouts, the bill’s sponsors said, Bloomberg News reported yesterday. The four largest banks—JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.—"are nearly $2 trillion larger than they were" before getting U.S. aid to help them weather the 2008 credit crisis, Sen. Sherrod Brown (D-Ohio) said yesterday. Sen. David Vitter (R-La.), whose plan is opposed by key lawmakers, proposes a 15 percent capital requirement for megabanks as a way to reduce risk and remove the perception that they would get bailouts in a crisis. Mid-size and regional banks, those between $50 billion and $500 billion in assets, would need to have 8 percent capital relative to assets.