Big U.S. Banks Face Tougher Standards
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EU Accuses 13 Banks of Hampering CDS Competition
Thirteen of the world’s biggest investment banks were accused by the European Union of colluding to curb competition in the $10 trillion credit derivatives industry, Bloomberg News reported yesterday. The EU sent statements of objections to 13 banks, data provider Markit Group Ltd. and the International Swaps & Derivatives Association over allegations they sought “to prevent exchanges from entering the credit derivatives business between 2006 and 2009,” the European Commission said. The probe is one of several by the Brussels-based commission into the financial industry, including whether banks colluded to manipulate U.K. and European benchmark interest rates. Joaquin Almunia, the EU antitrust chief, said he’s seeking to settle the probes into Libor and Euribor with some of the same banks in the CDS case by the end of the year.
Banks Seek to Ease Tensions with CFPB
Big U.S. banks are working behind the scenes to ease tensions with a new federal consumer regulator whose approach to policing the financial sector has triggered industry criticism, the Wall Street Journal reported today. Top compliance executives from more than 20 banks, including Bank of America Corp. and Citigroup Inc., have met privately in recent months with senior officials from the Consumer Financial Protection Bureau (CFPB) to convey their concerns, including that companies weren't getting much credit for cooperating with investigations. Last week, the CFPB gave the industry some relief when it published "responsible conduct" guidelines detailing how financial firms can help with the agency's investigations in exchange for smaller penalties. Later in the week, the CFPB rewarded the cooperation of U.S. Bancorp by not fining the Minneapolis bank in an auto-lending settlement. The bank didn't admit or deny wrongdoing.
Citigroup to Pay Fannie Mae 968 Million over Mortgage Claims
Citigroup said yesterday that it had agreed to pay the mortgage finance giant Fannie Mae $968 million to resolve any claims on 3.7 million mortgage loans that might sour, the New York Times DealBook blog reported yesterday. The company said that the settlement would apply to troubled loans as well as any potential future claims on loans that originated between 2000 and 2012 that were purchased by Fannie Mae, which was bailed out by the government during the financial crisis. The company will continue to service the mortgage loans covered under the deal. Citigroup said that most of the settlement amount was covered by the bank’s existing mortgage repurchase reserves.
Two Officers of Loan Originator Get Jail Time for Defrauding Bank of 28 Million
Regulators yesterday announced that Scott N. Powers, the former CEO of Arizona-based mortgage loan originator American Mortgage Specialists Inc., and David McMaster, a former officer of AMS, were sentenced to serve 96 and 188 months in prison, respectively, for their roles in a $28 million scheme to defraud North Dakota-based BNC National Bank, according to a press release yesterday from the Special Inspector General of the Troubled Asset Relief Program (SIGTARP). In addition to their prison terms, Powers and McMaster were each ordered to pay a money judgment to the government of approximately $28,564,470 and also to pay restitution to BNC bank in that same amount. Powers and McMaster pleaded guilty on Oct. 19, 2012, to conspiracy to commit bank fraud and wire fraud affecting a financial institution. Read the full press release.
Casino Owner Reaches Debt Deal
The Native American tribe that runs Foxwoods Resort Casino completed a far-reaching deal with creditors that caps a saga that roiled investors for more than three years and raised questions about unusual rules governing gambling enterprises on Indian reservations, the Wall Street Journal reported today. The Mashantucket Pequot Tribal Nation, which owns Foxwoods in Ledyard, Conn., reached an agreement with more than 100 creditors to restructure about $2.3 billion of debt. Chief Executive Scott Butera said that the restructuring deal would cut the tribe's total debt to about $1.7 billion and allow it to extend due dates on loans and bonds.
U.S. Regulators Strike Agreement on Capital Rule
The Federal Reserve will vote next week to finalize capital rules for U.S. banks after regulators agreed to resolve a separate issue that had delayed action, the Wall Street Journal reported today. After months of dispute, officials at the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency have agreed to increase one measure of the biggest banks' ability to operate in times of stress. Banking regulators will soon propose requiring banks to increase the amount of equity they hold against assets, known as the "leverage ratio." The issue has divided U.S. officials, delaying action on broader international capital rules agreed to by global regulators in 2010 and revised in 2011. Some officials at the FDIC have been pushing for a much higher leverage ratio than Fed officials believed necessary. The debate has been complicated by the uncertain status of Richard Cordray, who heads the Consumer Financial Protection Bureau and is also a member of the FDIC's five-member board. Cordray was installed by President Barack Obama in a recess appointment, and recent legal challenges have raised the specter that his appointment, and any votes he casts at the FDIC, could be invalidated.
Mercantile Bancorp Files for Bankruptcy to Sell Assets
Mercantile Bancorp Inc., an Illinois bank holding company, sought bankruptcy protection with an agreement to sell virtually all its assets to United Community Bancorp Inc. for about $22.3 million, Bloomberg News reported today. The Quincy, Ill.-based company listed debt of more than $50 million and assets of less than $50 million in chapter 11 documents filed yesterday. Mercantile was forced to seek bankruptcy protection from creditors after “the precipitous decline in the financial markets during 2007 and 2008, foreclosure rates, delinquency rates and default rates” at the six subsidiary banks caused them to suffer “tremendous losses,” Chief Executive Officer Lee Roy Keith said in an affidavit. The company sold three of those bank subsidiaries in 2009 for $53.6 million, in an attempt to “right the ship.” The efforts were unsuccessful and its Heartland Bank and Royal Palm Bank were closed by state regulators in July 2012 and the Federal Deposit Insurance Corp. took over as receiver.
BofA Rebuffs AIG Mediation Bid on 8.5 Billion Accord
Bank of America Corp. said that it won’t renegotiate its $8.5 billion mortgage-bond settlement with investors after American International Group Inc., which opposes the deal, sought mediation, Bloomberg News reported yesterday. Bank of America won’t participate in mediation proposed by AIG and other opponents and “will not otherwise engage in any renegotiation,” Elaine Golin, an attorney for the lender, said in a June 25 letter filed yesterday in New York state court. A hearing to approve the settlement began earlier this month before Justice Barbara Kapnick in Manhattan. The agreement has the backing of a group that includes BlackRock Inc. The hearing is scheduled to resume July 8.
Libor Scandal Tars ICAP Executive
A top executive at brokerage firm ICAP PLC knew of an arrangement with UBS AG that U.S. and British regulators allege was part of a scheme to rig benchmark interest rates, the Wall Street Journal reported today. The ICAP executive, David Casterton, was included on emails between ICAP and UBS officials in 2007 as they negotiated a deal that regulators say was designed to compensate ICAP brokers for helping UBS traders manipulate the London interbank offered rate (Libor), and Casterton ultimately signed off on the arrangement. British regulators have described the arrangement, which they say involved UBS making quarterly payments to ICAP allegedly to reward brokers for helping rig Libor, as "corrupt." The Swiss bank admitted wrongdoing when it settled Libor-rigging charges with U.S. and British authorities last December.