When the godfather of mortgage securitisation speaks, you listen.
This week Lewis Ranieri devoted a not insignificant amount of time from his Milken conference panelist discussion to Harp 2.0 — the US government’s refinancing programme for underwater mortgages. Read more
Steady loan growth helped boost Wells Fargo’s profits by 20 per cent in the fourth quarter, with non-performing assets dropping 20 per cent — helping to vindicate its focus on consumer lending, the Los Angeles Times reports. Wells’ focus on the bread and butter of banking activities has earned it the title of largest US bank by market value, the FT says. The bank also posted a healthy net interest margin, helped by low deposit rates. At the same time, Wells faces the same pressure to control expenses as its investment-banking focused rivals Citi and JPMorgan, Reuters adds.
New York State’s Department of Financial Services is investigating several large banks to see whether they fraudulently steered homeowners into overpriced insurance policies, reports the NYT, citing a person briefed on the investigation. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are among the banks under scrutiny, the newspaper says, in an investigation into “force-placed” insurance. These insurance policies have been increasingly required by lenders to protect the value of the house if it is damaged after the borrower defaults. The source said the investigators are looking for the potential conflict at Bank of America involving a unit called Balboa Insurance that it owned until last year. That unit’s interaction with the bank’s mortgage servicing is an important focus for Benjamin Lawsky, superintendent of the state’s financial services department. JPMorgan is a focus of the inquiry because in recent years the bank held a small financial stake in an insurance company called Assurant on behalf of its clients.
Investors in US home mortgage bonds may have to swallow losses as part of a wide-ranging settlement being discussed between leading banks and the Obama administration to resolve allegations of foreclosure misdeeds, the FT says, citing people familiar with the matter. Participants in the discussions cautioned that a final agreement remains weeks away and that the terms being discussed could change. However, they said it is likely banks would be able to reduce loan principal on mortgages owned by investors through mortgage-backed bonds. As a result, the five largest US mortgage servicers – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial – would avoid some of the cost of the potential $25bn settlement. Distressed homeowners, who government officials claim were harmed by the banks’ allegedly deceptive practices, could see larger reductions in mortgage principal.
Wells Fargo, the largest US bank by market value, has sold $1.5bn of five-year senior unsecured notes at 175 basis points over comparable Treasuries, says the FT, underscoring the ability of US banks to secure funding at a time when their European competitors are struggling to raise money. US banks’ cost of funds last quarter dropped 20bp from last year to 0.7 per cent, according to the Federal Deposit Insurance Corporation, the lowest quarterly figure recorded in data going back to 1984. The spread between US bank debt and comparable Treasury securities stood at 386bp as of Friday, according to Bank of America Merrill Lynch index data. European bank spreads were at 434bp over government securities. However, because US banks are sitting on a record $10tn in deposits, they have only raised $106bn in debt this year, according to Dealogic. About $14bn of that has come in the past four months. European banks have issued more than $659bn in debt this year.
Massachusetts sued the five biggest mortgage companies in the US on Thursday, accusing them of “corrupting” the state’s land records through pervasive use of fraudulent documentation in seizing borrowers’ homes, reports the FT. The lawsuit throws a wrench into discussions between various federal and state agencies and the five lenders – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial – to settle allegations of faulty mortgage practices. The two sides have been nearing a $25bn deal over the past year to resolve claims sparked by the discovery that the banks employed so-called “robosigners”, or workers who signed foreclosure documents en masse without properly reviewing individual borrowers’ paperwork. Martha Coakley, Massachusetts attorney-general, on Thursday alleged that the banks illegally foreclosed on borrowers’ mortgages because they were not the actual holders of those mortgages, among other accusations. This was due to their failure to properly review, assign and transfer critical paperwork, she said, adding that the banks “had no legal right to conduct the foreclosure”.
Fears about the health of US consumer balance sheets grew on Monday, the FT reports, as Citigroup and Wells Fargo joined JPMorgan Chase in reporting new signs that homeowners and credit-card borrowers are falling behind on their payments. The banks’ third-quarter results were hit by expected declines in investment banking, reflecting turbulence in global markets. But the reports also revealed weakness in the consumer side of their businesses – with mortgage delinquency numbers suggesting that record low mortgage rates and government loan modification programmes are failing to help a large swathe of homeowners. Overall revenues fell 8 per cent at Citigroup year-on-year and 6 per cent at Wells, sending their shares down 1.7 per cent and 8.4 per cent, respectively. The S&P 500 index fell 1.9 per cent. Wells said delinquencies of more than 90 days in its main portfolio of consumer loans – including mortgages and credit cards – rose 4 per cent to $1.5bn, the first increase since 2009. Citi’s results, like JPMorgan’s, also included a $1.9bn revenue gain from credit valuation adjustments, FT Alphaville reported.
Citigroup wasn’t the only US banking giant to report results on Monday.
Wells Fargo, America’s fourth biggest bank by assets and second biggest bank by operating income, also released its quarterly earnings statement. It contains less CVA flapdoodle than JPMorgan and Citi but there are some mildly interesting data points nonetheless. Wells is perhaps the bank most susceptible to Operation Twist and its earnings provide a picture of how some of the more vanilla banks are responding to long-term low interest rates, narrowing interest margins and mortgage refinancing. Read more
US bank reporting season is almost upon us and we’re looking forward to investigating the mysteries surrounding the performance of the bulge bracket since the turn of the year.
To give you a sense of how bad it’s been for the 1 per cent, here’s an interesting table from a Goldman Sachs research note published Tuesday: Read more
Bank of America, the largest US bank by deposits, is to charge its customers for using debit cards, as the beleaguered bank tries to claw back revenue in the face of new rules contained in the Dodd-Frank act. BofA said its debit card users would pay $5 a month from early next year when they used the cards to buy goods, though certain “premium” clients will be exempt from the charge, the FT reports. The so-called Durbin amendment to Dodd-Frank, which capped debit card fees paid by retailers, was introduced at the insistence of Dick Durbin, the powerful Illinois senator, in what was widely seen at the time as an attention-grabbing move to help in his ambition to succeed Harry Reid as the Democratic leader in the Senate. The rule comes into effect on Saturday. The NYT says Wells Fargo and Chase are testing $3 monthly debit card fees while smaller banks are also charging as much as $5 a month.
US tax authorities are targeting cross-border finance deals worth billions of dollars between leading US and UK banks as they step up efforts to clamp down on abusive tax avoidance, a joint investigation by the FT and ProPublica has found. Four US banks – BB&T, Bank of New York Mellon, Sovereign (now part of Santander of Spain), and Wells Fargo – are in turn suing the US government over more than $1bn in tax credits that the Internal Revenue Service has disallowed over the past decade. Washington Mutual has settled a similar dispute and Wachovia is pursuing an administrative complaint over a deal. The full report is here.
The lawsuits filed on Friday by the Federal Housing Finance Agency against 17 global banks involved nearly $200bn of mortgage-backed securities but the regulator refused to put a figure on the total losses it was seeking to recover.
To arrive at a very rough estimate, FT Alphaville used the 21 per cent loss ratio claimed by FHFA in its July lawsuit against UBS. We scrawled $40bn (a figure twice as high as Reuters suggested) on the back of our envelopes and headed out for the long weekend. Read more
Big US banks in talks with state prosecutors to settle claims of improper mortgage practices have been offered a deal that is proposed to limit part of their legal liability in return for a multibillion dollar payment. The FT says talks aim to settle allegations that banks including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial seized the homes of delinquent borrowers and broke state laws by employing so-called “robosigners”, workers who signed off on foreclosure documents en masse without reviewing the paperwork. The settlement might also release the companies from legal liability for wrongful securitisation practices, however officials from some states fear such provisions could be too lenient, and both parties stressed that talks remained fluid.
John Paulson’s quarterly 13F filing was released late on Monday and the headlines make for interesting reading. We may go through it in more detail later but we thought this portfolio change-up was worth noting right away:
Monday, August 15, 2011 5:25:30 PM RTRS – PAULSON & CO INC RAISES SHARES STAKE IN WELLS FARGO & CO WFC.N BY 64 PCT TO 33.6 MLN SHARES Read more
Wells Fargo has been hit with a record $85m civil penalty by the Federal Reserve over allegations it had steered borrowers into subprime loans and falsified information on mortgage applications, the FT reports. The fine is the largest penalty the Fed has levied in a consumer protection enforcement case and is the first time that a regulatory agency has taken action over faulty subprime practices, the Fed said in a statement on Wednesday. The bank will have to compensate customers who were eligible for lower interest rate loans but were persuaded by Wells Fargo Financial staff to take out costlier subprime loans. The fine also settles allegations that salespeople at the unit exaggerated borrowers’ incomes on loan applications to make it appear that they qualified for loans for which their true incomes would have made them ineligible.
Bank of America on Tuesday sought to address concerns that it might need to raise capital, providing more information about its plans to meet Basel III capital requirements as the bank revealed a net loss of $8.8bn for the second quarter, reports the FT. Costs of settling cases related to lax real estate lending more than outweighed underlying improvement in credit trends, with the US’s largest bank reporting a net loss of 90 cents a share in the second quarter, compared with net income of 27 cents a share in the same period last year. The results contrasted with the fortunes of Wells Fargo, the US’s fourth-largest lender, which also on Tuesday posted a 29 per cent rise in second-quarter profit to $3.9bn, as write-offs of bad loans fell and the bank drew down $1bn in reserves against future losses. BoA’s results were in line with guidance given in June when the bank announced it had settled claims with investors in mortgage bonds at its Countrywide unit, agreeing to pay $8.5bn to holders of some 530 securities. At the time, it said the quarter would see a further $5.5bn charge to cover other claims.
US stocks are up slightly today, and the rally is happening entirely in the so-called “real” economy.
As per the norm since earnings season kicked off last week, financials are underperforming — here’s a look at the S&P vs the KBW bank index: Read more
Capital One Financial and Wells Fargo are among the bidders for HSBC’s US credit card portfolio, Reuters says, citing sources familiar with the situation.First Niagara Financial Group, KeyCorp, and M&T Bank are among the bidders for the bank’s upstate New York branches. The asset sales are part of HSBC chief executive Stuart Gulliver’s plan to turn around Europe’s largest bank by focusing on its main businesses.
Bank of America has set aside a total of $14bn to meet investors’ claims that loans packaged in mortgage-backed securities before the financial crisis failed to meet promised underwriting standards. The FT reports provisions will wipe out BofA’s profits during the second quarter and underline the high price the bank is paying to move beyond the crisis and its disastrous 2009 acquisition of Countrywide Financial. BofA said it had settled claims with 22 investors in Countrywide mortgage bonds, agreeing to $8.5bn to holders of some 530 securities. The bank said it would record another $5.5bn in charges to cover additional claims from government-owned mortgage companies as well as other private investors. In addition, BofA said it could eventually face as much as $5bn in additional claims over its underwriting standards from other banks. Shares in other banks including JP Morgan Chase, Citigroup and Wells Fargo all rose on hopes the BofA settlement could provide a template for other banks facing MBS claims, says Dow Jones.
Wells Fargo reported a 48 per cent increase in first-quarter profit, but the stock sank in morning trading on concerns about revenue and loan growth, highlighting the fragility of the economic recovery, the FT reports. The fourth-largest US bank by assets on Wednesday reported net income of $3.8bn, or 67 cents a share, compared with $2.5bn, or 45 cents, in the same quarter last year.
Wells Fargo has agreed to pay $11.2m to settle civil charges that its Wachovia Capital Markets unit improperly sold two complex securities backed by residential mortgages to investors just as the housing market was beginning to unravel, reports the FT. The Wachovia investigation is part of a broader inquiry by the SEC into how Wall Street banks packaged and sold collateralised debt obligations – complex securities backed by the cash flow of residential mortgages – as the housing market began to collapse in late 2006 and early 2007. The NYT examines the background to the Wells Fargo cases.
The SEC is preparing to bring civil charges against Wachovia, the once-troubled bank now owned by Wells Fargo, for allegedly overpricing mortgage-bond deals, the Wall Street Journal reports, citing people familiar with the matter. The agency has focused on the amounts Wachovia charged investors for CDOs, and SEC officials believe the Charlotte-based bank applied excessive markups that didn’t reflect the diminishing value of the underlying loans, the people said. The Wachovia inquiry is part of a broader probe by the SEC into Wall Street’s sales of about $1,000bn worth of CDOs.
The US Federal Reserve has rejected Bank of America’s plan to raise its dividend in the second half, dealing the lender and its shareholders an unexpected blow just as rivals prepare to increase quarterly pay-outs, reports the FT. The setback stands in contrast to the triumphant tone struck by JPMorgan Chase and Wells Fargo as they announced plans to return more capital to shareholders. BofA’s proposal was part of a battery of stress tests the Fed conducted on 19 large US financial institutions.
US hedge fund manager John Paulson has pared his stakes in Citigroup and Bank of America, both among Paulson & Co’s biggest stock holdings by market value, reports DealJournal, citing the group’s quarterly snapshot of investment holdings as of Dec 31. Paulson reported buying bonds of Alcoa, and shares of BlackRock, Seagate and J. Crew since the end of the 2010 third quarter. Paulson reporting owning 424m shares of Citi at the end of September. On Monday, he disclosed owning nearly 414m shares. In the same period, Paulson’s holding of 138m BofA shares was cut to about 124m; he also holds BofA warrants. Dow Jones adds that Paulson also trimmed back his holdings in Wells Fargo in the period.
The Federal Reserve has updated its indicators for systemic risks posed by US banks, with some interesting results, FT Alphaville reports. ‘By our relative measure since the summer of 2007, Bank of America and Wells Fargo’s contributions to systemic risk have risen, JPMorgan Chase has seen some decreases, and Citigroup’s share has remained the largest,’ says the Fed’s study paper, which looks at CDS spreads and asset correlations. The findings might offer an interesting coda to the FCIC’s report on the financial crisis released yesterday. “Even Goldman Sachs, we thought there was a real chance that they would go under,” Federal Reserve chairman Ben Bernanke is quoted as saying in the report, according to the FT.
Wells Fargo, the fourth-largest US bank by assets, said on Wednesday that quarterly lending had risen for the first time since the financial crisis, reports the FT. The San Francisco-based bank said 4Q earnings rose 21%, boosted by a release of reserves to cover non-performing loans. Total loans grew $3.6bn to $757.3bn as the bank provided $210bn in credit to consumers and businesses in the period, a 20% quarterly increase and the highest quarterly outlay since its 2008 acquisition of Wachovia. DealBook notes that despite its heavy involvement in the lending industry, Wells has quietly emerged from the crisis as one of the strongest US banks, vital as it looks to increase its dividend, stuck at 5 cents for nearly two years.
Earnings reports from US banks on Wednesday highlighted the diverging fortunes between Main Street and Wall Street as Goldman Sachs reported that a trading slump had hit 4Q earnings, while Wells Fargo and US Bancorp showed they benefited from improved consumer sentiment, reports the FT. Goldman reported lower-than-expected 4Q revenues, as increased investment banking activity only partially off-set a slide in fixed income trading. Goldman shares fell more than 2% in New York after it reported 4Q earnings per share of $3.79, down 54% from a year ago but in line with analysts’ forecasts. Its $8.6bn in revenues for the quarter, however, fell short of expectations. Despite improved disclosure about its earnings, notes DealJournal, Goldman’s ‘glasnost’ doesn’t go far enough. MarketBeat meanwhile reports analysts’ takes on the results, while Lex notes how favourably Wells Fargo compares for investors.
The diverging fortunes of Main Street and Wall Street were highlighted as a trading slump hit Goldman Sachs’ fourth-quarter results, while Wells Fargo and US Bancorp benefited from the gradually healing fortunes of US consumers, reports the FT. Goldman surprised investors by reporting lower-than-expected revenues in the last three months of the year as a sharp fall in income from fixed income trading was only partially offset by a rise in investment banking activity. Shares in Goldman had fallen more than 2 per cent by early afternoon in New York on Wednesday after it reported fourth-quarter earnings per share of $3.79, down 54 per cent from a year ago but in line with analysts’ forecasts. Its $8.6bn in revenues for the quarter, however, fell shy of Wall Street expectations.
Citigroup on Tuesday reported fourth-quarter earnings that disappointed investors and sent its shares sharply lower, despite its first full-year profit since 2007, the FT reports. Citi’s poor performance in the last quarter of 2010 overshadowed its full-year profit of $1.31bn and its claims of regaining ground lost in the financial crisis, Citi shares were down by more than 6% to $4.78 on Tuesday in New York after it reported 4Q earnings per share of $0.04, well below analysts’ expectations of $0.08, despite a $2.2bn reduction in loan loss provisions. Unusually active trading in Citi stock weighed on the overall market and on shares of peers such as BofA and Wells Fargo, which report results this week. DealJournal notes a further disappointment for Citi’s investors was Tuesday’s confirmation that dividends will have to wait until next year.