Tuesday, September 11, 2012
Updated every business day, circa 9 a.m. ET. To receive by email, click here. Links may require registration/subscription.
Receiving Wide Coverage ...
Wait a Minute … Do Bailouts Work?: That seems to be the question following the Treasury Department's now official sale of a massive chunk of AIG stock it purchased at the height of the financial crisis. According to the Journal, the Treasury sold shares to the public at $32.50 apiece, netting $18 billion, and bringing the federal government's return on its original $182.3 billion investment in the insurance firm to a combined total of $194.7 billion (or $12.4 billion in profit). So were the bailouts a necessary evil? Dealbook's Andrew Ross Sorkin, not surprisingly, seems to think so. In this column (which isn't so much a column as it is a transcript of the "told-you-so" conversation he had with former SIGTARP-turned-author Neil Barofsky), Sorkin essentially elaborates on the thesis posed at the end of his bailout book "Too Big to Fail": "As distasteful as the rescue effort was, it should be clear by now that without it, we faced an economic Armageddon. And the results thus far of bailing out the big banks, and AIG, indicate a profit."
But other news outlets were quick to point out there are still plenty of outstanding bailouts to go around with General Motors, Fannie Mae, Freddie Mac and "many mid-sized and small banks" among those still in the government's debt. In fact, according to ProPublica's Bailout Tracker, the Treasury is still out $197.6 billion of the $604 billion it spent, invested or loaned to help failing firms during the financial crisis. So maybe we need to wait a little bit longer to truly deem the effort a success or failure.
Libor, Before and After: Speaking of failures, Libor is back in the news today with the Journal drumming up more evidence that the London interbank offered rate required more oversight prior to the rigging scandal. Meeting notes from 2008 indicate Angela Knight, head of the British Bankers' Association, told Bank of England officials Libor had become too big for her organization to manage. "Her suggestion went nowhere," the paper writes. "Even as Libor's deep flaws became apparent, regulators resisted a greater oversight role, the BBA's member banks clung to control of Libor, and BBA executives bickered with one another over whether to hang onto the lucrative business." The BBA declined to comment on the specific allegations, but maintains "there has been clear consensus" regarding the approach to Libor within the organization.
Investors and companies currently have a clear consensus on how they would like U.K. regulators to handle their overhaul of the Libor system. According to the FT, "many corporate and investor users of Libor" fear rapid and radical rate reform would trigger chaos for $300 trillion in existing debt and derivative contracts reliant on the measure. In submissions to the U.K.'s Libor consultation board, many of these investors urged regulators to focus on reforming the Libor rate itself in lieu replacing it with another benchmark.
Wall Street Journal
Moody's is maintaining its negative outlook on British banks and warning that some of these financial institutions could face further downgrades due to "anemic economic growth, higher regulatory costs and exposure to financially stressed euro-zone countries."
"The most thorough analysis of Barclays' investment banking operations ever" (Codename: Project Mango) is underway. Barclays executive Rich Ricci is about eight weeks into the analysis of all of banks' 54 business lines, which will lead to cutbacks in some areas.
One of these areas will be Barclays' controversial tax unit. The British bank announced on Monday the unit "will be shrunk dramatically as part of the bank's Project Transform" — not to be confused with Project Mango — as Barclays refocuses on its investment arm and tries to revamp its image following its involvement in the Libor-rigging scandal.
New York Times
The U.K.'s Financial Services Authority has fined BlackRock £9.5 million for failing to protect some of its clients' money after the firm did not obtain letters from third-party banks that held money belonging to its customers. The British regulator has previously fined JPMorgan Chase £33.5 million for not separating client money from the bank's own accounts.
Mutual fund managers are making big profits off of bonds purchased from Portugal, Italy, Spain and Ireland.