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Citibank CEO Has A Moment Of Zen

January 28, 2012 By Leave a Comment

Vikram Pandit Says Big Banks ‘Should Start Serving’ Customers

Catherine New, Huffington Post

Citigroup CEOBig banks are realizing they may actually have to pay attention to customers to keep them.

An unprecedented number of people dumped billion-dollar institutions for smaller banks in 2011, a new report from Javelin Strategy and Research shows. The big switch came as anti-bank rage swelled, driven by the Occupy movement, Bank Transfer Day — and the $5 monthly debit card fee that Bank of America abandoned last fall after a storm of outrage.

“Banks have to start serving clients and really serve them, rather than serving themselves,” Citigroup CEO Vikram Pandit said in a Bloomberg interview in Davos, Switzerland, on Thursday.

Of the 5.6 million people who switched banking institutions from September to December, 11 percent said they cut ties with their big bank because they “wanted to move to a credit union or community bank” and were fed up with fees, according to a survey analysis by Javelin, a financial research firm. In previous quarters, the number of adults who expressed that sentiment was so small the research company couldn’t make a reliable comparison.

The final data from 2011 showed that more people stayed put than moved. But of those who moved, “it was a surge” from big institutions to smaller ones, said Jim Van Dyke, founder of Javelin.

Big banks are now trying to win back good will — and customer revenue.

For Chase, that means focusing on higher net-worth clients, a spokesman told The Huffington Post. Bank of America executives explained in the latest earnings call with analysts that it is closing branches to focus on mobile phone and tablet services.

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Feds Investigating Shenanigans At GE’s Now Defunct WMC Direct

January 21, 2012 By Leave a Comment

Subprime unit WMC mortgage target of federal probe

By Michael Hudson and E. Scott Reckard, iWatchNews

Federal authorities are investigating possible fraud at General Electric Co.’s former subprime mortgage arm amid increased public pressure to hold Wall Street accountable for its role in the financial crisis.

The FBI and the U.S. Justice Department are looking into potentially criminal business practices at Burbank, Calif.-based WMC Mortgage Corp. during the home-loan boom, according to four people with knowledge of the investigation. They declined to be identified because of the sensitivity of the investigation.

The government is asking whether WMC used falsified paperwork, overstated borrowers’ income and other tactics to push through questionable loans, two of the people said. They said the probe appears to be focusing on whether senior managers condoned improper practices that enabled fraudulent loans to be sold to investors.

“It’s mostly about: Did they knowingly sell mortgages into the secondary market that they knew were fraudulent?” said one person with direct knowledge of the investigation.

A spokesman for the FBI declined to comment, and the Justice Department did not return telephone calls.

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Bair Says Its Time To Break Up the Big Banks

January 20, 2012 By Leave a Comment

Customers would benefit, the U.S. government would benefit, and – believe it or not – the big banks themselves would do better. 

Sheila Bair, Fortune

America is downsizing. Whether it’s the food we eat, the cars we drive, or the houses we live in, Americans are concluding that smaller is better. Even U.S. corporations are starting to see the benefit of more Lilliputian institutions; the impending –and widely hailed – breakups of McGraw-Hill (MHP) and Kraft (KFT) are two examples.

So what about banks? It would surely be in the government’s interest to downsize megabanks. Sen. Sherrod Brown (D-Ohio) continues to push his bill to split apart the largest institutions. Regulators have new authority to order divestitures under the Dodd-Frank financial reform law. From a shareholder standpoint, government breakups have a pretty good outcome. It worked out well for John D. Rockefeller, whose shares in Standard Oil doubled after it was ordered to break up. Ditto for those who owned stock in AT&T (T).

Yet with gridlock in Washington, don’t count on politicians for a solution. Shareholders, however, have an interest in demanding that big banks split apart. Comparing the valuation for the supersize banks (Citigroup (C), Bank of America (BAC), and J.P. Morgan Chase (JPM)) with their simpler, leaner competitors isn’t pretty. Price/earnings per share for the supersizers averages 5.8, compared with 8.1 for smaller, more focused Wells Fargo (WFC) and 8.1 for the bigger regional banks like U.S. Bancorp (USB) and PNC (PNC). More telling is the ratio of share price to tangible book value. For the supersizers, the average is 72% of book, compared with 165% for Wells and 142% for the big regionals. Chase’s strong performance holds up the average for the supersizers, but even its price to book is only 110%. Wells’ superior performance suggests that complexity is a bigger drag on returns than size is. Even though Wells’ assets exceed $1 trillion, it has pretty much stuck to its basic business of taking deposits and making loans, and in the process has consistently delivered solid returns.

Before the financial crisis, the supersizers benefited from high levels of leverage and cheap debt funding costs from their “too big to fail” status. All that has changed. Capital requirements are going up significantly for mega-institutions. The cost of borrowing will rise, too, as bondholders come to realize that Dodd-Frank means what it says: no more bailouts. New rules on liquidity, proprietary trading, and derivatives will also eat into earnings. So it is hard to see how the megabanks’ numbers can improve.

Supersizers argue that their scale is necessary to meet the financial needs of multinational corporations. But it’s not clear that multinationals find it advantageous to do business with a handful of financial titans. Dealing with smaller, more focused institutions provides specialized expertise and less risk of conflicts. If there were really that much value in supersizer services, presumably it would show up in shareholder returns. But it doesn’t.

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Spineless Congress Indifferent On GSE Reform

January 15, 2012 By Leave a Comment

Overhaul OF Fannie Mae and Freddie Mac Unlikely

Vicki Needham, The Hill

Freddie Mac logoAn overhaul of Fannie Mae and Freddie Mac is unlikely again this year despite recent Republican efforts to move the issue up the agenda.

Congressional Republicans, along with some Democrats — and even GOP presidential candidate Newt Gingrich — are renewing calls to craft an agreement to reduce the involvement of Fannie and Freddie in the nation’s mortgage market.

But without a broader accord, passage of any legislation this year is slim, housing experts say.

Jim Tobin, senior vice president of government affairs for the National Association of Home Builders, concedes that despite a mix of Democratic and Republican proposals, including a push by the Obama administration last year, congressional leaders probably won’t get far this year on a plan for Fannie and Freddie, the government-controlled mortgage giants.

 

Tobin said there are “good ideas out there” and while he expects the House to put some bills on the floor and possibly pass legislation, the Senate is likely to remain in oversight mode without any “broad-based legislation on housing finance.”

“We’re bracing for a year where it’s difficult to break through on important policy issues,” he said this week.

While the issue makes for a good talking point, especially in an presidential election year, congressional efforts are largely being stymied by the housing market’s sluggish recovery, prohibiting the hand off between the government and private sector in mortgage financing, housing experts say.

David Crowe, chief economist with NAHB, said that the market has hit rock bottom and is now undergoing a “slow climb out of the hole.”

FannieMae logoThe House has taken the biggest steps so far — by mid-July the Financial Services Committee had approved 14 bills intended to jump-start reform of the government-sponsored enterprises.

“As we continue to move immediate reforms, our ultimate goal remains, to end the bailout of Fannie, Freddie and build a stronger housing finance system that no longer relies on government guarantees,” panel Chairman Spencer Bachus (R-Ala.) said last summer.

Meanwhile, a number of GOP and bipartisan measures have emerged — Democrats and Republicans generally agree Fannie and Freddie are in need of a fix but their ideas still widely vary.

There are a handful of bills floating around Congress, including one by Reps. John Campbell (R-Calif.) and Gary Peters (D-Mich.), and another by Reps. Gary Miller (R-Calif.) and Carolyn Maloney (D-N.Y), which would wind down Fannie and Freddie and create a new system of privately financed organizations to support the mortgage market.

“Every one of those approaches replaces them [Fannie and Freddie] with what they think is the best alternative to having a new system going forward that would really fix the problem and would really give certainty to the marketplace and allow housing finance to come back, and therefore housing to come back, as well,” Campbell said at a markup last month.

There’s another bill by Rep. Jeb Hensarling (R-Texas) and bills in the Senate being pushed by Sens. Bob Corker (R-Tenn.) and Johnny Isakson (R-Ga.).

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