Banks eye AIG’s $47 billion in toxic assets held by NY Fed: WSJ

NEW YORK, Fri Mar 16, 2012 – Several banks including Goldman Sachs have shown an interest in buying American International Group Inc’s. complex and troubled assets tied to the insurer’s bailout, the Wall Street Journal said, citing people familiar with the matter.

The troubled assets, which are held by the Federal Reserve Bank of New York, are valued at about $47 billion at face value, the paper said. These toxic assets were acquired by New York Fed as a part of the AIG bailout at the height of the financial crisis.

Banks including Barclays PLC’s Barclays Capital unit, Credit Suisse Group AG and Goldman Sachs are among the ones interested in buying the complex mortgage-backed assets at around their current market value, the Journal said, quoting people familiar with the matter.

A few interested buyers have approached the New York Fed about the collateralized debt obligations. However, the people told the paper that they do not yet expect any imminent sales.

None of the parties were immediately available for comment when contacted by Reuters.

More U.S. customers changed banks last year: survey

NEW YORK – Nearly 10 percent of customers of U.S. banks moved their accounts last year, often after they became frustrated with fees and the quality of service, market research firm J.D. Power and Associates said on Monday.

The rate of customer defection from a primary bank to another institution was 9.6 percent, up from 8.7 percent the previous year and 7.7 percent two years before, the firm said, citing data gathered in November and December.

One-third of customers of the biggest banks and large regional institutions who switched said fees were the main reason they looked for a new bank. More than half of customers who cited fees as the reason to defect said their bank had provided poor service.

“New or increased fees are the proverbial straws that break the camel’s back,” said Michael Beird, director of the banking services practice at J.D. Power, a unit of the McGraw-Hill Companies Inc.

Banks seek to avoid Volcker rule ‘fire sale’

WASHINGTON/CHARLOTTE ― U.S. banks want regulators to give them more time to liquidate investments in certain private equity funds under the Volcker rule, arguing that without more leeway they will have to hold “fire sales.”

The Volcker rule, a part of the 2010 Dodd-Frank financial oversight law that tries to make the financial system safer, greatly restricts the amount banks can invest in hedge and private equity funds.

Banks already have been trying to shrink their private equity portfolios.

But they fear certain funds with a longer time horizon, such as those tied to real estate, will take longer than the general timeframe of five years laid out in the Volcker rule to sell the assets at decent prices.

“You are going to have to go out and sell to third parties, who are not banking entities, that are salivating, just waiting for this to happen because all of these interests will be sold at significant discounts,” said one bank executive, who asked that neither he nor his bank be identified so he could talk freely about their planned appeal to regulators.

Supporters of the law dismiss these concerns and said banks are simply trying to get a break and weaken the Volcker rule.

“If you can’t sell something in five years it really raises a more fundamental issue as to how it is being valued,” said Dennis Kelleher, president of Better Market, a non-profit group that supports the Volcker rule.

Wayne Abernathy, a top official with the American Bankers Association, said part of the concern is that if banks all get out of certain assets at the same time there will be liquidity problems in those markets.

“Who’s going to pick up the slack quickly enough so the markets don’t see a big hiccup,” he said.

As banks squeeze, alternative lenders are gaining traction

NEW YORK ― Alternative finance firms, from credit unions to online and pawn lenders, are gaining traction as banks turn off the tap for easy cash and start charging fees for services that customers have had for free.

Some 60 million Americans — close to a fifth of the adult population — were under-banked or un-banked in 2009, according to the Federal Deposit Insurance Corp. That number is likely to rise as banks choke off free checking, and adjust to new rules that cut into their revenue.

Bank of America, Citigroup Inc, J.P. Morgan Chase, Wells Fargo & Co, PNC Financial, Suntrust and others are beginning to charge for once-free services, making a bank account more of a luxury to those living on a tight budget.

“Credit unions are an alternative source for the kind of services a bank provides,” said Professor Lawrence White of New York’s Stern School of Business.

“I’m hoping they would see the un-banked as part of their mission. That would be the most socially worthwhile thing they could do.”

Credit unions, which are effectively not-for-profit co-operatives, are stepping up to offer cheaper alternatives to the short-term, high-interest loans provided by payday lenders.Demand for short-term, small-dollar loans from credit unions rose 52 percent in the second quarter, National Credit Union Administration data showed. More aggressive selling by these unions will have seen that rise further in the third quarter.

Livonia, Michigan-based Co-Op Services Credit Union has begun a “Shred My Card” campaign offering $105 to people who open a free checking account with a direct deposit and who cut up their bank debit card.

“We want consumers to know they can fight back against big banks by saying ‘no’ to more fees. They should give credit unions a close look,” Bill Cheney, Chief Executive of the Credit Union National Association, said in a statement.

The credit unions are also lobbying to have their business lending cap more than doubled to 27.5 percent of assets so they can better target small businesses unable to access bank funding.

Fast TARP exit meant less capital for some banks: U.S. audit

WASHINGTON ― Some large U.S. banks would have stronger capital bases to better deal with today’s market stresses had regulators not relaxed bailout repayment criteria in late 2009, a new government audit showed on Friday.

Bank of America, Citigroup, Wells Fargo and PNC Financial were allowed to exit the Troubled Asset Relief Program without raising as much equity capital as initially prescribed by the Federal Reserve, the TARP Special Inspector General said in the report.

Following bank stress tests earlier in 2009, the Fed gave several banks guidance that they must raise $1 in common equity for every $2 in TARP bailout funds repaid — a formula meant to enable them to withstand future stresses.

But this standard — which was never previously made public — was quickly relaxed, allowing Bank of America, Citi and Wells Fargo to repay taxpayers nearly simultaneously in December 2009, raising a combined $49.1 billion in equity capital.

Enforcement of the $1 in equity for every $2 repaid guidance would have required $57.5 billion in equity capital to be raised by the three institutions. PNC was later allowed to exit TARP under similar relaxed guidance.

“It’s certainly a missed opportunity to get these banks out of TARP with not only more capital but higher quality capital, which could have had long-lasting consequences in strengthening their capital base,” TARP acting special inspector general Christy Romero told Reuters.

She said regulators “bowed” to pressure from the banks, who were keen to escape executive compensation restrictions associated with the bailout funds. But there was also pressure from the Treasury to allow them to exit TARP more quickly and repay taxpayers, she said.

U.S. bank shares, particularly those of Bank of America, have been hit by funding concerns amid market turmoil this month and Moody’s Investors Service last week cut credit ratings for B of A, Citi and Wells Fargo.xxThe SIGTARP report does not specifically address the current market concerns, but Romero said the original Fed exit guidance was aimed at providing ample and high-quality capital to absorb potential losses and demonstrate the banks’ viability to investors.

“What you see today is the banks selling off assets. While that may raise capital, it’s a one-time hit, and also you’ve just lost potential sources of revenue generation,” Romero said.

The report quotes U.S. Treasury Secretary Timothy Geithner as saying that Treasury pursued a “forceful strategy of raising capital early” to pressure on banks to sell shares sooner rather than later. “We thought the American economy would be in a better position if the firms went out and raised capital,” the report quoted him as saying.

Geithner often cites the U.S. bank stress tests and bank capital raisings of 2009 as a major source of strength for the U.S. financial system and is now pressing European policymakers to ensure their banks have adequate capital to withstand sovereign debt problems.

Tim Massad, Treasury assistant secretary for financial stability, said taxpayers stand to earn more than $20 billion from bailout investments in U.S. banks.

“Treasury wanted the major banks to raise private capital and repay taxpayers because that was necessary to restore stability and strength to the financial system,” he said.

Regulators not swayed by bank capital complaints

WASHINGTON ― Global banks aggressive push to scale back or postpone new capital rules for the world’s largest banks is being met with little sympathy from international regulators who are set to finalize these standards in the coming weeks.

At events across Washington this weekend, set to coincide with meetings of the International Monetary Fund and World Bank, several regulators made clear they believe higher capital standards for large banks are key to making the financial system more stable.

Many regulators sought to push back against specific arguments being put forward by banks.

For instance, banks and their lobbying groups contend the capital standards, agreed to as part of the Basel III agreement, will cause banks to lend less and hurt the economy at a time when recession worries are troubling world markets.

“While the worsening global economic outlook has implications for bank performance, it does not provide a rationale for delaying the implementation of Basel III,” Bank of Canada Governor Mark Carney told the annual meeting of the Institute of International Finance , a bank lobbying group, on Sunday.

New York Federal Reserve Bank President William Dudley made clear he is unmoved by the argument that it is difficult to determine all the banks that are systemically important, or SIFI’s, and who would have to meet the additional capital surcharge.

“I appreciate that it is impossible to calibrate ‘SIFIness’ precisely, but this is not a valid argument for no surcharge,” Dudley said at an event sponsored by the Bretton Woods Committee on Sept. 23.

“The logic behind the SIFI surcharge is that the failure of a systemically important institution would generate a very large shock to the rest of the financial system,” Dudley added. “As a consequence, it makes sense to require higher capital for such firms to reduce their probability of failure.”

At issue is the new capital requirements set out in the Basel III international regulatory agreement.

The agreement, which is to be phased in from 2013 through 2019, will require banks to maintain top-quality capital equal to 7 percent of their risk-bearing assets.

Banks have mostly agreed this minimum level is necessary.

On top of that, however, global “systemic” banks may have to hold up to an additional 2.5 percent buffer, which will impact about 28 of the world’s biggest banks.

This provision is likely to hit banks like JPMorgan Chase, Goldman Sachs and Deutsche Bank and has been the source of much consternation in the banking industry.

The Basel Committee of global regulators is due to finalize plans Tuesday and Wednesday for the surcharge on large banks, which will be phased in between 2016 and 2018.

U.S. bank earnings continue to increase, FDIC questions for how long

WASHINGTON ― U.S. bank earnings continue to increase but the prospects for earnings growth are dimming as banks are having trouble boosting revenue.

The Federal Deposit Insurance Corp said on Tuesday that the industry earned $28.8 billion in the second quarter, a $7.9 billion increase from a year before.

That number is down slightly from the $28.9 billion in earnings recorded during the first quarter.

The agency again warned that earnings increases are mostly due to banks setting aside less to guard against losses from bad loans.

“As the levels of loss provisions approach their historic norms, the prospects of earnings improvement from further reductions in provisions diminish,” FDIC Acting Chairman Martin Gruenberg said at a news conference on the release of the agency’s quarterly banking report.

Bank revenues continue to fall.

During the second quarter net operating revenues fell $3 billion, or 1.8 percent, from the levels recorded a year ago, the agency said.

In a positive sign for the industry, bank loan balances grew during the second quarter for the first time in three years, up $64.4 billion, or 0.9 percent.

Gruenberg highlighted the increase but added a note of caution.

“A significant portion of the overall growth in loans represented intra-company lending between related banks,” he said. “Lending activity still has a long way to go before it approaches more normal levels.”

The KBW Bank Index .BKX of stocks is down about 33 percent this year as investors fear a sputtering U.S. economic recovery and contagion from the European debt crisis.

There was evidence in the report of how the industry continues to recover from the doldrums of the 2007-2009 financial crisis.

The number of banks on the agency’s “problem list” fell for the first time in 15 quarters, dropping to 865 in the second quarter from 888 in the first quarter. There have been 68 bank failures so far this year, mainly small institutions.

The deposit insurance fund that the FDIC uses to cover the cost of failed banks moved into positive territory for the first time in two years.

At the end of the second quarter the fund stood at positive $3.9 billion, improving on a negative $1 billion at the end of the first quarter.

AIG may replace Wall Street banks in next share offer

PHILADELPHIA ― American International Group plans to replace one or more Wall Street banks in its next sale of shares from the U.S. government, The Wall Street Journal reported on Sunday.

AIG has not yet decided which investment banks it would cut, but it plans to make changes in the lead underwriters before the next share sale later this year, Chief Executive Robert Benmosche told the newspaper.

Benmosche was disappointed in the bank’s efforts to drum up interest in the previous offering, the newspaper said.

Only one or two of the four lead firms will change in the lineup, the report said. Some bankers have contacted AIG in an effort to protect the assignment, it said.

AIG’s recent share offering was led by Bank of America Corp, Deutsche Bank AG, Goldman Sachs Group Inc and J.P. Morgan Chase.