Daily Archives: September 20, 2012

Revealed: Barclays’ Whistleblowing Reforms

Barclays has embarked on a root-and-branch overhaul of its whistle-blowing arrangements in the wake of the Libor-rigging scandal that plunged the bank into crisis.

I have learned that Barclays is considering outsourcing the handling of the hotline it operates to allow employees to alert senior managers to potential malpractice. Such a move would be significant and break with established industry practices.

The disclosure of Barclays’ review was made in its submission to the Parliamentary Commission on Banking Standards, which is expected to make a number of recommendations on reforming the sector by the end of the year.

The Commission was set up following a summer of scandal, which saw Barclays lose its chairman, chief executive and chief operating officer after being fined more than £290m for attempting to manipulate the benchmark interbank borrowing rate Libor over several years.

Since the bank was fined by regulators in the UK and the US, significant evidence has emerged demonstrating widespread knowledge both inside and outside Barclays during the period in which the rate-fixing was taking place.

In its submission to the inquiry, Barclays said:

“One way in which banks ensure there is an outlet for employees to raise concerns, and where they do not feel able to do so via line management, is whistle-blowing. Whistle-blowing arrangements have operated for many years and are frequently subject to internal and external audit. Barclays’ policy on whistle-blowing allows all employees to report concerns in good faith without fear of reprisal or any other detrimental or discriminatory action taken against them, and provides the means, including dedicated hotlines, for this to happen.

“But there are always improvements that can be made to this type of process. Barclays is presently reviewing its whistle-blowing arrangements, including whether outsourcing the operation of its whistle-blowing hotline would improve its effectiveness and the number and quality of concerns that employees raise. Evidence demonstrating that employees are deterred from raising concerns because the hotline is operated internally is hard to come by.”

Read on.

Ex-JPMorgan Trader Accused of Mispricing Sues Over Dismissal

ept. 19 (Bloomberg) — A former JPMorgan Chase & Co. commodities trader, who was fired after the bank spotted a series of unusual aluminum trades, sued for unfair dismissal.

Daragh Nott, a trader at JPMorgan before being dismissed in September 2011, mispriced more than 70 separate trades of the metal, a compliance officer for the bank said during cross- examination at a U.K. employment tribunal hearing yesterday.

The investment bank “spent a long, long time trying to see if we had missed anything,” Nigel Baines, part of JPMorgan’s London compliance team, said in court. “We were lost for an explanation” for the trades.

Traders have increasingly turned to U.K. courts in employment disputes during the financial crisis, with varying degrees of success. JPMorgan in March won a currency trader’s case seeking 580,000 ($941,750) over a missing decimal point in his contract. Commerzbank AG was ordered in May to pay 50 million euros ($65.1 million) to more than 100 Dresdner Kleinwort bankers who sued over bonuses.

Read on.

US watchdog says JPMorgan unit may have broken power market rules

(Reuters) – U.S. power market regulators challenged a unit of JPMorgan Chase & Co on Thursday to show that it did not violate federal regulations by submitting misleading information and omitting facts in dealings with the regulator and California’s electricity grid operator.

The U.S. Federal Energy Regulatory Commission (FERC) on Thursday said the bank may have violated regulations under the Federal Power Act by failing to comply with a data request in a timely manner, among other allegations.

Further to that, the unit, J.P. Morgan Ventures Energy Corp, is ordered by FERC to show why “its authorization to sell electric energy, capacity and ancillary services at market-based rates should not be suspended.”

The bank has 21 days to respond to the show-cause order.

Read on.

Child Actors Sue Bank of America

LOS ANGELES (CN) – Bank of America illegally allowed withdrawals from “Coogan accounts” for child entertainers, a class action claims in Superior Court.
California’s Coogan law is named after child star Jackie Coogan, who sued his mother as an adult after he found out she had spent the millions he made during the silent film era. Of the $4 million he earned as a child actor, Coogan recovered only $126,000. He went on to play Uncle Fester on the television version of “The Addams Family.”
The Coogan Law was enacted in 1939, but it was ineffective in protecting minor actors’ earnings until several loopholes were closed in 2000.
Under its present form, minors’ earnings from their entertainment work are property of the child, with parents acting as fiduciaries until their children are old enough to control their own money.
In the new complaint, trustees for two minor plaintiffs claim Bank of America bank allowed money to be taken from Coogan accounts before the account holders turned 18.
“Plaintiffs bring this class action on behalf of all similarly situated current and former customers of Bank of America who maintain or have maintained Coogan Trust Accounts with defendants from which defendants have made or allowed withdrawals, including but not limited to withdrawals for monthly service fees, without court approval, at any time in the four years preceding the filing of this action to the present,” the complaint states.

Read on.

Kentucky AG Conway Sends Mortgage Foreclosure Info to Homeowners

Kentucky Attorney General Jack Conway Wednesday announced that under the terms of the national mortgage settlement, two million postcard notices have been mailed this week to U.S. homeowners who lost their homes to foreclosure between Jan. 1, 2008 and Dec. 31, 2011.

Notices were mailed on Sept. 17 to bout 5,400 Kentucky homeowners who were foreclosed upon during the relevant time period, and who are now eligible for payments totaling $10.7 million, according to a news release from Conway’s office.

Depending upon the number of eligible participants, the amount payable to these borrowers will be up to $2,000 per eligible household. To be eligible, homeowners must have had loans serviced by Ally/GMAC, Bank of America, Citi Bank, JP Morgan Chase or Wells Fargo and lost their homes either through sheriff sale, short sale or deed in lieu of foreclosure between Jan. 1, 2008 and Dec. 31, 2011.

“In communities across Kentucky and the nation, homeowners affected by the mortgage foreclosure crisis are getting much needed relief as a result of this historic settlement,” Conway said. “This settlement is about providing second chances for those who have lost their homes or owe more than their homes are worth. If you believe you are eligible for relief under this settlement, please watch for important communications from my office in the coming days and weeks.”

The postcard notice was mailed to the last known address of eligible borrowers based on records obtained from the banks. The postcard will be followed by a letter on Office of the Attorney General letterhead instructing these borrowers how to apply for monetary benefits under the settlement. A copy of the notice is available at http://ag.ky.gov/mortgagesettlement/Documents/mortgage_settlement_notice.pdf.

A follow-up letter with paperwork to complete will be sent directly to consumers from the attorney general in October. An example of the letter may be viewed by using the following link http://ag.ky.gov/mortgagesettlement/Documents/mortgage_settlement_letter.pdf . Homeowners should receive a letter and claim form from the Attorney General by Oct. 19.

Read on.

Bank Of America To Fire 16,000 By Year End

From the WSJ:

The reductions for the final six months of the year, outlined in a document given to top management, are part of a larger effort to retool Bank of America into a leaner and more focused enterprise. The plan is designed to make the company take less risk, generate more revenue out of existing customers and use an investment banking operation inherited from Merrill Lynch & Co. to become a major deal maker around the world.


On Main Street, the refocused company will have fewer branches and a smaller mortgage operation, the document shows.


Chief Executive Brian Moynihan is trying to speed the company’s transformation into a smaller and more efficient operation as he tries to persuade investors that expenses can be adjusted to compensate for revenue lost to new regulations, an uneven economy and shaky markets. Since becoming CEO in 2010, he has shifted away from a nationwide expansion strategy embraced by his predecessors Hugh L. McColl Jr. and Kenneth D. Lewis, and shed many of the businesses that he considers to be nonessential.


Hitting the new staffing target would fulfill a year early Mr. Moynihan’s pledge to slash the bank’s workforce by approximately 30,000.


“If they want to make any headway toward improving profitability,” said Sterne Agee & Leach Inc. senior banking analyst Todd Hagerman, “they need to accelerate the timeline.”


In the run-up to the financial crisis, Bank of America’s staff rolls ballooned as the company acquired rival financial institutions and pushed into every corner of the financial system, culminating in the 2009 purchase of Merrill Lynch.


But the 2008 acquisition of Countrywide Financial Corp. turned Bank of America into a huge mortgage lender just as the U.S. housing market collapsed, and left the company more exposed to any other major bank to the severe economic downturn that followed.


While most of the cuts are expected to come from the side of the bank that deals with Main Street, according to the document provided to management, the company has also culled some of its less-experienced investment bankers.


Through the end of the second quarter, Bank of America had reduced the ranks of junior investment bankers by 23% since September 2011, according to the document.

JPMorgan’s mortgage-backed migraine

In a conference call in July on JPMorgan’s second-quarter results, Chief Financial Officer Doug Braunstein told banking analysts that JPMorgan had reached “an inflection point” on mortgage repurchase claims by investors alleging that the bank and its acquirees, Washington Mutual and Bear Stearns, breached representations and warranties about the loans underlying mortgage-backed securities. JPMorgan has paid out $3.4 billion in reps and warranties claims, Braunstein said, but decided to reduce reserves going forward by $215 million, in anticipation of a third-quarter “net repurchase number” of “approximately zero.”

I’m not sure exactly how to interpret Braunstein’s comment, since it’s not clear to me what’s packed into JPMorgan’s “net repurchase number”; MBS issuers often assert their own put-back claims against mortgage originators, for instance. But JPMorgan still has an enormous put-back claim by a group of major institutional investors in almost $100 billion of mortgage-backed notes hanging over its head. And lately, the MBS headlines have all been about repurchase claims against JPMorgan. I’ve said it before: Bank of America’s MBS woes are so 2011. These days, at least when it comes to private-label litigation, it’s all about JPMorgan.

Read on.

Nomura economist goes undercover to NY mortgage lender, pretended to be a homebuyer

Nomura economist Richard Koo took a economic tour of the world recently, and Business Insider highlighted what he found out about U.S. housing.

Data released this week show things are looking up. Home sales, builder confidence are up while affordability remains low.

And even lower for Koo.

He went into a bank in New York, one of the largest in the country, and received a variety of offers and great deals. It suggests lending may be easing – at least for large investment bank economists.

The bank offered to make his first monthly payment of $2,500 and write a loan for him with just 5% down. He also got the option of a fixed-rate mortgage that automatically reset to a lower rate if they fell further – this without all the refinancing paperwork that goes with it.

Read more here.

What will be the decision of U.S. District Judge Mariana Pfaelzer in the FHFA-BofA case?

I had posted yesterday on the blog that Bank of America  was seeking to dismiss lawsuit filed by the FHFA regarding the mortgage-backed securities. Here is the article. Click here. FHFA sued BofA, JP Morgan Chase, and other banks last year.  U.S. District Judge Mariana Pfaelzer is considering  the request at a hearing that was yesterday.

Deadly Clear emailed me this statement about Judge Pfaelzer:

Las Vegas oddsmakers say 7:5 odds if the Treasury wants her to go with BofA she will…

Check out Judge Pfaelzer’s financial disclosure statement of 2010. h/t Deadly Clear:

BofA Seeks to Dismiss FHFA Suit Over Mortgage-Backed Securities

Bank of America Corp.’s Countrywide Financial unit is asking a judge to throw out claims for “billions of dollars” in damages by the Federal Housing Finance Agency for mortgage-backed securities bought by Freddie Mac and Fannie Mae.

The agency’s federal and state securities law claims are time-barred, lawyers for Countrywide said in a Sept. 7 filing in support of their request to have the claims thrown out. U.S. District Judge Mariana Pfaelzer in Los Angeles is considering the request at a hearing today.

Read on.