Daily Archives: November 23, 2012

NY AG Schneiderman noted Cuomo subpoenaed Credit Suisse during his tenure, as part of a larger probe of how credit rating agencies evaluated RMBS

It is worth noting that Schneiderman’s predecessor as attorney general, now-Gov. Andrew Cuomo probed eight banks, including Credit Suisse, on whether they duped the credit agencies :

The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.

The investigation parallels federal inquiries into the business practices of a broad range of financial companies in the years before the collapse of the housing market.

Where those investigations have focused on interactions between the banks and their clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities.

The agencies themselves have been widely criticized for overstating the quality of many mortgage securities that ended up losing money once the housing market collapsed. The inquiry by the attorney general of New York, Andrew M. Cuomo, suggests that he thinks the agencies may have been duped by one or more of the targets of his investigation.

Those targets are Goldman SachsMorgan StanleyUBS,Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is now owned by Bank of America.

Credit Suisse had been recently sued by Schneiderman and accused bank of duping investors in RMBS according to the court filing. However, Cuomo didn’t direct lawsuits against the banks using the Martin Act:

Schneiderman’s predecessor as attorney general, now-Gov. Andrew Cuomo, did not file direct suits against the banks using the Martin Act, as Schneiderman has now done twice. The current AG was asked about this lapse of time.

“From our point of view, we started the investigation a few months after I took office, and first subpoenaed Credit Suisse last June. From my point of view, we proceeded as quickly as we possibly could,” Schneiderman said. “In the scheme of things, our office has moved very, very quickly and put a lot of resources into this and we continue to pursue this in cooperation with our colleagues.”

Watchdog probes US bank over claim it swiped £2.6m from Ireland’s state pension fund

The Financial Services Authority (FSA) is looking into allegations that a US financial services firm overcharged Ireland’s state pension fund during a transaction last year.

It will also investigate whether other UK corporate pension funds, such as Royal Mail and J Sainsbury may have been overcharged, according to the Financial Times.

Ireland’s national debt agency accused State Street Corp of fraud for overcharging the country’s pension fund.

State Street admitted overcharging by £2.6 million when it was hired to manage the sale of 4.7 billion euros of assets to fund the recapitalisation of Ireland’s banks.

Read more: http://www.thisismoney.co.uk/money/markets/article-2237319/Watchdog-probes-US-bank-claim-swiped-2-6m-Irelands-state-pension-fund.html#ixzz2D4qU9e4h

Deutsche Bank chief criticised for skipping Libor hearing

Nov 22 (Reuters) – German politicians accused Deutsche Bank’s co-CEO Anshu Jain of “chickening out” after the bank decided to send his chief compliance officer in his place to a parliamentary hearing on Libor manpulation next week.

Politicians from the Social Democrats (SPD) and Greens attacked the decision not to send Jain, an Indian-born banker who became co-head of Germany’s largest bank in June, to a Nov. 28 finance committee hearing.

“Mr. Jain is chickening out,” said Green party politician Gerhard Schick, calling the decision not to attend “unacceptable”.

Deutsche Bank will instead send Stephan Leithner, head of personnel and compliance. Jain was head of the investment bank at the time the alleged manipulation took place.

Read on.

Former UBS and Now Convicted Trader: Diamond, Dimon’s Early Risks Made Them Better

Kweku Adoboli, the former UBS AG (UBSN) trader jailed over losing $2.3 billion, said financial leaders including JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon and former Barclays Plc (BARC) CEO Bob Diamond were better at making money because of risks taken earlier in their careers.

Adoboli, who was jailed Nov. 20 for causing the largest unauthorized trading loss in British history, said in an e-mail exchange with Bloomberg News that Dimon, Diamond and Yassine Bouhara, the former co-head of global equities at UBS, all lost large amounts of money at some point in their careers.

“The more senior you are the easier it is to avoid getting slammed to the wall,” Adoboli wrote in a Nov. 14 e-mail. “Funny thing is though, losing money seems to make you better at making money. Perhaps that’s why traders who lose money always get rehired, as long as they still have their risk appetite.”

Read on.

Citigroup, Morgan Stanley Sued Over Overseas Shipholding

Citigroup Inc. (C), Morgan Stanley and HSBC Securities (USA) Inc. (HSBA) were among underwriters sued by an investor in a $300 million debt offering by Overseas Shipholding Group Inc. (OSGIQ), which filed for bankruptcy Nov. 14.

The underwriters and Overseas directors and officers signed off on misleading financial documents for the March 24, 2010, offering, according to the lawsuit filed Nov. 21 in New Yorkstate court in Manhattan.

Read on.

More Questions on Mortgage Relief

In February, when five big banks settled with government officialsover evidence of foreclosure fraud, the deal was greeted with skepticism. The banks agreed to provide $25 billion in mortgage relief to hard-pressed borrowers, $17 billion of it from reducing the principal on troubled loans. The government considered that a victory, because banks resist principal reductions, but banks have a reputation for promising amends that never seem to get made.

A new report this week by the Office of Mortgage Settlement Oversight does little to erase the concern. The report shows that from March through September, more than 300,000 borrowers received $26.11 billion in “consumer relief.”

But there is a real problem with that number, which is what the banks say is the total value of all forms of aid they provided in those seven months. It has not yet been audited by the monitor, and, when it is, only a fraction will count under the settlement. Some forms of relief, like principal reduction, count for more than other types of aid, like loan forbearance, while some arrangements that the banks consider aid, like certain trial loan modifications, will not count at all toward the settlement.

Read on.


By Bradley T. Borden & David Reiss 

(Bradley T. Borden & David Reiss are professors atBrooklyn Law School.1)

“They take aggressive positions, and they figure that if enough of them take an aggressive position, and there’s billions of dollars at stake, then the IRS is kind of estopped from arguing with them because so much would blow up. And that is calledthe Wall Street Rule. That is literally the nickname for it.”2

Investors in mortgage-backed securities, built on the shoulders of the tax-advantaged Real EstateMortgage Investment Conduit (“REMIC”), may be facing extraordinary tax losses because of how bankers and lawyers structured these securities.  This calamity is compounded by the fact that those professional advisers should have known that the REMICs they created were flawed from the start.  If these losses are realized, those professionals will face suits for damages so large that they could put them out of business.  That is, unless the Wall Street Rule is applied.

The issue of REMIC failure for tax purposes is important in at least three contexts:

(1) in any potential effort by the IRS to clean up this industry;

(2) in civil lawsuits brought by REMIC investors against promoters, underwriters, and other parties who pooled mortgages and sold mortgage-backed securities; and

(3) state and federal prosecutors and regulators who consider bringing criminal or civil claims against promoters, underwriters, and other parties who pooled mortgages and sold MBSs.

Be sure to check out the rest here…