Daily Archives: May 14, 2014

Geithner Book: ‘I Should Have Paid More Attention’ to Citigroup’s Woes

The question to Timothy Geithner could not have been more blunt: Why, asked Oregon Sen. Ron Wyden, had Geithner failed to adequately regulate the banking giant Citigroup during his tenure as president of the Federal Reserve Bank of New York?

“Should your supervision have been more effective?” Wyden demanded of Geithner, then on his way to eventual confirmation as Treasury secretary.

“Absolutely,” Geithner responded. But he did not elaborate.

That was five years ago. This week, Geithner provided a fuller mea culpa with the release of ” Stress Test,” his book on the financial crisis. It does elaborate — albeit modestly — on his oversight of Citigroup, including issues our reporting raised about his time at the New York Fed.

(Crown/AP Photo)

The Federal Reserve supervises bank holding companies. The New York Fed is responsible for firms based in the region, including Citigroup. The largest institution under Geithner’s watch, Citi required the biggest bailout — $45 billion in taxpayer fundsplus other federal support.

One of his key mistakes, Geithner writes in the book, was failing to realize that Citi’s equity, or capital, was weak. Capital is the cushion meant to protect a bank from losses and, ultimately, insolvency.

“I should have paid more attention to Citi’s lack of common equity while I was at the Fed,” Geithner writes. Although Citigroup, at the urging of the New York Fed, began raising capital in late 2007, he says it “came in the lower-quality forms that investors now found meaningless.”

Curiously, at another point in his book, Geithner writes about how focused he was, in general, on the issue of bank capital.”I spent most of my time trying to understand whether banks under our supervision had enough capital,” the book says.

In articles before and after Geithner’s confirmation as treasury secretary, ProPublicaexamined his supervision of Citi, including the bank’s weak capital, risky lending practices and the failure of the New York Fed to use its enforcement tools to strengthen the bank.

The articles reported on Geithner’s ties to Robert Rubin, Geithner’s mentor, a former treasury secretary under President Clinton and a senior executive of Citigroup during the bank’s high-flying years.

Geithner’s calendars, obtained by ProPublica, showed that in 2007 and 2008 he had dozens of discussions with executives of Citigroup, including Rubin, more than with any other firm.

Read on.


Green Tree fails 8 servicing compliance tests

Green Tree fails 8 servicing compliance tests

(Updated with a statement from Green Tree’s parent company, Walter Investment)

The five servicers that were part of the National Mortgage Settlement may have fulfilled their consumer relief obligations in March, but the companies are still required to comply with the settlement’s servicing rules.

The mortgage servicing activities of Bank of America(BAC), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo(WFC), and Ocwen Financial (OCN) and Green Tree Servicing (the two companies that purchased servicing rights from ResCap after the company was reorganized through bankruptcy), are still monitored by the Office of Mortgage Settlement Oversight.

On Wednesday, the monitor of the NMS released the results of its third- and fourth-quarter compliance reports for the six companies that are now under its oversight.

According to the compliance testing results, Bank of America, Chase, Citi, Ocwen and Wells Fargo passed all 29 of the settlement’s required metrics for servicing.

The news wasn’t as good for Green Tree, which failed eight of the tests.

“After extensive testing, I can confirm that Green Tree failed eight metrics,” said Joseph Smith, monitor of the NMS. “These results show that Green Tree must make significant changes to improve its practices and comply with the Settlement.”

Green Tree implemented the settlement’s servicing standards after it acquired approximately 18.5% of the ResCap servicing rights. The NMS compliance testing took place during the fourth quarter of 2013.

According to the report from the monitor, Green Tree failed the following servicing metrics:

Metric 4, which tests whether the servicer accurately stated amounts due from borrowers in proofs of claims filed in bankruptcy proceedings

Metric 5, which tests whether the servicer accurately stated amounts due from borrowers in affidavits filed in support for relief from stay in bankruptcy proceedings

Metric 6, which tests whether loans were delinquent at the time foreclosure was initiated and whether the servicer provided borrower with accurate information in a pre-foreclosure letter

Metric 7, which tests whether the servicer provided borrower with required notifications no later than 14 days prior to referral to foreclosure and whether required notification statements were accurate

Metric 10, which tests whether the servicer waived post-petition fees, charges or expenses when required by the Settlement

Metric 12, which tests whether the servicer has documented policies and procedures in place to oversee third party vendors

Metric 18, which tests whether the servicer responded to government submitted complaints and inquiries from borrowers within 10 business days and provided an update within 30 days

Metric 19, which tests whether the servicer notified the borrower of any missing documents in a loan modification application within five days of receipt


On-Premises Banks Stick It to Walmart Customers

On-Premises Banks Stick It to Walmart Customers

Walmart is fond of touting its falling prices, but the fees charged by the banks operating inside its stores are stratospheric. The banks in general charge higher-than-average overdraft fees. Some consumers who find themselves in dire financial straits intentionally overdraw their accounts to “borrow” needed funds, because the high bank fees are actually less than those attached to payday loans. 

Walmart customers who use the banking services provided inside the chain’s stores are among the highest payers of fees — especially overdraft fees — in the U.S., a Wall Street Journal analysis of federal filings concluded.

The five banks with the most Walmart branches ranked among the top 10 U.S. banks in fee income as a percentage of deposits last year, the paper reported, compared to other U.S. banks that earn most of their income through lending.

It is a notable finding, especially given Walmart’s brand: First and foremost, the company has built a reputation for providing low-cost products at significant savings compared to other stores.

Walmart cannot be held completely responsible for the banks’ practices, of course. The financial sector is highly regulated, and no third-party retailer is in a position to set standards or make policies.

However, Walmart told the Journal that it has a thorough process for vetting banks to make sure they are in line with its philosophy.



Banks Warn Regulator On ‘Illegal’ Bonus Rules

Banks Warn Regulator On ‘Illegal’ Bonus Rules

Bank of England proposals to toughen bank bonus rules could be legally unenforceable, a document obtained by Sky News warns.

New rules that would force bankers to wait more than a decade to get their hands on bonuses would breach “the principle of natural justice” and leave lenders exposed to costly legal challenges, a trade body has warned.

In a document obtained by Sky News, the British Bankers’ Association (BBA) argued that plans to apply clawback provisions retrospectively would be illegal in Brazil, France, Germany and Mexico, countries in which UK-based lenders such as HSBC have a substantial presence.

The BoE’s proposals would force banks to reclaim variable compensation from senior employees for up to six years after it has been handed over and spent.

Critics argue that they would amount to the toughest regime in the world for governing bank pay and would go well beyond the remit recommended by last year’s Parliamentary Commission on Banking Standards, the BBA said.


Geithner Must Give S&P Documents in U.S. Fraud Suit

Geithner Must Give S&P Documents in U.S. Fraud Suit

Ex-U.S. Treasury Secretary Timothy Geithner must comply with Standard & Poor’s demand that he provide documents related to its claim the U.S. sued the company in retaliation for downgrading government debt.

Harold W. McGraw III, chairman of S&P parent McGraw Hill Financial Inc. (MHFI), said in a court statement that Geithner called him days after S&P downgraded the U.S. debt in August 2011 and told him that the company would be held accountable for it. McGraw said Geithner told him there would be a “response” for the downgrade, which the government said was based on an error.

Geithner is the highest former government official S&P has pursued for information to support its allegations. S&P, the only credit rating company sued by the Justice Department for allegedly giving fraudulent ratings to mortgage-backed securities, has said it was singled out because of the downgrade.


Citigroup : fires 11 more in fraud probe of Banamex unit-memo

Citigroup : fires 11 more in fraud probe of Banamex unit-memo

Citigroup Inc has fired four senior executives and seven other employees who failed to do enough to protect the bank from a fraud at its Mexican unit Banamex, according to an internal memo sent to staff on Wednesday.

The 11 people who were terminated came after an employee was fired in February, around the time the bank announced it had discovered fraudulent loans at Banamex. The bank believes the first staff member was directly involved, while the other terminated employees did not do enough to protect the bank from the fraud, Citigroup Chief Executive Officer Mike Corbat wrote in the memo obtained by Reuters.

The firings underscored the extent of Citigroup’s problems at Banamex, where it has discovered some $565 million in fraudulent loans, suffered losses on loans made to homebuilders in Mexico, and fired a pair of rogue traders.

How CEOs became so obscenely high-paid (and how one retired tech founder wants to fix that)

Great article.