Daily Archives: March 5, 2015

Massachusetts Court of Appeals upholds MERS rights

MERSCORP’s rights as mortgagee have come under fire in many courtrooms throughout the U.S., but a decision from the Massachusetts Court of Appeals reinforces the company’s right to assign a mortgage.

In a lawsuit entitled Shea v. Federal National Mortgage Association, the borrower appealed the lower court’s decision dismissing his quiet title and related claims.

On appeal, Shea argued that the underlying foreclosure was void because MERSCORP’s Mortgage Electronic Registration Systems never held the underlying note and was never a “true” mortgagee. Additionally, Shea alleged that the MERS assignment was invalid because the note holder did not specifically authorize MERS to execute the assignment.

Read on.

Largest U.S. Banks Pass Fed ‘Stress Tests’

WASHINGTON (AP) — All of the nation’s 31 largest banks are adequately fortified to withstand a severe U.S. and global recession and keep lending, the Federal Reserve said Thursday.

Results of the Fed’s annual “stress tests” show that as a group, the 31 banks are stronger than at any time since the 2008 financial crisis struck, thanks to a steadily recovering economy. The results build on positive outcomes from last year’s tests.

Some industry analysts say the most critical tests for the industry will come next week. That’s when the Fed will announce whether it’s approved each bank’s request, if one has been made, to raise dividends or repurchase shares. Those results will be based on how each bank would fare in a severe recession if it took such steps.

This week’s tests are a more modest standard than what we will get next week,” said Cayetano Carrasco-Gea, senior director at Moody’s Analytics. “We will see a few banks fail next week.”

The banks undergoing the stress tests included JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo and Co. — the four biggest U.S. banks by assets.

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Citigroup CEO under pressure over ‘stress test’ results

Here’s a test that Wall Street can sleep through.

The results of Thursday’s stress test from the Federal Reserve could include a “false positive” for Citigroup CEO Mike Corbat, whose job hangs in the balance if the central bank doesn’t approve his plan to increase its profit-sharing plans, Mike Mayo, analyst at CLSA, told The Post.

The results of the Fed’s stress test come in two parts — a quantitative review of capital ratios on Thursday after the market close, and a more in-depth dive into the largest banks, including JPMorgan and Bank of America, that comes out March 11.

That second review, called the comprehensive capital analysis and review, or CCAR, is make-or-break for Citi’s CEO Corbat, who didn’t convince regulators that his bank had a good enough risk-assessment policy last stress test, Mayo said.

Read on.

Too big to fail banks just keep getting bigger

Too big to fail? It may turn out that the biggest banks in the U.S. are too big to break up.

The idea that the TBTF institutions were going to get cut down to size after the financial crisis has turned into a giant myth. If anything, the system has gotten even bigger.

JPMorgan Chase, No. 1 among banks and thrifts in total assets, has seen its base swell to more than $2.5 trillion, according to SNL Financial. The company’s deposit base alone has grown by 29 percent since the end of 2008.

That expansion has come amid repeated calls that the bank break up. Goldman Sachs analyst Richard Ramsden stated in an analysis for clients in January that dividing JPMorgan into two or four parts would “unlock value” for shareholders.

Read on.

Is JPMorgan Fabricating Its Mutual Fund Returns?


If you’re not thinking about investing in a mutual fund from JPMorgan Asset Management, you probably should be. Just have a look at the following statistics which are taken straight from the horse’s (or should we say “whale’s”) mouth.

84% of JPM’s 10-year long-term mutual fund AUM is ranked in the top two quartiles, while 70% and 81% of JPM US equity mutual funds have outperformed their benchmark on a 1- and 3-year timeframe, respectively, and then, to top it off, 83%, 85%, 86%, and 100%(!) of AUM has outperformed both the peer median and benchmark in equities, fixed income, multi-asset solutions, and alts, respectively.

Here are the pretty slides:

Impressive numbers. We think. In last year’s presentation, the bank cited Morningstar and Lipper (who know a thing or two about calculating mutual fund returns) as sources. The only (admittedly small) problem is that it later turned out that Morningstar and Lipper had no idea how JPM calculated the returns.

Here’s Bloomberg:

A year ago, a list of achievements in JPMorgan’s investor presentation included the statement: “80 percent of 10-year mutual fund AUM [assets under management] in top 2 quartiles.” Asked about such numbers in November, JPMorgan declined to provide details of the calculations for publication. So Bloomberg asked two fund research companies the bank cited as sources—Lipper and Morningstar—to come up with their own estimates. (All calculations exclude money-market mutual funds.) Lipper, using its standard methods, calculated that 64 percent of the bank’s funds ranked in the top half of their categories, after adjusting for assets—giving greater weight to bigger funds. Morningstar, which didn’t adjust for assets, came up with 58 percent.

Many of the numbers for JPMorgan’s “alternatives/absolute return” category, which includes hedge funds, funds of hedge funds, some mutual funds, and money managed in separate accounts, are not public. According to the bank’s 2014 presentation, 97 percent of alternative assets beat their benchmarks for the previous 10 years. In 2015 that figure rose to 100 percent. Working from their own, more limited data on JPMorgan’s alternative assets, Morningstar and Lipper got different numbers. Morningstar said 33 percent of JPMorgan’s alternative assets beat their benchmarks over the previous 10 years. Lipper’s figures show that only 14 percent did.

When you actually try to decipher some of the rather convoluted language the bank uses to describe its returns, you start to get an idea of why it might not be a good idea to rely on the data in the investor day presentations.

Take the 84% figure for instance. It seems to us that what the bank is saying is that 84% of the AUM in JPM funds that have been around for at least 10 years saw returns in the top two quartiles. That seems like a woefully simplistic way of calculating performance as they’ve basically just taken a grand total of assets accumulated in funds that have been around for a while and then looked at what percentage of those assets fall into the top brackets based on performance over the past decade. But don’t take our word for it, just ask JPM:

JPMorgan provided Bloomberg with what it called an illustration of how it reached the 80 percent number. Using Morningstar Direct, a Web-based tool, it looked at all the funds with 10-year records. It checked each one’s ranking within its category for the 10-year period and its assets in the final month of the period, and concluded that 79.8 percent of the assets were in funds that ranked in the top two quartiles of their categories.

City of Milwaukee officials warn of another possible wave of foreclosures

Milwaukee officials on Thursday detailed new concerns that another wave of foreclosures is on the horizon that could damage vulnerable neighborhoods still recovering from the last housing crisis.

At issue is information that major mortgage-servicing companies have given to the city and community groups like Common Ground that suggest there are hundreds of properties that are delinquent on loans or are underwater, meaning property owners or the holder of the mortgage owe more than the home is worth.

Aaron Szopinski, the city’s housing director, sounded the alarm that Mayor Tom Barrett and the city did not want a repeat of the years following the recession.

“What we do know right now is not very good,” Szopinski told members of the Common Council’s foreclosure and abandoned homes committee. “We do not want a sequel.”

According to city officials, there are three large mortgage servicing companies that are responsible for many troubled properties in the city. One of those, Nationstar Mortgage, is largely controlled and owned by Fortress Investment Group, a hedge fund co-founded by Milwaukee Bucks co-owner Wes Edens.

Edens’ involvement with Nationstar — he sits on its board of directors — has brought a political dimension to the housing issue because of the Bucks’ ongoing efforts to build a new downtown Milwaukee arena.

Read on.

BofA’s $8.5 billion mortgage bond settlement wins approval

A New York state appeals court on Thursday approved Bank of America Corp’s $8.5 billion settlement with mortgage securities investors in its entirety.

The decision by the Appellate Division in Manhattan likely resolved one of the second-largest U.S. bank’s last and largest legal liabilities related to the financial crisis.

Bank of America had agreed to the 2011 settlement with 22 institutional investors including BlackRock Inc, MetLife Inc and Allianz SE’s Pacific Investment Management Co to resolve claims over $174 billion of mortgage securities issued by the former Countrywide Financial Corp.

Many of these securities went into default after Bank of America bought Countrywide in 2008, leading to huge losses.

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