Daily Archives: March 5, 2015

NY Fed stripped authority over big banks

Secret ‘Triangle Document’ gives control of big-bank regulation to committee

WASHINGTON—The Federal Reserve Bank of New York, once the most feared banking regulator on Wall Street, has lost power in a behind-the-scenes reorganization at the nation’s central bank.

The Fed’s center of regulatory authority is now a little-known committee run by Fed governor Daniel Tarullo , which is calling the shots in oversight of banking titans such asGoldman Sachs Group Inc. and Citigroup Inc .

The new structure was enshrined in a previously undisclosed paper written in 2010 known as the Triangle Document. Under the new system, Washington is at the center of bank supervision, exercising control over the Fed’s 12 reserve banks, much as the State Department exerts control over embassies.

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Barclays Must Defend Mortgage Value Case

DENVER (CN) – It is not too late for Barclays Capital to face claims over its allegedly bogus valuations of investment mortgages, the 10th Circuit ruled Tuesday.
The underlying lawsuit stems from the National Credit Union Administration’s appointment as conservator for two ailing credit unions – the U.S. Central Federal Credit Union and Western Corporate Federal Credit union – in 2009.
After an investigation revealed that the credit unions failed largely because they had purchased mortgage interests that were worth much less than represented, the NCUA pursued the underwriters of the mortgages, including Barclays Capital, to recover the credit unions’ losses.
To encourage negotiations, Barclays promised it would exclude all the time spent in those efforts from a statute of limitations defense if the issue went to court.
But when those negotiations broke down and the NCUA sued in September 2012, Barclays claimed the lawsuit was barred under the Securities Act’s three-year statute of repose, which cannot be waived.
Barclay pointed to the suit’s filing more than five years after the mortgages in question were sold, and more than three years after the NCUA became conservator for the distressed credit unions.
NCUA countered that the statute of repose had been displaced by the Federal Credit Union Act’s “Extender Statute,” which was a statute of limitations and thus subject to waiver.

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Citigroup to Benefit From Losing Its Most Profitable Unit

Trust Citigroup to benefit from getting rid of its most profitable business. The huge bank has at last sold its subprime consumer finance unit OneMain Financial to a rival, Springleaf, for $4.25 billion. The unit has generated returns that far exceed anything else at Citigroup. And yet the deal provides all manner of relief for the lender run by Michael L. Corbat.

Losing OneMain deprives Citigroup of much-needed earnings. The unit’s return on assets, at 6.7 percent, is some seven times better than its owner’s 0.9 percent, a sign of both OneMain’s lower costs and the higher interest rates it charges customers. The business could earn $574 million this year, analysts at Bernstein figure. That is a mere fraction of what Citigroup will produce, but the bank needs all it can get.

Mr. Corbat can offset much of the hit. First, the sale will provide a decent one-time bolster to income. Along with retiring the higher-cost funding for OneMain, Citigroup reckons that the pretax gain will amount to about $1 billion. The sale price should also give the bank an opportunity to tap into its $50 billion or so of deferred tax assets accumulated from losses during and after the financial crisis that can be used as long as its United States-based businesses turn a profit.

The third overt financial benefit will be capital freed up after shedding OneMain’s nearly $10 billion of assets. Assume Citi holds 10 percent against the sum, and that’s almost $1 billion. Mr. Corbat can either reinvest the money or try to persuade the Federal Reserve to allow him to return some or all of it to shareholders.

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