Daily Archives: January 4, 2016

Wells Fargo sued over German finance firm’s losses from crisis

Wells Fargo continues to deal with the aftermath of the financial crisis and is facing a new lawsuit from an investor that suffered losses on faulty mortgage-backed securities, according to an article in the Los Angeles Times.

From the article:

German finance firm Commerzbank last week sued Wells Fargo and three other major banks saying they failed to properly oversee mortgage-backed securities created during the peak of the housing bubble, resulting in hundreds of millions of dollars in losses.

The article said the lawsuit was filed on Christmas Eve in a federal court in New York and seeks unspecified damages.

Exclusive: More banks pay no UK tax, Labour wants tougher approach

Two more investment banks have reported paying zero tax in Britain in 2014, prompting the opposition Labour party to urge the government to reverse a tax change it made for banks last year.

Citigroup and Credit Suisse disclosed in the past fortnight that their main UK subsidiaries paid no corporate income tax in 2014, the most recent year for which figures are available. This means seven of the 10 biggest foreign investment and commercial banks operating in Europe’s main investment banking center have said their main British arms paid no tax in that year.

In total the 10 banking groups generated over $40 billion in fees in Britain in 2014, reported $6.5 billion in profit and employed almost 50,000 people. But they contributed just $205 million in corporate income tax.

Read on.

Quicken Loans’ lawsuit against DOJ, HUD tossed out by federal judge

A federal judge tossed out Quicken Loans’ lawsuit against the U.S. Department of Justice and the Department of Housing and Urban Development that alleged the lender was being forced to make public admissions that were blatantly false, as well as pay a penalty or face legal action.

According to an article from Reuters, Judge Mark Goldsmith granted the DOJ’s motion to dismiss Quicken’s initial complaint.

Quicken Loans, which is the nation’s largest Federal Housing Administration-backed mortgage lender, said it now intends to explore its options in its claims against the government while fighting to defeat the government’s retaliatory lawsuit alleging that Quicken Loans violated the ‘False Claims Act.’

“This temporary procedural setback does not deter Quicken Loans from exposing the truth about the DOJ’s egregious attempts to coerce unjust ‘settlements’ from its victims including Quicken Loans by using the guise of the heavy hand and power of the federal government in doing so,” said Bill Emerson, Quicken Loans CEO.Read on.


Chinese Stock Markets Shut After Shares Plunge

Trading on the Shanghai and Shenzhen stock markets has been suspended for the day, after shares plunged by about 7%.

The Shanghai Composite Index has fallen to its lowest level in nearly three months, on what was the first trading day of 2016.

An earlier 15-minute break in trading, when shares had fallen by more than 5%, failed to stem the slump.

This is the first time that a new “circuit breaker” system – designed to curb volatility in Chinese stock markets – has been triggered.

Escalating tensions in the Middle East and poor Chinese manufacturing data are believed to be some of the factors behind the fall.

Saudi Arabia’s execution of a prominent Shia cleric over the weekend, which renewed sectarian tensions with Iran, led to a jump in oil prices.

Financial analysts are also concerned about how the market will react when measures designed to enhance stock market stability expire in the coming days.

Read on.

CFPB pushes to expose anonymous companies that sue it

Arguing that companies that sue it should not be granted anonymity, the Consumer Financial Protection Bureau is asking a federal judge to reveal the names of several companies that are anonymously suing the agency after a lawyer representing the group was denied entry into an investigative hearing.

The details of the legal battle come courtesy of The National Law Journal.

According to the National Law Journal report, the CFPB asked a federal judge to unseal litigation filed against the agency by several companies in the credit-repair services industry.

The companies requested the court documents be sealed because the public disclosure of the lawsuit ““will surely do irreparable reputational and financial harm.”

But the CFPB is arguing that the names of the companies should be brought out into the open.

From the National Law Journal:

The plaintiffs “should not be allowed to shield from public disclosure either their names or other identifying information in this case simply because they are the subjects of a bureau investigation,” Tamra Moore, a Consumer Financial Protection Bureau lawyer, wrote in court papers in December.

Moore said the plaintiffs “have not demonstrated that their need for anonymity is either ‘critical’ or ‘unusual’ thereby warranting this court’s grant of the ‘rare dispensation’ of allowing them to proceed pseudonymously.”

The attorneys representing the unnamed companies argued that “sealing the case will protect the plaintiffs from the serious harm that would result if its identity as the subject of an ongoing investigation were to be disclosed to the public at large.”

The Big Short movie and the rebirth of synthetic CDOs

Written by Biloxi

I saw The Big Short movie and the movie was not only a must see movie but a great education to the 2008 financial crisis and an clear eye opener to another rebirth of synthetic CDOs or Collateralized Debt Obligation. For those who are going to see the movie, check out the end of the movie about the rebirth of the CDOs. From Wikipedia:

The film calls these “bespoke opportunity tranches,” though in reality they are also sometimes referred to as a “Bespoke CDO” or “Single-tranche CDO.”

So what is Bespoke Opportunity CDO?

Single-tranche CDO or Bespoke CDO is an extension of full capital structure synthetic CDO deals, which are a form of collateralized debt obligation. These are bespoke transactions where the bank and the investor work closely to achieve a specific target.


Typically the objective is to create a debt instrument where the return is significantly higher than comparably rated bonds.

Remember, no one person, hedge fund, nor bank has gone to jail for CDOs.

Bottom line, has anything changed since the 2008 financial crisis? Nope. Here is why.:

a. Liars loans are back:

(Reuters) – Mortgage applicants who can’t provide tax returns or pay stubs to show their income are getting stated income loans again as companies such as Unity West Lending and Westport Mortgage chase customers they can no longer afford to ignore.

b. Liar loans are sneaking back into AAA rated bonds:

Years after the great American housing bust, mortgages akin to the so-called liar loans — which were made without verifying people’s finances — are creeping back into the market. And, like last time, they’re spreading risks far and wide via Wall Street.

Today’s versions bear only passing resemblance to the ones that proliferated in the mid-2000s, and they’re by no means as widespread. Still, they reflect how the business isstarting to join in the frenzy that’s been creating booms in everything from subprime car loans to junk-rated company bonds.

c. Government mortgage giant sold off $1.1 billion in non-performing loans:

Freddie Mac announced that it sold off 5,311 seriously delinquent loans from its investment portfolio. The loans carry an unpaid principal balance of approximately $1.1 billion.

d. And yes, the big banks are involved in the new rebirth of the CDOs:

Not surprisingly, investor interest has been piqued, and around $20 billion of bespoke tranche deals were printed last year, according to banker estimates; tiny compared with the market’s peak, but enough for dealers to start rehiring and printing research.

Banks involved include Citi – a lead player in the revival – Morgan Stanley, Goldman Sachs, BNP Paribas and Société Générale.

Interesting enough in Robert Kiyosaki’s book, Rich Dad’s Prophecy, he predicted  the biggest market crash would come in 2016. Will shall see if history repeats itself. And from rebirth of liar loans, rebirth of putting liar loans into AAA bonds to be packaged, the selling off of crappy loans to other investors and nonbanks, and new rebirth of CDOs, sounds like Kiyosaki’s prediction is right on track.