Banks in the U.S. have much to be thankful for this holiday season. Higher rates on mortgages aren’t necessarily on the list.
The average rate on a 30-year fixed conforming mortgage has risen to 4.16%, according to the Mortgage Bankers Association, up from post-Brexit lows around 3.6%. Higher rates normally are good for lenders as they help them earn more on loans. Mortgages are a special case. Most are sold off to Fannie Mae or Freddie Mac and then packaged into securities. The portion held by banks stands at just a third.
Higher rates also suppress refinancing, which means fewer one-time gains for banks that make loans and sell them. For holders of mortgage-backed securities, though, this is positive. Fewer will be repaid early. As the heaviest holder of such securities among major banks, Bank of America should be the biggest beneficiary.
Ironically, though, after getting pounded by ultralow rates over the summer, BofA changed accounting policies so that quarterly earnings will be less affected. Now it will appear to benefit less from the rebound, though the impact is fundamentally unchanged.
Hiring well connected Chinese princelings to win lucrative deals has never been a revelation in Hong Kong. But when JPMorgan agreed to pay a US$264 million fine to resolve criminal and civil matters relating to its “Sons and Daughters” recruitment programme, its sheer size warrants a second look. The cost of doing business in China just went up.
The US Security and Exchange Commission’s 26 page summary of JPMorgan’s Sons and Daughters programme, which started in 2006, reads like a satire of Game of Thrones – infused with nepotism and medieval like privilege. The Department of Justice assessed that the scheme increased profits at JPMorgan by at least US$35 million.
“The so-called Sons and Daughters Programme was nothing more than bribery by another name,” said assistant attorney-general Leslie Caldwell. “Awarding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple.”
She added that, “Most of those offered jobs through the programme lacked the education and experience of other new hires.” The bank admitted that some of these candidates did little more than proof read although they were paid the same salary as entry-level analysts.
Besides the evident absence of hiring compliance at JPMorgan it is a shame that the fine will probably be absorbed by JPMorgan’s shareholders rather than clawed back from their bankers’ bonuses.