Daily Archives: January 22, 2017

Donald Trump is putting Wall Street elite in charge of America’s economy

As Gotham continues…The fox in charge of the henhouse… File this article under smh….

In announcing the appointment of Carl Icahn as his new adviser on regulatory reform, President-elect Donald Trump characterised the Wall Street legend as “one of the world’s great businessmen.” By Trump standards, it was a minor mischaracterisation, one that confused the Main Street world of business, where value-adding goods and services are created and sold, with the trading, dealmaking world of finance on Wall Street.

Such confusion is understandable. For if anything has come to characterise American capitalism over the past 30 years, it has been the financialisation of business. Whereas top executives of America’s biggest corporations once spent their time worrying about products, customers, employees and the communities in which they operated, today they focus on maximising shareholder returns through clever feats of financial engineering. Executives who embrace this financialisation are handsomely rewarded with tens of millions of dollars in bonuses and stock grants. Those who don’t are fired.

Read on.

Citigroup is finally be shutting down its ‘bad bank’ — 8 years after the financial crisis

When Citigroup reported earnings on Wednesday, it announced a major milestone that its investors should cheer. The New York-based bank said that the fourth quarter of 2016 was the last time it’d separate the results from its Citi Holdings subsidiary, which was created in the wake of the financial crisis to house the bank’s toxic and noncore assets.

More than any other major bank, Citigroup found itself in the crosshairs during the crisis eight years ago. Its decision to double down on subprime mortgages on the eve of the downturn led to a $17 billion loss in the fourth quarter of 2008 alone. It followed that up with a nearly $8 billion quarterly loss a year later.

To survive, Citigroup received tens of billions of dollars’ worth of capital from the federal government, which it later had to repay by issuing new common stock and thereby diluting longtime shareholders. The net result was that, even today, its shares are down more than 90% from their pre-crisis high.

One of Citigroup’s strategies to stem the flow of losses was to quarantine the responsible assets and operations in a separate subsidiary, Citi Holdings, which it created in the second quarter of 2009. “Citicorp is our core franchise and will be the source of Citi’s long term profitability and growth,”  explained former-CEO Vikram Pandit at the time. “We will manage our businesses and assets in Citi Holdings to optimize their value over time.”

At its peak, Citi Holdings administered more than $800 billion worth of assets. Considered on its own, that would make Citi Holdings the fifth largest bank in the country both now and when it was created.

Fast-forward to today, and Citigroup has whittled down the assets in Citi Holdings to $54 billion, which equates to only 3% of Citigroup’s balance sheet. Just as importantly, as Citigroup’s current CEO Michael Corbat observed in prepared remarks released Wednesday, the unit has been profitable for 10 quarters in a row.

Citigroup’s decision to shutter Citi Holdings follows on the heels of Bank of America, which responded to the crisis in a similar way. Not long after Citigroup’s decision to bifurcate its operations into good and bad banks, the North Carolina-based bank created its Legacy Assets and Servicing division to serve the same role as Citi Holdings.

Read on.

Making FHA more expensive gives competitive advantage to other loans

Reversing a .25% cut in FHA insurance rates = $500 a year on a $200,000 home. And certainly states like New York, Florida (especially the beach areas), and New Jersey (especially coastal areas) will be affected…

The Intercept:

January 20 2017, 1:02 p.m.

Ben Carson, who Trump has nominated to replace Castro, said at his confirmation hearing that he would “really examine” the FHA insurance cut, and that he wasn’t consulted about it. Conservatives have warned for yearsthat the MMIF is dangerously insolvent, despite the recent robust balance sheet.

In addition, by making FHA loans more expensive, traditional bank mortgages become more competitive. Banks typically earn more in profit from of their own products than from FHA loans. So this initial Trump policy also generates a competitive advantage for mortgage lenders to make more money for their business.

Based on analysis by Attom Data Solutions, the reversal means an extra $446 million for the MMIF, and concurrently that much less in the pocketbooks of an estimated 1 million homebuyers projected to take out FHA loans in 2017.

Trump’s inaugural rhetoric on “transferring power from Washington, D.C., and giving it back to you, the people” is at odds with the specific action of increasing fees on middle-class homebuyers to bolster a government insurance fund.

Because more expensive home markets would be more affected by the increase, the reversal certainly hits liberal America harder. Counties like Santa Clara, Alameda, and Santa Cruz, California, and Honolulu and Maui, Hawaii, would see the biggest increases, from $1,253 to $1,448 annually.

HSBC to pay back customers for ‘unreasonable’ debt collection

Europe’s largest bank is to contact customers to offer them redress after regulators identified ‘unreasonable’ debt collection practices.

The Financial Conduct Authority (FCA) said HSBC had offered to establish a £4m fund to repay 6,700 people hit with unfair legal charges after they fell into arrears between 2003 and 2009.

The City watchdog said the costs were imposed by HSBC-owned HFC Bank and John Lewis Financial Services after customers were referred to the firms’ nominated solicitors.

Read on.

Ex-Wall Street titan Sallie Krawcheck reveals the jaw-dropping sexual harassment she endured—and why she didn’t report it

In 1987, at her first job after college at investment bank Salomon Brothers, Sallie Krawcheck came to work every day to a photocopy of a penis on her desk.

The former Citigroup CFO describes the sexual harassment in her new book, “Own It,” which was released this month.

“The first time it happened, I didn’t know what it was,” Krawcheck tells CNBC. “I was like, ‘What is this strange, artistic, squishy-looking distorted thing?'”

When it happened day after day, however, Krawcheck got the message.

“I was upset. And I was humiliated. And I was embarrassed. And I felt shame. And I knew they didn’t want me there,” she says of the men she worked with at the time.

Her response was to make jokes with her colleagues about the size of the Xeroxed penises.

Krawcheck didn’t report these incidents to anyone — not HR, not her boss — mostly because she needed that paycheck.

Read on.

Trump’s policies are ‘very, very favorable’ to financials, former Wells Fargo CEO says

CNBC:

“He wants to significantly reduce unnecessary regulations, where the cost of the regulations is greater than the benefits. He wants to grow the economy at least at 3 percent, if not 4 percent. He wants to significantly reduce taxes,” Kovacevich said.

He believes if those things occur, there will be at least three increases in the fed funds rate this year and the Federal Reserve will stop buying long-term securities.

“All of those things are very, very favorable to the earnings of financial institutions and because the P/E ratios of financial institutions are about 30 percent below that of the market, there’s lots of room for that to increase,” Kovacevich explained.

Private lenders lobbied heavily for suspension of the reduction of Mortgage Insurance Premiums. Trump’s HUD adviser? Shawn Krause, Quicken Loan lobbyist

NY Times:

In the years since the crisis, many of the nation’s largest banks pulled back their mortgage-lending activities. Quicken Loans pushed in. Today, it is the second-largest retail mortgage lender, originating $96 billion in mortgages last year — an eightfold increase from 2008.

Privately held Quicken, like some of America’s largest banks before it, has also landed in regulators’ cross hairs. In a federal false-claims lawsuit filed in 2015, the Department of Justice charged that, among other things, the company misrepresented borrowers’ income or credit scores, or inflated appraisals, in order to qualify for Federal Housing Administration insurance. As a result, when those loans soured, the government says that taxpayers — not Quicken loans — suffered millions of dollars in losses.

Quicken Loans today is the F.H.A. insurance program’s largest participant.

Executives at Quicken Loans deny the charges, maintaining, among other things, that the government “cherry-picked” a small number of examples to build its case. In an aggressive move, the company pre-emptively sued the Department of Justice, demanding a blanket ruling that all of the loans it had originated met requirements and “pose no undue risks to the F.H.A. insurance fund.”

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Late last year, Donald J. Trump named a former Quicken Loans lobbyist, Shawn Krause, to his H.U.D. transition team. A Trump spokeswoman did not respond to an email asking about potential conflicts of interest. In an emailed statement, Quicken Loans said the fact that Ms. Krause had come from the largest F.H.A. lender in the country “bodes well for the positive impact she has, and will, make on H.U.D.”

In the years since the financial crisis, Quicken has emerged as a leader in the nation’s shadow-banking system, a network of nonbank financial institutions that has gained significant ground against its more heavily regulated bank counterparts in providing home loans to Americans. Increased regulation and decreased profits sent the nation’s banks packing.

Nonbanks, like Quicken, have filled that gap. Today, Quicken is the nation’s second-largest retail residential mortgage lender, behind Wells Fargo, but ahead of banking giants like J. P. Morgan, Bank of America and Citigroup, according to Mortgage Daily.