The Pyrrhic victory Tuesday for Jamie Dimon is a defeat for governance. Just over two-thirds of JPMorgan shareholders voted to keep him as both chairman and chief executive at the bank’s annual meeting in Tampa on Tuesday. And Dimon and the board had to devote a considerable amount of time to preserving his titles rather than running America’s largest bank by assets. The episode perfectly illustrates the common sense behind separating the two roles.

Having a third of shareholders vote against Dimon is hardly an overwhelming vote of confidence. It is, though, a marked improvement from last year when 40 percent of shareholders voted for a split just weeks after the bank announced what turned into a $6 billion hit to revenue from the so-called London Whale trading fiasco.

The support comes after the directors lobbied hard – and very late in the day – to keep Dimon at the helm of both the management team and the board. They had even gone so far as to warn that a change in leadership would be disruptive to the bank, unsubtly implying that Dimon might leave if he didn’t get his way.

There are more pressing concerns for the bank, from preventing similar losses to mending fences with regulators. Having the entire board be independent would make it a more credible check on the boss and help ensure the quest for profits doesn’t expose the bank and its shareholders to unnecessary risk.

Instead, the board’s presiding director, Lee Raymond, told shareholders at the meeting that what counts is how directors handled the crisis last year – in other words, admitting that he sees his role as purely reactionary. That should be a worrying signal to the bank’s owners.

At least some changes to the board’s risk committee look likely. Raymond hinted as much. Three directors – David Cote, James Crown and Ellen Futter – each won less than 60 percent of the vote for re-election.

If they are rotated out of the risk committee, or even leave the board, it will at least mark a small victory. But for Dimon, shareholders chose fear and personality over good corporate governance. That’s a big disappointment.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

By Agnes T. Crane

NEW YORK, May 7 (Reuters Breakingviews) – Bank of America’s
(BAC.N: Quote, Profile, Research) legal settlement with bond insurer MBIA pays for itself,
and then some. Agreeing to resolve disputes over losses from old
toxic sludge cheered shareholders on both sides. The bank led by
Brian Moynihan is forking out $1.7 billion, but added $6.9
billion of market value on Monday. MBIA scored nearly $900
million of extra equity on top of BofA’s check. Leaving the
crisis behind can still yield dividends.

The bad blood stretches back five years to a time when bond
insurers and lenders were desperate to contain mounting losses
from dodgy mortgages. In 2008, MBIA sued BofA and other banks
for creating the monstrosities it insured. BofA then turned
around and accused MBIA of trying to weasel out of claims by
splitting its operations into a “good” insurer that guaranteed
municipal debt and a “bad” one stuck with the dross. Monday’s
settlement wipes the slate clean.

Bank of America will pay MBIA $1.6 billion in cash and hand
over $137 million worth of the insurer’s own bonds that the bank
bought as part of its legal maneuvering. Moreover, the bank will
tear up claims on commercial mortgage-backed securities that
MBIA insured. The payout isn’t small – it decreases BofA’s
first-quarter net income by about half – but is a lot less than
the $5 billion of economic damages MBIA was originally claiming.

MBIA, meanwhile, gets cash it desperately needs. Last month,
Moody’s Investors Service said the company might run out of
money to cover claims. Worse, the “good” unit was in jeopardy
because it lent $1.7 billion to its troubled twin. By dropping
the lawsuit, MBIA can pay off the inter-company loan and avert a
regulatory bailout.

That explains the 45 percent surge in MBIA stock following
the news. The 5.2 percent gain in BofA shares, worth four times
the amount of the settlement, is a reminder of just how much
value investors will put on some degree of certainty. It’s a
lesson that shouldn’t be lost on banks. BofA is still entangled
in a number of other lawsuits, including the threat of a new one
on Monday from New York’s attorney general. They’re not easy to
escape, but doing so can be surprisingly cost-effective.

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CONTEXT NEWS

– Bank of America said on May 6 it would pay bond insurer
MBIA $1.7 billion to settle longstanding lawsuits between the
two companies. BofA also said it would extend a $500 million
line of credit to the bond insurer. MBIA, meanwhile, granted the
bank warrants to buy 9.94 million shares of common stock at an
exercise price of $9.59. MBIA’s shares rose 45 percent to $14.29
while Bank of America’s increased 5.23 percent to $12.88.

– Moody’s Investors Service in March had put MBIA on notice
for a potential downgrade, claiming the insurer may not be able
to meet claims related to commercial mortgage-backed securities.

– Bank of America statement: newsroom.bankofamerica.com/

– MBIA statement: investor.mbia.com/releases.cfm

– Reuters: MBIA, Bank of America reach $1.6 billion cash
settlement [ID:nL2N0DN0XA]

– For previous columns by the author, Reuters customers can
click on [CRANE/]

(Editing by Jeffrey Goldfarb and Martin Langfield)

((agnes.crane@thomsonreuters.com)(Reuters messaging
agnes.crane.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS BOFA/MBIA

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Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

By Agnes T. Crane

NEW YORK, April 26 (Reuters Breakingviews) – Apple (AAPL.O: Quote, Profile, Research)
may need to make its iOUs as desirable as iPhones. Right now,
money managers are gaga for the company’s bonds even before they
have made their market debut. But the scale of issuance that
could come from the tech giant is on a par with huge borrowers
like banks. To be sustainable, that would call for some of
Apple’s magic.

Debt from cash-rich U.S. technology companies used to be
exceedingly rare. But low interest rates have changed that.
Borrowing cheaply is a better financial bet than repatriating
cash earned overseas and paying tax on it. Microsoft (MSFT.O: Quote, Profile, Research)
tested the waters in 2009 and has raised nearly $15 billion
since then, according to Thomson Reuters data.

But Apple could be looking to borrow more than that every
year. The company recently expanded its budget for dividends and
stock buybacks to $100 billion by the end of 2015. Assuming $45
billion of its cash pile is onshore – a figure consistent with
what the company has said – and ignoring new inflows, that means
borrowing $55 billion in less than three years, according to
research firm CreditSights, or nearly $20 billion a year.

That would put Apple in the same issuance ballpark as large
banks like Bank of America (BAC.N: Quote, Profile, Research) and Citigroup (C.N: Quote, Profile, Research) and other
big financial firms. And many of those are mostly refinancing
old debt. The iPhone maker would be asking more of investors
since it would be looking for new money each time.

Most companies would have to pay lenders a premium to borrow
so much. Apple is different, and not just because fixed income
fund managers may want to feel like the cool kids for once. A
company with lots of cash, even if it’s trapped overseas, is a
godsend for those who simply don’t want to worry about default.
Apple has garnered a AA-plus rating from Standard & Poor’s, one
notch down from AAA. Microsoft, a rare top-rated company, will
pay less than 2.5 percent interest on the $1 billion of 10-year
bonds it sold on Thursday.

If its bonds keep on marching to market, however, Apple’s
novelty as a borrower will wear off and the company will need to
keep investors engaged. Innovation could help. Just as Apple
visionary Steve Jobs seemingly knew what people wanted before
they did, the company may be able to use its brand and perhaps
innovative structures to create a category of bonds investors
suddenly can’t do without. If Apple manages it right, iOUs could
be the next big thing.

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CONTEXT NEWS

– Apple said on April 23 that it plans to borrow money to
help fund its $100 billion program to return capital to
shareholders. Credit research firm CreditSights estimates the
company could need to sell between $15 billion and $20 billion
per year for three years, since roughly two-thirds of its $150
billion of cash is overseas. The U.S. levies a tax rate of up to
35 percent on repatriated cash.

– Apple release: link.reuters.com/fyt67t

– IFR story: Apple debt issuance would dwarf that of tech
rivals [ID:nL2N0DB1X0]

RELATED COLUMNS

Just don’t have a crisis [ID:nL2N0DA1XD]

The Apple pie [ID:nL1N0BYF6I]

Bitten Apple [ID:nL1N0BP2JI]

– For previous columns by the author, Reuters customers can
click on [CRANE/]

(Editing by Richard Beales and Emily Plucinak)

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Keywords: BREAKINGVIEWS APPLE/DEBT

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Exchange-traded funds have added to gold’s gyrations this week. The yellow metal’s swift decline – a 13 percent sell-off over two trading days – left investors breathless. Though it is still not clear what sparked the slide on Friday and Monday, stock-like ETFs added to the selling pressure. It’s a reminder there’s a dark side to making illiquid assets easier to trade.

Physical gold is difficult and expensive to move. But ETFs can be bought and sold like any other stock on an exchange while a fund’s sponsor and its designated market makers manage the actual collateral. As a result, retail investors and hedge fund managers like John Paulson have plowed into paper gold. Last year, ETFs sucked up 279 tonnes of the stuff, a 51 percent increase over the prior year, according to the World Gold Council.

Notably, this demand didn’t square with sentiment elsewhere. Jewelers and those who prefer their gold stacked neatly in a vault, not in a stock portfolio, bought significantly less last year than in 2011. That could suggest macro hedge funds and other investors were buying ETFs thinking central banks’ ultra-low interest rates would bring inflation or, worse, destabilize the financial system. But that hasn’t happened. And the same investors may now be bailing.

Though ETFs represent only a sliver of the overall gold market, their liquidity and transparency make them an obvious benchmark for sentiment. Moreover, the ability to add and shed holdings quickly – unlike, say, storing bullion in undisclosed locations – can exacerbate price swings. The largest U.S. gold ETF, State Street’s, for example, sold nearly 23 tonnes on Friday alone. That’s double the amount of gold held by the central bank of Cyprus, which panicked investors after saying it may sell its reserves last week.

Such quick-fire trading comes with an additional cost. GLD shares traded at a 3 percent discount to the fund’s underlying collateral on Friday and Monday, according to State Street’s website. That’s unusual for the ETF, which mostly tracks the value of its holdings closely. If such a discount were to persist, it could encourage more selling.

For the moment, calm has returned, with prices recovering slightly on Tuesday. But with more than $70 billion of assets in gold ETFs, investors should be ready for the next bout of volatility.

By Agnes T. Crane

NEW YORK (Reuters Breakingviews) – Exchange-traded funds have added to gold’s gyrations this week. The yellow metal’s swift decline – a 13 percent sell-off over two trading days – left investors breathless. Though it is still not clear what sparked the slide on Friday and Monday, stock-like ETFs added to the selling pressure. It’s a reminder there’s a dark side to making illiquid assets easier to trade.

Physical gold is difficult and expensive to move. But ETFs can be bought and sold like any other stock on an exchange while a fund’s sponsor and its designated market makers manage the actual collateral. As a result, retail investors and hedge fund managers like John Paulson have plowed into paper gold. Last year, ETFs sucked up 279 tonnes of the stuff, a 51 percent increase over the prior year, according to the World Gold Council.

Notably, this demand didn’t square with sentiment elsewhere. Jewelers and those who prefer their gold stacked neatly in a vault, not in a stock portfolio, bought significantly less last year than in 2011. That could suggest macro hedge funds and other investors were buying ETFs thinking central banks’ ultra-low interest rates would bring inflation or, worse, destabilize the financial system. But that hasn’t happened. And the same investors may now be bailing.

Though ETFs represent only a sliver of the overall gold market, their liquidity and transparency make them an obvious benchmark for sentiment. Moreover, the ability to add and shed holdings quickly – unlike, say, storing bullion in undisclosed locations – can exacerbate price swings. The largest U.S. gold ETF, State Street’s (STT.N: Quote, Profile, Research) GLD, for example, sold nearly 23 tonnes on Friday alone. That’s double the amount of gold held by the central bank of Cyprus, which panicked investors after saying it may sell its reserves last week.

Such quick-fire trading comes with an additional cost. GLD shares traded at a 3 percent discount to the fund’s underlying collateral on Friday and Monday, according to State Street’s website. That’s unusual for the ETF, which mostly tracks the value of its holdings closely. If such a discount were to persist, it could encourage more selling.

For the moment, calm has returned, with prices recovering slightly on Tuesday. But with more than $70 billion of assets in gold ETFs, investors should be ready for the next bout of volatility.

CONTEXT NEWS

- On April 15, the spot price of gold for future delivery marked its worst two-day decline in 30 years, falling over 13 percent to $1,346 an ounce. Prices recovered somewhat on April 16, gaining 2.5 percent in afternoon trade.

- As of April 10, U.S. ETFs backed by gold have nearly $72.8 billion in assets, down 16 percent from the beginning of the year, according to Lipper.

- Collateral in State Street’s gold ETF, known as GLD, has shrunk by nearly 200 tonnes from the beginning of the year. The ETF’s price, which tracked the S&P 500 for much of 2012, is down nearly 20 percent for the year.

(Editing by Richard Beales and Martin Langfield)

U.S. car sales are putting the brakes on the economy’s detractors. Americans are buying more vehicles thanks in part to pent-up demand and cheap loans. But the housing recovery helps, too. That and other economic data suggest consumers are looking beyond slimmer paychecks. Federal spending cuts allowing, that means the U.S. engine may be about to purr.

At 1.45 million units, industry sales in March were 3.4 percent higher than the same month last year. Ford and Toyota posted their best month since 2007. While lower than in February on a seasonally adjusted annual basis, according to Goldman Sachs, sales maintained the pace that prevailed before Congress allowed a 2010 tax break to expire, pushing the payroll tax rate back up to 6.2 percent.

Several factors outweigh that. The average car on U.S. roads is 11 years old – 13 for pickups. That makes them expensive to maintain, increasing the desire or need to replace these old clunkers. Financing is also cheap – even for borrowers with less than stellar credit.

But the decisive upturn in housing helps, too. Light truck sales, which are strongly correlated with housing, rose by double digits last month, with Ford reporting a 16.3 percent rise in pickup trucks used by building contractors.

This is exactly what the Fed is after. A healthier housing market has a direct impact on creating more demand and jobs, unlike higher stock valuations.

The pickup in pickups and other vehicles is not the only sign of an improving economy. It builds on data released last week that showed consumer spending jumped by 0.7 percent in February versus the prior month. That sent economists scrambling to pencil in first-quarter GDP above 3 percent.

If economists are right that the payroll tax shaved 0.6 percent off growth, then without it GDP could have been running as hot as 4 percent in the first three months of the year. That will probably slow down in the second quarter when the government’s austerity measures take their biggest bite. But after that there’s no sign of fiscal belt-tightening for some time.

With interest rates extraordinarily low and consumers increasingly confident the economy finally may have a full tank to power itself forward.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

By Agnes T. Crane

NEW YORK, March 26 (Reuters Breakingviews) – Over-eager
pension funds may end up harming the emerging markets golden
goose. U.S. retirement managers are struggling to find decent
returns, leading many to stretch into riskier areas like
emerging markets. But a pension-fueled shift of hundreds of
billions of dollars of new cash into the asset class could prove
self-defeating and squeeze out whatever extra yield remains.

The prevailing low-yield environment is particularly painful
for pension funds that are on the hook to pay out retirement
benefits at preset levels no matter what. Many still figure
their likely annual returns at approaching 8 percent on average.
With benchmark yields on, say, 10-year U.S. government debt
hovering around 2 percent against a 50-year average nearer 7
percent, that target is currently optimistic.

Emerging markets look a tempting alternative. Not only have
they delivered double-digit returns for investors in most of the
last 10 years, but Barclays expects emerging economies including
China, Brazil and Turkey to grow at 5.3 percent on average this
year, more than five times as fast as the developing world.

Asset manager BlackRock says pension managers and insurance
companies could more than double their emerging market
allocations, which currently stand at about 4 percent of their
global portfolios on average. The problem is that a flood of new
capital could easily wash out the benefit.

A 4 percentage point increase in all large institutions’
allocation to emerging markets would be worth some $2.2
trillion, according to BlackRock. That’s equal to about a
quarter of the entire emerging market debt universe, as measured
by Schroders. A similar move by U.S. pension funds alone would
send $680 billion to the developing world, or more than six
times the amount investors plowed into emerging market equity
and bond mutual funds last year, according to EPFR Global. Even
that has already squeezed returns. Emerging market sovereign
debt is expected to return only 4 percent this year while
riskier local currency bonds could yield 7 percent, according to
Barclays.

The wall of new money could inflate another bubble in
developing markets. Credit in Turkey, Indonesia, Brazil and
Thailand was already showing signs of overheating in 2012,
according to the Bank for International Settlements. U.S pension
funds may find emerging markets less fertile than they hope.

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CONTEXT NEWS

– U.S. pension plans and insurance companies have less than
4 percent of their assets in emerging markets, according to
BlackRock, though many of them are considering an increase to 8
percent. A 4 percentage point change by U.S. retirement funds
would increase inflows by $680 billion, according to the asset
manager.

– Emerging market equity and bond mutual funds received $110
billion in new funds in 2012, according to EPFR Global. In 2013,
investment in local currency bonds is more than double that of
foreign currency debt.

– Bank for International Settlements paper: link.reuters.com/ryt86t

RELATED COLUMNS

Backs to the future [ID:nL1N0AS8RT]

Savers losing [ID:nL2E8IH3ER]

– For previous columns by the author, Reuters customers can
click on [CRANE/]

(Editing by Richard Beales and Martin Langfield)

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Keywords: BREAKINGVIEWS EMERGING/PENSIONS

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The next economic “It girl” is about to be discovered. In 2008, the obscure Baltic Dry Index was suddenly the subject of every financial conversation. The TED spread and the ABX also briefly rocketed to fame. Now, as investors try to find a telltale gauge of when interest rates will start rising, the JOLTS report, forward curves and the overnight index swap could soon be in vogue.

Federal Reserve Chairman Ben Bernanke has effectively initiated the search. Simply ending or even slowing the U.S. central bank’s $85 billion of monthly bond buying could usher in tighter policy well before short-term rates get adjusted. That means longer-dated securities, which the Fed has been acquiring for over a year, will feel the effect first.

That’s why fund managers, bankers and others are on high alert for any shift in expectations. While they’re still eyeballing traditional measures like fed funds futures and TIPS breakevens, the extraordinary circumstances have intensified the quest for a more targeted indicator.

Forward curves could be a place to start. They mark where yields should be in the future under current conditions. A popular one is the 10-year, which plots the benchmark Treasury yield over the next three years. The current spread is about 0.8 percentage point, nothing too shocking considering rates have moved by twice as much in the previous three years. If the spread widens, however, it could signal a quicker end to quantitative easing.

There’s also the wonky-sounding overnight index swap. It reads the market view on short-term rates, which aren’t expected to move until 2015. The OIS has traded below 20 basis points since 2011, unsurprising given the current policy. It should move higher, though, if investors believe a rate hike is coming sooner rather than later.

Ultimately, the JOLTS, the U.S. Labor Department’s Job Openings and Labor Turnover Survey, could inform all those expectations. The Fed has said declines in the unemployment rate alone won’t end its near-zero policy. Central bankers want to see improvements in hiring and quitting rates. JOLTS provides such numbers monthly.

Economic circumstances mean none of these three potential starlets is turning heads just yet. Before long, though, one or all of them could be the belles of the ball.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

By Agnes T. Crane

NEW YORK, March 21 (Reuters Breakingviews) – George
Osborne’s new mortgage subsidy program misses an important
lesson of the U.S. housing debacle. The British chancellor hopes
to boost housing, and by extension a still-struggling UK
economy, by guaranteeing home loans. It sounds like the
beginnings of an approach that saddled taxpayers across the
Atlantic with huge losses at Fannie Mae (FNMA.OB: Quote, Profile, Research) and Freddie
Mac (FMCC.OB: Quote, Profile, Research).

Help to Buy, as it’s called, is part of a 5.4 billion pound
package of housing support in Wednesday’s budget. Osborne’s
Treasury will either provide a partial guarantee for a mortgage
or, for new-build homes, directly lend the buyer up to 20
percent of the home’s value. Under both schemes, the borrower
would only need to find a 5 percent down-payment.

The United States has already tried following this road. Its
quest to make the dream of home ownership a reality – even for
those who couldn’t, in reality, afford it – led to the creation
of giant quasi-government agencies which dominated the market
for standardized loans and left scope for reckless lending by
private firms. The shortcomings of Fannie and Freddie were laid
bare by the housing collapse, and Uncle Sam had to rescue them.
They have so far needed $189 billion of taxpayers’ money.

Subsidizing home ownership scores political points but the
UK scheme, like the one in America, provides the wrong
incentives. It encourages borrowers to stretch themselves, and
lures banks into riskier lending in the knowledge that the
government takes a slice of any losses. It could also achieve
little except to push housing prices higher, leaving homes no
more affordable. Unlike the United States, the UK long ago
stopped allowing taxpayers to deduct mortgage interest.
Reintroducing a version of the same kind of distorting subsidy
is a backward step.

Cash-strapped Osborne knows that loan guarantees cost
nothing to offer – at first. And if the program ends in 2017 as
proposed, it may not go bad. The devil in the idea, though, is
that successor politicians won’t find it easy to abandon. In the
United States, borrowers, investors, homebuilders and real
estate salespeople are arrayed against any government pullback
from the market, and even the discredited Fannie Mae and Freddie
Mac seem indestructible. Letting a Limey Muck take root across
the pond would only build trouble.

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CONTEXT NEWS

– The budget unveiled on March 20 by UK Chancellor George
Osborne includes a 5.4 billion pound package that aims to
increase home ownership. The government plans to lend qualifying
home buyers an amount equal to 20 percent of the home’s value or
provide a partial mortgage guarantee to help reduce the cost of
financing. Under both schemes, a home buyer would only need to
find a 5 percent down payment.

– UK Help to Buy program: link.reuters.com/kys76t

– Reuters:

Britain offers help to struggling home buyers
[ID:nL6N0CCFSP]

UK’s Osborne says homes package won’t spur bubble
[ ID:nL6N0CD2F2]

TAKE A LOOK-Britain’s budget [ID:nL6N0CA74N]

RELATED COLUMNS

Austere generosity [ID:nL6N0CCFDA]

Shut the shelter [ID:nL4N0C05AM]

– For previous columns by the author, Reuters customers can
click on [CRANE/]

(Editing by Richard Beales and Martin Langfield)

((agnes.crane@thomsonreuters.com)(Reuters messaging
agnes.crane.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS USA/HOUSING UK

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and the Reuters sphere logo are registered trademarks and trademarks of
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(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

By Agnes T. Crane

NEW YORK, March 18 (Reuters Breakingviews) – A regulatory
loophole on mortgage servicing should be a no-no. Basel III
should, once fully implemented, prevent any one U.S. bank from
being too dominant at managing the nuts and bolts of home loans.
It will impose a punitive charge if more than 10 percent of a
bank’s capital is dedicated to supporting the business. But
there’s a way for lenders to get mortgage servicing rights off
the balance sheet yet keep the income. That risks adding more
confusion to a complex part of the market.

MSRs are a quirk of U.S. mortgage finance. They’re an
estimate of a bank’s future revenue from processing payments of
home loans. They can also be a handy fillip to a bank’s earnings
as they’re worth more when rates rise, offsetting a potential
drop in mortgage lending. But the crisis laid bare conflicts of
interest and poor business practices. The top five players
recently paid a $25 billion fine.

Bank of America (BAC.N: Quote, Profile, Research), Citi (C.N: Quote, Profile, Research) and JPMorgan (JPM.N: Quote, Profile, Research)
have been reducing their market share in the MSR market. Wells
Fargo (WFC.N: Quote, Profile, Research), though, has held steady. As of the end of 2012
its MSRs were already running up against the Basel III capital
cap. Breaching the limit would mean having to hold capital of
1,250 percent against the excess.

That’s why its executives have flirted with the idea of
selling some MSRs and then leasing back the day-to-day business.
It has been done before by servicing specialist Ocwen Financial
(OCN.N: Quote, Profile, Research), which is not subject to bank capital rules. Wells’
finance chief Tim Sloan recently said the bank’s in no hurry to
do anything. But it would not necessarily just have to win more
business to tip over the limit: an increase in interest rates
would push up the MSR value and the amount of capital needed.

The problem with such transactions is that they push the
owners of the MSRs one step further away from borrowers. That
can create even more confusion about who is legally and
financially responsible for the assets, which would make any
future large-scale mortgage defaults even harder to resolve.
Moreover, buyers may be non-banks, which would push the assets
into the less regulated shadow banking system.

It may be that Wells and whoever might buy the MSRs could
devise enough checks and balances to make it work. But if
there’s no clear benefit to borrowers, regulators should find a
way to stop it.

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CONTEXT NEWS

– Wells Fargo Chief Financial Officer Tim Sloan said on
March 5 that the bank isn’t in any hurry to sell its mortgage
servicing rights. “We’ve got an adequate level of capital,” he
said during an investor conference.

– Wells serviced $1.9 trillion of mortgages in the fourth
quarter, making it the largest mortgage servicer in the country,
according to RBS. The bank valued its mortgage servicing rights
at $11.5 billion at the end of last year. The capital required
to run that business equates to 10 percent of the bank’s Tier 1
common equity under Basel III.

– Basel III is expected to cap a bank’s mortgage servicing
rights at 10 percent of Tier 1 common equity. If that limit is
breached, the excess valuation will be assessed a charge of
1,250 percent against capital.

RELATED COLUMNS

All mucked up [ID:nL1E8K17JM]

Runaway leader [ID:nL2E8IC3GW]

– For previous columns by the author, Reuters customers can
click on [CRANE/]

(Editing by Antony Currie and Martin Langfield)

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Keywords: BREAKINGVIEWS USA/MORTGAGES

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