BNP Paribusted

Jordan Fraade
Jul 1, 2014 20:27 UTC

Yesterday, BNP Paribas and U.S. prosecutors finally settled after months of negotiations over the bank’s “Tour de Fraud.” BNP will pay an $8.9 billion fine — the largest the U.S. has ever levied against a foreign bank — fire or discipline over 50 employees (many of whom had already left the bank or “retired”), and plead guilty to criminal charges that it violated U.S. sanctions by providing dollar-clearing services in Iran, Sudan, and Cuba. The bank will be barred from conducting certain dollar-clearing operations for a year, starting in January 2015, and from clearing transactions for other outside banks in New York and London for two years. The WSJ has a good summary of what that means for the bank and its clients.

Lars Machenil, BNP’s CFO, says the fine will not significantly hamper the bank’s ability to provide services or pay out the expected dividends to shareholders. BNP’s share price, which has fallen about 15% since news of a possible penalty first broke in February, rose about 4% today, closing at $51.33. George Hay at Breakingviews thinks the bank’s finances seem okay:

Factoring in net income likely to be generated by BNP by the end of this year, and $1.1 billion already provisioned against the U.S. fine, the bank could still muster a 10.1 percent core Tier 1 ratio under Basel III rules, even if it pays a dividend. If it scraps dividends altogether, the ratio would jump to 10.5 percent. That’s still higher than where peers like Société Générale are now.

But this is still going to hurt. The Financial Times’ Lex thinks that the year-long suspension could lead to an unusual amount of trouble for BNP Paribas in a way that other fined banks haven’t seen. It will force some clients to move their assets — assets that may not come back to BNP after the year is over. The Economist says that even aside from the bank’s money troubles, BNP’s reputation has been scuttled by its decision to do business with some of the world’s most brutal regimes. While U.S. regulators often prefer to hand out “punishments that don’t do any harm,” says Matt Levine, ”this punishment actually sounds reasonable: If BNP did a lot of sanctions violating in your Geneva office and your oil financing business, why not make it stop using dollars in those businesses for a while?”

French politicians, of course, are not pleased, accusing the U.S. of being unreasonable. President Francois Hollande asked President Obama to go easy on BNP when the two met for D-Day anniversary celebrations last month. Walter Kielholz,the chairman of reinsurance group Swiss Re, says European bankers and investors are tired of being pushed around by American regulators. Mohamed El-Erian questions whether cases like this can give the impression of a political vendetta against foreign banks, and thus “increase uncertainty, discourage banks from funding productive long-term investments, and fuel anti-globalization and isolation — all of which hampers and distorts extending credit to small- and medium-sized firms that are major drivers of employment and innovation.”

The one thing that probably won’t be changing at BNP: its chairman, Baudoin Prot (he served as CEO from 2003-2011). For all the fallout, Prot isn’t likely to leave (or lose) his job anytime soon, says Pierre Briancon at Breakingviews, but he absolutely should. “That Prot’s resignation was not sought by U.S. investigators is irrelevant: decency is not something one should be forced into,” writes Briancon. — Jordan Fraade

On to today’s links:

Oxpeckers
The robots are taking our jobs, earnings reporter edition - Nikhil Sonnad

Health Care
The case for getting rid of employer-sponsored health insurance - Uwe E. Reinhardt

Takedowns
Martin Wolf takes on the latest BIS annual report - FT

Wonks
“If we kill Ex-Im, there seems to be a real possibility that whatever is causing our trade deficit might get worse” - Noah Smith

Ugh
Unemployment in the euro zone is 11.6% - Joe Weisenthal

Macro Problems
How bad policy is making the Great Recession’s damage permanent - Matt O’Brien

Bitcoin
So there’s now a pizza bitcoin extortion scheme - Grub Street

Startups
Startups are 19% less likely to succeed if the founders are college friends - Carlos Bueno

Servicey
The National Archives will upload all of its content to Wikimedia Commons - Julian Chokkattu

Stuff We’re Not Linking To
There is a thing called the “Good Country Index,” and Ireland has won it – Business Insider

Holding banks accountable

May 13, 2014 22:04 UTC

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U.S. Attorney General Eric Holder would like you to think that large financial institutions are not “too big to jail”. The Justice Department has been investigating two foreign institutions, France’s BNP Paribas and Switzerland’s Credit Suisse, for months, looking to bring criminal charges against a bank for the first time in decades. This week, it finally seems like they are closing in.

Though the Justice Department is cloaking its investigation in the rhetoric of the financial crisis, Binyamin Appelbaum notes that these cases, in fact, have nothing to do with it. BNP is being investigated for doing business with blacklisted countries like Sudan and Iran, and routing some of the transactions through the U.S. Credit Suisse is accused of helping U.S. citizens evade taxes.

The Credit Suisse case isn’t even that new. It’s been around since at least 2009, when UBS settled with the government over similar allegations. While UBS got away with a $780 million fine, Credit Suisse is now facing $2 billion in fines and a guilty plea. The bank’s CEO, Brady Dougan, who got a 26% pay increase last year, is also being urged to quit. “If Dougan had been smarter about this, Credit Suisse almost certainly could have settled this case without the bank having to plead guilty to anything”, writes Jonathan Weil.

The banks are attempting to deal with the problem in a couple of different ways: In December, Credit Suisse set up a special holding company, where it dumped all accounts that might fall under investigation (which prosecutors may or may not be willing to charge). If the parent company is hit with an indictment, it may not be legally allowed to operate in the U.S. anymore. BNP is taking a more direct approach: begging. Executives from the bank traveled to New York and Washington last week to let prosecutors know that a “guilty plea could wreak havoc on BNP and the broader economy well beyond France’s borders”.

If criminal charges do come, “banks could lose one of their best negotiating tactics: revving up fear of financial calamity”, writes Joel Schectman. But it’s actually unclear whether criminal charges would be fatal to a big bank, writes Matt Levine – and the Justice Department knows this:

The logic seems to be that prosecutors have no real idea if criminal charges would bring down a bank, so they’ll just play around for a bit and see what happens. Start with BNP Paribas. Get a criminal guilty plea. If that puts it out of business, sparks a financial panic, and puts its 190,000 employees out of work then, you know, oops! Don’t do that again.

But hey, “Holder wants his legacy to be that of an enforcer”, says Allie Jones, and time is running out. — Shane Ferro

On to today’s links:

Central Banking
There’s a labor shortage at the Fed - NYT

Your Retirement Plan
Half of Americans think they will have enough money to retire - Gallup

Technically Speaking
“Forget Big Brother – Google is better!” - Mathias Döpfner

Good Luck With That
Silicon Valley workers should take cues from their colluding bosses - AJAM

Good News
The labor market is (maybe!) not broken - Justin Wolfers

Remuneration
Goldman’s UK profits were down 73% last year. Pay per person rose 3% - eFinancial Careers

Things That Exist
Guy Fieri jewelry - Guy!

Dismal Science
Talking to Piketty’s translator: “Thomas is hardly the first literate economist” - Alternet

Unintended Consequences
What’s the biggest threat to the TV ad market? A massive oversupply of TV - Pando Daily

Ugh
Tim Geithner trusted banks more than bankers trusted banks - Noam Scheiber

Remembrances of Things Past
Most FICC revenue is gone, never to return - Reuters

Banks looking fine

Oct 2, 2013 21:25 UTC

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“I haven’t seen morale this bad since the Titanic,” a financial services recruiter told the WSJ in a story about the increasingly dour world of big banks. That nasty third quarter outlook can be chalked up to slumping mortgage sales, lower trading — and, once again, seemingly endless fines. Since the crisis, Bloomberg writes, overall legal costs, including whopping regulatory fines, have hit nearly $103 billion for America’s six largest banks. Roughly half of those costs are made up of payments to mortgage investors.

Today, there’s more: New York’s attorney general is expected to file suit accusing Wells Fargo of violating the terms of the 2011 national mortgage settlement. As the NYT writes, it’s the first time a state AG has sued a bank for allegedly disobeying the terms of the $25 billion settlement, which was intended to help struggling homeowners after the massive robo-signing scandal. On Monday, Wells Fargo also agreed to pay $869 million to settle with Freddie Mac over pre-crisis sales of mortgage securities.

The standout when it comes to fines, however, is JPMorgan. The bank just paid $920 million to settle the London Whale scandal and $389 million over its credit card practices, all while finalizing an $11 billion settlement with US state and federal authorities. At issue is Washington Mutual’s packaging of mortgage-backed securities before the crisis — JPMorgan bought WaMu in 2008 for $1.9  billion. The FT notes that BP paid less to settle criminal charges over the Gulf oil spill. A legal battle between the FDIC and JPMorgan, Reuters writes, may mean the agency could end up absorbing about $3 billion of JPMorgan’s settlement costs — in other words, America’s banks, as a group, would end up footing some of JPMorgan’s bill.

In mid-September, Rob Cox and Antony Currie put JPMorgan’s litigation problem in perspective: Bank of America has set aside some $10 billion in litigation reserves since 2010, while JPMorgan has set aside $21 billion over the last four years. Without these costs, they write, JPMorgan could have boosted its profit 21% between 2010 and 2012. Keith Mullin of IFR argues that banks like JPMorgan are simply “drowning” in legal costs.

Still, if you see JPMorgan as a victim of regulators who are punishing the bank for the actions of companies they bought during the crisis, Peter Eavis says think again. JPMorgan bought both WaMu and Bear Stearns with profits in mind, used accounting maneuvers to minimize its risk, and inherited the banks’ multi-billion-dollar tax breaks. Even after billions in legal fees, both acquisitions, Eavis suggests, could end up being a net positive for JPMorgan. – Ryan McCarthy

On to today’s links:

Pivots
Zynga founder bored with games – WSJ

New Normal
The “boom, bust, flip” phenomenon, and how inequality got worse after the crisis –  Catherine Rampell

Governance
Big investors are calling for Bill Gates to step down as Microsoft’s chairman – Reuters

UGH
How the government shutdown could threaten the housing recovery – Bloomberg
The nine most painful impacts of a government shutdown – Brad Plumer

Bitcoin
“The closure of Silk Road is the best thing that could have happened to Bitcoin” – Kevin Roose

Data Points
The group behind the government shutdown represent only 4.3% of the population – Walter Hickey

Yikes
Barclay’s casual Friday: “It’s a complete slap in the face to Erin Callan’s personal shopper” – John Carney

Alpha
Dan Loeb goes Dan Loeb on Sotheby’s – SEC
Valuations are “obscene” right now – John Hussman

Fascinating
“There are no significant facts about individual human beings” – A guide to moral philosophy – Charles Foster

Servicey
Twitter founder’s simple formula for building a great web product – Ryan Tate

Awesome
The complete history of Twitter as told through tortured descriptions of it in the New York Times – Matt Phillips

Popular Myths
The government safety net didn’t didn’t explode during the recession – Stephen Gandel

Listicles
10 events that changed the repo market – Scott Skyrm

Ouch
Cargill used shell companies to buy Colombian land reserved for the poor – Tim Fernholz

 

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