The afternoon deal: Regulation overdrive

May 13, 2010

New York State Attorney General Andrew Cuomo arrives at a news conference in New York, February 24, 2010.     REUTERS/Brendan McDermid It’s been a busy day on the regulatory front. The New York Attorney General’s office is investigating eight banks for possibly misleading ratings agencies on the quality of mortgage securities, a source says. The Fed is conducting a broad criminal investigation into whether major Wall Street financial firms misled investors on mortgage bond deals, another source says.

Adding to the mix:
–the Senate voted to impose tighter regulations on credit-rating agencies.
–Federal Reserve Chairman Ben Bernanke is concerned about a Senate proposal that could force banks to spin off their swaps business
–the White House and two state attorneys general said they don’t like an amendment to the Wall Steet reform bill that would give the federal government more power than states to regulate banks

From the Web:

Goldman, BofA, Citigroup….Did Prosecutors Leave Anybody Out - WSJ
“It’s Thursday, and one thing is clear from this morning’s headlines: Pretty much all of Wall Street is under investigation.”

Analysts Not Sweating Probe Of Morgan Stanley – WSJ
“They’re surely no worse than others, and maybe they’ll even come out ahead.”

Reduced competition juices banks’ trading records - Reuters
“Four major banks generated trading profits every day in the first quarter, an almost unheard of event that signals how competition has abated since the financial crisis began.”

Rigged-Market Theory Scores a Perfect Quarter – Bloomberg
“The intrigue is high. If a too-big-to-fail bank’s traders were able to make money every day of a quarter, were they really trading in any normal sense of the word? Or would vacuuming be a more accurate term? What kinds of risks do such incredible profits entail, for the banks and the rest of us taxpayers? And are results such as these too good to be true?”

American bank failures pump up deal flow – Reuters
“Vulture investors like Wilbur Ross and small-town community bankers aren’t alone in cashing in on America’s steady flow of bank failures.”

The CDO-prosecution bandwagon gathers more steam – Reuters
“It’s incredibly dangerous to take the Goldman route of fighting the accusations aggressively. Better, I think, to just cooperate fully with the SEC and see what happens. And, of course, if and when the relevant Wells notice arrives, to disclose that fact to investors immediately.”

Are big banks dead in the water? - CNN
“Like sharks drawn to fresh blood in the water, it seems that federal regulators have a ravenous appetite and they are set to pounce on big banks.”

Cuomo and the Broad Power of the Martin Act - NYT
“The banks made hundreds of millions of dollars marketing mortgage-backed securities to their clients during the boom times, but Attorney General Andrew M. Cuomo of New York, who is questioning the actions of eight banks, is giving them cause for second thoughts.”

When is a market maker not a market maker? – FT
“A key Goldman Sachs defence in the civil lawsuit being brought against it by the SEC is that the institution was only fulfilling its role as a security market maker.”

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