DealZone

Live Video: Bernanke and Bair testify before the FCIC

Live video of Thursday’s Financial Crisis Inquiry Commission testimony from Fed Chairman Ben Bernanke and Federal Deposit Insurance Corp Chairman Sheila Bair.

[This event has ended]

from Financial Regulatory Forum:

Financial regulation scorecard

A House-Senate conference committee must find a middle ground between financial regulation bills passed by the two chambers. The committee's final report could differ from earlier versions.

Once approved by both chambers, the compromise legislation will go to President Barack Obama to sign it into law. That could happen by July 4, analysts say.

Here's a look at the status of major points in the House and Senate financial regulation bills.

Reinventing Glass-Steagall

With Congress already debating a sweeping overhaul of financial regulation, perhaps the most enduring regulatory stricture of the Depression era is again getting an airing in Washington. The venerable Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business were repealed in 1999. Now, as the banks try to move on from the dreaded salary caps and the humiliation of TARP, lawmakers are wondering whether getting rid of Glass-Steagall was such a good idea.

Financial giants such as Goldman Sachs could be broken up under two bills introduced in Congress on Wednesday, one with the backing of former Republican presidential nominee John McCain. Both would reinstate Glass-Steagall. Passage of the Cantwell-McCain bill would force firms at the center of last year’s financial crisis — such as Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo — to spin off investment and insurance operations, according to Demos, a progressive think tank in New York. A similar measure was offered on Wednesday by six Democrats in the House of Representatives.

To be fair, many have wondered whether dumping Glass-Steagall was such a good idea. What’s odd is that the discussion about bringing it back comes as almost an afterthought to the massive regulatory reform bill now before Congress. Rather than start from scratch, it may have made more sense to try to reinstate laws that the marketplace was already familiar with, and add new bits around the edges.

from Summit Notebook:

Thain says put shareholders first

John Thain says he put shareholders first and his interests second in deciding to sell Merrill Lynch to Bank of America.

Thain, speaking at the Reuters Global Finance Summit in New York, said a deal to sell a partial stake in Merrill Lynch to Goldman Sachs would have been better for him, but the sale of the entire Wall Street firm to Bank of America was the best outcome for shareholders.

Over a fateful weekend in September 2008, as Lehman hurtled toward bankruptcy, AIG floundered and the financial system looked into the abyss, Merrill held discussions with Bank of America, Goldman Sachs and Morgan Stanley for various transactions, Thain said.

Who belongs in the Financial Crisis Undersung Hall of Fame?

BROADWAYBreakingviews.com has compiled a list of unappreciated heroes of the financial crisis: “Some Good Names in a Year Gone Bad.”

Can you match up the undersung HOFers with their acts of contrarian bravery, as selected by breakingviews’ Antony Currie, Rob Cox and (formerly of Reuters) Jeffrey Goldfarb?

1. Tom Scholar

2. Jeff Kronthal

3. Harry Markopolos

4. Peter Wuffli

5. Greg Fleming

6. Jed Rakoff

A. Options trader who warned the SEC about Bernard Madoff’s Ponzi scheme

B. Merrill Lynch executive who warned his bosses about taking on too much risk

C. Former Merrill president who convinced CEO John Thain to accept an acquisition by Bank of America

Private equity asks for a top-up

cashA number of private equity firms in Europe are going back to investors for more money to fix over-extended balance sheets and fund add-on acquisitions for companies in their portfolio.

Private equity’s world has turned upside down since the start of the credit crisis. All the stats show that deal flow has dropped off a cliff and those deals that have got done are smaller and the equity cheques larger. At the same time,  restructuring situations are mounting as firms face the uneviable choice of injecting more equity or face losing their investments to the banks.

The upshot is that buyout funds raised in rosier times are no longer suited to the current environment, if indeed they have any capital left at all.

Lloyds: who needs asset insurance?

Lloyds Banking Group is weighing up if it needs to take part in the UK government’s asset protection scheme (APS). The plan, described as “catastrophe insurance” to protect Lloyds and RBS from losses above a certain amount, may no longer be in Lloyds’ best interests and it is considering options, according to reports.

On pure financials, a rights issue could be better for shareholders. Credit Suisse analysts estimate the APS must payout 9 billion pounds for the scheme to breakeven for Lloyds, equivalent to further asset losses of about 9 percent. “On this basis we think there are grounds for Lloyds to reconsider its accession to APS,” the analysts say.

But that doesn’t mean shareholders would be better off without APS. Lloyds would probably have to raise at least 15 billion pounds to provide a capital cushion to satisfy regulators, which could be difficult.

Phew! Due diligence done at last

Lloyds’ deal to buy HBOS was sealed in the time it takes to sup a few cocktails with Gordon Brown. But poring through the gung-ho mortgage lender’s books took nine whole months and many thousands of man hours.

Lloyds Banking Group on Wednesday admitted it had finally completed due diligence on HBOS, after agreeing to buy it in a shotgun marriage last September.

“Nine months after agreeing to purchase HBOS, it has finally completed its review of the assets at HBOS. This means … it has completed its due diligence of HBOS,” said Hank Celenti, analyst at Royal Bank of Canada.

Lending CIT a hand

An almost heart-warming effort is being mustered by CIT bondholders to keep the troubled lender from getting put under the TARP or stumbling into a much-anticipated bankruptcy. Some $3 billion in survival cash is seen in the pipeline — money that could strengthen CIT’s finances and allow it more time for a debt restructuring. An announcement is expected before the markets open this morning.

What kind of terms might bondholders extract from CIT? Before TARP was modified to target executive pay for those who sought its shelter, banks such as Citigroup and then-independent investment house Merrill Lynch paid what were seen as shockingly high terms on mandatory convertible debt. They were the kind of rates Citi customers paid on credit cards; nothing like traditional bank funding rates.

So, a CIT deal could, and perhaps should, come with a variety of stringent terms. If these are effectively passed on to desperate small and medium-sized businesses that CIT serves, the cost of this rescue could be blamed for stifling the recovery.

GE’s Immelt’s subtle defense

General Electric Co Chief Executive Jeff Immelt went to Michigan, the bleeding heart of the U.S. industrial heartland, on Friday to call for a resurgence in American manufacturing.Jeffrey R. Immelt, Chairman and CEO of General Electric, speaks after being honored by the national non-profit group "A Better Chance" in New York
But even as he warned against relying too heavily on the financial industry to drive economic growth, he subtly set up a defense of the largest U.S. conglomerate’s hefty finance arm.

Analysts and investors are worried that the Obama administration’s proposed overhaul of U.S. financial regulations could force GE to spin off GE Capital, which has businesses ranging from leasing jet planes to investing in commercial real estate.

“We also need a financial system that is built around helping industrial companies to succeed,” Immelt told the Detroit Economic Club. “GE is an important part of this financial services approach. We plan to focus GE Capital on financing small- and medium-sized customers in industries that we know the best.”