Weekly Financial Business Recap: Recovery Plans for Banks, Schemes in the UK

The Consumer Financial Protection Bureau’s inquiry into mortgage-insurance practices that are alleged to have violated the law by paying banks fees to win business is expanded to include American International Group Inc. (NYSE:AIG) and Genworth Financial, Inc. (NYSE:GNW), in addition to PHH Corporation (NYSE:PHH), according to recent filings.

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The State of New York is charging the United Kingdom’s Standard Chartered (SCBFF.PK) with “scheming” with Iran to hide more than 60,000 transactions that represent at least $250 billion over a 10-year period. If proven correct, the bank could lose its license to operate in New York. The complaint states that “In short, SCB operated as a rogue institution.” In response, a Group Director of the latter was quite displeased by the charges and responded, “You (expletive) Americans. Who are you to tell us that we’re not going to deal with the Iranians.” It is also alleged that the bank created automated systems to assist with the transactions. One suspects that the expletive was stronger than the usual ‘bloody’.

In an uncharacteristic move for The Blackstone Group. L.P. (NYSE:BX), the firm wrote down its €220 million in equity a few weeks ago in the German plastics and packaging company Klockner and gave the keys to a group of junior lenders. Observers remark that the surprise was not the writedown in equity that most already thought to be zero, but that Blackstone delayed doing so for so very long.

On Tuesday, American Capital Agency Corp. (NASDAQ:AGNC) suffered a quick crash, falling 11 percent in the opening seconds of trade on a volume of 5.7 million shares before regaining most of the loss. The stock typically trades around 100,000 during the first 2 minutes and it is so far unknown if any stops were triggered.

The Federal Reserve has fined insurer MetLife, Inc. (NYSE:MET) $3.2 million for “unsafe and unsound” practices in the servicing of loans and foreclosures, subsequent to a 16-month inquiry. The company is now at work getting rid of any connection to mortgages and banking in order to remove itself from the Fed’s oversight.

Huntington Bancshares Incorporated (NASDAQ:HBAN) is said to have Citizens Republic Bancorp, Inc. (NASDAQ:CRBC), the Flint, Michigan lender that still owes TARP $300 million, on its shopping list. Among the other suitors might be Fifth Third Bancorp (NASDAQ:FITB).

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NYSE Euronext (NYSE:NYX) is currently in talks with the Securities and Exchange Commission over allegations that it violated a rule which bans exchanges from disseminating data on a private data feed faster than on public feeds. The former does not expect that any resolution will be material. The discussions emerged as the SEC steps up its inquiry on the effects of high-speed trading on markets, for which these information feeds are all important.

Analysts believe that Citigroup Inc. (NYSE:C) might take a charge of between $3.2 billion and $6 billion on a writedown of its Smith Barney joint venture with Morgan Stanley (NYSE:MS). The lower estimate is from Portales Partners and the higher one comes from Barclays. Meanwhile, Citigroup and Morgan Stanley have recruited Perella Weinberg to calculate the value of a 14 percent investment in the joint venture that Citigroup is divesting to Morgan Stanley.

It turns out that Jefferies Group Inc. (NYSE:JEF) Chief Executive Richard Handler and Executive-Committee Chairman Brian Friedman played the lead roles in rescuing Knight Capital Group, Inc. (NYSE:KCG) subsequent to its erroneous trades of last week. The two individuals provided funds on Friday that allowed Knight to remain viable, according to the Wall Street Journal. In addition, Jefferies aided with the structuring of Knight’s $400 million lifeline on Monday, of which the former is supplying about 25 percent.

CME Group Inc. (NASDAQ:CME) might be mulling an aluminum contract that would compare favorably to that of the London Metal Exchange, which dominated trading in the $80 billion market for decades. Traders’ ire regarding the Exchange’s warehousing policies could be giving CME a break.

Getting help from lower property delinquencies and rising prices, Fannie Mae (FNMA.OB) posted a second quarter income of $5.1 billion, which is notably up from the $2.7 billion reported in the first quarter. Just as Freddie Mac (FMCC.OB) has done, Fannie can now make its $2.9 billion dividend payment to the Treasury without having to draw funds from the same.

First it was consumer goods companies and now it’s municipalities – Berkshire Hathaway’s (NYSE:BRKB) second quarter report shows the firms is retreating from exposure to the latter, as was indicated by a 50 percent reduction. Blaine Rollins pointed out that the company has terminated contracts with a notional value of $8.25 billion, which would have paid out in the event of certain municipal or state defaults.

JPMorgan Chase & Co. (NYSE:JPM) has refiled its first quarter results, conceding “material weakness” in its internal controls. Investors were warned in July that the first quarter profit was decreased by $459 million to $4.92 billion. However, the firm has not so far resubmitted its capital plan to the Federal Reserve, saying that stock repurchases won’t be resumed until next year, although Chief Executive Jamie Dimon said last month that he hoped for the fourth quarter.

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The online brokerage E*TRADE Financial Corporation (NASDAQ:ETFC) is undergoing a shakeup in the form of a chief executive search. Ken Griffin at Citadel, who in 2011 pushed for a board reconfiguration and even a sale of the firm, is serving on the search committee.

Slumping growth in billing at the American Express Company (NYSE:AXP), which was revealed by management at the firm’s investor day, is prompting Josh Steiner at Hedgeye to say that the shares are not ‘a buy’. Billing continued to stall in July from the second quarter’s already lackluster pace, as Chief Executive Kan Chenault commented that, “It appears to reflect a weak overall economic environment, which shows up in a number of areas.”

Goldman Sachs Group Inc. (NYSE:GS) has slashed its holdings of Italian sovereign debt by 92 percent in the second quarter, according to its 10-Q, with credit-derivative positions giving the company almost a $1 billion short exposure. It turns out that as Goldman was getting short, the sales team was suggesting the purchase of Italian paper to clients.

The United Kingdom’s Standard Chartered (SCBFF.PK) might countersue New York State’s Department of Financial Services for damage to its reputation, subsequent to the latter’s allegations concerning the bank’s dealings in Iran, according to the Financial Times. Standard offered a settlement of $5 million for the $14 millions of transactions it agrees violated U.S. law a few months ago, but the money was turned down as the Department is considering penalties of more than $500 million.

New lawsuits against several major banks accused of Libor misconduct, including Bank of America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), HSBC Holdings PLC (NYSE:HBC), and UBS AG (NYSE:UBS), were suspended Wednesday by United States District Judge Naomi Buchwald, so that she can settle any motions to dismiss on other cases.

Knight Capital Group, Inc. (NYSE:KCG) is said to have held about $7 billion of stocks at one point during its information tech malfunction of last week, but it did sell $2.4 billion by the end of the day, according to the Wall Street Journal. The firm then divested the rest of the portfolio to Goldman Sachs after it rejected an offer from UBS, but it still took a hit totaling $440 million from the fiasco.

Some former lower-level employees at UBS AG (NYSE:UBS) have been offered immunity from United States prosecutors from criminal charges in return for their assistance in the Libor inquiry, says the Wall Street Journal. However, UBS, Deutsche Bank AG (NYSE:DB), and Barclays PLC (NYSE:BCS) have made arrangements to co-operate with authorities and these deals offer no protection to the current staff involved.

Morgan Stanley (NYSE:MS) is stepping up its bond and interest-rate trading operations so as to quicken current sluggish activity and to get ready for the time when such products will trade more like stocks. The result is machines supplanting traders.

PNC Financial Services Group (NYSE:PNC) announces that it holds a 10.32 percent investment in Brown-Forman Coporation (BF.B), which produces drinks such as Jack Daniels. At Thursday’s closing price, the investment has a value of $811 million.

Bank of America Corporation (NYSE:BAC) is close to the divestiture of its ex-U.S. Merrill Lynch wealth management division says Bloomberg, and an official announcement might appear as soon as Monday. The transaction’s amount has been previously calculated between $1.5 billion and $2 billion.

The lawsuit brought against JPMorgan Chase & Co. (NYSE:JPM) by credit card customers who alleged that the company obtained higher fees by improperly raising minimum payments has been resolved by a judge who okayed a $100 million class-action settlement in the matter.

Lloyds Banking Group plc (NYSE:LYG) is said by sources to be in advanced discussions to divest a $1.9 billion portfolio of loans to a group led by TPG and Goldman Sachs Group Inc. (NYSE:GS). The seller is 40 percent owned by the government of the United Kingdom and is thus required to cut back assets, making a buyers market in this case.

Citigroup Inc. (NYSE:C) wants to repurchase as much as $675 million in bonds in order to cut its debt burden, which if carried out would contribute to purchases of $570 million in notes denominated in Swiss francs and pounds. The paper that the firm is offering carries interest rates of as much as 8.5 percent, which is considerably higher than the Federal Reserve’s key rate of 0 to 0.25 percent.

Barclays PLC (NYSE:BCS) is replacing Chairman Marcus Agius with the former Bank of England Executive Director David Walker. Agius is stepping down due to fallout from the Libor scandal, and Walker’s initial task will be to find a Chief Executive to replace Bob Diamond, who resigned for the same reason.

Goldman Sachs Group Inc. (NYSE:GS) divests contractor Fujita Corp. for $636 million, as it continues to leave Japan, as it now has only two businesses remaining in the country. The group’s Japanese holdings were obtained in the early 1990s, after that country’s bubble burst in 1990.

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It’s not the living wills again, but close: The Too Big To Fail banks JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), Citigroup Inc. (NYSE:C), Goldman Sachs Group Inc. (NYSE:GS), and Bank of America Corporation (NYSE:BAC) have been directed by the Federal Reserve and the Comptroller of the Currency to devise recovery plans for circumventing collapse in severe financial stress conditions and even in the instance of general instability, according to Reuters. These plans are said to be different from the living wills, as requests were first sent two years ago.

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