Finance Brief: Leak Reveals Offshore Holdings of 12 World Leaders

Today’s Washington Brief

  • The Federal Reserve issued a final rule that classifies more types of municipal debt as “high-quality liquid assets.” But the financial industry says the rule doesn’t go far enough for banks because of restrictions maintained by other federal banking regulators. (The Bond Buyer)
  • California sued Morgan Stanley over losses to two of its public pension funds: the California Public Employees’ Retirement System and the California State Teachers Retirement System. The suit centers on the bank’s sale of toxic residential mortgage-backed securities between 2004 and 2007. (Reuters)
  • The House isn’t scheduled to be back in session this week, but discussions will continue on how to change draft legislation on Puerto Rico’s debt crisis to satisfy stakeholders and lawmakers. Meanwhile, the Senate reconvenes today, and the Senate Banking Committee will hear testimony from Consumer Financial Protection Bureau Director Richard Cordray later this week. (Morning Consult)

Today’s Business Brief

  • An enormous data leak from a Panama-based law firm has brought to light the offshore financial holdings of global figures including national leaders. The leak, dubbed the Panama Papers, shows how funds flow when clients opt to use offshore financial flows. (The International Consortium of Investigative Journalists)
  • The Securities and Exchange Commission is probing trading activities at JPMorgan Chase & Co.’s government debt divisions. The investigation comes in the wake of the departure of a handful traders related to a disagreement over regulatory compliance. (Financial Times)
  • HSBC Holdings Plc isn’t doing enough to strengthen its regime to avoid money laundering and sanctions violations, according to the Justice Department. The bank is under DOJ’s watch for money laundering violations after a 2012 settlement for allowing the billions of dollars worth of transfers that violated U.S. AML laws. (Bloomberg News)

Today’s Chart Review

Mark Your Calendars (All Times Eastern)

Monday
Center for American Progress event on labor market 1 p.m.
Tuesday
Senate Banking hearing on consumer financial regulations 10 a.m.
Senate Small Business field hearing on venture capital 1 p.m.
American University event on Puerto Rico 12 p.m.
Wednesday
FDIC Community Banking Conference 9 a.m.
Thursday
Export-Import Bank annual conference 8 a.m.
Washington International Trade Association event on digital trade 9 a.m.
Senate Banking nominations executive session 10 a.m.
Senate Banking hearing with CFPB Director Richard Cordray 10 a.m.
International House event with past four Fed chairs 4:30 p.m.
Friday
Export-Import Bank annual conference 8 a.m.
SEC director of corporation finance speech at ABA meeting 10:30 a.m.

General

The Coming Week: Senate Could Move on FAA, Puerto Rico Talks Continue
Will Dobbs-Allsopp and Fawn Johnson, Morning Consult

The political world’s eyes will be fixed squarely on Wisconsin’s Republican primary Tuesday, as the GOP’s anti-Trump movement hopes the home state of House Speaker Paul Ryan will slow the real estate mogul’s march to the nomination.

Financial Sector Adds 15K to Payrolls in March, Industry Jobless Rate Drops
Ryan Rainey, Morning Consult

The financial services industry added 15,000 jobs in March, three times the gain in February, the Labor Department said Friday.

A Dodd-Frank Watchdog Still Growls, on a Slightly Tighter Leash
Peter Eavis, The New York Times

At first glance, two events this week suggest that federal regulators are losing ground against “too big to fail” financial institutions.

U.S. Index Futures Signal More Gains With S&P 500 at 2016 High
Sofia Horta E Costa, Bloomberg News

U.S. stock-index futures inched higher, as investors looked for fresh cues after the Standard & Poor’s 500 Index closed at its highest level of 2016. Contracts on the S&P 500 expiring in June added 0.2 percent to 2,069.25 at 10:21 a.m. in London.

Banking

Fed Rule Treating More Munis as HQLA Seen As Too Restrictive
Jack Casey, The Bond Buyer

The Federal Reserve on Friday released final rule changes to treat more municipal securities as high-quality liquid assets under liquidity requirements for large financial institutions, but critics complain they do not go far enough and could hurt the muni market. The rule changes will take effect on July 1, 2016, but other banking regulators still exclude munis as HQLA.

SEC investigates ex-JPMorgan debt traders
Kara Scannell and Joe Rennison, Financial Times

The top US securities watchdog has launched an investigation into government debt trades made by two former JPMorgan Chase employees who left the bank earlier this year after a dispute over compliance procedures. The Securities and Exchange Commission inquiry, which is in its early stages, steps up the pressure on JPMorgan and comes amid greater regulatory scrutiny of the opaque $13tn Treasury market.

HSBC Money-Laundering Controls Aren’t Sufficient, U.S. Says
David McLaughlin and Greg Farrell, Bloomberg News

HSBC Holdings Plc continues to struggle in its efforts to improve its anti-money laundering and sanctions violations controls, according to the latest annual review compiled by Michael Cherkasky, the bank’s court-appointed monitor.

Kashkari takes on Wall Street from farm-rich Fed region
Olivia Oran, Reuters

From his seat atop the Fed’s smallest bank, in a region known for fracking, farming and ranching, Neel Kashkari wants to make sure he’s heard well beyond the northern plains. Since becoming president of the Federal Reserve Bank of Minneapolis this year, the 42-year-old Kashkari has gone on a media blitz, visiting nine major media outlets in two days and creating a Twitter hashtag to promote his view that the biggest U.S. banks should break up.

The Secret Money Behind ‘The Wolf of Wall Street’
Bradley Hope et al., The Wall Street Journal

Despite the star power of Leonardo DiCaprio and director Martin Scorsese, the 2013 hit movie “The Wolf of Wall Street” took more than six years to get made because studios weren’t willing to invest in a risky R-rated project.

Small Banks, FASB Smooth Over Loan-Loss Differences
Michael Rapoport, The Wall Street Journal

Community bankers secured assurances from accounting standard-setters over a toughened new rule about when to book loan losses.

Financial Products and Investments

Fraudulent Student Debt Relief Firm Shut Down by Consumer Bureau
Ann Carns, The New York Times

The last thing that borrowers struggling with student debt need is to pay for something they could get free. But that has happened to borrowers who have been misled by shady student debt relief companies.

Victim in Wall St. Scheme Was a Classmate of Its Accused Architect
Alexandra Stevenson and Matthew Goldstien, The New York Times

When Andrew Caspersen sought money for an investment that federal authorities said duped investors out of tens of millions of dollars, one of the people the former Wall Street executive turned to was a college classmate at Princeton University.

Controversial debt buyers get a break under new Wisconsin law
Bridgit Bowden, Wisconsin Center for Investigative Journalism

Goodwin’s debt is a small part of the multi-billion-dollar debt-buying industry that recently won a legislative victory in Wisconsin. Such companies buy and sell the right to collect debt, but consumer advocates say the result is sometimes a bill that the consumer may not recognize for an amount that cannot be verified from a company they have never heard of.

Housing & GSEs

California sues Morgan Stanley over mortgage losses
Jonathan Stempel, Reuters

The state of California sued Morgan Stanley on Friday, accusing the bank of hiding the risks of complex mortgage debt and other securities it sold, causing big losses for the state’s public pension funds, CalPERS and CalSTRS.

Why Your Mortgage Lender Needs All That Paperwork
Mark Greene, Forbes

The Qualified Mortgage became a thing in January, 2014. Proposed, promulgated and made law of the land by the CFPB (Consumer Financial Protection Bureau) as a safe haven for lenders that played by the rules.

A Ginnie Mae Experiment
Bonnie Sinnock, American Banker

The government agency that guarantees securitizations of Federal Housing Administration-insured loans is testing a pool type that consists only of modified and reperforming loans.

Taxes

Offshore Links of More Than 140 Politicians and Officials Exposed
The International Consortium of Investigative Journalists

A new investigation published today by ICIJ, the German newspaper Süddeutsche Zeitung and more than 100 other news organizations around the globe, reveals the offshore links of some of the planet’s most prominent people. In terms of size, the Panama Papers is likely the biggest leak of inside information in history – more than 11.5 million documents – and it is equally likely to be one of the most explosive in the nature of its revelations.

Whistleblower Allegedly Exposes Vast Abuse Within IRS Union
Connor D. Wolf, The Daily Caller

Unionized government tax collectors have been subjected to consistent abuse and corruption from their labor representatives, according to an inside source.

Banking Systems & Currencies

Wall Street and tech start to move past bitcoin
Everett Rosenfeld, CNBC

Bitcoin, the revolutionary technological innovation, is becoming old hat. Even while investors and regulators are paying much more attention (and more money) to the technological architecture underpinning the cryptocurrency, a funny thing is happening: Bitcoin, the very reason for that architecture, is often going completely unmentioned.

Opinions, Editorials & Perspectives

MetLife and the Threat to Dodd-Frank
The Editorial Board, The New York Times

The federal court decision last week to remove the “too big to fail” label from MetLife, the insurance giant, may or may not turn out to be a factor in a future financial crisis. But it is a setback to regulation intended to protect the economy from the inherent risks of an undersupervised financial system.

A Sucker Punch for Banks
Lionel Laurent, Bloomberg View

An uneasy truce is emerging in the fight to make banks’ balance sheets safer, at least according to the latest noises from regulators in Basel.

Why Puerto Rico’s super restructuring is bad policy
Logan Beirne, The Hill

Last week, Congress unveiled a dubious “solution” to Puerto Rico’s staggering fiscal crisis: a precedent-setting legislative package that promises to both disrupt the municipal market and violate the U.S. Territory’s constitution – all while providing little meaningful assistance for the island or its people.

Why Are We Colonizing Puerto Rico?
David Dayen, The New Republic

One catalyst to the water crisis in Flint was the role of the city’s emergency financial manager, empowered by the state of Michigan to dictate practically every aspect of local governance. The financial manager wasn’t accountable to Flint residents, and didn’t have to worry about whether ignoring their concerns about lead-tainted water would harm future election prospects.

A Fiduciary Rule for Brokers: Serve the Clients, Don’t Service Them
Thomas J. Donlan, Barron’s

Free advice usually is worth what you pay for it. There are two good reasons why this is likely: Either the person offering the advice is not an expert and can’t charge for it, or he is an expert and is getting paid by someone else.

Cracking Washington’s Black Box
Editorial Board, The Wall Street Journal

One reason Americans dislike Washington is that its denizens work so hard to obscure what they do. So it’s welcome news that someone wants to bring more transparency to the numbers and methods that are supposedly the basis for policy-making.

Research Reports, Issue Briefs & Case Studies

Draft House Legislation Falls Short of Priorities for Puerto Rico
Salim Furth and Rachel Greszler, The Heritage Foundation

Congress should not lose sight of key conservative priorities as it considers whether (and how) to respond to the economic and fiscal crisis in Puerto Rico. The troubled territory has been a laboratory for progressive politics and crony capitalism for decades.

Quantitative Models of Sovereign Debt Crises
Mark Aguiar et al., The National Bureau of Economic Research

This chapter is on quantitative models of sovereign debt crises in emerging economies. We interpret debt crises broadly to cover all of the major problems a country can experience while trying to issue new debt, including default, sharp increases in the spread and failed auctions.

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