Banking/Financial Institutions

Goldman Sachs is now under criminal investigation by the Justice Department, following a flurry of Capitol Hill activity this week focusing on Wall Street. 

Federal investigators will look into mortgage securities deals by Goldman Sachs that became the focus of hearings with the firm's executives this week, according to The Associated Press. 

The probe has been under way for weeks and is being conducted by Justice and the FBI, according to a Washington Post story. 

On Thursday, 62 lawmakers delivered a letter to U.S. Attorney General Eric Holder calling for the investigation with further pressure building after Lloyd Blankfein, Goldman's CEO, and other executives defended the company's financial deals and said they didn't do anything wrong. 

The U.S. attorney's office in Manhattan is expected to take the case referred by the Securities and Exchange Commission, the AP reported. 

Two weeks ago, the SEC filed a civil lawsuit against Goldman alleging fraud in connection with a trader's transactions in 2006 and 2007. Goldman released a slew of emails from trader Fabrice Tourre reflecting that Goldman knew some of the investments, mostly in the subprime mortgage market, would fail and money could be made betting against the transactions. 

The U.S. Commodity Futures Trading Commission on Thursday fined Morgan Stanley Capital Group $14 million and UBS Securities $200,000 for concealing a large trade from its clearinghouse, the New York Mercantile Exchange. 

The penalty centers on crude oil futures contracts that were not reported to the exchange within 5 minutes of the trade being executed.  

NYMEX stipulates that these trades must be reported within this timeframe.  Read more...

Sen. Mark Warner (D-Va.) said Thursday lawmakers should include "trip wires" that could lead to tougher regulations on derivatives.

On the Senate floor, Warner suggested triggers could be written into the law to impose more stringent regulations on firms that try to evade the new rules. Warner said the triggers could also be a way to stiffen up regulations without forcing the market overseas.

"As we try to put in place new rules around derivatives, we don't want want to push the whole derivatives market offshore," Warner said.

Legislation pending in the Senate would require banks to spin off their derivatives desks, which analysts say would force banks to raise tens of billions of dollars to capitalize their new standalone operations. Warner has expressed concern about the provision.

Warner suggested putting some penalties and "trip wires" in place, so that regulations could get tougher if banks do not carry through on their obligations.

"Putting in place trip wires that might then cause a Draconian response would help self-police the industry," Warner said.

Sen. Kirsten Gillibrand (D-N.Y.) has also raised concern about the spin-off provision, which would have its biggest impact on New York banks.

The Obama administration will likely take another six months before releasing its plan to reform Freddie Mac and Fannie Mae mortgage firms, Treasury Secretary Timothy Geithner said Thursday.

"I'm not sure exaclty when," Geithner said at a Senate Appropriations subcommittee hearing. "We'll do it as soon as we can."

Read more...

The U.S. Chamber of Commerce on Thursday reiterated its warning that the consumer protection agency in the Senate financial reform bill will apply to non-finance firms.  

The protection agency is expected to oversee companies where extending credit is a significant portion of its business. The Chamber argues that the bill fails to define when extending credit crosses that threshold. 

"If an orthodontist allows 70 percent of his/her patients to pay in six or twelve installments, is that significant to the practice," the Chamber stated in a release. "If an electrician allows 50 percent of his customers to pay in installments, is that significant to his business? What about a lawn service that charges interest to any of its customers who don't pay in 30 days -- is that significant?" 

Read more...

With the Senate entrenched in financial regulatory reform legislation, President Barack Obama nominated two economists and a lawyer to the Federal Reserve Board on Thursday. 

Janet Yellen, president of the Federal Reserve Bank of San Francisco, was nominated to take Donald Kohn's place as governor and vice chair. Peter Diamond, an economics professor at the Massachusetts Institute of Technology along with Sarah Bloom Raskin, Maryland's state banking regulator, were nominated to sit on the seven-member board. 

"The depth of experience these individuals bring in economic and monetary policy, financial regulation and consumer protection will make them tremendous assets at the Fed," Obama said in a statement. 

The Senate is likely to approve the nominations. 

A $50 billion fund that would go toward unwinding failing financial institutions is still in play, a leading negotiator on the reform bill said Thursday. 

Sen. Mark Warner (D-Va.), a member of the Senate Banking panel and key negotiator on the fund, said he didn't think an agreement had been reached to remove the prepaid account that would be funded by big banks in order to avoid taxpayer exposure, during an interview today on MSNBC.

The fund is designed to provide capital so firms can be closed down or go into bankruptcy without using taxpayer money. 

Senate Republicans have said the fund was removed as part of negotiations to bring the overhaul legislation to the floor but new language has yet to emerge on the provisions. 

"We're trying to put some speed bumps on these large institutions -- added capital requirements, leverage requirements, trying to look at making sure that there's a whole new set of capital that would convert to equity if a bank got into a problem," Warner said. 

While there's plenty of hard work ahead, Warner predicted that the Senate could produce a bill that will get 75 votes. 

Treasury Secretary Timothy Geithner defended the Democrats' financial regulatory reform proposals from attacks that he said were false.

Geithner, speaking at a Senate subcommittee hearing Thursday, said that opponents of the Democrats' bill have "tried to convince that these reforms will either hurt Main Street, help Wall Street or both."

"Those arguments won't work because they're not true," Geithner said.

Read more...

President Barack Obama will deliver remarks Tuesday before some of the most powerful CEOs in the U.S.

White House Press Secretary Robert Gibbs said that the president will address the annual meeting in Washington next Tuesday of the Business Council, a group of public-minded chief executive officers.

"The president will discuss his efforts to spur job creation and rebuild our economy for years to come," Gibbs said in a statement. "He will also address the important role the business community plays in the fight to get the American people back to work."

Obama's speech comes against the backdrop of his push for lawmakers to approve financial regulatory reform legislation.

Among the group's top members include major financial players, according to a list of its 2009-10 leadership. JPMorgan CEO Jamie Dimon serves as a vice chairman, while health insurance executives Ronald Williams of Aetna and Angela Braly of WellPoint serve as members.

It's not clear whether or not the leadership information was up to date; the council's website lists now-resigned General Motors CEO Richard Wagoner as a vice chairman.

In addition to Obama, Treasury Secretary Tim Geithner will address the group on Tuesday, while Office of Management and Budget (OMB) Director Peter Orszag will deliver remarks on Wednesday.

Thousands of labor union members are planning a march on Wall Street in support of overhauling the financial system after the market closes Thursday. 

Those on Wall Street "haven't learned a lesson," AFL-CIO President Richard Trumka said this morning in a CNBC interview. 

He is asking for the financial sector to "pay their fair share" and replace the "11 million jobs" they killed, stop fighting efforts for regulatory reform and start lending to small and mid-sized banks to help create jobs. 

Earlier this week, Goldman Sachs CEO Lloyd Blankfein and Citi CEC Vikram Pandit, each said they support reform to make the market more transparent. 

Trumka suggested a financial tax or tax carried interest "at the same rate that you and I pay instead of having a guy that made $4 billion get taxed at half the rate you and I pay."

A transaction tax of a quarter of a penny would collect between $150 billion and $300 billion, he said. 

"They're back to business as usual. That's why we need Wall Street reform and that's why we want them to start paying for the jobs that they destroyed, 11 million of them."