CITIGROUP Agrees To Pay Freddie Mac $395 Million For Toxic Mortgages & Poor Loan Servicing

#Citi

"Citigroup To Pay Freddie Mac $395 Million To End Mortgage Claims"

Citigroup Inc. (C), the third-biggest U.S. bank, agreed to pay Freddie Mac $395 million to resolve repurchase claims on soured mortgages sold to the government-backed firm over more than a decade.

The accord covers about 3.7 million loans sold to Freddie Mac between 2000 and 2012, the New York-based company said yesterday in a statement. The payment was covered by repurchase reserves as of June 30, Citigroup said.

The biggest U.S. home lenders, including Bank of America Corp.and Citigroup, faced mounting pressure after the housing crisis to resolve claims on faulty mortgages sold to Fannie Mae and Freddie Mac, the U.S.-owned firms that took a $187.5 billion bailout. Citigroup announced a deal in July to pay Fannie Mae $968 million for loans over a similar period.

The deal with Freddie Mac is “another important milestone in successfully resolving Citi’s remaining legacy mortgage issues,” Jane Fraser, chief executive officer of the firm’s CitiMortgage unit, said in the statement.

The accord doesn’t release the bank from liability tied to servicing the loans.

It excludes less than 1,000 loans from the period with “certain characteristics,” including those already in the process of being repurchased. Citigroup said it believes it’s also adequately reserved for those.

The biggest U.S. home lenders, including Bank of America Corp. and Citigroup Inc. faced...

The company had $719 million in reserves for buying back faulty mortgages at the end of the June, according to a July 15presentation.

The bank added $3.9 billion to its reserves since 2009 through June, according to data compiled by Bloomberg.

U.S. Seizure

Freddie Mac and Fannie Mae, its larger rival, bought about $2.2 trillion of mortgages from the 15 biggest banks and Ally Financial Inc.

(ALLY) between 2006 and 2009, according to Inside Mortgage Finance, a trade journal.

Regulators seized the two firms in 2008 after their purchases of risky loans pushed them to the brink of collapse.

Citigroup sold $62.4 billion of mortgages to Freddie Mac between 2005 and 2009, according to data from Washington-based Compass Point Research & Trading LLC.

The bank’s CEO, Michael Corbat, 53, named Fraser in May to run the mortgage operation.

She has sought to reduce staff and move beyond legacy issues.

Citigroup said earlier this week it’s cutting about 1,000 jobs in its home-lending business as refinancings slow.

The bank said earlier this month that it closed a Danville, Illinois, facility, leading to 120 job cuts, and fired some telephone sales agents.

Separately, the firm is hiring employees to originate new mortgages for home purchases as opposed to refinancings, a person familiar with the moves said this week.

Citigroup created $65 billion of mortgages last year, or about 3.4 percent of the total market, according to Inside Mortgage Finance, a trade publication.

#CITI

CITI MORTGAGE IGNORED OBAMA'S NATIONAL MORTGAGE SETTLEMENT BY PUSHING FAKE LOAN MODIFICATIONS TO STEAL HOMES!!

THAT'S HOW CITI'S PROFITS SOARED!!

In February 2012 Pres Obama signed a National Settlement Agreement w/ the CEOs of America's four largest Banks: BOFA, Chase, Citi & Wells Fargo.

Another MORTGAGE SETTLEMENT was signed in January of 2013.

Since then both BOFA & Citi have basically ignored the Terms of this Settlement.

Especially Citi Mortgage!

Yet Congress allowed Citi Mortgage to rake in huge PROFITS at the expense of Struggling Homeowners, many whom are now Homeless because Citi Mortgage Stole their Homes via FAKE Loan Modifications.

So How was this being done?

Five Different Ways: (FORT MILL, S.C. & O'FALLON, MO. LOCATIONS)

**1) Send Struggling Borrowers on a Wild Goose Paper Chase by asking them to send in the SAME Financial Docs over & over again.

**2) Hire Loss Mitigation Specialists, Poorly train them & Use their names to Foreclose on Millions of Properties.

**3) String Borrowers along on a Doc Chase until the Foreclosure Statue of Limitations in each State Expires.

**4) Grant only allow a Handful of Borrowers HAMP Certifications.

**5) Reward Managers & Loss Mitigation Specialists Huge Bonuses for helping to Steal Homes from Struggling Borrowers via FAKE Loan Modifications.



Sources: AP; Bloomberg; NJ.com; NY Times

Black Homeowners Hit Hardest By Foreclosure Crisis: Black In America

Housing Crisis Hits Blacks Hardest

The Foreclosure crisis has hit Blacks harder than any other group in America and it will be tough for them to regain their footing in the housing market.

Blacks' homeownership rate has plummeted nearly 6 percent to 46.2 percent since its peak in 2004. That's more than twice that of any other racial or ethnic group, as well as the nation's rate as a whole, which fell only 2.3 percent, according to U.S. Census data.

Also, among recent borrowers, nearly 8 percent of blacks have lost their homes to foreclosure, compared to 4.5 percent of whites, according to the Center for Responsible Lending. Latinos, who have also been pummeled by the mortgage meltdown, came in a close second behind blacks in foreclosure losses.

The consequences are devastating. Fewer blacks own their home now than any other racial or ethnic group and that makes it even more difficult for them to achieve financial security and attain wealth.

"We built the middle class on homeownership," said Marc Morial, head of the National Urban League, which works to empower the black community. "How many people have built their business with the equity in their home? How many people have sent their kids to college with the equity in their home?"

The loss of homeownership is more than the difference between a mortgage payment and a rent check, experts say. Purchasing property is the key to building wealth, which not only allows people to improve their quality of life and provide more for their children, but also gives them a cushion during tough economic times.

Billions and billions of dollars were stripped away from a community that already had lower levels of wealth than white communities," said Debbie Bocian, senior researcher at the Center for Responsible Lending, which estimates blacks will lose $194 billion in wealth through 2012 due to the mortgage meltdown. "It exacerbates all the socio-economic divides. The consequences are intergenerational."

Subprime lending and unemployment

During the housing boom, nearly seven in 10 Americans owned their home, a gain of 7.8 percent from a decade earlier. Black Americans saw their home ownership rates rise twice as fast to 49.1 percent, thanks in large part to easy credit.

But many of those new mortgages -- which often came with low teaser rates that would adjust upward after two or three years -- would prove unaffordable.

Overall, blacks were 150 percent more likely to get high-cost loans, according to the Center for Responsible Lending. Even when they had similar income and credit scores as white borrowers, blacks were about 30 percent more likely to be steered to expensive mortgages.

When home prices started to fall, borrowers found themselves trapped in subprime loans. And since so many people in the black community had these mortgages, they suffered disproportionately in the early stages of the mortgage meltdown.

Now, the foreclosure crisis has now expanded beyond the subprime market. More and more people with stronger credit backgrounds and more stable mortgages are defaulting on their loans because they've lost their jobs.

But here too, blacks are at a disadvantage. Black unemployment stood at 16.1 percent in September, the highest of any group and 6.5 percentage points above the national average.

"The unemployment rate in the African-American community is sky high," said Chris Herbert, research director at the Joint Center for Housing Studies at Harvard University. "That's certainly behind their high foreclosure rate."

Tight credit going forward

It's tough for anyone to get a mortgage these days. But it's even more difficult if you are black.

Nearly one-third of blacks were denied loans in 2009, compared to 13.1 percent of whites and 25.6 percent of Latinos, according to federal data released last month. The disparity can't be explained solely by differences in applicants' incomes and loan amount requested. Even when these factors are the same, blacks are still twice as likely to be turned down, a Home Mortgage Disclosure Act report found.

Nearly 49.8 percent of blacks had their refinance applications rejected, compared to 21 percent of whites and 41 percent of Latinos.

These stats mean that many blacks can't shift into lower-cost mortgages in order to save their homes, nor can they purchase their first property and boost homeownership rates.

"Credit constraints are a real concern," Herbert said. "While there is a need for tighter underwriting standards, we have to be careful not to go too far and unnecessarily limit access to credit that helps families manage their finances and build wealth."

One solution that the National Urban League is pushing is more homebuyer education programs. First-time purchasers who go through a course that teaches them about budgets, debt, home maintenance costs and risky, expensive loans are less likely to default, experts say.

"We need a fundamental commitment to housing counseling to prepare people to become homeowners," Morial said.


Sources: CNN

Obama Admin vs Fradulent Foreclosures: Vows To Prosecute Bankers

Obama White House Warns Banks Over Foreclosures

The White House warned banks Tuesday it would pursue them for any mortgage practices that violated the law, piling pressure on the financial sector after two institutions lifted their freezes on home foreclosures.

Bank of America said on Monday it was partially lifting its foreclosure suspension, and GMAC Mortgage, one of the largest servicers of U.S. residential loans, followed suit.

The moves followed two weeks of damaging accusations that financial institutions' use of shoddy paperwork caused some borrowers to be illegally evicted from their homes.

The controversy, which has drawn public outrage and sparked government probes, has raised new fears about threats to bank earnings and the health of the fragile housing market, which has been battered by falling prices and foreclosures of nearly 3 million homes since January 2007.

The White House has rejected calls for a nationwide moratorium on foreclosures, but it signaled Tuesday that even as banks lift their freezes, government investigations would proceed.

"As institutions are determining their next steps in addressing these issues, we remain committed to holding accountable any bank that has violated the law," White House spokesman Robert Gibbs said in a statement.

"In addition to strongly supporting the investigation by the state attorneys general, the administration's Federal Housing Administration and Financial Fraud Enforcement Task Force have undertaken their own regulatory and enforcement investigation into the foreclosure process."

Sources: BOFA, CNBC, CNN, Wikipedia

BOFA Foreclosures Resume; Ignores Fraudulent Docs Investigation

Largest Bank Will Resume Foreclosure Push In 23 States


Bank of America announced on Monday that it would resume home foreclosures in nearly two dozen states, despite the running controversy over how banks handled tens of thousands of cases of homeowners facing eviction.

Bank of America, the nation’s largest bank and the servicer of roughly one in five American mortgages, insisted that it had not found a single example where a foreclosure proceeding was brought in error.

The move is also likely to encourage other giant lenders, like JPMorgan Chase, to resume the foreclosure process that threatens two million homeowners.

Meanwhile, GMAC Mortgage, whose procedures helped prompt the controversy when one its executives testified that he had signed 10,000 documents in a month, is also proceeding with foreclosures.

“We announced a temporary suspension of evictions and foreclosure sales in the 23 judicial states several weeks ago so we could commence the appropriate review,” said Gina Proia, a spokeswoman for GMAC. “As cases are being reviewed and, when needed, remediated, the foreclosure process moves forward as appropriate.”

Guy Cecala of Inside Mortgage Finance, an industry publication, said: “This draws a line in the sand that the banks expect this problem will be over in relatively short order and it will be back to business as usual. If Bank of America can do it, certainly the smaller ones will follow suit.”

Bank of America plans to begin filing new paperwork for 102,000 foreclosures by Monday.

Consumer advocates and lawyers for homeowners expressed skepticism that Bank of America could complete a review of the paperwork so quickly. But the banking industry has come under increasing pressure from investors to resolve the problem.

Investors have fled bank stocks in recent days, worrying that the foreclosure halt would cost banks billions of dollars and inflict further harm on the nation’s struggling housing market. Bank of America is scheduled to report its latest quarterly results on Tuesday. Its shares have suffered more than those of other big banks, so any sign that the crisis is easing is likely to be greeted favorably by shareholders.

Reports of improper procedures at mortgage servicers, like having officials sign thousands of documents a month — so-called robo-signers — also have set off a political furor. On Wednesday, all 50 state attorneys general announced an investigation of mortgage servicing.

Bank of America said it would resume foreclosures in the 23 states where judicial approval was required after an internal review turned up no evidence that cases were filed in error.

However, Bank of America’s suspension will remain in effect in the 27 other states that do not require a judge’s approval to foreclose, as the bank’s paperwork review proceeds state by state. It was the only bank to initiate a nationwide freeze.

“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” said Barbara J. Desoer, president of Bank of America Home Loans. “We paused while we were doing that, and now we’re moving forward.”

In the other 27 states, Ms. Desoer said, she expects foreclosures to resume within weeks.

Bank of America was careful to note that the major holders of mortgages — Fannie Mae and Freddie Mac — as well as private investors had signed off on its decision and had been consulted during the review. Of the 14 million mortgages it services — about $2.1 trillion worth — about half are owned by Fannie Mae and Freddie Mac, the giant mortgage holding companies now controlled by the Treasury.

About 30 percent are owned by institutional investors, like hedge funds, pension funds and insurance companies, while Bank of America holds 20 percent.

“We voluntarily paused our process in the 23 judicial states, not because there was evidence of problems — there was not — but because we wanted to ensure our customers they are being treated fairly,” said Dan Frahm, a bank spokesman.

Even as Bank of America and GMAC signaled their resumption of foreclosures, a Citigroup executive said the company was confident in its procedures. “The integrity of Citi’s foreclosures process is sound,” John C. Gerspach, Citigroup’s chief financial officer, said on a conference call.

In Bank of America’s case, the foreclosures are resuming in the 23 states where judicial procedure is required because the halt was initiated there first, on Oct. 1. It was extended to the other 27 states on Oct. 8.

From the beginning, Bank of America signaled that it did not expect the review to go on for an extended period. On Oct. 8, its chief executive, Brian Moynihan, promised a quick conclusion.






Countrywide’s Former Chief In Settlement Of Fraud Case



Angelo R. Mozilo, the founder and former chief executive of Countrywide Financial, once the nation’s largest mortgage lender, agreed to pay $67.5 million Friday to settle a civil fraud case brought by the Securities and Exchange Commission last year.

The settlement came just days before the case against Mr. Mozilo and two former colleagues was scheduled to go to trial before a jury in Los Angeles.

The two colleagues settled their cases Friday as well. David Sambol, the former president of Countrywide, agreed to pay $5.52 million, and Eric Sieracki, the former chief financial officer, consented to $130,000.

Under the agreement, the three men did not admit wrongdoing.

Mr. Mozilo’s agreement with the government represents a humbling moment for one of most audacious and flamboyant chief executives in the financial industry. The son of a Bronx butcher, Mr. Mozilo started Countrywide in 1969 with David Loeb, a business partner; together the men built the company into a behemoth with $11.4 billion in revenues at its peak in 2006.

But Countrywide’s foray into subprime lending and other risky loans led to its downfall, and in early 2008, hobbled by mounting losses on loans, the company was purchased by Bank of America in a fire sale. Mr. Mozilo left the company shortly thereafter.

In its complaint filed in June 2009, the S.E.C. had accused Mr. Mozilo, Mr. Sambol and Mr. Sieracki of hiding from investors the growing risks in Countrywide’s operations. The complaint also contended that Mr. Mozilo and Mr. Sambol improperly generated profits on insider stock sales even as they were alerted to the company’s widening woes.

Mr. Mozilo was not present for the court hearing.

Mr. Mozilo’s trial had been widely anticipated because it represented one of the few public prosecutions of a case against a major participant in the mortgage crisis. Still, both the defense and the prosecution faced big risks if they lost at trial, legal experts said, and this may have propelled the recent negotiations to bring about the deal. The settlement was approved by John F. Walter, the federal judge overseeing the case.



Had the S.E.C. won the case, it would have helped the agency re-establish its reputation as an investor advocate, which was badly damaged by inaction in the years leading up to the Madoff Ponzi scheme and the mortgage debacle. A loss would have been another black eye for the S.E.C.

A victory would also have been crucial for Mr. Mozilo, who would be concerned that a criminal prosecution might follow a loss in the civil case.


Sources: AP, CBS News, CNN, NY Times, Countrywide, BOFA, Youtube

John McCain, Maria Cantwell Reinstating The Glass-Steagall Act

"Big Is Bad" Catches On In Congress


The populist angst aimed at Wall Street banks is already spilling into Senate deliberations on regulatory reform, and a powerful new sentiment — big is bad — is being echoed by liberals and conservatives alike.

The anger at the nation’s financial behemoths is taking shape in a variety of ways, most notably in a bill from Sens. Maria Cantwell (D-Wash.) and John McCain (R-Ariz.), who are targeting big financial institutions such as JPMorgan Chase and Citigroup.

The bi-partisan duo’s bill would reinstate the Depression-era law that built a wall between commercial banking and the riskier activities of investment banking. The separation — originally set up in the Glass-Steagall Act — was repealed in 1999.

But reinstating Glass-Steagall has become something of a rallying cry among progressives, as well as some conservatives. They believe that allowing banks to provide all services to all people creates the very sort of “too big to fail” institutions that threatened the stability of the global financial order in 2008.

In other words, Big is Bad.

The idea has some powerful backers, including former Federal Reserve Chairman Paul Volcker — a giant in the financial world and also an outside economic adviser to President Obama — who literally has been traveling the world arguing in favor of returning to Glass-Steagall-type restrictions on what trading activities banks can engage in, though not a full return to the Depression-era restrictions.

But, as with anything in Congress, there’s also a clear political opportunity to be had with such a move.

“It doesn’t take a rocket scientist to know that Americans are really angry at the banks, and they feel like the administration and Congress are too cozy and have been too soft on them in terms of not really demanding that they change fundamentally,” said Heather McGhee, Washington director of Demos, a progressive think tank that supports the return to Glass-Steagall.

“Glass-Steagall rightly has sort of become this flag for something that would fundamentally change the way banks do business, something that would reassert the government’s role, a strong sort of government hand in between the Wild West market forces that caused our economy to tank last year,” she said.

For all its talk about “fat cats” in the banking industry, the Obama administration has not embraced reviving Glass-Steagall. Nor have leading lawmakers writing the main bills in Congress. Most experts scoff at the idea that the 1999 repeal — known as Graham-Leach-Bliley — had anything to do with the financial crisis, and the big banks wasted no time in warning Senate Banking Committee members that the Cantwell-McCain bill was misguided and bad for the economy.

“Reinstating Glass-Steagall is a misdiagnosis of the cause of the crisis,” with those who argue for it making a classic logical fallacy in contending that simply because Gramm-Leach-Bliley preceded the meltdown it must have caused it, said Rob Nichols, president of the Financial Services Forum.

What’s more, Nichols argued, the crisis also illustrated the benefits of diversification. “Many of the institutions that experienced the most turmoil during the crisis — namely, Bear Stearns, Lehman Bros., Merrill Lynch, Countrywide, WaMu, Indy Mac, AIG — were not financial holding companies, [the hybrid entities] permitted under Gramm-Leach-Bliley,” he said.

But the financial industry isn’t dismissing the Cantwell-McCain bill, or any other populist push, however remote their chances of becoming law may seem. As soon as Cantwell and McCain dropped their bill, lobbyists were knocking on doors of Banking Committee members to argue against the measure.

The Cantwell-McCain bill is not an isolated development, either. In the weeks ahead of the Dec. 11 floor vote on the House financial reform bill, Demos started getting calls from members looking for ways to toughen the bill by limiting what the banks could do, McGhee said. None of the resulting amendments made it through the House Rules Committee, however, including one from Rep. Maurice Hinchey (D-N.Y.) that would re-enact Glass-Steagall.

Hinchey introduced the amendment as a stand-alone bill the same day Cantwell and McCain introduced theirs. “The repeal of the Glass-Steagall Act was done to help large banks become enormous and to line the pockets of banking executives with more money than most Americans could ever dream of earning in their lifetime,” Hinchey said in a statement. “It was not done to help average working men and women in this country get ahead, and that was wrong.”

In the days after the House vote, House Majority Leader Steny Hoyer (D-Md.) said at a press conference that the House was discussing reimposing the banking limits. “As someone who voted to repeal Glass-Steagall, maybe that was a mistake,” Hoyer told reporters.

The effort is just the latest expansion of a populist push in Congress to beat back the largest, most powerful financial firms.

Rep. Paul Kanjorksi (D-Pa.), who is generally seen as a rather pro-business moderate on the House Financial Services Committee, pushed language that would empower federal regulators to pre-emptively break up large financial institutions that posed a risk to the economy, even if they were currently healthy. Progressive activists say the final language included in the House bill is actually not as tough as it sounds, but the financial industry nonetheless hates it.

In the Senate, Bernie Sanders (I-Vt.) introduced the “Too Big to Fail, Too Big to Exist Act,” which would require the Treasury secretary to break apart any financial institution deemed too big to fail. The Vermont independent has become a populist hero on the left and the right of the political spectrum for his crusade against Fed Chairman Ben Bernanke, a mission also rooted in his belief that the American people want a change in the way Wall Street functions, and Bernanke and the Fed he runs represent the status quo, Sanders says.

Both Cantwell and McCain describe their legislation in the language of Main Street’s ongoing economic angst coupled with anger at Wall Street’s return to outsize profits and bonuses.

“The American people want us to do something about the fact that capital is [not] flowing down to them. It is flowing in a direction that is making Wall Street huge profits. Nothing wrong with making profit, but this consolidation has squeezed the American public out of needed capital. And I think that capital could be going to investment in technology, to new business start-ups, to things that are about the ingenuity of America, not the ingenuity of toxic assets,” Cantwell said on MSNBC.

They also describe the legislation as a way to ensure that giant firms aren’t so big that they can gamble themselves again into the kind of trouble that requires taxpayer bailouts.

It remains unclear if any of these populist measures will make it into law, but some of the advocates following the financial reform process believe interest from members in such measures will only increase as jobs and the economy take center stage in the Senate and the 2010 election draws closer.

“This will be one of the hottest issues in the election,” predicted Heather Booth, director of Americans for Financial Reform, a coalition of consumer, labor and other pro-reform activists. “And the dividing line will be, Are you for Wall Street and the biggest banks, or are you for Main Street and real reform?”

Geithner's Failure! Banks Returning To Toxic Assets

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No Good Deed Goes Unpunished As Banks Seek Profits


To understand the meaning of no good deed goes unpunished, Treasury Secretary Timothy F. Geithner can look no further than Wall Street where the banks that received the biggest taxpayer bailouts are seeking to reap trading profits from securities rescued by the government.

Only months after it was started, the U.S. program designed to purge debts of no immediate discernible value from the balance sheets of troubled banks has helped transform the frozen debt into a money-maker as the bonds have rallied. Bank of America Corp. and Citigroup Inc., who received 22 percent of the $418.7 billion American taxpayers loaned to troubled financial institutions, boosted holdings on their trading books of home- loan bonds that lack government guarantees while investors were raising cash for the program, according to Federal Reserve data.

Charlotte, North Carolina-based Bank of America along with Citigroup, Morgan Stanley and Goldman Sachs Group Inc., all based in New York, added a combined $3.36 billion of the debt, for which there were few buyers as recently as March, to their short-term trading assets during the third quarter, up 16 percent from the second quarter, the most-recent data show.

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Prices of these securities may slump again, leaving the banks exposed to potential losses that the Treasury Department’s rescue plan was designed to mitigate, said Joshua Rosner, a managing director at New York-based Graham Fisher & Co., which advises regulators and institutional investors.

Speculative Trade

“It’s a trade that will likely work out, but it’s still a speculative trade, which is not what a taxpayer should want from firms that have only recently come out of critical care,” Rosner said.

The Public-Private Investment Program was introduced in March by Geithner as a means of helping struggling banks by reviving the market for unpackaged loans and mortgage securities that aren’t backed by government-supported institutions, such as Fannie Mae or Freddie Mac. Under the program, asset managers were supposed to raise money from investors and, with additional capital and loans from taxpayers, buy as much as $1 trillion in toxic assets from U.S. banks, freeing up money for lending.

It’s “absolutely ridiculous” that banks, which were expected to reduce their holding of such volatile mortgage securities, bought them before the government program was running and may now profit, said Michael Schlachter, managing director of Wilshire Associates, the Santa Monica, California- based investment-consulting firm. “Some of them created this mess, and they are making a killing undoing it.”

Scaling Back

Officials for Bank of America, Citigroup, Goldman Sachs and Morgan Stanley declined to comment on the Fed data, as did Treasury spokeswoman Meg Reilly.

Geithner, 48, scaled back PPIP as the Fed declined to provide additional financing and banks balked at selling non- agency mortgages at a loss. It wasn’t until July that the Treasury chose New York-based BlackRock Inc., Invesco Ltd. in Atlanta and seven other firms to start PPIP funds.

To date, funds participating in the program have raised about $6 billion of equity capital from private investors, which the government has matched. The Treasury also provided $12 billion of debt capital, bringing the funds’ purchasing power to $24 billion. Neither the Treasury nor the funds have disclosed how much and what debt has been bought.

Prices for some of the securities that the funds were supposed to buy have almost doubled since March. The rally was fueled in part by traders jumping in before PPIP funds could get off the ground, said Steve Kuhn, who helps oversee about $440 million of mortgage-bond investments for Pine River Capital Management LLC in Minnetonka, Minnesota.

Market Rally

“Anytime people know there’s a buyer coming, they position for that, and that’s clearly what happened here,” said Kuhn, who is co-manager of the Nisswa Fixed Income Fund.

The rally was boosted further by investors seeking riskier fixed-income assets to offset record low yields on Treasuries and by the stabilization of the housing market, he said.

Typical prices for the most-senior bonds backed by hybrid Alt-A mortgages stood at about 58 cents on the dollar by mid- December, up from lows of around 35 cents in mid-March, according to Barclays Capital data.

Prices rose as high as 60 cents on the dollar in November. Fixed-rate prime jumbo mortgage securities were at 84 cents, up from 63 cents in March.

Before the credit crisis, senior non-agency home-loan securities didn’t typically trade below 95 cents on the dollar, JPMorgan Chase & Co. data show.

Alt-A loans fall between prime and subprime in terms of projected defaults. Jumbo mortgages are larger than government- supported Fannie Mae and Freddie Mac are allowed to finance.

Non-Agency Debt

The Fed data on bank holdings of mortgage securities don’t distinguish between changes in value from buying or selling and those that result from rising or falling market prices. The higher values at Citigroup and Bank of America reflect in part purchases of non-agency debt, according to people familiar with each bank’s positions.

The value of non-agency debt designated by the four banks as held to maturity or available for sale fell a combined $2.9 billion to $70.8 billion in the third quarter from the previous three months. Under accounting rules, securities in these categories are usually held for longer than those designated as trading investments, helping to avoid writedowns. Debt available for sale can be sold more easily at a later stage than notes held to maturity.

Bank of America’s Wager

Bank of America, the largest U.S. bank by assets and deposits, added the most non-agency debt on its trading book in the third quarter, with an increase of $1.56 billion, or 73 percent, according to a Dec. 22 revision by the Fed of the company’s second-quarter data. The value of securities designated held-to-maturity or available-for-sale fell, by 1.7 percent to $37.3 billion.

The Charlotte, North Carolina-based firm, now led by Chief Executive Officer Brian Moynihan, reported $80 billion in writedowns and losses from the credit crisis, much of it related to defaulted home loans and bonds backed by them. The lender received $45 billion in federal bailout funds in October 2008 under the Treasury’s Troubled Asset Relief Program, which it repaid Dec. 9. The U.S. still holds warrants in the bank.

Without new purchases, bank holdings tracked by the Fed usually decline as the underlying loans are refinanced or default. That shrank the overall market by 5 percent in the third quarter and by 30 percent since its peak in mid-2007, separate Fed data show.

Citigroup’s holdings of non-agency residential mortgage bonds designated for trading rose by $421 million to $13.5 billion in the third quarter, the Fed data show. Other holdings fell $2.3 billion, or 6.9 percent, to $33 billion.

$117.8 Billion Loss

The New York-based bank was among the largest and earliest losers on toxic home-loan securities and has posted $117.8 billion of writedowns and credit losses. The U.S. injected $45 billion of taxpayer capital into the company and extended guarantees for $301 billion of its assets, including mortgage debt. Citigroup, led by CEO Vikram Pandit, agreed last month to pay back $20 billion and cancel the insurance. The U.S. owns 27 percent of the bank’s common shares.

At Goldman Sachs, CEO Lloyd Blankfein increased non-agency home mortgage bonds designated for trading by $593 million in the third quarter, to $2.71 billion, and Morgan Stanley’s jumped $785 million to $4.25 billion, the Fed data show. Goldman Sachs’s other holdings climbed $76 million to $449 million. Morgan Stanley, now overseen by CEO James Gorman, classified all its holdings as trading assets, according to the Fed data.

Free Money

Of the seven biggest owners of residential mortgage-backed securities, only San Francisco-based Wells Fargo & Co. reduced holdings of the debt on its trading book, by $130 million to $44 million. JPMorgan added $49 million to the trading book, while cutting its other holdings of the securities by $1.47 billion to $12.7 billion, according to the Fed data.

Eric Petroff, director of research at Wurts & Associates, a Seattle-based firm that advises institutions on $30 billion in investments, said it’s no surprise that banks added to their holdings following the unveiling of PPIP.

“Any time the government says, ‘We’re going to buy something in the securities market,’ they’re putting out a sign that says, ‘Free money, come and get it’,” he said.

The renewed interest by banks in holding the bonds has helped restore liquidity, said Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago. Higher prices have also eroded potential profits of PPIP funds and increased the risk of losses, making it harder for asset managers participating in the program to attract investors, he said.

Returns Shrink

Four of the nine PPIP managers missed the original Sept. 30 deadline for raising the minimum $500 million by more than a month. One manager, Marathon Asset Management, was allowed to make its initial closing after raising $400 million.

“If you were looking at returns in the high teens to low twenties in PPIP, now you’re looking at the low-to-mid teens,” said Joel Paula, senior analyst at Cambridge, Massachusetts- based NEPC LLC, which advised Connecticut’s state pension board on its decision to invest $200 million with three PPIP managers.

Higher prices are also slowing the pace at which PPIP managers can and want to buy, because they must be more careful when examining securities and their underlying collateral, NEPC’s Paula said.

“If you do your homework, you can still find value, but you’re not getting 20 percent for doing nothing anymore,” Paula said in an interview.

Locked In

While fundraising and investing is moving slowly, time could ultimately play to the PPIP investor’s advantage, said Alan Papier, of consulting firm Mercer, a unit of New York-based Marsh & McLennan Cos. Under PPIP’s terms, investors are locked in for eight years and managers have up to two years from their initial closings to invest the money, giving them time to wait for prices to drop.

“Managers are trying to figure out whether the rally in residential mortgage-backed securities is sustainable, or if there will be some sort of pullback,” Papier said.

Bill Eigen, manager of the $5.4 billion JPMorgan Strategic Income Opportunities Fund, said he bought residential mortgage- backed securities in the spring. Since then, he has sold and begun shorting both residential and commercial mortgage-backed securities, anticipating that their price would fall.

“This stuff was supposed to trade on fundamentals and will again trade on fundamentals,” he said in an interview. “PPIP is not going to fill up buildings.”



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Sources: Bloomberg News, MSNBC, CNBC, Google Maps

Citigroup Hacked By Russian Cyber Gang, FBI Investigates

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Citigroup Hacked, FBI Reportedly Investigating


The FBI is investigating a hacker attack on Citigroup Inc. that led to the theft of tens of millions of dollars, The Wall Street Journal reported Tuesday.

Citing anonymous government officials, the Journal reported that the hackers were connected to a Russian cyber gang. Two other computer systems, at least one of connected to a U.S. government agency, were also attacked.

Citigroup denied the report. "We had no breach of the system and there were no losses, no customer losses, no bank losses," said Joe Petro, managing director of Citigroup's Security and Investigative services. "Any allegation that the FBI is working a case at Citigroup involving tens of millions of losses is just not true."

The Journal reported that the attack on Citigroup's Citibank subsidiary was detected over the summer, although it may have occurred up to one year earlier. The FBI, the National Security Agency, the Homeland Security Department and Citigroup worked together to investigate the attack.

Cyber crime is of increasing concern to businesses and the federal government, with President Barack Obama calling it one of the "most serious economic and national security challenges we face."

On Tuesday, Obama announced the appointment of Howard A. Schmidt, a former eBay and Microsoft executive, as the government's cyber security coordinator.

Internet attacks on banks are very common, said Tom Kellermann, a former senior member of the World Bank's Treasury security team and now vice president of security awareness for Core Security Technologies.

While he said he has no knowledge of an attack specific to Citigroup, Kellermann said Tuesday that large financial institutions are "consistently targeted" by criminal organizations in Eastern Europe, Brazil and Southeast Asia.

"Ninety-eight percent of bank heists are now occurring virtually and not in the real world," he said, adding that the industry is "hemorrhaging funds" as a result.

Banks that accept deposits made more than 53,000 reports of wire transfer fraud between April 1996 and the end of 2008, according to the Department of Treasury's Financial Crimes Enforcement Network. These reports are filed when a bank suspects criminal activity, though they are not necessarily evidence that a crime was committed. Nevertheless, such reports have been increasing. Nearly 15,000 of these reports were filed in 2008, up from 9,300 the year before.

It's often difficult to determine who pulled off a virtual bank heist. Hackers tend to use "botnets," worldwide networks of "zombie" personal computers they've infected with viruses without the knowledge of the computers' owners.

And even if the hackers are caught, punishing them is another hurdle.

"Less than 30 countries have actually criminalized cybercrime," Kellermann said.


Sources: Huffington Post, MSNBC, AP, Citigroup, Wikipedia

Bailed Out Banks Receive Huge Tax Breaks For Christmas

Bailout Banks Keep Tax Breaks As They Repay Loans


Citigroup and other banks starting to repay the billions of dollars they borrowed from the government are getting another boost as they exit the bailout program: Billions more in tax breaks.

Tax law allows money-losing corporations like Citigroup Inc. and General Motors Co. to use current net operating losses to offset future taxable income, reducing their tax bills for up to 20 years after the losses occur.

Under ordinary circumstances, those tax breaks would be severely limited if the companies underwent an ownership change, much like many of them did when the government acquired big blocks of their stock.

Losing the tax breaks would have substantially reduced the value of the companies, even as the government was trying to prop them up with bailout funds.

The Treasury Department didn't want that to happen, so it started issuing tax guidance about a year ago that said the rules didn't apply when the government, through its bailout programs, caused the ownership change.

Last week, Treasury issued additional guidance saying that the rules also won't apply when the government sells its stock. The new rules mean that Citigroup and other bailout companies will still be able to take advantage of tax breaks worth billions of dollars, once they become profitable and start paying taxes again.

For tax purposes, it's like the government's ownership never happened, said Robert Willens, a corporate tax accountant in New York.

The size of the tax breaks will depend on how soon the companies become profitable, Willens said. "It's certainly in the billions," he said.

Citigroup announced this week that it was repaying $20 billion to the government's Troubled Assets Relief Program, or TARP. Citigroup had taken a total of $45 billion in rescue funds – among the largest bailout packages received by any bank – but the government converted $25 billion of that amount into a 34 percent equity stake, which it is now selling.

The tax breaks will cost the government billions of dollars in tax revenue, but the government's stock in the companies is worth more because value of the companies is higher.

Treasury spokeswoman Nayyera Haq said the guidance issued last week was not targeted toward any individual company. It was released last week because Treasury was expecting a number of banks to start paying back their loans, exiting the bailout program.

"This guidance is the part of the government's orderly exit from TARP," Haq said.

She defended the overall strategy of helping bailout companies preserve their tax breaks, pointing out that the original law was intended to prevent corporate raiders from taking over money-losing companies simply to cash in on their tax breaks.

"This rule was designed to stop corporate raiders from using loss transactions to evade taxes, and was never intended to address the unprecedented situation where the government owned shares in banks," Haq said. "And it was certainly not written to prevent the government from selling its shares for a profit."

Willens said the Treasury Department's strategy makes sense. However, he said, it highlights an unprecedented government intervention in the private sector.

"We've never seen anything like this," Willens said. "The unilateral actions they are taking are unprecedented. This is just one of many."






Wells Fargo: "We're comfortable" with lower capital


To repay its government loans, Wells Fargo & Co. will make a trade-off: Its capital levels will fall below those of its competitors.

But in a call with analysts Tuesday morning, chief executive John Stumpf signaled that he wasn't concerned. And several analysts later said the fact that the government is letting Wells maintain a lower capital level is actually a good sign.

"It signals the government has confidence in the earnings power at the bank," Paul Miller, an analyst at FBR Capital Markets, wrote in a note to clients.

Also Tuesday, Wells sold $12.25 billion in stock to help repay its federal loans. That was more than the $10.4 billion it initially expected. Chief financial officer Howard Atkins said the bank was "very pleased with the positive reception from investors."

"We appreciate the confidence investors have demonstrated in Wells Fargo's strength and future prospects," he added.

Wells had announced Monday night that it intends to repay its $25 billion loan from the government's Troubled Asset Relief Program, or TARP. It was anxious to avoid being the last big bank still holding TARP money, after rival Citigroup Inc. announced hours earlier that it would repay its loans.

After it repays TARP, Wells will have a Tier 1 common ratio of 6.2 percent. The ratio is a measure of a bank's ability to absorb losses, and it's closely watched by regulators. Bank of America Corp., JPMorgan Chase & Co. and Citigroup all have or will have Tier 1 common ratios of 8 to 9 percent without TARP funds.

Stumpf said that his bank's capital needs are different from those of other banks, which might have riskier balance sheets. He also noted how Wells has already written down many of its potential losses from Wachovia Corp., the Charlotte bank that it bought last year.

"We don't have a big trading book, we don't have a lot of international assets, we're fairly meat and potatoes, and we have the industry's best margin of all the banks," Stumpf said, responding to a question from one analyst. "So you put all that together, we're comfortable with these ratios."

He also noted how his bank has historically maintained high levels of capital: "It allowed us to do something called Wachovia."

But the questions about capital levels weren't out of the blue. Last week, the House passed a massive financial regulation bill that would, among other things, require big banks to maintain higher levels of capital. Wells' Tier 1 common ratio of 6.2 percent is still well above the regulatory requirement of 4 percent

Stumpf declined to elaborate on the bank's repayment discussions with regulators. "I'm really not in a position to discuss the negotiations with the other party," he said. "I just don't think it would be productive."

Wells on Tuesday sold about 490 million shares at $25 each, raising the $12.25 billion. That better-than-expected amount eliminates a requirement where Wells would have had to sell a small number of assets in 2010.

However, issuing stock dilutes the value of shares held by current investors, since earnings have to be spread among more people. Miller, the analyst, estimated that Wells' stock raise will dilute shares by 11 percent.

But several analysts also said that, overall, getting rid of TARP will place Wells shares on firmer ground.

"The company still faces some headwinds ... but the TARP repayment certainly removes some concerns and eliminates some negatives to the story," R. Scott Siefers, an analyst at Sandler O'Neill + Partners, wrote in a note to clients.

Stumpf took the opportunity to praise the Wachovia deal, which he does in virtually every public appearance. He also mentioned Wells' announcement Monday, issued shortly after its TARP announcement, that it would use cash to buy out Prudential Financial's stake in the joint retail brokerage business. Wells had said this summer that it would use a combination of cash and stock to purchase Prudential's stake, which represented about a quarter of the joint business.

Stumpf said that paying totally in cash is "in our shareholders' best interest." That's because paying in stock would have diluted the holdings of existing shareholders. Wells said it would spend $4.5 billion.

Stumpf was joined on the call by bank chairman and former CEO Dick Kovacevich, who has been one of the most outspoken critics of the government's intervention in the banking industry. Kovacevich spoke briefly at the beginning of the 25-minute call, saying that Stumpf and his management are "the most talented team I've ever worked with."

Kovacevich is stepping down as chairman at the end of this month. He stayed on past the mandatory retirement age to help with the integration of Wachovia.



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Sources: Huffington Post, McClatchy Newspapers, Charlotte Observer, Youtube, Google Maps

Pres. Obama Holds Conference Call With Absent Bankers

CEOs miss White House meeting



President Barack Obama’s plan to talk tough to bankers in a meeting at the White House Monday morning lost some of its punch when the executives at several top financial institutions could not make the sit-down due to bad weather.

Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack and Citigroup Chairman Richard Parsons were all stuck on the tarmac this morning as their airplanes waited out fog delays. The executives were not in the room for Obama’s 11:10 a.m. meeting, but the White House said they would be piped in via conference call.

Obama kicked off his meeting with the rest of the CEOs by telling them: "I appreciate you guys coming in."

With JP Morgan CEO Jamie Dimon and White House Senior Adviser Valerie Jarrett visible on camera, Obama spoke by speakerphone with Citigroup Chairman Richard Parsons.

"Dick, I had a good time at the Christmas celebration with your successor at Time Warner," Obama said, referring to Sunday night's "Christmas in Washington" event, where Time Warner CEO Jeff Bewkes was in attendance.

Ironically, Blankfein, Mack and Parsons’ decision to fly commercial, a move that would shield them from potential criticism that they are out of touch with the economic hardship experienced by average Americans, was the reason they couldn’t make the meeting. Dimon, for instance, flew by private jet and was expected to be there on time.

Obama’s meeting in the Roosevelt Room, during which the president plans make a strong push for more lending from the financial institutions taxpayers bailed out last year, already lost some of its influence when Citigroup CEO Vikram Pandit announced he would not attend but was instead sending its chairman, Richard Parsons.

Pandit’s decision followed a Citigroup announcement this morning that it will be repaying the government TARP money that it took during the financial meltdown last year.

"Mr. Pandit recognizes the extreme importance of today's meeting and regrets that he will be unable to attend due to today's announcement of Citi's actions for repaying TARP," said a Citi spokesperson. "Mr. Pandit has discussed the situation with the government, and Citigroup's Chairman Dick Parsons will attend on his behalf."

Obama has ramped up his rhetoric on financial institutions in recent days, telling CBS’s “60 Minutes” in an interview aired Sunday night: “I did not run for office to be helping out a bunch of fat-cat bankers. ... What’s really frustrating me right now is that you’ve got these same banks who benefited from taxpayer assistance who are fighting tooth and nail ... against financial regulatory control.”

Others who are expected to be attending today's meeting include, according to an adminstration official:

Ken Chenault, president and CEO of American Express; Richard Davis, chairman, president and CEO of US Bancorp; Richard Fairbank, chairman and CEO of Capital One; Bob Kelly, chairman and CEO of Bank of New York Mellon; Ken Lewis, president and CEO of Bank of America; Ron Logue, chairman and CEO of State Street Bank; Jim Rohr, chairman and CEO of PNC; John Stumpf, president and CEO of Wells Fargo; and Gregory Palm, Executive Vice President and Chief Counsel, Goldman Sachs.

Also attending will be Rahm Emanuel, the president's chief of staff, Treasury Secretary Timothy Geithner; Christina Romer, chairwoman of the Council of Economic Advisers; and National Economic Council Director Lawrence Summers.




Pandit skipping W.H. meeting


Citigroup CEO Vikram Pandit will not attend today's bankers' meeting with President Obama – the financial giant is sending its chairman, Richard Parsons, instead. Citigroup announced this morning that it will be repaying the government TARP money that it took during the financial meltdown last year.

"Mr. Pandit recognizes the extreme importance of today's meeting and regrets that he will be unable to attend due to today's announcement of Citi's actions for repaying TARP," said a Citi spokesperson. "Mr. Pandit has discussed the situation with the government, and Citigroup's Chairman Dick Parsons will attend on his behalf."


Sources: Politico

Citigroup Agrees To Repay $20 Bil TARP Funds

Citigroup to repay $20 Bil in TARP Funds.

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Citigroup Says It Has Reached a Deal to Repay Bailout Funds



Citigroup reached a deal early Monday morning to be the last of the big Wall Street banks to exit the government’s bailout program, after persuading regulators that it was sound enough to stand on its own.

Citigroup executives announced a broad program that will replace the $20 billion of remaining federal aid with funds from private investors, facilitate the sale of the government’s $25 billion stock investment and begin to wean itself off other forms of government assistance.

To help replenish its coffers, Citigroup expects to raise about $17 billion by selling stock as early as this week and issue another $4.2 billion in so-called tangible equity units and subordinated notes. The moves aim assuage regulators’ concerns about the bank’s ability to weather another severe economic downturn without returning to the government for more money.

“We are pleased to be able to repay the U.S. government’s trust preferred securities and to terminate the loss-sharing agreement,” the chief executive, Vikram S. Pandit, said in a statement. “We owe the American taxpayers a debt of gratitude.”

With its regulators’ permission, Citigroup plans to redeem $20 billion of preferred stock that the government received as part of the bank’s first two rescues late last year. It will also end a loss-sharing agreement with the government on about $250 billion of troubled real estate and credit card assets.

The Treasury Department, meanwhile, plans to wind down its 34 percent ownership stake in Citigroup, which it acquired by converting $25 billion of preferred shares into common stock in a third rescue this year. It expected to sell its nearly 7.7 billion shares through a series of large stock sales to institutional investors over the next 6 to 12 months. The first sale, for up to $5 billion of Citigroup shares, is expected to occur alongside the this week’s $17 billion stock offering.

The announcement came as President Obama prepared to meet with the chiefs of the nation’s biggest banks at the White House and press them to help speed the economic recovery by providing more loans to small businesses and homeowners.

The president, who has faced criticism from Democrats and Republicans alike for being too close to Wall Street, called Citigroup, Goldman Sachs and 10 other big banks to the gathering as anger over last year’s bank bailouts continued to percolate. Mr. Obama will address the size of salaries and bonuses, an official said, as he seeks to impress upon bankers that they have a “special responsibility” to consumers.

“We have to get them off the sidelines and get them to play a more active role in our economic recovery,” Rahm Emanuel, the White House chief of staff, said in an interview on Sunday. “They play an essential role in helping the economy grow.”

As banks prepare to issue another round of hefty bonuses, White House officials renewed their harsh tone against Wall Street on Sunday. In an interview on “60 Minutes” on CBS, Mr. Obama chided “fat cat bankers” for increasing their own pay as average Americans struggled to recover.

Lawrence H. Summers, the White House chief economic adviser, said on “This Week” on ABC that bankers “need to recognize that they’ve got obligations to the country after all that’s been done for them, and there is a lot more they can do.”

Indeed, if the government approves Citigroup’s repayment of taxpayer funds, it would free it from pay restrictions for banks that received multiple bailouts. And with most of the nation’s biggest lenders out of the bailout program, the president may soon lose some of his leverage over the banks.

The White House has pointed to banks’ repayment as proof that the bailouts helped the financial system recover from near disaster, but it wants the banks to help get the economy moving by lending more to companies to create jobs and to consumers in danger of losing their homes to foreclosure.

Including Citigroup, bailed-out banks will have returned at least $136 billion, or more than half the $245 billion in bailout money extended this year — far faster than anticipated. Of course, the government still has tens of billions of dollars at stake with companies like the American International Group and General Motors.

The negotiations between Citigroup and regulators come just over a week after the government allowed its troubled rival Bank of America to repay its bailout money and underscore just how quickly confidence has returned to the financial markets.

That improvement holds the key to Citigroup’s payback plan, as private investors replace $45 billion of taxpayer funds and as the bank weans itself off additional forms of government assistance.

But Citigroup’s troubles, and those of other banks, are far from over. Some analysts believe the banks are too weak to repay the taxpayer money. If the government allows banks to deplete their capital levels too soon, they argue, they may be setting the stage for another crisis.

For Citigroup, a repayment could help it shed the stigma of having accepted bailout cash. But in some ways, it may be a hollow victory for Mr. Pandit.

With the redemption of the $20 billion of preferred shares, Citigroup will cease being subject to the harsher rules imposed by the federal pay czar at the beginning of 2010. However, the will fall under a set of looser compensation restrictions outlined in the economic stimulus bill until the government sells its entire ownership stake. Still, Citigroup’s troubles are far from over. And in some way, the deal may be a hollow victory for Mr. Pandit since it is unlikely to hasten the bank’s rapid return to financial health. In fact, it has already proved costly to its existing shareholders in the short term.

The moves will result in a pre-tax loss of $2.1 billion that will likely be taken in the fourth quarter, and the new stock offering will severely dilute erode the value of existing shareholders.

And once the repayment deal is completed, it will still take several more years to clean up the financial carnage. Citigroup has not posted a substantial profit in seven quarters, and the bank is expected to muddle through most of 2010 amid another wave of mortgage and credit card losses. And, like several big rivals, the bank continues to lean heavily on government support through a debt guarantee program that makes taxpayers liable if it is unable to pay back the loans.

Indeed, some analysts question whether the bank is still too weak to stand on its own. If the government allows banks to deplete their capital levels too soon, they argue, they may be setting the stage for another crisis.

Citigroup, however, maintains that the bank have among the highest cash and capital reserves in the industry, although its Tier 1 capital ratio— one indicator of financial strength — will fall to 11 percent from 12.8 percent after severs its ties with the government.

Beyond the $17 billion stock offering, Citigroup plans to issue $3.5 billion of so-called tangible equity units and $700 million in subordinated debt. The bank also told its regulators that it may issue up to $3 billion of new trust preferred securities in the first quarter of 2010.

“We planned to exit TARP only when we were convinced it was prudent to do so,” Mr. Pandit said in a statement. “Citi is among the strongest banks in the industry, and we are in a position to support the economic recovery.

Even so, regulators remained deeply concerned about the bank’s financial condition throughout the talks. After Bank of America received permission to exit the bailout program early this month, Citigroup officials redoubled their efforts to sever ties with Washington. Much of the discussion centered on how much additional capital Citigroup would need to replenish its coffers after the government’s exit.

Citigroup argued it should have to raise only $15 billion more, an amount that would reduce the bank’s current capital levels and still leave it with a bigger cushion than its competitors. But federal officials were split over whether that was enough.

Treasury and some Federal Reserve officials felt more comfortable with around that amount. But officials from the Federal Deposit Insurance Corporation, which has testy relations with Citigroup and deeper financial exposure, demanded the bank hold more capital.

Tensions have been running high as Citigroup and its regulators crammed a process that had taken months into a little more than a week of marathon discussions. If Citigroup does not reach a deal by Tuesday, bank officials fear it would be hard to pull off a big stock offering until next year, because many big investors leave for the holiday vacation.

The regulators’ decision is likely to cause dozens of small and regional banks to repay the government soon and rid themselves of public controversy. At the same time, it could take extra capital out of the banking system that might otherwise encourage lending. Many of those banks are in the eye of the financial storm as losses on commercial real estate and corporate loans worsen.

Wells Fargo and PNC Financial, two large consumer banks that acquired deeply troubled rivals in the throes of the crisis, are still holding on to billions of dollars of taxpayer funds. Many community banks received millions.


Sources: NY Times, CNBC, Citigroup

Obama's "Disappointed Father" Bank CEOs Meeting

Banks: We'll "Step up now"


Facing White House pressure to increase lending, bank CEOs plan to tell President Barack Obama in a meeting on Monday that they are ready to “step up” and take additional steps to promote economic recovery, industry officials tell POLITICO.

“Every CEO that’s participating is ready to a) listen and b) step up,” said an industry executive familiar with plans for the meeting. “Everybody’s goal is to come out of the meeting with actionable, constructive and measurable things that the industry can do to spur recovery.”

Obama will take a measured tone with the bankers, telling them he wants to have a candid and constructive conversation and doesn’t want to vilify anyone, according to administration officials. But the president will tell the banks that they have a special responsibility to help spur recovery because of the extraordinary bailout assistance they received last year.

The president will acknowledge the industry concern that regulators are overcorrecting and have become overzealous. And he’ll call for a dialogue about the issue.

Still, Obama wants the CEOs to send a signal to loan officers that they’ll not be rewarded for turning down loans. The president will say that lending is critical to the recovery and that he hears story after story about creditworthy borrowers who haven’t missed a payment but have been cut off.

Lucas van Praag, a Goldman Sachs managing director who is the firm’s global head of corporate communications, said: “Coming into this meeting, we are focused on helping our clients to protect and grow their businesses. Clients are at the heart of our business. And whether it is helping a client restructure debt, raise equity [or] make a strategic acquisition, helping a U.S. aircraft manufacturer to finance the export of American-made planes or underwriting Build America bonds so that municipalities can build schools, roads and hospitals, meeting clients’ needs is the role we play in bringing a broad-based economic recovery closer for all Americans.”

The meeting comes as public anger about the Wall Street bailout — and the federal deficit spending necessary to finance it — is becoming a major political challenge for the Obama administration. At a time when unemployment is at 10 percent, the administration has expressed frustration that the big banks have been slow to lend to the small businesses that can generate job growth.

Major Wall Street players say they are caught between the urging of the White House to lend and the equally forceful guidance from federal regulators not to lend to uncreditworthy borrowers. It was willy-nilly lending to unqualified subprime mortgage customers, after all, that triggered the global economic meltdown. The bankers say they’ve learned their lesson and are trying to avoid a repeat of that fiasco.

Obama has suggested in public comments that the pendulum has swung too far, hurting small firms that can’t get credit to finance growth.

The bankers — including the heads of Goldman Sachs, American Express, JPMorgan, Capital One, Bank of America, Morgan Stanley, Citigroup and Wells Fargo — will not present a specific industry plan. Instead, they’ll talk about their own organizations’ plans, especially to help small businesses, a key White House focus.

The industry executive said that ideas that come out of this meeting could include more lending for small business and an extension of Treasury’s Build America bonds program, a stimulus measure that was designed to lower borrowing costs for state and local governments in getting infrastructure projects moving.

“There’s a very strong understanding that we have to work constructively on financial regulatory reform that will provide markets with certainty,” the executive said. “The industry is perceived as recalcitrant because it has raised issues with particular details of reform. However, as a general matter, all of the firms at the table recognize that reforms are necessary to prevent future crises, reestablish confidence in the system and provide certainty. Markets crave certainty.”

Rob Nichols, president and COO of the Financial Services Forum, said: “We are in agreement with the administration that we need reform and modernization of the U.S financial supervisory framework. We are committed to the important task of creating an efficient and flexible 21st century regulatory architecture that ensures the safety and soundness of financial institutions, and protects the interests of investors, depositors, and customers. A safe, sound, and efficient financial sector is critical to the health of the U.S. economy, our recovery prospects, and job creation.”

The industry executive said the message of the meeting appears to be “half woodshed and half help us move forward.”

The White House said Obama “will meet with members of the financial services industry to discuss our shared interest in economic recovery, the need to increase small-business lending and the administration’s plans for financial regulatory reform."

The president told CBS’s “60 Minutes” in an interview aired Sunday night: “I did not run for office to be helping out a bunch of fat-cat bankers. ... What’s really frustrating me right now is that you’ve got these same banks who benefited from taxpayer assistance who are fighting tooth and nail ... against financial regulatory control.”

The administration official said that in the meeting, Obama is expected to compliment banks that have moved toward more stock-based compensation that’s held for the long term — an indirect reference to Goldman Sachs’s announcement last week that it would convert the bonuses of its top executives from cash to stock.

The president will ask more banks to move in that direction, but there’s little the administration can do to force changes in compensation at the banks. Still, “pay czar” Ken Feinberg announced dramatic pay cuts last week for firms that still have not repaid bailout funds from the Troubled Asset Relief Program.

Feinberg has no legal authority to impose similar measures on banks that the government no longer controls. For them, Obama must use the bully pulpit.

The Goldman spokesman, van Praag, said: “Our compensation principles are founded on the idea that our employees’ interest should be directly aligned with our shareholders’ best interest. Supporting a shareholder vote on executive compensation is a logical extension of the compact we have with our shareholders. The announcement that our most senior executives will receive all their discretionary compensation in equity, which will be ‘at risk’ and which they won’t be able to sell for five years, is a recognition of their responsibilities and the circumstances under which we are operating.”

An administration official said a dozen top executives will attend Monday’s meeting at the White House: Lloyd Blankfein, chairman and CEO of Goldman Sachs; Ken Chenault, president and CEO of American Express; Richard Davis, chairman, president and CEO of US Bancorp; Jamie Dimon, chairman and CEO of JPMorgan Chase; Richard Fairbank, chairman and CEO of Capital One; Bob Kelly, chairman and CEO of Bank of New York Mellon; Ken Lewis, president and CEO of Bank of America; Ron Logue, chairman and CEO of State Street Bank; John Mack, chairman and CEO of Morgan Stanley; Dick Parsons, chairman of Citigroup; Jim Rohr, chairman and CEO of PNC; and John Stumpf, president and CEO of Wells Fargo.

Also attending will be Treasury Secretary Timothy Geithner and three top White House officials: senior adviser Valerie Jarrett; Christina Romer, chairwoman of the Council of Economic Advisers; and National Economic Council Director Lawrence Summers.

In November, Goldman Sachs launched 10,000 Small Businesses, a five-year, $500 million commitment, in development for nearly a year, that was modeled on the Goldman Sachs 10,000 Women Initiative.

Also last month, JPMorgan told Reuters that it was raising its lending to small businesses by $4 billion this year and hiring more than 300 new bankers to cater to these businesses.


Sources: Politico, MSNBC