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HomeCalifornia Sues Wells Fargo Over Auction Rate Securities
Posted by Larry Doyle on April 24th, 2009 5:37 AM |
Something is seriously wrong in our country when the general media does not hold a financial institution to bear when engaged in a fraudulent activity.
Once again today, another suit was brought on behalf of investors in Auction Rate Securities. Bloomberg reports, California Sues Wells Over Auction-Rate Securities.
Wells Fargo just announced tremendous earnings. While a handful of banks have either settled ARS suits or paid out their investors, Wells is still holding out on investors who purchased ARS from Wells’ financial advisors.
A website dedicated to covering the ARS travesty (www.auctionratepreferreds.org) indicates that the Wells Fargo Trust division servicing institutional customers stopped marketing ARS two years ago while Wells Fargo financial advisors continued to sell ARS to retail clients.
Bloomberg highlights:
California Attorney General Jerry Brown sued units of Wells Fargo & Co. claiming they deceptively advertised $1.5 billion of auction-rate securities sold to investors in the state as being as safe as cash.
Wells Fargo Investments LLC, Wells Fargo Brokerage Services LLC and Wells Fargo Institutional Services LLC promised investors that the securities were cash-like investments similar to money-market accounts when they weren’t, Brown said in a statement today. About 2,400 Californians are unable to sell the securities, marketed as short-term investments, and access money needed to pay their bills, Brown said.
While other banks, including Citigroup, have agreed to repurchase auction rate securities they sold, the Wells Fargo units have refused to follow suit, he said. The lawsuit seeks to recover $1.5 billion and civil penalties that could amount to hundreds of millions of dollars.
“Wells Fargo’s affiliates promised investors auction-rate securities were as safe and liquid as cash, when in fact they were not, and now investors are unable to get their money when they need it,” Brown said in the statement. The lawsuit was filed in San Francisco Superior Court.
While Bloomberg has offered coverage of this ARS fraud, I have seen no other media outlet provide any coverage.
Why is it that the media will not expose the fact that the Wall Street industry watchdog FINRA had a $647 million ARS stake in 2007? Is it too much to ask a media outlet to pursue and expose the hypocrisy and incompetence of that entity and its internal investment activities?
LD
Central Station
Posted by Larry Doyle on April 23rd, 2009 8:39 PM |
***UPDATE: The Central Station live event has ended, but you can view the topics we discussed by scrolling through the “Comments” section at the end of this post.***
Sorry, folks. We are having some technical difficulties with the LiveChat software, so we’ll do Central Station the old-fashioned way. Send me your questions in the comments section and I’ll answer promptly.
LD
Trillion Dollars Here, Trillion There, Pretty Soon You’re Talking Real Money!
Posted by Larry Doyle on April 23rd, 2009 5:09 PM |
The commercial mortgage market has been around a long time; the commercial mortgage-backed securities (CMBS) market has only been around for little more than a decade. The growth of the CMBS market, in which the actual mortgages are pooled and securitized, has been significant in that it brought new pools of capital into the commercial real estate market.
Not unlike the residential mortgage market or the corporate loan market, the commercial mortgage market performed fine as long as the underwriting process maintained the necessary discipline. Much like other sectors, however, the commercial mortgage market is now sufferring as lax underwriting standards are catching up with it. Who wrote these loans with lax underwriting standards? Wall Street banks. These banks launched mortgage conduits which originated commercial mortgages for purposes of pooling and selling via the securitization market.
Friends of mine in the commercial real estate market have advised me of very aggressive pricing of many loans along with shoddy underwriting. As a large percentage of those loans are now approaching a refinancing date, the prospects of refinancing are challenging. In turn, the likelihood of rising defaults are increasing. (more…)
Not again, Larry!!
Posted by Larry Doyle on April 23rd, 2009 5:04 PM |
I wish I were joking, but Larry Summers, Director of the National Economic Council, has been caught yet again sleeping on the job. Today Summers was caught on camera taking 40 winks during a meeting with President Obama and credit card officials:
If you remember, Summers was caught nodding off during a fiscal sustainability summit held back in February at the White House. From my piece on February 25, 2009: Does Larry Need a Stimulus? . . .
The Financial Times reported that Larry Summers fell asleep on the podium this past Monday at the Financial Responsibility Summit:
“Although Lawrence Summers, head of the National Economic Council, fell asleep on the podium, most attendees, including Republicans, appear to have appreciated the exercise.”
While I know that some of this material can be a little dry, one would hope it is not putting Larry to sleep!!
I’ll admit I fell asleep once or twice in science class, but I always made sure I was in the back of the room. Perhaps Larry already felt comfortable with the material.
You can’t make this stuff up…I only hope he passes the test!!
LD
Sense on Cents Central Station
Posted by Larry Doyle on April 23rd, 2009 4:32 PM |
BACK BY POPULAR DEMAND (special shout out to “silver”)! Join me this evening beginning at 8:30 p.m. ET for Sense on Cents Central Station. This endeavor is a few hours of written Q/A and live chat with your resident host, Larry Doyle. I like to utilize the theme of a ride on the rails, so please allow me to elaborate.
With so many cross currents at play in the markets, economy, and world of global finance, where can one go to develop a framework of understanding, enjoy the company of friends, and make sense of the madness? Welcome to Sense on Cents Central Station. Our ride departs at 8:30 p.m. with an expected return at 10:00 p.m. (I’m hoping this time frame allows our West Coast friends to join in). While we traverse the curves along our track, we can address a wide range of issues, including: Hank Paulson blindsiding Ken Lewis, 1st quarter earnings (their transparency and quality), market performance this week, month, and year to date, the outlook for our financial regulatory structure, issues of personal finance, career planning, or anything else on your mind.
Our ride is most productive with as many people participating as possible. Please bring not only your questions, but also your views. Invite friends, neighbors, and colleagues along for the ride as well. Together we can collectively navigate the economic landscape.
I look forward to chatting with you beginning at 8:30 p.m. All Aboard!!
LD
Market Sentiment Very Balanced
Posted by Larry Doyle on April 23rd, 2009 2:06 PM |
Our Economic All-Star Laszlo Birinyi has recently had some very good calls on the market. His funds are outperforming the major stock market averages by 10-15%. Birinyi is an excellent stock picker but also has an experienced professional’s “feel” for the market.
His weekly Blogger Sentiment Poll provides us an easy snapshot as to current investor attitudes. Recall that when a bullish reading approaches 30%, it is an indication of the market being oversold. Similarly, if a bullish reading approaches 70% it is an indication of the market being overbought.
The market overall has done somewhat better over the last few weeks but has given some of that improvement back in this week’s trading. In investment terms, this price action is known as “running in place,” “range trading,” or “moving sideways.”
Not surprisingly, the readings in Birinyi’s polls indicate a very balanced short term sentiment.
LD
Ticking Time Bomb
Posted by Larry Doyle on April 23rd, 2009 11:43 AM |
If a picture speaks a thousand words, then please take a look at the graph from the St. Louis Federal Reserve highlighting the recent growth in our domestic money supply:
None other than esteemed Harvard University economist, Martin Feldstein, is warning us about the impending threat of inflation. Some analysts view deflation as the near term threat, but it is not inconceivable that our economy has an initial bout of stagflation given the prospects of a sluggish economy. If and when the economy turns, we will then likely experience a rapid rise of inflation with a real threat of hyperinflation.
Bloomberg recently discussed these topics with Feldstein and reports, Harvard’s Feldstein Sees U.S. Inflation Danger After 2010.
How do we prevent inflation from occurring? Picture Ben Bernanke and Tim Geithner trying to gracefully and smoothly manage a decline in the money supply from what appears on the above graph to be a likeness of the cliffs of Mount Kilimanjaro.
As Feldstein warns:
the Federal Reserve will have a challenge in heading off inflation because of how it’s conducted monetary policy during the crisis.
Instead of expanding the central bank’s balance sheet by purchasing easy-to-sell Treasuries, the Fed has snapped up mortgage securities that are likely to be tougher to use as a tool to soak up cash, Feldstein said.
In an earlier interview with Bloomberg Television, Feldstein said he didn’t anticipate a lending boom from banks judged to have passed U.S. regulators’ stress tests on their balance sheets.
In light of this threat, I think global interest rates may move sharply higher over the course of the next 1-2 years.
LD
Ken Lewis: Great American or Mere Corporate Pawn?
Posted by Larry Doyle on April 23rd, 2009 6:58 AM |
When Ken Lewis, CEO of Bank of America, purchased Merrill Lynch last Fall did he put country first but his shareholders’ interests second? The WSJ Reports Lewis Testifies U.S. Urged Silence on Deal.
The BofA purchase of Merrill did not feel “right” to me from the outset. Why? Recall that at the time of this deal, Lehman had just failed and other investment banks’ stocks (Merrill, Morgan Stanley, Goldman Sachs) were plummeting. Given that dynamic, why did BofA pay a fairly sizable premium for a firm in distress? Merrill’s stock was trading somewhere in the mid-teens but BofA paid the equivalent of $29 a share. It is said that Lewis paid such a premium in order to retain the renowned Merrill retail brokerage staff, but it struck me as more directed by Uncle Sam than anything else.
In early February I questioned What Really Happened With Merrill and B of A. I summarized then that normal business decisions and strategy do not occur when operating in uncharted waters. Well, in the last two and a half months our economy and financial industry have moved into even deeper waters.
In looking back at the height of the waves swamping the Merrill ship, the WSJ report reminds us: (more…)
1st Quarter Earnings: What Have We Learned?
Posted by Larry Doyle on April 22nd, 2009 5:45 PM |
As we work our way through the 1st quarter earnings reports, what have we learned?
1. Earnings for certain tech companies (Google, E-Bay, Apple, Qualcomm) have beat expectations. The fact that these companies have large cash positions and are not overly burdened with debt has benefitted them.
2. Major money center bank (Citi, BofA, JP Morgan, Wells Fargo) earnings looked good on the surface but there remain real questions about the quality and transparency of the numbers. The Bank Stress Tests hang over this sector. Independent analysis indicates that banks in general are lending less as credit writedowns continue to increase. The earnings in these banks are focused more on trading activities and mortgage refinancing while core consumer banking is quite weak. The strength in trading and refinancing is directly linked to government supported actions (related to AIG, Fed purchases of mortgage and government securities). Many analysts question whether the earnings from trading are repeatable while core banking activity is a drag.
3. Earnings for regional banks (KeyCorp, First Horizon, Bank of New York, Suntrust, Regions) and banks without sizable trading businesses are weak across the board. Credit chargeoffs on existing loans (credit cards, residential, commercial mortgages, corporate loans) continue to move higher and limited demand for new credit are hurting these institutions. (more…)
U.K Tax Increase of 25%: A Sign of Things To Come?
Posted by Larry Doyle on April 22nd, 2009 1:36 PM |
If you think things are challenging here in the U.S., be thankful you do not currently live in the United Kingdom. Given the massive deficits in both countries, the debts are already sizable and GROWING.
How does an individual, a company, or a government pay a massive debt? Pay it, borrow more, decrease headcount, scale back services, and increase the price of admission–as in higher taxes!! Actually, most private and public entities are utilizing a combination of these tactics – if not all of them – to combat outstanding debts.
In the face of rising deficits and soaring government spending globally, we are also witnessing significant social frustrations. The frustrations here in the U.S. were evidenced by the number of Tea Parties on April 15th.
Across the pond in the U.K., the deficit relative to GDP is off the charts. Some have speculated that the U.K. may need financial assistance from the IMF. Before the Gordon Brown led government does that, though, it will utilize all the other tools in the bag. To that end, the tax rate on the upper income will be increased by 25%, from a 40% level to a 50% level!! That increase is being accelerated from a 2011 implementation to 2010. A U.K. government promise of “no new taxes” just went the way of George H.W. Bush.
The BBC sheds light on the massive fiscal problems facing the U.K., Tax Rise As U.K. Debt Hits Record.
While I thought our fiscal problems were bad, the current U.K. fiscal situation is a nightmare. Given the similarities in our fiscal policies, is the current reality in the U.K. a sign of things to come here in the United States?
LD
