Friday, August 24, 2012

This Week in Bank Failures

The New York Fed cashed out its last AIG investment this week, selling off the rest of a portfolio of mortgage-backed securities. It made a respectable profit, with an annual rate of return around 8 percent. AIG is still majority-owned by the U.S. Treasury.

Credit card banks are repeating many of the same mistakes of the mortgage crisis as they go to court to collect credit card debts. These include robo-signing, suing for debts that have been paid off, errors in the amount owed, errors in identifying the borrower and the debt holder, and missing or incorrect documents.

In Europe, the spotlight was on Spain and Greece this week. After a joint statement from the heads of France and Germany, there was speculation that Greece might be forced out of the euro zone, possibly before the end of the year. Today the European Commission asked Spain to delay its planned bad bank for another week to allow for further review. The European Commission also said it will have proposals for new European banking regulation ready on September 11.

There was a run on Asia Commercial Bank in Vietnam after its founder was arrested Monday and charged with securities violations. The central bank intervened and had stabilized matters by today. Yesterday a second former executive at the bank was arrested and charged, and the mysterious investigation continues.

U.S. money laundering rules are evidently hard for international banks to follow, with Royal Bank of Scotland, Deutsche Bank, Wells Fargo and others being newly implicated in money laundering violations. It is a problem not limited to banks; industrial companies have also disguised transactions when their customers were criminal organizations.

Separately, Wells Fargo will pay $6 million to settle SEC charges of selling mortgage-backed securities to its customers without understanding or disclosing the risks. The SEC says the bank should have considered more than the credit ratings of the securities when selecting them.

The court-appointed trustee for Bernard Madoff’s bankrupt Ponzi scheme has recovered about 46 percent of the money owed to account holders. A small fraction of this money has come from insurance. Most is money that has been recovered from other account holders and employees.

The FDIC is going to court to try to reclaim $2 billion in losses from Wall Street companies that sold mortgage-backed securities to the now-defunct Guaranty Bank. The securities lost more than a third of their value on average, and the FDIC says the sellers made false statements about the value of the mortgages represented in the securities.

The Democratic National Committee is the latest large depositor to move its accounts out of the Wall Street banks. DNC’s new bank is Amalgamated Bank, which bills itself as the country’s only large union-owned bank.

Student loans aside, U.S. consumers continue to pay down debt. Total debt is increasing, but at a pace smaller than the combined effects of price increases and population growth, so that the average person owes less in real terms as time goes on. Total household debts are now 7 percent below their 2008 peak. Consumers are reacting to the perceived risks of owing money, and other factors are also important. Consumers who defaulted on mortgages have lost most of their access to credit. Many consumers have seen their income fall, or expect this to happen, making them less willing to take on debt. At the same time, consumers with an increase in income may use the free cash to pay off loans.

There were no early East Coast bank closings tonight, and I am not expecting any so close to a major political event. I will update if any banks are closed later.