Friday, November 8, 2013

This Week in Bank Failures

SAC Capital pleaded guilty today to insider trading. Under an agreement with prosecutors, the fund manager will close its hedge funds and pay a $1.2 billion fine. A related civil settlement, which included an additional penalty, was approved this week. The criminal penalties the company has agreed to must now be reviewed and possibly adjusted by a judge. Six SAC employees have pleaded guilty and two others are awaiting trial. Regulators have been criticized for going easy on SAC because of its size, but in my opinion it was probably prudent to allow a $15 billion fund to wind down over a period of a few months. Just shutting it down one day with no advance warning could have caused a cash crisis among banks and other third parties.

This week’s better news comes from Ireland, which is ready to exit its European bailout arrangement. The international lines of credit are set to be paid back next month, though there is a possibility of a delay or a transitional line of credit through about February. Ireland became insolvent from a series of ill-advised bailouts for banks that failed in the end anyway. However, it has climbed back much quicker than most observers had predicted.

In other developments, France was downgraded, Barclays and Deutsche Bank failed to get Libor claims dismissed, and the U.S. Department of Justice in a mortgage fraud case is seeking damages from a Wells Fargo executive in addition to the bank itself. New York Fed President William C. Dudley in a speech talked about a cultural problem in banking and criticized “the apparent lack of respect for law, regulation and the public trust” on Wall Street. It was startlingly direct language that may be a sign of the frustration regulators feel at the lengths the giant banks have gone to to circumvent laws and regulations.