Quiet signing of abortion bill fulfills deal on new healthcare law

In the aftermath of the frantic dealmaking that consumed Washington the past few weeks, U.S. President Barack Obama quietly signed an executive order barring federal funding for elective abortions in a concession to anti-abortion Democrats who voted for the health-care overhaul. Rep. Bart Stupak (D-Michigan), leader of an anti-abortion bloc in the House of Representatives whose support was crucial for the approval of the sweeping health-care proposal, according to the New York Times. Obama signed the bill into law on Tuesday in an elaborate White House ceremony. In contrast, Wednesday's signing of the executive order was done in the Oval Office with no fanfare in front of a few invited lawmakers, with no media present. Pro-choice lawmakers did not object to the order because it merely complied with existing federal law, the Times said. Meanwhile, on Capitol Hill, Senate Democrats rejected a host of amendments and moved toward passage of a companion health-care reform bill that would raise subsidies for senior and low-income citizens and take the nation's banks out of the student loan business. The bill would turn the federal government into the direct lender for student loans, instead of the guarantor as it is now, and increase the maximum dollar amount students can receive in federal Pell grants. The move is expected to cost the banking industry -- including federal lending giant Sallie Mae -- billions of dollars in revenue. Citigroup, JPMorgan Chase and Bank of America, banking giants that received billions of dollars in assistance from the government as part of the financial system bailout, have traditionally been the largest beneficiaries of the student loan program, the Times said.

New York State steps into Bank of America bailout as feds settle

At least somebody in government still thinks it's their job to look out for the beleaguered U.S. taxpayer. We're speaking, of course, of New York Attorney General Andrew Cuomo, who has sued Bank of America for securities fraud over its 2008 merger with Merrill Lynch on the same day that federal authorities who pumped billions of taxpayer dollars into the bank settled their complaints for insignificant amounts of cash. In a lawsuit filed Feb. 5, Cuomo accused the bank and its two top officers of securities fraud in connection with the merger, claiming they misrepresented the financial condition of Merrill Lynch to shareholders as they were voting on whether to approve the deal, according to the New York Times. In the suit, Cuomo said the bank failed to reveal $16 billion in losses to shareholders but told federal officials that the losses necessitated an additional $20 billion from the Troubled Asset Relief Program, set up by the U.S. government to help financial institutions weather the global financial crisis. “They understated the problems, the losses to the shareholders, they overstated their ability to terminate the arrangement to the federal government to secure $20 billion in TARP money, and that is just a fraud,” Cuomo told the Times. “The Bank of America and its officials defrauded the government and taxpayers at a very precarious time.” But the U.S. Securities and Exchange Commission allowed the bank to escape federal charges by paying $150 million in fines, despite Merrill Lynch payments of billions of dollars in bonuses to its executives just before the merger. Bank officials said the fact that the government chose to settle showed that Cuomo's fraud allegations against it and against Chief Executive Officer Kenneth Lewis and Chief Financial Officer Joe Price were not true. “The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations,” Bob Stickler said in an e-mail to the Times. “The SEC had access to the same evidence as the N.Y.A.G. and concluded that there was no basis to enter either a charge of fraud or to charge individuals." Lewis and Price have since left their posts, the Times said. The SEC settlement still must be approved by a federal judge who already turned down a proposed $33 million settlement of the case. But this time, the bank agreed to have an independent auditor review its disclosures and to give shareholders the right to vote on executive pay, the Times said.

Big surprise -- Citigroup and banking regulators disagree on bailout repayment

From Washington comes word that it could be months before U.S. government banking regulators allow banking giant Citigroup to repay billions of dollars it took from taxpayers in three separate capital bailouts last year and in 2009. Citigroup wants to escape from the tight regulatory regime imposed on it after the bank accepted taxpayer money to stay afloat during the height of the economic downturn, but the multifaceted rescue has made repayment an unusually complex process, according to the Reuters international news service. While rival Bank of America's proposed path out of the Troubled Asset Relief Program involves the raising of some $20 billion to repay the government, Citigroup must figure out how to let the government sell 7.7 billion shares of stock it owns -- nearly a third of outstanding shares -- and how much to pay for the U.S. guarantee of $182 billion worth of bank securities. The government never purchased Bank of America stock and never signed an agreement to protect its assets, Reuters said. In light of Federal Deposit Insurance Corp. Chairman Sheila Bair's statement that the government would have to "be very careful" in allowing banks to buy their way out of TARP, and the array of agencies that would have to sign off on Citigroup's exit, the timeframe is most likely months, rather than weeks, Reuters said. Knowing all this, and understanding how much taxpayers have paid and will paying in the future to keep Citigroup around -- since the bailout funds were borrowed money -- it doesn't make sense for the financial institution to argue with regulators who are the only reason the bank is still around.

Lessons learned? Federal Reserve asks for some of its billions back

Here we go again! News that the U.S. Federal Reserve had asked some banks to repay money they got from last year's $700 billion financial system bailout would seem to be good news, since it means those institutions have recovered. But what many U.S. banks who are trying to repay the Troubled Asset Relief Program really want is to escape the tighter oversight imposed by the federal government as a condition of receiving taxpayer funds, the Reuters international news service reported Tuesday. Citing an unnamed source, Reuters said nine of the 10 banks that were among the 19 stress-tested in May and found to need additional capital are now clamoring to leave the program, which provided billions in capital to more than 500 banks and a few struggling industrial companies. But the nine, including Bank of America Corp., Citigroup, Wells Fargo & Co. and Fifth Third Bancorp, began to prosper again in no small part due to the restrictions imposed by the program. Requirements for participation included perfectly sensible limits on executive compensation, dividend payouts and share buybacks. If those banks are released from the program, they also get released from those requirements. What is to prevent them from doing the same things that got them into so much trouble? Sure, there are regulators, but there were regulators before and the financial collapse still happened. The 10th bank, GMAC Corp., is not expected to be able to raise capital anytime soon. The 10 banks that passed the June test repaid the government in June and have already left the program, including JPMorgan Chase & Co., and Goldman Sachs Group Inc. Citigroup's situation is different from the other stress-tested banks because the federal government invested billions of dollars in shares of the bank's common stock and trust-preferred securities in an effort to keep it solvent.

For whom the final bell tolls

News from Los Angeles that a federal judge has refused to dismiss civil fraud charges against Angelo Mozilo, the former CEO of Countrywide Financial Corp., and two of his associates means that regulators are still pursuing the fabulously wealthy wheeler-dealers whose recklessness helped cause the collapse of world financial markets and sparked a global recession. Of course, the U.S. Securities and Exchange Commission filed only civil charges against Mozilo and fellow top Countrywide officers David Sambol and Eric Sieracki, so any penalties assessed against them, assuming they're found guilty, will be financial. Hopefully, criminal charges against scores of financial roughriders responsible for the massive frauds that helped sink the country's housing market are still in the offing. Mozilo built Countrywide into the country's largest mortgage lender in large part through tens of billions of dollars worth of subprime and adjustable-rate mortgages, according to the Reuters international news service. But when the poorer-quality loans began failing, the SEC alleged, Mozilo reassured investors that Countrywide's portfolio was strong while using stock options to buy millions of dollars in company stock and then selling it for more than $139 million in profits, Reuters said. The SEC said in its complaint that Mozilo admitted in an e-mail to colleagues that Countrywide was "flying blind" about the quality of its loans. Countrywide had to be sold to Bank of America in a $2.5 billion deal arranged by federal regulators in 2008. U.S. Judge John Walter in Los Angeles found it possible, as the SEC's complaint alleged, that Countrywide's management was responsible for "the virtual abandonment of prudent underwriting guidelines and the resulting proliferation of poor quality loans, during the same period Countrywide was touting the superior quality of its underwriting guidelines and its loan portfolio." Mozilo's attorney, David Siegel said he was disappointed by the judge's decision but predicted that Mozilo would be "vindicated" in a trial. "Angelo Mozilo is an innocent man who helped millions of people find a home for more than 40 years," Siegel said, according to Reuters.

Most large banks pass government 'stress test'

$74.6 billion. Seventy-four point six billion dollars. Let's look at that again: it's seventy-four billion, 600 million dollars. Believe it or not, that's what U.S. banks still need, and that's good news. That number that sparked a sigh of relief in U.S. financial circles today because it was a lot lower than many iduustry leaders feared would be needed to prop up the banking system. Today's release of results of the Federal Reserve's so-called stress tests of the 19 largest U.S. banks sent many of the 10 who need more capital scrambling to develop plans to raise it, according to the Reuters international news service. Bank of America, the historic San Francisco banking giant that was purchased by NationsBank of North Carolina in 1998, was found to be lacking nearly $34 billion in reserves, slightly less than half of the entire industry shortfall. "We're going to be watching carefully to make sure they give us credible plans for raising capital and becoming privately owned again," said Ben Bernanke, chairman of the Federal Reserve, referring to the entire group of banks, Reuters reported. Bank of America immediately offered plans to raise most the money it needed through issuance of new stock and asset sales. Other banks identified in the Fed's report, written after more than 150 officials examined the banking institutions' books, issued similar statements, Reuters said. Other banks found wanting included Wells Fargo, which was found to need $13.7 billion; GMAC, the auto and home loan finance company, which was found to need $11.5 billion, and Citigroup, which was ordered to raise $5.5 billion. The federal government expects banks to be able to raise the money privately, Reuters reported, but Bernanke said the United States "stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn." U.S. stock futures were up following release of the figures, but some critics said the Federal Reserve examination was not rigorous enough. "I'm a skeptic," said Robert Andres, president of Andres Capital Management in Philadelphia, Reuters said. "I don't see this as a genuine audit. They have been playing the marketing game strongly lately." The reviews were designed to measure how the banks would be able to perform if the recession worsened, Reuters said.

Obama gets it right on credit card reforms

It's enough to make you think he knows what's going on in the United States. We're talking, of course, about President Barack Obama's effort to restrict the unconscionable growth of interest rates and fees placed on credit cards used by most U.S. residents. After meeting with 13 credit-card industry executives at the White House on Thursday, Obama said he wanted to stop abuses and eliminate the "fine print" in credit-card contracts, according to the Reuters international news service. "We want to preserve the credit card market but we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with," Obama said. The president endorsed efforts in Congress to pass a so-called Credit Cardholders' Bill of Rights, which would convert into law regulations issued by the Federal Reserve in December. The bill would prevent credit card issuers from imposing arbitrary interest rate increases and penalties. A version of the bill is pending in the Senate. Obama said he wanted the Congress to protect consumers from abuses by credit card companies as part of his effort to retool the government's regulation of the U.S. economy, which has been mired in recession. "The days of any time, any reason rate hikes and late fees has to end," Obama said. "No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out." Executives from Bank of America, American Express, Citigroup, Wells Fargo, JPMorgan Chase, Capital One, Visa and MasterCard were invited to the meeting, Reuters said.