U.S. Uses Freddie Mac to Sue World’s Biggest Banks (YahooFinance)
The United States has just launched a government-backed lawsuit against 12 of the world’s biggest banks through Freddie Mac. In the suit, the government-controlled mortgage investor claims that global lenders such as Credit Suisse, UBS AG, Bank of America and J.P. Morgan Chase & Co – just to name a few – colluded with the British Bankers Association to suppress the U.S. dollar Libor inter-bank interest rate. This alleged impropriety, in turn, caused Freddie to experience losses on interest-rate swaps it was using to hedge mortgage-finance risk. In addition, the United States also is considering filing suit via Fannie Mae — its other mortgage investing arm. Whether this case will have any effect on bank share prices or the financial sector at all remains to be seen. But it certainly doesn’t spread good will.
J.P. Morgan Gets Double-Teamed (YahooFinance)
As if the Freddie Mac lawsuit weren’t enough, J.P. Morgan Chase & Co also just learned that it has been downgraded on a confidential government scorecard because of management and board actions. This strike against the second-largest U.S. bank comes out of left-field as Morgan always has been considered one of the best-run firms on Wall Street. Last year, America’s second-largest bank posted record profits of $21.3 billion and saw its market cap rise to $187 billion. However, America’s Office of the Comptroller of the Currency dropped Morgan from a grade of “2” or “satisfactory management” to a grade of 3 or “needs improvement” — in the aftermath of the “London Whale” trading losses. The 3 grade is about as bad as it gets for a functional bank, as both Citigroup Inc. and Bank of America earned that rating during the 2008 financial crisis. It’s Morgan’s move now, to see how it responds…
England Eyes another Recession-Themed Budget (AP)
Today, British Treasury chief George Osborne will deliver his budget for the coming year and investors won’t be excited about its theme of continued austerity. Osborne is expected to play the fear card to get his budget passed by claiming that England could become the next Greece or Cypress without immediate hard-line action. “I’ll present a budget that tackles the economy’s problems head on, helping those who want to work hard and get on,” the Treasury chief Tweeted. The key phrase here would have to be “hard work” as another quarter of economic contraction and Brits will find themselves hip-deep in another recession. In the last year, the country has seen its AAA credit rating disappear, living standards deteriorate and the specter of recession return.