[서울신문]베어스턴스, 리먼 브러더스, 메릴린치…. 월가에서 100년 가까운 역사를 자랑하던 이 초대형 투자은행(IB)들은 수년 전 역사 속으로 사라졌습니다.
2007년 서브프라임모기지론((비우량 주택담보대출) 사태와 이듬해 전 세계를 덮친 글로벌 금융위기로 파산하거나 경쟁사에 인수합병됐습니다. 2007년 5005개였던 미국 증권사는 2012년 4289개로 줄어 14.3%나 감소했습니다. 같은 기간 일본도 317개에서 261개로 29.6%나 줄었습니다.
하지만 국내 증권사는 금융위기 파동 속에서 오히려 숫자가 증가했습니다. 금융감독원 금융통계정보시스템에 따르면 2007년 54개(외국계 포함)에서 2009년 62개로 늘었고, 2013년까지 이 숫자를 유지했습니다.
2007년 4조 4098억원이던 증권사 순이익(대손준비금 반영 전)은 이듬해 반 토막 났습니다. 2013년에는 아예 1893억원의 적자를 기록했습니다. 그간 증권사는 대규모 인력 감축을 통해 생존의 길을 모색했습니다. 2012년부터 3년여 만에 8000여명의 증권맨이 사라졌습니다.
증권업계는 몇 년 전부터 회사도 생존하지 못하는 시대가 도래했습니다. 애플투자증권·BNG증권·한맥투자증권이 실적 부진과 대규모 손실로 자진 청산하거나 파산했습니다. 동양증권·우리투자증권·아이엠투자증권은 인수·합병(M&A)으로 간판을 내렸습니다. 업계 2위 대우증권도 팔려 나갔고 LIG투자증권, 리딩투자증권 또한 매각이 진행 중입니다. 지난해 10월 매각이 불발된 업계 5위 현대증권은 언제든지 다시 매물로 나올 수 있습니다. 최근 2년 새 10개 가까운 증권사가 문을 닫거나 흡수될 위기에 처한 것입니다. 국내 시장 규모를 봤을 때 증권사 수는 40여개가 적절하다는 분석도 있습니다.
새해 증권업계는 회사의 명운을 걸고 치열한 생존경쟁에 나설 수밖에 없습니다. 한 증권사 사장은 “모든 분야를 다 처리하는 종합백화점식 영업은 이제 지양해야 한다”며 “대형사든 중소형사든 주력 분야에 집중하는 차별화만이 살길”이라고 말했습니다. 병신년(丙申年) 새해를 맞이하는 서울 여의도 증권가의 바람이 유난히 차갑습니다.
Bank of America Corp.'s financial-crisis hangover may finally be fading.
On Thursday, the bank agreed to pay $16.65 billion to settle the government's accusations it sold flawed mortgage securities in the run up to the 2008 crisis, the largest settlement ever reached between the U.S. and a single company.
For the U.S. government, the deal is a chance to put an exclamation point on a string of crisis-era enforcement actions and lawsuits that have cost big U.S. banks tens of billions of dollars. The Charlotte, N.C. lender will have to pay $9.65 billion in cash to the Justice Department, six states and other government agencies. The bank also will provide $7 billion in consumer aid by modifying mortgages for borrowers who owe more than their homes are worth, demolishing derelict properties or other relief.
ENLARGE
For Bank of America, the settlement is a bitter coda to its decision in 2008 to buy two companies, Countrywide Financial Corp. and Merrill Lynch & Co., as they teetered during the housing crisis. Bank of America Chief Executive Officer Brian Moynihan , who has spent his 41/2 years as CEO wading through litigation, has told investors this is the last of the big crisis-era problems. His next challenge: proving the bank has the mettle to make money in an era of weak loan demand and low interest rates.
In a statement, Mr. Moynihan said the settlement "is in the best interests of our shareholders, and allows us to continue to focus on the future." Giant legal charges have depressed the bank's earnings for years, frustrating some investors. The bank said the settlement will cut third-quarter pretax earnings by $5.3 billion, or 43 cents a share after tax.
Shares in the company rocketed more than 4%, to close at $16.16, as investors welcomed the resolution of a long-running legal headache.
Bank of America agreed to pay a settlement of $16.65 billion over its mortgage lending, the largest ever between the U.S. and a single company. WSJ's Aaron Lucchetti joins MoneyBeat with the details.
The Justice Department's case against Bank of America provides perhaps the clearest window yet into the behavior that fueled the 2008 financial crisis: Lenders knowingly providing credit to borrowers who couldn't afford the loans and selling those mortgages to unwitting investors. Borrowers ultimately defaulted, sending them into foreclosure and saddling investors with hefty losses.
Many of the mortgage securities in question were made by Countrywide and Merrill Lynch. But the government found problems with Bank of America's own mortgage securities as well, including efforts to circumvent underwriting standards by changing applicants' financial information.
In at least one instance, an underwriter at Bank of America made more than 40 attempts to win an "accept" rating from an internal Countrywide system—known as CLUES—that would allow Bank of America to make a loan, according to a statement of facts signed by the U.S. and Bank of America.
"One underwriter characterized what she was doing as trying to 'trick' the CLUES system into giving an 'accept' rating," according to the document.
The ramifications of originating weak loans was predicted by former Countrywide CEO Angelo Mozilo, who warned in an Aug. 1, 2005 email to other executives that real-estate developers were anticipating a condo-market collapse in areas like South Florida and Las Vegas, and said the firm should avoid putting certain loans on its own balance sheet. Mr. Mozilo was worried the large increase in monthly payments required by many of the Countrywide-issued mortgages ultimately would cause borrowers to default.
Attorney General Eric Holder announces the settlement with Bank of America Thursday.EUROPEAN PRESSPHOTO AGENCY
"The simple reason is that when the loan resets in five years there will be enormous payment shock and the borrower is not sufficiently sophisticated to truly understand the consequences then the bank will be dealing with foreclosure in potentially a deflated real estate market. This would be both a financial and reputational catastrophe," Mr. Mozilo wrote, according to Justice Department documents.
Prosecutors in Los Angeles are preparing to file civil charges against Mr. Mozilo and other former Countrywide executives, according to a person familiar with the situation. Mr. Mozilo's lawyer, David Siegel, said, "There is no sound or fair basis, in law or in fact, to pursue any claims against Angelo Mozilo."
Countrywide, in particular, has morphed from trophy to albatross for Bank of America. The bank had a history of gobbling up competitors when it bought Countrywide in 2008 and the deal launched it to the top of the mortgage world.
The purchase, though, has brought legal headaches and regulatory scrutiny, including a multistate settlement over alleged predatory lending practices just months after Bank of America bought the lender. The bank's mortgage unit hasn't turned a profit in years.
The settlement comes on the heels of similar, but smaller, deals over precrisis mortgage-related conduct with Citigroup Inc. for $7 billion and J.P. Morgan Chase & Co for $13 billion. The Justice Department is expected to turn its attention next to other banks accused of selling flawed mortgage securities, including Goldman Sachs GroupInc. and Wells Fargo& Co., according to people familiar with the matter. Those cases are expected to be smaller than the previous three settlements.
"Bank of America has acknowledged that, in the years leading up to the financial crisis that devastated our economy in 2008, it, Merrill Lynch and Countrywide sold billions of dollars of RMBS backed by toxic loans whose quality and level of risk they knowingly misrepresented to investors and the U.S. government," Attorney General Eric Holder said at a news conference, referring to residential mortgage-backed securities.
The settlement resolves claims by various governments and agencies and releases the bank from numerous matters related to mortgage securities, collateralized debt obligations and mortgage origination. It doesn't release the bank from criminal liability and the Justice Department reserved the right to file both criminal and civil charges against individuals.
The settlement caps months of tense negotiations, during which the bank's lawyers argued repeatedly—and unsuccessfully—the firm was being unfairly punished for misdeeds of Countrywide and Merrill, according to people familiar with the talks. Prosecutors were similarly unmoved by the bank's argument it already had paid mightily for crisis-era sins, shelling out some $60 billion before Thursday's settlement.
During negotiations, Mr. Moynihan enlisted two trusted lieutenants— General Counsel Gary Lynch and chief strategy and marketing officer Anne Finucane —to call board members and keep them informed.
For weeks, the bank refused to up its offer beyond $13 billion, wary of comparisons to J.P. Morgan's $13 billion settlement. The bank's resistance weakened one day in late July, when a New York judge ruled that the bank would have to pay more than $1 billion over claims related to an old Countrywide loan program, and when Mr. Holder told Mr. Moynihan that the government stood ready to file a lawsuit prepared by the U.S. Attorney's Office of New Jersey.
After that phone call with Mr. Holder, Mr. Moynihan asked for time to call a few other decision makers, including board chairman Chad Holliday. The reaction from others at the bank was that a $17 billion deal was expensive—but worthwhile if it could resolve a big chunk of its problems.
The statement of facts, more detailed than those released in the J.P. Morgan and Citigroup settlements, paint an unflattering picture of Countrywide and Merrill, as well as Bank of America.
The findings against Countrywide are particularly damning. The lender, an advocate of home ownership but also a pioneer of subprime and other risky loans, was itching to expand market share in the early 2000s. When potential customers with lousy credit scores applied for mortgages, Countrywide employees sometimes shuffled them to "shadow" underwriting guidelines. The firm often didn't verify whether borrowers were being truthful about their income, and offered loans allowing borrowers to pay less than just the interest owed —meaning the amount borrowers owed grew over time instead of shrinking.
When Countrywide's executives were told that some borrowers appeared to be overstating their income, the chief risk officer shrugged off the concerns, writing in an email, "Many (most?) borrowers seek to report as little income as possible on their tax return."
"We need to be careful painting all of this as a 'misrep,'" the chief risk officer wrote. "Although that is obviously the case in some (perhaps many) instances, it won't be the case in all cases."
The Justice Department also found that Merrill Lynch ignored warnings from an outside vendor who noted the high number of "EV3" loans in certain subprime mortgage securities. The EV3 label was given to particularly questionable mortgages, such as those made to borrowers who had recently declared bankruptcy. Merrill traders, though, often overruled those labels.
In an internal email about a particular pool of loans, a consultant in Merrill Lynch's due-diligence department wrote: "[h]ow much time do you want me to spend looking at these [loans] if [the co-head of Merrill Lynch's RMBS business] is going to keep them regardless of issues?...Makes you wonder why we have due diligence performed other than making sure the loan closed."
MARKET TALK
Whistleblowers' Part in BofA Settlement Whistleblowers may have played a role in one of the investigations that led to Bank of America's giant $16.65 billion settlement. The Justice Department says one strand of its case stemmed from government probes into the origination and sale of "defective" mortgages by BofA and its acquisition of Countrywide -- and that three sealed lawsuits filed by whistleblowers over those practices are being resolved as part of the settlement. No immediate word from Justice Department about the exact role of whistleblowers or whether they'll get a cut of the $1 billion BofA is paying over that portion of the overall settlement. (michael.rapoport@wsj.com)
RMBS Investors Expect Losses from Settlement Investors in residential mortgage-backed securities should brace for more principal writedowns on their securities when BofA starts meeting its consumer relief obligations under the $16.65 billion settlement with the Justice Department, said two big bondholders. Investors have long complained that banks are modifying loans they do not own, pushing losses to private investors but still taking credit under terms of settlements. One group, the Association of Mortgage Investors, has been trying to curb the right for such modifications in settlements but was denied a seat at the BofA talks by the DOJ, according to Debtwire. (albert.yoon@wsj.com)
Market Talk is a stream of real-time news and market analysis that's available on Dow Jones Newswires
The Bank of America mortgage-settlement-industrial complexgenerated another settlement today. This one is the biggest so far, but it is also the most recent so far, and the word "record" gets used a lot in Bank of America settlement announcements. If there's a $30 billion Bank of America mortgage settlement in November, my mind will remain un-blown.
Here are the Bank of America mortgage-related penalties that I am aware of:
Some of those bars aren't visible to the naked eye but trust me, they're there. The smallest is the $20 million 2011 settlement with the Justice Department for the 160 times that Countrywide "wrongfully foreclosed upon active duty servicemembers without first obtaining court orders." (Bank of America acquired Countrywide in June 2008, to the former's eternal regret.) The biggest -- so far! -- is today's $16.65 billion settlement for a grab-bag of assorted mortgage misdeeds. The total -- again, not a comprehensive total of Bank of America's mortgage costs, just the results of a casual review of mortgage-related settlements that were publicly announced -- is about $68 billion.1 So far.
That chart doesn't convey the goofiness of all of this. Perhaps this one will:2
SOURCE: MY OWN HORRIFYING LABOR, PUBLIC DOCUMENTS, OTHER.
What have we learned? Good lord, nothing, right? The first settlement on the chronological chart is a 2010 class action settlement with Countrywide shareholders: People who bought Countrywide shares between March 2004 and March 2008 sued Countrywide for not informing them that its underwriting was rotten and would ultimately bring down the company. Today's pile of settlements includes this $20 million settlement with the Securities and Exchange Commission for not informing shareholders that Countrywide's and BofA's pre-crisis underwriting was rotten and would ultimately incur huge costs. If you squint, they're the same settlement, four years and $580 million apart.
While you're squinting, take a look at that complex of Fannie Mae and Freddie Mac cases at the top of the chart. In its heyday, Countrywide sold some bad mortgages to Fannie and Freddie. This led to disputes, litigation, anger. In 2011, Bank of America settled those disputes with Freddie, and partially settled with Fannie, for a total of about $2.8 billion. In 2013, it settled again with Fannie, this time for a bit over $10 billion. In March 2014, it settled with the Federal Housing Finance Agency, Freddie and Fannie's regulator, for about $9.3 billion.3 In July 2014, it was ordered to pay $1.27 billion to the Department of Justice over a subset of those loans originated pursuant to the unfortunately named, and also just unfortunate, "Hustle" program. And today'sStatement of Facts has a section that begins:
From at least 2004 through 2008, Countrywide Home Loans, Inc. and Countrywide Bank, FSB (collectively, "Countrywide”) originated residential mortgage loans and sold certain of those loans to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively, “government-sponsored enterprises” or “GSEs”).
And then launches into how bad those mortgages were. Countrywide sold bad mortgages to Fannie and Freddie from at least 2004 until 2008. This is now the fifth time it's been ordered to pay over a billion dollars in penalties because of the bad job it did with those mortgages.4 Maybe it's the last! Who knows. But it's the fifth.5
A popular criticism of the modern approach to punishing bank misdeeds -- giant fines imposed on the banks, not much in the way of individual punishments and a preference for settlements rather than trials -- is that it turns the fines into just a "cost of doing business," normalizing misbehavior rather than preventing future wrongdoing. You can tell that this criticism is right because Attorney General Eric Holder protested way too much today:
I want to be very clear: the size and scope of this multibillion-dollar agreement go far beyond the “cost of doing business.” This outcome does not preclude any criminal charges against the bank or its employees. Nor was it inevitable, over these last few weeks, that this case would be resolved out of court.
I love that last part: Sure, people criticize the Department of Justice for settling too many cases. And sure, the DOJ settled this case anyway. But it could have not settled this case. Doesn't that count for something?
I have mixed feelings about this line of criticism,6 but never mind that now. Whatever you think about fines versus prison, or trials versus settlements, or corporate versus individual responsibility: Just look at all those settlements! Every mortgage misdeed that Bank of America (or Countrywide) committed has come back to haunt it two, five, eight times. And every mortgage misdeed that Bank of America committed has a parallel in the settlements of JPMorgan, and Citi, and pretty much every other bank, all of which read more or less the same. The mortgage settlement business has a life -- an immortality? -- of its own.
Isn't that bad? The constant drumbeat of settlements really does normalize misbehavior: If every bank is constantly settling charges of mis-selling mortgages, then mis-selling mortgages can't really be thatbad, can it? If every bank is constantly paying billions of dollars in fines, then paying billions of dollars in fines becomes less shameful. And if every bank is fined over and over again for the same conduct, then the attitudes of the bankers will shift. It is no longer, "Ooh, we were bad, sorry." It becomes, "Oh, come on, this again?" The shame is gone, replaced by resentment. And shame is much more useful than resentment for preventing misconduct. If fining banks is just business as usual for regulators, then paying those fines will be business as usual for banks.
1 Many caveats here, including that I use "settlements" loosely to include the results of one (entertaining) jury trial. For the most part I have ignored ordinary-course putback and similar claims that are disclosed in Bank of America's filings without separate announcement; these are just individually publicized settlements, and just the ones I found. Bloomberg News counts "more than $70 billion" in payments. Good earlier settlement timelines, which have informed this chart, include this from Bloomberg News and this from the Wall Street Journal.
2 Obviously this is not easy to follow, and you should not take as science for instance the allocation among entities or exactly how the arrows flow. Also: Never build a flowchart in Excel, feh.
3 Or something, maybe $9.5 billion, or $6.3 billion, depending how you count the repurchases. The chart takes the aggressive number. Also I should say, this case is about Bank of America and Merrill as well as Countrywide and, unlike the other cases in that paragraph, this one is about the sale of private label mortgage-backed securities, not the sale of loans directly to Fannie and Freddie.
4 And that's not even counting those shareholder lawsuits about how it failed to disclose to shareholders the problems with the mortgages that it was selling to Fannie.
The settlement includes a statement of facts, in which the bank has acknowledged that it sold billions of dollars of RMBS without disclosing to investors key facts about the quality of the securitized loans. When the RMBS collapsed, investors, including federally insured financial institutions, suffered billions of dollars in losses.
But this is something like the eighth such settlement! Bank of America settled(twice!) with a big bondholder group, and then settled separately with another bondholder class, and reached separate settlements with bond-insurer types likeAssured Guaranty, MBIA, FGIC and AIG. Did anyone on earth not know that Bank of America sold bad residential mortgage-backed securities to investors with insufficient disclosure?
6 I tend to agree, for instance, that fining the public shareholders of a corporation is a pretty diffuse way to deter misbehavior by individual agents of that corporation, and that throwing those agents in jail would at least be more direct. On the other hand, I don't want anyone to be put in jail without a very good reason, and the widespread belief that there's plentiful evidence of criminal conduct by high-level bankers seems to me to be mostly a fantasy. Today'sStatement of Facts, though bland and negotiated and biased, paints a pretty clear picture: The misbehavior at Countrywide and Bank of America and Merrill Lynch was an emergent property of those institutions and the market in which they operated, not the conscious criminal decision of a few high-level executives. (Except maybe one!) There are no twisted villains cackling maniacally at the thought of the bondholders they'd deceive. It's all people saying, "Well, if our competition prices it, we should price it too," and then not looking too hard at the warning signs they didn't want to see.
Similarly, I take the point that public trials will probably disclose more information about misconduct than will settlements with Statements of Fact as bland as today's (or JPMorgan's). But I don't think that rolling the dice on multibillion-dollar cases with a randomly selected pool of laymen is a good idea either for prosecutors or for banks. And if your goal is to shape financial industry behavior, then jury trials don't seem to help much with that: Random chance is not the way to do complex regulation.
To contact the writer of this article: Matt Levine at mlevine51@bloomberg.net.
To contact the editor responsible for this article: Zara Kessler at zkessler@bloomberg.net.
