Congress Presses for Details From Bank of America on Talks

September 21, 2009 NYT

WASHINGTON — For months, Bank of America has been trying to keep secret its legal conversations at the end of last year about its coming merger with Merrill Lynch. So far, it has succeeded, mainly by arguing that those conversations should remain confidential because they are protected by attorney-client privilege.

But now, the bank is facing questions from a House panel, the Committee on Oversight and Government Reform, whose chairman, Representative Edolphus Towns, has told the bank that it cannot use attorney-client privilege when dealing with Congress.

If Mr. Towns has his way, Bank of America would be forced to reveal information that would then affect a range of other investigations into the merger, including one by the attorney general of New York and another by the Securities and Exchange Commission.

In a sternly worded letter on Friday, Mr. Towns, a New York Democrat, said the bank must divulge when it became aware of the enormous losses at Merrill last year, when it received a commitment from the federal government for a second round of bailout money and what legal advice its management received about whether it had to disclose those developments to the bank’s shareholders.

Elements of Deflation, Part 3

from John Mauldin’s Newsletter:

This week we continue to look at what powers the forces of deflation. As I continue to stress, getting the fundamental question answered correctly is the most important issue we face going forward. And the problem is that we cannot use the usual historical comparisons. This week we look at one more factor: bank lending. I give you a sneak preview of what will be an explosive report from Institutional Risk Analytics about the problems in the banking sector. Are you ready for the FDIC to be down as much as $400 billion? This should be an interesting, if sobering, letter. Outrageous! – Artificial Deflation! Speaking of deflation, let me mention something I find totally outrageous. Normally, I actually take up for the bureaucrats who are stuck with the task of trying to monitor inflation. It is a tough job, and like Monday-morning quarterbacks, everybody thinks you should have done it differently. I can understand the rationale for hedonic measurements, housing rent equivalents, etc., even if I don’t agree with them. You have to set some rules and live with them. But the latest imbroglio is disgraceful.

Anchor on the Way? Will Turkey Reach a Deal with the IMF?

• Most analysts believe an IMF program is needed in Turkey - the sooner, the better. Nevertheless, Turkey’s ruling AK party has only inched towards a new IMF deal since its last US$10 billion stand-by program expired in May 2008. Analysts are primarily concerned about the long-term consequences for Turkey’s economy and Turkish assets if an IMF deal is not reached. Turkish officials seem divided over the value of such a deal, and it is unclear whether the government’s release of a medium term economic plan for 2010-2012 in September 2009 will help move the negotiations along.

Ireland Finalizes Bad Bank’s Purchase Price for Toxic Assets

• On September 16, 2009, the Irish state announced that it will pay EUR54 billion to take over toxic assets worth EUR77 billion. “Mr. Lenihan said the market value of these loans was about EUR47 billion, representing a 50% fall in property prices since the peak in 2007. NAMA was paying an average 30% discount to the original value of the loans on the banks’ books,” which represents the assumed hold-to-maturity value. Critics argue that the state is overpaying the banks, which defers funds from better uses. (Financial Times)

Is the UK Financial Sector Only Half-Way Through? Moody’s Expects Another GBP130 billion in Losses

 

On September 18, 2009, Moody’s reported that UK banks likely have a further GBP130 billion (US$215 billion) of losses to absorb compared to the GBP110 billion recognized as of the end of 2008. The magnitude of losses is in line with the IMF’s April 2009 estimates for a further GBP 40-125 billion in losses (or 3%-9% of GDP) to be recognized in 2009-10.