SEC Probe Examines Bank-Loan Practices

By ROBIN SIDEL And JEAN EAGLESHAM

The Securities and Exchange Commission is scrutinizing U.S. banks that have restructured troubled loans in order to make them appear healthier than they really are, according to people familiar with the situation.
Officials at the SEC are seeking information from an unknown number of regional and community banks with large concentrations of commercial real-estate loans, these people said.
The agency is zeroing in on a variety of practices used by financial institutions as they work to clean up loan portfolios that were bruised by the financial crisis or recession. While the U.S. banking industry is in recovery mode, many banks still are weighed down by soured loans.
Among the practices being examined by the SEC is one known as "extend and pretend" or "amend and pretend," in which a bank gives a borrower more time to repay a loan. Banks are permitted to modify loans to help troubled borrowers.
The SEC also is looking into a more common practice called "troubled debt restructurings." Such restructurings involve modifying an existing loan by changing the terms or breaking the loan into pieces.
The scrutiny comes as banking regulators in the past year have supported the use of troubled debt restructurings, which may have opened the door to abuses.
Although the practice is permitted, SEC officials are concerned about the way some banks are accounting for such loans, according to people familiar with the probes.
Banks sometimes break up a troubled loan in order to place a portion of it on "performing" status, a sleight of hand that reduces the reserves needed to be set aside.
It isn't clear which banks have been approached by the SEC for more information about extend-and-pretend loans or restructurings of troubled loans, though several financial institutions have disclosed recently that they are the subject of SEC inquiries related to commercial loans prior to 2010.
Fifth Third Bancorp, a regional bank based in Cincinnati that said Monday it has been subpoenaed by the SEC, declined to comment Wednesday when asked if the inquiry is related to extend-and-pretend practices or troubled loan restructurings.
Fifth Third Chief Financial Officer Daniel Poston said Tuesday that the SEC hasn't told the bank about the specific purpose of the inquiry.
Fifth Third's "loan accounting is and has been appropriate," he said.
Restructurings of troubled debt played a part in last year's collapse of ShoreBank Corp., a Chicago lender.
A report released Wednesday by the Federal Deposit Insurance Corp.'s Office of the Inspector General concluded that ShoreBank failed to "accurately identify and account for" troubled debt restructurings.
The report said ShoreBank restructured "numerous" loans without accounting for them properly "despite rate and/or other concessions provided to financially distressed borrowers."
U.S. banks hold an estimated $156 billion of souring commercial real-estate loans, according to research firm Trepp LLC. About two-thirds of commercial real-estate loans maturing at banks from now to 2015 are underwater, meaning the property is worth less than the amount owed.
As of Dec. 31, 7.8% of commercial-property loans held by banks were delinquent, down from 8.6% a year earlier, according to Trepp.
A Federal Reserve survey released Wednesday projects "a slow recovery" in commercial real-estate markets across the U.S.
The Financial Accounting Standards Board, which sets corporate-accounting procedures, is expected to soon finalize criteria that set new rules for how banks should account for troubled loans.

URL: http://online.wsj.com/article/SB20001424052748704728004576176950557490900.html

U.S. Stocks Turn Up

By JONATHAN CHENG

U.S. stocks headed higher, recouping some of the previous session's sharp selloff even as crude oil rose above $100 a barrel and gold rose to a new record, due to heightened tensions in the Middle East.
The Dow Jones Industrial Average added 40 points, or 0.3%, to 12100 in a day of choppy trading. The Standard & Poor's 500-stock index increased six points to 1313 in late trading, while the Nasdaq Composite gained 20 points to 2757.
The market moves came as crude oil rose to $101.98 a barrel for April delivery on the New York Mercantile Exchange. Brent crude oil, traded in London, rose to $116.03 a barrel.
The rise in oil prices has been underpinned by fears that the unrest in the Mideast and North Africa will disrupt oil supplies from the region. The blue-chip Dow on Tuesday slumped 1.4% on worries that sustained increases in oil prices may represent a threat to economic growth.
The Saudi Arabia stock index, already down sharply in recent days, fell 3.9% Wednesday to bring its weekly decline to 15%.
"Any mention of Saudi Arabia brings instant fear and sends the market down," said Robert Pavlik, chief market strategist at Banyan Partners. "People are wondering if yesterday's selloff was such an appropriate move to be making. [These high oil prices] are still so new that it's hard to completely factor in."
Even so, concerns lingered that the Middle East turmoil still has to run its course.
"I don't think we're anywhere through this," said Barry James, president and chief executive of James Investment Research, who has lowered his exposure to equities to 40% in some portfolios, from 55%. "There's still a lot of room for the market to pull back."
Domestically, Mr. James says he has trouble finding reasons for the bull market to continue its run, with the Federal Reserve's quantitative easing and federal stimulus programs set to wind down soon.
Leading the advancers were technology and industrial stocks. Caterpillar and 3M led the Dow components, both up 1.4%, while Hewlett-Packard added 1.2% and Intel gained 1.1%.
Investors were also keeping an eye on U.S. private-sector employment, which increased by 217,000 last month, better than consensus expectations of 170,000 new jobs. The strong numbers come ahead of Friday's closely watched nonfarm-payrolls report.
In its periodic "beige book" report on nationwide economic activity, the Fed said that overall economic activity "continued to expand at a modest to moderate pace."
In corporate news, MetLife fell 5.2% after American International Group said it was accelerating plans to cash out of its stake in MetLife through public offerings that could raise more than $9 billion in proceeds, most of which will be used to repay U.S. taxpayers for the AIG bailout ahead of schedule. AIG rose 1.7%.
Yahoo rose 3.8% after The Wall Street Journal reported the Internet company was looking to sell its 30% stake in Yahoo Japan, citing an unnamed source.
BJ's Wholesale Club gained 3.4% amid rising revenue and a 5.5% increase in same-store sales last month, beating expectations for a 3.5% increase.
Costco Wholesale was off 2.6% despite reporting a 16% rise in fiscal second-quarter earnings on the back of higher sales and raising its dividend to 20.5 cents a share. Membership fees, which typically make up the majority of the company's operating profit, rose 10%. Costco's declines were the worst among consumer-staple stocks, one of the worst performers of the day.
Staples added 0.6% after fiscal fourth-quarter profit jumped 17%, though North American retail sales, which account for the largest share of revenue, slipped 0.4%.
Technology giant Apple rose 1.4% after Chief Executive Steve Jobs appeared at a San Francisco event to introduce a new iPad tablet. Verizon Communications and AT&T, which will carry the new device, were up 1.1% and 0.5%, respectively.
In other assets, gold edged 0.5% higher to a new record settlement of $1,437.20 a troy ounce, while Treasurys fell to push the yield on the benchmark 10-year note up to 3.47%. The dollar slipped against its rivals, with the euro rising to $1.3859.
Asian stock markets fell. The Nikkei Stock Average lost 2.4%, its biggest percentage loss since Aug. 31. European stocks were lower, with the Stoxx Europe 600 finishing down 0.7%.

URL: http://online.wsj.com/article/SB10001424052748703559604576175970272992338.html?mod=WSJ_newsreel_markets

EU Regulators Plan Bank Stress Tests

By MATTHEW DALTON

BRUSSELS—European Union banking regulators agreed to begin so-called stress tests on the region's banks but said that details of how the tests will work are still being discussed.
The results of the tests will be published in June, the European Banking Authority, the new pan-EU banking regulator, said in a statement after a board meeting.
The tests will examine how well Europe's banks could withstand sharply higher loan losses, falling securities prices and other potential results of a sharp macroeconomic slowdown. The scenario for that slowdown will be designed by the European Central Bank and then be applied to the portfolios of the region's banks by national regulators.
A key question is whether the tests will examine what would happen to a bank's capital if a euro-zone sovereign government defaults. Investors have become increasingly worried that Greece and Ireland, despite receiving emergency financing support from euro-zone governments, will ultimately be forced to default on their debt.
The EBA didn't address this issue and said details of the bank stress-test methodology are still being discussed. The banks will receive the stress-test scenarios by the end of this week, and the scenarios will be published March 18, the EBA said.
The EBA is also discussing with EU governments "back-stop measures" that the governments could use to help banks that fail the tests, presumably funds to inject fresh capital into the banks.

URL: http://online.wsj.com/article/SB10001424052748703559604576176651434870140.html

Bad debt provision rise at Irish Life

LONDON (SHARECAST) - The travails of the banking business of Irish Life and Permanent overshadowed a decent performance by the group’s life assurance and fund management business in 2010.

Operating profit for the group, before impairment provisions, rose to €254m from €68m in 2009. The life assurance and fund management businesses moved back into the black at the operating level with a profit of €179m against a loss of €2m in 2009.

Pre-provision earnings from the banking business declined from €106m in 2009 to €56m in 2010 primarily as a consequence of the increased costs associated with the Government Guarantee Schemes for bank funding.

On an embedded value basis, the operating profit for the group, before impairment provisions, increased to €223m from €180m in 2009.

Impairment provisions for the year were €420m, up from €376m in 2009, principally reflecting the increase in provisions in the Irish residential and commercial mortgage loan books which includes the change to the assumption used for the peak-to-trough house price decline.

The bank’s Tier 1 capital ratio was 10.6% at 31 December 2010 , down from 11.3% at the end of 2010.

URL: http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=4083723

HSBC India pre-tax profits climb 84 pc

LONDON: HSBC India saw a headline rise of 84% in pre-tax profits for 2010, up to $679 million, from $379 million for 2009, even as the global bank dragged down the FTSE despite announcing higher dividends, as new chief Stuart Gulliver reduced return on equity targets for the year.

HSBC announced that its pre-tax profits were up by 36% globally, and that it was profitable in every consumer group as personal financial services in North America, returned to profit for the first time since 2006.

Again in a first, the rest of its Asia-Pacific operations, which includes India, moved ahead of Hong Kong for the first time with pre-tax profits of $5.7 billion. Mainland China, however, remains the biggest contributor, with pre-tax profits of $2565 million.

In India, HSBC pared its losses in the personal financial services from $219 million in 2009 to a loss of $82 million, a legacy of over enthusiasm in the credit card business in the past. The biggest growth in India came from the global banking and markets operations, which had profits of $507 million, up from $393 million in 2009.

In terms of growth, the nascent private banking business jumped to a $4 million, from a base of $1 million last year, indicating the growth potential of the private banking sector. Its commercial banking business in India improved to show a profit $71 million, compared with losses of $41 million last year.

In his review, new group chief executive Stuart Gulliver who replaces Michael Geoghegan, reaffirmed the bank's decision for him to be based in Hong Kong, though he clarified the global bank has no plans to shift its headquarters from London. "Asia contributed the largest proportion to pre-tax profits," he said. Mr Gulliver is part of a new management team heading HSBC, with chairman Douglas Flint re-placing Stephen Green, and Iain Mckay as the chief financial officer. 

URL: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/hsbc-india-pre-tax-profits-climb-84-pc/articleshow/7607540.cms

Berkshire fraud detective foiled in credit card scam

A fraud detective was given a suspended jail sentence after admitting conning his credit card company.

Lloyd Strang, 36, said £6,800 had been stolen from his card - but later confessed he told a friend his PIN.
Strang, of Penyston Road, Maidenhead, Berkshire, pleaded guilty to fraud at the Old Bailey in November last year.
He worked at the Metropolitan Police's financial investigations unit in Acton, west London, but was told by the judge that he is now likely to lose his job.
The detective constable was given a three-month jail sentence suspended for 12 months with a condition of 240 hours of unpaid work.
'Moment of madness' Strang had worked for the force for 12 years and had been commended by the courts and senior officers, the court heard.
Det Insp Carolyn Davies said in one incident he had chased after a robber who fired a number of shots at him.
Richard Wormald, defending Strang, said he had lied "in the hope that he would avoid the debt".
Mr Wormald said the friend had gone to South Africa and added: "It was a moment of madness."
But Judge Paul Worsley told Strang: "You were a financial investigator and you must have known to be honest and diligent in all your dealings.
"You were under an obligation to see that your activities were above board and scrupulously honest."

URL: http://www.bbc.co.uk/news/uk-england-berkshire-12609034

Bank of England: Speed Up Regulatory Switch

By DAVID ENRICH

LONDON—The governor of the Bank of England is calling on U.K. lawmakers to act more quickly to transfer financial-regulatory powers to the central bank, a handover currently planned for the end of 2012.
Responsibility for supervising the U.K.'s banking industry now rests with the Financial Services Authority, an independent agency. Prime Minister David Cameron's government last year proposed restructuring the country's regulatory system and dissolving the FSA. Under the plan, the Bank of England would get authority for overseeing the banking sector.
The government wants the changes to take effect by the end of next year. Some lawmakers think the schedule is rushed, and a parliamentary committee warned in a report last month that the government "may be proceeding with undue haste," noting the daunting complexity of the overhaul.
On Tuesday, Mervyn King, the Bank of England governor, urged lawmakers to speed things up, not slow down.
"The faster we make the switch, the better," he said in an appearance before a parliamentary committee. He added that "we need a clear legislative framework" to resolve uncertainty about the shape of the U.K.'s regulatory system.
The government hasn't yet introduced legislation in Parliament to restructure the system; that's expected by summer. The bill will be subject to modification and approval by legislators.
But the wheels are already in motion at the Bank of England and Financial Services Authority.
Bank of England officials are preparing to relocate the FSA's army of bank supervisors to the City of London, the traditional financial district and where the Bank has been headquartered since 1734, according to people familiar with the matter. The FSA is currently based in a skyscraper in Canary Wharf, more than three miles to the east. Bank of England officials are scouting for new office space in the one-square-mile City to house FSA employees near the Bank's already-full headquarters, these people said.
Meanwhile, Andrew Bailey, a senior manager at the Bank of England who will become a top regulatory official under the new regime, next month will be setting up shop in the FSA's headquarters to help manage the transition, say people familiar with the matter.
The FSA is taking its own steps. It recently recruited Martin Wheatley, the head of Hong Kong's securities regulator, to run its consumer and markets unit. Under the government's restructuring plan, that body will be spun off into a new agency, the Financial Conduct Authority, responsible for consumer protection and other matters.
On Tuesday, Mr. King confirmed that when the Bank takes responsibility for financial supervision, it plans to back away from the FSA's detail-oriented approach to day-to-day oversight— a practice that the banking industry has complained is intrusive, unnecessary and counterproductive.
The Bank plans to "focus on the big issues" and will be "spending less time worrying about the details," Mr. King said.
The Bank's hope is that the new stance will help regulators spot systemic risks without getting bogged down in minutiae. Skeptics worry it could allow banks to more easily circumvent U.K. and international rules.

URL: http://online.wsj.com/article/SB10001424052748703409904576174544086255996.html?mod=googlenews_wsj