Fresh off a farcical ‘crack down’ on “bad actor” banks that colluded to rig the $5 trillion-a-day FX market, the DoJ is launching another faux crusade against Wall Street.
As a reminder, the Justice Department recently extracted [14] guilty pleas from several TBTF banks in connection with forex manipulation. The entire effort was of course meaningless and ended with what amount to token fines and no jail time for any of the conspirators. Worse, the banks were able to obtain SEC waivers which ensured their ability to “efficiently” raise capital and participate in private offerings (among other important activities) would not be curtailed because after all, no one wants another “Arthur Andersen”.
If you don’t see the connection between banks rigging FX markets and a decade-old accounting scandal, that’s because there isn’t one. Here's what we said [15] last month regarding the excuse for allowing Wall Street's to obtain SEC waivers:
The excuse for allowing Wall Street to skirt the very penalties that were put in place as a result of the very things for which the banks are now being prosecuted is two-fold: 1) there’s the so-called ‘Arthur Andersen effect’ whereby the decade-old collapse of an accounting firm and the layoffs that accompanied it are somehow supposed to represent what would happen if a Wall Street bank were not able to claim seasoned issuer status, and 2) curtailing a major bank’s ability to issue capital “speedily and efficiently”, participate in private placements, and manage mutual funds represents a systemic risk.
So, emboldened by its recent “unprecedented” prosecutorial success, the DoJ will now pursue a fresh round of MBS-related settlements with banks that knowingly packaged and sold shoddy CDOs.
Via WSJ [16]:
Up to nine banks are in line for the next round of billion-dollar payments related to soured mortgages as federal and state officials prepare their next set of cases, people familiar with the matter said.
The Justice Department and state officials, which already have reaped almost $37 billion from the largest U.S. banks, are now targeting U.S. and European banks. Settlements with Goldman Sachs Group Inc. and Morgan Stanley could be finalized as early as late June, these people said.
The settlements relate to securities backed by residential mortgages that plunged in value during the financial crisis. Banks are expected to pay from a few hundred million dollars to $2 billion or $3 billion each, depending on their size and the level of misconduct they allegedly employed in arranging the securities, some of these people said. The deals, which are expected to come individually rather than as a group, are likely to stretch out over months as details are worked out, these people said. Negotiations with most banks are still in early stages, these people said..
The Justice Department could pursue settlements with large U.S. regional banks when these settlements are over, in part based on the amount of mortgage-related securities they underwrote and sold, some of these people said..
Other banks expected to settle in coming months include Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Royal Bank of Scotland Group PLC,UBS AG and Wells Fargo & Co.
Most of them have disclosed that they are being investigated for mortgage matters, but the timing and size of potential fines haven’t been reported before..
These settlements would represent a passing of the torch to new U.S. Attorney General Loretta Lynch, since settlements with J.P. Morgan, Citigroup and Bank of America were negotiated under her predecessor, Eric Holder.
[17]
(Attorney General Loretta Lynch)
Ah, yes. The proverbial "passing of the torch" from one crusader for justice to another.
Or, more accurately, Loretta Lynch is now the person in charge of shaking down Wall Street for government protection money. As long as the banks pay their "taxes", no one will ever go to jail, fines will never amount to more than a fraction of the profits reaped from the activities under scrutiny, and, most important of all, the SEC will ensure that the rules designed to punish "bad actor" banks will never be enforced.
We've said it before and we'll say it again: it's good to be TBTF.
