Bank Lawyer's Blog

Barney Debates A Dining Room Table

While Rep. Maxine Waters has been hogging the public spotlight with her vigorous defense of her right to milk the public cow, her erstwhile colleague on the House Financial Services Committee, Chairman Barney Frank, has been learning the lesson that many who swim in snark-infested waters discover: insulting a Moonbat can be hazardous to your mental (if not political) health.

Last year at a town hall meeting, a woman named Rachel Brown, a Lyndon LaRouche follower who accuses President Obama of acting like Adolph Hitler and demands his impeachment, calls for the full restoration of the Glass-Steagall Act "to stop the derivatives business" and the implementation of an FDR-like massive ("trillions of dollars") spending program on infrastructure (including the importation of quadrillions of gallons of water from the Canadian mountains to "make the American deserts bloom"), and supports the "human colonization of Mars," challenged Rep. Frank with a question, and Barney responded that talking to Ms. Brown “would be like trying to argue with a dining room table," which he refused to do. That response so incensed Ms. Brown that she's now Barney's opponent in the Democratic primary for his House seat.

Last night, the two engaged in a public debate, the full video of which can be found here. It's over 52 minutes in length, and you've got to have a strong stomach and a love for the absurd to wade through it. Nevertheless, if you've not eaten recently and/or are inebriated, you might find it fascinating. Personally, I find a Colombian Gold Fat Boy polished off with a slim Thai Stick to be the most effective accompaniment to all things Frank.

While many of the comments to the MEDIAite post that contains the video are amusing, the following damns Ms. Brown with faint praise and Rep. Frank with outright scorn, but exemplifies the feelings of many interested observers about the train wreck that's occurred at the intersection of the banking business and the US Congress: "A dining room table would be an improvement over Barney Frank. At least a dining room table couldn’t destroy our banking system."

I wonder if Barney will think twice the next time he's tempted to insult a dining room table?

Extremism In The Defense of Oppression Is No Vice

American Banker's Editor-at-Large Barbara Rehm recently began writing columns for that trade publication and she's doing a great job of discussing some of the issues that face community bankers in the trenches and that don't otherwise get a lot of "play" in the press. One recent example is her September 2nd article (paid subscription required) that discusses "overzealous examiners."

Barbara interviewed one community bank CEO, Steve Wislon of $632 million-asset LCNB National Bank of Lebanon, Ohio, who seems to be channeling the ghost of Howard Beale: Steve's mad as hell and he's not going to take it anymore.

"Regulators have stifled lending to a great degree because bankers are afraid to make loans," he said in an interview. "Our exam last year was so very different than any other exam. They came in, they didn't smile, they had their marching orders from headquarters. It was a totally different experience."

You know, there's no reason not to smile, even if it's a wolf's grin like the one those Mexican bandidos gave Humphrey Bogart's character in "The Treasure of the Sierra Madre" right before they killed him and stole his burros. Personally, I prefer that if you're going to throw acid in my face, the least you can do is be pleasant about it.

Steve, on the other hand, has other reasons for complaining. He's the incoming chairman of the American Bankers Association and he feels an obligation to the industry (and to the larger economy that industry serves) to tell it like it is. I hope he continues to do so right up until the moment they attach electrodes to his tender portions and turn on the juice.

Not that bank regulators would do such a thing. Not in this country I like to call "America." Uh-uh.

Wilson said he understands why examiners are being so cautious — it's a lousy economy, and lots of banks are struggling. But examiners, he said, have crossed the line and become too cautious.

"That overcautiousness is really slowing down our ability to make loans," Wilson said. "If we want to get this economy moving, we've got to let banks do what banks do best, which is underwrite credit."

Examiners are routinely classifying performing loans, he said, which is driving up bank funding costs and deposit insurance premiums, as well as making it harder to raise capital. "It is more than a blow to your ego," he said. "It's a bottom-line blow."

When the ABA sent letters to each of the federal bank regulators complaining about this attack of "overzealousness," the responses were revealing.

The agencies sent separate replies to the ABA, ranging in tone from indignant (Federal Deposit Insurance Corp.) to understanding (Office of the Comptroller of the Currency) to perfunctory (Federal Reserve Board). But all three agencies pretty much told the ABA that their examiners were doing their jobs as directed.

The OCC's chief national bank examiner, Tim Long, advised the ABA to stop talking in generalities.

"I encourage any banker who believes he or she has been subject to an overzealous examiner or unreasonable examination to bring those cases to our attention so that we can take appropriate corrective action," Long wrote. "In order to take that action, though, we need to know the specific facts surrounding the disagreements, which have often been elusive."

And that's the bottom line — if bankers want to change their exams they will have to go toe to toe with their examiners, pointing out specifically what they deem unreasonable. Bankers will have to take their complaints up the chain of command.

"The solution is to go to Washington and give example after example," Wilson said.

The FDIC being the only regulator to become "indignant" at the suggestion that its examiners might be "overzealous" is such delicious irony that I must use every corpuscle in my being to restrain the fatal fist of snark. It's not easy. I hope I don't pop a hernia.

Wilson admits that while it's nice in theory to tell bankers to travel to Washington, D.C. with "example after example" of regulatory overreaching, few bankers have the fortitude to undertake that arduous task. Most of them also know that examiners have long memories and that you can die slowly, of a thousand cuts, over a long period of time, just as surely as you can die from a well-aimed rapier thrust through the heart. Many bankers just bend over, take their whacks, and yell "Thank you sir! May I have another?"

I did represent one institution where not only management and ownership had the requisite moxie, but the outside directors reacted to the federal regulator's attempt to bully them by taking detailed notes of the meetings in which intimidation was attempted and used those notes as the basis for a section of the complaint that was filed in federal district court when the bank had finally had enough and sued the regulators, a section that was entitled "The Reign of Terror." That was the only instance in my career of over 35 years where I saw the bank's outside litigation counsel so confound the federal regulator's counsel in a deposition that she began crying. The primary federal regulator removed the offensive bullies from oversight of the bank, asked the bank to dismiss it from the lawsuit, and the bank, having ended the reign of terror, agreed. That's one of the few examples (albeit not the only one) of successful backs-to-the-wall, no-holds-barred, sue-the-bastards opposition by a bank I've witnessed. It did restore my faith in divine providence, however.

I'm pleased that Babara's bringing these problems to the forefront. She's not the only one, of course, but the American Banker has a large readership in this corner of the universe, and the more light that's shed on the problem, the better the chance that something might actually be done to address it.

Trudging Deeper Into The Swamp

 As expected, Maxine Waters has risen to her own defense with all guns blazing, firing off a salvo of denials of accusations of ethics' violations, casting aspersions on her accusers, and hoping that some of these spitballs stick to the wall. A couple of weeks ago on ABC's Good Morning America, she took what little Georgie Stephanopolous had to offer and pasted him in the chops with it. You can listen to the video and decide for yourself on her credibility. I suppose she could claim, ala Warren Zevon:

I'm the innocent bystander
Somehow I got stuck
Between the rock
and a hard place
And I'm down on my luck
Yes I'm down on my luck
Well I'm down on my luck

Perhaps we should send her guns and money, because it's obvious that she's got enough lawyers. It's obvious because she's opened up a legal defense fund and is soliciting contributions. She reportedly owes her defense team $150,000 to $200,000 already and the fun part hasn't yet begun. Those billable hourly clocks are obviously running at a double-quick cadence. The fund is being overseen by the head of a division of California Bank & Trust and, according to data supplied by one of the commenters to the Politico article, banks are one of her biggest sources of funds. The fact that Waters sits on the House Financial Services Committee and banks feed her campaign and legal defense coffers and oversee those efforts is just business as usual in the swamp of D.C. Unfortunately, Waters has only $192,000 left in her campaign fund and owes $141,000 to her creditors. Interestingly, one of those creditors, who is owned over half of the $141,000, is her daughter Karen's consulting firm.

That's the same Karen who ends up at the tail end of Time reporter Michael Sherer's recent eye-opening investigation into Ms. Waters selling her endorsement on election mailers to other candidates for up to $45,0000 a pop. That's a practice that's apparently acceptable under a loophole to federal election laws. While all of that money has to be used to fund the mailers,  guess who gets a huge portion of the mailer money? You guessed it, Waters' daughter Karen's firm. It turns out son Edward also has received a nice slice of the "mailer" pie. It's nice to keep it all in the family.

The Los Angeles Times reported in 2004 that Karen Waters, the congresswoman's daughter, made money putting together the slates. As Melanie Sloan of Citizens for Responsibility and Ethics in Washington put it at the time, "It looks like congresswoman Waters is using her position to financially benefit her family members, and that is at the very least unethical. . . You shouldn't be making money off your mother's endorsements." As of 2004, the LA Times found that Karen Waters had made about $450,000 by pulling together the slate mailers, while her brother Edward, a high school basketball coach "and sometime political consultant" made about $115,000.

One of Waters' defenses to the recent ethics charges, and one she reiterated to ABC, is that OneUnited didn't need any TARP money to be recapitalized, and that the bank was "privately recapitalized." Another defense is that her, and her staff's, contacts with the government had no influence on the decision to award TARP money to OneUnited. The college sleuths over at the American University School of Communication have been digging into this pile of toxic waste and have unearthed some facts that could lead to a rebuttal of both defenses.

Records show that as of Sept. 30, 2008, the latest quarter before the investment, OneUnited had "Tier 1 capital" of just 1.8 percent of assets. Of the 363 banks that got TARP money in the fourth quarter of 2008, at the height of the financial crisis, that was the lowest Tier 1 ratio. Tier 1 capital is considered by many banking experts to be the best way to gauge a bank's financial health. For example, Citibank's ratio on Sept. 30, 2008, according to the FDIC reports, was 6.4 percent.

In fact, none of the 987 banks that got TARP money between October 2008 and December 2009 reported a lower ratio in the quarter before they received federal cash. As of March 31, 2010, 16 TARP banks had lower Tier 1 ratios then OneUnited's 4.98 percent.

[...]

The bank had other problems besides its weak capital position. OneUnited is one of only a few banks to be under a federal supervisory enforcement order at the time it received TARP funding.

On Oct. 27, 2008, the Federal Deposit Insurance Corp. and Massachusetts Division of Banks issued a cease-and-desist order to OneUnited. The order, which is still in effect, said the agencies "had reason to believe that the Bank had engaged in unsafe or unsound banking practices and violations of law."

The order cited the bank's capital position, poor oversight of officers, "excessive" executive compensation, weaknesses in loan underwriting and "speculative investment practices."

The agencies gave the bank a detailed plan of corrective action. It has not yet met all those goals.

For example, it was required to increase its Tier 1 capital ratio to 5 percent of total assets. According to its June 30, 2010, report to the FDIC, its Tier 1 ratio, even with the TARP money, was 4.5 percent.

The bank, which has almost no common stock, was told to increase common stock accounts to half its total capital; the reports show it has made no progress toward that goal in the past two years. It has another two years to meet that deadline, according to the order.

Yes, this all certainly stinks to high heaven, doesn't it? Yet, being the glass-half-empty kind of guy I am, I think that when the dust finally settles on all of this, Waters will walk away unscathed. At most, she may receive a slap on the wrist, but I'm skeptical she'll even receive that much "punishment." Is that an unduly cynical view? I prefer to call it "realistic." After all, in the end, it was all George Bush's fault.

The New Boss Same As The Old Boss?

I'll be on vacation the rest of the week, but I wanted to leave you with a little video music entertainment to tide you over until after the Labor Day holiday. As many of you know, consumer advocacy groups have been orchestrating a campaign to try to pressure  the White House to appoint Elizabeth Warren as the director of the Consumer Financial Protection Bureau. Among the many weapons that Warrenn's supporters have rolled out is a rap video that's "gone viral" on YouTube, and which labels Warren "The New Sheriff." Following is a Bloomberg news report on the video and other aspects of the campaign.

You have to love the Left. If you oppose one of its heroes who happens to be female you're "sexist." That sure beats having to engage in logical debate based upon facts. If you dislike Sheila Bair, it's also because you're sexist (as one writer for Slate asserted). If you dislike Barney Frank, it's because you're a homophobe (as one my readers alleged in an email to me). If you dislike Maxine Waters, it's because you're not only a sexist, but a racist, as well (I haven't heard that one yet, but I'm expecting it).

I guess that makes anyone who hates me an "assophobe," and there's no lower form of animal life than one of those.

For those yearning to get a full taste of Warren's rap, here it is:

As you heard in Bloomberg's report, Professor Warren was "touched" by the video. However, she should keep in mind the last regulator that was billed as "The Sheriff" and how he went about being "touched."If she's also buying hookers, let's hope she's a bit more discreet about how she pays for them and where she transports them. The other Sheriff found himself the subject of less adoring, albeit more humorous, videos:

Do It, And Do It NOW!

A recent issue of Bank Safety & Soundness Advisor (paid subscription required) publicizes a trend that boots on the ground have been experiencing lately: "Federal regulators are increasingly inserting language into consent orders --instead of waiting to issue a Prompt Corrective Action-- that requires adequately capitalized banks to come up with immediate plans to merge, sell or liquidate their institutions..."

While an FDIC spokesman claims that the language is inserted "to give banks options to incorporate into their capital contingency planning." That's great if you're planning to kill your bank. As the investigation by Bank Safety & Soundness Advisor revealed, the time frames given to find new capital are short and failure to raise the capital within that time frame requires the bank to sell, merge or liquidate within an equally ridiculously short time-frame, which usually results in the bank being sold. It all looks like an exercise in regulatory self-pleasuring too no useful effect.

Brian McCormally, former Director of Enforcement for the OCC, claims he came up with the idea of inserting, "merge, sell or liquidate" language into consent orders in 1996 or 1997 "as a way to send a message to troubled banks that they should resolve their problems themselves, prior to a forced FDIC liquidation." Yes, I'm sure that thought never occurred to any bank board directors or senior management team prior to the first appearance of this provision in a regulatory enforcement order.

McCormally claims that this "heads up" was mutated into what's become a not-so-subtle signal to investors that if a bank has a "merge, sell, or liquidate" clause in its consent orders, it's on the FDIC receivership list. McCormally claims that this was expressly admitted by regulators at a recent CLE program about bidding on failed institutions. As McCormally rightly notes, that induces investors to wait until the institution  fails before investing in it in order to potentially get a much cheaper deal from the FDIC (assuming they win the bid). Thus, a "heads up" to a bank to raise capital makes it impossible for them to do so.

The regulators defend these actions as being "standard practice." It was also once "standard practice" to burn women at the stake as witches, but eventually we abandoned that practice as unwise. What are the odds it will happen in this case?

[sound of crickets chirping]

I suppose the bottom line here, and not one mentioned in the article, is that whether or not the insertion of the provision in cease and desist orders makes it theoretically harder to raise capital from potential investors, or whether the time frames to raise capital and/or merge, sell or liquidate the bank are impossibly short, banks that are receiving these orders are those deemed too small to save. Community banks, for the most part. There's a campaign to weed them out, reduce their numbers, and leave the world of commercial banking to a much smaller school of piranha. The regulators don't really expect these banks to raise capital and they don't expect them to survive. In fact, all of the actions of the regulators, starting with the examinations that proceed the consent orders, are mile markers on a death march. The "merge, sell, or liquidate" language is just another nail in the coffin for banks that have been marked for extinction a long time before the consent order is presented for signature.

Out of the Fields and Into the Big House

"...[W]e must take the crown in our hands, and go hunting in dry places and dark corners of the earth until we find the one man who feels himself unfit to wear it. Carlyle was quite wrong; we have not got to crown the exceptional man who knows he can rule. Rather we must crown the much more exceptional man who knows he can't."
---G. K. Chesterton

Earlier this year, Colorado appointed a banking commissioner, Steve Strunk, who came out of the banking industry and seemed to have a firm grasp on the practical burden on banks of many actions taken by bank regulators. He served notice that while he was going to be an enforcer of the law, he wouldn't be one who was clueless as to the effect his actions might have on the banks his department regulates.

Recently, Ohio appointed as the superintendent of the Ohio Department of Commerce’s Division of Financial Institutions Carolyn Bradford, a person who not only comes from the banking sector, but was retired and not even looking for the position. Those might be the best qualifications for the job I've ever seen, especially the fact that she can take the job or leave it and, therefore, isn't likely to be grandstanding to push her career forward on the backs of the banks she regulates. If we could get that policy instituted at the federal level, banks might be under a lot less regulator-induced distress than they are currently.

It’s still the basic rules and regs, and from that perspective the advantage is that I do have an understanding of the other side of the table. I’ve sat on the other side.

I think it helps me really relate to the issues and challenges that bankers are facing, and think it helps them to understand when I’m talking about a regulation that I have lived on their side of the street. And I think there is some credibility that is assigned to that.

I think she's correct. While only time will tell whether Mr. Strunk and Ms. Bradford's previous hands-on experience will make them better regulators, state banks in Colorado and Ohio have to be encouraged that the people in those slots will at least understand the difference between a bank and a stepping stone.

Overdrafts: The War Rages On

As all of us who have debit/ATM cards have recently experienced, banks who are bothering to comply with the changes to Regulation E on overdraft "protection" (and we assume that includes all banks that want to stay in business) have notified customers that if they want overdraft protection, they have to "opt in." According to a recent article in the Charlotte Business Journal, banks and consumer advocacy groups are engaged in toe-to-toe nuclear combat for the soul (actually, the pocketbook) of consumers who use overdrafts in connection with their debit cards as a financing device.

Many banks have tried to convince customers overdraft protection will save them from the embarrassment of having their debit cards turned down in the grocery line for insufficient funds.

[...]

Other banks have taken to aggressive marketing techniques to convince account holders to enroll in the program so they won’t have their cards declined in embarrassing situations.

Meanwhile, the Center for Responsible Lending this week posted a YouTube video, playing on the classic “This is your brain on drugs” public-service announcements from the 1980s. The center’s video shows a frying pan with hot grease, and a voice says, “This is overdraft fees.” Then a debit card is tossed into the hot grease. “This is your debit card on overdraft fees,” the voice warns.

This marketing jihad is being waged to reach a small percentage of banking customers, those who chronically use overdrafts.

Greg McBride, an analyst for Bankrate.com, tells the Charlotte Business Journal the messages will matter only if they reach a small group of bank customers. He says federal data show only 14% of account holders are responsible for 90% of all overdrafts. Usually those are individuals with low credit scores or limited incomes. The winner of the overdraft issue will be the one that effectively reaches that group, he says. “It boils down to whether those 14% opt in or not. If they opt in, then overdraft revenues won’t take the hit predicted in some doomsday scenarios.”

We should have a better idea of who's winning this nasty little war by the end of this year.

Several years ago, I offered up the view on another blog that people who paid overdraft fees on a repeated basis needed some serious financial counseling, because chronic overdrafts might be the most expensive way to "borrow" money that I could envision. That post prompted a Harley-riding, bandanna-wearing, red-hot, blue-collar young mama from the Midwest to open up a can of verbal whoop-ass on me by letting me know in no uncertain terms that (1) everyday working class folks like her needed overdraft protection to put food on the table for her babies between paychecks; (2) she was over 21, free, and not mentally diseased and could make her own decisions to pay the price if she darned well wanted to, thank you very much; and (3) she didn't need a white collar fancy-pants lawyer-nanny like me telling her what was or was not good for her. I asked her if she was strapped, and she allowed that she kept a .40 cal. Glock handy and could hit a man standing or running and why did I ask. I responded that I was now definitely in love. We became good friends.

Her point was that as long as the costs of overdrafts were clearly disclosed, most people with checking accounts aren't idiots in need of the "guhment" to watch over them. No one likes the tactics used by many banks in engineering the order of deposits to create large overdrafts and maximize fees and for which Wells Fargo recently took one on the chin in the city by the bay. On the other hand, as long as the rules are clearly understood, overdraft fees serve a purpose for a certain segment of the public and adults ought to be able to pay through the nose if that's how they want to roll.

I haven't asked her, but I'll bet she wouldn't think much of the recent FDIC guidance that requires banks to watch out for those customers who use overdrafts "excessively." My guess is that for those with a libertarian gene in the DNA, which includes many Americans, that smacks of paternalism.

The following is the YouTube video produced by the CRL. Personally, I thought the original image of an egg frying made the point much better. Plastic just sits there slowly melting, like Lindsay Lohan at a parole revocation hearing, which is hard to clearly see in just a few seconds. However, you can judge for yourselves.

Rollin' Up The Op Subs

One of the advantages of a national bank or federal thrift charter used to be that for those banks or thrifts that engaged in mortgage lending on a multi-state scale, the mortgage operations could be housed in an operating subsidiary that had all the benefits of federal preemption that were afforded the parent bank or thrift (as confirmed by the Watters v. Wachovia ruling). The operating subsidiary could be exempt from state licensing and examination  requirements, as well as many other pesky state law requirements. For regulatory reporting purposes, the assets and liabilities of the operating subsidiary are consolidated with those of its parent; however, for liability purposes (as long as the bank and operating subsidiary avoid pitfalls that might allow a plaintiff to "pierce the corporate veil"), the parent's balance sheet can be isolated from the legal risks imposed by the subsidiary's business activities, which in the consumer lending area can be substantial. In addition, as Kate Berry observes in today's American Banker (paid subscription required), the operating subsidiaries are also sometimes set up as stand-alone operations that can be sold quickly when times got tough, which in a cyclical business like residential mortgage lending, they do on a regular basis (although usually not as rough as we've been seeing for the past several years).

With the passage of Dodd-Frank, which eliminates federal preemption for operating subsidiaries, Ms. Berry discusses the brave new world of mortgage banking, which may necessitate the wholesale "roll-up" of a lot of operating subsidiary mortgage lenders.

Industry lawyers expect most institutions to go the roll-up route, partly out of fear that sooner or later the states would try to force operating subsidiaries — and, potentially, their individual loan officers — to get state licenses. The burden of satisfying 50 state regulators would outweigh the cost in legal fees of restructuring.

The SAFE Act also comes into play.

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 required loan officers working at national banks and their operating subsidiaries to register with the Nationwide Mortgage Licensing System, a database run by the states.

Each loan officer gets a unique identifier (so all loans can be tracked) and undergoes a criminal background check under the SAFE Act.

The law has additional, more rigorous requirements for originators working at nonbanks: They must not only register but also be licensed in the states where they do business.

To do so, they must pass national and state exams and take at least 20 hours of continuing education a year.

Though most states probably would maintain the existing requirement that banks' operating subsidiaries only have to register with them, states have the authority to make operating subsidiaries meet the tougher licensing requirements, experts said.

That possibility could be the decisive factor in pushing national banks to restructure those entities.

"Right now, being a bank originator is a safe harbor," said Jeffrey Naiman, a partner at BuckleySandler. "Operating as a 50-state licensed entity has always been very difficult, but post-SAFE Act, it is becoming even harder."

As an added bonus, Dodd-Frank added to the house of horrors the dreaded Consumer Financial Protection Bureau.

Banks also are concerned that mortgage loan officers could ultimately face tougher standards when the job of umbrella enforcer for the SAFE Act is transferred from the Department of Housing and Urban Development to the planned Consumer Financial Protection Bureau in the Federal Reserve.

The CFPB may ultimately resolve the question of whether loan officers at bank subsidiaries need state licenses, said John Ryan, an executive vice president at the Conference of State Bank Supervisors.

"The line has already been drawn: Employees of federally regulated operating subsidiaries are registered; everybody else is licensed," said Ryan. "It might create a conflict with the SAFE Act to say that operating subsidiaries would have to be licensed when now they just have to be registered. So they might have to call in the CFPB."

If Elizabeth Warren is heading up the CFPB at the time it's "called in," bankers can expect the ultimate decision to be one that is not kind to their operating subsidiaries.If state banks have fumed for decades over the desire for Lebensraum shown by the preemption Nazis at the OCC and the OTS, wait until national banks and federal thrifts get a load of Reichsführer Warren and her ankle-biting storm troopers. National banks and federal thrifts will be rolling up op subs into the mother ship faster than Taylor Lautner sheds his shirt.

Is $24 Million "Getting Off Easy"?

Francine McKenna talks about the tale of two recent litigation settlements that arose out of the bursting of the subprime mortgage bubble. She thinks that KPMG may have gotten less than its just desserts in the settlement of a case brought by shareholders of Countrywide because, unlike similar litigation that involved imploded subprime originator New Century, no bankruptcy examiner's report was involved. Francine thinks that bankruptcy examiners have proven adept at rolling over large logs and rocks in the cluttered forest that these kinds of cases grow and revealing lots of nasty worms and grubs that the Big 4 audit firms would just as soon leave buried.

Most telling to me in her lengthy (and interesting) commentary is this passage from a July 2009 Bloomberg article, that cites portions of :

One specialist who complained about an incorrect accounting practice on the eve of the company’s 2005 annual report filing was told by a lead audit partner “as far as I am concerned we are done. The client thinks we are done. All we are going to do is piss everybody off,” the complaint said.

A spokesman for KPMG said that the statement was "taken out of context" in that "[t]he next sentence, which was omitted from the examiner’s report, 'indicated that the firm’s national office had already reviewed and signed off on the issue, complying with the firm’s normal procedure...'"

In  other words, if the national office makes the wrong call and the grunts in the field cry that the emperor has no clothes, their officers can legitimately tell the troops to "stuff it" and the firm is off the hook. Have I got that right?

And people think "Big Law" is a racket.

As Francine points out, Countrywide may very well have saved itself (actually, saved its acquirer, Bank of America) a load of cash by being acquired rather than having been wrung through the bankruptcy wringer where all the dirty laundry is hung out for everyone to see. I think she's right on the money.

Incidentally, Francine was yapping about New Century and the risk that loan buybacks posed to that company long before the subprime chickens came home to roost and lay something on New Century's shoulder other than golden eggs. She's a blogger well worth following, even if she's loathed by Big Audit, or, more likely, because she's loathed by Big Audit.

BankUnited's IPO: Too Soon To Judge

Some readers think the story that broke last week that BankUnited is considering an initial public offering somehow vindicates the FDIC's concerns that "private equity" is interested in nothing more than "hit-and-run" quick turnarounds, and is not to be trusted as acquirers of broken banks. I understand why they might think that way, but I think it's too early to tell.

Much of the initial buzz came from Bloomberg, and particularly from reporter Cristina Alesci, a beautiful young woman who may command attention as much for her plunging neckline as she does for her business acumen. At least, that could be an argument made by anyone who watches the video embedded in the linked article. Ms. Alesci states at one point that launching an IPO only 15 months after the BankUnited investment was made and making money on the deal so quickly somehow vindicates the FDIC's views on private equity. However, she also states (twice) that no one knows (at the time the report was broadcast last Friday) whether or not the private equity investors would be selling out or staying in the deal. The Wall Street Journal reported the next day that none of the private equity investors was selling out completely. To me, it's too early to tell whether this is a "cash out" or whether this is an opportunity to raise additional capital in the public markets to take advantage of buying opportunities and at the same time create a liquid market for the bank's stock so that an exit can be made when the time is right.

Much of the prejudice against private equity appears to be based on the fact that it desires makes money on its investments. Isn't that what investors in any bank seek to do? The critical issue in the BankUnited deal isn't that the private equity investors might make money from an FDIC-assisted transaction, but whether the loss to the FDIC insurance fund will be less with the deal that was done than it would have been without that deal. I'm going to assume that the loss will be less, and therefore, that the FDIC was right to do the deal in the first place.

That said, knowing the prejudices of the FDIC, the private equity investors would be shooting themselves (and any other private equity investors who ever wanted to do an assisted transaction in the future) in the foot by cashing out this quickly.