Tuesday, April 29, 2008

SEC Adopts Regulations to Implement Sudan Accountability and Divestment Act of 2007

According to the SEC, "The Securities and Exchange Commission has adopted rules requiring a registered investment company (fund) to disclose when it divests, in accordance with the Sudan Accountability and Divestment Act of 2007, from securities of issuers that the fund determines conduct or have direct investments in certain business operations in Sudan. The Commission adopted the rules on April 24, 2008. The Sudan Accountability and Divestment Act required the SEC to prescribe regulations requiring this disclosure by April 29, 2008.

On Dec. 31, 2007, the President signed the Sudan Accountability and Divestment Act into law. Among other things, the Act provides that no person may bring any civil, criminal, or administrative action against any fund, or any employee, officer, director, or investment adviser of the fund, based solely upon the fund divesting from securities issued by persons that the fund determines, using credible information that is available to the public, conduct or have direct investments in certain business operations in Sudan. This limitation on actions does not apply unless the fund makes disclosures in accordance with regulations prescribed by the Commission.

The rules adopted by the Commission specify the SEC forms on which disclosure must be made and provide a transition period, ending May 14, 2008, for disclosure of divestments that occurred between Dec. 31, 2007, and April 30, 2008, the effective date of the rules.

The full text of the detailed release concerning these rules has been posted to the SEC Web site at http://www.sec.gov/rules/final/2008/34-57711.pdf."

Monday, April 28, 2008

Racial Inequities in Sub-Prime Loan Practices

According to NorthStar Asset Management, Inc. and Responsible Wealth, a project of United for a Fair Economy, both based in Boston, Massachusetts:

"According to Federal Reserve data, 53.7% of (Wells Fargo) purchase loans to African-American families were "high-cost" versus 17.7% to white borrowers."

Data reported by Wells Fargo under the Home Mortgage Disclosure Act (HDMA) showed that "African-Americans were 3.69 times, and Latinos were 1.82 times more likely than whites to receive a high cost loan in 2006. A lawsuit filed by the City of Baltimore this year finds 65% of Wells Fargo's African-American borrowers in that city received high-cost loans."

"For the mortgage industry as a whole, racial bias in high-cost loans has been rampant. A report from United for a Fair Economy, in January 2008, detailed racial disparities in expected losses from foreclosure of sub-prime loans made during the past eight years."

Monday, April 21, 2008

CalPERS Expands Environmental, Diversity Corporate Governance Guidelines

From CalPERS:

"CalPERS Expands Environmental, Diversity Corporate Governance Guidelines - Supports State Legislation on Climate Change

SACRAMENTO, CA – The CalPERS Board today signaled the importance of environmental disclosure and diversity of corporate boards by expanding corporate governance guidelines for portfolio companies.

The new guidelines will be added to the System’s Global Principles of Accountable Corporate Governance. These principles are used by CalPERS to vote proxies, engage management and boards of equity companies, and implement initiatives.

Both guidelines were proposed by State Controller John Chiang, a member of the CalPERS Board of Administration.

The environmental guidelines are aimed at getting companies to disclose and act upon climate risks like carbon emissions that, if unaddressed, could diminish investment returns.

To stay in step with changes in the marketplace, the pension fund’s Board adopted new corporate board diversity guidelines which will create best practices, including the practice of requiring that diversity be included among factors used to assess corporate board nominees. Also adopted was an action to develop a white paper on the topic of diversity and corporate boards to document the current profile of corporate boards and identify the best strategies for ensuring diversity of boards.

CalPERS is the nation’s largest public pension fund with assets totaling approximately $240 billion. It provides retirement and health benefits to some 1.5 million State and local public employees and their families. For more about CalPERS, visit www.calpers.ca.gov."

Tuesday, April 15, 2008

2008 National Environmental Partnership Summit in Baltimore - Small Business Training

From the EPA:

"Join us this May at the 2008 National Environmental Partnership Summit in Baltimore for an EPA, two-session, interactive workshop – Helping Small Business and the Environment. The first half of this EPA training will help small businesses increase their success in getting contracts with EPA. The second half of the training will focus on green business practices and staying ahead of the curve with regards to environmental and business compliance standards in the federal procurement process."

Based on our past experience with Federal Small Business Programs in general (a quagmire and a nightmare) and EPA, specifically, we doubt this seminar will be helpful. Make up your own mind.

See: http://www.environmentalsummit.org/agenda.cfm?xdl=705#SLOT705

For more information, contact:

Paula Zampieri
EPA Office of Small Business Programs
(OSBP, formerly the Office of Small and Disadvantaged Business
Utilization (OSDBU))
1200 Pennsylvania Avenue, NW
mail code (1230T)
Washington, DC 20460
Phone: (202) 566-2496
fax: (202) 566-0548

Thursday, April 10, 2008

United of Pennsylvania Gets FDIC Order

By Bonnie McGeer, American Banker | Wednesday, April 9, 2008

United Bank of Philadelphia must strengthen its management, board oversight, and loan policies under a cease-and-desist order that the Federal Deposit Insurance Corp. disclosed Tuesday.

The $75 million-asset African-American-owned bank has been operating with insufficient earnings and capital, according to the Jan. 23 order.

United posted a $1,000 fourth-quarter profit and reported a core capital leverage ratio of 9.99%, according to FDIC data.

The order also says the bank has been violating regulations on loans made to officers, directors, and shareholders, and engaging in unsafe banking practices.

It requires United to establish an adequate allowance for loan losses, enhance loan documentation, reduce delinquent loans, have an active audit committee made up solely of outside directors, cut expenses, and write a strategic plan for improving its earnings.

United, which had a ratio of noncurrent loans to loans of 4% at yearend, also must review its loan policies and procedures, particularly related to underwriting standards, the monitoring and reporting of problem loans, and controlling credit concentrations. The order specifically prohibits United from capitalizing loan interest to bring delinquent loans current.

Ken Thomas, a lecturer in finance at the University of Pennsylvania's Wharton School, said the order is unusually strong. "It is about a 7 out of 10 on the cease-and-desist-order Richter scale," Mr. Thomas said.

William Michael Cunningham, the president of Creative Investment Research Inc. in Washington, said United's troubles are likely related to its focus on small businesses, which have been hit hard by the economic downturn.

Evelyn F. Smalls, the bank's president and chief executive officer, did not return a phone call Tuesday.

Monday, April 7, 2008

Mutual Fund Comparisons Using Interactive Data Now Available to Investors

We note that "Securities and Exchange Commission Chairman Christopher Cox today announced the launch of a new Internet Web page that enables investors to more easily read, analyze, and compare the information provided by mutual funds related to fund cost, risk, and past performance."

See: http://a.viewerprototype1.com/viewer and http://www.sec.gov/xbrl

Thursday, April 3, 2008

The Bear Rescue and the Senate Banking Committee

I have been following the Bear rescue and the Financial Market reform plan. I attended today's SBC hearing. A few things to note:

a. Treasury sounded a little defensive when asked by Senator Jack Reed about the lack of foresight, claiming that no one could have foreseen this crisis.

Actually, we did, in August, 2007:

"Major market institutions are now, as the troubled Bear Stearns reveals, feeling the negative effect of allowing these practices to flourish. Bear Stearns may be in real danger - it's stock decreased in value by 27% over the last month. We do not expect, but would not be surprised if the firm failed, another casualty of arrogance and greed."

See: http://twisri.blogspot.com/2007/08/morgage-gses-predatory-lending-and.html and http://www.sec.gov/comments/s7-16-07/s71607-495.pdf

b. In addition, even the claim that perfect foresight was needed is wrong. With the development of toxic (derivative and subprime lending) financial products, the relationship between investment banks and the economy has turned parasitic. A financially parasitic relationship is defined as (modifications from the standard definition noted):

"a type of symbiotic (financial or economic) relationship..in which one, the parasite, benefits from a prolonged, close association with the other, the host (economy or financial institution), which is harmed. In general, parasites are much smaller than their hosts (investment banks, while large, are smaller than the economy as a whole), show a high degree of specialization for their mode of life (investment banks are highly specialized) and reproduce more quickly and in greater numbers than their hosts (check.)

The harm and benefit in (financial or economic) parasitic interactions concern the fitness of the (economy) involved. Parasites reduce host (financial or economic) fitness in many ways, ranging from general or specialized pathology (such as regulatory nullification), impairment of (economic) characteristics, to the modification of host (economy) behaviour. Parasites increase their fitness by exploiting hosts for money (from hedge funds, pension funds, deposits at banks), habitat (HQ location) and (toxic product) dispersal."

c. Despite protestations to the contrary, the rescue was, in fact, a bailout since, as Senator Jim Bunning mentioned, "Bear shareholders did better with the Fed's help than they would have without it." Note: Bailout is defined as: " a situation where a bankrupt or nearly bankrupt entity, such as a corporation or a bank, is given a fresh injection of liquidity, in order to meet its short term obligations. Often bail outs are by governments, or by consortia of investors who demand control over the entity as the price for injecting funds."

d. The $30 billion dollar figure was calculated based on a mark-to-market provided by Bear Stearns.

e. Given (d.) the Fed does not really know the total dollar amount of the liability it accepted.

f. Blackrock was hired as an Investment Advisor to the Fed for purposes of managing and providing advice about the value of the Bear collateral. No competing bids were sought. The contract for Blackrock's services has not been written yet and no cost for these advisory services has been determined. Following hedge fund pricing (2% upfront and 20% of gains) we (the public) could be looking at a minimum fee of $600 million (2% of $30 billion).

Tuesday, April 1, 2008

Treasury Announces Intention to Implement Portions of Overhaul Via Executive Order

On a conference call with Assistant Secretary for Financial Institutions David Nason yesterday, Treasury Department officials announced that they will implement many parts of their plan to overhaul the nation's financial regulatory structure by executive order. This includes "streamlining the approval process for securities that contributed to the crisis now roiling Wall Street."

According to the Washington Post, "The Treasury's initiatives seek to sweep away the current patchwork of regulation over the coming decade in favor of three more powerful agencies to oversee banking, market stability, and consumer and investor protection."

Treasury officials also acknowledged that the plan is "silent on CRA," or the Community Reinvestment Act.

As Paul Krugman noted,

"Traditional, deposit-taking banks have been regulated since the 1930s, because the experience of the Great Depression showed how bank failures can threaten the whole economy. Supposedly, however, 'non-depository' institutions like Bear (Stearns) didn’t have to be regulated, because 'market discipline' would ensure that they were run responsibly.

When push came to shove, however, the Federal Reserve didn’t dare let market discipline run its course. Instead, it rushed to Bear’s rescue, risking billions of taxpayer dollars, because it feared that the collapse of a major financial institution would endanger the financial system as a whole.

And if financial players like Bear are going to receive the kind of rescue previously limited to deposit-taking banks, the implication seems obvious: they should be regulated like banks, too."

We agree that "if financial players like Bear are going to receive the kind of rescue previously limited to deposit-taking banks,they should be regulated like banks."

This includes CRA.