plus 4, Moody's cuts BMO's long-term rating over investment banking - StarPhoenix

Moody's cuts BMO's long-term rating over investment banking - StarPhoenix
Three cheers for Obama’s banking reforms - Reuters Blogs
M&T Bank's Quarterly Report (corrected) - Yahoo Finance
Our view: 'Plan design' key to keeping municipal costs in check - Salem News
Financial stability board welcomes Obama bank plan - YAHOO!

Moody's cuts BMO's long-term rating over investment banking - StarPhoenix

Posted: 23 Jan 2010 03:19 AM PST

Bank of Montreal's long-term ratings were cut one grade by Moody's Investor Service, which cited unstable earnings potential from the investment banking business.

The deposit rating for Canada's fourth-biggest bank and its units was cut to Aa2 from Aa1, the New York-based rating company said Friday in a statement. The lender's financial strength rating fell to B- from B and its outlook returned to "stable".

The downgrade reflects Moody's view that the "wholesale investment bank exposes the bank to greater earnings volatility than previously incorporated in its ratings and the fact that BMO allocates substantial capital to this business," Senior Vice President Peter Routledge said Friday in a statement.

Bank of Montreal has reported $2.7-billion in pretax charges related to capital markets since 2007, according to estimates from Moody's. The profitability of the Toronto-based bank will "remain constrained" due to weak earnings from its U.S. banking businesses in coming months, the ratings company said.

Moody's said in October it was reviewing Bank of Montreal and its units, including U.S. operations, focusing on the potential for continuing volatility in the capital markets business.

The bank fell 39 cents, or 0.7%, to $52.26 at 3:18 p.m. in Toronto Stock Exchange trading.

Bank of Montreal has "positive momentum" in all its units, including Chicago-based Harris Bank, and expects to outperform its peers, bank spokesman Paul Deegan said in an e-mailed statement.

"BMO has a strong capital position and our performance grew steadily stronger throughout 2009," Mr. Deegan said. "The return of BMO's outlook to stable reflects the strength of our Canadian retail franchise and our strong capitalization."

Bloomberg.com

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Three cheers for Obama’s banking reforms - Reuters Blogs

Posted: 21 Jan 2010 09:05 AM PST

Barack Obama is coming out swinging today, and good for him for doing so. Let's go through the press release line by line:

WASHINGTON, DC- President Obama joined Paul Volcker, former chairman of the Federal Reserve; Bill Donaldson, former chairman of the Securities and Exchange Commission; Congressman Barney Frank, House Financial Services Chairman; Senator Chris Dodd, Chairman of the Banking Committee and the President's economic team to call for new restrictions on the size and scope of banks and other financial institutions to rein in excessive risk taking and to protect taxpayers.

Note here how Geithner and Summers just become part of "the President's economic team", while Volcker gets top billing. This is, as Simon Johnson says, an important change of course — and it's one which is being supported by both Dodd and Frank, so there's a good chance it can pass. After all, the Republicans tend to hate Wall Street even more than the Democrats.

The President's proposal would strengthen the comprehensive financial reform package that is already moving through Congress.

This is also a good sign: in the wake of Dodd making noises about softening existing legislative proposals, Obama has come out and said, quite rightly, that we should push hard in the opposite direction, and tighten them up.

"While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse," said President Barack Obama. "My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary."

OK, so this is populism. But populism in the service of a good cause is no great sin.

The proposal would:

1. Limit the Scope-The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.

This is a good idea, but cutting back on prop trading, in particular, is going to be hard. Goldman Sachs has told me repeatedly that they don't have prop trading: everything they do is ultimately for the benefit of their clients. Absent a corner of the trading floor with a big flashing "prop desk" sign above it, in practice it's very hard to draw the line between the kind of daily trading that any broker dealer has to do, on the one hand, and proprietary trading for a bank's own account, on the other. Both of them involve the bank taking risk and making money, after all.

The restriction on sponsoring hedge funds and private-equity shops makes sense: after all, the in-house hedge funds at Bear Stearns played a large role in its demise. The banks will just spin off those holdings to shareholders, I don't think this is a big deal for them.

2. Limit the Size- The President also announced a new proposal to limit the consolidation of our financial sector. The President's proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

I love this. It's bank liabilities which cause systemic risk: that's why it's bank liabilities which are subject to the bank tax. And as too-big-to-fail banks increasingly rely on wholesale liabilities rather than a more stable deposit base, it's important to place some kind of restrictions on the degree to which they can do so. In his press conference, Obama said that banks should not be allowed to stray too far from their mission of serving depositors: he's moving, here, towards a vision of narrow (or at least narrower) banking. Good for him.

Banks stocks are down in the wake of the speech, but not dramatically: it's easy to get overexcited about a 6% fall in JP Morgan's share price while forgetting that it's still over $40 a share, compared to less than $15 in March. Indeed, its all-time high, back in 2007, was barely over $50. Let's get the Republicans on board with this, and push it through. It's probably our last chance to enact meaningful financial reform this generation.

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M&T Bank's Quarterly Report (corrected) - Yahoo Finance

Posted: 20 Jan 2010 03:26 PM PST

(This is the corrected version. In our earlier erroneous report, we had put the company's core operating earnings, excluding non-recurring items, at below the Zacks Consensus Estimate).

Earlier today, M&T Bank Corporation (NYSE: MTB - News) reported earnings of $1.04 per share in the fourth quarter of 2009. Excluding a number of non-recurring items in the quarter, the company's core operating earnings would be $1.25 per share, exceeding the Zacks Consensus estimate of 89 cents.

Taxable-equivalent net interest income came in at $565 million, up 15% year over year and up 2% sequentially. The sequential growth in such income was primarily due to a widening in the net interest margin, which improved to 3.71% from 3.61%. This improvement was attributed to lower interest rates paid on deposits and borrowings and continued growth in non-interest-bearing deposits.

Management stated that it continues to provide lending and banking services in local markets, which led to the increase in net income. Credit costs in the fourth quarter were down. Additionally, acquisitions of Provident and Bradford in the Mid-Atlantic region not only widened its customer base but added 16 cents per share to net income. The company acquired all deposits and certain assets of Bradford Bank in the third quarter, subsequent to the takeover of Provident Bankshares Corp. in the second quarter.

Provision for credit losses declined to $145 million in the quarter compared to $151 in the year-ago quarter. Credit quality continued to deteriorate in the quarter, reflecting the difficult economic environment faced by businesses and individuals.

Loans classified as nonaccrual totaled $1.33 billion, or 2.56% of total loans on December 31, 2009, compared to 1.54% on December 31, 2008 and 2.35% on September 30, 2009.

For 2009, taxable-equivalent net interest income was $2.08 billion, up 6% from 2008. The increase in income was driven by growth in average loans and leases outstanding, which grew 4% year over year to $51.0 billion along with a widening of the net interest margin, which rose to 3.49% from 3.38%. The increase in average loans and leases was attributed to acquisitions in 2009 and improvement in net interest margin resulting from lower interest rates paid on deposits and borrowings.

The efficiency ratio (which measures the relationship of operating expenses to revenues) improved to 52.7% in the fourth quarter of 2009 from 57.0% in the year-ago quarter and 55.2% in the third quarter of 2009. The efficiency ratio for 2009 improved to 56.5% from 54.4% in 2008.

Coming to the balance sheet, M&T Bank Corporation had total assets of $68.9 billion on December 31, 2009, up from $65.8 billion at the end of the previous year. Total deposits were $47.4 billion, an increase of 11% from 2008. Excluding the impact of acquisitions in 2009, core customer deposits jumped 16% year over year to $39.9 billion largely driven by a 45% increase in noninterest-bearing deposits.

Headquartered in Buffalo, New York, M&T is a bank holding company whose banking subsidiaries, M&T Bank and M&T Bank National Association, operate branch offices in New York, Pennsylvania, Maryland, Virginia, West Virginia, Delaware, New Jersey and the District of Columbia.

Zacks Investment Research

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Our view: 'Plan design' key to keeping municipal costs in check - Salem News

Posted: 23 Jan 2010 02:58 AM PST

Beverly Mayor Bill Scanlon will have Beacon Hill's ear for the next 12 months using the bully pulpit of the Massachusetts Municipal Association presidency.

Scanlon, the dean of North Shore mayors and longest-serving chief executive in the city's history, was due to be installed this weekend as head of the group that represents municipal officials throughout the commonwealth. And you can be certain he will be pressing for more of the "tools" necessary to perform what is an increasingly difficult job — providing an adequate level of municipal services — education, public safety, public works, etc. — without breaking the bank or reaching too far into taxpayers' pockets.

They need the state's help, and indeed received welcome news Thursday when Gov. Deval Patrick announced that he expects school and other local aid to be maintained at current levels in the next fiscal year — despite a projected $3.8 billion reduction in revenues.

"This is far, far better than we could have hoped for," Scanlon said as he prepared to depart yesterday for the MMA's annual convention and trade show in Boston.

But as Scanlon made clear in comments at a meeting of the North Shore Alliance for Economic Development the previous day, money alone can't solve the fiscal crunch cities and towns are experiencing. Pressure is also building on the cost side of the ledger, particularly in terms of the wages and benefits owed municipal employees.

One relatively simple fix, which state government already avails itself of, is to allow city and town administrators greater flexibility in determining the "design" of the health care plans offered employees. The workers' share of the premiums would still be subject to negotiation, but the nature of the plan or plans offered, including the vendor and the amount of co-pays and deductibles required, would be a matter of management prerogative.

Scanlon posed the question of plan design for municipalities to House Speaker Robert DeLeo when he spoke before the Alliance at the Cummings Center on Thursday.

"It is on the radar screen," DeLeo replied. Plan design and other reforms should be front and center on Beacon Hill if Patrick and legislative leaders are serious about wanting to put municipalities in a position to lower property taxes instead of raising them every year.

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Financial stability board welcomes Obama bank plan - YAHOO!

Posted: 23 Jan 2010 02:58 AM PST

ZURICH (Reuters) – The Financial Stability Board (FSB), charged by the G20 to coordinate national regulation in response to the financial crisis, on Saturday welcomed U.S. proposals to limit banks' size and trading activities.

The proposals are among a range of options the board is considering as its addresses the risk of banks being "too big to fail," it said in a statement.

Major European economies have offered support for President Barack Obama's plan, which could rewrite the world financial order, but indicated they had no plans to follow suit.

The FSB is considering several other options to address the "too big to fail" problem including targeted capital, leverage, and liquidity requirements, improved supervisory approaches and simplification of firm structures.

"A mix of approaches will be necessary to address the TBTF problem, given the different types of institutions and national and cross-border contexts involved," the FSB said.

"At the same time, these approaches must preserve an integrated financial services market and not create regulatory arbitrage through an uneven playing field."

The FSB will make recommendations to G20 leaders in October and publish an interim report shortly after a G20 summit in June.

(Reporting by Sam Cage; Editing by Toby Chopra)

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