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Archive for the ‘Wells Fargo’ Category

Two Top Banks Likely To Be Spared From Federal Taxes

By CHRISTINA REXRODE
MCCLATCHY NEWSPAPERS

CHARLOTTE, N.C. — This tax season will be kind to Bank of America and Wells Fargo: It appears that neither bank will have to pay federal income taxes for 2009.

Bank of America probably won’t pay federal taxes because it lost money in the U.S. for the year. Wells Fargo was profitable, but can write down its tax bill because of losses at Wachovia, which it rescued from a near collapse.

The idea of the country’s No. 1 and No. 4 banks not paying federal income taxes may be anathema to millions of Americans who are grumbling as they fill out their own tax forms this month. But tax experts say the banks’ situation is hardly unique.

“Oh, yeah, this happens all the time,” said Robert Willens, an expert on tax accounting who runs a New York firm with the same name. “Especially now, with companies suffering such severe losses.”

Bob McIntyre, at Citizens for Tax Justice, said he opposes the government giving corporations such a break.

“If you go out and try to make money and you don’t do it, why should the government pay you for your losses?” McIntyre said. “It’s as simple as that.”

For 2009, Bank of America netted a $2.3 billion benefit related to income taxes, according to its annual report: It had a benefit of $3.6 billion from the federal government, and an expense of $1.3 billion that it paid to different state and foreign governments.

It’s not unusual for a company’s debt to the federal government to vary widely from its debt to state governments, as appears to be the case with Bank of America, said Douglas Shackelford, a tax professor at University of North Carolina-Chapel Hill.

Confidential returns

The federal government often offers more tax deductions than the states; for example, Bank of America wrote down its federal taxable income with credits from low-income housing and losses on foreign subsidiary stock.

Company tax returns aren’t public, so it’s difficult to say for certain how much a company pays to, or receives from, tax coffers in any year.

The bank’s $3.6 billion current federal tax benefit for 2009 came in a year when it lost $1 billion in the U.S., according to its latest annual report. For the previous year, when the bank had profits of $3.3 billion in the U.S., it listed a current federal tax expense of $5.1 billion.

Wells Fargo was profitable in 2009, with $8 billion in earnings applicable to common shareholders. But its tax payments were reduced because of Wachovia’s losses.

Wells netted an overall tax benefit of $4.1 billion in 2009. It got a benefit worth nearly $4 billion from the federal government, and another worth $334 million from state governments. It had an expense of $164 million in foreign taxes. Wells did record an overall income tax expense of $5.3 billion, but that was offset by the tax benefits of the Wachovia losses.

The topic of corporate tax breaks has gained buzz recently because of a provision in the 2009 stimulus bill, which allows companies to “carry back” their losses for 2008 and 2009 to the previous five years, instead of just the previous two years. Homebuilders and other industries that suffered big losses in 2008 and 2009, but made a lot of money in the years before that, stand to gain billions in refunds. However, the stimulus bill provision does not apply for Bank of America and Wells Fargo, because companies that received TARP loans are ineligible.

‘Arbitrary’ time period

UNC’s Shackelford said the argument for carrybacks stems from the belief that it’s “arbitrary” that taxes are collected on an annual basis.

“There’s no reason we couldn’t collect them on a monthly basis or a two-year basis. Then your losses and gains would be offset over the period,” he said. “The carryback enables you to not be penalized because your losses got bunched in a different year from your gains.”

Help from Congress

The stimulus bill provision, he said, was helped by business lobbying. “There’s an awful lot of companies that paid a lot of taxes in the 2004 period, then they lost a lot of money, and they went to their legislators and said, ‘Please help us,’?” Shackelford said.

McIntyre, at Citizens for Tax Justice, co-authored a report in 2004 related to carrybacks, after the Bush administration expanded many corporate tax breaks. The report examined 275 of the country’s largest companies and found that nearly one-third paid no federal income taxes in at least one year from 2001 to 2003. The companies overall were profitable in those years, but took advantage of tax breaks.

“If you or I lose money in the stock market, we don’t get to carry back our losses to any significant degree,” said McIntyre. His group works on closing tax breaks for corporations.

“Getting a refund from the past, that’s just weird,” he added.

Allegations Of OFFICIAL Corruption In Florida

Posted by Karl Denninger

Outrageous And Unsound Lending Continues

Posted by Karl Denninger

What Took You So Long? (Put-Backs and Blow-Ups)

Posted by Karl Denninger

IRA put forward a nasty report on the “putback and blowup” risk issue related to the banks and fraudulent mortgages:

The wave of loan repurchase demands on securitization sponsors is the next area of fun in the zombie dance party, namely the part where different zombies start to eat one another. The GSE’s are going to tear 50-100bp easy out of the flesh of the banking industry in the form of loan returns on trillions of dollars in exposure, this as charge-offs on the several trillion in residential exposure covered by the GSEs heads north of 5%. The damage here is in the hundreds of billions and lands in particular on the larger zombie banks, especially Bank of America (BAC) and Wells Fargo (WFC).

….

The action “arises out of the alleged fraudulent acts and breaches of contract of Countrywide in connection with fifteen securitizations of pools of residential second-lien mortgages” Take particular care to savor the fact that these are second lien pools and that, where defaults have occurred on the primary mortgage, loss severities on the seconds will tend to be 100%. Or the cost could be more than par if you count the cost of remediation and recovery efforts.

Sigh…. how long does it take folks?

On April 20th, 2007 I wrote the following:

Why? Because every last one of the stated income loans that has been made can be PUT BACK ON THE LENDERS IF IT DEFAULTS.

And by the way, this is not limited to Countrywide (CFC). It applies to IndyMac, Downey, AHM, Washington Mutual and every other lender in the ALT-A space.

Let me restate that again so that everyone gets it – every single ALT-A lender is at risk of having every defaulted loan – no matter how long it has been since it was securitized and sold off – PUT back on them if there is any material misstatement in the paperwork!

To those of you who are claiming that this is a “Subprime” problem, that it is “contained”, that it is limited to “poor people who can’t pay their bills” or anything like that, let me point out that you are one hundred percent full of crap.

Emphasis in the original.

And on April 17th:

So while mortgage companies may maintain that they have “little” exposure to defaults because they sold these loans off to the bond market without recourse, if in fact 60 percent of the ALT-A stated income products have incomes fraudulently inflated by 50% or more those mortgage companies can probably be forced to take back each and every one of those loans.

HALF of all stated-income loans?

This will BANKRUPT every single one of these companies if it happens.

Now go look at the big bank’s balance sheets for second line (HELOC, silent seconds, etc) exposure.  70% of the outstanding dollar volume was written in California, Florida, Nevada and Arizona – on bubble houses.  The clear majority of those have a first that is underwater and thus the recovery value on those HELOCs, if they default or are “put back” due to fraud, IS ZERO.

When you look at these large banks balance sheets and then take out of their capital the likely losses under this sort of analysis you find that every single one of them will be driven into regulatory capital trouble at best.

This is just one of the issues we have ducked instead of facing.  The other big one is commercial real estate securitizations – S&P put out a report the other day in which it essentially said “if the banks have to eat the reduced value now they’re all insolvent.”

We in fact have fixed none of the underlying issues that brought down Fannie, Freddie, AIG, Bear and Lehman.  The only reason we have seen supposed “improvement” in the markets is that the government has given permission to lie to financial institutions in the exact same form and fashion (that is, hiding actual liabilities and probable losses) that brought down ENRON.

But the underlying loss is still real, still present, and still out there.  Refusing to recognize it doesn’t make it go away.  It just sweeps it under the carpet with the hope (wish really) that the institution will be able to screw you, the consumer, out of enough money to cover the shortfalls before they’re forced to recognize the already-occurred losses and thus declare bankruptcy.

If this was all “the government” that was stuck with these bad loans that were unmarketable (since they have a zero recovery value under legal collection methods they truly can’t be sold for more than a few pennies to one of those “shark” companies that cheats on the law when it comes to those rules) we might have a situation where the government could try to shift it onto the taxpayer through opaque bailouts of Fannie, Freddie and The Fed.

But a good part of this debt was in fact securitized and distributed.  Those holders, such as the FHLB that recently filed suit, aren’t the government and have no reason to sit there and absorb a loss that occurred as a consequence of allegedly-fraudulent underwriting.  For that matter neither does Fannie and Freddie, as despite their “conservatorship” they remain a publicly traded corporation and intentionally absorbing losses caused by other party’s frauds could open their directors and officers up to a derivative action (read: lawsuits a-plenty.)

No folks, these losses won’t be “buried and monetized.”  They will travel back up the chain to the last remaining standing organization that touched them, which just happens to be the zombie banks, since all the “independent brokers” that fed the bilge into these securitization factories are long gone, dead and buried.  Thus the ticking bomb will wind up exploding on the balance sheets of those “too big to fix” institutions we refused to resolve last year because we lacked the political will to go in a close one or more of these banks, and when it happens….. it will rock our world.

You’ve had nearly three years warning Washington – and investors.

When – not if – this goes off I don’t want to hear “nobody saw it coming” from The Halls of Congress and elsewhere in DC because I will be happy to run a campaign advertisement against anyone who so bleats with a copy of my TICKERS from 2007 documenting that in fact some people did see it coming – and were intentionally ignored.

(The Supreme Court recently made such speech legal…. and for that I must extend my heartfelt thanks!)

From Bloomberg, Citigroup Stock Sale Discount Prompts Treasury to Delay Disposal of Stake :

Dec. 17 (Bloomberg) — Citigroup Inc.,
the last of the four largest U.S. banks to seek funds to exit a
taxpayer bailout, raised $17 billion by selling stock for a price so
low that the U.S. delayed plans to shrink its one-third stake in the
lender.

Citigroup sold 5.4 billion shares at
$3.15 apiece, less than the $3.25 the government paid when it acquired
its stake in September. The New York-based bank said the Treasury won’t
sell any of its shares for at least 90 days.

Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co.,
which together raised more than $31 billion this month to exit the
Troubled Asset Relief Program. Wells Fargo, which trumped Citigroup’s
bid to buy Wachovia Corp. last year, leapfrogged its rival by
completing a $12.25 billion share sale Dec. 15. JPMorgan Chase &
Co. repaid $25 billion in June.

“The market cast its vote and they’re low down on the ballot,” said Douglas Ciocca,
a managing director at Renaissance Financial Corp. in Leawood, Kansas.
“Citigroup needs to show steps to reinstall the quality of the brand.”

With
the sale, Citigroup’s common shares outstanding increased to 28.3
billion. That’s up from 22.9 billion as of Sept. 30 and 5 billion at
the end of 2007.

“More shares outstanding means less value per share,” said Edward Najarian,
an analyst at International Strategy and Investment Group in New York,
who has a “hold” rating on the shares. “The whole structure of their
deal to pay back TARP wasn’t very good for common shareholders and that
is being reflected in the pricing.”

I think
one of the most important points are being missed. Most of these banks
swore that they didn’t need TARP. Despite this, in order to return it,
they must go back out to the capital markets. Why do you have to hit
the market to return a loan that you said you didn’t need, unless you
needed it? This obvious lie has went unchallenged.

It gets
worse. Citi is diluting the hell out of it shareholders, as well as all
of the other TARP banks that are selling shares. Some may even be
taking on debt. They are doing this primarily to gain the freedom to
declare bonuses at higher rates despite uncertain credit condition
surrounding the toxic assets that caused the problem in the first
place. Why in the world would any lender or shareholder agree to
dilution and/or higher debt service “primarily” to pay higher bonuses
to employees in the highest compensated (as a percent of net revenue)
industry in the world???

Imagine if you ran this business, you
have rocky times during a recession with revenues in nearly all aspects
of your business down save the blatant risk taking of trading, and you
go to your bank and say I need a big loan so I can pay myself a $20
million bonus increase.
Do you think Citibank would give you this
loan? They expect it from their shareholders. The same goes for
Goldman, JPM, BAC, etc.

Also from Bloomberg: Weak Banks Should Face Curbs on Bonuses, Dividends, Basel Regulator Says

Dec. 17 (Bloomberg) — Global regulators urged national
authorities to limit bonus and dividend payments by banks with
weakened capital safety nets as part of proposals to reduce
risks to the financial system.

Banks should increase the quality of the capital they hold
to cope with losses, the Basel Committee on Banking Supervision
said in a report on bank capital and liquidity published today.
Banks with depleted capital buffers shouldn’t use predictions of
recovery to justify generous dividends to investors and
employees, the committee said.

Global regulators have been wrestling with plans to
increase supervision of banks following the worst economic
crisis since World War II. The Group of 20 Nations agreed in
April that banks should be required to hold more and better
quality capital to reduce risks to the financial system.

“It’s not acceptable for banks which have depleted their
capital buffers to try and use the distribution of capital as a
way to signal their financial strength,” the committee’s
statement said. “The proposed framework will reduce the
discretion of banks which have depleted their capital buffers to
further reduce them through generous distributions of
earnings.”

It’s amazing that this even needs to be said.

In what is the start of the biggest uphill battle in D.C., arguably even bigger than deposing the printing press leprechaun, five democrats are proposing an amendment to reinstate Glass-Steagal, whose repeal, through the Larry Summers orchestrated Gramm-Leach-Bliley Act, in 1999 set the economy on the collision course that culminated with the implosion of every single Goldman Sachs FICC competitor in 2008. The five Democrats who have undertaken the sisyphean task of taking on both Wall Street and their direct boss, are Maurice Hinchey of New York, John
Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington,
and John Tierney of Massachusetts.

If adopted, the measure would give banks one year to choose between
being commercial banks or investment banks. The nation’s biggest –
those now commonly referred to as “too big to fail” — would be broken
up. The Obama administration opposes the measure.

Obama, presumably a Democrat, continues to persist in endorsing each and every Republican legacy when it comes to Wall Street’s landed interests (and risk “management” practices). Of course, the last thing the administration needs is for the populace to comprehend the chameleonic nature of the administration’s action.

More from HuffPo:

The act was repealed in 1999 at the urging of, among others, Larry
Summers, now President Barack Obama’s chief economic adviser.

The five congressman all voted against the repeal then — and now they want it back.

Former Federal Reserve Chairman Paul Volcker is one of a number of
financial luminaries calling for at least a partial return to
Glass-Steagall. The Wall Street Journal’s
editorial page also endorsed the concept in a recent editorial as a way
to “reduce moral hazard” and “limit certain kinds of risk-taking by
institutions that hold taxpayer-insured deposits.”

The law’s repeal ushered in an era marked by big banks getting even
bigger. The country’s four largest — Bank of America, JPMorgan Chase,
Citigroup and Wells Fargo – now control more than half of the nation’s
mortgages, two-thirds of credit cards and two-fifths of all bank
deposits.

And because their deposits are taxpayer-insured, there’s a growing
concern that they will feel overly confident about making risky bets
through their investment arms because they know that should they suffer
huge losses, taxpayers will ultimately be there to bail them out.

The five Democrats face big obstacles, including their own leadership and the Obama administration.

At this point the whole systemic regulation debate is getting glaringly amusing. At the core of every conflict are proposed reforms that are so obvious from a risk mitigation debate: audited Fed, split up banks which are now bigger than ever before, propping a bankrupt FDIC, which in turn is backing up bankrupt institutions, and a bankrupt country which is trying to fool the world into a game of M.A.D. knowing full well if the US taxpayer goes down directly or indirectly, the world, and the proverbial flood, follow after. And the only sensible reforms are those getting the biggest push back from Obama, and of course, Wall Street. How these two seemingly traditional opponents have ended up on the same side of the page is testament enough to the cataclysmic legacy of Bernanke and Summers. Of course, nothing will be done about anything, in tried and true American fashion, until it is too late, and Main Street is left sorting through the rubble of Goldman’s new glass-plated headquarters, even as all inhabitants have long-ago departed the country and left the U.S. with a few quadrillion in I.O.U.’s. At this juncture the best option before politicians is to simply delay for one year until mid-term elections provoke some vestige of sensibility in the ruling class.