Jerry Brown's office snipes with other states' regulators over who sealed Wells Fargo deal

Who deserves credit for forcing Wells Fargo & Co. to buy $1.4 billion in troubled securities from small investors?

California Atty. Gen. Jerry Brown and a group of regulators from other states announced separate deals Wednesday requiring the banking giant to repurchase so-called auction-rate securities that had been frozen since the credit crunch struck early last year. Half the total will go to California residents.

But Brown’s office and the regulator group, the North American Securities Administrators Assn., each says it led the way.

A spokeswoman for Brown said the attorney general's office hammered out a legal settlement with the banking giant a day before NASAA agreed to a nearly identical pact.

“We forged the settlement with Wells and they just piggybacked on it,” said Christine Gasparac, the Brown spokeswoman. “I don’t want to get into a war with NASAA, but it’s our settlement.”

That’s not the way Denise Voigt Crawford, president of NASAA and commissioner of the Texas State Securities Board, sees it.

“He had nothing to do with our settlement,” Crawford said of Brown. “This is crazy. He’s not the securities regulator in California and he wasn’t involved in our negotiations. ... Now he’s claiming credit for one of our settlements.”

The good news for investors in the troubled securities is that they’ll get their money back regardless of who spearheaded the settlement.

-- Walter Hamilton

Photo: California Atty. Gen. Jerry Brown. Credit: David McNew / Getty Images

Goldman Sachs' Blankfein: 'We apologize'

Goldman Sachs Group’s charm offensive continues.

From Bloomberg News:

Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., apologized for the firm’s role in some of the activities leading to the financial crisis.

"We participated in things that were clearly wrong and have reason to regret," Blankfein, 55, said at a conference in New York hosted by the Directorship magazine. "We apologize."

That could be a dangerous admission if plaintiffs' lawyers are listening, but . . . there it is.

Separately today, Goldman announced that it would team with billionaire (and major Goldman shareholder) Warren E. Buffett to launch a $500-million program of loans and other assistance for U.S. small businesses.

Goldman, the most powerful (and profitable) Wall Street titan, has been pushing back at its critics in recent weeks after months of mostly just turning a deaf ear to them.

Last week, Blankfein asserted in a lengthy interview with the Times of London that Goldman served a "social purpose. . . . We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle."

-- Tom Petruno

Wall Street recovers quickly -- unlike the rest of the nation

This won’t be solace to anyone suffering through a job loss, pay cut or general economic uncertainty: Wall Street is rebounding quickly from the Great Recession, with fewer job cuts and higher year-end bonuses than expected just a few months ago.

A report this morning from the New York state comptroller’s office makes official what already was becoming apparent -- that the denizens of the financial industry are faring relatively well from the financial collapse that emanated from Wall Street’s shores.

The city’s four largest investment banks -- Goldman Sachs Group, JPMorgan Chase & Co., Morgan Stanley and Merrill Lynch (now part of Bank of America Corp.) -- have earned $22.6 billion so far this year versus a loss of $40.3 billion in 2008, according to the report.

Wall Street has shed 28,300 jobs -- or 15% of its November 2007 peak -- and could lose up to 35,000 jobs, according to the report. But that’s far less than the 47,000 projected five months ago. And the new worst-case scenario also might be too bleak; the industry actually tacked on 3,600 jobs in September.

Several factors are helping Wall Street, including the demise of several firms, which gives pricing power to survivors. Low interest rates also are a boon given that Wall Street borrows heavily to finance its operations.

“The national economy is slowly improving, but Wall Street has recovered much faster than anyone had envisioned,” the report said. “Profitability is on track to exceed 2006 levels, which was a banner year for the industry.”

The same can’t be said for the rest of us.

-- Walter Hamilton

Photo: The New York Stock Exchange. Credit: Stan Honda / AFP / Getty Images

Hurt us and you hurt the planet, Goldman Sachs CEO says

The best defense is a good offense, or so the old line goes.

That seems to be the playbook at the moment for Goldman Sachs Group CEO Lloyd Blankfein.

To many Americans, Goldman has become the preeminent symbol of Wall Street arrogance and greed -- the great vampire squid, as Rolling Stone’s Matt Taibbi famously labeled the firm.

Some in Congress, along with heavyweights such as former Federal Reserve Chairman Paul Volcker, want to break up the biggest financial institutions -- and restore the division between commercial banking and Wall Street -- to lessen the risk of another systemic meltdown.

But twice now this week Blankfein has insisted that the country badly misunderstands his company and its contributions to the well-being of humanity.

"Most of the activities we do, and you can be confused if you read the pop press, serve a real purpose," Blankfein said at a conference today in New York, according to Bloomberg News. "It wouldn’t be better for the world or the financial system" to change Goldman’s activities, he said.

Over the weekend the Times of London published a long feature on Goldman that included an interview with Blankfein. He was self-deprecating but wholly unrepentant about the firm’s power and massive profitability.

From the Times:

"I know I could slit my wrists and people would cheer," he says. But then, he slowly begins to argue the case for modern banking. "We’re very important," he says, abandoning self-flagellation. "We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle." To drive home his point, he makes a remarkably bold claim. "We have a social purpose."

That doesn’t wash with Simon Johnson, a finance professor at the Massachusetts Institute of Technology and former economist at the International Monetary Fund.

In a radio interview with Bloomberg News today, Johnson said that Goldman’s assets had nearly quadrupled over the last decade. "What have we gained from a societal perspective from Goldman Sachs becoming four times bigger? Nothing," Johnson said. "Break Goldman Sachs up into four pieces, let them choose how they break up."

-- Tom Petruno

Photo: Goldman Sachs CEO Lloyd Blankfein. Credit: Spencer Platt / Getty Images

Frank says financial industry should pay now for future bailouts

Rep. Barney Frank, chairman of the House Financial Services Committee, told reporters today that he would make significant changes to a proposed government fund to help pay for any large financial firms that would be seized and dismantled to prevent major damage to the economy.

The so-called resolution fund is a key part of legislation that Frank introduced last week following negotiations with the Treasury Department to give the government new power to avoid future financial crises. The fund is designed to make the industry -- not taxpayers -- pay the cost of future bailouts.

Under the bill, the fund would be paid by financial institutions with total assets of at least $10 billion each only after a government intervention to repay the outlay of taxpayer money. The legislation would not place any limit on how much taxpayer money the government could use to seize a major financial firm and would give Congress no say in any decision to use the money.

After some lawmakers and regulators criticized the plans for the fund last week, Frank said he would make changes as his committee begins to wrap up the legislation this week. The Massachusetts Democrat said he expected the full House to vote during the first week of December on all components of the proposed overhaul of financial regulations, including creation of a new agency to protect consumers in the marketplace.

As for the resolution fund, Frank said he would require firms to pay into it ahead of any use, as is now done by banks with the Federal Deposit Insurance Corp. fund that helps insure customer deposits.

That way the money would be in place to cover the costs of seizing and dismantling a major financial firm, limiting the outlay of government money. Frank also said he favored “some congressional involvement” if the Treasury Department needed to lend any money to the fund to cover a shortfall before more money could be collected from the industry.

“It will not be an unfettered executive decision,” Frank said. He suggested allowing any member of Congress to request a vote to stop a disbursement of taxpayer money into the fund.

Rep. Brad Sherman (D-Sherman Oaks) has criticized the legislation for creating what he called a permanent, unlimited version of the $700-billion bailout fund. Though he said Frank was moving in the right direction with the proposed changes, he wants more details.

Sherman said there was a major difference between a congressional vote to prevent the disbursement of money and one authorizing it. Under the first option, a bill to prevent Treasury from lending money to the fund could be vetoed by the president, which would require a two-thirds majority of both houses to override.

Requiring Treasury to seek congressional approval for any disbursement would mean that only a simple majority of both Houses would be needed to stop it. He said the committee debate on the bill would be important in structuring that mechanism.

“The less support there is for unlimited permanent bailout authority, the better the bill will be,” Sherman said.

-- Jim Puzzanghera

Photo: Barney Frank sits in the East Room of the White House on Oct. 9. Credit: Gerald Herbert / Associated Press.  

L.A. investment bank Imperial Capital seeks IPO

Boutique L.A. investment banking firm Imperial Capital Group Inc. filed Wednesday to go public, hoping to tap investors’ improved appetite for new stock issues.

In a preliminary prospectus, the Century City firm proposed to raise as much as $150 million in a deal that would allow management to cash out a portion of its ownership stake in the firm.

But besides that, and paying off a $10 million credit line, the firm said it hadn’t decided what to do with the money it would raise, other than use it for general corporate purposes.

The IPO market has thawed considerably over the last two months, tempting companies looking to raise capital. Nineteen IPOs have come to market just since Sept. 15, compared with 21 in the prior 8 1/2 months, according to ipohome.com.

Imperial Capital, co-founded by Jason Reese and Randall Wooster in 1997, had been a unit of Imperial Credit Industries before becoming a standalone business. Imperial Credit, a Southland financial firm spun off from the old Imperial Bancorp (now part of Comerica Inc.), filed for bankruptcy protection in 2003.

Imperial Capital operates banking, trading and research businesses. Its investment banking unit targets middle-market companies. In one recent deal, Imperial advised American Greetings Corp. on its purchase of rival card company Recycled Paper Greetings.

Imperial’s research unit covers companies in businesses including aerospace, clean energy and gaming.

The company says it has been profitable every year since 1999, but it remains a small player. The firm earned $9.6 million in the first half of this year on revenue of $59.4 million.

If the IPO gets done, Reese, the firm’s 44-year-old chief executive, and Wooster, 49, Imperial’s president, would retain voting control of the company via their Class B share holdings.

The preliminary prospectus didn’t list the number of shares to be sold, give an estimated price range or specify how much Reese and Wooster would cash out. Bank of America Merrill Lynch and JMP Securities are managing the IPO, along with Imperial.

-- Tom Petruno

Two key votes to break up the megabanks

Former Federal Reserve Chairman Paul Volcker has been arguing for the breakup of the biggest banks to make sure history doesn’t repeat. Current Bank of England Gov. Mervyn King now is endorsing the same idea.

But the U.S. and British governments both seem unwilling to give up on the megabank concept that marries commercial banking with Wall Street banking.

In a speech in Scotland on Tuesday, King said there were only two ways for banking regulators to approach the mess left by last year’s financial meltdown:

"One is to accept that some institutions are 'too important to fail' and try to ensure that the probability of those institutions failing, and hence of the need for taxpayer support, is extremely low. The other is to find a way that institutions can fail without imposing unacceptable costs on the rest of society."

The first approach, King said, would entail forcing banks to raise their capital buffers to levels sufficient to protect against failure. But in reality, he said, it would be "almost impossible to calculate how much contingent capital would be appropriate" for each institution.

The second approach, he said, would amount to rejecting "the idea that some institutions should be allowed to become ‘too important to fail.’ " Rather, King said:

"Instead of asking who should perform what regulation, [the second approach] asks why we regulate banks. It draws a clear distinction between different activities that banks undertake. The banking system provides two crucial services to the rest of the economy: providing companies and households a ready means by which they can make payments for goods and services and intermediating flows of savings to finance investment. Those are the utility aspects of banking where we all have a common interest in ensuring continuity of service. And for this reason they are quite different in nature from some of the riskier financial activities that banks undertake, such as proprietary trading.

"In other industries we separate those functions that are utility in nature -- and are regulated -- from those that can safely be left to the discipline of the market. The second approach adapts those insights to the regulation of banking."

King referenced Volcker’s idea to reimpose some version of the Glass-Steagall Act, restricting banks to traditional commercial banking and forbidding them from engaging in higher-risk Wall Street-related businesses.

But as the New York Times noted in a story Tuesday, the Obama administration so far is siding with the banking titans, which naturally want to keep their empires intact.

"People say I’m old-fashioned and banks can no longer be separated from nonbank activity," Volcker told the Times. "That argument brought us to where we are today."

The British government also wants to keep the megabanks intact, despite King’s view that the government bailouts that have propped up the institutions have created "possibly the biggest moral hazard in history."

From Bloomberg News:

U.K. Finance Minister Alistair Darling said yesterday focusing on capital rules may be enough to ward off future crises and is unswayed by arguments that banks should be broken up.

"You regulate according to risk," Darling said before King’s speech. "The greater the risk, the greater the capital requirement. I don’t think an arbitrary split would deal with the problem."

-- Tom Petruno

Photo: Bank of England Gov. Mervyn King. Credit: Chris Ratcliffe / Bloomberg News

Dow Jones average approaches 10,000

Will the Dow Jones industrial average finally get back above 10,000 today?

The banking and technology sectors are doing their best to see that it does.

The Dow pushed to within nine points of 10,000 thanks to blockbuster earnings this morning from JPMorgan Chase & Co., and better-than-expected profits from Intel Corp. after the market closed Tuesday.

As of 8:30 a.m. PDT, the Dow was up 115.86 points, or 1.2%, to 9,986.92. JPMorgan shares were up 3.6% and Bank of America Corp. had gained 2.8%.

Intel was up 3%, with Hewlett-Packard Co. and Cisco Systems Inc. rising more than 2%.

A spate of generally strong earnings reports is helping the market extend its seven-month upward ramble. After sputtering two weeks ago in the face of troublesome employment data, the Dow and other major indexes have regained their footing amid enthusiasm over earnings.

JPMorgan blew past earnings estimates with third-quarter profit of $3.6 billion, or 82 cents a share. Analysts had expected 51 cents a share.

But given that JPMorgan has a sizable presence in both investment banking and commercial banking, its results also underscore the notably contrasting fortunes of Wall Street and Main Street.

Its results were driven by strength in fixed-income issuance and investment banking activities such as giving merger advice. That’s adding up to lush paydays for bankers and traders at JPMorgan and other Wall Street stalwarts, such as Goldman Sachs Group, which is expected to uncork blowout earnings Thursday.

On the other hand, JPMorgan earmarked $2 billion to cover expected consumer loan losses. That’s another reminder of how ordinary Americans are struggling to pay their bills in a stolid economy with rising joblessness.

-- Walter Hamilton

Once again, it's good to be Goldman Sachs

The worse it gets for Goldman Sachs, the better it gets for Goldman Sachs.

The banking giant’s evil vampire-squid image was further reinforced Monday with the revelation that the firm stands to get a $1-billion payment from tottering lender CIT Group if the latter should file for bankruptcy protection.

More bad publicity for Goldman, already reviled as the most power-hungry and ruthless denizen of Wall Street? Of course.

"Goldman has engineered the world so it wins no matter what," wrote an aggravated Peter Cohan at Daily Finance, in what has become a common refrain.

For investors, though, that prospect is proving irresistible: Goldman’s shares on Monday jumped $6.86, or 3.8%, to $186.47, a new 52-week high.

The year-to-date gain in the stock: 121%, about seven times the gain of the average financial stock in the Standard & Poor’s 500.

Everyone, it seems, hates Goldman -- except for its shareholders and those who wish they were.

The potential $1-billion payment from CIT was negotiated when Goldman agreed to extend a $3-billion financing deal to CIT in June 2008, Bloomberg News reported, following an earlier report in the Financial Times. Goldman told the Wall Street Journal on Monday that it was talking to CIT about amending the agreement.

U.S. taxpayers, meanwhile, stand to lose if CIT fails, because the Treasury bought $2.3 billion in preferred stock from the company late last year under the Troubled Asset Relief Program.

As for Goldman’s horrible public image, Reuters' Felix Salmon wrote:

"Given the choice between making lots of money and having a good public reputation, Goldman will always choose the former. But the bank always used to have a reasonably large number of defenders in the press; that number seems to be shrinking daily."

Does Goldman care? More from Salmon:

"Goldman has seconded its president’s chief of staff, Samuel Robinson, to the PR department in recent weeks, in what is surely an attempt to reverse this decline. Judging by today’s headlines, he still has his work cut out for him."

For now, Goldman employees have only their rapidly rising net worth to compensate for being the target of the nation’s ire.

-- Tom Petruno

'Greed got us into this, greed will get us out'

Of all the Lehman Bros. anniversary post-mortems out there, I think Allan Sloan at Fortune magazine may best sum up Wall Street's status one year later.

From his piece in the Washington Post this week:

Even though some once-iconic names have vanished and others are shadows of their former selves, Wall Street hasn't changed all that much. It still operates on the principle of taking care of itself first, really big and important customers second, everyone else last.

Among the healthy firms -- which are poaching talent right and left from the dead and weak -- fat profits, swagger and the delicious prospect of juicy bonuses (regulators' income-limitation attempts notwithstanding) are back in style. Business is good and likely to get better because of the huge demand for capital-raising services in a world that's suffered trillions of dollars in losses over the past two years. This makes Wall Street's prospects far brighter than those of ordinary people trying to cope with losses in their stock portfolios and home-equity value. Not to mention job losses.

The U.S. government has been keeping the financial system functioning, at enormous expense to current and future taxpayers. The idea is for Wall Street to step up lending to people and businesses, making money for itself and helping the economy in the process. As one Street guy quipped, "Greed got us into this, and greed will get us out."

-- Tom Petruno