Five biggest U.S. banks craft ‘living wills’ in case they go out of business

July 2, 2012 – NEW YORK - Five of the biggest banks in the United States are putting finishing touches on plans for going out of business as part of government-mandated contingency planning that could push them to untangle their complex operations. The plans, known as living wills, are due to regulators no later than July 1 under provisions of the Dodd-Frank financial reform law designed to end too-big-to-fail bailouts by the government. The living wills could be as long as 4,000 pages. Since the law allows regulators to go so far as to order a bank to divest subsidiaries if it cannot plan an orderly resolution in bankruptcy, the deadline is pushing even healthy institutions to start a multi-year process to untangle their complex global operations, according to industry consultants. “The resolution process is now going to be part of the cost-benefit analysis on where banks will do business,” said Dan Ryan, leader of the financial services regulatory practice at PricewaterhouseCoopers in New York. “The complexity of the organizations will shrink.” JPMorgan Chase & Co, Bank of America Corp , Citigroup Inc , Goldman Sachs & Co and Morgan Stanley are among those submitting the first liquidation scenarios to regulators at the Federal Reserve and the Federal Deposit Insurance Corp, according to people familiar with the matter. The five firms, which declined to discuss their plans for this story, have some of the biggest balance sheets, trading desks and derivatives portfolios of financial institutions in the United States. Great Britain and other major countries are imposing similar requirements for “resolution” plans on their big banks, too. The liquidation plans are coming amid renewed questions about the safety of big banks following JPMorgan’s stunning announcement last month that a trading debacle has cost it more than $2 billion – a sum far too small to endanger the bank, but shocking enough to bring back memories of the financial crisis. –Chicago Tribune

Euro compromises in Brussels likely to unravel
http://www.marketwatch.com/story/euro-compromises-likely-to-unravel-2012-07-02
July 2, 2012 – EUROPE – The major German concessions (above all, over the use of ESM European rescue funds directly for Spanish banking recapitalization) agreed at the euro summit are unlikely to enter into force. The compromises announced on Friday between creditors and debtors will fall apart because they are mutually contradictory. The good news (of sorts) is that the European Central Bank is out of the firing line for the moment. It can cut interest rates by ¼ percentage point on Thursday without being accused of kowtowing to government pressure. ECB bond purchases, hotly opposed by the Germans and a steadily growing band of other countries, are off the agenda as the focus switches to taxpayer-backed rescue devices. The bad news is that these taxpayers, and their parliamentary representatives, are about to revolt. Chancellor Angela Merkel arrived back in Berlin on Friday afternoon from her Brussels sojourn and ran into a firestorm of criticism. A fierce political and constitutional battle lies ahead. Whatever happens, the outcome will gravely weaken Europe’s most powerful leader. What happened over the past few days is a mockery of euro summitry and a travesty of parliamentary procedures in Germany. Merkel was forced into the Brussels agreement by a coalition of opposing interests who grouped together to blackmail her into submission. She was caught in a pincer movement. The Social Democratic and Green Opposition parties in Berlin told her on Thursday they wouldn’t vote for the European fiscal pact and ESM in the Bundestag on Friday, the last day before the German summer parliamentary recess, unless Merkel agreed to a “growth pact” in Brussels. Aware of this, the Spanish and Italian government leaders, Mariano Rajoy and Mario Monti, sprung a trap, backed by French President François Hollande. Late on Thursday, Monti and Rajoy refused to agree to the “growth pact” unless Merkel made concessions on aid for banks and on conditions for direct bond purchases by the EFSF and ESM bailout funds. Hollande denied Merkel was bludgeoned into an agreement. But she was. All this will create further resentment in Germany. –Market Watch