Maneuvering in settlement talks for BNP Paribas and BofA
The extensive efforts by French government officials to intervene on behalf of BNP Paribas in order to reduce any penalties against the bank fell flat when President Obama announced that it is the Department of Justice that determines settlements and he will not intervene.
That according to a Wall Street Journal report, Obama Says He Has No Role in BNP Paribas Penalties.
Efforts to change the mind of US regulators include:
- President Hollande saying stiff penalties could destabilize entire European financial system
- The French government will push back if there is an excessive penalty
- French officials have been meeting with representatives of Department of Justice and other federal agencies trying to change their mind
- Economy Minister called the possible punishment a death penalty
- A former ECB chairman, who is French, said the dollar clearing sanctions could cause a chain reaction and is itself a systemic risk
- The Socialist Finance Minister called the possible penalties “disproportionate” and they could destabilize banks across Europe. He also indicated he has been lobbying US officials for several months. I guess that constitutes treading carefully in his book since he said
needed to tread carefully because it would be “shocking for a friendly and allied country” to put pressure on U.S. judicial and administrative authorities.
One of the demands of U.S. authorities is firing a number of staff.
If I’m reading between the lines right, there is already a sacrificial lamb on the table.
The article says one of the individuals whose termination is desired by N.Y. officials is the BNP chief operating officer. The next paragraph of the article says he was already planning to retire separate from this investigation. Aha! Watch out for his “retirement” to take place simultaneously with or shortly after an agreement is signed.
There is a split opinion inside BNP as to whose fault this is.
Another WSJ article reports Possible U.S. Fines Increase Tensions at BNP Paribas.
Apparently there has been a long-term conflict between the retail division and investment bankers. The article says the retail bankers (that’s the BNP part of the name) are cautious and the investment bankers (the Paribas part) are aggressive. No surprise there. I think that is probably typical.
This article seems to be written from the perspective of leakers from inside BNP Paribas, unlike the previous article which included comments and opinions of senior French officials and earlier reports which seem to have information from the US federal and state perspective.
The two sides are debating where the blame lies. Here’s the outline of the debate:
Some executives believe BNP Paribas gravely erred by doing business with companies in countries subject to U.S. sanctions and then not swiftly acknowledging it had done so when U.S. authorities started investigating, the people said.
I’m guessing that would be the retail bankers blaming the investment bankers for doing whatever they felt like, blowing off U.S. law, and blowing off the early stages of the U.S. investigation, thus causing all the current problems.
Others say the French bank conducted legitimate activities in those countries and is the victim of overzealous U.S. authorities who are using the BNP Paribas case to score political points.
I’m guessing that would be the investment bankers saying they can do anything they feel like in any country they want and everything they did was perfectly legitimate and legal. They’re the victims of publicity-grubbing US politicians just trying to get headlines. (Is that a biased interpretation? Um, yeah. Remember this is an interpretive post.)
That spat will likely make it difficult to negotiate a settlement. It will lead to very different opinions on the dollar settlement. It will make it very difficult to internally resolve whether, and how many, executives to fire. Without an internal agreement on the positions to take, settlement talks will be even more messy.
One apparently unanimous strategy is to persuade senior French government officials to intervene on behalf of the bank. Those efforts have been successful; see article above.
BofA negotiating for possibly another $12B on top of $6B
Another WSJ article says BofA in Talks to Pay At Least $12 Billion to Settle Probes.
This would be to settle investigations from the Justice Department and a number of states about allegedly shoddy mortgages processed before the financial crisis.
This would be in addition to a previous $6B settlement with the Federal Housing Finance Agency. That is the regulator of FNMA and GNMA. Those are the agencies who were pushing so hard to get all those substandard loans into the marketplace.
Of the possible $12B, about $5B would likely be for consumer relief of varying sorts.
To put the $12B fine into perspective, that is slightly larger than the $11.43B profit in 2013.
I don’t know which investigations are included in the count, but the article says the bank has already paid over $60B in settlements since the financial crisis. I’m not sure if that’s just limited to bad mortgages or whether it includes the whole list of all their settlements. Sort of hard to keep track, huh?
Negotiations are underway. Stay tuned.