Regulators shut banks in Texas, California

WASHINGTON (AP) -- Regulators shut down Houston-based Franklin Bank
and Security Pacific Bank in Los Angeles on Friday, bringing the
number of failures of federally insured banks this year to 19.
The Federal Deposit Insurance Corp. was appointed receiver of Franklin
Bank, which had $5.1 billion in assets and $3.7 billion in deposits as
of Sept. 30, and of Security Pacific Bank, with $561.1 million in
assets and $450.1 million in deposits as of Oct. 17

The co-founder and chairman of parent Franklin Bank Corp., Lewis
Ranieri, is credited with inventing mortgage-backed securities two
decades ago, but apparently was unable to save his own company from
getting ensnared in the home-loan bust.

The bank's failure is a bitter irony because it is the mortgage
securitization business of which Ranieri is known as a pioneer -- the
repackaging of home loans as bonds that are sold to investors -- that
was at the heart of the mortgage and credit crises. Last spring, the
audit committee of the company's board found in an investigation
certain weaknesses in accounting, disclosure and other issues relating
to residential real estate loans.

Franklin Bank Corp. just Sunday said it had received proposals for
transactions to strengthen Franklin Bank's capital position and was
keeping regulators informed of the talks' progress.

TCS’ exposure to banking sector

Software company Tata Consultancy Services Ltd’s (TCS) acquisition of Citigroup Global Services Ltd gives further credence to the view that Indian IT players are buying revenues to offset the expected slowdown in global IT spend. TCS’ $505 million (Rs2,459 crore) purchase comes close on the heels of larger bids by Infosys Technologies Ltd and HCL Technologies Ltd for Europe-based consulting firm Axon Group Plc.
The difference is that the valuation of Citigroup Global Services seems more reasonable. Adjusted for the cash on its books, Citigroup’s captive BPO (business process outsourcing) firm is valued at a little more than eight times estimated earnings before interest and tax for 2008. That’s slightly lower than TCS’ own battered-down valuation of about 8.5 times estimated 12-month earnings till December. In Axon’s case, however, HCL Technologies has valued the target firm higher than its current valuation.




For a captive BPO firm, Citigroup Global Services has surprisingly high operating margins of 20%. Normally, when a third party runs back-office operations, it’s able to extract higher margins. But it remains to be seen if TCS is able to improve margins, given the troubles faced by the whole banking industry currently.
But the greater risk is the increased exposure to the financial services sector and one client within the sector. According to an analyst, TCS would now generate revenue worth $400 million from Citigroup Inc., or about 5.5-6% of its annual revenue. Its exposure to the financial services sector is already rather high at 42.5%. The underperformance of TCS’ shares vis-a-vis Infosys in the recent past shows that the markets aren’t happy with this high level of exposure.

FBI probes financial giants for fraud

Washington: The US Federal Bureau of Investigation is probing allegations of fraud by 26 Wall Street firms including several investment giants whose collapse sent world markets into turmoil, US media said on Tuesday.
The FBI has set its sights on investment titan Lehman Brothers, mortgage giants Fannie Mae and Freddie Mac and insurer AIG, in a wide-reaching inquiry that comes as lawmakers rush to agree a $700 billion government bailout of the troubled US financial sector.
The FBI probe aims to determine whether company executives had any responsibility for the institutions’ financial woes through “misinformation or material misinformation,” CNN said.




FBI Director Robert Mueller said last week that the bureau was probing 24 financial institutions, but gave no details other than to describe them as “large corporations” that may face allegations of misstated assets.
ABC News said the probe was “multifaceted and the net is much deeper than the major firms officials confirmed today,” adding that the probe had expanded from 14 major firms to 26 in less than a year.
“The FBI currently has 26 pending corporate fraud investigations involving subprime lenders,” FBI spokesman Richard Kolko told ABC.
“As we have seen, this number can fluctuate over time; however, we do not discuss which companies may or may not be the subject of an investigation.”
Lehman Brothers earlier this month became the latest victim of the US subprime mortgage crisis, which began with a wave of foreclosures by high-risk borrowers in the United States and now threatens the global financial system.
Details of the FBI investigation broke after lawmakers in Washington grappled for a second day with the hefty bailout proposal to absorb shaky mortgage-backed debt weighing on banks and other financial institutions.




The uncertainty prompted fresh turmoil on financial markets and the main global stock markets were hit hard.
Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson said the rescue plan was urgently need to avert a deeper economic crisis.