• Officials see Iran, not outrage over film, behind cyber attacks on US banks

    By Robert Windrem and Jim Miklaszewski
    NBC News

    National security officials told NBC News that the continuing cyber attacks this week that slowed the websites of JPMorgan Chase and Bank of America are being carried out by the government of Iran. One of those sources said the claim by hackers that the attacks were prompted by the online video mocking the Prophet Muhammad is just a cover story.

    A group of purported hackers in the Middle East has claimed credit for problems at the websites of both banks, citing the online video mocking the founder of Islam. One security source called that statement "a cover" for the Iranian government's operations.

    The attack is described by one source, a former U.S. official familiar with the attacks, as being "significant and ongoing" and looking to cause "functional and significant damage." Also, one source suggested the attacks were in response to U.S. sanctions on Iranian banks.

    The consumer banking website of Bank of America was unavailable to some customers on Tuesday, and JPMorgan Chase on Wednesday had the same problems, which multiple sources linked to a denial-of-service attack, in which a website is bogged down by a large number of requests. A Chase spokesman said Wednesday that the consumer site was intermittently unavailable to some customers, but did not acknowledge then that there was an attack. On Thursday, Chase said slowness continued but was resolved by late afternoon Eastern Time. Bank of America acknowledged on Tuesday that its site had experienced slowness, but would not say what caused it.

    Senior U.S. officials acknowledge that Iranian attacks have been the subject of intense interest by U.S. intelligence for several weeks. Last week, the Joint Chiefs of Staff's Intelligence Directorate, known as J-2, confirmed continuing Iranian cyber attacks against U.S. financial institutions in a report described as "highly classified." The report was posted on internal classified U.S. government sites last Friday, September 14.

    Because of the level of classification, the officials refused to provide or confirm any specifics on these attacks. However, one official noted that Iran's uranium enrichment program had been the target of the STUXNET worm in 2010. The worm was reportedly developed by the U.S. and Israel. "The Iranians are very familiar with the environment,” quipped the official.

     

    A conservative website, FreeBeacon.com, initially reported on the Pentagon analysis, quoting it as saying,  “Iran’s cyber aggression should be viewed as a component, alongside efforts like support for terrorism, to the larger covert war Tehran is waging against the west.” U.S officials did not deny the FreeBeacon report when queried by NBC News.

    A financial services industry group,  the Financial Services Information Sharing and Analysis Center, warned U.S. banks, brokerages and insurers late Wednesday to be on heightened alert for cyber attacks. FS-ISAC also raised its raised the cyber threat level to "high" from "elevated" in an advisory to members, citing "recent credible intelligence regarding the potential" for cyber attacks as its reason for the move.

    The former head of cyber-security for the White House testified Thursday that “we were waiting for something like this from Iran.”  Frank Cilluffo, who served as Special Assistant to the President for Homeland Security under President George W. Bush, is currently an associate vice president at George Washington University and heads the Homeland Security Policy Institute. Cilluffo testified in a previously scheduled appearance before the U.S. House of Representatives’ Committee on Homeland Security, saying “the government of Iran and its terrorist proxies are serious concerns in the cyber context. What Iran may lack in capability, it makes up for in intent.  They do not need highly sophisticated capabilities—just intent and cash—as there exists an arms bazaar of cyber weapons, allowing Iran to buy or rent the tools they need or seek.”

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    The statement by the purported Muslim hackers, posted on Tuesday on Pastebin, an online bulletin board, reads in full: "In the name of Allah the companionate the merciful. My soul is devoted to you Dear Prophet of Allah. Dear Muslim youths, Muslims Nations and are noblemen. When Arab nations rose against their corrupt regimes (those who support Zionist regime) at the other hand when, Crucify infidels are terrified and they are no more supporting human rights. United States of America with the help of Zionist Regime made a Sacrilegious movie insulting all the religions not only Islam. All the Muslims worldwide must unify and Stand against the action, Muslims must do whatever is necessary to stop spreading this movie. We will attack them for this insult with all we have. All the Muslim youths who are active in the Cyber world will attack to American and Zionist Web bases as much as needed such that they say that they are sorry about that insult. We, Cyber fighters of Izz ad-din Al qassam will attack the Bank of America and New York Stock Exchange for the first step. These Targets are properties of American-Zionist Capitalists. This attack will be started today at 2 pm. GMT. This attack will continue till the Erasing of that nasty movie. Beware this attack can vary in type. Down with modern infidels. Allah is the Greatest. Allah is the Greatest."

    There was no report of an attack on the New York Stock Exchange.

    Also on Thursday, the U.S. disclosed that it has  bought $70,000 worth of air time on seven Pakistani television channels to air an ad which shows President Barack Obama and Secretary of State Hillary Clinton denouncing the anti-Islamic video. In the ad, President Obama says, "Since our founding the United States has been a nation that respects all faiths. We reject all efforts to denigrate religious beliefs of others." Clinton appears after Obama and says, "Let me state very clearly that the United States has absolutely nothing to do with this video. We absolutely reject its contents. America's commitment to religious tolerance goes back to the very beginning of our nation."

    Pakistan was added Wednesday to the State Department's list of countries to which Americans should avoid travel, joining Lebanon and Tunisia, following protests across the Middle East and North Africa and the attack on the U.S. consulate in Benghazi, Libya, in which American Ambassador Chris Stevens was killed. 

    Robert Windrem is a senior investigative correspondent for NBC News. Jim  Miklaszewski is the chief Pentagon correspondent for NBC News. Patti Domm, executive news editor at CNBC and CNBC.com, contributed to this report.

    Analysis: 'Manufactured outrage' behind Middle East protests

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    Slideshow: Anger over film spreads throughout Muslim world

    Protests ignited by a controversial film that ridicules Islam's Prophet Muhammad spread throughout Muslim world.

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    More world stories from NBC News:

    French officials are preparing for a potential violent backlash as a satirical magazine defends its decision to publish cartoons mocking the Prophet Muhammad. NBC's Michelle Kosinski reports.

     

  • Clandestine loans used to fortify Greek bank

    By Patrick Enright
    Reuters

    Continuing its investigation into the Greek banking system, Reuters reports that the head of one of the largest banks in Greece borrowed more than 100 million euros to buy a stake in the bank, a deal not declared to the Athens stock exchange. That raises questions about the oversight and stability of the country's financial system just as Greek banks are receiving tens of billions of euros in bailout funds from the International Monetary Fund.

    Below are excerpts from Reuters reporters Stephen Grey and Nikolas Leontopoulos' story:

    The chairman of one of Greece's largest banks and his family took out loans totaling more than 100 million euros to finance an undisclosed stake in the bank, according to audit documents seen by Reuters. Offshore companies owned by Michael Sallas and his two children paid for shares in the Piraeus Bank, the country's fourth-biggest, by borrowing money from a rival bank. Together the shares make the Sallas family the largest shareholder in Piraeus, with a combined stake of over 6 percent. The purchase of these shares has not been declared to the Athens stock exchange by Piraeus.
    ...

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    The loans to investors in the Piraeus rights issue highlight a bigger concern in the Greek banking sector. Piraeus issued more shares last year to strengthen its capital base, enabling it to score higher in European bank stress tests. The successful issue, Sallas said at the time, showed "a sign of confidence in Piraeus Bank, the Greek banking system and of course the prospects of the Greek economy." But Sallas did not make public the loans he and other shareholders had taken out to help make the rights issue a success.
    ...

    Hans-Peter Burghof, a professor of banking and finance at the University of Hohenheim, Germany, said that billions of euros had been given to the Greek banking system without adequate supervision of the sector. "It's our money and it has been given without controls. It's a disaster," he said. If banks lent to finance each other's shares, he said, then "this way you can produce as much equity as you like and make banks as big as you like. It is not real equity." He likened it to "a kind of Ponzi scheme."

    Click here to read the full story. 

  • Banking industry gradually finding a new 'normal'

    By Wendell Cochran
    Investigative Reporting Workshop at American University

    Bank profits are rising and lending is growing as the battered industry struggles to regain a semblance of normality, new government figures show.

    Some of the signs:

    • Profits are up. Banks made $35.6 billion in the first quarter, according the Federal Deposit Insurance Corp. That’s the best quarter since mid-2007, before the industry was plunged into its worst crisis in a generation.
    • Lending is growing, despite a small downturn in the first three months of the year. Business lending is up by 14 percent in the past year.
    • Troubled assets are down. The amount of troubled assets — a combination of nonperforming loans and the value of foreclosed property — continues to tumble, according to an analysis of FDIC quarterly financial reports by the Investigative Reporting Workshop. At the end of March, the nation’s banks were carrying over $240 billion in troubled assets, but that’s the lowest level since December 2008, when the scope of the financial crisis was beginning to be understood.

    To some extent, whether banking is back depends on which banker you talk to.

    Herbert Marth Jr., president of the $390-million asset Central Virginia Bank in Powhatan, Va., laughs at the question. “Oh, man. No.”

    “Business people are still very cautious. Loan demand is still very, very weak. That’s probably the toughest issue right now,” he says.

    At Northwest Financial Corp., which owns three banks in Iowa, President Jeff Plagge says, “I’m not sure what ‘normal’ is.”

    Still he senses that people think it is time to get back to business, although they remain wary because of events like last week’s stock price tumble caused by worry over European financial issues. Unlike Marth, Plagge sees some rekindling of loan demand.

    “In our three banks we are seeing people kind of back to what I call ‘normal,’” he says. Strong grain and livestock prices over the past few years have helped many banks in the agricultural heartland get through the crisis in better shape than banks elsewhere. Only two Iowa banks have failed since the beginning of 2007.

    He also is vice chair of the American Bankers Association and says that “even in the most troubled places” his colleagues around the country “at least think it’s found the bottom.”

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    You couldn’t blame bankers for being a bit cautious about saying the industry is out of the woods. It has been traumatized by its experiences over the past five years. For many banks there still is a mountain of troubled debt and a long line of foreclosures to work through.

    Since the end of 2007, 438 banks have failed, and another 788 have merged into other institutions, meaning that on average banks have gotten larger. The rate of failures has slowed, peaking at 157 in 2010, down to 92 last year and 24 so far this year.

    Between September 2008 and December 2008, the federal government handed out $204.9 billion in capital assistance to more than 800 banks through the Troubled Asset Relief Program (TARP). All but about $11.6 billion of that has been repaid, according to the Treasury Department. Workshop records show that 393 banks still have not repaid their TARP investments. (Note: The Workshop links TARP investments to individual banks, not just to the holding companies that own them. The Treasury Department says it invested in 707 institutions.)

    By its accounting, Treasury has lost about $2.7 billion of TARP funds in banks and related financial institutions that failed, including $2.3 billion to CIT Group Inc., which declared bankruptcy in 2009, less than a year after getting the TARP money. The company’s bank subsidiary, CIT Bank, did not fail and continues to operate. Treasury also has accepted less than its full investments in some cases where banks merged into other institutions.

    Since TARP began in 2008 Treasury has collected nearly $21.5 billion in interest and dividends on its investments. Of the active banks that still owe money, 197 are behind on their dividend payments, owing a total of more than $305 million at the end of April, according to the Treasury Department. The Treasury Department has installed government observers in 51 TARP banks to better oversee their activities.

    It may be awhile before the government sees much of the money it is still owed. While the nation’s largest banks lobbied for and got quick permission to pay back their government funds (in part because they wanted to escape restraints on executive pay), smaller regional and community banks have had a harder time getting out of the program.

    The Inspector General for the TARP program reported to Congress in late April that the banks still in TARP are generally smaller community banks and that they are institutions that “have an uphill battle to exit TARP because they cannot find new capital to replace TARP funds.”

    The Central Virginia Bank, where Marth is president, is an example of the issues smaller banks face trying to exit TARP. Marth says having TARP money, “definitely helped us out and continues to help us out.” The $390 million-asset bank got an $11.4 million infusion from TARP in January 2009.

    Marth says the bank mostly needed the money because it lost $18 million overnight in September 2008 when the government took over mortgage companies Fannie Mae and Freddie Mac, wiping out the bank’s investment in their preferred stock. “If we had that money today, we wouldn’t have needed TARP,” he says.

    Central Virginia has had a difficult time keeping up its payments because of heavy loan losses in 2009 and 2010. At the end of April it owed the Treasury about $1.3 million in dividends on TARP. The bank worked its way back to profitability in 2011.

    Marth says that when the economy and capital markets improve, “We ought to be able to raise additional capital.” But, he adds, given the uncertainty around the financial situation in Europe, “Right now is not the time.”

    The largest outstanding TARP advance went to Synovus Financial Corp. of Columbus, Ga., which received $967.9 million in December 2008. Synovus is current on its dividends and has never missed a payment, according to Treasury Department reports. The smallest remaining TARP investment is $301,000 owed by tiny The Freeport State Bank, Harper, Kan. , which also is current on its dividend payments. In its statements on TARP, Treasury is generally upbeat. It highlights that between repayments and dividends, the bank investment program is in the black.

    Paul Miller, FBR Capital Markets, discusses whether there's still room to run for the regional banks.

    But the Inspector General’s report in April takes a much tougher tack.

    The IG says, “TARP’s costs and legacies involve far more than just dollars and cents. Using a microscope to narrowly focus on the profit or loss of TARP risks losing sight of the bigger picture of whether TARP has been successful in meeting its goals. It also glosses over whether lessons learned from the financial crisis have been adequately implemented so that Treasury, banking regulators, and Congress do not find themselves in the position of rushing out another massive bailout of the financial industry, i.e., TARP 2.0.”

    For example, the IG says, “A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed ‘too big to fail.’”

    In other words, the government came to the rescue to prevent imperiled big banks from failing, even though there was widespread agreement that it was the banks’ own actions that put them and the whole financial system in jeopardy. The lesson to the banks: “It doesn’t matter what we do, the government will save us if we are big enough.” Since the advent of TARP in September 2008, the biggest banks have gotten bigger and claimed a larger share of banking assets and deposits.

    The inspector general’s report also notes, as the Workshop has reported previously, that TARP did not stimulate bank lending, even though that was a stated goal of the program. “This may be in part due to Treasury’s failure to require…increased lending in exchange for TARP funds,” the report says.

    "Treasury did not even require TARP recipients to report on how they used TARP funds, providing an opaque cover for those institutions that continued to cut lending,” the IG says.

  • Fed lent banks nearly $8 trillion during crisis, report shows

    While the nation's largest banks were publicly reassuring nervous investors of their stability during the height of the financial crisis, they were also quietly approaching the Federal Reserve, hat in hand. The total price tag: $7.77 trillion, many times the amount of the better-known TARP bailout.

    The magnitude of the government's assistance to struggling banks allowed them to grow even bigger and continue paying executives billions in compensation, a report in Bloomberg Markets January issue said Monday.

    A win in court against a group representing the banks and a FOIA request filed by Bloomberg LP revealed the extent of the central bank's largesse — as well as the $13 billion in profits banks earned from those bailouts. The so called "big six" — JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — accounted for $4.8 billion of that total — nearly a quarter of their net income during that time. 

    Those borrowed trillions were a deeply-buried secret. It appears that even high-ranking Fed officials didn't know about the scale of the handouts. According to Bloomberg, then-president of the Federal Reserve Bank of Minneapolis Gary H. Stern “wasn’t aware of the magnitude,” and unnamed sources say that even top aides to Treasury Department head Henry Paulson were kept in the dark. 

    The six biggest banks in the country received a total $160 billion in TARP funds, but as much as $460 billion from the Fed, raising the question as to how and why this nearly $8 trillion in loans, guarantees and limits remained under wraps for so long. According to the Fed, the massive scale of banks' borrowing — and the red ink that prompted it — had to be kept secret to avoid spooking investors and prompting a panic or bank runs that would have had even more devastating consequences on the shaken economy. 

    The Fed defended its actions back then by contending that the biggest financial institutions in the country were too big to fail — a phrase that has become a bone of contention among lawmakers, some of whom argue that a "too big to fail" bank is one that's too big to exist.

    Ohio Senator Sherrod Brown sponsored a bill last year that would cap a bank's non-deposit liabilities at 2 percent of gross domestic product, and crack down on workarounds banks currently use to bypass a 1994 law that prohibits any one bank from holding more than 10 percent of all deposits in the country.

  • Check your bank's health in BankTracker

    By Bill Dedman
    Investigative Reporter, NBC News

    The FDIC's list of troubled banks has grown again, according to this article from the AP.

    The number of banks at risk of failing made up nearly 12 percent of all federally insured banks in the final three months of 2010, the highest level in 18 years.

    The Federal Deposit Insurance Corp said Wednesday that the number of banks on its confidential "problem" list rose to 884 in the October-December quarter, up from 860 in the previous quarter. Those are banks rated by examiners as having very low capital cushions against risk.

    That list is secret, but as a rough proxy you can check the health of any U.S. bank or credit union in the BankTracker from msnbc.com and American University.

    And check the list of previous stories in our BankTracker series.