Posts Tagged ‘Bank of America’

Fannie Mae Asks Uncle Sam For More Money

Wednesday, March 21st, 2012

In an attempt to dig itself out of a deepening hole, Fannie Mae has requested $4.6 billion in additional federal aid. “We think that we have reserved for and recognized substantially all of the credit losses associated with the legacy book,” Chief Financial Officer Susan McFarland said.  “We’re very focused on returning to profitability so we don’t have to draw (from Treasury) to cover operating losses.”

Although the nation’s banks seem to be recovering nicely, the same cannot be said for mortgage giants Fannie Mae and Freddie Mac.  Writing in Forbes, Steve Schaefer notes that “The mortgage finance giants have taken on a greater share of supporting the U.S. housing market as private players pared back their exposure in recent years, and the result has been billions of losses on the taxpayer dime.  Fannie Mae reported booking a $16.9 billion 2011 loss capped off by the loss of $2.4 billion in the 4th quarter.  Fannie Mae’s losses are still coming largely from its legacy book of business (from before 2009), which led to $5.5 billion in credit-related expenses tied to declining home prices.

“The black holes of Fannie and Freddie – Fannie’s Q4 report shows it has requested to draw $116.2 billion since being placed under conservatorship Sept. 6, 2008 while paying back $19.9 billion in preferred stock dividends – are the biggest black eyes of the 2008 bailouts.  Plenty of critics of the Troubled Asset Relief Program (TARP) have made their voices heard over the years, but at least most of the banks that received TARP injections – the biggest of which went to Bank of America and Citigroup – have paid back the government’s loans and are back to making profits, if modest ones. Even American Intl Group and the automakers  that received bailouts – General Motors and Chrysler – have moved beyond needing additional government dollars.  Fannie and Freddie, on the other hand, show few signs of becoming anything resembling productive companies until the housing market turns around or the pre-2009 assets are completely wiped off the books or new policies are necessary to encourage new refinancing beyond those currently in place that have had limited impact.”

“While economic factors such as falling home prices and high unemployment produced strong headwinds for our business again in 2011, we continued to grow a very strong new book of business as we have since 2009, “said CEO Michael Williams, who handed in his resignation in January but is still on board while the government-sponsored enterprise (GSE) looks for his replacement.

Bank of America last week announced that it had stopped selling some mortgages to Fannie Mae because of a dispute over requests from the government-run company to buy back defective loans.  “If Fannie Mae collects less than the amount it expects from Bank of America, Fannie Mae may be required to seek additional funds from Treasury,” the company said.

Fannie Mae blamed its loss primarily on pre-2009 loans and falling home prices, which pushed up the company’s credit-related expenses.  In the 4th quarter of 2010, Fannie Mae posted a slight profit to end a streak of 13 consecutive quarterly losses, though the company was back in the red in the following quarter and each since.  The net cost to taxpayers for bailing out Fannie and Freddie stands at more than $152 billion.

During the 4th quarter, Fannie Mae acquired 47,256 single family homes through foreclosure compared with 45,194 in the 3rd quarter.  The company disposed of 51,344 REO properties in the quarter, down from 58,297 in the 3rd quarter.  As of the end of 2011, Fannie Mae was holding 118,528 REO properties, a reduction from the 122,616 at the end of September and 162,489 on December 31, 2010.  The value of the single-family REO was $9.7 billion compared with $11.0 billion at the end of the 3rd quarter and $15.0 billion at the end of 2010.  The single family foreclosure rate in the 3rd quarter was 1.13 percent annualized compared with 1.15 for the first three quarters of the year and 1.46 percent for 2010.

Meanwhile, the federal government wants to sell approximately 2,500 distressed properties in eight locations to investors who buy them in bulk and rent them out for a predetermined period.  The properties, located in Atlanta, Phoenix, Las Vegas, Los Angeles/Riverside, and three Florida regions, include single-family homes and co-op apartment buildings.  “This is another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties, and reduce the supply of REO properties in the marketplace,” said Edward J. DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae.

A New Chapter for Iconic Empire State Building

Wednesday, March 14th, 2012

The landmark 102-story Empire State Building in midtown Manhattan could raise as much as $1 billion in a share sale and become a real estate investment trust (REIT), if the company that controls that iconic structure if its plans pan out.  According to a Securities and Exchange Commission filing, Empire State Realty Trust, Inc., intends to list the shares on the New York Stock Exchange.  The firm, Malkin Holdings, LLC, will consolidate a group of closely held companies to form the REIT as part of the IPO, according to a separate filing.

Malkin, supervisor of the company the holds the title to the tower, said that it had “embarked on a course of action” that could result in the Empire State Building becoming part of a new REIT.  Malkin Holdings supervises property-owning partnerships led by Peter and Anthony Malkin, and owns the 2.9 million-square-foot Empire State Building in conjunction with the estate of Leona Helmsley.  Bank of America, Merrill Lynch and Goldman Sachs Group Inc. will advise on the IPO.  The price and number of shares were not disclosed in the filing.

The proposed IPO would give investors a rare opportunity to own a piece of one of the world’s most famous buildings as New York’s real estate values rebound after the recession.  Midtown Manhattan office property prices have recovered 87 percent of their value since bottoming out in mid-2009, according to Green Street Advisors Inc., a REIT research firm.

The REIT would consolidate Manhattan and New York area properties owned by companies including Empire State Building Associates LLC, 60 East 42nd St. Associates LLC and 250 West 57th St. Associates LLC. Participants can opt to receive cash instead of shares for as much as 15 percent of the value.

Since gaining control of the building 10 years ago, Malkin has invested tens of millions of dollars to improve the office spaces and cut the cost of heating and maintaining the 81-year-old structure.  That helped attract tenants such as social networking site LinkedIn.  According to the SEC filing, Malkin said that upgrading the building still requires additional investment of between $55 million and $65 million over the next four years.

As with many recent tech and internet IPOs, the company plans to have two classes of stock — class A shares that are sold to the public and worth one vote, as well as class B shares with 50 votes each.  The structure leaves the Malkin family with significant control.  The proceeds will pay existing stakeholders in the buildings who chose to take cash in exchange for their interests, and to repay debt.  The REIT will list itself on the New York Stock Exchange under the symbol “ESB.”

The Malkins realize that leasing in New York is “highly competitive,” and faces new rivals in the skyline, primarily the One World Trade Center, which will have a broadcast antenna and observation deck that could attract tenants away from the Empire State Building.

At 1,250 feet and 102 floors, the art deco-style building is one of New York City’s most recognizable tourist destinations, enjoying its second stint as the city’s tallest building.  It was the world’s tallest building from its 1931 opening until 1974, when the 442-meter Sears Tower (now Willis Tower) was completed in Chicago.

The building played a starring role in several movies, most notably “King Kong,” “An Affair to Remember” and “Sleepless in Seattle.”

A Lifeline for Underwater Homeowners?

Wednesday, October 26th, 2011

Federal officials and some of the nation’s largest banks are collaborating on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, with the caveat that they must be up-to-date on mortgage payments.  Typically, these borrowers can’t refinance because they don’t have enough equity in their homes.  The plan would apply only to bank-owned mortgages.

Federal officials have been trying to negotiate a deal with the five largest mortgage servicers – Ally Financial, Inc, Bank of America, Citigroup Inc, J.P. Morgan Chase and Wells Fargo & Co.  Officials favor a plan that would break a legal impasse with big banks over alleged foreclosure abuses such as robo signing and ease problems in the housing market.  Discussions are still underway and the final outcome is not yet known.

Pressure is building in Washington, D.C., to help underwater homeowners with a generous refinance plan.  President Barack Obama told Congress that he wants to help “responsible homeowners” refinance, saying it would “give a lift to an economy still burdened by the drop in housing prices.”  A bipartisan coalition of 16 senators wrote to the administration urging swift action on a refinance plan.

“A huge floodgate would open up” if underwater refinancing were broadly available, said Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco.  “It would provide the help that lowering interest rates cannot do alone.  Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that four percent make a huge difference in their life.”

A program has existed for some time that provides guidelines to lenders for refinancing some Fannie Mae- and Freddie Mac-backed underwater mortgages.  The program is called HARP (Home Affordable Refinance Program), it’s two years old and has resulted in approximately 800,000 refinances, far short of the five million originally envisioned.  Only a fraction of those homeowners were deeply underwater.  HARP’s main impediment has been the lenders themselves.  Concerns about issues such as being forced to take responsibility for refinances that default (known in the industry as “buybacks”) has made lenders reluctant to issue HARP mortgages.  The proposed new plan would likely expand HARP to make it more acceptable to lenders and more usable by a broader swath of homeowners.  “Changes (being contemplated) would address several HARP obstacles,” said Erin Lantz, director of the mortgage marketplace for Zillow.  “The industry now makes it hard for people to qualify.  The process would be more streamlined.”

According to a recent Harvard study, approximately 11 million homeowners with mortgages are underwater.  This accounts for roughly one-fourth of all homes with mortgages in the nation.  An additional five percent have near-negative equity (<five percent home equity).

Writing for Reuters, Felix Salmon doesn’t think much of the potential mortgage plan.  “It’s pretty weak tea: under the terms of the deal, if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates.  It’s worth remembering, at this point, that mortgages are by their nature pre-payable.  When you write a fixed-rate mortgage, you make a general assumption that if mortgage rates fall substantially, the borrower is going to pay you off and refinance.  The underwater questions we’re talking about here were written during the housing boom, when banks simply assumed that house prices always went up; those banks cared massively about prepayment risk at the time, and spent huge amounts of money and effort trying to hedge it.  As it happened, mortgage rates did fall substantially — with the result that the banks’ hedges paid off.  But then the banks realized that they could make money on both legs of the deal — that they could collect on their mortgage-rate hedges, without having to worry about prepayment.  Because now the borrowers are underwater, they’re not allowed to refinance. So the banks continue to cash above-market mortgage payments every month — something they never expected that they would be able to do.

“It’s not inconceivable at all.  In fact, wholesale mortgage refinance for underwater borrowers is a major part of Barack Obama’s jobs bill, and the Congressional Budget Office (CBO) has been costing it in various ways.  At heart, it’s a way of rectifying a market failure, and thus makes perfect sense.  But that’s precisely why I don’t think that this plan deserves a place in the mortgage-settlement talks.  For one thing, it’s downright unfair and invidious to allow 20 percent of underwater homeowners to refinance while ignoring the other 80 percent.  More to the point, giving homeowners the ability to refinance their mortgages is what you do, if you’re a bank.  It’s not some kind of gruesome punishment.”

August Foreclosures Rise 33 Percent Over July

Tuesday, October 11th, 2011

Default notices sent to delinquent U.S. homeowners soared 33 percent in August when compared with July, evidence that lenders are accelerating the foreclosure process after almost one year of delays, according to RealtyTrac, Inc.  First-time default notices were filed on 78,880 homes, the highest number in nine months.  Total foreclosure filings, which also include auction and home-seizure notices, rose seven percent from a four-year low in July to 228,098.  One in 570 homes received a notice during August.  “The industry appears to be hitting the reset button and the logjam may finally be breaking up,” Rick Sharga, RealtyTrac senior vice president, said.  Foreclosure filings in 2011 have been “artificially low.”

“This is really the first time we’ve seen a significant increase in the number of new foreclosure actions,” Sharga said. “It’s still possible this is a blip, but I think it’s much more likely we’re seeing the beginning of a trend here.”  Foreclosure activity started declining last year after problems surfaced with the way many lenders were handling foreclosure paperwork, such as shoddy mortgage paperwork comprising several shortcuts known as robo-signing.

Additional factors have also stalled the pace of new foreclosures.  In some cases, the process has been held delayed by courts in states where judges are involved in the foreclosure process, a possible settlement of government investigations into mortgage-lending practices, and lenders’ reluctance to take back properties because of slowing home sales.  A rise in foreclosures also means a potentially faster turnaround for the U.S. housing market.  Experts say that revival won’t occur as long as the glut of potential foreclosures remains on the market. 

Foreclosures depress home values and create uncertainty among potential homebuyers who worry that prices may further decline as more foreclosures hit the market.  There are approximately 3.7 million more homes in some phase of foreclosure at present than there would be in a normal housing market, according to Citi analyst Josh Levin.  “This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,” he said.

Although negotiations between some banks and state attorneys general regarding foreclosure practices are still unresolved, several restarted foreclosure actions after an April settlement with federal regulators.  JPMorgan Chase & Co., as of the end of June, had resumed foreclosure actions in nearly all of the 43 states where it had suspended its efforts.  So-called “shadow inventory,” or the looming foreclosures that are still expected to hit the market, is a major threat for a housing sector that already has a glut of unsold homes.  In spite of everything, default notices had fallen 18 percent when compared with August of 2010 and down 44 percent from the peak reached in April 2009 during the tail end of the recession.

Writing for The Consumerist website, Chris Morran says that “Last year, several of the country’s largest mortgage servicers — Bank of America, GMAC/Ally, JPMorgan Chase, among others — were forced to hit the pause button on foreclosure procedures after it was revealed that many foreclosure documents were being rubber stamped by untrained, ill-informed ‘robo-signers.’  This delay caused a bottleneck of foreclosure-worthy properties waiting to be reviewed.  But now it looks like those homes are starting to trickle out into what could be a flood in early 2012.  According to Bank of America, “We are on an ongoing path to return foreclosures to normal levels. Strong gains like that from July to August demonstrate our progress – primarily in judicial states — clearing more volume to advance to foreclosure once we pass the numerous quality controls we have in place and exhaust all options with homeowners.  Our progress each month builds upon foreclosure levels lower than the market realities would dictate.”

A more optimistic view of the dismal report was offered by Gregory Tsujimoto, who performs market research for John Burns Real Estate Consulting in Irvine, CA, and views the data as reflecting more of a stall in an improving market than a new downtrend.  Despite the sharp increase in monthly figures, Tsujimoto attaches more weight to an 18 percent decline in default notices on a yearly basis.  Tsujimoto believes that the uptick in default notices is “a leading indicator for future foreclosures, which is not coming at a great time when measures of consumer confidence have declined.”  But, he says that we must address the backlog of distressed inventory and “vacant homes in the marketplace before we get true improvement.”  The other key, he says, is “creating jobs to spur demand.”

Among the states with the highest foreclosure rates, California led in new foreclosures with an increase of 55 percent over July, according to RealtyTrac.  Cities in inland California posted big jumps, with Riverside and San Bernardino counties soaring 68 percent, Bakersfield 44 percent and Modesto 57 percent.  “Scratch beneath the surface and there’s not a lot to cheer about this month.  Home sales were up from a year earlier but remained far below average,” DataQuick President John Walsh said.  “Many would-be buyers can’t find financing, and others who want to make a move now are stuck because they owe more than their homes are worth.”

The decision to move ahead is an important one since RealtyTrac has long maintained that property values won’t rise until a large number of distressed properties are purchased.  “We don’t know yet if this is a beginning of a trend, but there is a good chance we might see a return to more realistic foreclosure numbers,” Sharga concluded.

One Solution to Rundown Foreclosed Houses? Bulldoze Them

Wednesday, August 17th, 2011

Several banks have found a new solution to the glut of foreclosed houses – many of them in poor condition.  It’s the bulldozer. Bank of America (BoA) owns a glut of abandoned houses that no one wants to purchase.  As a result, the nation’s largest mortgage servicer is bulldozing some of its most uninhabitable inventory.  Additionally, Wells Fargo, CitiCorp, JP Morgan Chase and Fannie Mae have been demolishing a few of their repossessed houses.  BoA is donating 100 foreclosed houses in the Cleveland area and in some cases will contribute to the cost of their demolition in partnership with a local agency that manages blighted property.  The bank has similar plans impacting houses in Detroit and Chicago, and more cities tare expected to be added.

“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corporation, which works with lenders, government officials and homeowners to salvage abandoned homes.  “The best thing we can do to stabilize the market is to get the garbage off.”  Detroit mayor Dave Bing is in the process of ” right-sizing” the motor city by razing entire neighborhoods.

BoA plans to donate and bulldoze 100 houses in Cleveland, 100 in Detroit, and 150 in Chicago.  The lender will pay up to $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program.  Uses for the land include development, open space and urban farming.  “No one needs these homes, no one is going to buy them,” said Christopher Thornberg, founding partner at the Los Angeles office of Beacon Economics LLC.  “Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”

Some foreclosed properties are so uninhabitable that the bank is willing pay to have them destroyed.  A bank spokesman said some in this category are worth less than $10,000.

Writing in The Atlantic, Daniel Indiviglio says that “The motivation here is pretty straightforward.  They get out of ongoing maintenance costs and taxes that they would have to pay as long as the property remains on the market.  But the even better news is that the banks can often write-off these properties as a result.  In some cases, banks can deduct as much as the homes’ fair market value from their income taxes.  From the real estate market’s standpoint this strategy is also positive.  With less supply, prices will stabilize more quickly.  Disposing of these foreclosures will make the market clear sooner.  And yet, the idea of bulldozing homes does seem rather unsavory, does it not?  Perhaps some of these homes are condemned and/or beyond repair.  In those cases, it might turn out to be more expensive to try to get them back up to code than it would be to knock them down and start over.  But does this really describe all of the cases?  This is reportedly happening to thousands of homes across the U.S.  My concern is that banks are using this as an easy out to minimize their loss with little concern about what’s best for the U.S. economy.  If some of these homes could be converted to perfectly adequate rental properties at minimal additional cost at some point in the future, for example, then this would make a lot more sense than knocking them down and building new homes from scratch.”

According to a Time magazine article,  “After multi-billion dollar legislative efforts in the form of the Stimulus, Dodd-Frank and stand-alone legislation, President Obama declared failure earlier this month and said he’s going back to the drawing board on a housing fix.  Negotiations between the 50 state attorneys general and the big mortgage lenders, rather than clearing the air for banks and borrowers, has become an enormous wet blanket as negotiations drag out and banks refuse to make any move without knowing how much of the reported $20 billion settlement will fall on them.  Economists argue that the failure to clear the housing market is a primary cause of the stunted recovery: continued household debt weighs on consumer spending, home ownership and excessive debt puts a drag on labor mobility, and banks fear the consequences of increased lending.”

Regulators Cracking Down on Banks Over Foreclosures

Tuesday, April 26th, 2011

Federal regulators at the Departments of Justice, Treasury and Housing, as well as the Federal Trade Commission, have ordered the nation’s largest banks to revamp their foreclosure procedures and compensate borrowers who were financially hurt by “pervasive” bad behavior or carelessness.  According to the bank regulators, failure to comply with the rules will result in fines and a broad investigation conducted by state attorneys general and other federal agencies.  The regulators acted after being criticized for not putting a halt to risky lending practices during the housing boom.

Describing the lending practices as “a pattern of misconduct and negligence,” the Federal Reserve said that “These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.”  Borrowers in trouble have complained that applying for a modification using the Obama administration’s program has been too complicated and characterized by multiple games of telephone tag.  Enforcement requires servicers to set up compliance programs and hire an independent firm to review residential-foreclosures.  The banks will be required to make sure that communications are more “effective” between borrowers and banks when it comes to foreclosure and mortgage-modification proceedings.

Citibank, Bank of America, JPMorgan Chase and Wells Fargo, the nation’s four leading banks, top the list of financial firms cited by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency.  Citigroup said that it had “self-identified” desired changes in 2009 and that it has helped more than 1.1 million homeowners avoid foreclosure.  “We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements,” the company said.

As stern as the recent move seems to be, there are still critics.  “These consent orders are worse than doing nothing,” said Alys Cohen, staff attorney for the National Consumer Law Center.  “They set the bar so low on some things and they give the banks carte blanche on others.  And they give the appearance of doing something while giving banks control of the process.”  Additionally, consumer advocates and members of Congress said the new rules are too little, too late.

Congressional critics maintain that the order is too moderate.  House Democrats introduced legislation that would require lenders to perform specific actions, including an appeals process, before starting foreclosures.  “I want to know what abuses (the government agencies) identified, which banks committed them and how their proposed consent agreement is going to fix these problems,” said Rep. Elijah Cummings (D-MD) the ranking member of the House Government and Oversight Committee.  “Based on what I have read…I am not encouraged at all.”

More than 50 consumer groups don’t like the settlement,  and claim that the expected settlements do little more than require mortgage servicers to obey existing laws and that they lack penalties.  “They’re left to police their new improvements,” said Katherine Porter, a University of Iowa law professor who is an expert on mortgage services.  Another concern is that the settlements may weaken the ability of 50 state attorneys general to force concessions from mortgage servicers.  The attorneys general have been investigating mortgage servicers since last fall, and in March sent the companies a list of terms, which go further than those pursued by bank regulators.  Iowa Attorney General Tom Miller, who’s leading the joint effort, says any settlements with banking regulators will not “pre-empt” the states’ efforts.

The Fed Sends 19 Biggest Banks Back to the Treadmill

Wednesday, March 30th, 2011

The Federal Reserve‘s second round of stress tests requires the 19 largest U.S. banks to examine their capital levels against a worst-possible-case scenario of another recession with the unemployment rate hovering above 8.9 percent. The banks were instructed to test how their loans, securities, earnings, and capital performed when compared with at least three possible economic outcomes as part of a broad capital-planning exercise.  The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans in January.  The Fed will complete its review in March.

“They’re essentially saying, ‘Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,'” said Jonathan Hatcher, a credit strategist at New York-based Jefferies Group Inc.  Regulators don’t want to see banks “come crawling back for help later,” he said.

The review “allows our supervisors to compare the progress made by each firm in developing a rigorous internal analysis of its capital needs, with its own idiosyncratic characteristics and risks, as well as to see how the firms would fare under a standardized adverse scenario developed by our economists,” Fed Governor Daniel Tarullo said. Although Fed policymakers aren’t predicting another slump any time soon, they want banks to be prepared for one.  In January, the Federal Open Market Committee forecast a growth rate of 3.4 percent or more annually over the next three years, with the jobless rate falling to between 6.8 percent and 7.2 percent by the 4th quarter of 2013.  Unemployment averaged 9.6 percent in the 4th quarter of 2010.

The new round of stress tests are being overseen by a financial-risk unit known as the Large Institution Supervision Coordinating Committee (LISCC).  The unit relies on the Fed’s economists, quantitative researchers, regulatory experts and forecasters and examines risks across the financial system.  Last year, the LISCC helped Ben Bernanke respond to an emerging liquidity crisis faced by European banks.  “The current review of firms’ capital plans is another step forward in our approach to supervision of the largest banking organizations,” Tarullo said. “It has also served as an occasion for discussion in the LISCC of the overall state of the industry and key issues faced by banking organizations.”

At the same time, Bernanke expressed his support for the Dodd-Frank Act, which will add new layers of regulation to the financial services industry, as well as the Consumer Protection Act. “Dodd-Frank is a major step forward for financial regulation in the United States,” Bernanke said, noting that the Fed is moving swiftly to implement its provisions.  Additionally, the Fed wants banks to think about how the Dodd-Frank Act might affect earnings, and how they will meet stricter international capital guidelines.  Banks will have to determine how many faulty mortgages investors may ask them to take back into their portfolios.  Standard & Poor’s estimates that mortgage buybacks could carry a $60 billion bill to be paid by the banking industry.

In the meantime, the big banks are feeling adequately cash rich to pay dividends to their stockholders.  Bank of America’s CEO Brian T. Moynihan said that he expects to “modestly increase” dividends in the 2nd half of 2011.  “We’d love to raise the dividend,” James Rohr, CEO of PNC, said.  “We’re hopeful of hearing back in March from the regulators.”  JPMorgan CFO Douglas Braunstein told investors that the bank asked regulators for permission to increase the dividend to 30 percent of normalized earnings over time.  Braunstein said that JPMorgan’s own stress scenario was more severe than the Fed’s, and assumed that the GDP fell more than four percent through the 3rd quarter of this year with unemployment peaking at 11.7 percent.

Clive Crook, a senior editor of The Atlantic, a columnist for National Journal, and a commentator for the Financial Times, believes that United States fiscal policy itself merits examination.  Writing in The Atlantic, Crook says that “Fiscal policy needs a hypothetical stress test, just like bank capital.  Let’s be optimistic and suppose that the deficit projections do hold, and that a debt ratio of 80 percent can be comfortably supported at full employment.  What happens when we enter the next recession with debt at that level?  Assume another really serious downturn, and another 30-odd percentage points of debt.  Worried yet?  That’s why the problem won’t wait another ten years, and why sort-of-stabilizing at 80 percent won’t do.”

Federal Reserve Comes Clean on Who Received Bailout Money

Thursday, January 27th, 2011

Federal Reserve Comes Clean on Who Received Bailout MoneyAt the instruction of Congress, the Federal Reserve has released the names of the approximately 21,000 recipients of $3.3 trillion in aid provided during the financial meltdown –without doubt the nation’s worst economic crisis since the Great Depression.  Not surprisingly, two of the top beneficiaries were Bank of America and Wells Fargo, who received approximately $45 billion each from the Term Auction Facility.  American units of the Swiss bank UBS, the French bank Societe Generale and German bank Dresdner Bank AG also received financial assistance.  The Fed posted the information on its website in compliance with a provision of the Dodd-Frank bill that imposed strict new financial regulations on Wall Street.

One of the biggest surprises on the list is the fact that General Electric accessed a Fed program no fewer than 12 times for a total of $16 billion.  Although the Fed originally objected, Congress demanded accountability because there was evidence that the central bank had gone beyond their usual role of supporting banks.  In addition, the Fed purchased short-term IOUs from corporations, risky assets from Bear Stearns and more than $1 trillion in housing debt.

Reactions to the revelations are both positive and negative.  On the positive side, Richmond Fed President Jeffrey Lacker said “We owe an accounting to the American people of who we have lent money to.  It is a good step toward broader transparency.”  Sarah Binder, a senior fellow with the Brookings Institution, disagrees, noting that “These disclosures come at a politically opportune time for the Fed.  Just when Chairman Bernanke is trying to defend the Fed from Republican critics of its asset purchases, the Fed’s wounds from the financial crisis are reopened.”

Senator Bernard Sanders (I-VT) said “We see this (list) not as the end of a process but really a significant step forward in opening the veil of secrecy that exists in one of the most powerful agencies in government.  Given the size of these commitments, it is incomprehensible that the American people have not received specific details about them.”

Half of Companies Plan to Hire New Employees in 2011

Tuesday, December 28th, 2010

Half of Companies Plan to Hire New Employees in 2011Approximately half – 47 percent – of American companies whose sales range from $25 million to $2 billion say they will hire more employees in 2011, according to a Bank of America survey of chief financial officers (CFOs).  The new number represents a significant uptick over the 28 percent who planned to hire new employees one year ago.  The news is not all good – 61 percent of companies who do not plan to hire said there is still reduced demand for their products or services.  The survey of 800 firms covered a broad range of industries throughout the United States.

The CFOs are unsure that the economic recovery will last, as well as being concerned about the impact of the healthcare reform law that Congress passed in March of 2010.  Their caution is evident in the fact that – on a scale of one to 100 – the CFOs gave the economy a rank of 47.  This represents a slight increase over the 44 level recorded last year.  An addition 64 percent expect their companies’ revenue will grow in 2011; 55 percent anticipate margin growth.

Despite the challenging economic climate, many CFOs have growing confidence that their companies have weathered the worst of the storm and are poised for expansion,” Laura Whitley, Bank of America’s global commercial products executive, said.  “Although concerns about the economy remain, the increase in CFOs who expect to hire employees could be crucial to improving the nation’s unemployment rate.  It’s exciting to see a more positive mood.”  Yet, she noted, the recovery has been slower than expected.  “When talking with businesses we hear it all the time.”

Congressional Oversight Panel Takes on the Foreclosure Mess

Wednesday, December 8th, 2010

Congressional Oversight Panel Takes on the Foreclosure MessSloppy foreclosure paperwork could upset the nation’s housing market and destabilize the economy in general,  according to a report released by the Congressional Oversight Panel.  This group oversees the government bailout and its statement marks the first time a federal watchdog has issued an opinion on the foreclosure issue.  Consumer advocates and financial analysts had previously raised the issue, noting that although the consequences of the foreclosure mess are unclear.  The situation has the potential to impact mortgages that are not in trouble but were securitized and sold to investors.

“Everyone’s very nervous about what’s going to happen,” said an anonymous industry source.  “We have all hands on deck.”  Some lawmakers want to revisit legislation that would allow bankruptcy judges to order lenders to reduce the principal the homeowner owes.  Others favor allowing big banks to spin off their mortgage-servicing operations to avoid conflicts of interest.  “The risk is small that a bill gets through, but we are taking it very seriously,” said another unidentified financial lobbyist.  The dilemma became apparent in recent months as Ally Financial, Bank of America and JPMorgan Chase halted foreclosures as it became clear that many were based on flawed documentation.

The oversight panel also voiced concerns that investors who bought the securitized mortgages could file lawsuits that ultimately might cost banks billions of dollars.  At the same time, the panel said the Treasury Department’s claims that the mortgage situation poses slight systemic risk to the financial system are premature.  “Clear and uncontested property rights are the foundation of the housing market.  If those rights fall into question, that foundation could collapse,” according to the report, which also recommended that the Treasury and Federal Reserve conduct new stress tests on Wall Street banks to gauge their ability to cope with any new upheavals.