Posts Tagged ‘Bank of America’
Tuesday, March 2nd, 2010
Eleven American banks that received money from the Troubled Asset Relief Program (TARP) originated 13 percent more loans in December than they had the previous month. The Department of the Treasury released this information in its monthly survey of loans made by recipients of the $700 billion government bailout money.
According to the Treasury Department, total loan balances fell one percent during the same timeframe. This report does not include statistics from banks that repaid their TARP funds in June of 2009; future reports will not include data from banks that are exiting the TARP program.
A total of $178.1 billion in new loans was made during December, according to the Treasury. Bank of America led the pack in originating loans, with $64.6 billion, an 11 percent increase over November. Wells Fargo & Company occupied second place with a six percent increase, reporting $58.3 billion in new loans. Citigroup lent $16.3 billion, an 11 percent increase.
Tags: bailout money, Bank of America, banks, Citigroup, department of treasury, loans, TARP, Wells Fargo
Posted in Economics | No Comments »
Monday, February 22nd, 2010
An independent audit released by the bipartisan Congressional Oversight Panel (COP) has found the $700 billion Troubled Asset Relief Program (TARP) to be effective, so much so that the Department of the Treasury has extended it to October 3, 2010. Treasury Secretary Timothy Geithner plans to use the remaining funds to assist families facing foreclosure and give loans to small businesses.
The COP was unable to fully gauge TARP’s impact because of other forces such as the $787 billion American Recovery and Reinvestment Act, tax cuts and actions by the Federal Reserve and Federal Deposit Insurance Company. “Even so, there is broad consensus that the TARP was an important part of a broader government strategy that stabilized the U.S. financial system by renewing the flow of credit and averting a more acute crisis,” according to the report. “Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence.”
That said, after 14 months of TARP, the panel admits that problems remain. Banks are still skittish about making loans, toxic mortgage-related assets are still sullying banks’ balance sheets and smaller banks are susceptible to difficulties in the commercial real estate sector. And, with 13 million additional home foreclosures expected over the next five years, “TARP’s foreclosure mitigation programs have not yet achieved the scope, scale and permanence necessary to address the crisis.”
Repayments from banks that received TARP dollars are expected to total $116 billion, including $45 billion that is being returned by Bank of America. The government is likely to receive as much as $175 billion in repayments from companies it rescued by the end of 2010.
Tags: AFL-CIO pension fund, American Recovery, bailouts, Bank of America, Congressional Oversight Panel, department of treasury, Federal Deposit Insurance Company, Federal Reserve, Harvard Law School, Main Street, President Obama, Securities and Exchange Commission, TARP, Timothy Geithner, Wall Street
Posted in Economics, Financing | No Comments »
Monday, February 1st, 2010
David Tepper’s shrewd bet that the nation would avoid a second Great Depression inspired him to buy bank shares at rock-bottom rates, a move that has earned his Appaloosa Management hedge fund an estimated $7 billion worth of profit during 2009. Last winter, Tepper invested heavily in Bank of America stocks selling for $3 a share, as well as Citigroup, Inc. preferred stock, then priced at a bargain-basement $1 per share.
Tepper, a philanthropist who funded the Tepper School of Business at Carnegie Mellon University, made a gamble that is paying off in a big way - surprising skeptics who insisted that he was making a costly error. “I felt like I was alone,” Tepper said. There were days when “no one was even bidding.” An improving market has seen Appaloosa Management earn a 120 percent return. As a result of those gains, Tepper now manages approximately $12 billion, making his company one of the world’s largest hedge funds.
In general, hedge funds had a bad year in 2008, when they experienced a 19 percent decline. Approximately 1,500 funds - 16 percent of the total - went out of business in 2008. The funds had a far better year in 2009. According to Hedge Fund Research, Inc., they are seeing a 19 percent return, the best annual gains in 10 years.
Alan Shealy, a long-time Tepper client, says “Investing with David is like flying, with hours of boredom followed by bouts of sheer terror. He’s the quintessential opportunist, investing in any asset class, but you have to have a cast-iron stomach.”
Tags: Bank of America, Citigroup, David Tepper, Goldman Sachs, Great Depression, hedge fund, recession
Posted in Economics, Financing | No Comments »
Wednesday, December 2nd, 2009
The commercial bond market may be opening up slightly as Bank of America (BofA) prepares to sell $460 million worth of bonds collateralized by properties owned by Fortress Investment Group. The bonds that BofA is arranging are ineligible for TALF, another positive sign that the commercial mortgage market might finally be showing signs of improvement.
The transaction involves 44 properties, primarily Florida office and industrial buildings, with bonds rated in the AAA to BBB range. Price ranges were not available. This deal and the recent $400 million sale of shopping malls owned by Ohio-based Developers Diversified Realty represent the initial offeerings since securitization of real estate loans came to a halt in the middle of 2008. Investors should be wary against being overly optimistic about these sales since commercial mortgage-backed securities (CMBS) are unlikely to be as significant a financing vehicle in the future. Although financing is opening up for specific new issues, investors have little appetite to refinance the trillions of dollars of risky commercial loans that are coming due over the next few years.
“It is another baby step,” said Thomas Zatko, managing director at Babson Capital Management.
According to an index compiled by Moody’s Investors Service, commercial real estate prices have slid 43 percent from their peak in October of 2007.
Tags: Babson Capital Management, Bank of America, CMBS, Freddie Mac, Troubled Assets Relief Program
Posted in Economics, Financing, Healthcare, Office, Residential, Student Housing | No Comments »
Tuesday, November 10th, 2009
The Federal Reserve is considering regulating banks’ pay policies to make certain they discourage employees from making the irresponsible gambles that led to 2008’s financial meltdown. The Fed’s proposal would apply to thousands of banks, including some that did not receive bailouts.
Under the Fed’s proposal, the central bank would review - and could say “no” - to pay policies that might result in excessive risk-taking by executives, traders or loan officers. The move marks the Fed’s most recent response to critics who say it didn’t crack down on lax lending, reckless risk taking and other practices that led to the great recession. If the proposal is adopted, the 28 largest banks would develop internal plans to assure that compensation doesn’t start a new round of disproportionate risk taking. Although the Fed declined to identify which banks would be required to submit plans, it’s safe to say that Citigroup, Inc., Bank of America Corporation and Wells Fargo & Company will be on that list.
“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” says Fed Chairman Ben Bernanke. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system.”
The key concept here is that of moral hazard - creating a correlation between performance and remuneration so that people are always compelled to act in the general interest.
Tags: bailout, Bank of America, banks, Citigroup, Federl Reserve, financial market, Wells Fargo
Posted in Economics | No Comments »
Monday, September 21st, 2009
On the first anniversary of the collapse of Lehman Brothers and the onset of the global financial crisis, President Barack Obama used a Wall Street speech to call for stringent new regulation of United States markets. After Lehman’s collapse, the American government infused billions of dollars into the financial system and took major stakes in Wall Street’s most famous names. Although this action stabilized the system, it could not forestall a shrinking economy or the highest unemployment rate in 26 years.
“We can be confident that the storms of the past two years are beginning to break,” he said. As the economy begins a “return to normalcy,” Obama said, “normalcy cannot lead to complacency.”
Lobbyists, lawmakers and even regulators so far have opposed proposals to more closely monitor the financial system. The five biggest banks - Goldman Sachs, JP Morgan, Wells Fargo, Citigroup and Bank of America - posted second-quarter 2009 profits totaling $13 billion. That is more than twice their profits in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the same timeframe two years ago - a time when the economy was considered strong.
Connecticut Senator Christopher Dodd, chairman of the Senate Banking Committee, is the point man for formulating new rules. President Obama wants stricter capital requirements for banks to prevent them from purchasing exotic financial products without keeping adequate cash on hand. It was precisely this type of behavior that caused last year’s financial crisis.
Tags: Bank of America, banks, Citigroup, economy, financial system, global financial crisis, Goldman, JP Morgan, lawmakers, Lehman Brothers, lobbyists, President Obama, Senate Banking Committee, unemployment rate, Wall Street, Wells Fargo
Posted in Economics | No Comments »
Wednesday, July 1st, 2009
The tragic death of the “King of Pop” provides an interesting insight into how hedge funds and private equity groups buy loans in anticipation of future earnings. Michael Jackson made real money during his 40 years as an entertainer; unfortunately, he also lost a lot of money, especially over the last 10 years.
Reports are that Jackson died $500 million in debt. The crushing debt-service payments - combined with losses totaling millions, due to bad investments and money spent to finance his lifestyle - wiped out his fortune and he ended up in hot water with private equity creditors (it should be noted that Jackson was an extraordinary philanthropist, donating $300 million to a multitude of charities during his career.)
In 2003, Fortress Investment Group purchased some of Jackson’s loans from the Bank of America. Jackson’s failure to repay caused Fortress to threaten to call in the loans. Citigroup rode to the rescue and refinanced $300 million of Jackson’s debt. After he fell behind on payments, Fortress moved to foreclose on the Neverland Ranch. Yet another potential savior - Colony Capital - purchased his loans from Fortress and created a joint venture with Jackson to purchase Neverland for $22 million and renovate it for sale. Colony was also backing Jackson’s 50-concert London comeback which had $85 million in sold-out ticket sales at the time of his death. Clearly, Jackson’s brand was perceived to be so valuable (he sold 750 million albums during his career) that the assumption of risk was deemed to be worth it.
Tags: bad investments, Bank of America, brand, charities, Citigroup, Colony, Colony Capital, debt, entertainer, finance, foreclosure, foreign capital, Fortress, Fortress Investment Group, hedge funds, Jackson comeback, joint venture, King of Pop, London comeback, Michael Jackson, millions, money, Neverland Ranch, physician, private equity creditors, refinanced, renovation, risk, tragic death
Posted in Economics, General | 1 Comment »
Tuesday, June 9th, 2009
Bank of America has pulled the plug on Chicago’s high-profile Waterview Tower with 
its filing of a foreclosure lawsuit against the 90-story condominium and hotel tower overlooking the Chicago River. The bank has sued to collect $20 million from the developer, an affiliate of Chicago-based Teng & Associates, which stopped construction last year.
The building’s troubles came to a head when Hong Kong-based luxury hotel chain Shangri-La Hotels & Resorts scrapped its plans for a 200-room hotel at 111 West Wacker Drive. Various contracts then filed claims totaling $85 million against the developer.
Bank of America’s lawsuit illustrates two critical rules of successful real estate development. First is the risk of starting a project without construction financing in place — in this case, funding a project with a short-term bridge loan while the developer was shopping around for a construction loan. Second is the issue of first loss position in terms of collecting money owed when a borrower defaults. Bank of America is in a first loss position since the contractors all signed their agreements before the bank extended the loan. This means their contracts could supersede the bank’s.
Tags: bank, Bank of America, borrower defaults, bridge loan, Chicago, Chicago River, Construction, construction loan, contractors, Development, Financing, foreclosure, Hong Kong, lawsuit, luxury hotel, real estate, Shangri-La Hotels & Resorts, Teny & Associates, Wacker Drive, Waterview Tower
Posted in Development, Economics, Financing, Office | 2 Comments »
Tuesday, October 21st, 2008
The Treasury Department is spending the first $250 billion of the $700 billion rescue bill that Congress recently approved in an attempt to defuse the financial crisis that has dominated the headlines for weeks. According to a recent article on GlobeSt.com, the move - which partially nationalizes the banking system - is seen by some as conflicting with the free-market principles that typically have characterized the American economy. To shore up the United States banking system, the Treasury Department is partially nationalizing nine banks by using $125 billion to purchase minority stakes in major financial institutions. Although the banks haven’t been named, they are believed to include Citigroup, Goldman Sachs, Wells Fargo, J.P. Morgan Chase, Bank of America, Merrill Lynch, Morgan Stanley, State Street and Bank of New York Mellon Corporation. The Treasury Department is also expected to make the remaining $125 billion available to banks and thrifts across the country to purchase their preferred shares.
According to Treasury Secretary Henry Paulson, “Today’s actions are not what we ever wanted to do, but are what we must do to restore confidence to our financial system. The needs of the economy require that our financial institutions not take this new capital to hoard it, but to deploy it.” Just weeks before the presidential election, outgoing President George W. Bush sees the move as a short-term measure. “The government’s role will be limited and temporary. These measures are not intended to take over the free market, but to preserve it,” Bush said.
The question now is whether the banks will use the capital as the government intends - lend it to businesses and consumers again - or will they use it to sweeten their own balance sheets? The government, no doubt, intends to exert significant pressure on the institutions to loosen credit so that people can start buying big-ticket items like houses and cars again.
Tags: Bank of America, Bank of New York Mellon Corporation, Citigroup, congress, financial institutions, finanical crisis, free-market principle, George W. Bush, Goldman Sachs, Henry Paulson, JP Morgan Chase, Merrill Lynch, Morgan Stanley, rescue bill, State Street, Treasury Department, Treasury Secretary, United States banking system, Wells Fargo
Posted in Economics | No Comments »