Posts Tagged ‘Federal Deposit Insurance Company’
Tuesday, December 13th, 2011
Bank earnings rose to their highest level in more than four years, while the number of troubled banks declined for the second consecutive quarter. The Federal Deposit Insurance Corporation (FDIC) said the banking industry earned $35.3 billion in the 3rd quarter, an increase from the $23.8 billion reported in the same timeframe last year. More than 60 percent of banks reported improved earnings. According to the FDIC, there currently are 844 banks on its confidential “problem”, or roughly 11.5 percent of all federally insured banks. That was down from 865 between April and June, and was first quarter in five years to show a decline.
“After three years of shrinking loan portfolios, any loan growth is positive news for the industry and the economy,” said Martin Gruenberg, FDIC’s acting chairman. Lending has not yet reached healthy levels. So far in 2011, 90 banks have failed. That’s a significant improvement over the 157 banks that were shuttered last year — the most for one year since the darkest days of the 1992 savings and loan crisis — and the 140 in 2009.
The FDIC’s so-called problem bank list consists of the institutions considered most likely to fail, though few actually are shuttered. Only 26 of the nation’s 7,436 banks failed in the 3rd quarter, 15 fewer than the same period of 2010. “The trend has been improving, but the current number of failures and problem institutions remains high by historical standards,” Gruenberg said.
Banks whose assets exceed $10 billion drove of the earnings growth. They account for just 1.4 percent of all banks but accounted for about $29.8 billion of the industry’s earnings in the 3rd quarter. Those are the biggest banks, such as Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. The majority of these banks have recovered with help from federal bailout money and record-low borrowing rates.
Writing on MarketWatch, Ronald D. Orol says that “It is unclear whether the reduction in troubled banks on the list is a result of institutional failures or improvements. In the 3rd quarter there were 26 bank failures and 21 banks dropped off the problem bank list. In the 2nd quarter there were 22 bank failures and 23 banks came off the problem bank list. It is possible that a bank fails so fast that it is never on the problem list. FDIC-insured institutions posted net income of $35.3 billion in the 3rd quarter, an increase of $11.5 billion, or 48 percent, compared to a year earlier. The profits were at the highest level since the 2nd quarter of 2007, the FDIC said. However, Martin Gruenberg said that even though the industry is generally profitable, the recovery is ‘by no means’ complete. He noted that a central concern for the agency is whether banks can generate income from a greater demand for loans, something that is still lacking. He said that the industry has seen income gains generated from improvements in credit quality and the ability to reduce loss provisions but that to really generate income and revenue, funding for loans is going to have to expand and that ‘depends on the overall economy.’ The key issue is going to be whether there can be a pick up in economic activity and generate demand for loans. Ongoing distress in real-estate markets and slow growth in jobs and incomes still pose a threat to bank credit quality.”
The majority of banks that have struggled or failed have been small or regional institutions. They rely a lot on commercial property and development loans, sectors that have lost a lot of money. As companies closed during the recession, they vacated shopping malls and office buildings financed by those loans. Nevertheless, large banks are less profitable than they were before the financial crisis hit in the fall of 2008, leading to some sizable layoffs. Some credit rating agencies have been warning that the European debt crisis could hit the largest American banks. Financial companies’ stocks have been especially beat up in the stock market’s volatility in recent months.
“We continue to see income growth that reflects improving asset quality and lower loss provisions,” Gruenberg said. “U.S. banks have come a long way from the depths of the financial crisis. Bank balance sheets are strong in a number of ways, and the industry is generally profitable, but the recovery is by no means complete.” The banking industry also saw a 0.5 percent rise in net operating revenue compared with 2010, thanks in part to a $3.2 billion — or 5.8 percent — increase in non-interest income, the first year-over-year increase in nearly two years. “Absent these unrealized gains, net operating revenue would have posted a year-over-year decline for a third consecutive quarter,” Gruenberg concluded.
Tags: Bank failures, Credit rating agencies, European debt crisis, Federal Deposit Insurance Company, financial crisis, recession, Savings and loan crisis, stock market
Posted in Financing, General | No Comments »
Thursday, June 2nd, 2011
The initial steps to dismantle Fannie Mae and Freddie Mac are underway with the introduction of a bipartisan bill in the House of Representatives that would replace the mortgage giants with a minimum of five companies that would issue mortgage-backed securities with significant federal regulation. The compromise legislation proposed by Representative John Campbell (R-CA) and Representative Gary Peters (D-MI) is likely to be the only plan that will attract sufficient support from both parties on a politically volatile subject, especially at a time when gridlock looms over issues such as how to curb federal spending. The bailout of the two companies has cost taxpayers upwards of $100 billion.
According to Representative Campbell, “Rather than putting out a political marker, we can move a piece of legislation that is significant…and can actually become law. The only other approach that’s out there in a bill is one that replaces Fannie and Freddie with nothing.” Other policymakers, such as Treasury Secretary Timothy Geithner, have discussed the merits of a limited but unambiguous government guarantee of securities backed by certain types of mortgages. The new entities – similar to Fannie and Freddie — would be limited to purchasing loans that meet certain standards, including size caps. The difference would be that the firms would be required to hold much more capital than Fannie and Freddie. Only the mortgage-backed securities that they issue –not the companies themselves — would enjoy federal guarantees. The companies would operate similarly to public utilities and likely will not have exchange-listed shares.
Critics say the proposal risks recreating the same dynamics that led Fannie and Freddie to use their government ties to take risks that harmed taxpayers. “In reality, this is almost surely going to be terrible,” said Dwight Jaffee, finance professor at the University of California, Berkeley. Government insurance programs, he says, inevitably lead to “a catastrophe.” Advocates argue that taxpayers will be less exposed to losses because borrowers will have to make significant downpayments. Additionally, the new firms will have to hold more capital. Additionally, the firms will be required pay a fee for government backing to finance a catastrophic insurance fund, much as the Federal Deposit Insurance Corporation levies fees and handles bank failures.
The mortgage and housing industry support a continued government role in supporting mortgage lending, including the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders.
The agencies are still hemorrhaging money. For example, Fannie Mae reported a loss of $8.7 billion for the 1st quarter of 2011, which included a $2.2 billion dividend payment to the Treasury Department. The loss was significantly less than the $13 billion reported one year ago. “We need to manage our credit book — our old legacy book very vigorously,” said Fannie Mae President and CEO Michael Williams. But that is not in conflict with helping distressed homeowners. “Helping people to avoid foreclosure is a good thing,” Williams said.
Action must be taken to keep the mortgage market afloat and provide securitization for investments. According to a Washington Post editorial, “The housing market is still in deep trouble. Prices nationwide have fallen by about a third since the peak in 2006 — and they appear to be trending down again. The resulting hit to household wealth may hinder the recovery, which is already sluggish. Small wonder that various advocates for housing are once again asking Washington for help. But in at least one area, the prescription would be worse than the disease. We refer to calls for extending the current elevated limit on the size of loans eligible for securitization by Fannie Mae and Freddie Mac, the mortgage-finance giants operating under government control. Congress ‘temporarily’ raised the limit to a maximum of $729,759 in certain markets in response to the sudden evaporation of private liquidity during the 2008 crisis, but that measure is set to lapse at the end of September. At that point, the limit will not revert to the pre-crisis maximum of $417,000 in most of the country but to a level set in relation to local medians — and capped at $625,000. But the Obama administration has supported a reversion to lower loan limits as the first step in gradually reforming the mortgage security market and reducing taxpayer exposure to Fannie and Freddie. The administration’s goal is to lure cash-rich would-be mortgage securitizers back into the market, starting with the high end. Treasury Secretary Timothy F. Geithner has described this as “crowding in” private capital, and it is the rare housing policy proposal that has enjoyed a measure of bipartisan support.”
Tags: Bipartisanship, Department of the Treasury, Fannie Mae, Federal Deposit Insurance Company, Freddie Mac, house of representatives, mortgages, National Association of Home Builders, National Association of Realtors, Obama administration, Representative Gary Peters, Representative John Campbell, Timothy Geithner
Posted in Economics, Financing, Residential | No Comments »
Thursday, January 20th, 2011
President Barack Obama’s crackdown on Wall Street excesses could be hampered if the incoming Republican-controlled Congress refuses to fund two crucial regulatory agencies. The Dodd-Frank financial reform law – passed with heavy Democratic support – promised a generous budget to regulate the $600 trillion over-the-counter derivatives market. Now, the law’s implementation may be derailed by the incoming 112th Congress. Randy Neugebauer (R-TX), who will chair the House Financial Services oversight subcommittee, wants to review the regulators’ expansion plans. “Once you turn the money loose, it’s a little harder to stop that train,” he said.
The two regulatory agencies in question are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The SEC, for example, had expected to receive an 18 percent increase to its 2011 budget, which would have allowed it to hire 800 new regulators to enforce Dodd-Frank. Roadblocks are on the horizon, however, in the form of Representative Spencer Bachus (R-AL), who will chair the House Financial Services Committee, and Frank Lucas (R-OK), who will chair the agricultural committee that oversees the CFTC. The two Congressmen wrote to regulators, saying “An overarching concern…is the need to get it done right, not necessarily get it done quickly.” The Republicans’ attitude to enforcing Dodd-Frank could be a boon to Wall Street firms, whose lobbyists are advocating a go-slow approach.
Mary Schapiro, SEC Chairman, said “We will have to take some more steps to cut back. At this stage, it will impact our work.” The chronically underfunded and understaffed CFTC, which had expected a 50 percent budget increase, had planned to hire 240 new regulators this year to enforce its new oversight of the swaps market. According to CFTC Chairman Gary Gensler, “I do think without sufficient funding next summer (2011) you’d see a significant number of registrants – swap dealers, swap execution facilities and so forth – whose legitimate applications would have to be slowed down. Michael Greenberger, a University of Maryland law professor and previously the CTFC’s director of trading and markets, says.
Tags: 112th Congress, Barney Frank, Christopher Dodd, Commodity Futures Trading Commission, democrats, Dodd-Frank financial reform law, Federal Deposit Insurance Company, financial crisis, Gary Gensler, Mary Schapiro, Over-the-counter derivatives market, President Barack Obama, Randy Neugebauer, Regulators, Republicans, Securities and Trade Commission, Spencer Bachus, Swaps market, Wall Street
Posted in Economics, General, Green, Office | No Comments »
Monday, November 15th, 2010
A financing vehicle that has been used in Europe since it was invented in Prussia in 1769 is finding its way to American shores as a replacement for commercial mortgage-backed securities (CMBS). The vehicle is known as covered bonds, which is a securitized debt instrument backed by a pool of top-quality assets, primarily mortgages. What is different about covered bonds is that the assets – known as a cover pool – are maintained on the issuer’s balance sheet. This acts as a safety measure because the issuer is less likely to underwrite loans that carry significant risk.
Currently, the United States has no established market for covered bonds, although they are a $3 trillion business in Europe. In July, the House Financial Services Committee approved a bill that would establish a regulatory framework for covered bonds. Although the bill just missed being included in the Dodd-Frank financial reform overhaul, the consensus is that the legislation could win House and Senate approval in 2011.
“We have seen the difficulties wrought by the complexity of securitizations,” said Bert Ely, a financial and monetary policy consultant. “Covered bonds, on the other hand, are a very clean and simple tool. A bank makes a loan, keeps the loan on its books, and issues a covered bond. There is no sale and resale of mortgages.” With a covered bond, several elements protect the bondholder. All assets in the covered pool are subject to monthly monitoring by an independent third party. If one of the loans becomes non-performing, the issuer must remove it and replace it with a loan that is performing. Thanks to the safety features, the majority of covered bonds enjoy a triple-A rating.
Despite the fact that many in the investment community support covered bonds, the Federal Deposit Insurance Company (FDIC) has some concerns about them. Primary is the fact that the pools are over-collateralized – sometimes by as much as three times the bonds’ face value. The FDIC wants access to these assets when a bankruptcy occurs. The FDIC argues that if the cover pools protect the bulk of the banks’ assets from being claimed, the depositors are being asked to take on too much risk. “We support covered bond legislation, but not at the expense of our obligation to protect the deposit insurance fund,” said the FDIC’s Michael H. Krimminger.
Tags: bonds, Canada, capital markets, commercial real estate, Europe, Fannie Mae, Federal Deposit Insurance Company, Freddie Mac, mortgage, residential market, securitized real estate market, Triple A ratings, Wall Street
Posted in Development, Economics, Financing, Residential | No Comments »
Tuesday, September 28th, 2010
Global banking regulators have agreed to implement new rules that will make the international banking industry safer and avoid future financial meltdowns. Known as Basel III — after the Swiss city in which the agreement was worked out — the new requirements will more than triple the amount of capital that banks must have in reserves. This will oblige banks to be more conservative and compel them to maintain larger hedges against potential losses.
The heart of the agreement is a requirement that banks raise the amount of common equity they hold – perceived as the least risky form of capital – to seven percent of assets from just two percent. Banks are concerned that the tough new regulations will reduce profits, harm weaker institutions and increase the cost of borrowing money. To allay their concerns, regulators are giving the banks as long as 10 years to implement the toughest rules. Jean-Claude Trichet, president of the European Central Bank, said “The agreements reached today are a fundamental strengthening of global capital standards.” Representatives from 27 nations, who are members of the Basel Committee on Banking Supervision, participated. The committee’s recommendations are subject to approval in November by G-20 nations, including the United States. A deadline of January 1, 2013, was set to start phasing in the revised regulations.
Mary Frances Monroe, vice president for regulatory policy at the American Bankers Association – which represents the nation’s 8,000 banks – was happy with the results. “Banks understand the need for heightened prudential standards,” she said. The United States’ top banking regulators – the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency – issued a statement saying the agreement “represents a significant step forward in reducing the incidence and severity of future financial crises.”
Tags: American Bankers Association, bank regulators, Ben Bernanke, Federal Deposit Insurance Company, Federal Reserve, financial meltdown, Financial Services Roundtable, financial system, Lehman Brothers, leverage
Posted in Economics, Financing, General | No Comments »
Monday, June 7th, 2010
Senator Christopher Dodd (D-CT) is enjoying a big victory in his last days in the Senate following passage of broad financial reform legislation designed to rein in the excesses that caused the financial meltdown. First, the Senate and House versions of the bill must undergo reconciliation. Under the new law, for example, homebuyers will have to provide proof of income when applying for a mortgage. Additionally, a new consumer protection apparatus will monitor lenders who offer subprime loans and then raise interest rates to sky-high levels.
The legislation – which will bring openness to complex financial instruments such as derivatives – passed 59 – 31 and provides a way to liquidate financial institutions once viewed as too big to fail. It also establishes a council of regulators who will monitor threats to the economy and specific restraints on the derivatives trading, which set off the toxic debts that froze the credit markets and prompted the Federal Reserve to make trillions of dollars of loans to banks on the brink of collapse.
The vote hands President Obama his second landmark legislative victory this year, following the March passage of his historic health-care bill. “Our goal is not to punish the banks,” he said hours before the final vote, “but to protect the larger economy and the American people from the kind of upheavals that we’ve seen in the past few years.”
Senate Majority Leader Harry Reid (D-NV) summed up the legislation: “When this bill becomes law, the joyride on Wall Street will come to a screeching halt.” The reconciled bill is expected to hit President Obama’s desk for his promised signature this summer.
Tags: Barney Frank, Christopher Dodd, Consumer Financial Protection Agency, derivatives, Federal Deposit Insurance Company, Federal Reserve, financial meltdown, financial reform legislation, Harry Reid, House Financial Service Committee, house of representatives, President Barack Obama, reconciliation, subprime mortgages
Posted in Economics, Financing | 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 »
Wednesday, January 20th, 2010
Foreign banks, American private equity firms and a leading Chinese sovereign wealth fund have been investing in commercial real estate in the United States in the hope that interest rates stay low.
This increasing interest from investors could be a sign that the market is experiencing some stabilization. According to Bob Steers, co-chairman of Cohen & Steers, a real estate investment firm, “We believe the real story is that capital is ready to buy, even though it may not be so visible today.” As one example, the state-owned China Investment Corporation has enlisted several investment firms to identify commercial real estate opportunities in the United States.
Another sign of incipient recovery is the fact that Colony Capital won a Federal Deposit Insurance Corporation (FDIC) auction for $1 billion worth of commercial property loans previously held by banks that had failed. The transaction valued the loans at 44 cents on the dollar and is structured so the FDIC put up $136 million owns 60 percent of the equity. Los Angeles-based Colony put up $90 million for a 40 percent share. Colony’s founder, Tom Barrack, said the investment is “an implicit bet that rates stay low.”
In another example, JPMorgan Chase raised $625 million for Inland Western, which put $500 million into CMBS. The deal was significant because it closed without assistance from the Term Asset-Backed Loan Facility (TALF).
Tags: Bank of China, China Investment Corporation, CMBS, Colony Capital, commercial real estate, Federal Deposit Insurance Company, Inland Western, interest rates, private-equity firms, recession, recovery, SL Green, Sovereign wealth funds, TALF
Posted in Development, Economics, Office | No Comments »
Friday, June 26th, 2009
Troubled Los Angeles-based office REIT Maguire Properties is facing default and currently is in discussions with a special servicer to resolve its financial woes. The goal is to have the special servicer take over Maguire’s $106 million CMBS financing covering the Quintana office campus it owns in Orange County, CA. 
The campus’s major tenant was Washington Mutual Bank, which failed last year.
As receiver for WaMu, the Federal Deposit Insurance Company (FDIC) gave up its majority of the Quintana lease effective in March and does not have to pay rent or other compensation connected to the lease termination. A little-known provision gives the Federal Deposit Insurance Corporation (FDIC) the authority to break leases between the bank and the landlord once a financial institution has been taken over. One side effect of this provision could be that we’ll see fewer branch banks in the future as the FDIC breaks additional leases inked by failed banks.
As a result of the FDIC’s ending the lease, the Quintana campus’ occupancy was reduced approximately 250,000 SF to 40 percent. According to Nelson C. Rising, Maguire’s president and CEO, the FDIC’s rejection of the leases was “a highly unusual and unfortunate event.”
Tags: CA, CMBS financing, compensation, default, failed banks, FDIC, Federal Deposit Insurance Company, financial, financial institutions, LA, landlord, lease, Los Angeles, Maguire, Nelson C Rising, Orange County, Quintana office campus, REIT Magiure Properties, WaMu, Washington Mutual Bank
Posted in Economics, Financing, Office | No Comments »