Okay, who’d forgotten that FDIC deposit insurance for non-interest-bearing transaction accounts expires at the end of December?
We confess, it did slip our minds – momentarily. Read more
In our preview of the last FOMC meeting, in discussing the possibility of mortgage-backed securities included in any further asset purchases, we noted the low net supply of MBS and a recent history of settlement fails when the Fed increases its share.
There is a risk, therefore, that the size of QE3 might disappoint expectations depending on how worried the Fed is about market disruptions. Read more
Arvind Krishnamurthy and Annette Vissing-Jorgensen have an interesting variation on what the Fed should do next: start buying MBS while selling longer-term Treasuries.
Buying MBS, of course, has been widely discussed as a potential option if the Fed chooses to begin another round of large-scale asset purchases, but Krishnamurthy and Vissing-Jorgensen are the first economists we are aware of to advocate also dumping long-term Treasuries. Read more
Should insurers use the history of Greek bond prices as a benchmark for holding capital against holdings of sovereign debt?
You might well ask. Read more
Two former Credit Suisse traders have have pleaded guilty to conspiring to overvalue mortgage-related securities at the height of the financial crisis. David Higgs and Salmaan Siddiqui admitted to criminal charges that were the first involving valuations of mortgage-backed securities during the crisis and come four years after the alleged mispricing, reports the FT. Criminal charges against a third banker are expected to be unsealed later on Wednesday, people familiar with the matter say. Read more
It’s been a while since FT Alphaville looked at settlement fails, but the following chart from RBC Capital Markets did catch our eye this week:
Goldman Sachs, Barclays Capital, Bank of America and Credit Suisse will bid for $7bn worth of subprime mortgage-backed securities from the Fed’s Maiden Lane II portfolio when it comes up for auction on Thursday, the FT reports. The sale has been restricted to the four banks, who will bid based on interest from their clients, reflecting lessons learned by the Fed from an abortive auction of the assets last summer. The Fed will either sell all $7bn securities to one bank, or not sell them at all, the FT adds. A good price for the securities could spark a rally in subprime debt, by tying up a good portion of the supply overhang held by the Fed. Read more
Nomura has a new report showing that US loan growth is having a good quarter thus far, even after accounting for the normal seasonal boost, but what caught our eye was the excellent series of charts on the activities of foreign bank subsidiaries in the US.
We already know that a combination of forces (meeting capital ratios, the withdrawal of traditional sources of wholesale funding) has European banks looking to unload, or allow to run off, a sizable amount of their USD-based holdings, and to constrain lending. A previous Nomura note estimated that these banks have about $1.8 trillion in US assets. Read more
Deutsche Bank and Citigroup have settled a case brought against them by the National Credit Union Administration. The settlement of $165.5m is a first in terms of the federal recovery of losses incurred by failed institutions related to mortgage back securities that turned sour, reports the WSJ. Five credit unions, regulated by the NCUA, had been sold the securities for which the banks acted as underwriters. Some of the bonds now trade at less than 35 cents on the dollar. Details of the exact bonds referenced in the case are not known and both banks did not admit fault in the out of court settlement. The amount recovered will depend on factors such as the amount of disclosure to the credit unions about the risks involved in the investment and how many of the loans went bad within a 12 to 18 month period as this would be indicative of flaws in the underwriting process. Read more
If you’ve been following reports of what might happen at next week’s FOMC’s meeting, you probably know that the Fed is contemplating further purchases of agency mortgage-backed securities.
And there are least two, somewhat obvious justifications for it: Read more
Federal Reserve officials are moving closer to a new round of buying mortgage-backed securities, in order to drive down mortgage rates, according to the WSJ. Although rates are already extremely low, the officials believe a further decline could increase mortgage refinancing while boosting the stock market. Fed board governor Dan Tarullo called for MBS purchases to be put back on the table in a speech on Thursday, reports Reuters. “Housing continues to hang like an albatross around the necks of homeowners and the economy as a whole,” Tarullo added. Read more
The Federal Housing Finance Agency is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation, the New York Times reports. The FHFA, which oversees Fannie Mae and Freddie Mac, is expected to file the suits in the coming days. They’re expected to be aimed at Bank of America, JPMorgan, Goldman Sachs and Deutsche Bank, among others. The FT says the move is deeply controversial within the Obama administration, which is looking to ensure that the economy avoids a double-dip recession and that the banking system remains on an even keel. Bloomberg adds that BofA slumped the most in three weeks in Tokyo trading after the NYT report. Read more
What if the persistent number of settlement fails was deliberately done?
A sort of unconventional financing for the market participants doing the failing, if you will. Read more
You’re looking at an excerpt from the 2008 Housing and Economic Recovery Act. That’s the thing which created the Federal Housing Finance Agency (FHFA), which is currently charged with regulating the US’s massive Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Read more
Securitised subprime — it’s still not doing well. Read more
A group of bond investors plans to challenge an $8.5bn deal that Bank of America struck last week with other investors to settle mis-selling claims over mortgage-backed securities sold by its Countrywide Financial unit, the FT reports. The group, which calls itself Walnut Place, has accused Bank of New York Mellon, BofA’s trustee on the securitisations, of having conflicts of interest that raise questions about the fairness of the deal, according to a court filing. The filing says Walnut Place investors, who were not part of the agreement struck last week between BofA and 22 large bondholders, own more than a quarter of voting rights in one Countrywide trust and an unspecified number in two others. BNY Mellon declined to comment on Walnut Place’s claims, but said, “As trustee, we acted and continue to act in the best interests of all investors in the trusts.”
Your daily dose of financial innovation, right here.
Flexi ABS Trust 2011-1 may be a structured finance deal you’ve never heard of, but it’s making waves amongst securitisation types in Australia. Put simply it’s the first ever Australian deal to bundle interest-free payment plans for retail goods like jewellery, gym equipment, furniture and the like, according to Moody’s. Read more
Bank of America is likely to see profits wiped out in the second quarter after taking a $14bn provision to cover investor claims against Countrywide mortgage bonds, the FT reports. BofA will settle $8.5bn of outstanding claims and record charges to cover another $5.5bn. The bank added that it could face further claims totalling $5.5bn, over underwriting standards. There is another $6.6bn in lawsuits, foreclosure trouble, and write-offs that would send charges to $20.6bn, although far lower than the $50bn that investors had feared, the WSJ says. Read more
Bank of America has set aside a total of $14bn to meet investors’ claims that loans packaged in mortgage-backed securities before the financial crisis failed to meet promised underwriting standards. The FT reports provisions will wipe out BofA’s profits during the second quarter and underline the high price the bank is paying to move beyond the crisis and its disastrous 2009 acquisition of Countrywide Financial. BofA said it had settled claims with 22 investors in Countrywide mortgage bonds, agreeing to $8.5bn to holders of some 530 securities. The bank said it would record another $5.5bn in charges to cover additional claims from government-owned mortgage companies as well as other private investors. In addition, BofA said it could eventually face as much as $5bn in additional claims over its underwriting standards from other banks. Shares in other banks including JP Morgan Chase, Citigroup and Wells Fargo all rose on hopes the BofA settlement could provide a template for other banks facing MBS claims, says Dow Jones.
Bank of America is near a deal to pay $8.5bn to investors, including the Federal Reserve Bank of New York, to settle claims that mortgage-backed securities sold by its Countrywide Financial unit failed to meet underwriting requirements and other guidelines, the FT reports, citing people familiar. The agreement would be the largest so far by a bank to settle such claims and would exceed BofA’s earnings for all of 2009, the last year for which it showed a profit. WSJ Deal Journal notes that the settlement is quite a turnaround for the bank, which had promised “hand to hand combat” against investors who say they were misled about mortgage securities. The Street says BofA stock rose in after hours trading. Read more
Bank of America is near a deal to pay $8.5bn to investors, including the Federal Reserve Bank of New York, to settle claims that mortgage-backed securities sold by its Countrywide Financial unit failed to meet underwriting requirements and other guidelines, the FT reports. The agreement would be the largest so far by a bank to settle such claims and would exceed BofA’s earnings for all of 2009, the last year for which it showed a profit. BofA’s board, which met on Tuesday, must approve the deal, people familiar with the matter said. One person familiar with the matter said the bank plans to announce its preliminary quarterly results on Wednesday. About 22 large bond investors, including BlackRock, MetLife and Freddie Mac, allege loans sold by Countrywide failed to meet underwriting guidelines. Read more
Maiden Lane’s no lady. She continues to harass Wall Street.
The Federal Reserve has been selling off the portfolio of dodgy Mortgage-Backed Securities (MBS) it acquired as part of its bail-out of AIG. Bloomberg reports that falls in the credit default swap (CDS) indices used to protect against losses certain types of debt has been accelerating this month. Read more
Basel III. Accounting. Mortgage-Backed Securities. Yawn.
But wait — Basel III’s attempt to incentivise banks into managing their interest rate risk could be about to permanently alter the way banks handle some $1,480bn worth of MBS, or 11 per cent of their assets. Read more
Risk retention is all about ‘aligning the incentives‘ of various securitisation players.
But CreditSights analysts reckon regulators may have grabbed the wrong end of the securitisation stick, so to speak, when they proposed the rules. The structured finance meltdown, they argue, didn’t come about because of misalignment of incentives — but alignment. The securitisation mindmeld, so to speak. Read more
US securities regulators are in talks with several major Wall Street banks to settle fraud allegations related to mortgage-bond deals that helped unleash the financial crisis, the Wall Street Journal says, citing people familiar with the matter. The settlements are expected to vary significantly among banks — but few, if any, are expected to surpass the $550m penalty that Goldman Sachs paid last year to settle allegations that it misled investors in a mortgage-bond investment called Abacus. The agency’s decision not to try to adopt a common industry template for the settlements reflects substantial differences in the nature of the civil fraud allegations faced by each bank, the people familiar said. Read more
The mortgage market — lurching from one risk to another, right?
No sooner had Fitch Ratings gotten more comfortable with credit losses than it starts warning on interest rate risk. It’s kind of back to the future for the Mortgage-Backed Securities (MBS) industry too. Because before the financial crisis, rate shifts were really the things keeping investors up at night. Read more
US federal agencies on Tuesday published 233 pages of proposed rules around credit risk retention for sponsors of asset-backed securities, a requirement laid down in the Dodd-Frank legislation.
Sexy lede, right? Wait, come back… Read more
Credit Suisse has joined the list of banks and investment firms considering a rival bid for the portfolio of mortgage-backed securities that has already drawn a $15.7bn offer from US insurer AIG, reports the FT, citing people familiar with the matter. Barclays is also considering forming a group to pursue the Maiden Lane II assets. At the same time, Morgan Stanley has discussed with several clients the prospects of buying the securities. The Federal Reserve Bank of New York owns the 800 or so mortgage bonds, housed within Maiden Lane II, one of the special-purpose vehicles created as part of AIG’s $180bn rescue in the financial crisis. AIG wants to repurchase the portfolio as the US Treasury, which still owns 92% of the company, prepares to sell off its shares. Read more
Interesting note, this.
It’s from the banks team at RBS and it looks at the reaction to Monday’s news that the US Treasury plans to sell $142bn of Mortgage-Backed Securities (MBS) purchased during the crisis as part of its Fannie Mae and Freddie Mac bailout. Read more
Barclays is among a group of investors weighing a rival bid for a portfolio of mortgage-backed securities that has already drawn a $15.7bn offer from AIG, reports the FT citing people familiar with the matter. The securities are owned by the Federal Reserve Bank of New York and housed within Maiden Lane II, a special-purpose vehicle set up as part of the insurer’s $180bn financial crisis bail-out. AIG, which wants to buy back the assets to reduce its government obligations while finding a higher-yielding use for its cash, went public with its bid earlier this month after the New York Fed did not respond to a preliminary offer made in December. The stalemate comes as the US Treasury moves to sell as much as $20bn stock, in a push to cut the government’s 92% stake in the company. Read more