WASHINGTON — Ten of the nation’s largest banks were given the green light Tuesday to repay $68 billion in government bailout money, freeing them from restrictions on executive compensation that they say are making it hard to keep their top-performing executives.
The Treasury Department said the banks had been approved to repay the money they received from the Troubled Asset Relief Program created by Congress in October at height of the financial crisis.
Experts say allowing 10 banks to return $68 billion in bailout money shows some stability has returned to the system but caution that the crisis isn’t over. And some fear the repayments could widen the gap between healthy and weak banks.
All eight banks that took TARP money and last month passed government "stress tests” confirmed they received permission to repay the bailout funds.
They are JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.
Morgan Stanley did not pass the government test, but Tuesday said it had raised enough capital quickly and was approved to repay its TARP money.
Northern Trust Corp. was not among the 19 banks subjected to stress tests, but the company said it also had received permission to repay the bailout funds.
by the associted press
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Showing posts with label big banks. Show all posts
Showing posts with label big banks. Show all posts
Wednesday, June 10, 2009
Tuesday, June 9, 2009
Banks to return $68 billion
WASHINGTON (AP) — Ten of the nation's biggest financial companies got a green light Tuesday to return $68 billion in federal bailout money — freeing the banks from limits on executive pay and leaving the government with a small gain on the rescue cash.
While the paybacks could be a signal that the banking industry is stabilizing, analysts say it is far from a clean bill of health, and some said it was too soon to let the banks give back the money.
Presidential spokesman Robert Gibbs said the returned money would go "back into general revenue" and could even be used to bail out banks again.
Still, the government has collected $1.8 billion from dividends on shares of preferred stock it received in exchange for bailout money, he said. And the government still holds warrants to buy shares of bank stock at cut-rate prices in the future.
The $68 billion in paybacks would be the largest since the $700 billion Troubled Asset Relief Program took effect eight months ago at the peak of the financial crisis. Specifically, the money comes from a $250 billion slice of the $700 billion bailout package.
Other chunks of the $700 billion will be harder, if not impossible, to recover. Some of it, such as $70 billion funneled to failed insurer American International Group Inc., ended up in the pockets of healthier banks that did deals with AIG.
And even the banks getting out from under the TARP still rely on government support, including debt guarantees from the Federal Deposit Insurance Corp. and credit lines from the Federal Reserve.
The banks chafed under restrictions on executive pay imposed by the government for banks that took bailout cash, arguing they were losing top talent to other firms. The administration is expected to roll out new executive pay rules Wednesday that would apply to banks that still have TARP money.
"It's our obvious hope that additional money is not going to have to be used to stabilize banks," Gibbs said. "I certainly wouldn't rule it out."
Indeed, banking experts stressed that the payments do not signal an end to the financial crisis. In fact, they say, most banks approved to pay the money back never needed it in the first place.
And three major banks that have not been approved by the government to pay the money back — Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. — could need federal help for years to come.
"When a troubled bank is capable of repaying, that would be significant," said Barry Ritholtz, head of the financial research firm FusionIQ. "But we're not going to see that anytime soon because they can't afford it."
Among the banks approved to pay back their bailout cash are eight that passed the government "stress test" earlier this year: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.
Those banks had to show they could raise private capital without federal guarantees before getting permission to pay back TARP money.
Morgan Stanley did not pass the test, but got approval to return its bailout money after quickly raising enough capital. And Northern Trust Corp. did not undergo the "stress test" but said it also had received permission to repay its bailout money.
President Barack Obama welcomed the news but said: "This is not a sign that our troubles are over — far from it."
Indeed, the repayments carry risk. Some say it could create a banking system of winners and losers, with weaker banks stuck with federal restrictions and finding it harder to compete for customers and talent against rivals that operate more freely.
Others say the repayments could conceal problems in the banking industry. Smaller banks are still saddled with billions in risky commercial real estate loans. And large banks still hold the toxic mortgage-backed assets at the heart of the financial crisis.
Paying the government back leaves banks with less protection against future losses, said Christopher Whalen, managing director of the consulting firm Institutional Risk Analytics. And with less capital on hand, they may have to scale back lending.
Other critics said it was dangerous to allow the money to be paid back before the administration overhauls the regulatory framework that governs banks.
"The credit crisis made it clear that the banks acted in irrational and greedy ways. I don't believe that enough changes have really happened yet," said Donald Thomas, an independent research analyst.
Adding to the concerns, a report released Tuesday by the congressional panel overseeing the bailout said the hypothetical scenarios used in the "stress tests" might have been too rosy.
That raises the troubling possibility that even raising enough capital to satisfy the government won't guarantee banks can withstand a deeper recession. And that means the banks might have to seek more federal aid.
Citi and Bank of America, two of the most troubled financial institutions, have taken $45 billion each in bailout money. Wells Fargo said it has not asked for permission to pay back $25 billion in TARP money.
Banking analyst Bert Ely said it could be years before those banks disentangle themselves from the government.
More than 600 banks have received a total of almost $200 billion from the TARP, and 22 smaller banks have already paid the money back. The $1.8 billion in dividend money includes stock the government owned in these smaller banks.
Besides the preferred-stock dividends, the banks that took bailout money issued warrants that give the government the right to buy bank stock at a fixed price later. Bank stocks have been battered but are expected to rise as the economy recovers, so the warrants could deliver substantial profits to taxpayers.
Or the government could sell the warrants back to the banks "at fair market value," the Treasury Department said — presumably also locking in profits for the taxpayers.
Testifying before a Senate panel, Treasury Secretary Timothy Geithner said the value of the warrants for banks permitted to repay TARP funds are in the "several billion dollar range."
by the associated press
While the paybacks could be a signal that the banking industry is stabilizing, analysts say it is far from a clean bill of health, and some said it was too soon to let the banks give back the money.
Presidential spokesman Robert Gibbs said the returned money would go "back into general revenue" and could even be used to bail out banks again.
Still, the government has collected $1.8 billion from dividends on shares of preferred stock it received in exchange for bailout money, he said. And the government still holds warrants to buy shares of bank stock at cut-rate prices in the future.
The $68 billion in paybacks would be the largest since the $700 billion Troubled Asset Relief Program took effect eight months ago at the peak of the financial crisis. Specifically, the money comes from a $250 billion slice of the $700 billion bailout package.
Other chunks of the $700 billion will be harder, if not impossible, to recover. Some of it, such as $70 billion funneled to failed insurer American International Group Inc., ended up in the pockets of healthier banks that did deals with AIG.
And even the banks getting out from under the TARP still rely on government support, including debt guarantees from the Federal Deposit Insurance Corp. and credit lines from the Federal Reserve.
The banks chafed under restrictions on executive pay imposed by the government for banks that took bailout cash, arguing they were losing top talent to other firms. The administration is expected to roll out new executive pay rules Wednesday that would apply to banks that still have TARP money.
"It's our obvious hope that additional money is not going to have to be used to stabilize banks," Gibbs said. "I certainly wouldn't rule it out."
Indeed, banking experts stressed that the payments do not signal an end to the financial crisis. In fact, they say, most banks approved to pay the money back never needed it in the first place.
And three major banks that have not been approved by the government to pay the money back — Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. — could need federal help for years to come.
"When a troubled bank is capable of repaying, that would be significant," said Barry Ritholtz, head of the financial research firm FusionIQ. "But we're not going to see that anytime soon because they can't afford it."
Among the banks approved to pay back their bailout cash are eight that passed the government "stress test" earlier this year: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.
Those banks had to show they could raise private capital without federal guarantees before getting permission to pay back TARP money.
Morgan Stanley did not pass the test, but got approval to return its bailout money after quickly raising enough capital. And Northern Trust Corp. did not undergo the "stress test" but said it also had received permission to repay its bailout money.
President Barack Obama welcomed the news but said: "This is not a sign that our troubles are over — far from it."
Indeed, the repayments carry risk. Some say it could create a banking system of winners and losers, with weaker banks stuck with federal restrictions and finding it harder to compete for customers and talent against rivals that operate more freely.
Others say the repayments could conceal problems in the banking industry. Smaller banks are still saddled with billions in risky commercial real estate loans. And large banks still hold the toxic mortgage-backed assets at the heart of the financial crisis.
Paying the government back leaves banks with less protection against future losses, said Christopher Whalen, managing director of the consulting firm Institutional Risk Analytics. And with less capital on hand, they may have to scale back lending.
Other critics said it was dangerous to allow the money to be paid back before the administration overhauls the regulatory framework that governs banks.
"The credit crisis made it clear that the banks acted in irrational and greedy ways. I don't believe that enough changes have really happened yet," said Donald Thomas, an independent research analyst.
Adding to the concerns, a report released Tuesday by the congressional panel overseeing the bailout said the hypothetical scenarios used in the "stress tests" might have been too rosy.
That raises the troubling possibility that even raising enough capital to satisfy the government won't guarantee banks can withstand a deeper recession. And that means the banks might have to seek more federal aid.
Citi and Bank of America, two of the most troubled financial institutions, have taken $45 billion each in bailout money. Wells Fargo said it has not asked for permission to pay back $25 billion in TARP money.
Banking analyst Bert Ely said it could be years before those banks disentangle themselves from the government.
More than 600 banks have received a total of almost $200 billion from the TARP, and 22 smaller banks have already paid the money back. The $1.8 billion in dividend money includes stock the government owned in these smaller banks.
Besides the preferred-stock dividends, the banks that took bailout money issued warrants that give the government the right to buy bank stock at a fixed price later. Bank stocks have been battered but are expected to rise as the economy recovers, so the warrants could deliver substantial profits to taxpayers.
Or the government could sell the warrants back to the banks "at fair market value," the Treasury Department said — presumably also locking in profits for the taxpayers.
Testifying before a Senate panel, Treasury Secretary Timothy Geithner said the value of the warrants for banks permitted to repay TARP funds are in the "several billion dollar range."
by the associated press
Monday, June 8, 2009
Banks to Repay TARP Money
The Treasury Department expects an initial payback from the nation's largest banks of at least $50 billion in bailout funds, according to people familiar with the matter, double the amount the government initially expected to recoup.
In addition, Treasury officials are expected to announce Tuesday that up to nine of the biggest banks have approval to repay their Troubled Asset Relief Program funds, these people said.
The $50 billion of repayments is the latest sign of improvement in the banking sector. At the same time, many of the banks repaying their TARP funds are expected to continue using other government assistance programs, such as the Federal Reserve's financing facilities.
Many banks needed the government's help last October, when the financial system was teetering on the edge of collapse. As market conditions have begun to stabilize, banks have been able to raise tens of billions of dollars from private sources and have begun looking to escape from under the government's thumb.
While some big banks will be allowed to repay, the Treasury doesn't believe things have improved enough that the money won't be needed elsewhere. Treasury Secretary Timothy Geithner has said he plans to reuse returned TARP funds to assist other firms, including smaller banks, including those that have already received an initial TARP infusion.
The list of large financial firms expected to get the green light on repayment includes American Express Co., Bank of New York Mellon Corp., Capital One Financial Corp., Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.
On Monday, several big banks either declined to comment on the Treasury Department's expected announcement or said they hadn't been notified of the government's approval to repay their TARP funds.
A handful of community banks are also expected to soon repay their TARP funds. Already, about 22 banks have taken steps to repay TARP, returning about $1.8 billion to the government.
The timing of the paybacks will be up to the individual banks and the Treasury, which must determine how to deal with warrants the government received as part of its initial investment. The warrants gave the government the right to purchase common stock at a set price for a period of 10 years. The Treasury is discussing how to value the warrants and could ultimately choose to sell them into the private market.
While the government hadn't intended for firms to pay back their TARP money so quickly, legislation passed by Congress earlier this year required they be allowed to do so. Before getting the green light, banks had to prove they could raise money in the private sector without backing from a Federal Deposit Insurance Corp. program. The Federal Reserve also had to agree that banks could continue to lend without TARP money and retain adequate capital levels.
Banks have been able to raise money in part because of government-performed stress tests that assessed the capital cushions at the nation's 19 largest banks. The tests showed banks' exposure to various assets, such as real estate, and how they would fare if economic conditions worsened. Nine of those banks were judged not to need to bolster their capital, while another 10 were told to improve their capital position.
Many banks have been eager to repay TARP in part to show investors they are healthy enough not to need government assistance. But many are uncomfortable with the restrictions that come with the government's investment, including on pay, dividends and stock buybacks.
Separately, the Federal Reserve Monday gave an initial nod to the 10 banks that were ordered to raise more capital as a result of the stress tests. The Fed said the plans submitted by firms including Citigroup Inc., Bank of America Corp., Morgan Stanley and others were adequate and showed the firms are on course to raise the funds they need to survive and keep lending if the economy keeps worsening.
The 10 banking organizations "have all submitted capital plans that, if implemented, would provide sufficient capital to meet the required buffer under the assessment's more-adverse scenario," the Fed said.
from the wall street journal
In addition, Treasury officials are expected to announce Tuesday that up to nine of the biggest banks have approval to repay their Troubled Asset Relief Program funds, these people said.
The $50 billion of repayments is the latest sign of improvement in the banking sector. At the same time, many of the banks repaying their TARP funds are expected to continue using other government assistance programs, such as the Federal Reserve's financing facilities.
Many banks needed the government's help last October, when the financial system was teetering on the edge of collapse. As market conditions have begun to stabilize, banks have been able to raise tens of billions of dollars from private sources and have begun looking to escape from under the government's thumb.
While some big banks will be allowed to repay, the Treasury doesn't believe things have improved enough that the money won't be needed elsewhere. Treasury Secretary Timothy Geithner has said he plans to reuse returned TARP funds to assist other firms, including smaller banks, including those that have already received an initial TARP infusion.
The list of large financial firms expected to get the green light on repayment includes American Express Co., Bank of New York Mellon Corp., Capital One Financial Corp., Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.
On Monday, several big banks either declined to comment on the Treasury Department's expected announcement or said they hadn't been notified of the government's approval to repay their TARP funds.
A handful of community banks are also expected to soon repay their TARP funds. Already, about 22 banks have taken steps to repay TARP, returning about $1.8 billion to the government.
The timing of the paybacks will be up to the individual banks and the Treasury, which must determine how to deal with warrants the government received as part of its initial investment. The warrants gave the government the right to purchase common stock at a set price for a period of 10 years. The Treasury is discussing how to value the warrants and could ultimately choose to sell them into the private market.
While the government hadn't intended for firms to pay back their TARP money so quickly, legislation passed by Congress earlier this year required they be allowed to do so. Before getting the green light, banks had to prove they could raise money in the private sector without backing from a Federal Deposit Insurance Corp. program. The Federal Reserve also had to agree that banks could continue to lend without TARP money and retain adequate capital levels.
Banks have been able to raise money in part because of government-performed stress tests that assessed the capital cushions at the nation's 19 largest banks. The tests showed banks' exposure to various assets, such as real estate, and how they would fare if economic conditions worsened. Nine of those banks were judged not to need to bolster their capital, while another 10 were told to improve their capital position.
Many banks have been eager to repay TARP in part to show investors they are healthy enough not to need government assistance. But many are uncomfortable with the restrictions that come with the government's investment, including on pay, dividends and stock buybacks.
Separately, the Federal Reserve Monday gave an initial nod to the 10 banks that were ordered to raise more capital as a result of the stress tests. The Fed said the plans submitted by firms including Citigroup Inc., Bank of America Corp., Morgan Stanley and others were adequate and showed the firms are on course to raise the funds they need to survive and keep lending if the economy keeps worsening.
The 10 banking organizations "have all submitted capital plans that, if implemented, would provide sufficient capital to meet the required buffer under the assessment's more-adverse scenario," the Fed said.
from the wall street journal
Sunday, May 10, 2009
Bad Investments
WASHINGTON — The big banks got through the government’s "stress tests” with only minor bruising. But a bigger test awaits them: Getting rid of the bad assets that helped ignite the financial crisis in the first place.
It won’t be easy. A Treasury program announced three months ago to help private investors buy up those assets hasn’t even begun. Some banks are threatening not to participate. They fear they won’t fetch a high enough price for their soured mortgage-related debt, which was bought at the height of the housing boom. Removing the bad assets is needed to fix the banks and help revive the economy. Unless they can sell off these assets, banks won’t be able to resume normal lending and rebuild confidence in the financial system, even if they have enough money to survive.
by the associated press
It won’t be easy. A Treasury program announced three months ago to help private investors buy up those assets hasn’t even begun. Some banks are threatening not to participate. They fear they won’t fetch a high enough price for their soured mortgage-related debt, which was bought at the height of the housing boom. Removing the bad assets is needed to fix the banks and help revive the economy. Unless they can sell off these assets, banks won’t be able to resume normal lending and rebuild confidence in the financial system, even if they have enough money to survive.
by the associated press
Friday, May 8, 2009
Stress tests’ show $75B is needed
WASHINGTON — The government’s long-awaited "stress-test” results have found that 10 of the nation’s 19 largest banks need a total of about $75 billion in new capital to withstand losses if the recession worsened
The Federal Reserve’s findings, released Thursday, show the financial system, like the overall economy, is healing but not yet healed.
Some of the largest banks are stable, the tests found. But others need billions more in capital — a signal by regulators that the industry is vulnerable but viable. Government officials have said a stronger banking system is needed for an economic rebound.
Officials hope the tests will restore investors’ confidence that not all banks are weak, and that even those that are can be strengthened. They have said none of the banks will be allowed to fail.
Plan due by June 8
The banks that need more capital will have until June 8 to develop a plan and have it approved by their regulators.
Among the 10 banks that need to raise more capital, the tests said Bank of America Corp. needs by far the most: $33.9 billion. Wells Fargo & Co. requires $13.7 billion, GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion.
The other five requiring capital are all regional banks: Regions Financial Corp. of Birmingham, Ala., needs to raise $2.5 billion; SunTrust Banks Inc. of Atlanta $2.2 billion; KeyCorp of Cleveland $1.8 billion; Fifth Third Bancorp of Cincinnati $1.1 billion; and PNC Financial Services Group Inc. of Pittsburgh $600 million.
Some of the firms that need more capital already are announcing their strategies. Morgan Stanley, which the government says needs $1.8 billion in new capital, said it plans to raise $5 billion. That will include $2 billion in common stock.
The tests found that if the recession were to worsen, losses at the 19 stress-tested firms during 2009 and 2010 could total $600 billion.
"Looking at the big picture, you can say that things aren’t so bad for the financial industry as a whole,” said Kevin Logan, chief U.S. economist at Dresdner Kleinwort.
But Logan said attracting fresh capital will be a challenge for banks that need it.
"The banking industry is not going to make a lot of money going forward, and that’s a dilemma for keeping banks solvent and getting them lending,” he said.
Stocks gained
Financial stocks surged in after-hours trading, after the report was released at 5 p.m. Citigroup shares jumped 8.4 percent to $4.13, while State Street rose 7.3 percent to $40.60. Earlier, the markets had been down.
The government’s unprecedented decision to publicly release bank exams has led some critics to question whether the findings are credible. Some said regulators seemed so intent on sustaining public confidence in the banks that the results would have to find the banks basically healthy, even if some need to raise more capital.
Jaidev Iyer, a former risk management chief at Citigroup, said regulators are playing to expectations, which could put the government in the role of creating "winners and losers.”
But some analysts questioned whether the tests were rigorous enough. Economic assumptions have changed since the test was designed in February. The country’s jobless rate has risen to 8.5 percent and is projected to go higher this year.
by the associated press
The Federal Reserve’s findings, released Thursday, show the financial system, like the overall economy, is healing but not yet healed.
Some of the largest banks are stable, the tests found. But others need billions more in capital — a signal by regulators that the industry is vulnerable but viable. Government officials have said a stronger banking system is needed for an economic rebound.
Officials hope the tests will restore investors’ confidence that not all banks are weak, and that even those that are can be strengthened. They have said none of the banks will be allowed to fail.
Plan due by June 8
The banks that need more capital will have until June 8 to develop a plan and have it approved by their regulators.
Among the 10 banks that need to raise more capital, the tests said Bank of America Corp. needs by far the most: $33.9 billion. Wells Fargo & Co. requires $13.7 billion, GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion.
The other five requiring capital are all regional banks: Regions Financial Corp. of Birmingham, Ala., needs to raise $2.5 billion; SunTrust Banks Inc. of Atlanta $2.2 billion; KeyCorp of Cleveland $1.8 billion; Fifth Third Bancorp of Cincinnati $1.1 billion; and PNC Financial Services Group Inc. of Pittsburgh $600 million.
Some of the firms that need more capital already are announcing their strategies. Morgan Stanley, which the government says needs $1.8 billion in new capital, said it plans to raise $5 billion. That will include $2 billion in common stock.
The tests found that if the recession were to worsen, losses at the 19 stress-tested firms during 2009 and 2010 could total $600 billion.
"Looking at the big picture, you can say that things aren’t so bad for the financial industry as a whole,” said Kevin Logan, chief U.S. economist at Dresdner Kleinwort.
But Logan said attracting fresh capital will be a challenge for banks that need it.
"The banking industry is not going to make a lot of money going forward, and that’s a dilemma for keeping banks solvent and getting them lending,” he said.
Stocks gained
Financial stocks surged in after-hours trading, after the report was released at 5 p.m. Citigroup shares jumped 8.4 percent to $4.13, while State Street rose 7.3 percent to $40.60. Earlier, the markets had been down.
The government’s unprecedented decision to publicly release bank exams has led some critics to question whether the findings are credible. Some said regulators seemed so intent on sustaining public confidence in the banks that the results would have to find the banks basically healthy, even if some need to raise more capital.
Jaidev Iyer, a former risk management chief at Citigroup, said regulators are playing to expectations, which could put the government in the role of creating "winners and losers.”
But some analysts questioned whether the tests were rigorous enough. Economic assumptions have changed since the test was designed in February. The country’s jobless rate has risen to 8.5 percent and is projected to go higher this year.
by the associated press
Tuesday, May 5, 2009
Some banks tighten home loan standards
WASHINGTON — A larger share of banks has made it more difficult for people to obtain home mortgages over the last three months even as demand has grown, the Federal Reserve reported Monday.
The Fed’s new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February.
Meanwhile, 65 percent of banks said they tightened standards on nontraditional mortgages, such as adjustable-rate loans with multiple payment options. That was up from 50 percent in the Fed’s last survey.
Demand for nearly all types of consumer and business loans continued to weaken over the last three months, with one exception. Demand for prime mortgages registered its first increase since the Fed began to track those loans separately in April 2007.
That uptick in demand comes as mortgage rates dropped, helped by a concerted effort by the Fed to drive down rates to help revive the crippled housing industry.
Rates on 30-year mortgages slid to 4.78 percent last week, trying a record low, according to figures compiled by mortgage giant Freddie Mac.
Some good signs
In other lending, nearly 60 percent of banks said they tightened standards on credit card loans over the last three months, the same proportion as in the previous Fed survey.
There were some spots of improvement in the latest quarterly survey.
About 40 percent of banks said they tightened standards on commercial and industrial loans over the last three months. That was down from around 65 percent in the last survey.
Looking ahead, however, "the vast majority” of banks reported they expected deterioration in credit quality for all types of household and business loans.
More than 70 percent said the quality of their banks loan portfolio was likely to deteriorate this year with nontraditional mortgages and credit cards figuring prominently in that scenario.
That response was to a special question contained in Monday’s survey not asked in the previous one.
by the associated press
The Fed’s new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February.
Meanwhile, 65 percent of banks said they tightened standards on nontraditional mortgages, such as adjustable-rate loans with multiple payment options. That was up from 50 percent in the Fed’s last survey.
Demand for nearly all types of consumer and business loans continued to weaken over the last three months, with one exception. Demand for prime mortgages registered its first increase since the Fed began to track those loans separately in April 2007.
That uptick in demand comes as mortgage rates dropped, helped by a concerted effort by the Fed to drive down rates to help revive the crippled housing industry.
Rates on 30-year mortgages slid to 4.78 percent last week, trying a record low, according to figures compiled by mortgage giant Freddie Mac.
Some good signs
In other lending, nearly 60 percent of banks said they tightened standards on credit card loans over the last three months, the same proportion as in the previous Fed survey.
There were some spots of improvement in the latest quarterly survey.
About 40 percent of banks said they tightened standards on commercial and industrial loans over the last three months. That was down from around 65 percent in the last survey.
Looking ahead, however, "the vast majority” of banks reported they expected deterioration in credit quality for all types of household and business loans.
More than 70 percent said the quality of their banks loan portfolio was likely to deteriorate this year with nontraditional mortgages and credit cards figuring prominently in that scenario.
That response was to a special question contained in Monday’s survey not asked in the previous one.
by the associated press
Thursday, April 23, 2009
Secret Bank test results
NEW YORK — It was the banking industry’s equivalent of Judgment Day: Dark-suited bank executives called into top-secret meetings with Federal Reserve officials to learn whether their institutions might live or die if the economy took a sharp turn for the worse.
The disclosure of the stress-test results for the nation’s 19 biggest financial firms made for high drama on Wall Street, which buzzed with anticipation even though the banks’ report cards won’t be made public until early next month.
Bank executives learned their grades in meetings at Federal Reserve banks across the country. The proceedings were shrouded in secrecy. By law, the banks can’t publicize the results without the government’s permission. Most banks refused even to confirm that the meetings took place.
About the tests
The stress tests are among the ways the government has tried to restore confidence in banking amid the gravest financial crisis since the Great Depression.
The air of mystery fed Wall Street’s anticipation. On the financial news network CNBC, a countdown clock ticked away the seconds until the Fed’s release of the methodology used to conduct the stress tests.
Financial stocks mostly rose after the Federal Reserve said the government would rescue any of the 19 financial companies if they became weakened by a deeper recession.
Giving the banks their results Friday, more than a week before they’re to be released, is supposed to give them time to process the data internally.
The Fed, which is overseeing the tests, asked banks not to reveal their results during quarterly earnings announcements. Regulators worry investors might batter those banks without any good news to announce. Many banking experts who say it’s difficult to predict how the results will be received.
Bert Ely, a longtime banking analyst, said he worried the tests could backfire by unnecessarily alarming investors.
"We’re going to get a warts-and-all look at the banks, and the market may overreact,” he said.
Most banks refused to discuss any aspect of the tests. Only one, PNC Financial Services Group Inc. even confirmed that it met with regulators.
by the associated press
The disclosure of the stress-test results for the nation’s 19 biggest financial firms made for high drama on Wall Street, which buzzed with anticipation even though the banks’ report cards won’t be made public until early next month.
Bank executives learned their grades in meetings at Federal Reserve banks across the country. The proceedings were shrouded in secrecy. By law, the banks can’t publicize the results without the government’s permission. Most banks refused even to confirm that the meetings took place.
About the tests
The stress tests are among the ways the government has tried to restore confidence in banking amid the gravest financial crisis since the Great Depression.
The air of mystery fed Wall Street’s anticipation. On the financial news network CNBC, a countdown clock ticked away the seconds until the Fed’s release of the methodology used to conduct the stress tests.
Financial stocks mostly rose after the Federal Reserve said the government would rescue any of the 19 financial companies if they became weakened by a deeper recession.
Giving the banks their results Friday, more than a week before they’re to be released, is supposed to give them time to process the data internally.
The Fed, which is overseeing the tests, asked banks not to reveal their results during quarterly earnings announcements. Regulators worry investors might batter those banks without any good news to announce. Many banking experts who say it’s difficult to predict how the results will be received.
Bert Ely, a longtime banking analyst, said he worried the tests could backfire by unnecessarily alarming investors.
"We’re going to get a warts-and-all look at the banks, and the market may overreact,” he said.
Most banks refused to discuss any aspect of the tests. Only one, PNC Financial Services Group Inc. even confirmed that it met with regulators.
by the associated press
Government may save some Banks
WASHINGTON — The Federal Reserve on Friday said the government is prepared to rescue any of the banks that underwent "stress tests” and were deemed vulnerable if the recession worsened sharply.
The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.
Separately, bank executives were being briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government’s permission, but Wall Street buzzed with anticipation and most financial stocks rose. The Dow Jones industrial average added more than 153 points to about 8,111 in afternoon trading.
The stress tests were designed to gauge how banks would fare during a much worse recession than most economists expect. But the Fed said that a bank needing more capital to cushion against loan losses under its "adverse” economic scenario should not be considered insolvent.
Rather, such a bank — if it could not raise additional money from private investors — could get financing from the Treasury’s bailout fund.
Even if the tests showed a bank needs more capital, that "is not a measure of the current solvency or viability of the firm,” the Fed said in a description of the tests’ methodology.
Stabilization goals
Battling the worst financial crisis since the 1930s, the government has committed more than $11 trillion in loans, investments and other measures to prop up troubled institutions and stabilize the banking system.
For months, officials have put off questions about the banking system by saying they’re awaiting the stress-test results.
The delays have led investors to fret: If the tests show every bank to be strong, they will look like a whitewash and won’t be taken seriously. Yet if investors could distinguish stronger from weaker banks, they could start selling off weaker banks that remain stable but might falter if the recession got much worse.
The banks will have a few days to review the government’s stress tests results and appeal any findings they disagree with. Regulators will give them the final results next Friday, according to two people familiar with the matter who spoke on condition of anonymity because they were not authorized to discuss it publicly.
In a conference call with journalists, senior Fed officials said regulators will be keeping a close eye on banks to make sure they have adequate capital to withstand likely losses on mortgages and other assets as the recession drags on.
by the associated press
The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.
Separately, bank executives were being briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government’s permission, but Wall Street buzzed with anticipation and most financial stocks rose. The Dow Jones industrial average added more than 153 points to about 8,111 in afternoon trading.
The stress tests were designed to gauge how banks would fare during a much worse recession than most economists expect. But the Fed said that a bank needing more capital to cushion against loan losses under its "adverse” economic scenario should not be considered insolvent.
Rather, such a bank — if it could not raise additional money from private investors — could get financing from the Treasury’s bailout fund.
Even if the tests showed a bank needs more capital, that "is not a measure of the current solvency or viability of the firm,” the Fed said in a description of the tests’ methodology.
Stabilization goals
Battling the worst financial crisis since the 1930s, the government has committed more than $11 trillion in loans, investments and other measures to prop up troubled institutions and stabilize the banking system.
For months, officials have put off questions about the banking system by saying they’re awaiting the stress-test results.
The delays have led investors to fret: If the tests show every bank to be strong, they will look like a whitewash and won’t be taken seriously. Yet if investors could distinguish stronger from weaker banks, they could start selling off weaker banks that remain stable but might falter if the recession got much worse.
The banks will have a few days to review the government’s stress tests results and appeal any findings they disagree with. Regulators will give them the final results next Friday, according to two people familiar with the matter who spoke on condition of anonymity because they were not authorized to discuss it publicly.
In a conference call with journalists, senior Fed officials said regulators will be keeping a close eye on banks to make sure they have adequate capital to withstand likely losses on mortgages and other assets as the recession drags on.
by the associated press
Fed's urge bank Buyout
CHARLOTTE, N.C. — New York’s attorney general said Thursday government officials pressured Bank of America Corp. chief Ken Lewis to complete the bank’s purchase of Merrill Lynch, thus threatening his job security.
A letter from New York State Attorney General Andrew Cuomo’s office sent to Congressional leaders and federal regulators said Lewis testified in February that former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke threatened to oust Bank of America’s management if the bank tried to back out of buying Merrill Lynch.
The government helped orchestrate the acquisition of the investment bank by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off one of the most intense periods of the financial crisis.
Bank of America completed its purchase of New York-based Merrill Lynch on Jan. 1.
The bank has repeatedly defended its acquisition to shareholders and investors amid revelations of huge losses at Merrill Lynch before the deal was done.
"We believe we acted legally and appropriately with regard to the Merrill Lynch transaction,” Bank of America spokesman Scott Silvestri told The Associated Press Thursday.
Representatives from the Treasury Department had no immediate comment on the situation.
Bonuses questioned
Lewis’ testimony came in response to questioning by the attorney general’s office about bonuses paid to Merrill Lynch employees in December, before BofA completed its acquisition of the investment bank. The attorney general’s office was trying to determine the timing of the bonuses and whether BofA failed to provide adequate disclosure to shareholders about them.
The investigation’s focus has since broadened. The attorney general’s office continues to investigate the bonus payments, but is now also investigating potential securities fraud tied to Bank of America’s purchase of Merrill Lynch and whether enough transparency was provided on the deal.
Bank of America has received $45 billion from the government’s $700 billion Troubled Asset Relief Program (TARP). As part of that money, the bank received $20 billion in January after Lewis requested it to help offset mounting losses at Merrill.
Neil Barofsky, the special government inspector general assigned to oversee TARP, said Thursday he will be issuing audits of various bailout transactions, including government assistance provided to Charlotte, N.C.-based Bank of America in connection with its acquisition of Merrill Lynch. He said his office is also conducting an investigation involving the bank.
"I would caution anyone from leaping to too many conclusions about what Secretary Paulson or Chairman Bernanke said until we’ve looked at all the facts and reported on them,” Barofsky told the economic panel. "The conclusion that one may draw that it’s black and white that there was an order from the United States government not to disclose this information, I don’t think it’s as crystal clear.”
by the associated press
A letter from New York State Attorney General Andrew Cuomo’s office sent to Congressional leaders and federal regulators said Lewis testified in February that former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke threatened to oust Bank of America’s management if the bank tried to back out of buying Merrill Lynch.
The government helped orchestrate the acquisition of the investment bank by Bank of America over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off one of the most intense periods of the financial crisis.
Bank of America completed its purchase of New York-based Merrill Lynch on Jan. 1.
The bank has repeatedly defended its acquisition to shareholders and investors amid revelations of huge losses at Merrill Lynch before the deal was done.
"We believe we acted legally and appropriately with regard to the Merrill Lynch transaction,” Bank of America spokesman Scott Silvestri told The Associated Press Thursday.
Representatives from the Treasury Department had no immediate comment on the situation.
Bonuses questioned
Lewis’ testimony came in response to questioning by the attorney general’s office about bonuses paid to Merrill Lynch employees in December, before BofA completed its acquisition of the investment bank. The attorney general’s office was trying to determine the timing of the bonuses and whether BofA failed to provide adequate disclosure to shareholders about them.
The investigation’s focus has since broadened. The attorney general’s office continues to investigate the bonus payments, but is now also investigating potential securities fraud tied to Bank of America’s purchase of Merrill Lynch and whether enough transparency was provided on the deal.
Bank of America has received $45 billion from the government’s $700 billion Troubled Asset Relief Program (TARP). As part of that money, the bank received $20 billion in January after Lewis requested it to help offset mounting losses at Merrill.
Neil Barofsky, the special government inspector general assigned to oversee TARP, said Thursday he will be issuing audits of various bailout transactions, including government assistance provided to Charlotte, N.C.-based Bank of America in connection with its acquisition of Merrill Lynch. He said his office is also conducting an investigation involving the bank.
"I would caution anyone from leaping to too many conclusions about what Secretary Paulson or Chairman Bernanke said until we’ve looked at all the facts and reported on them,” Barofsky told the economic panel. "The conclusion that one may draw that it’s black and white that there was an order from the United States government not to disclose this information, I don’t think it’s as crystal clear.”
by the associated press
Wednesday, April 22, 2009
Fed's gives Stress Tests to Big Banks
WASHINGTON — The government is giving Wall Street banks a helping hand. But it’s not a handout.
The federal bank "stress tests” rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press.
That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases results of the tests in May.
Regulators are administering the tests to 19 large financial firms to determine which banks are healthy, which need more help and which might fail if the recession worsens.
Under one scenario, the tests assume banks will see "no further losses” on the complex securities, according to the document obtained by AP. By contrast, it estimates that individual loans will lose up to 20 percent of their value.
Regional banks are holding more individual loans and fewer of the securities Wall Street giants specialize in — complex derivatives backed by huge pools of mortgage-backed loans and other debt.
Analysts say regulators are probably favoring the largest banks because if even one failed, it would pose a grave financial risk. Banks that deal in securities are more connected to other corners of the global financial system.
The Fed document doesn’t name any bank.
The federal bank "stress tests” rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press.
That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases results of the tests in May.
Regulators are administering the tests to 19 large financial firms to determine which banks are healthy, which need more help and which might fail if the recession worsens.
Under one scenario, the tests assume banks will see "no further losses” on the complex securities, according to the document obtained by AP. By contrast, it estimates that individual loans will lose up to 20 percent of their value.
Regional banks are holding more individual loans and fewer of the securities Wall Street giants specialize in — complex derivatives backed by huge pools of mortgage-backed loans and other debt.
Analysts say regulators are probably favoring the largest banks because if even one failed, it would pose a grave financial risk. Banks that deal in securities are more connected to other corners of the global financial system.
The Fed document doesn’t name any bank.
by the associated press
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