Fed throwing regionals under the bus

[c1ue]

There was concern over the Fannie and Freddie implosions affecting smaller banks who held their common and preferred stock as capital reserve.

Well, the Fed is throwing all those institutions under the bus.

I guess those who had faith in Paulson and company are getting what they deserve - unlike those who were told the truth and/or used their brains.

http://www.federalreserve.gov/newsev...ef=patrick.net

The federal banking agencies have been assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two government-sponsored enterprises, a limited number of smaller institutions have holdings that are significant compared to their capital.

The Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision are prepared to work with these institutions to develop capital-restoration plans pursuant to the capital regulations and the prompt corrective action provisions of the Federal Deposit Insurance Corporation Improvement Act.

All institutions are reminded that investments in preferred stock and common stock with readily determinable fair value should be reported as available-for-sale equity security holdings, and that any net unrealized losses on these securities are deducted from regulatory capital.

[GRG55]

Re: Fed throwing regionals under the bus

There was concern over the Fannie and Freddie implosions affecting smaller banks who held their common and preferred stock as capital reserve.

Well, the Fed is throwing all those institutions under the bus.

I guess those who had faith in Paulson and company are getting what they deserve - unlike those who were told the truth and/or used their brains.

http://www.federalreserve.gov/newsev...ef=patrick.net

This wasn't intended to save the regionals. It was intended to save Paulson's friends running the large firms on Wall Street. Note that it didn't even help save the CEO's job at WaMu. Want to make a little wager when this is all "over" that Goldman makes out the best?

[jk]

Re: Fed throwing regionals under the bus

those regionals and small local banks will make nice acquisitions for the big institutions- you know, the ones that are too big to fail.

[bill]

Re: Fed throwing regionals under the bus

those regionals and small local banks will make nice acquisitions for the big institutions- you know, the ones that are too big to fail.

How about political connected purchasers with incentives.
http://www.suntimes.com/news/politic...ritz28.article

The Pritzker family bought the former Lyons Savings and Loan with partner Alan Dworman in 1988. Lyons had failed, and federal regulators asked the Pritzkers to take it over. Crain's Chicago Business reported that the FDIC gave the Pritzkers "cash, tax incentives and promissory notes" worth $645 million to take Lyons.

[GRG55]

Re: Fed throwing regionals under the bus

How about political connected purchasers with incentives.
http://www.suntimes.com/news/politic...ritz28.article

They should name this latest program "No FOH* Left Behind"

*Friend of Hank

[oddlots]

Clapping to keep tinkerbell alive

What does Hudson say, "Big fish eat little fish."

OT, there was a classic turn of phrase in a piece by John Dizard that made me howl. (Same piece has some interesting notes on the - at the time (before bail out) - status of the shares in Fannie and Freddie. From Naked Capitalism:

http://tiny.cc/tCmOf

In the piece Dizard examines the question of what happen to the preferreds given that they are held by so many regional banks....

"I called up Andrew Senchak, the vice-chairman and co-director of investment banking at Keefe Bruyette & Woods, which specialises in bank securities...

As he says: "It is true that there is no direct link between the GSE preferred issues and that of the banks, but they are in the same galaxy. Given that, there is almost no incentive not to keep the GSE preferreds in good shape. If there is a recapitalisation of the GSEs [by the Treasury], you can achieve the public policy end [of limiting 'moral hazard' by wiping out the value of the common]. I am not sure how much new bank equity has to be issued . . . it could be anywhere from $200bn to $400bn."...

And yes, I agree that it is likely, if not certain, that if the GSE books were marked to market, the asset value would not be there to support the preferred issues. There is, though, a real value to clapping to keep Tinkerbell alive here: you get a banking system that can finance a recovery.

As a reality check I called Jim Grant, of Grant's Interest Rate Observer, and the author of the forthcoming Mr Market Miscalculates . He comments: "The alternative to preserving the value of the GSE preferreds? Prayer? Remember that a lot of that paper is held by the same banks the authorities would love not to fail."

So, with the market's affirmation, and the agreement of one of the Street's flintiest sceptics, I'm sticking to my position: the GSE preferreds should survive."

I love that phrase - needed that simple analogy for years: "clapping to keep Tinkerbell alive." To explain, I believe in English Xmas Pantomimes based on Peter Pan the audience is asked to show they believe in magic by clapping when Tinkerbell's life is fading because of the lost boys' loss of faith.

There's some great commentary - again, via Yves at Naked Capitalism - about the value of Fannie and Freddie going forward:

http://tiny.cc/UAkoY

[c1ue]

Re: Fed throwing regionals under the bus

Beyond the Friends of Hank - however true - I would like to point out that the absorption of the smaller banks might be a way to accelerate the healing of the larger ones.

Even without the corruption/nepotism/oligarchical aspects, it is certainly true that most of the regionals were not participants in the MBS sage and thus theoretically should be in better shape.

A takeover of these suddenly undercapitalized banks would be a great way to force deposits into the larger banks.

I don't know if it is enough though. The large banks are way more than half of the overall 'capital' in the system - according to Mauldin the top 50 banks comprise 80% of the assets.

This would help slow down the descent, but not prevent anything.