10 US banks repay $99b of bailout funds

10 US banks repay $99b of bailout funds
Banks race to free themselves from govt restrictions tied to relief scheme

NEW YORK: - Ten of the largest US banks have repaid more than US$68 billion (S$99 billion) of taxpayer bailout funds, as they race to extract themselves from government restrictions on pay for top executives.
Banks are returning money taken from the US$700 billion Troubled Asset Relief Programme (Tarp), which was once intended to spur lending but is now viewed as a sign that recipients are too weak to survive on their own. In most cases, the banks issued preferred shares that carried 5 per cent dividends in exchange for the money.

JPMorgan Chase said it repaid US$25 billion to Tarp, while Goldman Sachs and Morgan Stanley said they repaid US$10 billion each.

Among other banks, US Bancorp said it repaid US$6.6 billion, Capital One Financial Corp US$3.6 billion, American Express US$3.4 billion, BB&T Corp US$3.1 billion, Bank of New York Mellon Corp US$3 billion, State Street Corp US$2 billion and Northern Trust Corp US$1.57 billion.

Apart from Northern Trust, all of these banks underwent government ’stress tests’ of their ability to withstand a deep recession and the government gave these 10 permission to repay the funds last week.

Several of the banks that underwent the tests were ordered to plug capital shortfalls, including Bank of America and Citigroup, which did not get a green light to repay Tarp.

Each took US$45 billion from the programme, and the government is in the process of taking a potential 34 per cent equity stake in Citigroup. Bank of America has said it would like to start returning government funds later this year.

American Express, Bank of New York Mellon, BB&T, JPMorgan, Northern Trust and US Bancorp also intend to buy back warrants for their common stock from the US Treasury, which they awarded when they took the bailout money.

The warrants give the Treasury the right for up to 10 years to buy common stock in the banks at a set price. Banks can buy back the warrants at ‘fair market value’, the Treasury said.

BB&T is negotiating a buyback, a spokesman said. The other banks did not comment on the status of buybacks or potential terms.

As a condition for being allowed to repay, banks had to show they could raise money from the private sector by selling stock and issuing debt without the help of government guarantees.

The Federal Reserve also had to agree that their capital levels were adequate to allow them to continue lending.

In connection with the early repayment and associated dividends, several banks are taking second-quarter charges.

Goldman Sachs said it paid a dividend of US$425 million, which will reduce second-quarter earnings by about 77 US cents a share, while Morgan Stanley said it expects a US$892 million charge in the second quarter relating to the early repayment.

At least 22 smaller banks have been allowed to repay some or all of their Tarp money, although most must still negotiate terms to buy back or extinguish their associated warrants.

REUTERS

Source : Straits Times - 19 June 2009

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Relief as credit eases for Reits

Relief as credit eases for Reits
At least four have recently benefited from improved financing facilities
By Gabriel Chen

REAL estate investment trusts (Reits) are beginning to recover from the economic slowdown, thanks to an easing of credit conditions which has allowed vital bank funding to flow more easily.
Within the last month or so, at least four Reits in Singapore have had their existing debt facility extended or have managed to refinance maturing loans.

MacarthurCook Industrial Reit and Frasers Commercial Trust have managed to extend the maturity date of their existing loans.

And CapitaCommercial Trust and Suntec Reit have secured fresh loan facilities of $160 million and $825 million, respectively.

Reits pool money from investors to use in buying, renovating and managing income properties such as office buildings, shopping malls, warehouses and mortgages, among other things.

The fear that Reits would be unable to secure sorely needed fresh funding from banks had hung like a dark cloud over the sector last year as financial markets took a bad battering.

Industry watchers estimate that more than $4 billion in Singapore Reit debt is due for refinancing this year, with a further $12 billion due next year.

It has not helped that the market has tanked for commercial mortgage-backed securities (CMBS) - a type of bond backed by mortgages on commercial property. Some Reits use such instruments to get liquidity.

‘The CMBS market is totally dead,’ said Mr Mark Pawley, a former Credit Suisse investment banker and now chief executive of private equity firm Oxley Capital.

That the drought for new loans and refinancings is finally breaking is positive news for the Reit market - but the restoration of good credit health is coming at a cost as banks price higher spreads into funding arrangements.

‘With the revisions in valuations due to external factors, bankers are demanding fresh equity and higher pricing, which is generally what has been and is occurring,’ Mr Pawley said.

Despite declining occupancy rates and lower rental renewal rates at some of the premises owned by Reits that have clouded their prospects in recent months, banks are finally coming to their aid - after showing reluctance to do so as recently as several months ago.

‘Somebody has to refinance one way or another,’ said Dr David Lee, managing director of Ferrell Asset Management, a hedge fund that has also ventured into developing properties.

‘Like the paradox of thrift, financial institutions also suffer from paradox of tight credit. If every bank tightens the credit and lowers valuation, everyone is worse off.’

Kim Eng analyst Goh Han Peng said: ‘Only the larger Singapore Reits which are endowed with quality assets and backed by entrenched sponsors will be able to access the capital market at reasonable costs.’

Strong sponsors - Mapletree Investments, for example, sponsors Mapletree Logistics Trust - could act as ‘lender of last resort’ for Reits and prevent any fire sale of assets.

Some Reits which relied too heavily on CMBS loans to finance expansion during the boom years are also feeling the brunt of the moribund market.

One of them is Saizen Reit: When it was building up its portfolio in the years leading up to its 2007 listing, Saizen relied heavily on CMBS loans.

It now has to draw on cash reserves, proceeds from a rights issue as well as short-term bridging loans to pay off these loans.

Then there is Ascendas Reit, which has $300 million of CMBS debt due for refinancing in August.

Despite the challenges, the Reit market offers opportunities for investors, said venture capitalist Finian Tan, who was part of the listing team of Cambridge Industrial Trust.

‘The risk reward of buying Reits is still a good bet. The yields are still pretty good, even after taking into consideration the potential drop in yields due to increased cost of financing and lower rentals,’ he said.

Source : Straits Times - 19 June 2009

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US Federal Reserve given big reform role

US Federal Reserve given big reform role

(WASHINGTON) Some of the reforms proposed under President Barack Obama’s plan:

A new Financial Services Oversight Council of regulators led by the Treasury to identify emerging ’systemic’ risks and improve inter-agency cooperation.

New authority for the Federal Reserve to supervise all firms that could pose a threat to financial stability, even those that do not own banks.

Stronger capital and other prudential standards for all financial firms, and even higher standards for large firms.

A new National Bank Supervisor to supervise all federally chartered banks.

Elimination of the federal thrift charter and other loopholes that allowed some depository institutions to avoid bank holding company regulation by the Federal Reserve.

Registration of advisers of hedge funds and other private pools of capital with the SEC.

New requirements for market transparency, stronger regulation of credit rating agencies, and a requirement that issuers and originators retain a financial interest in securitised loans.

Comprehensive regulation of all over-the-counter derivatives.

New authority for the Federal Reserve to oversee payment, clearing, and settlement systems.

A new Consumer Financial Protection Agency to protect consumers across the financial sector from unfair, deceptive and abusive practices.

More powers for the SEC to strengthen protection for investors.

A new regime to resolve non-bank financial institutions whose failure could have serious systemic effects.

Revisions to the Federal Reserve’s emergency lending authority to improve accountability. — AFP

Source : Business Times - 19 June 2009

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Obama’s ‘big bang’ seen as a mixed bag

Obama’s ‘big bang’ seen as a mixed bag

Fed’s new powers raise some concern; issue of ‘too-big-to-fail’ banks not addressed

By JOYCE KOH
IN NEW YORK

IT has been billed as the most sweeping overhaul of America’s financial system since the post-Great Depression reforms, but President Barack Obama’s plan for regulatory reform has drawn mixed reactions from analysts and barely budged the markets.

All in the Fed’s hands: Federal Reserve chairman Ben Bernanke holding a copy of the plan on Wednesday. Many are questioning the expanded role being given to the Fed in policing financial institutions.
The Obama plan, which was unveiled on Wednesday, has been praised for its comprehensive efforts to remake the financial landscape which has been deeply scarred by the crisis. But many question the expanded role given to the US Federal Reserve in policing financial institutions. Others complain that an opportunity has been lost to pare down the number of regulators in the system.

Under the proposal, the Office of Thrift Supervision and Office of the Comptroller of the Currency would be combined into a single National Bank Supervisor, merely shaving the number of banking regulators in the country from six to five. The survivors like the Securities & Exchange Commission (SEC) and Federal Deposit Insurance Corp (FDIC) would still closely guard their domains. At the same time, new agencies to protect consumers and oversee the insurance industry will emerge.

While there’s no doubt that the tide in Washington has tilted towards more regulation, many are asking whether smarter regulation is what’s needed instead.

The new plan does not seek to dismantle ‘too-big- to-fail’ financial institutions nor enforce any structural division of the industry between commercial and investment banks like what the Glass-Steagall Act did after the crash of 1929. Many commentators, including Nobel Prize-winning economist Joseph Stiglitz, have called for such policies.

Other critics suggest that merely overhauling regulatory rules misses the point. For instance, R Christopher Whalen, managing director of Institutional Risk Analytics, told National Public Radio: ‘The fundamental point is that we don’t need new tools; we need political will to clean up the mess.’

On Thursday morning, Treasury Secretary Tim Geithner defended the plan before the Senate banking committee. He was grilled on why the Fed was being given expanded powers despite previous regulatory failures and a possible conflict with its monetary-policy duties.

Mr Geithner responded that the Fed has ‘greater knowledge and feel for broader market developments’ than any other US banking agency.

When the widely anticipated plan was unveiled on Wednesday afternoon, the market gave it a tepid response. The Dow Jones slipped 0.1 per cent to 8,497.18 points, while the S&P 500 slipped 0.1 per cent to 910.71.

Bank stocks, under pressure the previous few sessions as the White House prepared to lay out its plan, also slumped.

Perhaps the most contentious issue for many analysts and economists is the move to make the Fed the uber-regulator - giving it new powers, when it has been held responsible for stoking the asset bubble in the first place.

Still, others on Wall Street concede that the central bank might be the best candidate for the role as it was better staffed and commanded more respect than other agencies.

As one senior banker told the Financial Times: ‘We should be able to do business with the Federal Reserve as long as all these new powers do not go to its head.’

On Wednesday, arguing for the selection of the Fed, Mr Geithner said the administration had studied a range of alternatives and found that countries that split the functions of systemic regulator and central banker often suffered deeper financial problems during periods of crisis.

Besides the Fed’s role, the retention of the current regulatory structure with most of its agencies intact also raised some eyebrows.

The Brookings Institution, a liberal Washington- based think-tank, said political constraints have caused the administration to ’stop short of a full solution in certain areas’.

Joe Nocera, a columnist for the New York Times, wrote: ‘The Obama plan is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself. Without question, the latter would be more difficult, more contentious and probably more expensive. But it would also have more lasting value.’

Even as analysts, commentators and economists toss up the merits of Mr Obama’s financial plan, the political wrangling is just beginning. President Obama, who said the reform proposals are necessary to avoid another crisis, hopes to complete the overhaul by year-end.

But moving his plans through Congress is far from a sure bet. In its present form, the plan will almost certainly come up against resistance from bankers, lawmakers and even some government agencies.

The broad strokes have been painted to remake the US financial sector. But it will take a while before the details are filled in and we know for sure what is going to change.

Source : Business Times - 19 June 2009

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