Morning Scan

Monday, March 19, 2012

Receiving Wide Coverage ...

Clearing Inventory: Private-equity, hedge fund and securities firms are weighing bids on a portfolio of 2,500 foreclosed homes Fannie Mae is auctioning, according to the lead story in today's Journal. Buyers will be required to rent out the properties and refrain from selling them for several years. The auction will be a major test case for the GSEs and for banks, as both groups have generally been selling their repossessed residential properties one at a time. "Selling properties in bulk to large investors could require Fannie Mae to sell at a big discount, leading to larger initial costs. It is unclear which would be least costly ultimately to taxpayers," the Journal says. Banks, meanwhile, "could be reluctant to unload properties in bulk if it means selling for much less" than what they're currently getting. Another Journal story says the Treasury will announce today it turned a profit on mortgage bonds it purchased at the nadir of the financial crisis; it unloaded the last of these GSE-guaranteed securities last week.

Wall Street Journal

Citigroup is trying to oust the manager of a CLO it created in 2005. Citi ended up repurchasing the bonds from the deal at deep discounts, and now wants to liquidate the underlying portfolio of corporate loans so it can be repaid full value. But the manager, Highland Capital Management, opposes unwinding the transaction, as this would reduce the firm's assets under management, and hence its fees.

Ally Financial's Residential Capital is expected to file for bankruptcy protection in the next few weeks, the Journal reports, citing anonymous sources.

Gerald J. Ford, the billionaire bank investor, turns up in a weekend piece about homes with opulent basements. In the home he shares with wife Kelli Ford, an interior designer, "the 5,000-bottle wine cellar is clad in basket-weave patterned limestone; chandeliers hang over a columned 20-by-50-foot pool." None of this impresses us as much as the Lichtenstein we spotted hanging from Gerald's living room wall in the photo accompanying last week's story about the sale of Pacific Capital.

Financial Times

Banks have recaptured equity and fixed-income trading volume from electronic platforms and public exchanges — a development that bodes well for the banks' first-quarter results, which are just around the corner. Late last year market volatility and concern about counterparty risk led investors to shift their trades to those speedier, if costlier, nonbank outlets.

New York Times

The Fed said it made a mistake in its stress test of Citi, leading it to overestimate losses on the bank's mortgage portfolio. The central bank also made mostly smaller corrections for the stress test results of Ally, Bank of America, MetLife and Wells Fargo. The story doesn't address whether the Fed's revisions affect its verdict on dividends for Citi or any of the other banks.

Could international treaties like the WTO agreements block financial regulatory reform? Gretchen Morgenson's Sunday column suggests this is a risk. In a comment letter on the Volcker rule proposal, for example, a Canadian trade group suggested parts of the rule ran afoul of NAFTA. And countries like Ecuador and Barbados have complained that the WTO's agreement on financial services prevents them from controlling the too-big-to-fail problem.

The mortgage settlement and the stress test results amount to sweetheart deals the government gave to banks, at the expense of homeowners and taxpayers, respectively, a Sunday Times editorial says.