Friday, August 22, 2014

It's Still Summer


Third Week Cats and Dogs 


I am going out of town this weekend to see family and meet old friends in Pittsburgh for an unofficial reunion, so I wanted to get this week’s blog out before traveling. 

Summer is the dead time in DC with the Congress gone and most of those who cover or relate also on their summer vacations, but stuff still goes on. 

Earlier this week, John Bancroft from Inside Mortgage Finance reported following his gleanings of bank call reports that bank income from mortgage activity rose significantly in the second quarter of 2014 to almost $4.91 Billion, up 45% over the first three months of the year. 

Those figures are down from 2012 and 2013 numbers, but still are healthy give the many ways banks can generate revenue. 

I want to juxtapose those earnings with three items. The first is that overall bank earnings through the second quarter were up to almost all-time highs, meaning those levels were achieved with smaller mortgage profits. 

The broader positive numbers haven’t stopped the bank Washington lobbyists from demanding additional support from the federal government to enhance their members’ bottom lines. (See last week’s discussion about the Financial Services Roundtable call on Treasury to help its members restore faith in private labels securities, PLS). 

I hope someone in this Treasury Department responded to the FSR by channeling their best John F. Kennedy, saying, “Governor Pawlenty, Mr. Dalton, ask not what your country can……” 

Most important to me, the increase in quarterly bank profits which IMF reported comes with Fannie and Freddie underpinning the national market supporting whatever mortgage activity the banks conduct, meaning working cooperatively with those banks that made so much cash. 

Inside the Beltway rhetoric is one thing, but I believe there are many large banks, including at least one of the TBTF banks, which see F&F as a desirable market component and key to their mortgage. lending business activity. 

It’s only logical, since securitizing through F&F takes the risk from the bank balance sheets and transfers it to the guarantors and obviously, the financial institutions still make money. And it is an easy and smooth operation, with which all banks and mortgage companies are familiar. 

Yet, everyone assumes that the banks hate and want to destroy Fannie and Freddie. Maybe their trade groups do because some in Congress look to them for that very response. Someone should ask the banks top execs and then parse their answers carefully. 

Here’s Bancroft’s IMF story. 



Ferguson, Missouri and the GSEs???

In my wildest dreams, I never would conflate the chilling events in Ferguson with Fannie and Freddie, but that didn’t stop Rafferty Capital Market’s analyst Richard Bove from doing so earlier this week in a novel approach putting down the CorkerWarnerJohnsonCrapo Senate bill, which the Obama Administration supported. 

Bove’s thesis is that Ferguson like many, many other hardcore urban communities could benefit from what F&F do best which is to finance homeownership and that some of the community angst, which exploded after the killing of an unarmed 18 year old man by a police officer, reflects a certain level of hopelessness and disinvestment that owning a home, having a greater stake in the community and the schools and representation could ameliorate. 

Bove is worth reading, if for no other reason, than while temporarily quiet, the community could erupt again, once grand jury testimony and police reports start emerging. 

I am not sure if anything Fannie or Freddie could do, going forward, can help Ferguson but they might help in other communities before they become the next Ferguson. 


Carney Sees No F&F Help from Ackman

I wouldn’t cast the WSJ’s John Carney as a “Fannie-fan,” far from it. 

Writing pessimistically in the Journal last week, Carney threw out several reason why he thought the new lawsuits by Pershing Square’s Bill Ackman, largest holder of Fannie and Freddie common stock, would not lead to anything, citing some of the bizarre Catch-22 provisions in the whole “conservatorship” gestalt and even why a plaintiff’s victory might not get them much. He also didn’t think the GSEs would be positive earners.

Here’s Carney’s story.

He could be spot on, but I doubt it.

In a message to Carney, I told him why his overreliance on the "conservatorship" deal parameters might be wrong, primarily because Obama Administration or a new one in 2017—if so motivated--simply could change the applicable conservatorship rules if it chose. 

And, depending on when Judge Sweeney renders a decision, a Democrat President could want to use a plaintiff’s decision to recapitalize the two, while a conservative Republican chief exec might just agree with the investors and want to see them benefit financially.


ISIL/ISIS/IS (Whatever) 

Yes, destructive US air assaults may anger the IS, but could they really be anymore pissed at us? They already threatened to see us “in New York.” It would seem if we offered the Syrian government and their Russian sponsors some heavy (and repeated) carpet bombing in eastern Syria--where the bad guys reportedly have 50,000 fighters—we could kill a lot of the troglodytes and make others think twice about joining. That could soften them up for the Syrian and other anti-Syrian forces battling them, not to mention the Iraqi Army and the Kurds waiting for them in northern Iraq. 

IS likely will kill the other American they hold and be grisly about it, and then what will the President do, really get angry with IS? 

Just a thought.


What Others Are Saying


Byron Tau reporting in Politico says that the Financial Services Roundtable (FSR) has a problem with the Consumer Finance Protection Board’s (CFPB) plan to permit consumers to post financial services complaints on a government provided website.

FSR PUSHES BACK AGAINST ANONYMOUS CONSUMER REPORTING: The Financial Services Roundtable is launching a new multimedia campaign on Monday blasting a proposal from the Consumer Financial Protection Bureau that would allow consumers to post complaints about financial services companies on a government-run website. The association representing the financial services industry raises concerns that those complaints will be "unverified, anonymous and potentially inaccurate." 'The CFPB's plan will feature only one side of the story, and such one-sided accounts will not advance the CFPB's mission of better informing and helping consumers," said FSR President & CEO Tim Pawlenty in a statement. The new FSR campaign includes advertising in Washington metro stations, as well as a social media ad buy.

Hubris, Squared? Or Just Idiocy


Dick Kovacevich, former Wells Fargo chairman & CEO, explains why he thinks the massive $17 billion Bank of America settlement with the Justice Department is extortion. Companies don't commit crimes, people do, contends Kovacevich.


Really Dick, nobody at Wells committed any crimes???

(Thanks DF for sending me this clip.)



Maloni, 8-22-2014


Duncan MacLeod said...

I wonder if the ex CEO of Wells would support sending employees to Jail. Since they are the one committing crimes. I as others contend fines hurt shareholders while the one committing the fraud collected their commission a long time ago.
I say automatic clawback.

Bill Maloni said...

But would he also send them hacksaws?