I would not be surprised to see this objection dismissed or eventallt repealed seeing as it emanated from Washington. Compromise would be to force originators to drop a penny in the FDICs cup on a go forward basis. Of course that undermines new efforts to reduce borrowing costs and puts the hand further into the bank’s pockets.
Until we experience pain, there will be no gain.
FDIC Objects to BofA’s $8.5 Billion Mortgage-Bond Settlement
Aug. 30 (Bloomberg) — The Federal Deposit Insurance Corp. filed an objection to Bank of America Corp.’s proposed $8.5 billion mortgage-bond settlement with investors, joining investors and states that are challenging the agreement.
The FDIC, the receiver for failed banks, owns securities covered by the settlement and said it doesn’t have enough information to evaluate the accord, according to a filing yesterday in federal court in Manhattan.
Under the agreement, Bank of America would pay $8.5 billion to resolve claims from investors in Countrywide Financial Corp. mortgage bonds. The settlement was negotiated with a group of institutional investors, including BlackRock Inc. and Pacific Investment Management Co. LLC, and would apply to investors outside that group.
Bank of New York Mellon Corp., the trustee for the mortgage-securitization trusts covered by the agreement, has asked a New York state judge to approve the settlement in November. An investor group is trying to move the case to federal court, which Bank of New York opposes.
Investors that would be bound by the settlement, including American International Group Inc., have criticized the deal and Bank of New York’s role representing investors in the mortgage bonds. New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have sought to intervene in the case and asked the court to reject it.
FDIC’s Involvement
The FDIC’s involvement may make it more difficult for Charlotte, North Carolina-based Bank of America to get approval for the settlement, said Bert Ely, a bank-industry consultant in Alexandria, Virginia.
“You would think as a regulator or as an investor or both that they would be kept apprised of what was going on,” he said. “Any time you hold up a deal it becomes more likely it doesn’t happen.”
If the settlement doesn’t get court approval and Bank of America goes back to the negotiating table, it will become more expensive for the bank, Paul Miller, an analyst at FBR Capital Markets, said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene.
“If the judge accepts it, then that’s going to be a big positive, because that starts to ring-fence those private-label losses, and we can start to move forward and say ‘This is what we think the losses are going to be,’” he said.
Andrew Gray, an FDIC spokesman, said in an e-mail that the FDIC generally doesn’t comment on pending litigation.
“This filing is simply a formal notice to preserve our right to make claims as a part of the settlement and seeks additional information to evaluate those potential claims,” he said. “It is not an evaluation or opinion on the settlement itself.”
‘Trustee Acted Reasonably’
“We believe that the trustee acted reasonably in entering into the settlement, and that there are compelling reasons why the agreement should receive judicial approval,” Lawrence Grayson, a Bank of America spokesman, said in an e-mail.
Kevin Heine, a spokesman for Bank of New York, said the the company had no comment.
The state case is In the matter of the application of The Bank of New York Mellon, 651786-2011, New York State Supreme Court, New York County (Manhattan). The federal case is In the Matter of the Application of Bank of New York Mellon, 11-cv- 5988, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9 Dakin Campbell in San Francisco at dcampbell27
To contact the editors responsible for this story: Michael Hytha at mhytha David Scheer at dscheer .
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Monitoring the Precipice
August 31, 2011As the month of August has ended, on a suspiciously positive note, lets take a look at some recent undertow, and expectations for tomorrow’s PMI data. The real story looks quite gloomy, particularly since some much economic data has been falling, quickly.
The chart below illustrates T-Bill rates intraday yesterday as the market was continuing a low volume rally post Bernanke’s comments on Friday. Note that both the 4W and the 3M T-Bill rates posted negative prints. Hmmm, I don’t know about you but I find it hard to believe that the stock market is such a good value when so many people are willing to lose 1 bps to own a US T-Bill for a month or two. Historically this happens just before we go off a cliff.
Bloomberg BTMM 8-30-11 US Money Market Rates
Note the chart below offers a general perspective on sovereign currency risks as measured by the Option Adjusted Spread of the G-8 currencies. Story seems to be short the Euro and go long everything else. Guess we can confirm where this disaster is about to emanate from. Makes sense if the European banks are in as bad shape as many have been reporting. Funny though, I don’t recall a time where banks distinguished their risks by borders. I don’t see how the European banking system would not take down the US.
Bloomberg LOIS Currency 8-31-11
And then there is the widely anticipate Manufacturing PMI number due tomorrow. This will be the first data point to illustrate how much the tail has wagged the dog, and how much real damage the August roller coaster did to the US economy. I’m also surmising that Bernanke in his infinite wisdom chose to punt to the September meeting to avoid taking action and then have the data come in so anemic. Note that the Consensus estimate will mean that the economy actually CONTRACTED in August. Any number below 50 represents a contraction. Also interesting to note that only a handful of economists think we will print a number above 50. Certainly at least worth a hedge, ay? Might mean the recession has already begun. Crazy stuff.
Bloomberg NAPMPMI Estimates Manufacturing PMI 8-31-11
Note that the last time this data came in with estimates this low we were watching the aftermath of Lehman’s failure.
Bloomberg NAPMPMI Estimates and Actual Manufacturing PMI 8-29-11
While the Manufacturing PMI is not as important as its half-brother the Non Manufacturing PMI due next week, it has often been a leading indicator preceding both economic contractions and expansions. This chart illustrates periods when the two data points were at their widest. Make your own judgements. Orange line is tomorrows Manufacturing PMI series. The white line is next week’s Non-Manufacturing PMI series. The crossover we are seeing is indicative of past recessions. Since the market is up about 10% from its recent lows, and the DOW is about even to positive for the year, for the market to price a recession in, we need to drop at least about 20%. And that would be a mild one. September will be a very long month on Wall Street. I think we will know better next year how it all has affected Main Street.
Bloomberg NAPMPMI vs NAPMNMI Actual Manufacturing & Non-Manufacturing PMI 8-29-11
No matter how pricy puts look, they are cheap if you are on a precipice.