Month: May 2009

4 TALF-Eligible Deals Announced Ahead Of June 2 Deadline

NEW YORK (Dow Jones)–Companies continue to tap the asset-backed securities market ahead of the deadline next week for the fourth round of TALF funding.

Four deals were added on Thursday, bringing the total pipeline of deals eligible for cheap funding from the Federal Reserve Board to $9.107 billion.

American Express Co. (AXP) announced a $1 billion deal dubbed AMXCA 2009-1 that is backed by its credit-card loans. The entire triple-A-rated deal will be priced in the area of 140 basis points over one-month Libor. Barclays Capital (BCS), Morgan Stanley (MS) and RBS (RBS) are the leads on the transaction expected to price June 2.

Earlier Thursday, CIT Equipment Collateral announced a $943 million deal that is backed by equipment loans through lead managers Barclays and Deutsche Bank (DB). The top-rated $352 million portion of the deal has initial price talk in the area of 210 basis points over the euro-dollar synthetic forward, a benchmark rate used in such deals.

Ford Credit announced another deal, FCALT 2009-A, worth $834 million, with Citi (C), Barclays, BNP Paribas (BNPQY) and HSBC (HBC) as lead managers.

A $550 million deal dubbed PFS Financing Corp. 2009-C&D backed by insurance premium finance loans also was in the market.

Over the past couple of days, there’s been a rush to issue deals through the Fed’s Term Asset-Backed Securities Loan Facility, or TALF, which allows investors to use these securities as collateral to get cheap funding. The program is aimed at restarting consumer lending, and bids in the fourth round are due Tuesday by 3 p.m. EDT.

As the program picks up steam it’s been able to draw both traditional and new investors to the ABS market, said Giuseppe Pagano, a managing director in the Asset Securitization Group at Barclays Capital in New York.

“TALF is doing what it is supposed to do in that it has the ball moving again,” Pagano said. The market is not yet at the point where all deals can be done easily without government support, but there are plenty of buyers who don’t seek to get funding through TALF who have stepped up to participate in these ABS deals, Pagano said.

Investors had been scared away from buying asset-backed securities as spreads on these bonds widened last year forcing sharp mark-to-market write-downs.

In the past few months, spreads have tightened on these bonds with a triple-A rated credit card security was quoted at 200 basis points as of mid-May versus 375 basis points before the launch of TALF, according to data from Barclays Capital.

Further, in the new issue market, prices on TALF-eligible issues have tightened with each round.

For instance, the first Citi credit-card transaction was sold at 175 basis points over one-month Libor, while the Chase deal from the last round priced at 155 basis points over one-month Libor. This time, the American Express transaction has a price talk in the area of 140 basis points over the benchmark.

-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com

U.S. ‘Problem’ Banks Rise to 15-Year High, FDIC Says

bair_sheilaBy Margaret Chadbourn and Alison Vekshin

May 27 (Bloomberg) — U.S. “problem” banks climbed 21 percent to the highest total in 15 years in the first quarter as provisions set aside for loan losses weighed on earnings, the Federal Deposit Insurance Corp. said.

The FDIC classified 305 banks as “problem” and their total assets rose 38 percent to $220 billion, the highest since 1993, the agency said without identifying any lender. The FDIC said its insurance fund slumped 25 percent to the lowest level in 15 years.

“The banking industry still faces tremendous challenges,” FDIC Chairman Sheila Bair said today at a briefing in Washington. “Asset quality remains a major concern.”

Regulators have taken over 36 lenders this year, including BankUnited Financial Corp. in Florida on May 21 and Silverton Bank of Atlanta on May 1, which combined cost the FDIC’s deposit insurance fund $6.2 billion. Twenty-one banks collapsed in the quarter, the most since late 1992, as the pace of failures accelerated amid the worst crisis since the Great Depression.

Bair today said the agency is “actively working” on guidelines to encourage private-equity firms to bid for failed banks, after BankUnited was bought May 21 by a group including WL Ross & Co. and Carlyle Group. The FDIC sold IndyMac Bank in January to investors led by Steven Mnuchin, a former executive at Goldman Sachs Group Inc., and buyout firm J.C. Flowers & Co.

“I am comfortable with the transactions we’ve done so far, but I think we need to have some guidelines,” Bair said.

Loan Losses

Funds set aside by banks to cover loan losses rose 64 percent to $60.9 billion in the first quarter from $37.2 billion in the year-earlier quarter. Bair said 97 percent of banks were “well-capitalized” at the end of the first quarter.

“Banks are taking prudent actions to set aside reserves and build more capital because they know they need to be prepared for problems over the next couple of quarters,” said James Chessen, chief economist for the American Bankers Association in Washington.

The insurance fund, generated by fees paid by banks, fell to $13 billion from $17.3 billion in the previous quarter, and failures in the quarter cost the fund $2.2 billion, the FDIC said. The FDIC imposed an emergency fee to raise $5.6 billion to rebuild the fund, with more assessments possible this year. The agency forecasts failures will cost $70 billion through 2013.

JPMorgan Chase & Co. today estimated it will pay $700 million to $750 million as its share of the FDIC one-time assessment.

‘Problem’ Assets

Banks classified as “problem” based on measures including asset quality, earnings and liquidity accounted for 1.62 percent of total assets, up from 1.14 percent in the fourth quarter. Regulators rate banks on a scale, with 1 being the highest and 5 the lowest. A bank rated 4 or 5 is classified as a “problem.”

FDIC-insured banks had net income of $7.6 billion in the first quarter compared with a $36.9 billion loss in the fourth as trading revenue at larger banks increased. The FDIC said 22 percent of U.S. banks had a net loss and 59 percent reported lower net income compared with a year earlier.

Industry earnings were the highest in four quarters, the FDIC said. Citigroup Inc. reported a $1.6 billion first quarter profit on April 17 after five consecutive quarterly losses. JPMorgan, Goldman Sachs Group Inc., and Wells Fargo & Co. also beat analysts’ expectations with quarterly gains.

Bank capital rose by $82.1 billion, the biggest three-month gain since the third quarter of 2004, with most of the increase coming from a “relatively small” number of lenders including recipients of U.S. aid, the FDIC said. “The good news is that banks have been able to raise a lot of new capital even before taking a more aggressive steps to cleanse their balance sheets,” Bair said.

The agency said of 3,603 banks that paid dividends in the first quarter, two thirds cut the rate in the current quarter and 995 eliminated the payout.

The FDIC insures deposits at 8,246 institutions with $13.5 trillion in assets. The agency reimburses customers for deposits of as much as $250,000 when a bank fails.

Bank of America Raises $26 Billion in Capital Plan

By David Mildenberg

May 27 (Bloomberg) — Bank of America Corp. has raised almost $26 billion in response to U.S. stress tests, about 76 percent of the goal, including a $5.9 billion accord to convert privately held preferred shares into common stock.

The stock swaps would add 436 million common shares, the Charlotte, North Carolina-based bank said today in a statement. The company said it may issue 564 million more common shares through such swaps.

Regulators have ordered Bank of America to raise $33.9 billion, the biggest capital gap among the 19 lenders subjected to stress tests. The bank said May 19 it raised $13.5 billion by issuing 1.25 billion shares at an average of $10.77 each. Plans include establishing joint ventures and selling First Republic Bank and Columbia Management Group.

“We are quite pleased with the capital-raising effort and the progress toward completing the asset sales and establishment of the joint ventures,” Joe Price, the bank’s chief financial officer, said in a statement.

Obama to Name Madison Venture Capitalist to SBA

winslow sargeantby The Milwaukee Journal Sentinel – 2009-05-23

By Kathleen Gallagher, Milwaukee Journal Sentinel

May 23–A Madison venture capitalist will be nominated by President Barack Obama to be chief counsel for advocacy at the Small Business Administration.

Winslow Sargeant, a managing director at Madison-based Venture Investors LLC, would have the job of protecting, strengthening and representing the nation’s small businesses in the federal government’s legislative and rule-making processes, Venture Investors said Friday. Sergeant’s appointment would be subject to Senate confirmation.

Sargeant has been a managing director in Venture Investors’ technology practice since 2006. He was previously the program manager for the National Science Foundation’s Small Business Innovation Research program in electronics, and before that co-founded Aanetcom, a semiconductor chip start-up.

“He understands the wealth of technology available throughout the Midwest and how specific federal programs can be tailored to mine that,” said Tom Still, president of the Wisconsin Technology Council.

Sargeant received the inaugural 2002 Wisconsin Distinguished Young Alumni Award and was a 2003 Outstanding Engineering Alumni Awardee from Northeastern University, according to the Venture Investors Web site. He received a bachelor’s degree from Northeastern University, a master’s from Iowa State University and a doctorate from UW-Madison, all in electrical engineering, the Web site says.

Smith Graham to Increase Assets to Nearly $6 Billion in Acquisition Deal

Gerald_B_Smith_lgBlack Enterprise

By Alan Hughes – May 15, 2009
Company’s revenues set to triple, even in dismal market

Smith Graham & Co. Investment Advisors L.P. (No. 8 on the B.E. Asset Managers list with $2.753 billion in assets under management) acquired the fixed-income and small- and midcap value equity assets of a New York City-based firm in a deal that’s expected to increase assets to nearly $6 billion. Specific terms of the deal, which was completed Friday, were not disclosed.

According to Gerald B. Smith, chairman and CEO, the acquisition of Ark Asset Management Co. Inc. will add $2.8 billion in assets to his Houston-based firm’s portfolio. “It’s a very transformational event for our firm, when you can double your assets in this kind of market and gets to a level that puts you on a different playing field,” he said from his recently opened office in New York City’s financial district.

Ark Asset Management is a majority-owned firm that was once Lehman Brothers’ asset management business until taken private via a leveraged buyout offer in 1988.
“They had some challenges, and with the market volatility over the past couple of years it was difficult for them to manage their cost structure,” Smith recalls. “We were approached by a banker who asked if we had an interest in acquiring the fixed income assets of the firm back in October. We had some discussion with the principles and they mentioned they had a very good small and midcap value asset team and asked if we had an interest in acquiring those assets as well.”

According to Smith, the deal will not only double the company’s assets, but also nearly triple revenues — a good thing given the abysmal condition of the financial markets. “I don’t see any major upside to the market any time soon,” Smith says. “So I think firms are just going to have to be able to operate at a different level and focus on their cost structures and managing their business in a very difficult environment for the next year or so at least.”

However, he remains upbeat about the long-term viability of the firm. “The market will come back, and we think we’ll be well positioned for that.”

Piedmont to Manage Piece of TARP Pie

By Jeffrey McKinney -May 15,2009
Black Enterprise

In what could be a landmark deal for Piedmont Investment Advisors LLC (No. 10 on BE Asset Managers list with assets under management of $1.831 billion) was selected with two other firms by the U.S. Department of the Treasury to manage a securities portfolio worth roughly $218 billion that the Treasury has purchased though its TARP Capital Purchase Program.

Piedmont along with New York-based AllianceBernstein LP and FSI Group L.L.C. of Cincinnati are expected to manage preferred shares, senior debt, and other securities the Treasury attained for providing capital to more than 500 financial institutions through its Capital Purchase Program. Officials at Piedmont would not comment on its deal with the Treasury. While terms of the deals with these firms were not released, they will collectively manage roughly $218 billion in assets under management, according to Andrew Williams, a Treasury spokesman. The agreements will run though April 20, 2014.

The Treasury, which announced the deal in late April, said in a press release it received more than 200 submissions from interested firms, applicants with more than $2 billion in assets under management. The Treasury also says it also plans to hire an additional group of asset managers with less than $2 billion in assets under management to help manage its assets within the next two months.

The announcement also came after federal officials told 10 of the nation’s 19 largest banks they will need to raise nearly $75 billion in additional capital, part of the Treasury’s stress test program. Orim Graves, executive director at the National Association of Securities Professionals, a Washington, D.C.-based non-profit group of minority and women securities professionals, says this is a landmark deal. “This is the first time to my knowledge that the federal government has hired a minority firm to manage assets of this magnitude in its history,” he says.

John Foff, a senior analyst at SNL Financial, a Charlottesville, Virginia-based tracker of data for the financial services industry, says the deal shows a “sign of confidence” in Piedmont, something the firm could use as a selling point to generate future business. “It puts them on the stage a little bit more for everyone else to see,” Foff said. Graves said the deal came together after five years of pressure from NASP, along with the Congressional Black Caucus, of encouraging the federal government to increase its participation of doing more business with minority owned investment firms.

He said the push was led by Congresswoman Maxine Waters (D-California). The congresswoman points out that this is an area where very few African Americans historically have participated. “What you will find is that African Americans have really not been in this game; that the treasurer certainly does not have the kind of relationships that he has with the big Wall Street firms, with the big banks who walk in and out of the offices at will; our people can’t even get an appointment,” she says. “And so our job is to push those doors open, to get some connections made and to get them to see that we certainly do have African Americans who are capable and competent and to change the rules about who can play. The rules are usually defined in ways that only the big, big boys can play, and we’re trying to break that down.”

Financial Services Committee to Hold Hearing on Municipal Finance

Washington, DC – Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, announced today the committee will hold a hearing entitled “Legislative Proposals to Improve the Efficiency and Oversight of Municipal Finance” on Thursday, May 21. The committee today also circulated draft legislation – none of which has been formally introduced – that witnesses will be asked to discuss during the upcoming hearing. A summary of the draft legislation is below as well as links to the full text of the draft bills.
SUMMARY OF MUNICIPAL MARKET DRAFT LEGISLATION

Municipal Bond Insurance Enhancement Act

The downgrades of most bond insurance companies over the past 18 months have made it more difficult and costly for municipalities to issue bonds. The legislation would aid municipal issuers by providing federal reinsurance for municipal-only primary bond insurance. Treasury-provided reinsurance would make it easier for smaller, lesser known issuers to borrow in the capital markets by increasing capacity of municipal bond insurers to insure new risks.

The bill does the following:

Creates the Office of Public Finance within the Treasury Department specifically to provide reinsurance for municipal-only bond insurers in the most cost effective manner. Eligible insurers are those that are licensed in one or more of the 50 states.
The Office of Public Finance will set risk-based premium rates at a level that is sufficient to maintain a negative credit subsidy under the Credit Reform Act as well as cover administrative costs of the program.
The Office of Public Finance shall set other program terms consistent with providing additional capacity in the market for municipal bond insurance.
The reinsurance program is limited to reinsurance of a par amount of no more than $50 billion annually for fiscal years 2011 through 2015.
Treasury is directed to submit to divest the reinsurance program after no more than five years.
Sec. 149 of the Internal Revenue Code is amended so reinsured bonds can remain tax-exempt.

Municipal Bond Liquidity Enhancement Act

Variable rate municipal bonds are long-dated securities for with the interest rate resets on a short-term basis. Investors that purchase the bonds at short-term rates as short-term investments have the right to redeem the bond at set periods that can range from daily to several weeks. This function is supported by a liquidity facility, or standby bond purchase agreement provided by banks for a fee. As bank balance sheets have become constrained over the past 2 years, the availability of new liquidity facilities has decreased as their cost has increased. The legislation would provide the Federal Reserve with the authority to fund new liquidity facilities for certain securities.

The bill does the following:

Amend the Federal Reserve Act to permit the Federal Reserve to lend money to a special purpose vehicle or designated corporation to finance standby bond purchase agreements, or liquidity puts. The loans would be secured by municipal variable rate demand notes and short-term cash management notes for which the liquidity put is being provided.

Amend the Emergency Economic Stabilization Act to authorize the Treasury Department to use TARP funds to in connection with a Federal Reserve facility. The TARP funds would be used as credit protection for the Fed facility similar to the structure of the TALF.
The use of the funds would be restricted to funding the purchase of variable rate demand notes (already issued at the time of enactment), variable rate demand notes issued to refund municipal auction rate securities or short-term cash management notes.
The bill clarifies that the Federal Reserve may cooperate with the Treasury Department and other federal agencies in providing such financing.
Sec. 149 of the Internal Revenue Code is amended so any bonds backed by Federal Reserve-financed liquidity would remain tax exempt.

Municipal Financial Advisors Regulation Act

This legislation is intended to regulate financial advisors to municipalities that are not currently regulated under existing securities laws.

The bill does the following:

Establish a requirement and set out the terms under which municipal financial advisors register with the SEC.

Sets out specific prohibited transactions for municipal financial advisors, such as engaging in fraudulent or deceptive practices.
Creates a fiduciary responsibility for municipal financial advisors toward their clients.

Defines a municipal financial advisor (MFA) as one who
1.) provides advice to municipalities on bond issuance, the investment of bond proceeds and financial contracts, such as interest rate swaps;
2.) brokers investment products for municipalities;
3.) serves as a placement agent for municipal securities.
Legal advisors and certain other professionals that interact with municipalities would be exempted from the new registration requirement.
Creates authority for the SEC to write rules governing the conduct of MFAs, conduct regular exams and impose sanctions.

Municipal Bond Fairness Act

The legislation is intended to address the apparently unequal treatment by National Recognized Statistical Rating Organizations (NRSRO) of municipal and corporate bonds. Tables comparing default rate and credit ratings of the two types of securities by NRSROs consistently show that municipal bonds with equal or lower default rates that corporate bonds nonetheless have lower credit ratings.

The bill does the following:

Requires NRSROs to design and maintain credit rating for debt securities based on the risk that an investor will not be repaid according to the terms of the security.

Requires NRSROs to clearly define rating symbols and use them consistently.

Provides that NRSROs can use additional credit factors in developing their credit ratings so long as they are documented and disclosed and demonstrably related to the risk an investor will not receive repayment.

Provides that NRSROs can develop complementary ratings such as those designed to measure volatility or other risks.

Requires that the SEC establish performance measures that it is to consider when deciding whether to initiate a review concerning whether an NRSRO is in compliance with its stated policies and procedures.