Bank of America (BAC) CEO Kenneth Lewis is facing a $34 billion headache this morning after financial regulators informed the bank that was the figure it needs to find now to pass the so-called stress test for viable financial institutions, the Wall Street Journal and New York Times report. BoA already has received $45 billion in capital from the federal government, some of it to cover the disastrous purchase of Merrill Lynch (MER). "The amount of capital now needed by Bank of America could exceed what the bank can raise by selling assets or more shares to the public," writes the WSJ. And that could force BoA to convert the government's preferred shares (that it received for the first bailout) into common stock and leave you and me as the majority shareholders. Perhaps then it's not surprising to read in the Financial Times that BoA is considering offloading its $8 billion stake in China Construction Bank before the end of the week. How desperate is BoA for cash right now? "People familiar with the situation said that BofA would gain an extra dividend payment of $200m if it held on to the stock until at least June 17," notes the FT.
Chrysler's dive into bankruptcy protection means the U.S. taxpayer won't be seeing the $7 billion in bailout money provided to the automaker ever again. CNN Money reports that the company understood, "the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler's operations during bankruptcy." Swallowing that dole-out is preferable to keeping Chrysler running at a continued loss, apparently. "While we do not expect a recovery of these funds, we are comfortable that in the totality of the arrangement, the Treasury and the American taxpayer are being fairly compensated," an Obama administration official told CNN Money. The news comes as a judge in New York paved the way for a quick sale to Italian automaker Fiat after rejecting "arguments from a group of Chrysler lenders, who wanted the deal blocked," reports the BBC, and, as Chrysler announced, it is "weighing the strengths and weaknesses of its roughly 3,200 dealerships, as it tries to prune several hundred of them from its sales network," the WSJ reports.
The NYT, meanwhile, reports on a showdown in rural Missouri, pitting billionaire private-equity manager J. Christopher Flowers against the Federal Reserve. Last year, Flowers bought the First National Bank of Cainesville, a troubled tiny regional bank on the cheap with the ultimate design on launching a roll-up of similar banks across America's heartland. There's just one obstacle: the Fed, which refuses to allow private-equity firms to take anything more than a minority interest in distressed banks. Lobbyists are already trying to change the rules. There's a lot at stake. "For all the talk of the banking crisis, Mr. Flowers and other giant private equity players are circling distressed banks around the country, competing to buy into the industry. Bidding wars are now breaking out among private equity firms, including the Carlyle Group, which is going up against Mr. Flowers’s firm for a stake in BankUnited of Florida," the newspaper writes.
And now to the bigger banks. The Financial Times reports this morning that Washington is drafting tough payback rules for TARP recipients thinking of paying off their debt load early. The terms are steep. Before they can pay back Uncle Sam, the banks will be required "to prove that they can issue debt without government insurance," a move the newspaper reckons, "could deter some banks from trying to repay funds early."
The Securities and Exchange Commission had a busy Tuesday. The SEC in a civil suit is accusing "the founder of Reserve Primary Fund and his son of fraud in misleading investors ratings firms and trustees when the fund struggled with plummeting asset values and panicked selling in September," the WSJ reports. You may recall Reserve Primary Fund. It was the first money-market fund to "break the buck" back in September as its net asset value sunk below $1. A run on the fund ensued. The SEC suit orders Reserve Primary Fund to distribute the remaining $62 billion in assets to investors. The agency wasn't done there. Again according to the WSJ, the SEC has "brought its first-ever case alleging insider trading in credit-default swaps," the murky market for insuring bond defaults that once ballooned to more than $38 trillion. Now, the SEC thinks it has a case, going after two small fries in the dubious market—a salesman for Deutsche Bank, who allegedly passed confidential information about the 2006 buyout of Dutch media company VNU to a former trader for the hedge fund Millennium Partners, the newspaper writes.
Finally, on a day when Federal Reserve Chairman Ben Bernanke gave "his most upbeat assessment in a long time," the NYT reports on a major hiring boom taking place across the nation. "Deep in the maw of the deepest recession since the Great Depression, millions are still being hired." It's a testament to the “dynamism of the U.S. economy, and the net negative number that we all traffic in masks that,” one employment analyst tells the paper.
Chrysler's dive into bankruptcy protection means the U.S. taxpayer won't be seeing the $7 billion in bailout money provided to the automaker ever again. CNN Money reports that the company understood, "the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler's operations during bankruptcy." Swallowing that dole-out is preferable to keeping Chrysler running at a continued loss, apparently. "While we do not expect a recovery of these funds, we are comfortable that in the totality of the arrangement, the Treasury and the American taxpayer are being fairly compensated," an Obama administration official told CNN Money. The news comes as a judge in New York paved the way for a quick sale to Italian automaker Fiat after rejecting "arguments from a group of Chrysler lenders, who wanted the deal blocked," reports the BBC, and, as Chrysler announced, it is "weighing the strengths and weaknesses of its roughly 3,200 dealerships, as it tries to prune several hundred of them from its sales network," the WSJ reports.
The NYT, meanwhile, reports on a showdown in rural Missouri, pitting billionaire private-equity manager J. Christopher Flowers against the Federal Reserve. Last year, Flowers bought the First National Bank of Cainesville, a troubled tiny regional bank on the cheap with the ultimate design on launching a roll-up of similar banks across America's heartland. There's just one obstacle: the Fed, which refuses to allow private-equity firms to take anything more than a minority interest in distressed banks. Lobbyists are already trying to change the rules. There's a lot at stake. "For all the talk of the banking crisis, Mr. Flowers and other giant private equity players are circling distressed banks around the country, competing to buy into the industry. Bidding wars are now breaking out among private equity firms, including the Carlyle Group, which is going up against Mr. Flowers’s firm for a stake in BankUnited of Florida," the newspaper writes.
And now to the bigger banks. The Financial Times reports this morning that Washington is drafting tough payback rules for TARP recipients thinking of paying off their debt load early. The terms are steep. Before they can pay back Uncle Sam, the banks will be required "to prove that they can issue debt without government insurance," a move the newspaper reckons, "could deter some banks from trying to repay funds early."
The Securities and Exchange Commission had a busy Tuesday. The SEC in a civil suit is accusing "the founder of Reserve Primary Fund and his son of fraud in misleading investors ratings firms and trustees when the fund struggled with plummeting asset values and panicked selling in September," the WSJ reports. You may recall Reserve Primary Fund. It was the first money-market fund to "break the buck" back in September as its net asset value sunk below $1. A run on the fund ensued. The SEC suit orders Reserve Primary Fund to distribute the remaining $62 billion in assets to investors. The agency wasn't done there. Again according to the WSJ, the SEC has "brought its first-ever case alleging insider trading in credit-default swaps," the murky market for insuring bond defaults that once ballooned to more than $38 trillion. Now, the SEC thinks it has a case, going after two small fries in the dubious market—a salesman for Deutsche Bank, who allegedly passed confidential information about the 2006 buyout of Dutch media company VNU to a former trader for the hedge fund Millennium Partners, the newspaper writes.
Finally, on a day when Federal Reserve Chairman Ben Bernanke gave "his most upbeat assessment in a long time," the NYT reports on a major hiring boom taking place across the nation. "Deep in the maw of the deepest recession since the Great Depression, millions are still being hired." It's a testament to the “dynamism of the U.S. economy, and the net negative number that we all traffic in masks that,” one employment analyst tells the paper.
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