The Financial Industry In Transition: A Timeline

See the linked timeline for a calendar of major U.S. and international financial events since January 2008. New events for this week include the Freddie Mac capital request, a new Korean fund to stabilize the bond markets, the extension of the Capital Purchase Program, life insurers’ purchase of private banks, the Iceland bailout and Treasury’s agreement with Reserve Fund’s U.S. government fund.   Timeline.

 

Korean Bond Market Stabilization

On November 14, the government of Korea announced that it intends to establish a $7.2 billion fund designed to stabilize the struggling Korean bond market by investing in corporate and bank bonds to ease a liquidity crunch facing companies and lenders. The fund will be financed by contributions from financial institutions and the state-run Korea Development Bank.  Korea Financial Services Commission Press Release

 

Lehman Brothers Update

On November 13, Lehman Brothers Holdings Inc. and its affiliated debtors filed a motion to establish procedures for the assumption and assignment or termination of open derivative contracts, such as swaps, repurchase agreements, and forward contracts.  Orrick Client Alert.

 

Treasury, Fed and FDIC Activity

On November 17, Treasury released the Capital Purchase Program term sheet and FAQs for privately-held institutions, with an application deadline of December 8.  Treasury Release.

On November 18, Treasury Secretary Paulson, Fed Chairman Bernanke and FDIC Chairman Bair testified in front of the House Financial Services Committee regarding the implementation of the Emergency Economic Stabilization Act (EESA). Secretary Paulson defended Treasury’s actions and indicated that further spending measures under the EESA would be deferred until the next administration. Chairman Bair discussed the FDIC proposal to promote affordable loan modifications, as well as the forthcoming Final Rule regarding the Temporary Liquidity Guarantee Program.  Paulson’s Testimony.  Bernanke’s Testimony.  Bair’s Testimony.  FDIC Loan Modification Proposal.  FDIC Release re: Board Meeting.

 

 

Mortgage Loan Modifications and Foreclosure Prevention

On November 20, Fannie Mae and Freddie Mac each announced that they will suspend all foreclosures and evictions on occupied single-family properties (and 2-4 unit properties, for Freddie Mac) related to Fannie Mae- and Freddie Mac-owned mortgages from November 26, 2008 through January 9, 2009 to permit servicers to implement the Federal Housing Finance Agency streamlined modification program scheduled to launch on December 15.  Fannie Mae Press Release.  Freddie Mac Press Release.  FHFA Streamlined Program.

On November 20, the FDIC released a loan modification program guide for servicers and financial institutions, to encourage a streamlined approach for such modifications based on the FDIC/IndyMac program.  FDIC Release.

 On November 17, Senator Durbin reintroduced his bill to permit the modification of mortgage loans on primary residences in bankruptcy. Orrick Partner Scott Stengel testified before the Senate Judiciary Committee on November 19 in a hearing entitled “Helping Families Save Their Homes: The Role of Bankruptcy Law”.  Senator Durbin’s Proposed Bill (S.3690).  Scott Stengel’s Testimony.

On November 17, Senator Specter introduced legislation that would create a federal foreclosure evaluation office and would assist and encourage foreclosure prevention.  Senator Specter’s Proposed Bill.

 

Treasury and Fed Developments

On November 12, Treasury Secretary Paulson announced that Treasury would not be purchasing troubled assets under TARP, as was originally contemplated with the passage of the Emergency Economic Stabilization Act. Secretary Paulson set forth three priorities for the deployment of remaining TARP funds: (1) strengthening the capital positions of financial institutions, including implementing measures to attract private capital, (2) encouraging investment in ABS, potentially by providing investors with access to federal financing, and (3) mitigating mortgage foreclosures. Secretary Paulson also remarked that Treasury’s preferred stock purchase agreement with the GSEs is “effectively, a guarantee on GSE debt and agency MBS.”  Orrick Client Alert.  Secretary Paulson’s Remarks.

On November 10, Treasury announced that it will purchase, under the Emergency Economic Stabilization Act, $40 billion of newly issued preferred shares of AIG, which it referred to as a “systemically important company.” In conjunction with this announcement, the New York Fed announced reductions on interest on AIG’s credit facility and extended its length from two to five years. The Fed also created two additional AIG lending facilities, one to fund CDO securities on which AIG has written CDS contracts and one to fund RMBS from AIG’s lending portfolio.  Treasury Release.  Fed Release.

On November 10, the Fed approved the application of American Express Company and American Express Travel Related Services Company, Inc. to become bank holding companies on conversion of American Express Centurion Bank from an industrial loan company to a bank.  Fed Release.

On November 10, the New York Fed announced that purchases of eligible money market instruments through the Money Market Investor Funding Facility would begin on or about November 24.  New York Fed Release.

 

Market Developments

The French Parliament has adopted measures to stabilize French financial markets, which include the issuance of debt securities by a newly created entity (Société de Refinancement des Activités des Etablissements de Crédit or SRAEC), which will be backed by French government guarantees (up to Euro 265 billion).  Amounts received from these issuances will be used to fund loan facilities to French financial institutions. On October 30, France provided SRAEC an initial guarantee of Euro 25 billion.  SRAEC October 30 Order.  SRAEC By-Law Approval.

The administrators of Lehman Brothers International (Europe) (“LBIE”) notified creditors on November 4 of their proposals for the administration of LBIE, which include establishing a creditors’ committee which will propose extending the administration beyond the statutory period of one year.  The first creditors’ meeting of LBIE will be held on November 14 at IndigO2 in the O2 Arena in Greenwich, London.  LBIE Statement of Proposals.

On October 30, IntercontinentalExchange, Inc. (ICE) and The Clearing Corporation (TCC) announced agreements to advance a global clearing solution for credit default swaps (CDS).  Under these agreements, ICE will acquire TCC and, with the support of 9 major U.S. financial institutions, form a limited purpose trust company to serve as a central counterparty clearing system for the CDS market.  Press Release.

The ASF and SIFMA filed comment letters on October 30 with the FASB in response to the recently released exposure drafts on FIN 46(R) and FAS 140. With respect to the FIN 46(R) exposure draft, the ASF and SIFMA recommended that the FASB step back and fundamentally reconsider the optimal consolidation policy for variable interest entities, with a goal of international convergence of accounting standards in this area.  Comment Letters.

 

California Governor on Loan Modifications and Mortgage Finance

On November 5, California Governor Schwarzenegger announced a plan to reduce foreclosures and encourage mortgage loan modifications. The plan, to be discussed in a future special legislative session, would include a 90 day moratorium on certain foreclosures, with a “safe harbor” for lenders who could demonstrate their use of aggressive loan modification programs, among other initiatives. Governor Schwarzenegger also encouraged the federal government to require that loan originators retain a portion of loan risk and to promote the use of covered bonds for funding of mortgages.  California Press Release.