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.