by Calculated Risk on 9/28/2008 02:28:00 PM

From Reuters: U.S. Senate vote Wed. at earliest on bailout-sources

Legislation providing up to $700 billion to bail out the U.S. financial industry will be voted on in the U.S. Senate no earlier than Wednesday, sources close to the discussions said on Sunday.

The House of Representatives will vote on the bill on Monday, said House Financial Services Chairman Barney Frank, a Massachusetts Democrat.

by Calculated Risk on 9/28/2008 02:14:00 PM

The AP is reporting: Belgian government to guarantee Fortis deposits

From Reuters: Fortis in play as Trichet joins emergency talks

It sounds like Fortis might be sold off or nationalized.

by Calculated Risk on 9/28/2008 12:58:00 PM

As we discussed last night, B&B will be nationalized. It looks like U.K. officials have learned about bank runs from the Northern Rock collapse, and will announce some sort of plan to protect savers.

From the Telegraph: Financial crisis: Bradford & Bingley savers told money is safe

Yvette Cooper, the minister, confirmed that the Government was “stepping in” to rescue the bank, Britain’s eighth biggest mortgage lender.

"We are very clear that depositors and ordinary savers must be properly protected and they will be as part of the arrangements we will set out," Ms Cooper told the BBC.
...
A full statement will be made by Alistair Darling, the Chancellor, either late on Sunday or early on Monday morning before the stock market opens.

by Calculated Risk on 9/28/2008 09:44:00 AM

From Office of Speaker Nancy Pelosi -- Sept. 28, 2008

REINVEST, REIMBURSE, REFORM

IMPROVING THE FINANCIAL RESCUE LEGISLATION

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets -- including cutting in half the Administration's initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers' funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street

Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets

Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes

CRITICAL IMPROVEMENTS TO THE RESCUE PLAN

Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable -- protecting American taxpayers and Main Street -- and these elements will be included in the legislation

Protection for taxpayers, ensuring THEY share IN ANY profits

Cuts the payment of $700 billion in half and conditions future payments on Congressional review

Gives taxpayers an ownership stake and profit-making opportunities with participating companies

Puts taxpayers first in line to recover assets if participating company fails

Guarantees taxpayers are repaid in full -- if other protections have not actually produced a profit

Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

No multi-million dollar golden parachutes

Limits CEO compensation that encourages unnecessary risk-taking

Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate

Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

A strong oversight board appointed by bipartisan leaders of Congress

A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse

An independent Inspector General to monitor the Treasury Secretary's decisions
Transparency -- requiring posting of transactions online -- to help jumpstart private sector demand

Meaningful judicial review of the Treasury Secretary's actions

Help to prevent home foreclosures crippling the American economy

The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year

Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures

Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks

by Calculated Risk on 9/28/2008 02:17:00 AM

From the NY Times: Breakthrough Reached in Negotiations on Bailout

Congressional leaders and the Bush administration reached a tentative agreement early Sunday...

The bill includes pay limits for some executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures. In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.

The White House also agreed to strict oversight of the program by a Congressional panel and conflict-of-interest rules for firms hired by the Treasury to help run the program.

From the WSJ: Lawmakers Reach Tentative Bailout Deal

"I think we're there," an exhausted Mr. Paulson said, a sentiment echoed in the statements of negotiators such as House Financial Services Chairman Barney Frank (D., Mass.) and Senate Banking Committee head Christopher Dodd (D., Conn.)

Those present said the bailout plan still needs to be drafted in its final form, but a formal announcement should come some time Sunday. ...

"We worked out everything," said Sen. Judd Gregg, the chief Senate Republican in the talks. He said the House should be able to vote on it Sunday, and the Senate could take it up Monday.

Hopefully the details will be released Sunday.

by Calculated Risk on 9/27/2008 08:30:00 PM

"It would be my hope that this could be resolved today, that we'd have a day for the American people and members of Congress to review the legislation on the Internet."
House Speaker Nancy Pelosi, Sept 27, 2008.

From Bloomberg: Senate Leaders Say Agreement Nears on Rescue Program

by Calculated Risk on 9/27/2008 06:50:00 PM

From the Telegraph: Financial crisis: Bradford & Bingley likely to be nationalised by Treasury

The biggest buy-to-let operator is on the verge of being nationalised by the Government as time runs out on attempts to find a private buyer.

B&B’s shares will be suspended when the stock market opens on Monday. By that point, the Government will either nationalise the bank or announce a deal to sell it.

[T]he deal will require public support, with many of the one million B&B mortgages left with the Treasury. As a result, taxpayers are likely to be left holding the mortgages most likely to default from the £40 billion portfolio.

From The Times: B&B and Fortis both in crisis

BELGIUM’s Fortis is this weekend poised to become the first large continental bank to fall victim to the credit crunch, as the global chaos continues with Bradford & Bingley and American savings giant Wachovia both teetering on the brink.

The Belgian central bank and the country’s regulator are paving the way for a bailout of the huge banking and insurance group, which has a £540 billion balance sheet and a market value of £12 billion.

In Britain, the fate of Bradford & Bingley will be decided today. Fren-etic talks between the Bank of England, the Financial Services Authority and the government have been taking place this weekend to save the troubled mortgage bank.
...
If no buyers come forward, B&B will be nationalised and broken up. However, while the fate of B&B offers a fascinating insight into the hardship faced by financial institutions, in terms of international significance the problems faced by Fortis are far more serious.

by Calculated Risk on 9/27/2008 04:40:00 PM

Not much new except a new thread...

According to the WSJ the meeting started at 3PM ET with four negotiators: Senators Dodd (D-Connecticut) and Gregg (R-New Hampshire), and Congressman Frank (D-Massachusetts) and Blunt (R-Missouri).

The story notes that the Treasury is pushing for a larger initial installment ($500 billion as opposed to $250 billion). Also the insurance idea might be included as optional, although I think everyone realizes no one will be interested.

by Calculated Risk on 9/27/2008 10:24:00 AM

From MarketWatch: Bush confident of financial rescue plan bill 'very soon'

President Bush said Saturday morning he's confident that Congress will pass a bill ... "very soon." ... The president also stressed ... "our entire economy is in danger." Negotiators from Congress and the administration are returning to talks Saturday with an eye toward finalizing a deal by Sunday.

During the Presidential debate, Senator McCain said he would vote for the bill, and Senator Obama said he wanted to see the details, but he would probably support the bill too.

We will probably have more details sometime this weekend.

by Calculated Risk on 9/27/2008 08:46:00 AM

From the NY Sun: Wall St. Woes Give Rise to Talk of 'Black September'

"Due to the recent events, rents are down by at least 10% to 15% and trending downward," the president of Newmark Knight Frank, James Kuhn, said.
...
"An increase in availability of approximately 10 million square feet would imply an increase in the New York office vacancy rate to 8.5%," [chief economist at REIS, Sam Chandan] said.

"Current and anticipated increases in sublet availabilities are fomenting greater competition for the smaller pool of prospective tenants. The full measure of sublet availabilities will depend, in large part, on the job losses that ultimately follow from the current wave of consolidations in the banking sector. The risks are to the downside that a near term spikes in layoffs and a resulting rise in sublet availabilities will coincide with anemic demand for space, undercutting occupancy. Even a modest slowdown, as we have already observed in the New York market, confutes the underwriting assumptions that prevailed in the period leading up to the last year's investment peak."
...
Mr. Slocum of Capital One said: "The key issue is what happens to the overleveraged properties purchased and financed in the past three years. In many cases, the financial projects were based on rising rents and debt markets remaining stable. Many of the loans required the borrowers to provide interest reserves, but they will likely exhaust over the 2009-2010 time frame." He added: "It always comes back to cash flow on commercial real estate. Properties financed on true cash flow should be fine."
emphasis added

The financial crisis is now hitting New York office space, and this will impact many of the recent commercial deals that were based on overly optimistic rent projections. The lenders didn't offer 'liar loans' on CRE like for residential, but they did offer loans based on optimistic pro forma projections - and the results will be the same: rising defaults.