by Calculated Risk on 9/29/2008 07:55:00 AM

From the NY Times Dealbook: Citigroup Nears a Deal for Wachovia

Citigroup executives are meeting to complete the deal Monday morning, people briefed on the matter said, cautioning that the talks could unravel. Wells Fargo, which had also been in talks with Wachovia, could also revive its bid.
...
Citigroup worked feverishly to cement a deal on Sunday night, with the discussions moving past the midnight hour, according to a person briefed on the talks. Officials from the F.D.I.C. and Treasury Department stayed up late to try to get the transaction done.

The NY Times suggests the price would be at best "a few dollars per share" for Wachovia. Meanwhile, Wachovia's share price is cliff diving this morning off over 60% from Friday's closing price.

by Calculated Risk on 9/28/2008 07:13:00 PM

Sunday is the new Monday ...

UPDATE 2: Der Hypo Real Estate droht die Insolvenz or in English from AFP: German mortgage bank near bankruptcy: report

Germany's Hypo Real Estate, a mortgage bank, is on the brink of bankruptcy, the daily Financial Times Deutschland reported in an advance copy of its Monday edition.

Update: From the Financial Times: Fortis thrown €11bn lifeline by governments (hat tip Alain)

Fortis was thrown an €11.2bn (£8.8bn) lifeline on Sunday night as the Belgian, Dutch and Luxembourg governments combined to inject capital into the embattled banking and insurance group in a last-ditch effort to shore up confidence among savers.

The partial nationalisation was announced in Brussels by Yves Leterme, Belgium’s prime minister, after a frantic weekend of talks involving ministers, central bankers and financiers.

In the U.K., Bradford & Bingley is being nationalized. From The Telegraph: Financial crisis: Bradford & Bingley nationalisation will cost taxpayers £150bn

British taxpayers will be liable for more than £150 billion of potentially toxic mortgage debt following the nationalisation of Bradford & Bingley, one of the country’s biggest mortgage lenders.

Alistair Darling, the Chancellor, will announce on Monday that the Government is taking over the bank’s mortgages and selling off the savings business and the branches. Savers are reassured that their money is safe although people owning shares in the bank will lose out.

The Government may merge the bank, which has mortgages worth more than £40 billion, with the nationalised Northern Rock. Every taxpayer in Britain will be exposed to the equivalent of £5,500 in mortgage debt as a result.

Meanwhile, as mentioned in the previous post, Citigroup and Wells Fargo are in negotiations today with regulators about a potential emergency takeover of Wachovia.

And the BIG story - the proposed bailout legislation was released earlier today. See: Emergency Economic Stabilization Act of 2008 Professor Krugman is being told there are "significant changes from this draft", so there is probably more to come.

by Calculated Risk on 9/28/2008 06:10:00 PM

From the NY Times: Citigroup and Wells Fargo Said to Be Bidding for Wachovia

Citigroup and Wells Fargo were locked in a bidding war on Sunday over a possible emergency takeover of the Wachovia Corporation ...

The government, led by the Federal Reserve and Treasury Department, has been involved in the talks as well ...

The government has ... opposed taking over Wachovia the way it did Washington Mutual earlier this week, these people said, unless its financial position deteriorates more rapidly.
...
Citigroup and Wells Fargo are unlikely to bid more than a few dollars per share for Wachovia

Wells and Citi would probably like a structure similar to the JPMorgan deal for WaMu assets (with the FDIC seizing WaMu first). Probably all they have to do is wait ...

by Calculated Risk on 9/28/2008 04:01:00 PM

From the House Financial Services Committee:

Emergency Economic Stabilization Act of 2008

Washington, DC - Click the following links to view documents:

Emergency Economic Stabilization Act of 2008

Summary of Emergency Economic Stabilization Act of 2008

Section-by-Section of Emergency Economic Stabilization Act of 2008

On suspending Mark-to-Market:

SEC. 132. SUSPENSION OF MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY.—The Securities and Exchange Commission shall have the authority under securities laws (as such term is defined under section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or oder, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines that is necessary or appropriate in the public interest and is consistent with the protection of investors.

And on allowing banks to earn interest and maintain a "zero reserve ratio":

SEC. 128. ACCELERATION OF EFFECTIVE DATE.
Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.

Here is the previous text (hat tip Falcor):

Financial Services Regulatory Relief Act of 2006 - Section 203.

"Interest on Reserves and Reserve Ratios

"Federal Reserve Banks are authorized to pay banks interest on reserves under Section 201 of the Act. In addition, Section 202 permits the FRB to change the ratio of reserves a bank must maintain relative to its transaction accounts, allowing a zero reserve ratio if appropriate. Due to federal budgetary requirements, Section 203 provides that these legislative changes will not take effect until October 1, 2011."

Here are some parts on pricing mechanism:

(d) PROGRAM GUIDELINES.—Before the earlier of the end of the 2-business-day period beginning on the date of the first purchase of troubled assets pursuant to the authority under this section or the end of the 45-day period beginning on the date of enactment of this Act, the Secretary shall publish program guidelines, including the following:
(1) Mechanisms for purchasing troubled assets.
(2) Methods for pricing and valuing troubled assets.
(3) Procedures for selecting asset managers.
(4) Criteria for identifying troubled assets for purchase.

So it's all up to the Secretary to establish the rules. Same with Warrants - it's up to the Secretary to negotiate.

Here is the section on transparency:

SEC. 114. MARKET TRANSPARENCY.
(a) PRICING.—To facilitate market transparency, the Secretary shall make available to the public, in electronic form, a description, amounts, and pricing of assets acquired under this Act, within 2 business days of purchase, trade, or other disposition.

(b) DISCLOSURE.—For each type of financial institutions that is authorized to use the program established under this Act, the Secretary shall determine whether the public disclosure required for such financial institutions with respect to off-balance sheet transactions, derivatives instruments, contingent liabilities, and similar sources of potential exposure is adequate to provide to the public sufficient information as to the true financial position of the institutions. If such disclosure is not adequate for that purpose, the Secretary shall make recommendations for additional disclosure requirements to the relevant regulators.

At least transactions will be made public online.

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