by Calculated Risk on 10/06/2008 08:22:00 AM

From the Fed: Board announces that it will begin to pay interest on depository institutions required and excess reserve balances

The Federal Reserve Board on Monday announced that it will begin to pay interest on depository institutions' required and excess reserve balances.
...
The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.
...
Substantial Further Increases in Term Auction Facility Auctions
The sizes of both 28-day and 84-day Term Auction Facility (TAF) auctions will be boosted to $150 billion each, effective with the 84-day auction to be conducted Monday.

by Calculated Risk on 10/06/2008 01:49:00 AM

A discussion of Credit Default Swaps with an interview with Jim Grant on CBS 60 Minutes ...

by Calculated Risk on 10/05/2008 09:41:00 PM

The AP is reporting tonight that the Appellate Division of the New York State Supreme Court threw out the lower court order favoring Citigroup (to temporarily halt the Wells Fargo acquisition of Wachovia). (hat tip Kevin)

The AP is also reporting that documents filed with the court reveal that the FDIC had informed Wachovia that the bank would be seized last Monday if a deal wasn't reached immediately.

The WSJ reports: Fed Pushes to Resolve Wachovia Deal Dispute

In a sign that U.S. officials are concerned about the increasingly volatile situation, officials from the Federal Reserve were pushing hard for Citigroup and Wells Fargo to reach a compromise. That effort could result in essentially carving up the Charlotte, N.C., bank between its two suitors, these people said.

The Fed is still working weekends.

by Calculated Risk on 10/05/2008 07:39:00 PM

From the Telegraph: Financial crisis: Government could take shares in high street banks

Alistair Darling, the Chancellor, could give the banks billions of pounds in return for shares in an emergency bailout plan to be enacted if the financial crisis worsens, The Daily Telegraph has learnt.

The Treasury has drawn up detailed plans for the scheme, which would put taxpayers' money at risk.
...
The Treasury plan to take shares in major high street banks will be discussed by the council.

This is more like the Swedish solution, or the RFC in the U.S. during the Depression, as opposed to the TARP.

by Calculated Risk on 10/05/2008 06:04:00 PM

From Bloomberg: Hypo Real Estate Gets 50 Billion-Euro Government-Led Bailout (hat tip Sam)

The German government and the country's banks and insurers agreed on a 50 billion euro ($68 billion) rescue package for commercial property lender Hypo Real Estate Holding AG ...

The NY Times explained part of the problem at Hypo:

Depfa, a Dublin-based lender that Hypo acquired last year, is at the center of its problems. Depfa underwrote a package of municipal bonds which were subsequently downgraded by ratings agencies. That step obliged Depfa to buy the bonds back ...

So Hypo needs much of the €50 billion to buy back the muni bonds, and despite the downgrades, these munis are probably still worth somewhat close to €50 billion (not like the disastrous losses for some of the MBS that is hitting US and other European banks). So this sounds more like a liquidity issue rather than a solvency problem.

by Calculated Risk on 10/05/2008 03:54:00 PM

From L'Echo: La reprise de Fortis Banque par BNP est bouclée (hat tip Alain)

Alain translates: The "Belgian government keeps a 25% minority (blocking) stake in Fortis Banque Belgium and obtains 10% of BNP Paribas in an all share deal. Luxembourg keeps 33% stake in local subsidiary and gets 1.4% of BNP".

by Calculated Risk on 10/05/2008 03:36:00 PM

Once again Sunday is the new Monday. This week the action is in Europe ...

"Hypo Real Estate has to be stabilized otherwise the damage would be unpredictable."
German Finance Minister Peer Steinbrueck on television, Oct 5, 2008

From the NY Times: Germany Moves to Shore Up Confidence in Economy

Germany’s guarantee of its private savings — worth about 500 billion euros, or more than $700 billion— followed the news that a group of banks had pulled out of a deal to provide 35 billion euros, or $48.2 billion, to rescue the large German mortgage lender, Hypo Real Estate.

The Belgian government, meanwhile, scrambled Sunday to engineer a sale of the Belgian units of Fortis before the start of trading on Monday. The Netherlands effectively nationalized the Dutch operations of the bank on Friday after a joint rescue deal with Belgium and Luxembourg broke down.

In Iceland, where the government seized control of a bank last week, officials were considering more sweeping measures to stabilize finances there as well. And the board of UniCredit, which is based in Milan and also operates in Germany and much of Eastern Europe, met to consider a capital increase after being buffeted by a week of speculation about its solvency.

From Bloomberg: German Government Leads Hypo Real Estate Rescue Talks

And from the WSJ: Governments Scramble to Find Rescue Plans for Hypo, Fortis

And from The Times: Interest rates to drop to 50-year low

Interest rates in Britain will drop to a new 50-year low in the coming months, economists say, as the Bank of England tries to head off a serious recession. The Bank’s monetary policy committee (MPC) is expected to start the process by cutting rates this week.

by Calculated Risk on 10/05/2008 11:47:00 AM

These reports are in German, but I believe they are saying the German government has guaranteed all deposits (update: apparently all deposits by private individuals).

From Reuters: Staat übernimmt Garantie für Einlagen

From Focus: Bund sichert private Spareinlagen komplett

This is probably related to the collapse of the bailout for Hypo.

Executives at the bank, which is Germany’s second largest commercial property investor and has extensive holdings across Europe, are now locked in crisis talks with the German government and central bank in an attempt to deliver an alternative plan before the stock markets open on Monday.

The German Finance Ministry has urged the private sector consortium to rethink its decision.

The collapse of the €35 billion (£27.3 billion) bail-out will provide an immediate test to the pledge made on Saturday by leaders from the biggest European Union countries that they will ensure that no major European financial institution will be allowed to fail.

by Calculated Risk on 10/05/2008 09:29:00 AM

Press Release: Citi Granted Emergency Injunctive Relief Extending Exclusivity Agreement between Citi and Wachovia

Citi tonight was granted emergency injunctive relief extending the Exclusivity Agreement between Citi and Wachovia Corp. until further order of the court. This relief was granted over the objection of Wachovia. Justice Charles Ramos of the Supreme Court of the State of New York issued the order.

Citi is prepared to continue negotiations with Wachovia on the parties’ previously agreed-to transaction.

As indicated by Citi in court filings, the Exclusivity Agreement, while in effect, unconditionally bars Wachovia from negotiating or entering into a merger/acquisition agreement with any party other than Citi.

Under the Judicial Order, Citi and Wachovia must appear before Judge Ramos on Friday, October 10, 2008.

This adds a little suspense , but I think Wells Fargo is the better fit.

by Calculated Risk on 10/04/2008 11:03:00 PM

A letter from Senator Boxer (D-CA): (hat tip Michael)

Thank you for contacting me regarding the financial rescue legislation (H.R.1424). I appreciate hearing from you on this critical issue.

The fundamentals of our economy have been shaken, and Americans are deeply concerned. When Secretary Paulson and Chairman Bernanke placed an urgent phone call a few weeks ago to Congress to say we needed emergency action to prevent a major financial meltdown, I expected they would come forward with a plan that was targeted and reasonable, with appropriate oversight and taxpayer protections.

Unfortunately, what they brought us was a $700 billion blank check, which they asked us to sign with no questions asked. This plan contained no oversight, no taxpayer equity, and no control over CEO pay. I strongly opposed this proposal - and thanks to your phone calls, e-mails, and letters, Congress stopped it in its tracks.

The Senate made major improvements designed to strengthen our economy and protect our taxpayers. Instead of a blank check, the Senate plan included significant Congressional oversight, equity for taxpayers, curbs on executive compensation, an increase in FDIC insurance protection for bank depositors, middle-class tax relief, and job-creating tax incentives for renewable energy. The bill passed the Senate by an overwhelmingly bipartisan vote of 74-25 and the House by a vote of 263-171.

These were very important changes. But let me be honest: There were still aspects of this package that I didn't like. I preferred the government acquiring more equity instead of toxic assets. I wanted the package to be put forward in smaller installments and to include more checks and balances to make sure it would work.

For me, the deciding factor in my Yes vote was information I received from the State of California. I was told by the Treasurer's office that without access to credit, which is the goal of this legislation, California wouldn't be able to sell voter-approved highway, school, and water bonds that are desperately needed for our economy and the creation of good-paying new jobs. In addition, I was told by the Governor's office, that without action, our state might be forced to withhold funds for law enforcement, schools, and other needed services. This would bring our state to its knees and many middle-class families would be in deep trouble. Small businesses are beginning to tell me they cannot get lines of credit to meet payroll, as well.

Rest assured, I will continue to speak out forcefully about the failures that led us to this place and keep working with my colleagues to strengthen confidence in our markets, protect the American taxpayers, and enact regulatory reform to ensure that we don't end up in this mess again.

Again, thank you for writing to me about this very important matter. Even though you may feel frustrated with the outcome of the legislation that passed, your voice absolutely resulted in the enactment of a better bill. Feel free to contact me again about any issue of importance to you.

Barbara Boxer
United States Senator