GMAC applies for status as commercial bank and begins debt swap

November 20, 2008 by · Leave a Comment
Filed under: Industry News 

GMAC has applied for status as a bank holding company so it can get access to the Treasury’s $700 billion rescue fund for the financial industry.

The lender also began an exchange offer for $38 billion of notes issued by the company and its Residential Capital LLC home lending unit to reduce outstanding debt levels, Detroit-based GMAC said today in a statement.

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American Express (Amex) gets Fed approval to convert to commercial bank

November 10, 2008 by · Leave a Comment
Filed under: Industry News 

Looks like consumer debt is now good paper to get Fed loans.  The credit card issuing company is now converting into a commercial bank holding company to get access to the discount window.  My questions is how are they going to pay back the Federal Reserve if borrowers continue to default and the securitization market does not return?  This is the first step for us to start monetizing consumer debts that will most likely be inflationary unless they can pay these loans off.  We are still heading down this slippery slope and at this point it looks like we are determined to inflate our way out of this crisis, which does not look good for people who have savings in dollars.

News:

American Express Co. won Federal Reserve approval to convert to a commercial bank. The Fed waived the normal 30-day waiting period on the application “in light of the unusual and exigent circumstances affecting the financial markets,” the central bank said in a statement in Washington. Chairman Ben S. Bernanke and his colleagues unanimously voted for the action.

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Goldman Sachs and JPMorgan to Become Commercial Bank Holding Companies

September 21, 2008 by · 1 Comment
Filed under: Industry News 

It is true when they say this changes the face of Wall Street. In the NY Times article they mentioned the leverage both banks carry is twice what the major commercial banks are, it will be interesting to see what they do to bring this down and what regulation is in place for this and how it will affect their compliance or if the New York regulators even care? What I do love is the mention that with access to the Fed’s discount window, they will now have “permanent liquidity”. I guess it really does not matter if you make bad decisions in the U.S. financial sector, you are now basically rewarded by getting whatever capital is needed to stay afloat.

News Piece:

Goldman Sachs and Morgan Stanley, the last two independent investment banks, will become bank holding companies, the Federal Reserve said Sunday night, a move that will fundamentally alter the landscape of Wall Street.

The move alters one of the models of modern Wall Street, the independent investment bank, soon after the federal government unveiled the biggest market intervention since the New Deal. It heralds new regulations and supervision of previously lightly regulated investment banks, as well as an end to the outsize paychecks that helped shape the image of the chest-thumping Wall Street banker.

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Fed Loans to Commercial Banks Rise

July 24, 2008 by · Leave a Comment
Filed under: Industry News 

Looks like commercial banks are feeling the squeeze from our current economic situation.  According to Bloomberg, while securities firms showed a zero balance for a month now, Federal Reserve loans to commercial banks have risen to a record level.

Commercial banks increased their loans from the Fed discount window by $2.47 billion dollars to average out to $16.4 billion dollars a day.  Now that is a lot of happy meals.  Other facts are that the banks have now written off $468 billion dollars assets since this crisis started in early 2007.  We have also seen our benchmark interest rate brought down to its current level of 2% percent.

In the article, Louis Crandall (Economist) is quoted in saying a brilliant observation, “It reflects the growing use of the discount window as not just an overnight backstop but as a permanent source of funding”.

We are still far short of our single day record of $45.5 billion that came the day after 9/11 in 2001.  The reported daily average during that week was $11.7 billion dollars.  The stated purpose of these loans are to provide stability for the financial system that is still reeling from the “subprime” housing crisis.  It is in my opinion that we might be setting a bad example by not letting some of these institutions fail after such rampant bad lending practices that lead up to this current crisis.  In the end, we should expect either to see this lending stop and maybe some bank failures to purge the excess from the system or more inflation as these loans become permanent and in that case the banks will use these loans to deploy more capital in the market.  Time will tell.

Bloomberg Article

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