Posted on February 25, 2009 by Hunton & Williams LLP Print This Article

Prompt Corrective Action

For over a decade, up through 2007, bank failures were few and far between. There were more than enough buyers for even troubled banks. A couple of years ago, I represented a CAMELS-5 rated bank that was sold when the FDIC Division of Resolutions was in the process of putting together bid packages. Even that bank sold for two times book value. Now the environment is different. The market for troubled banks is much more limited. Bailout capital is scarce and regulatory pressure is more extreme. As a result, the number of bank failures in this “crisis” seems to be heading inexorably toward 100. Bankers need to understand what the regulatory ramifications are if the bank begins to experience problems.

CONTINUE READING...

Posted on February 23, 2009 by Hunton & Williams LLP Print This Article

Interest Rate Restrictions on Institutions That Are Less Than Well-Capitalized

On February 3, 2009, the FDIC published a Notice of Proposed Rulemaking (“Proposed Rule”) to implement new interest rate restrictions on depository institutions that are not well-capitalized. The Proposed Rule would limit the interest rate paid by such institutions to a national rate, as derived from the interest rate average of all institutions. If an institution could provide evidence that its local rate is higher, it would be permitted to offer the higher local rate plus 75 basis points. However, the ability of an institution to succeed in establishing evidence of a higher local rate appears to be very difficult under the Proposed Rule.

Continue Reading...
Posted on February 23, 2009 by Hunton & Williams LLP Print This Article

Capital Assistance Program Stress Tests Start February 25

Financial institutions with assets in excess of $100 billion seeking government assistance will undergo "stress tests" starting February 25, according to a joint statement released today by the Treasury Department, the FDIC, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve.  "Stress tests" are defined as "a forward looking assessment of what banks need to keep lending even through a severe economic downturn" by the Financial Stability Plan's Capital Assistance Program previously announced February 10, 2009.  The Capital Assistance Program creates a "capital buffer" by giving financial institutions a preferred security investment from the Treasury Department in convertible securities which can be converted into common equity if needed due to a "worse-than-expected economic environment."  Click here for today's joint statement.  

Posted on February 20, 2009 by Hunton & Williams LLP Print This Article

The "Missing Link" in Financial Stability Plan: President Obama Announces Homeowner Affordability and Stability Plan

Yesterday President Barack Obama announced his long-awaited foreclosure prevention and loan modification plan, referred to by many as the “missing link” in the Financial Stability Plan unveiled by Treasury Secretary Geithner last week. To address the problems of homeowners unable to refinance their loans or struggling to meet their mortgage obligations, the Homeowner Affordability and Stability Plan (“HASP”) seeks to help by providing the following: (1) access for borrowers to low-cost refinancing on conforming loans owned or guaranteed by Fannie Mae and Freddie Mac, (2) a $75 billion homeowner stability initiative to prevent foreclosures and (3) additional commitments allowing the Treasury to purchase up to an additional $200 billion of preferred stock of Fannie Mae and Freddie Mac and allowing Fannie Mae and Freddie Mac to increase the size of their retained mortgage portfolios by $50 billion. The $75 billion homeowner stability initiative includes financial incentives to borrowers and servicers in connection with loan modifications, a partial guarantee of losses resulting from declines in the home price index following loan modifications, the development of “national standards” for loan modifications (to be announced by March 4, 2009) and support for the modification of bankruptcy laws to allow bankruptcy judges to modify residential mortgage loans. The White House’s description of HASP was short on details and raises a number of interesting questions about how HASP could affect mortgage loans held by private label securitization trusts.

Continue Reading...
Posted on February 19, 2009 by Hunton & Williams LLP Print This Article

Business Tax Provisions Under the Stimulus Bill

The American Recovery and Reinvestment Act of 2009 (the “Act”) was signed into law by President Barack Obama on February 17, 2009. Known informally as the “Stimulus Bill,” the Act is intended to preserve and create jobs, stimulate investment in infrastructure and assist the unemployed. The main tax provisions of the Act that are expected to have the greatest impact on corporations and closely held businesses, excluding the energy incentives, are summarized below.

Continue Reading...
Posted on February 18, 2009 by Hunton & Williams LLP Print This Article

Homeowner Affordability and Stability Plan Unveiled

The Obama administration unveiled the mortgage foreclosure component of its revised economic recovery package today by outlining the Homeowner Affordability and Stability Plan.  The plan involves a three-pronged approach to buoying the housing market.  First, it targets the four to five million homeowners whose loans are held by, or guaranteed by, Fannie Mae or Freddie Mac and wish to refinance but cannot because they lack enough equity in their homes despite being current on their loans.  Second, it provides an incentive to mortgage servicers for loan modifications for loans in imminent danger of foreclosure. Third, it increases available credit to the housing markets by making available an additional $100 billion for the Treasury Department to investment in preferred stock of each of Fannie Mae and Freddie Mac.

Click here for the Homeowner Affordability and Stability Plan executive summary, click here for the fact sheet, and click here for three case studies.

Posted on February 13, 2009 by Hunton & Williams LLP Print This Article

The State of Banking 2009

We have issued literally dozens of client alerts since the crisis in banking became acute toward the middle and fall of 2008. Despite the torrent of information that we have provided to our clients, there are a number of issues that have flown underneath the radar or which need further defining.  I have attempted to tackle certain of these issues below.

Continue Reading...
Posted on February 10, 2009 by Hunton & Williams LLP Print This Article

Treasury Department Announces Financial Stability Plan Details

The Treasury Department announced details today of the new Financial Stability Plan.  Among the components of the revamped plan: 
 
1) A "stress test" for both banks wishing to participate in the Capital Assistance Program and banks with assets in excess of $100 billion.
 
2) A "Public-Private Investment Fund" of between $500 billion to $1 trillion which could utilize government financing and capital along side private capital, designed to encourage acquisition of troubled and illiquid assets.
 
3) A "Consumer and Business Lending Initiative" as a joint Federal Reserve and Treasury Department effort to expand the Term Asset-Back Securities Loan Facility (TALF) to as much as $1 trillion.  The expanded TALF would broaden the eligible collateral to include certain commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities.
 
4) Additional conditions for financial institutions receiving government capital assistance including, but not limited to, a) requiring those institutions to show how government assistance will help preserve or generate new lending, b) requiring participation in mortgage foreclosure mitigation programs, c) accepting restrictions on executive compensation and d) accepting restrictions on dividends, stock repurchases and acquisitions.
 
5) A soon-to-be announced housing support and foreclosure prevention plan.
 
6) A soon-to-be announced "Small Business and Community Banking Lending Initiative" which will encourage more small business lending.
 
Click here  for the Treasury Department's press release, and click here for the Financial Stability Plan's fact sheet.  Also, click here for the Federal Reserve's press release on the expansion of TALF.

Posted on February 9, 2009 by Hunton & Williams LLP Print This Article

Will TALF's New Terms and Conditions Stimulate Securitizations?

This past Friday, February 6, 2009, the Federal Reserve Board released the terms and conditions of the Term Asset-Backed Securities Loan Facility (TALF), which was first announced on November 25, 2008. Through the TALF, the Fed intends to increase credit availability for consumers and small businesses, generate liquidity for banks, stimulate an otherwise anemic asset-backed securities (ABS) market and reduce interest rate spreads on AAA-rated tranches to more normal levels. Another benefit of the TALF is that it will assist entities that have received TARP funds to meet political and regulatory pressures to demonstrate new lending even if they are struggling with liquidity concerns.

Continue Reading...
Posted on February 5, 2009 by Hunton & Williams LLP Print This Article

Regulatory Consequences for Banks Participating in the TARP CPP

On January 3, 2009, John F. Bovenzi, deputy to the chairman of the FDIC, in an appearance before the Committee on Financial Services of the U.S. House of Representatives, stated that the FDIC will measure and assess in examination ratings how banks that have received government assistance have utilized these funds to meet the purposes of the U.S. Department of the Treasury’s Capital Purchase Program (CPP), implemented as part of the Emergency Economic Stabilization Act’s (EESA) Troubled Asset Relief Program (TARP).

Continue Reading...
Posted on February 4, 2009 by Hunton & Williams LLP Print This Article

New Capital Purchase Program Transaction Report Released

The Treasury Department released details of the latest round of Capital Purchase Program transactions totaling $1.15 billion for 42 banks.  The Capital Purchase Program allows qualified financial institutions to receive a capital injection from the Treasury Department in return for preferred stock and warrants.  Today's report discloses investments ranging from approximately $2 million to $266 million.  The Treasury Department's aggregate investments under the Capital Purchase Program now total $195.33 billion.  Click here for the Treasury Department's press release, and click here for all Capital Purchase Program transactions to date.