The Indymac Slap in our Face

[davelj]

[quote=Arraya]

Second, I’m sure you can figure out what the treasury and taxpayer have to do with loss-share agreements. The fact that you have to ask speaks volumes. Are you intentionally obfuscating or do you really not know? [/quote]

I really don’t know. Please enlighten me on this subject about which you clearly know so much. There are two “principals” in the loss-sharing arrangements – the FDIC and the acquiring bank. The FDIC takes the net losses (which hit the Insurance Fund) and such losses will be funded through deposit premiums paid by the banks that don’t fail.

At one point, the FDIC was considering borrowing money from the Treasury in order to replenish the Insurance Fund (in which case you could have argued that the Treasury and taxpayers were in some way involved), but that was politically unpopular (and for good reason), so the current plan is for the banks to pay 3 years of premiums up front. And if the losses are steeper than expected, the banks will just end up paying even greater premiums for a longer period of time.

So, specific to the loss-sharing agreements – let’s not get off course here – where do the Treasury and the taxpayers come in? Please be specific.

[Arraya]

Ok, I concede. It appears the FDIC did not tapped the 500 billion emergency credit line from last year like I thought it did. Point taken.

Still, that loss-share program is a guaranteed profit program and the FDICs budget projections are very shaky on already optimistic projections. We’ll see if the crafting of the program gets to the point that it starts eating taxpayer money. However, you are correct. Technically, it has not.

I also don’t accept the FDIC and premiums are a closed system exactly. Money flows like water.

[Arraya]

Ok, I concede. It appears the FDIC did not tapped the 500 billion emergency credit line from last year like I thought it did. Point taken.

Still, that loss-share program is a guaranteed profit program and the FDICs budget projections are very shaky on already optimistic projections. We’ll see if the crafting of the program gets to the point that it starts eating taxpayer money. However, you are correct. Technically, it has not.

I also don’t accept the FDIC and premiums are a closed system exactly. Money flows like water.

[Arraya]

Ok, I concede. It appears the FDIC did not tapped the 500 billion emergency credit line from last year like I thought it did. Point taken.

Still, that loss-share program is a guaranteed profit program and the FDICs budget projections are very shaky on already optimistic projections. We’ll see if the crafting of the program gets to the point that it starts eating taxpayer money. However, you are correct. Technically, it has not.

I also don’t accept the FDIC and premiums are a closed system exactly. Money flows like water.

[Arraya]

Ok, I concede. It appears the FDIC did not tapped the 500 billion emergency credit line from last year like I thought it did. Point taken.

Still, that loss-share program is a guaranteed profit program and the FDICs budget projections are very shaky on already optimistic projections. We’ll see if the crafting of the program gets to the point that it starts eating taxpayer money. However, you are correct. Technically, it has not.

I also don’t accept the FDIC and premiums are a closed system exactly. Money flows like water.

[Arraya]

Ok, I concede. It appears the FDIC did not tapped the 500 billion emergency credit line from last year like I thought it did. Point taken.

Still, that loss-share program is a guaranteed profit program and the FDICs budget projections are very shaky on already optimistic projections. We’ll see if the crafting of the program gets to the point that it starts eating taxpayer money. However, you are correct. Technically, it has not.

I also don’t accept the FDIC and premiums are a closed system exactly. Money flows like water.

[davelj]

[quote=Arraya]
Still, that loss-share program is a guaranteed profit program [/quote]

It is NOT a “guaranteed profit program,” as I explained above. The bidders can still lose money. And some no doubt will.

Having said that… at least the first 18 months of deals appear to be very favorable for the acquirers despite a competitive bidding process. However, I just got back from a banking conference and the general consensus was that the bidding is getting much more competitive (which is what I’m seeing firsthand) and that within 6-12 months the most attractive deals (for the acquirers from a pricing perspective) will be exhausted. This is good for the FDIC Insurance Fund because it indicates they will be getting better pricing in general going forward. There is a LOT of capital that has entered the fray for FDIC-assisted deals over the last 6 months and more is coming down the pike (several banks I’m involved with have raised such funds). So, it’s going to get much more competitive very quickly. Which is good for the entire system.

[davelj]

[quote=Arraya]
Still, that loss-share program is a guaranteed profit program [/quote]

It is NOT a “guaranteed profit program,” as I explained above. The bidders can still lose money. And some no doubt will.

Having said that… at least the first 18 months of deals appear to be very favorable for the acquirers despite a competitive bidding process. However, I just got back from a banking conference and the general consensus was that the bidding is getting much more competitive (which is what I’m seeing firsthand) and that within 6-12 months the most attractive deals (for the acquirers from a pricing perspective) will be exhausted. This is good for the FDIC Insurance Fund because it indicates they will be getting better pricing in general going forward. There is a LOT of capital that has entered the fray for FDIC-assisted deals over the last 6 months and more is coming down the pike (several banks I’m involved with have raised such funds). So, it’s going to get much more competitive very quickly. Which is good for the entire system.

[davelj]

[quote=Arraya]
Still, that loss-share program is a guaranteed profit program [/quote]

It is NOT a “guaranteed profit program,” as I explained above. The bidders can still lose money. And some no doubt will.

Having said that… at least the first 18 months of deals appear to be very favorable for the acquirers despite a competitive bidding process. However, I just got back from a banking conference and the general consensus was that the bidding is getting much more competitive (which is what I’m seeing firsthand) and that within 6-12 months the most attractive deals (for the acquirers from a pricing perspective) will be exhausted. This is good for the FDIC Insurance Fund because it indicates they will be getting better pricing in general going forward. There is a LOT of capital that has entered the fray for FDIC-assisted deals over the last 6 months and more is coming down the pike (several banks I’m involved with have raised such funds). So, it’s going to get much more competitive very quickly. Which is good for the entire system.

[davelj]

[quote=Arraya]
Still, that loss-share program is a guaranteed profit program [/quote]

It is NOT a “guaranteed profit program,” as I explained above. The bidders can still lose money. And some no doubt will.

Having said that… at least the first 18 months of deals appear to be very favorable for the acquirers despite a competitive bidding process. However, I just got back from a banking conference and the general consensus was that the bidding is getting much more competitive (which is what I’m seeing firsthand) and that within 6-12 months the most attractive deals (for the acquirers from a pricing perspective) will be exhausted. This is good for the FDIC Insurance Fund because it indicates they will be getting better pricing in general going forward. There is a LOT of capital that has entered the fray for FDIC-assisted deals over the last 6 months and more is coming down the pike (several banks I’m involved with have raised such funds). So, it’s going to get much more competitive very quickly. Which is good for the entire system.

[davelj]

[quote=Arraya]
Still, that loss-share program is a guaranteed profit program [/quote]

It is NOT a “guaranteed profit program,” as I explained above. The bidders can still lose money. And some no doubt will.

Having said that… at least the first 18 months of deals appear to be very favorable for the acquirers despite a competitive bidding process. However, I just got back from a banking conference and the general consensus was that the bidding is getting much more competitive (which is what I’m seeing firsthand) and that within 6-12 months the most attractive deals (for the acquirers from a pricing perspective) will be exhausted. This is good for the FDIC Insurance Fund because it indicates they will be getting better pricing in general going forward. There is a LOT of capital that has entered the fray for FDIC-assisted deals over the last 6 months and more is coming down the pike (several banks I’m involved with have raised such funds). So, it’s going to get much more competitive very quickly. Which is good for the entire system.

[davelj]

FYI, a snippet from today’s research note from KBW (a boutique financial institutions-specific investment banking firm):

[from the third paragraph: “…most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media.”]

“After a rapid beginning to the year, the FDIC has slowed the pace of bank failures to a trickle in the last two weeks, with only one $18 million asset bank failure. This compares to seven bank failures in the same two weeks one year ago (three in the week preceding the Super Bowl and four in the week preceding the President’s holiday weekend); and follows a torrid pace in January with 15 bank failures, double the pace of last year.

There appear to be two possible explanations for this slowdown: snowstorms in Washington DC in recent weeks or political pressure to slow the pace of failures. There is at least some indication of political pressure slowing the pace of failures as the FDIC took the unusual step of responding to a YouTube video critical of its transactions with OneWest Bank. A slowdown in the pace of failure has implications for share prices, in our view, as the share prices and valuation of banks that we believe will benefit from rolling up failed institutions have been strong. If the FDIC retrenches and reevaluates its sale process, we would expect those share prices could fall back and begin underperforming in the near term. Nevertheless, sooner or later the pace of bank failures will accelerate, in our view, allowing ample opportunities for outperformance by this group of banks.

The FDIC apparently felt compelled to respond to a YouTube video that criticized its sale of Indymac to OneWest Bank. The link to the YouTube video is: http://www.youtube.com/watch?v=sBLwLIPvcJU; and the link to FDIC’s response is: http://www.fdic.gov/news/news/press/2010/onewest_lossshare.html. This is unusual, in our view, as most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media. We believe that the need to respond was likely political as the video may well have made its way to a Congressional representative and back to the FDIC. We expect that the FDIC may be sensitive to this criticism of the Indymac sale as it did make an additional sale of a failed institution to OneWest Bank in December. We do note that the makers of the video did amend the video subsequent to the FDIC response.”

[davelj]

FYI, a snippet from today’s research note from KBW (a boutique financial institutions-specific investment banking firm):

[from the third paragraph: “…most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media.”]

“After a rapid beginning to the year, the FDIC has slowed the pace of bank failures to a trickle in the last two weeks, with only one $18 million asset bank failure. This compares to seven bank failures in the same two weeks one year ago (three in the week preceding the Super Bowl and four in the week preceding the President’s holiday weekend); and follows a torrid pace in January with 15 bank failures, double the pace of last year.

There appear to be two possible explanations for this slowdown: snowstorms in Washington DC in recent weeks or political pressure to slow the pace of failures. There is at least some indication of political pressure slowing the pace of failures as the FDIC took the unusual step of responding to a YouTube video critical of its transactions with OneWest Bank. A slowdown in the pace of failure has implications for share prices, in our view, as the share prices and valuation of banks that we believe will benefit from rolling up failed institutions have been strong. If the FDIC retrenches and reevaluates its sale process, we would expect those share prices could fall back and begin underperforming in the near term. Nevertheless, sooner or later the pace of bank failures will accelerate, in our view, allowing ample opportunities for outperformance by this group of banks.

The FDIC apparently felt compelled to respond to a YouTube video that criticized its sale of Indymac to OneWest Bank. The link to the YouTube video is: http://www.youtube.com/watch?v=sBLwLIPvcJU; and the link to FDIC’s response is: http://www.fdic.gov/news/news/press/2010/onewest_lossshare.html. This is unusual, in our view, as most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media. We believe that the need to respond was likely political as the video may well have made its way to a Congressional representative and back to the FDIC. We expect that the FDIC may be sensitive to this criticism of the Indymac sale as it did make an additional sale of a failed institution to OneWest Bank in December. We do note that the makers of the video did amend the video subsequent to the FDIC response.”

[davelj]

FYI, a snippet from today’s research note from KBW (a boutique financial institutions-specific investment banking firm):

[from the third paragraph: “…most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media.”]

“After a rapid beginning to the year, the FDIC has slowed the pace of bank failures to a trickle in the last two weeks, with only one $18 million asset bank failure. This compares to seven bank failures in the same two weeks one year ago (three in the week preceding the Super Bowl and four in the week preceding the President’s holiday weekend); and follows a torrid pace in January with 15 bank failures, double the pace of last year.

There appear to be two possible explanations for this slowdown: snowstorms in Washington DC in recent weeks or political pressure to slow the pace of failures. There is at least some indication of political pressure slowing the pace of failures as the FDIC took the unusual step of responding to a YouTube video critical of its transactions with OneWest Bank. A slowdown in the pace of failure has implications for share prices, in our view, as the share prices and valuation of banks that we believe will benefit from rolling up failed institutions have been strong. If the FDIC retrenches and reevaluates its sale process, we would expect those share prices could fall back and begin underperforming in the near term. Nevertheless, sooner or later the pace of bank failures will accelerate, in our view, allowing ample opportunities for outperformance by this group of banks.

The FDIC apparently felt compelled to respond to a YouTube video that criticized its sale of Indymac to OneWest Bank. The link to the YouTube video is: http://www.youtube.com/watch?v=sBLwLIPvcJU; and the link to FDIC’s response is: http://www.fdic.gov/news/news/press/2010/onewest_lossshare.html. This is unusual, in our view, as most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media. We believe that the need to respond was likely political as the video may well have made its way to a Congressional representative and back to the FDIC. We expect that the FDIC may be sensitive to this criticism of the Indymac sale as it did make an additional sale of a failed institution to OneWest Bank in December. We do note that the makers of the video did amend the video subsequent to the FDIC response.”

[davelj]

FYI, a snippet from today’s research note from KBW (a boutique financial institutions-specific investment banking firm):

[from the third paragraph: “…most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media.”]

“After a rapid beginning to the year, the FDIC has slowed the pace of bank failures to a trickle in the last two weeks, with only one $18 million asset bank failure. This compares to seven bank failures in the same two weeks one year ago (three in the week preceding the Super Bowl and four in the week preceding the President’s holiday weekend); and follows a torrid pace in January with 15 bank failures, double the pace of last year.

There appear to be two possible explanations for this slowdown: snowstorms in Washington DC in recent weeks or political pressure to slow the pace of failures. There is at least some indication of political pressure slowing the pace of failures as the FDIC took the unusual step of responding to a YouTube video critical of its transactions with OneWest Bank. A slowdown in the pace of failure has implications for share prices, in our view, as the share prices and valuation of banks that we believe will benefit from rolling up failed institutions have been strong. If the FDIC retrenches and reevaluates its sale process, we would expect those share prices could fall back and begin underperforming in the near term. Nevertheless, sooner or later the pace of bank failures will accelerate, in our view, allowing ample opportunities for outperformance by this group of banks.

The FDIC apparently felt compelled to respond to a YouTube video that criticized its sale of Indymac to OneWest Bank. The link to the YouTube video is: http://www.youtube.com/watch?v=sBLwLIPvcJU; and the link to FDIC’s response is: http://www.fdic.gov/news/news/press/2010/onewest_lossshare.html. This is unusual, in our view, as most of the criticism in the YouTube video is not fully informed on the specifics of the transaction and we are surprised that the FDIC felt compelled to respond to misinformed criticism outside the mainstream media. We believe that the need to respond was likely political as the video may well have made its way to a Congressional representative and back to the FDIC. We expect that the FDIC may be sensitive to this criticism of the Indymac sale as it did make an additional sale of a failed institution to OneWest Bank in December. We do note that the makers of the video did amend the video subsequent to the FDIC response.”

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