Monday, March 24, 2008
Wells Fargo CEO Wants Fed Help For National City Acquisition
I think the Fed may have taken on a bit more than they can handle here. The Bear-JPM marriage hasn't even honeymooned yet (more on that below), and yet another party is lining up to ask the Fed to help consummate its marriage with yet another subprime troubled bank.
Mark Calvey, San Francisco Business Times, reports Wells Fargo CEO John Stumpf as saying in a recent interview that "I would not be averse to a Fed-assisted transaction. Fixer-uppers don't bother us." Wells (NYSE: WFC) is considered a potential bidder for troubled National City. The Cleveland bank, which made a big bet on subprime mortgages during the housing boom, is looking for a buyer. Wells (NYSE: WFC) is considered a potential bidder for troubled National City. The Cleveland bank, which made a big bet on subprime mortgages during the housing boom, is looking for a buyer.
The Fed board of governors will surely head for the hills and bunkers when they see firms lining up for a slice of the subprime pie and 'merger consultancy'. I mean, what's not to like about it? You get a major bank with full infrastructure and assets at a dirt cheap price, while the Fed assumes all the risk and takes away the stinky MBS. I would be lining up too, and that brings up the question of just who else is planning to acquire whom else, and wants the Fed's help? Wachovia comes to mind, for starters. There were some whispers of a Wachovia-Merrill Lynch deal in Oct 2007.
So is the Fed going to do all this, or will it get cold feet and say enough is enough? For the Bear-JPM deal, the Fed has been blackballed and pushed around until it doesn't if its coming or going. Here's the latest 'development' in that saga. The NY Fed just posted an 'update' on a renegotiation of the deal between the Fed and JPMorgan, including a $29 billion loan. The Federal Reserve Bank of New York ("New York Fed") has agreed to lend $29 billion in connection with the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co. The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008. JPMorgan Chase has agreed to provide $1 billion in funding in the form of a note that will be subordinated to the Federal Reserve note. The JPMorgan Chase note will be the first to absorb losses, if any, on the liquidation of the portfolio of assets.
Want to know why JPM agreed to take the first $1 billion hit? Because they get the Bear Stearns building, regardless of what happens to the deal, said building being valued at somewhere above $1 billion. Now you tell me what risk JPM is assuming, in exchange for all the gains? They get Bear Stearns on the cheap, they get the building and they get the NY Fed's eternal gratitude for agreeing to act as a proxy. What the Fed gets is $29 billion worth of crap, a lot of heat for rescuing Wall Street with public funds and even more firms lining up for a free handout. Something tells me that Congress isn't going to like this at all, especially in an election year, and the Fed is going to get badly spanked if they even think about wading into another one of these deals.
Mark Calvey, San Francisco Business Times, reports Wells Fargo CEO John Stumpf as saying in a recent interview that "I would not be averse to a Fed-assisted transaction. Fixer-uppers don't bother us." Wells (NYSE: WFC) is considered a potential bidder for troubled National City. The Cleveland bank, which made a big bet on subprime mortgages during the housing boom, is looking for a buyer. Wells (NYSE: WFC) is considered a potential bidder for troubled National City. The Cleveland bank, which made a big bet on subprime mortgages during the housing boom, is looking for a buyer.
The Fed board of governors will surely head for the hills and bunkers when they see firms lining up for a slice of the subprime pie and 'merger consultancy'. I mean, what's not to like about it? You get a major bank with full infrastructure and assets at a dirt cheap price, while the Fed assumes all the risk and takes away the stinky MBS. I would be lining up too, and that brings up the question of just who else is planning to acquire whom else, and wants the Fed's help? Wachovia comes to mind, for starters. There were some whispers of a Wachovia-Merrill Lynch deal in Oct 2007.
So is the Fed going to do all this, or will it get cold feet and say enough is enough? For the Bear-JPM deal, the Fed has been blackballed and pushed around until it doesn't if its coming or going. Here's the latest 'development' in that saga. The NY Fed just posted an 'update' on a renegotiation of the deal between the Fed and JPMorgan, including a $29 billion loan. The Federal Reserve Bank of New York ("New York Fed") has agreed to lend $29 billion in connection with the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co. The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008. JPMorgan Chase has agreed to provide $1 billion in funding in the form of a note that will be subordinated to the Federal Reserve note. The JPMorgan Chase note will be the first to absorb losses, if any, on the liquidation of the portfolio of assets.
Want to know why JPM agreed to take the first $1 billion hit? Because they get the Bear Stearns building, regardless of what happens to the deal, said building being valued at somewhere above $1 billion. Now you tell me what risk JPM is assuming, in exchange for all the gains? They get Bear Stearns on the cheap, they get the building and they get the NY Fed's eternal gratitude for agreeing to act as a proxy. What the Fed gets is $29 billion worth of crap, a lot of heat for rescuing Wall Street with public funds and even more firms lining up for a free handout. Something tells me that Congress isn't going to like this at all, especially in an election year, and the Fed is going to get badly spanked if they even think about wading into another one of these deals.
Subscribe to Posts [Atom]
