Treasury Lurks as Spoiler as Political Climate Favors Main Street's Benefit Over Wall Street's
Goldman Sachs Group Inc. is in talks to buy millions of dollars of tax credits from government-controlled mortgage giant Fannie Mae, but the potential deal is running into opposition from the U.S. Treasury, which could block the deal.
A sale would bring some needed financial respite to Fannie Mae. But the administration is leery about approving a deal that would help Goldman reduce its tax bill, given the animus held by many lawmakers toward big Wall Street firms in general and Goldman in particular.
The Obama administration is looking at the deal with a critical eye and could block it. Goldman, meanwhile, is hopeful it could win approval this week.
"Treasury is reviewing and will not let it proceed unless it is clearly in the taxpayers' interest," spokesman Andrew Williams said.
Fannie Mae and its regulator, the Federal Housing Finance Agency, declined to comment.
"Fannie Mae is owned and controlled by the federal government," said Goldman Sachs spokesman Michael DuVally, who wouldn't confirm the company was in talks with Fannie about the credits. "The only basis on which approval for any transaction would be given would be if it was clearly in the taxpayers' best interest."
Precise details of the deal couldn't be learned. Some on Wall Street think Goldman could buy $1 billion of the tax credits, which would allow the bank to offset a portion of its profit. It is unclear how much of a discount Goldman is offering to pay. One person familiar with the potential transaction said Goldman could line up other investors for the deal as well.
Nearly every major business decision at Fannie Mae and Freddie Mac is vetted or directed by the government. Officials at both firms have complained about their contradictory missions -- they are at once private companies and tools of public policy.
The Goldman talks are emblematic of these conflicts: A deal that could help Fannie Mae might also be politically unpalatable.
The Treasury Department has purchased $45.9 billion in preferred stock in Fannie Mae since it took over the company last year to pump money into the firm, giving taxpayers a substantial stake in the firm.
The tax credits are an incentive in federal law to spur investments in low-income housing. The law allows investors to receive tax credits for financing qualified housing developments. These credits tend to be drawn out over periods such as 10 years, and are attractive to companies that know they will be profitable during that span.
Both Fannie Mae and its rival Freddie Mac loaded up on low-income housing tax credits during the real-estate boom. But the credits have lost considerable value in the past 18 months. Fannie Mae has lost tens of billions of dollars and, like many other financial firms, has been unable to use them. Fannie Mae had $5.8 billion in such partnership investments as of June 30....MORE
Monday, November 2, 2009
Goldman Looks to Buy Fannie Tax Credits (FNM)
From the Wall Street Journal: