Thursday, June 24, 2010

UPDATED:Bank execs panic: On the Hook for $400 Billion ($1TRIL.?) Fannie, Freddie Wind-down? (FNM; FRE)

 UPDATE: "Senators Reject Proposal For Banks to Bail Out Fannie, Freddie" (FNM; FRE; C; BAC; JPM)
Original post:
I'm not sure what to think of this, more later.
From Politico:
DOUBLE SIREN EXCLUSIVE – Bank executives were panicking last night over a proposed fix to Title II of financial reform literally penciled in at the last minute. The fear is that that the proposed change to the orderly liquidation authority could leave banks on the hook for a possible wind-down of Fannie Mae and Freddie Mac that could cost as much as $400 billion. In the House counter-offer below, Fannie and Freddie are penciled in as falling under the definition of 'financial company,' meaning they could be resolved by the orderly liquidation process. This process is paid for by the sale of the failing company's assets and/or through assessments on other financial companies, possibly putting the Street in line to pay for the liquidation of the troubled housing giants.

That would be an enormous added liability to the banks and could expose them to ratings agency downgrades and a big stock market sell-off. 'It's not clear to us how the markets and ratings agencies will react to this,' one senior executive at a large Wall Street bank said last night. 'But because this is a known quantity of potential liability there is a very real possibility that ratings agency's will determine it is an immediate hit.' Fannie Mae and Freddie Mac are much more likely to fail than any of the systemically important banks already a part of the liquidation authority, dramatically changing the equation for ratings agencies assessing the possible impact of financial reform. The exasperated executive added last night: 'This is what happens when you have really important decisions made by the scribble of a pen.' House counteroffer document....
HT: Clusterstock who headlines:
Here's The Penciled In Scribble That Could Cost The Banks BILLIONS Over Fannie And Freddie