As you’ve probably heard, tonight marks the formal start of the G-20 meeting in London. The Group of 20, or G-20, is an international body that meets to discuss economic issues. The member countries are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States. The European Union is also a member, represented by the rotating council presidency and the European Central Bank.

At this year’s summit, countries need to come together to enhance global coordination in order to help restore global economic growth. World leaders must make three commitments:

• First, to take whatever action is necessary to stabilise financial markets and enable families and businesses to get through the recession.
• Second, to reform and strengthen the global financial and economic system to restore confidence and trust.
• Third, to put the global economy on track for sustainable growth.

The bulk of the work will take place during tomorrow’s plenary sessions attended by the various heads of state. However, today’s activities have been marred by ugly protests from individuals who are extremely unhappy with the decisions made by the government and the banks. The Guardian has been live blogging the events all day. Below are some of the highlights.

Protesters stormed a branch of the Royal Bank of Scotland, a recipient of government assistance, smashed windows and looted computers.

Hopefully tomorrow’s meeting is a little more constructive…

The WSJ has a good primer on what the G-20 is and what it does.

London Summit 2009 Homepage

Uncategorized G20, protests

Legislation Author: House Financial Services Committee Chairman Barney Frank

As if the last bill passed by the House wasn’t radical enough, new legislation introduced by Barney Frank would give the Treasury the power to restrict the pay of all employees at institutions that have received a capital investment from the government. The Washington Examiner describes the plan as follows:

“the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in some key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the “Pay for Performance Act of 2009,” would impose government controls on the pay of all employees — not just top executives — of companies that have received a capital investment from the U.S. government. It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies.

The purpose of the legislation is to “prohibit unreasonable and excessive compensation and compensation not based on performance standards,” according to the bill’s language. That includes regular pay, bonuses — everything — paid to employees of companies in whom the government has a capital stake, including those that have received funds through the Troubled Assets Relief Program, or TARP, as well as Fannie Mae and Freddie Mac.”

Its unbelievable that such legislation has already passed a vote in the House Financial Services committee by a vote of 38-22. The bill is scheduled to be voted upon by the House later this week.

What are our elected officials doing in the House of Representatives? They are clearly out of control and need to be reigned in. Barney Frank seems to be the main offender in my opinion. Its a good thing most of the banks plan to give back the TARP funds anyway.

Let’s hope the House comes to its senses and rejects the latest measure to stick a pitchfork into Wall Street.

Full text of the Washington Examiner article can be found here.

Uncategorized banks, bonuses, wall street

It looks like this is the end of the road for General Motors and Chrysler as we know it. Over the weekend, the Obama administration rejected the restructuring proposals of both GM and Chrysler and ordered them back to the drawing board —AGAIN! Chrysler has 30 days to complete a proposed alliance with Fiat and GM has 60 days to restructure or face bankruptcy. The government also booted GM CEO Rick Wagoner and will not contribute any more aid to the flailing companies until its demands are met.

These companies have been virtually bankrupt for years now and it is unfortunate that is has taken this long for these companies to start restructuring. This process needs to happen QUICKLY and bankruptcy is the best option.

As I sit here writing this post, the WSJ is reporting that the Obama administration supports bankruptcy for both GM and Chrysler. The government’s plan would split both companies into both “good” and “bad” components, where the “good” components would exist as standalone companies or be acquired. The “good” automakers would not hold billions of dollars of retiree and health care obligations that have strapped these companies for years.

This is clearly the right solution and is long overdue. However, I don’t believe bankruptcy will be as quick and painless as some people expect. Both GM and Chrysler are complex organizations in complete disarray, and it would be unreasonable to expect them to reorganize under bankruptcy in 30 or 60 days. It will not take a year however, as GM and Chrysler have had bankruptcy attorneys devising plans for such a move over the recent months.

To protect against hysteria from auto buyers, the government has already agreed to back the warranties issued by both GM and Chrysler. It is important for auto buyers to understand that this bankruptcy will be a REORGANIZATION not a LIQUIDATION. The government needs to get this through the heads of consumers but of course, some people just wont buy the cars of GM and Chrysler regardless.

We need to get this process started now and force everyone back to the bargaining table so we can return these automakers to profitability. It’s a shame we will have to wait another 30 to 60 days to do something that should have been done a long time ago.

Uncategorized chrysler, gm, obama

Lloyd Blankfein of Goldman Sachs, Kenneth Chenault of American Express, Kenneth Lewis of Bank of America and Edward Yingling of the American Bankers Association walk down the driveway at the White House.

The nation’s most prominent Bank CEO’s were in Washington again today, this time for a lunchtime meeting with President Obama to discuss important issues such as limits on executive compensation.

The CEO’s attending were the following:

Jamie Dimon, JP Morgan Chase
Ken Chenault, American Express
John Koskinen, Freddie Mac
Ronald Logue, State Street
Robert Kelly, BONY-Mellon
Rick Waddell, Northern Trust
James Rohr, PNC
Lloyd Blankfein, Goldman Sachs
John Mack, Morgan Stanley
Vikram Pandit, Citigroup
John Stumpf, Wells Fargo
Cam Fine, Independent Community Bankers
Edward Yingling, ABA
Richard Davis, US Bank
Ken Lewis, Bank of America

The consensus from the CEO’s after emerging from the meeting is that it was very informative and they will do as a group what they feel is best for the country and what will help to get our economy back on track. No CEO made any earth shattering comments following the meeting, but they did give some insight into some important issues.

On Executive Compensation:

• There was consensus that compensation policies went too far and need to be reformed. The interests of individual employees must become more closely aligned with the interests of the Firm as a whole. Several firms have already begun to reform these policies by increasing the percentage of stock in bonus packages and longer vesting schedules. There was no direct comment on the 90% tax on bonuses passed by the House.

On Returning TARP Funds:

• No firm will return TARP funds until the government bank stress tests are completed in April. Some banks expressed the desire to return TARP funds but did not set any timetable for doing so and will be coordinating with the Treasury department. These banks also feel that the return of TARP funds is in the “best interest of the taxpayer” as those funds could be deployed elsewhere in the economy.

On the Public-Private Partnership:

• Looks like not much was said on this in the meeting. It doesn’t appear that Goldman and Morgan Stanley will be selling assets into the program as it only applies to assets held on the bank level. Remember, Goldman and MS are recently converted investment banks. It seems that they have the majority of their assets at the holding company level which don’t seem to qualify by the way John Mack was speaking.

On Profitability:

• Both the CEO’s of JP Morgan and Bank of America indicated that March was a tough month for their trading books.

Uncategorized banks, obama

I came across an interesting article in the New York Post about how Citigroup and Bank of America have been aggressively purchasing AAA mortgage-backed securities in the secondary market. Surely, its a bit bizarre that those banks that hold the largest amount of these securities and have taken the largest writedowns are back playing in the same market that hurt them so badly in the past.

“One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.”

Both BoA and Citigroup were the recipients of $45 billion in TARP funds meant to to help prop up the economy and jumpstart the housing market.

Despite receiving the TARP funds, both BoA and Citigroup are positioned to take large writedowns if the market for AAA MBS deteriorates further.

“One source said that the banks’ purchases have helped to keep prices of these troubled securities higher than they would be otherwise”

Since trading is very light in these markets, it would be very easy to purchase up to $1 billion in assets at slightly inflated prices to prevent writedowns on the remaining $20 billion or so that they are likely to still have on their balance sheet.

I’m sure this won’t be the last time we hear about this…….

Uncategorized bofa, citigroup, mbs, toxic assets