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FHFA sets high capital bar for Fannie, Freddie; bitcoin closes in on all-time high

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Sell signal?

Bitcoin “has surged to within striking distance of the record high it set three years ago, ” which some analysts believe portends a “major correction,” the Financial Times reported. “On Wednesday, bitcoin traded as high as $18,492 after an explosive run in which it has jumped more than 50% in 30 days. Bitcoin peaked in December 2017 at $19,458, before suffering a spectacular crash that left the market dormant for years.”

Some analysts think that could happen again. “We would caution against buying at current levels, with the market having run so far and fast,” said Joel Kruger, a currency analyst at LMAX Exchange. “The market might want to poke above the record high but if that happens, it will leave the price screaming out for a major correction.”

“Crypto is still a heady bet on life-changing wealth, not a disruptor of how normal people use money,” a Bloomberg analysis says. “Nothing has fundamentally fixed Bitcoin’s weakness as a currency or store of value,” hedge fund king Ray Dalio says, “and if it ever became a threat to governments and central banks it would be keelhauled by regulators.”

“Given this exuberance, does the 2020 price spike mean a 2021 crash? Not necessarily. But it will take more than a second trip toward $20,000 to truly convince big banks and consumers that it’s a stable one.”

Wall Street Journal

High bar

Fannie Mae and Freddie Mac will have to hold about $283 billion of capital to absorb possible losses before they go public, the Federal Housing Finance Agency said Wednesday. The decision by their regulator “is a key step in efforts to return the two companies to private ownership. But the decision sets a high hurdle for the companies. At present, they hold roughly $35 billion and would need to make up the difference through a combination of retained earnings and possible future stock sales. It is unclear if there is enough time to carry out those plans ahead of the Jan. 20 inauguration of President-elect Joe Biden, who is considered unlikely to continue the effort.”

“The final rule is another milestone necessary for responsibly ending the conservatorships,” FHFA Director Mark Calabria said in a statement. “FHFA is confident that the final rule puts Fannie Mae and Freddie Mac on a path toward a sound capital footing.”

The FHFA’s plan to reform the GSEs may be dead on arrival under President-elect Biden, American Banker reports.

Reluctant

Banks in the U.S. and Europe have cut back sharply on their leasing of new office space, adding to the headaches of commercial landlords. In Europe, “leasing activity halved during the third quarter compared with the same period of 2019. In the U.S., the decline was even sharper at 55%.”

“The physical constraints of lockdowns made it hard for companies to get out and look at properties. And firms are reluctant to take on extra space until they understand how the shift to home working will play out and what shape the economy is in.”

Unconventional

Several automakers have rolled out “unconventional” note programs that pay a relatively high 2% or so to attract retail investors. The companies say the programs “help diversify their financing base.”

Financial Times

Man on the move

“When William Demchak, chief executive of PNC Financial, sold his bank’s position in the asset manager BlackRock in May, for $17 billion, it looked like a defensive move. Mr. Demchak did not see it that way.” Rather, “the important thing ‘was to stay focused on growing,’” crisis or no, he said.

"The comment neatly sums up the approach taken by Pittsburgh-based PNC ever since Mr. Demchak, now 58, joined the bank in 2002 as chief financial officer. In the 18 years since he joined, PNC has grown its assets at a muscular 12% a year — and that is before factoring in the announcement this week that it would use the proceeds of the BlackRock sale to buy the U.S. operations of the Spanish bank BBVA for $11.6 billion, adding another $104 billion in assets to the current $460 billion.”

Inside knowledge

“A former BNP Paribas trader who pleaded guilty to rigging foreign exchange benchmarks has been hired as a $400-an-hour consultant by investors suing eight banks including Barclays, Citigroup, HSBC and UBS for alleged forex manipulation.” The group of investors, which includes Allianz and Pimco, “are set to hire Jason Katz, a former Barclays and BNP Paribas currency trader who in 2017 pleaded guilty in the U.S. to price-fixing charges with unnamed conspirators.”

Lawyers for the banks “have filed court documents asking a U.S. judge to make a court order preventing Mr. Katz, who may also be called by either side as a factual witness in a trial, from seeing confidential information in the lawsuit. They claimed his involvement runs the risk of ‘interfering with the recollection of a key fact witness.’”

Quotable

“Is it $2.2 trillion, $1.5 trillion? You’ve got to be kidding me. Just split the baby and move on. I would have walked into that last negotiation [and] if I had to give it all up on either side, it would have been great for the country. They should have focused on what was great for the country.”— JPMorgan Chase CEO Jamie Dimon, expressing his frustration at Congress’s failure to pass another stimulus package.

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