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More mortgage fees may be on tap; Citi wins round one over Revlon lenders

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Citi wins round one

“A federal judge granted Citigroup’s request to freeze roughly $175 million the bank said it paid hedge-fund manager Brigade Capital Management by mistake on a loan” to Revlon. “The ruling by Manhattan U.S. District Judge Jesse Furman marks an initial victory for Citi before the judge fully evaluates the dispute over whether Brigade can keep the money. Another court hearing was scheduled for late August, when Brigade must explain why it shouldn’t have to give the money back. Until then, Brigade can’t withdraw, transfer or otherwise dispose of the money, the judge said.”

“Brigade has taken the position it isn’t obligated to return the money it received last week, its share of a nearly $900 million loan payment owed by Revlon. Citi, the administrative agent on a loan issued by Revlon in 2016, said the payment was made in error out of the bank’s own funds. The $175 million sent to Brigade was part of almost $900 million that Citi wired to various lenders that have been locked in a feud with Revlon over the company’s debt-restructuring tactics.”

“There is a strong, principled argument that people should return money that’s been paid to them as a result of a genuine accident,” a Bloomberg commentary says. “Citi goes one step further, saying the stability of the financial system depends on it.”

“It should be careful with that line: Financial stability also depends on banks like Citi being able to make basic payments accurately. The bank should face some form of penalty for what happened, but surely that is for regulators to decide, not Revlon’s creditors.”

Wall Street Journal

More fees coming?

Fannie Mae and Freddie Mac’s new 0.5% fee on refinances announced last week “could be just a taste of what is to come as the two giants’ role in the housing market evolves,” the Journal says. “Fannie and Freddie and their regulator are in the midst of efforts to raise capital in a quest to become free of government conservatorship. So the answer might involve more fees.”

“Fannie and Freddie don’t have a lot of market incentive not to raise them: The pair are no longer locked in a battle for market share with private-label securitizers, as before the financial crisis.” The two agencies have also had to “backstop mortgage servicers’ payment obligations due to forbearance programs. This gives Fannie and Freddie all the more incentive to find new sources of income. Even absent a pandemic, the transition from government conservatorship of Fannie and Freddie was never likely to be cost-free for the broader mortgage industry.”

Bank bruising

“Hedge funds that invest in banks are getting bloodied this year, leading to double-digit losses and shutdowns for some funds. The sector has been crushed by the pandemic, as lower rates dent lending margins for the industry and concerns about possible loan losses have proliferated. Fund liquidations and forced selling have added further downward pressure on bank stocks.”

“The KBW Nasdaq Bank Index has fallen 33.1% this year; the S&P 500 is up 6.2%, including dividends.”

Fed watch

The minutes from the Federal Reserve’s July 28-29 monetary policy meeting will be released at 2 p.m. EST Wednesday. Here’s what to expect.

Elsewhere

Tech bet

Silicon Valley Bank “is midway through hiring around 80 bankers in Britain, as it bucks the trend of peers who are shrinking during the coronavirus crisis,” Reuters reports. “The Santa Clara, California-headquartered lender is converting its London-based branch into a full subsidiary, as it bets on finding technology investment opportunities for private equity firms with piles of cash sitting on the sidelines.”

“The bank has hired 30 staff in the first half of the year and is on track to increase its headcount in Britain from 250 at the start of 2020 to 330 by year-end,” according to Erin Platts, president of the bank’s U.K. branch.

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