Treasury moves to recap Fannie, Freddie; BofA's down market success

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Wall Street Journal

Ready for recap

Treasury Secretary Steven Mnuchin said he expects an agreement soon “that would allow Fannie Mae and Freddie Mac to begin retaining their earnings, one of the first steps in the administration’s plan to return the mortgage-finance companies to private hands.” The Treasury has been in talks with the Federal Housing Finance Agency on a deal that would represent “a significant increase in capital and a step in the right direction to us ultimately raising third-party capital,” Mnuchin told Fox Business Network. Mnuchin said he “hopes to win congressional support in the next three months to six months, but is prepared to move ahead on administrative changes to the firms that don’t require legislative approval.”

Fannie and Freddie shares jumped more than 40%, “their best day in almost three years,” following Mr. Mnuchin’s comments and a favorable court ruling late last Friday.

The Wall Street Journal wishes “Godspeed to FHFA director Mark Calabria, who’s unlikely to get help from Congress in this Sisyphian task” of reducing the size of the two mortgage agencies.

Mnuchin, Calabria and Housing and Urban Development secretary Ben Carson are scheduled to testify before the Senate Banking Committee on Tuesday about the privatization plan.

The U.K. sneezes, and Ireland …

Irish banks have been hit even harder than their counterparts in the U.K. by the uncertainty over Brexit. Ireland’s two largest banks, AIB Group and Bank of Ireland, “are among the worst-performing European banks this year.” AIB is “hovering near a record low, while Bank of Ireland has risen slightly in recent days from its weakest level in almost six years.”

“It’s purely the Brexit effect,” said Simon Adamson, senior European bank analyst at CreditSights. “It’s more the fear that any economic weakness on the back of Brexit would push itself onto the banks’ balance sheets.”

Financial Times

Joining Goldman

Oliver “Olly” Robbins, the chief European Union negotiator for former U.K. prime minister Theresa May from 2017 until 2019, is taking his talents to Goldman Sachs, “the latest example of a high-profile public service appointment to the Wall Street giant.”

“His move to Goldman Sachs means he will transfer his detailed knowledge of the EU and Brexit to the U.S. investment bank in a job which will be highly remunerated. He is not joining the elite ranks of Goldman partners, where salaries start at $950,000, but will earn a six-figure sum at the managing director level just below that.”

New York Times

Taxi loan probe spreads

Federal prosecutors have begun a formal investigation into “possible lending fraud in the New York City taxi industry, the most significant action taken so far in response to widespread practices that trapped thousands of cabdrivers under crushing debt. The investigation, which is in its beginning stages, appears to be looking at possible crimes including bank, wire or mail fraud.” The state attorney general and the city have already begun their own probes.

Elsewhere

Moving lower pays off

Bank of America said its recent move down market in its investment bank is starting to pay off. Revenue from lending to middle market companies grew by 17% in the first seven months of the year, and overall investment banking revenue growth for the third quarter is expected to be in the low single digits.

“We were more focused on the top 100 [corporations],” chief operating officer Tom Montag said at the Barclays Financial Services Conference in New York. “We’re now going 400-deep.”

Quotable

“They’ve been in conservatorship for too long, and we want to make sure they’re not in conservatorship on a permanent basis.” — Treasury Secretary Steven Mnuchin, about moving quickly to recapitalize Fannie Mae and Freddie Mac and return them to the private sector.

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