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Financial Services Update – April 1, 2011

Government Shutdown Looms

With the current temporary funding resolution set to expire April 8, House and Senate Appropriations committees worked toward crafting a six-month compromise bill, setting annual spending at $1.055 trillion, $28 billion more than the House-passed level but still a $33 billion cut from the original spending measure. However, House Republicans remain splintered over whether a shutdown would be good politically, or whether they should compromise with Democrats in order to move on to larger future battles such as next year’s budget and the debt ceiling increase. Meanwhile, Democrats also remain divided over whether to allow a shutdown to happen or acquiesce to Republican cuts. Whether a compromise can be reached to avoid a shutdown will be known next week.

Unemployment Rate Drops to 8.8%

On Friday, the Department of Labor announced that the unemployment rate dipped to 8.8% in March from 8.9% in February. Nonfarm payrolls gained 216,000, with private-sector employment rising by 230,000. Payroll employment stood at 130.7 million in March. There were gains of 199,000 jobs in services and 17,000 jobs in manufacturing in March. Government employment fell by 14,000 and 9,000 jobs were lost in education. Nearly half of the unemployed have been out of work for 27 weeks or more. Private-sector wages fell 2 cents an hour to $19.30.

Ally Financial Files for IPO

On Thursday, Ally Financial, the former finance arm of General Motors, filed for an initial public offering that would allow the federal government to begin selling off its 73.8 percent stake.  Ally said in its registration statement with the Securities and Exchange Commission (SEC) that it was seeking to raise $100 million.  Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley are the lead underwriters.  The company did not give an estimated date or share price for the offering.  The Treasury Department, which invested more than $17 billion in Ally, did not say how much of its stake it intended to sell.  In addition to common shares, the Treasury Department owns $5.9 billion in convertible preferred stock.  Earlier this month, the Treasury Department began unwinding its holdings in Ally, selling $2.7 billion in trust preferred securities.

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Financial Services Update – March 25, 2011

Bernanke to Hold Regular Press Briefings

On Thursday, the Federal Reserve announced that Chairman Ben Bernanke will begin holding press briefings four times per year to present the Federal Open Market Committee’s current economic projections. In 2011, the Chairman’s briefings will be held on April 27, June 22 and November 2.

Fed Rejects Bank of America Dividend Increase

On Wednesday, Bank of America announced that the Federal Reserve had vetoed its plans for a dividend increase in the second half of 2011. Bank of America did not disclose the central bank’s reason for rejecting the dividend proposal, and the Fed declined to comment on how individual institutions fared in its latest round of examinations. The Bank said it had originally submitted its dividend proposal to the Fed in January, and it now intends to submit a revamped dividend proposal at a later date.

Treasury Department Opposes Tax Repatriation Holiday

On Wednesday, Michael Mundaca, the Assistant Treasury Secretary for Tax Policy, announced that he opposed proposals to give corporations a tax holiday on their overseas profits. Mundaca pointed to an earlier assessment from the Joint Committee on Taxation that estimated the tax holiday would cost billions, rather than raise revenue as proponents have argued. He added that a second holiday might even weigh even more heavily on revenue, by encouraging multinationals to shift even more profits overseas. The federal government currently taxes businesses up to 35 percent on overseas earnings. Win America, a coalition of multinational corporations including Apple, Google, Microsoft and Pfizer, argues that a temporary tax holiday would allow businesses to invest an estimated $1 trillion in America, creating jobs in the process.

Treasury Announces Mortgage-Backed Securities Sale

On Monday, the Treasury Department announced that it will begin to sell its portfolio of $142 billion in agency-guaranteed mortgage-backed securities (MBSs) amassed during the financial crisis. Starting this month, the department plans to sell up to $10 billion in MBSs per month subject to market conditions. The sales are expected to generate a profit for taxpayers of $15 billion to $20 billion. The Fed currently holds just under $945 billion of MBSs on its balance sheet.

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If you have any questions regarding any of these issues, please contact:

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
1 314 259 2463

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