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Financial Services Update – July 22, 2011

Debt Limit Negotiations Continue

On Tuesday, the House passed its “Cut, Cap and Balance” legislation which would cut government spending now, cap it in the future and approve a constitutional amendment to balance the federal budget. On Friday, the Senate voted to table a motion to consider the measure. However, after another tense week of negotiations between the Senate Republicans, Senate Democrats, House Republicans, House Democrats, and the President Obama, the outline of a purported deal seemed to emerge late Thursday. Congressional Democrats reported that President Obama discussed with them a deal he had reached with Speaker John Boehner to raise the debt ceiling by $2.4 trillion, enough to get through the 2012 elections, with at least as much in immediate spending cuts and a promise of  “tax reform”  in 2012. On Friday, in response to the news of a “deal,” Speaker Boehner told the House Republican Conference there was “no deal,”  but that he will continue to negotiate with the White House over the weekend. The most important questions remaining are how many House Republicans will vote for a deal that does not include immediate tax increases but does include the promise of broader “tax reform” next year and how many House Democrats will vote for a deal with no tax increases.

Greece Gets Another Bailout

On Thursday, European finance ministers agreed to a new $157 billion financial aid package for Greece in exchange for forcing Greece’s bond holders to accept a bond exchange that gives them less than originally promised. The new plan for Greece will provide for the euro zone’s bailout fund and the International Monetary Fund to lend Greece $157 billion over the next three years at 3.5% interest. Private creditors who hold Greek debt that matures in the coming years will “voluntarily” turn in their bonds and accept new ones that mature far in the future.

The EU also agreed Thursday to an expansion of its bailout fund. That vehicle, once restricted to lending to countries near the brink of collapse, will now be able to buy euro-zone bonds on secondary markets to move prices and lend directly to countries even before they lose access to private funding and could even include lending to finance bank recapitalizations. The leaders also agreed to cut the once-lofty interest rates that the bailout fund charges and extend to as much as 30 years the maturities of the loans it provides. Ireland and Portugal, both currently receiving European aid, will get breaks on their interest rates to 3.5%. Ireland was paying around 6% on the EU portion of its euro 67.5 billion bailout.

Treasury Sells Off Remaining Stake of Chrysler

On Thursday, the Treasury Department sold its remaining stake in Chrysler losing a total of $1.3 billion. Italian automaker Fiat purchased the U.S. government’s remaining 6% stake in Chrysler for $560 million, formally concluding the $12.5-billion bailout.

Suit Against Goldman Dismissed

On Thursday, former Australian hedge fund Basis Yield Alpha’s legal challenge to Goldman Sachs’ infamous Timberwolf 2007-1 collateralized debt obligation was dismissed by Judge Barbara Jones of the U.S. District Court for the Southern District of New York. Jones cited a Supreme Court decision that held that U.S. securities-fraud laws apply only to domestic transactions.

Senate Banking Hearing on One Year Anniversary of Dodd-Frank

On Thursday, in a hearing before the Senate Banking Committee, federal banking regulators testified on the implementation of the Dodd-Frank Wall Street Reform Act. Regulators said they are moving fast enough to give markets certainty, but slow enough to get hundreds of new rules right. A handful of regulatory agencies are writing hundreds of new rules to police the swaps market, reduce risk at the biggest financial firms, and bring the so-called shadow banking system — which includes hedge funds and non-traditional lenders — into the traditional regulatory framework. The SEC and CFTC have struggled to keep pace with the swift rule-writing timeline laid out in Dodd-Frank, and are months behind schedule on many key rules. However, in a surprising move, Federal Reserve Chairman Ben Bernanke said federal bank regulators may rethink their crackdown on derivatives if a global agreement cannot be reached on margin requirements thereby acknowledging that U.S. banks would be at a significant competitive disadvantage if their foreign rivals do not have to demand margin, or collateral, for derivatives trades.

More Information:

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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Financial Services Update – December 17, 2010

Congress Passes Tax Package

On Monday, the Senate passed the $858 billion tax package sending the bill back to the House where it passed late Thursday night. The bill now heads to President Obama’s desk for his signature into law. While the package does not include a repeal of the Form 1099 health care requirement or extension of the Buy American Bond program, the bill does the following major items:

  • extends through 2012 the current individual income tax brackets, capital gains and dividends rates for all taxpayers;
  • increases the AMT exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly);
  • extends through 2011 the ability to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes;
  • exempts from taxation the first $10 million of a couple’s estate and the first $5 million of an individual’s estate, with the remaining portion taxed at the 35 percent rate;
  • extends and temporarily increases the bonus depreciation provision for investments in new business equipment;
  • reduces the payroll/self-employment tax during 2011 to 4.2 percent on wage-earners and to 10.4 percent on self-employment income up to the threshold;
  • reinstates through 2011 the research and development credit;
  • extends the 100 percent exclusion of the gain from the sale of qualifying small business stock that is acquired before January 1, 2012 and held for more than five years;
  • extends through 2011 the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements;
  • extends through 2011 the $0.50 per gallon alternative fuel credit and credit for energy-efficient improvements to existing homes.

Fed Proposes New Interchange Fees

On Thursday, the Federal Reserve announced a set of new debit-card fee restrictions more aggressive than most industry experts expected. The new restrictions, most of which will not be made final until April 21, are designed to restrict the fees that debit-card issuers can charge merchants. Banks would face a seven-to-12-cent-per-transaction cap on the interchange fees under either of the two proposals unveiled Thursday. Under the first plan, card-issuing banks could use a formula to determine the maximum amount of the interchange fee that it would collect, based on certain processing costs and would set a “safe harbor” standard at seven cents per transaction. The second alternative would set the cap at 12 cents without any safe harbor. Under the Fed’s proposal, the Fed Board would re-evaluate the cap every two years.

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Financial Services Update – December 10, 2010

Senate to Vote on Tax Package Monday; House Passage Remains Uncertain

On Thursday, the Senate unveiled final details of its $858 Billion 10-year tax bill and will vote on the procedural motion to pass the bill Monday.  However, it is unclear whether the House can pass the bill in its current form.  Below is a summary of the provisions.  Click here for a copy of the entire bill.

Fannie and Freddie in Negotiations on Write Downs

Reports this week indicate that Fannie Mae and Freddie Mac are in negotiations with the Federal Housing Finance Agency (FHFA) on a plan to write down so-called “underwater loans” on their balance sheets. The Obama administration wants the firms to join a program run by the Federal Housing Administration that allows banks and other creditors, which agree to write down mortgages, to essentially hand off the reduced loans to the FHA. Unlike most loan-modification efforts, the FHA program is open only to borrowers who aren’t behind on their payments. Starting in October, banks were able to receive additional subsidies if they first write down loan balances for borrowers owing at least 15% more than their home’s current value.

House Financial Services Committee Announces New Members

On Thursday, the House Financial Services Committee announced the following leadership for the 112th Congress:

Rep. Spencer Bachus, Chairman

Rep. Jeb Hensarling, Vice Chairman, Financial Services Committee

Rep. Judy Biggert, Chairman, Insurance, Housing and Community Opportunity
Jurisdiction: Insurance generally, housing, urban development, and the Department of Housing and Urban Development.

Rep. Shelley Moore Capito, Chairwoman, Financial Institutions Subcommittee and Consumer Credit
Jurisdiction: Banks and banking, depository institutions, federal deposit insurance, and safety and soundness.

Rep. Scott Garrett, Chairman, Capital Markets and Government-Sponsored Enterprises Subcommittee
Jurisdiction: Capital markets, securities, and government sponsored enterprises.

Rep. Ron Paul, Chairman, Domestic Monetary Policy Subcommittee
Jurisdiction: Domestic monetary policy, currency, precious metals, valuation of the dollar, economic stabilization, defense production, commodity prices, financial aid to commerce and industry.

Rep. Gary Miller, Chairman, International Monetary Policy Subcommittee
Jurisdiction: International monetary policy, international finance and banking, international financial and monetary organizations, including the IMF and World Bank, and the promotion of international trade in financial services.

Rep. Randy Neugebauer, Chairman, Oversight and Investigations Subcommittee
Jurisdiction: Oversight of all matters within the jurisdiction of the full Committee.

While not yet formally announced, the expected new members on the committee are:

Rep. Blaine Luetkemeyer (R-MO), Rep. Lynn Westmoreland (R-GA), Nan Hayworth (R-NY), Rep. Michael Grimm (R-NY), Rep. Robert Hurt (R-VA), Rep. Steve Stivers (R-OH), Rep. Bob Dold (R-TX), Rep. Bill Huezienga (R-MI), Rep. Michael Fitzpatrick (R-PA), Rep. Steve Pearce (R-NM), Rep. Quico Canseco (R-TX), Rep. Sean Duffy (R-WI), Rep. Randy Hultgren (R-IL)

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Financial Services Update

Financial Services Update

November 29, 2010

Authored by: Matt Jessee

Irish Bailout Finalized Sunday

On Sunday, Ireland finalized plans for a bailout from the European Union (EU) and International Monetary Fund (IMF), after approval from EU finance ministers. European leaders hoped that such a measure would be a firewall against further bailouts in other Eurozone countries, but concern has grown over the past week that Portugal and Spain could also need such loans. The rescue package for Ireland is estimated to be worth tens of billions of dollars. Individual European nations have also announced their own loans to Ireland. Britain is putting together a $11.5 billion package and Sweden’s prime minister announced a $1.5 billion loan on Thursday. Irish Prime Minister Brian Cowen last week announced a four-year “austerity plan” designed to cut spending and increase taxes. The plan would save $13.4 billion through welfare cuts and raise $6.7 billion through higher taxes. The plan’s spending cuts include reductions in the minimum wage and public-sector pay and fee increases in the VAT, utilities, education tuition, and income taxes.

Car Czar Announces Reduction in Government Oversight of GM

On Friday, the Obama administration’s “Car Czar” Ron Bloom said the government will reduce its oversight of General Motors (GM) as the government sells more of its GM stock. Since GM emerged from bankruptcy sixteen months ago, it has provided the Treasury with “regular, detailed” briefings on its financial condition. Bloom and other Administration officials took an active role during the run-up to GM’s initial public stock offering Thursday, helping to determine how much stock to sell and what price the underwriters should pay. Bloom and others will also attend GM’s first annual meeting as a public company and will vote the government’s shares on key issues. Bloom denied that the government exerted any pressure and pushed for an early IPO. However, Bloom noted that the size of the deal, the pricing and the fees to be paid to underwriters were in the government’s purview. The government ultimately sold more shares than it previously had planned — 358 million of its 912 million shares — at $33 a share. The government will need to sell its remaining shares at an average price of $52.80 to break even.

Geithner Opposes Reduction in Fed Mandate and Extension of Bush Tax Cuts

November’s election results have empowered Congressional Republicans to assert new found authority, leading Republicans to increase their criticisms of the Federal Reserve’s plan, known as “quantitative easing,” to buy $600 billion in assets, saying it would fuel inflation and asset bubbles. Republicans have cited the Fed’s dual mandate to pursue full employment as well as to promote price stability as the cause of the problem. On Tuesday, in reaction to Republican attacks, U.S. Treasury Secretary Timothy Geithner said the Obama administration would oppose any effort to strip the Federal Reserve of its mandate to pursue full employment, saying such attacks by Republicans would politicize the central bank. While Geithner also declined to say what compromise the Obama administration would be willing to make on extending the Bush income tax cuts, he did say he opposed making permanent the tax reductions for those making more than $250,000.

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Financial Services Update

Financial Services Update

November 22, 2010

Authored by: Matt Jessee

Debate Over Extension of Bush Tax Cuts Continues

On Thursday, House Majority Leader Steny Hoyer (D-MD) and House Speaker Nancy Pelosi (D-CA) told House Democrats at a closed door meeting that the House would vote before the end of the year on extending the Bush tax cuts for only those individuals making less than $250,000. However, even if such a measure were to pass in the House, it is unclear whether the Senate will agree to such a vote. There is still the possibility the bill may not pass the House if Republicans are able to successfully pass a procedural response, known as a “motion to recommit,” that could force a House vote on a full extension of the Bush tax cuts.  According to sources, Pelosi told President Barack Obama that House Democrats remain firmly committed to allowing Bush-era tax cuts to expire for earners making more than $250,000, which complicates the Administration’s efforts to reach a compromise with Senate Republicans.

Preview of Next Year’s Budget Fight

On Thursday, Senate Minority Leader Mitch McConnell (R-KY) announced he would oppose the pending omnibus appropriations bill, thereby forcing Congress to rely on another stopgap “continuing resolution,” or CR, to keep the government funded after December 3. If Republicans are able to block the omnibus spending bill, it would set up an early confrontation with President Obama next year over not just deeper cuts from the President’s 2011 budget but also tens of billions of dollars in rescissions from prior years. The White House is seeking a continuing funding resolution which would cover the next 10 months of the fiscal year until September 30, which would deny House Republicans a chance to defund portions of the healthcare bill early next year.

Fed Orders New Stress Tests

On Wednesday, the Federal Reserve announced plans to scrutinize the nation’s top 19 banks through a second round of “stress tests.” The stress tests will require the bank-holding companies to submit capital plans by early 2011 proving their capability to handle losses under a set of conditions including “adverse” economic conditions and continuing real estate-related problems. In its announcement, the Fed said it plans to perform such reviews regularly on an ongoing basis. The Fed also issued a road map for banks that want to raise dividends or buy back stock saying firms must show they have sufficient capital in place to withstand losses over the next two years and demonstrate an ability to satisfy new, tougher global capital requirements.

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Financial Services Update

Financial Services Update

November 5, 2010

Authored by: Matt Jessee

Election Day Implications

Based on this week’s election results, next year’s Senate ratio will be 51 Democrats, 47 Republicans, and 2 Independents who will most likely caucus with Democrats. Nine races have yet to be called in the House of Representatives, but the final Republican net gain will most likely be 64 seats. The House Republican leadership will most likely consist of John Boehner (OH) as Speaker, Eric Cantor (VA) as Majority Leader, Kevin McCarthy (CA) as Majority Whip, and Greg Walden (OR) as Chairman of the House Leadership. The Democratic leadership in the House has not been determined, but current-Speaker Nancy Pelosi (CA) has announced she will run for Minority Leader, current-Leader Steny Hoyer (MD) has announced he will run for Minority Whip, and current-Whip James Clyburn (SC) has also announced he will run for Minority Whip. The most important committee leadership change impacting the financial services industry will be Rep. Spencer Bachus (R-AL) as the next likely chairman of the House Financial Services Committee. Bachus has indicated his top priorities include GSE reform and oversight of the newly empowered CFTC and CFPA. The other important committee leadership changes for the industry will be Rep. Darrell Issa (R-CA) as the next chairman of the House Government Reform Committee, Rep. Dave Camp (R-MI) as the next chairman of the Ways and Means Committee, and Sen. Tim Johnson (D-SD) as the likely new chairman of the Senate Banking Committee.

Debt Panel Returns for Final Votes on Recommendations

Eight months ago President Obama created the bipartisan “National Commission on Fiscal Responsibility and Reform” charged with proposing spending cuts to Congress. Under the leadership of Erskine Bowles and former-Senator Alan Simpson (R-WY), the eighteen member panel will be reconvening next week to vote on final recommendations to Congress before the committee’s December 1st expiration date. However, expectations remain low that any plan can get the 14-vote supermajority required to send the spending cuts to Congress for a vote in December.

October Jobs Report Released

On Friday, the Department of Labor released its October jobs report showing the domestic economy added 151,000 jobs after four months of job losses. However, nearly 15 million people remain unemployed and actively looking, and the unemployment rate, which remained steady at 9.6 percent, has been relatively flat since May.

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Financial Services Update

Financial Services Update

September 25, 2010

Authored by: Matt Jessee

House Passes Small Business Tax Credit Bill — President to Sign Monday

On Thursday, the House passed a $42 billion bill designed to provide tax credits and to make more capital available to small businesses.  The bill was originally passed by the Senate last week and will be signed into law by the President on Monday.  The “Small Business Jobs Act” is intended to make credit more available by authorizing the creation of a $30 billion fund run by the Treasury Department that would deliver low-cost capital to banks with less than $10 billion in assets.  The bill also provides $1.5 billion in grants to state lending programs that in turn support loans to small businesses.  The bill would also extend and/or create $12 billion in small business tax credits over the next ten years including a 100% exclusion of capital gains taxes on investments for qualifying C corporations, a five year extension of the “carry back” provision, an increase and extension through 2011 of Section 179 deductions for up to $500,000 worth of equipment, an extension of bonus depreciation for capital expenditures made in 2008 or 2009, and an increase to $10,000 in the deduction for start-up expenses for 2010.

Tax Cut Extension Vote Postponed Until After November Election

On Tuesday, Senate Majority Leader Harry Reid (D-NV) said he was “working hard for a vote most likely next week” on an extension of the Bush income tax income tax cuts for taxpayers making less than $250,000 per year.  On Thursday, Reid and House Majority Leader Steny Hoyer (D-MD) announced the vote on the extension will be delayed until after the November elections.  However, if Republicans take back the Senate and or the House, they could attempt to block that vote in the hopes of getting a more favorable bill early in the next Congress.

House Republicans Unveil “Pledge to America”

On Thursday, House Republican leaders unveiled their “Pledge to America” which details a series of policy proposals House Republicans will attempt to enact if they gain the majority in the November elections.  The proposal includes promises to freeze federal government  hiring, cut Congress’ budget, place hard caps on domestic spending accounts, extend the Bush tax cuts that are set to expire in 2011, and “repeal and replace” the new health care law.

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Financial Services Update

Financial Services Update

September 10, 2010

Authored by: Matt Jessee

Goolsbee to Chair White House Council of Economic Advisors

On Friday, President Obama named a longtime adviser, Austan Goolsbee, to be the chairman of the White House Council of Economic Advisers. Goolsbee is a former University of Chicago economics professor and one of three economists currently serving on the council. He previously was confirmed by the Senate and will not need to be reconfirmed. Goolsbee, 41, replaces Christina Romer, who has returned to her teaching position at the University of California, Berkeley.

Clash Over Tax Cuts Extension

With the Bush tax cuts set to expire at the end of 2010, President Obama, speaking at a White House news conference on Friday, proposed extending tax cuts for families earning less than $250,000 a year while allowing taxes to rise for those with higher incomes.  However, the President stopped short of promising a veto should Congress send him legislation extending, perhaps temporarily, tax cuts for everyone. Republicans have proposed extending the tax cuts for all income brackets. The cost to the Treasury of extending the top two income tax bracket rates, which the Bush tax cuts lowered from 39.6% to 35% and 36% to 33%, would be $700 billion over 10 years.

Stimulus Round Two

During a speech Wednesday, President Obama unveiled his new proposal to allow companies to expense 100 percent of their investments in new plants and equipment through the end of next year in effort to spur job creation. The President also announced a plan to invest $50 billion in new roads and railways, as well as permanently extend a tax credit, valued at close to $100 billion over 10 years, for businesses that conduct new research and development.

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