- Fannie Freddie finished finally. In a move that surprised few, despite its previous downplay of the likelihood, the U.S. Treasury (via the Federal Housing Finance Agency, or FHFA) took the reins of mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) - the behemoth that provide funds for about 75% of all new home mortgages. For its trouble, and a pledge to provide up to $200B in funds if needed, the Treasury gets $1B preferred shares of each firm gratis - and rights to a 80% stake in each for a nominal sum. Secretary Hank Paulson insisted he had no choice, noting more than $5T of debt and mortgage-backed securities issued by the pair is owned by central banks and foreign investors. "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe." The two also get new CEOs. Initial reaction to the backstop has been positive: global markets rallied; equity futures are way up; and 'flight-to-safety' Treasurys are trading down.
- GSE rescue: Implications. The Fannie/Freddie rescue (see above) could cost taxpayers $300B, former Fed governor William Poole says. The figure is 5% of their $6T in obligations. For shareholders, the new conservators wiped out dividends on both common and preferred shares - a move expected to further pressure their deflated stock prices, and of particular concern to 17 thrifts who have more than 10% of their Tier 1 capital invested in the preferreds. In extended trading Friday, after the story first broke, FNM was down 21.9% to $5.50 and FRE was down 20.8% to $4.04. (See also: Winners & losers of the bailout)
- Can Paulson one-up Bernanke? The GSE takeover represents a massive bet by Treasury Secretary Henry Paulson that he can accomplish what Fed Chairman Bernanke failed to: Get banks to lend more freely. His gamble is that taking control of Fannie Mae (FNM) and Freddie Mac (FRE) will encourage banks to loosen up tight credit policies, sending long-term interest rates downward. The caveat: Banks are not blind to the fact that economic fundamentals, including unemployment, real earnings, and housing prices, continue to deteriorate. "If the housing market doesn't turn around, then Fannie and Freddie become bad assets," Vincent Reinhart, former director of the Fed's Monetary Affairs Division, says. "Paulson sold this to Congress as, 'Give me a blank check and I won't have to write it.' The question now is: How big is that check going to have to be?"
- Staking out Fannie, Freddie stakes. Plans to cut back the dollar value of mortgages Fannie and Freddie originate could be a boon for other firms ready to fill the void in the $6T market for repackaged mortgage debt. Major players include Credit Suisse (NYSE:CS), Deutsche Bank (NYSE:DB) and Lehman (LEH).
- Altria swallows Skoal maker. WSJ reports Altria (NYSE:MO) has agreed to pay $10.3B in cash for UST (NYSEARCA:UST), maker of Skoal chewing tobacco - a 28% premium to UST's Thursday close before news of the negotiations became public. Altria has struggled to move into the smokeless tobacco field; UST says about six million U.S. adults use chewing tobacco. Regulators have thus far been friendlier to smokeless tobacco, but that could change if major cigarette makers move into the field. MO +1.3% premarket.
- WaMu shows CEO Killinger the door. WaMu (NYSE:WM) CEO Kerry Killinger - who helped establish the firm as the number-one U.S. thrift - has become the latest casualty of the mortgage crisis, after losses of up to $19B WSJ says. Killinger had until now managed to dodge calls for his removal, but fresh blood on the board thrust the bid forward and on Thursday the company asked him to make room for Alan Fishman - currently chairman of New York commercial mortgage broker Meridian Capital. Fishman will inherit one of the most rancid U.S. financial institutions, with more than $50B of its assets in option ARMs. WaMu recently began offering unusually high interest rates, leading some to believe it is again short of capital.
- Ad alliance attacks Google/Yahoo ad deal. The Association of National Advertisers [ANA], a trade group that represents big hitters like Procter & Gamble (NYSE:PG) and GM (NYSE:GM) is urging the Justice Department to block Yahoo (NASDAQ:YHOO) and Google's (NASDAQ:GOOG) proposed web-ad deal. ANA believes the deal is on balance a negative for advertisers: It's worried about price control and the concentration of power the alliance represents. Yahoo and Google have agreed not to implement the deal for 3.5 months while it's under review. Both said they still believe in the deal. The ANA has an influential Washington lobby; it's unclear if their push will move regulators to try and block the deal, but their opposition is a blow to the proposed JV.
- Boeing strike enters day three. Boeing's (NYSE:BA) 28,000 machinists are officially on strike, with little sign talks might re-open. Analysts say the strike could hit Boeing revenue to the tune of $100-120M per day - and will further delay delivery of the 787 Dreamliner. 80% of union members rejected Boeing's final offer, and 87% agreed to strike. Industry watchers say the strike could easily stretch a month, given the distance between the two.
- So long Gustav, hello Ike. Crude is up in overnight trading. There is speculation Hurricane Ike may wind its way into the Gulf of Mexico during the coming days, once again interrupting oil and gas production. Not all rigs have reopened since closing for last week's Gustav scare.
- ConocoPhillips forges LNG deal. ConocoPhillips (NYSE:COP) agreed to pay as much as $8B for a 50% stake in the coal seam gas assets of Australian firm Origin Energy, which may scuttle a A$13.83B takeover bid by BG Group. Conoco and Origin plan to jointly develop two liquified natural gas processing trains, eventually boosting that to four. Analysts say the deal requires closer scrutiny to assess its value to COP.
- Nasdaq gets European go-ahead. The U.K. Financial Services Authority approved Nasdaq OMX's (NASDAQ:NDAQ) plan for its new pan-European stock-trading platform, which is scheduled to go live Sep. 26. Until recently traders could only trade European shares on the exchanges they were listed. A recent change has opened things up; rival NYSE Euronext (NYSE:NYX) confirmed it plans to introduce a pan-European trading platform in November. Nasdaq OMX's platform, unlike others, promises to redirect unfilled orders to other exchanges and platforms.
- Asia closes way higher. Nikkei +3.38% to 12,624. Hang Seng +4.32% to 20,794. Shanghai -2.68% to 2,143. BSE +3.18% to 14,945.
- In Europe bourses look strong at midday. London +3.8%. Paris +4.95%. Frankfurt +3.5%.
- U.S. equity futures echo overseas strength. Dow +2.35%. S&P +2.9%. Nasdaq +2.05%.
- Treasurys are down. 30-year -1.09%. 10-year -1.15%. 5-year -1%. 2-year -0.35%.
- Crude +1.07% to $107.37. Gold +1.13% to $811.90.
Monday's Economic Calendar
- 3:00 PM Consumer Credit
Seeking Alpha editor Rachael Granby contributed to this post.
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