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AviationRegister E-Xpert Witness Journal
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Global developments presenting risks and rewards for the aircraft trading and financing market
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Headline News was last updated: December 31, 2009
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December 2009
US Administration tells the nation's biggest banks that lending can spur the economy & to take steps to lend to small business and homeowners.
Citigroup will repay $20B in TARP money that it received from the U.S. Treasury Department.
Financial regulation: The U.S. House of Representatives passed a bill that creates a new agency to monitor consumer-banking transactions.
Financial regulation: The U.S. House of Representatives bill gives the government powers to break up companies that threaten the economy.
Financial regulation: Plans to regulate the $600T market derivatives are included in the bill.
Regulator: The bill gives the Government Accountability Office, the investigative arm of the US Congress, more power over the Federal Reserve.
Regulator: The bill gives the Federal Reserve the power to oversee large firms at risk of collapse.
Troubled Asset Relief Program (TARP) (U.S. $700B financial bailout fund) has been extended by the US Treasury until October 2010.
TARP funds have helped rescue Wall Street aerospace banks, AIG and its aircraft-leasing subsidiary ILFC.
Banking collapse: The FDIC does not see a risk of another banking collapse.
Banking collapse prevention: The FDIC says Congress needs to establish a very robust, very severe resolution mechanism to prevent bank failures.
Bank council of federal regulators: FDIC favors such a council of regulators to resolve institutions problems with banks posing a threat to the system.
Bank council of federal regulators proposal is in financial overhaul legislation passed by the U.S. House in December 2009.
Bank of America’s $20B Merrill Lynch acquisition was forged the same September 2008 weekend that Lehman Brothers collapsed.
Bank of America disclosed that the Merrill would post $27.6B losses in 2008- far more than expected at the time of the acquisition.
Bank of America had already received $25B in U.S. bailout aid and asked for an additional $20B from the government to help offset the Merrill losses.
Bank of America probe: The SEC had accused Bank of America of failing to disclose to shareholders that it had authorized Merrill Lynch to pay employees bonuses in 2008.
Merrill Lynch agreed to pay up to $5.8B in bonuses to employees in 2008 even though the investment bank lost $27.6B.
Bank of America probe: SEC expands its probe of Bank of America to include the failure to disclose mounting losses at Merrill Lynch.
Bank of America court case: A federal judge threw out a $33M settlement in September and rebuked the SEC for not pursuing charges against individual bank executives.
Bank of America evidence: A knowledge or reckless conduct is required to make a case against individuals as opposed to companies.
Bank of America court case: The SEC is reviewing all the evidence and Bank of America is preparing for the trial in March.
Bank of America rescue: The House Oversight and Government Reform Committee is monitoring the role of the government in the $45B federal rescue of BofA.
Bank of America repaid the $45B government bailout it received in December 2009.
Bank of America rescue: FCIC Chairman said her agency took part in the rescue of BofA in January because its condition posed a threat to the financial system.
Bank of America rescue: The FDIC's $2.5B risk guarantee was intended to reduce the threat to the system and the deposit insurance fund.
United ordered 25 A350 XWB & 25 B787 aircraft & has options for 50 of each for delivery between 2016 & 2019. www.aviationregister.biz
United Fleet retirement plan: It will retire its B747s and B767s flying on international routes between 2016 and 2019. www.aviationregister.biz
United fleet rationale: The A350 has a range 11% greater than the B747, & the B787 has a range 32% greater than the B767. www.aviationregister.biz
November 2009
Dubai decision to restructure Dubai World debt affects aerospace banks: Barclays, HSBC, Standard Chartered, RSBC, Deutsche Bank, ING Group and Sumitomo Mitsui Financial Group.
Dubai World had $59B of liabilities as of August, most of Dubai's total debt of $80B.
International banks' liabilities related to Dubai World could be as high as $12B in syndicated and bilateral loans. (Thomson Reuters)
Bank worldwide are writing down $2.8T between 2007 and 2010 based on estimates from the IMF because of the global credit crisis.
October 2009
United Airlines (UAL) has priced a public offering of EETC (enhanced equipment trust certificates ) aircraft refinancing.
United EETCs: The $659M financing has an interest rate of 10.40% and a final distribution date of November 1, 2016.
United gain: The refinancing nets UA $90M as the ETTCs will repay $568M in principal relating to outstanding 2001-1 EETCs.
United savings: ETTC principal payments will be reduced by $215M in 2010 and $100M in 2011.
United retained J.P. Morgan Securities and Morgan Stanley as joint book-running managers. Goldman, Sachs acted as co-manager for the offering.
Societe Generale of France plans to raise $7B in a stock offering to be used to repay emergency stage aid and for takeovers.
Societe Generale plans to buy the 20% stake Franco-Belgian bank Dexia holds in French bank Credit du Nord .
Societe Generale's Q2 profits fell 52% to $450B compare to the same period in 2008.
SEPTEMBER 2009
United Airlines (UAL): When United filed for bankruptcy protection in December 2002 with debts totaling $4B it, lessors paid a heavy price.
United Bankruptcy cost: Ch11 reorganization is costing banks & lessors $850M annual based on restructured leases and mortgages on approximately 450 aircraft.
United Bankruptcy cost: Ch11 reorganization is costing bondholders $1.7B in restructured municipal bond obligations.
United Bankruptcy cost: Is costing labor multibillions of dollars in restructured labor and pension agreements.
Regulation: Federal Reserve to add rules to regulate pay at major US banks. The Fed is preparing what many say will be the most sweeping rules yet to regulate the banking sector.
A bail out for banks is a bail out for the Irish economy.
Many aircraft leasing companies and most aerospace banks have operations in Ireland.
The Irish government is to rescue “Irish” banks in the Republic of Ireland as part of a strategy to boost the economy and revive the banking sector. Irish taxpayers will effectively bail out banks and real estate developers.
The National Management Agency (NAMA), which does not take deposits from the public and does not have a banking license, is supporting the structure and has set out a number of objectives:
-Provide the banks "with a clean bill of health"
-Strengthen their balance sheets
-Reduce uncertainty over bad debts
-Ensure the flow of credit to individuals and businesses
The Irish government will buy $130B of bad debts from banks and transfer this to NAMA, Ireland's "toxic bank" and a state-run agency. It is hoped that this move will allow banks to resume lending.
August 2009
Banks in the USA reported $3.7Bn Q2 losses vs. $4.7Bn losses a year ago as the FDIC deposit insurance fund falls 20% to $10.4Bn.
Bank assets: Total assets of troubled U.S. financial institutions increased from $220Bn in Q1 to $299.8Bn in Q2.
Bank in distress: FDIC reports that 416 banks are distressed vs. 305 in Q1, the highest number since June 1994 during the S&L crisis.
Federal Deposit Insurance Corp. (FDIC) reported that surging levels of soured loans at banks dragged down profits. The $3.7Bn Q2 loss compared with profits of $7.6Bn Q1.
FDIC regulates almost 7,000 banks, 90% of all banks that offer federally guaranteed deposits including the money-center banks.
4,234 banks have an A+ rating down 21% from March 2009.
1,882 banks have a failing grade up 16.5% from March 2009.
Bank stress test: The 19 money-center banks have to have enough capital plus earnings to withstand a 9% loan loss rate.
Bank stress test: Banks typically set aside twice as much as they charge-off in a downturn – many are setting aside at one-to-one,
Bank expenses are rising as they carry the cost of properties that are generating marginal or no revenue.
It took many years for the banks to inflate the debt bubble that deflated in 2007 and the deleveraging process will take many years to complete.
Bank failures: The total number of U.S. bank failures is now over 70 in 2009.
Nigeria: The Nigerian central bank sacked the management & injected $2.6 Bn into five of 40 banks because they were undercapitalized and posed a systemic risk.
Nigerian banks that are distressed include Afribank, Finbank, Intercontinental Bank, Oceanic Bank & Union Bank
Colonial Banc Group has become the biggest US bank to collapse in 2009 so far.
Colonial Banc Group is a property lender based in Montgomery, Alabama, with $25 Bn in assets says the FDIC.
Colonial Banc Group’s $22 Bn of assets & $20 Bn in deposits sold to North Carolina-based BB&T
July 2009
Watchdog sees huge U.S. bill for banks bailout
Financial bailout's cost to U.S. could total almost $24Tn
Scrutinizing TARP
July 20 2009: CNBC discusses report from watchdog overseeing the federal government’s $700 billion financial bailout program.
CNBC
Updated July 20 2009: WASHINGTON - The federal government has devoted $4.7 trillion to help the financial sector through its crisis, a watchdog report said Monday.
Under the worst of circumstances, the report said, the government's maximum exposure could total nearly $24 trillion, or $80,000 for every American.
The figures are part of a tough new quarterly report to Congress from special inspector general Neil Barofsky, who accuses the Treasury Department of repeatedly failing to adopt recommendations aimed at making one component of the government financial rescue effort more accountable and transparent.
The $4.7 trillion commitment to the industry equals about one third of the overall U.S. economy and takes into account about 50 initiatives and programs set up since 2007 by the Bush and Obama administrations as well as by the Federal Reserve. Barofsky oversees one of the initiatives — the $700 billion Troubled Asset Relief Program.
Much of the government assistance is backed by collateral and Barofsky's $23.7 trillion estimate represents the gross, not net, exposure that the government could face. No one has suggested that the full amount will be used.
Because of declining participation in short-term loan programs and because some infusions of money have been repaid, the maximum amount actually spent has declined to a current outstanding balance of $3 trillion, Barofsky said.
The agencies and the programs assisting the financial sector include a newly created Federal Housing Finance Agency, increased deposit insurance initiated by the Federal Deposit Insurance Corp., and 18 support programs created by the Fed under the special powers it can deploy to address a systemwide financial crisis.
Banks have cut back on their use of the Fed's emergency lending program as well as other programs to ease credit stresses. Given that, the Fed has reduced the amount it will lend to financial institutions under two programs and it has decided to let a program to support money market mutual funds to expire as currently scheduled at the end of October.
Barofsky's $23.7 trillion estimate represents the maximum exposure that the government would face if all eligible applicants requested the maximum assistance at the same time. It does not account for the fees and other costs that some of these programs charge and for the collateral that many of the programs require that participants provide.
"While quantity and quality of the assets backing all of these programs vary, ignoring that side of these programs misrepresents 'potential exposure' associated with them," Treasury spokesman Andrew Williams said.
In his report, Barofsky says Treasury has accepted some of his recommendations for greater accountability, but says the department has not taken steps to require all TARP recipients to report on their actual use of funds. He said Treasury also should report the values of its investments in banks and other financial institutions, disclose the identity of borrowers under a nonrecourse loan program and disclose trading activity under a public-private investment fund.
Barofsky says Treasury's inaction means taxpayers have not been told what the financial institutions that have received assistance are doing with the money.
Barofsky's conclusion is contained in a quarterly report to Congress and in testimony he is prepared to give Tuesday to the House Oversight and Government Reform Committee.
"The very credibility of TARP (and thus in large measure its chance of success) depends on whether Treasury will commit, indeed as in word, to operate TARP with the highest degree of transparency possible," Barofsky said.
Public debt of all major economies has risen to a new highs as a percentage of economic output because of additional government spending during the 2009 downturn
Debt levels of all major economies have risen sharply through 2009 as governments have tried to spend their way out of recession and because of lower tax receipts.
Government spending helped many economies to emerge from recession during 2009.
According to forecasts from the International Monetary Fund (IMF), public debt as a percentage of economic output will hit new highs by 2014:
Japan 246% Italy 129% USA 108% UK 98% Germany 89% and Canada 69%
