Fed Data Shows Foreign Banks Huge Beneficiaries of Emergency Lending Programs, Hedge Funds, McDonald’s, Harley-Davidson and Others Also Bailed Out
Under orders from Congress pursuant to the Dodd-Frank financial
legislation, the Fed has finally released details of its emergency
lending starting in 2007.
As Bloomberg notes:
Bank of America Corp. and Wells Fargo & Co. were among the top borrowers from the Term Auction Facility [TAF]...
of America had three loans for $15 billion each outstanding from the
facility as of Jan. 15, 2009, while Wells Fargo had three loans for $15
billion each on Feb. 26 ...
Citigroup Inc. and JPMorgan Chase
& Co. also availed themselves of the TAF. Citigroup’s Citibank NA
subsidiary had three loans under the facility totaling $20 billion on
Jan. 15, 2009. JPMorgan’s JPMorgan Chase Bank NA had two loans totaling
$25 billion on Feb. 26, 2009.
Bloomberg notes that foreign banks borrowed heavily from TAF as well:
with headquarters outside the U.S. were among the first to begin using
the facility in December 2007 and were also among its heaviest
borrowers. These included the U.S. affiliates of banks such as Manama,
Bahrain-based Arab Banking Corp., Madrid-based Banco Santander SA, and
Paris-based Societe Generale SA. Beginning on June 18, 2009, Barclays
Bank Plc had two loans totaling $23.45 billion outstanding.
In a second article, Bloomberg points out
that despite Goldman's statements that it would have survived even
without help from the Fed, Goldman was a big borrower as well:
Sachs Goup Inc., which rebounded from the financial crisis to post
record profit last year, was a regular borrower from two emergency
Federal Reserve programs in 2008 and early 2009, new data show.
firm borrowed from the Fed’s Term Securities Lending Facility most
weeks from March 2008 through April 2009, data released by the Fed today
show. Two units of the New York-based firm borrowed as much as $24.2
billion from the Fed’s Primary Dealer Credit Facility in the weeks after
Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, the data
Chief Executive Officer Lloyd Blankfein, 56, was quoted by
Vanity Fair last year as saying the company might have survived the
credit crisis without government help. The firm’s president,Gary Cohn,
was more definitive, according to the magazine: “I think we would not
have failed,” he was quoted as saying. “We had cash.”
Business Insider quotes the Fed to show that many banks tried to avoid the stigma attached to discount window borrowing by using the TAF program:
banks were reluctant to borrow at the discount window out of fear
that their borrowing would become known and would be erroneously taken
as a sign of financial weakness.
functioned as an overnight loan facility for primary dealers, similar
to the way the Federal Reserve's discount window provides a backup
source of funding to depository institutions. By providing a source of
liquidity to primary dealers when funding was not available elsewhere
in the market,
Business Insider also notes that, "Morgan Stanley, Citi, and Merrill were the biggest users of the PDCF [the Primary Dealer Credit Facility]."
CNBC points out that foreign banks used the PDCF as well:
addition to Barclays, BNP Paribas Securities , Daiwa Securities
America, Deutsche Bank Securities, Mizuho Securities USA, Dresdner
Kleinwort Securities and UBS Securities all received support from the
In a third article, Bloomberg reports that foreign banks were also among the biggest users of the Fed's emergency commercial paper facility:
U.S. subsidiaries of European financial institutions, led by
Zurich-based UBS AG and Brussels- based Dexia SA were among the largest
users of a government program to provide emergency short-term funding to
U.S. companies and banks during the credit crisis.
banks were among the top 11 companies that sold the most debt overall
to the the Commercial Paper Funding Facility. They sold a combined
$274.1 billion, according to data made public today by the U.S. central
bank. UBS sold $74.5 billion, the most among all borrowers. The largest
U.S.-based user was insurer American International Group, selling $60.2
UBS’s figure of $74.5 billion represents the company’s
total sales over the life of the program. The bank’s CPFF borrowings
peaked at $37.2 billion, an amount the firm rolled over, or re-sold at
maturity, once. Other companies rolled over debt in the program as well.
Huffington Post is providing an excellent live-blogging round up as new discoveries are made from the Fed's data release. Here are some of the more interesting insights:
funds, hedge funds and bond funds borrowed more than $71 billion from
the Fed's Term Asset-Backed Securities Loan Facility, the WSJ reported.
This includes $7.1 billion borrowed by the massive bond fund PIMCO, run
by veteran investor Bill Gross. Gross's involvement in the details of
the bailout, which included a campaign for public-private partnerships to unwind toxic assets, raised more than few eyebrows from critics.
European Megabanks Got A Windfall From The Fed ... Two European
megabanks -- Deutsche Bank and Credit Suisse -- were the largest
beneficiaries of the Fed's purchase of mortgage-backed securities. The
Fed's dollars also flowed to major American companies that are not
financial players, including McDonald's and Harley-Davidson, through
unsecured short-term loans.
Wall Street firms teetering
on the verge of collapse pledged more than $1.3 trillion in junk-rated
securities to the Federal Reserve for cheap overnight loans....
fact that Wall Street was able to pledge junk to the Fed in exchange
for cheap financing is likely to enrage lawmakers who view the Bush and
Obama-era crisis programs as largely benefiting Wall Street while
"Main Street" has been left behind.
Adding insult to the perceived
slight, banks have ramped up their requirements for new loans to
borrowers, making it ever more difficult for cash-strapped households
and businesses to take out new commitments.
Zero Hedge reports
that California pension giant Calpers was the largest user of the TALF
program, and that hedge funds and foreign central banks were also big
users of the Fed's emergency programs:
- Looking at the TALF data, we see that the biggest borrower by subscription is Calpers, with a total of about $5.4 billion
curiously, now disgraced and embroiled in an insider trading scandal
hedge fund FrontPoint seems to have been a very active borrower on the
TALF facility, having received $4.136 billion on subscription, the bulk
of it going to a FrontPoint Michigan Strategic Partnership Investment
entity, which has borrowed $2.6 billion
- Foreign central bank borrowings
- ECB [European Central Bank] - 271 borrowings for gross rolling total of just over $8 trillion.
- SNB [Swiss National Bank] - 114 borrowings, for a gross rolling total of $465 billion
- BOE [Bank of England] - 81 borrowings for a gross rolling total of $918 billion
Huffington Post also reports that many of these banks borrowed at ridiculously low interest rates.
Karl Denninger argues that
the fact that the Fed took stock in two of AIG's largest foreign
insurance subsidiaries violates Section 14 of the Federal Reserve Act,
which prohibits the Fed from taking an equity interest in a company
irrespective of the means or terms.
While Bank of America and Wells Fargo were the biggest TAF recipients, AP reports that - when total government loans and aid are added up - other American banks borrowed much more:
documents show that the most loan and other aid for U.S. institutions
over time went to Citigroup ($2.2 trillion), followed by Merrill
Lynch ($2.1 trillion), Morgan Stanley ($2 trillion), Bear Stearns
($960 billion), Bank of America ($887 billion), Goldman Sachs ($615
billion), JPMorgan Chase ($178 billion) and Wells Fargo ($154 billion).
it may be too early to call the horse race in terms of totals and
rankings for emergency loans and aid to the banks. Because of the way
that the Fed presented the data, there is a possibility of
double-counting across different program categories, or failing to take
into account that loans were repaid and then new loans taken out. So
it may take a couple of days for a definitive analysis.