Thanks for being patient.

For those that subscribe to my blog, I apologize for being away so long.  I am have finally finished my law degree and am now working on passing the bar.  Hopefully I’ll have a little time to post some new material after the Holidays.  Hope everyone has a happy and safe Holiday season.

Tom

Fannie Mae and Freddie Mac – An Overview

This article was my final paper for my Banking Law Seminar class in the Spring of 2008.  I thought about piecing it out in a series but decided it was better to post it in its entirety.  The way you view it today is exactly how I submitted it without modification aside from the title page.  The date was April 16^th of 2008.  I earned the very highest grade possible with it.  I hope you enjoy it.

 

By:  Thomas L. Antoine 

 

INTRODUCTION

        The housing industry has been the center of the recent financial crisis troubling the nation and dominates current financial news.  Government Sponsored Enterprises (GSEs) have been swept up in the turbulence and possibly a major contributor to these problems.  This paper will discuss the history of Fannie Mae and Freddie Mac as an example of the GSE.  An explanation of how GSEs are regulated will be outlined and the current business and economic climate will be discussed.  GSEs are integral in the packaging of Mortgage Backed Securities (MBS).  A discussion of how MBSs are valued is an important part of understanding the regulation of Fannie Mae and Freddie Mac and their roll in the economy.  Currently, there are pressing calls for new or different federal regulation on the front burner in Washington.  The impact of how proposed revisions may or may not impact GSEs will be reviewed. 

 

US Bancorp Part V: Success of the Company and Conclusion

                Recent success of company has been attributed to a mixture of conservative banking and bold moves by their CEO Richard K. Davis.  Despite current widespread banking problems U.S. Bancorp raised dividends to 6%, in December 2007 which yields a new annual payout of $1.70 per share.  The company reports their lack of worry from a very conservative business model.  USB claims to be content to grow at a slower rate.  This may not be entirely their choice due in part to legal problems faced by the commercial lending side of their business.  Otherwise, USB has avoided aggressive lending practices unlike strategies used by other large banks in recent years.  USB’s press release points out that the company has raised its dividend for 36 straight years, and their charter has paid a dividend in the past 145 consecutive years.^[i]  These solid numbers have attracted Warren Buffett’s attention.  Buffett increased his holdings in U.S. Bancorp by 76.59% last year.^[ii] 

 

 

 

Part IV: U.S. Bancorp Subsidiary Regulation

This part was written with the contribution of David Holtcamp 

               The banking industry has seen rapid growth and expansion over the past two decades.  This has occurred in two ways.  Banks have expanded their area coverage spreading across the nation in an effort to gobble up market share.  They have also expanded into new areas of business.  Historically regulators have been leery of both ways in which banks have recently broadened their power.  This Part of the series expands on the regulatory discussion from Part III and the historical background outlined in Part II of the series.  In all, U.S. Bancorp, the holding company, has twenty subsidiaries.  Of the twenty subsidiaries five are banks.  All of these banks are nationally chartered banks, including U.S. Bank N.A, U.S. Bancorp’s largest bank.[i]   Further, because all of these banks are nationally chartered they are under the supervision and may be examined by the Office of the Comptroller of Currency (“OCC”).[ii]  Additionally, all of the Banks are members of the Federal Insurance Deposit Corporation (FDIC).[iii]

 

Part III: Regulation of U.S. Bancorp

This Part was written with the contribution of David Holtcamp 

The banking industry is heavily regulated.  Recently that regulation has come under critical review.  The Department of the Treasury has issued their Blueprint for a Modernized Financial Regulatory Structure.  To understand why bank regulation is a major topic of discussion is no great mystery.  However, understanding the current general regulatory structure is important in deciphering why there is a call for reform.  This part addresses how Financial Holding Companies are regulated using U.S. Bancorp as a model.

U.S. Bancorp is a Financial Holding Company (FHC) and thus it is subject to the regulation and examination of the Board of Governors of the Federal Reserve.[i]  To become a FHC, U.S. Bancorp had to take four steps.  First it had to be recognized as a Bank Holding Company (BHC).[ii]  A BHC, as defined by the Bank Holding Company Act, is any company that has control over any bank or control over any other company that controls a bank.[iii]  Second, all of U.S. Bancorp’s FDIC insured subsidiaries must be well-capitalized and well-managed.[iv]  Third, each of those subsidiaries must receive at least a satisfactory examination rating pursuant to the Community Reinvestment Act.[v]Finally, U.S. Bancorp must file with the Federal Reserve Board declaring that it elects to be a FHC.[vi]

 

Content Theft Issues

I regret that my site has been the target of a rash of content theft.  Nearly half my material has been taken for use by others without my permission.  As a result, I have pulled some material and have suspended publishing several articles that are ready.  There is some recourse available that I will take to resolve the issue.  Currently, I am in the midst of preparing for my final exams for the semester.  I will return to resolve this problem as well as post new material once my exams are completed.

Part II : U.S. Bancorp Leadership Background

          USB’s business activities are governed by a board of directors which is comprised of fourteen members.  The current President and CEO is Richard Davis.  Other key executives include vice presidents Andrew Cerere the Chief Financial Officer, Lee Mitau General Counsel and Corporate Secretary.  Richard Davis is relatively young at the age of 50.  His current salary is $625,024 with long term compensation totaling $5,916,496.  In addition to these impressive numbers, his stock options total $18,777,212.[i]   Additionally, Davis was a key leader in the successful mergers of Firstar Corporation with U.S. Bancorp in 2001, Firstar with Mercantile Bancorporation in 1999, and Star Banc Corporation with Firstar in 1998. 

Part I : Historical Summary of U.S. Bancorp

U.S. Bancorp (USB) operates under the second-oldest continuous national charter, originally Charter #24.  Earlier charters have expired as banks were closed or acquired.  USB’s charter was granted during Abraham Lincoln’s administration in 1864 following the passage of the National Banking Act (NBA) codified under Title 12.  The NBA was a response to a credit crunch during the Civil war when the Treasury was empty forcing Congress to demand payment in spice rather than bank credit.  The NBA succeeded in stabilizing credit problems and promoted a stable business climate working in conjunction with the National Currency Act which standardized national currency. ^[i]  U.S. Bancorp is a national Bank Holding Company (BHC) and is governed by the Federal Reserve Board.^[ii]  They are the tenth largest in the country and incorporated in Delaware in 1929 and fall within the conscript of Security and Exchange Commission regulation as well.  Both areas of regulation will be discussed within.  Today U.S. Bancorp has grown to operate in twenty five mid-western and western states at 2,419 locations with 5,003 branded ATMs.^[iii] 

Expose on US Bancorp

These articles are a summary of our look at U.S. Bancorp;  In light of recent turmoil within the financial industries my colleague David Holtkamp and I have put together a summary of our research.  David focused on the regulatory agencies (parts III and IV) and I on all other aspects of this series.   

U.S Bancorp is one of the largest financial holding companies in the United States.  It has total assets of over $237 Billion.[i]  The purpose of this series is to give a general overview of U.S. Bancorp and how it grew to such proportions.  Part I will discuss the history of U.S. Bancorp from germination to the beanstalk that it has become.  The leadership of the company will be examined in part II.  Parts III and IV will analyze the regulatory environment of U.S. Bancorp and its subsidiaries.  Finally, Part V will consider the past and present success of the company. 

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[i] U.S. Bancorp, Annual Report (Form 10-K) (Feb. 25, 2008).

Secondary Loan Market Effects on Primary Loans

     The reality faced by the secondary loan market is that housing prices have fallen.  This means in many cases there is no longer enough equity in the property to cover both the primary loan and the secondary loan amounts.  In the event that a debtor defaults, instead of foreclosing on the home and forcing a sale the junior lenders are looking to other means of mitigating the damage.  They may write the failed loan down as a loss, sell the debt at a discount, negotiate with the senior lender and other solutions.  Consequently, financial institutions and banks are constricting their lending practices.  This includes reducing open lines of credit on equity, forgiving the interest, selling the mortgage to third parties and other remedial measures.  The problem with foreclosing is that the junior lender