Month: November 2016

Household Debt Hits $12.4 Trillion As Subprime Loan Delinquencies Hit Highest In 6 Years: NY Fed

The latest just released Quarterly Report on Household Debt and Credit  from the New York Fed showed a small increase in overall debt in the third quarter of 2016, prompted by gains in non-housing debt, and new all time highs in student loans which hit $1.279 trillion, rising $20 billion in the quarter.11.0% of aggregate student loan debt was 90+ days delinquent or in default at the end of 2016 Q3.

Total household debt rose $63 billion in the quarter to $12.35 trillion, driven by a $32 billion increase in auto loans, which also hit a record high of $1.14 trillion. 3.6% of auto loans were 90 or more days delinquent.

Mortgage balances continued to grow at a sluggish pace since the recession while auto loan balances are growing steadily, and hit a new all time high of $1.14 trillion.

What was most troubling, however, is that delinquencies for auto loans increased in the third quarter, and new subprime auto loan delinquencies have not hit the highest level in 6 years.

The rise in auto loans, a topic closely followed here, has been fueled by high levels of originations across the spectrum of creditworthiness, including subprime loans, which are disproportionately originated by auto finance companies. Disaggregating delinquency rates by credit score reveals signs of distress for loans issued to subprime borrowers—those with a credit score under 620.

To address the troubling surge in auto loan delinquencies, the NY Fed Liberty Street Economics blog posted an analysis of the latest developments in the sector. This is what it found.

LSE_Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

Subprime Auto Debt Grows Despite Rising Delinquencies

The rise in auto loans has been fueled by high levels of originations across the spectrum of creditworthiness, including subprime loans, which are disproportionately originated by auto finance companies. Disaggregating delinquency rates by credit score reveals signs of distress for loans issued to subprime borrowers—those with a credit score under 620. In this post we take a deeper dive into the observed growth in auto loan originations and delinquencies. This analysis and our Quarterly Report are based on the New York Fed’s Consumer Credit Panel, a data set drawn from Equifax credit reports.

Originations of auto loans have continued at a brisk pace over the past few years, with 2016 shaping up to be the strongest of any year in our data, which begin in 1999. The chart below shows total auto loan originations broken out by credit score. The dollar volume of originations has been high for all groups of borrowers this year, with the quarterly levels of originations only just shy of the highs reached in 2005. The overall composition of both originations and outstanding balances has been stable.

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

As we noted in an earlier blog post, one feature of our data set is that it enables us to infer whether auto loans were made by a bank or credit union, or by an auto finance company. The latter are typically made through a car manufacturer or dealer using Equifax’s lender classification. Although it remains true that banks and credit unions comprise about half of the overall outstanding balance of newly originated loans, the vast majority of subprime loans are originated by auto finance companies. The chart below disaggregates the $1.135 trillion of outstanding auto loans by credit score and lender type, and we see that 75 percent of the outstanding subprime loans were originated by finance companies.Auto

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

In the chart below, auto loan balances broken out by credit score reveal that balances associated with the most creditworthy borrowers—those with a score above 760 (in gray below)—have steadily increased, even through the Great Recession. Meanwhile, the balances of the subprime borrowers (in light blue below), contracted sharply during the recession and then began growing in 2011, surpassing their pre-recession peak in 2015.

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

Delinquency Rates

Auto loan delinquency data, reported in our Quarterly Report, show that the overall ninety-plus day delinquency rate for auto loans increased only slightly in 2016 through the end of September to 3.6 percent. But the relatively stable delinquency rate masks diverging performance trends across the two types of lenders. Specifically, a worsening performance among auto loans issued by auto finance companies is masked by improvements in the delinquency rates of auto loans issued by banks and credit unions. The ninety-plus day delinquency rate for auto finance company loans worsened by a full percentage point over the past four quarters, while delinquency rates for bank and credit union auto loans have improved slightly. An even sharper divergence appears in the new flow into delinquency for loans broken out by the borrower’s credit score at origination, shown in the chart below. The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years.

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

It’s worth noting that the majority of auto loans are still performing well—it’s the subprime loans that heavily influence the delinquency rates. Consequently, auto finance companies that specialize in subprime lending, as well as some banks with higher subprime exposure are likely to have experienced declining performance in their auto loan portfolios.

Conclusion

The data suggest some notable deterioration in the performance of subprime auto loans. This translates into a large number of households, with roughly six million individuals at least ninety days late on their auto loan payments. Even though the balances of subprime loans are somewhat smaller on average, the increased level of distress associated with subprime loan delinquencies is of significant concern, and likely to have ongoing consequences for affected households.

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Nancy Pelosi Retains House Minority Leadership Position As Expected

After what many described as a long-shot effort by Democratic representative Tim Ryan of Ohio to unseat Nancy Pelosi as House minority leader, the results of the Democrat secret ballots are in and reveal that, indeed, he fell well short. 

 

Of course, Ryan launched his bid to unseat Pelosi based largely on the premise that Rust Belt voters in the Midwest abandoned the democratic party in 2016 precisely because of the elitism exhibited by the San Francisco liberal.  While Pelosi is well known for her ability to raise substantial amounts of cash for the democratic party, $141 million in the past cycle alone according to The Hill, Ryan has argued that electing a House leader with a broader appeal is far more important.

While Ryan likely drew support from a host of young House democrats who have been prevented from rising up the leadership ranks by a stagnant group of Pelosi loyalists, clearly it wasn’t enough to tip the scales in his favor.

Well, House democrats passed her now we’ll wait and see if they like her.

 

* * *

Here is more background on the contest for House minority leader that we posted yesterday.

Democratic representative Tim Ryan of Ohio is a long shot to unseat Nancy Pelosi in the vote for the minority leadership position to be held tomorrow, but he’s convinced that “a lot of people are going to be surprised” by the vote tallies.

“I think a lot of people are going to be surprised tomorrow.”

 

“I think we need a change.  Again, we’re at the smallest number we’ve had in our Democratic caucus since 1929.”

 

“We really got to ask ourselves when we walk out of the room tomorrow, what are we going to tell the American people?  That what happened on Tuesday and what we’ve not been able to do since 2010 is ok?  We’re gonna keep going down the same path.  Or, will we have a new messenger, a new message, a new brand and a new democratic party?”

 

Ryan has launched a bid to unseat Pelosi based largely on the premise that Rust Belt voters in the Midwest have abandoned the democratic party precisely because of the elitism exhibited the San Francisco liberal.  While Pelosi is known for her ability to raise substantial amounts of cash for the democratic party, $141 million in the past cycle alone according to The Hill, Ryan argues that electing a House leader with a broader appeal is far more important.

Ryan’s challenge hinges largely on the argument that Pelosi, a San Francisco liberal widely despised in conservative circles, simply projects the wrong image for a party hoping to broaden its appeal to the Rust Belt voters who flocked to Trump.

 

“We have got to have the right messenger,” he said. “We have got to have someone who cannot just go on MSNBC, but go on Fox and Fox Business and CNBC and go into union halls and fish fries and churches all over the country and start a brush fire about what a new Democratic Party looks like.”

 

Leader Pelosi is an incredibly strong fundraiser, she’s an incredibly dynamic leader, she gets out there and gets the caucus to do things together that most other leaders would have a very hard time doing. But that’s come at an expense,” a former Democratic leadership aide said Monday.

 

Pelosi also has a huge advantage when it comes to fundraising, having hauled in more than $141 million for the party this cycle alone, according to her office. Ryan, by contrast, raised less than $1 million — far less than the average member, according to the Center for Responsive Politics.

 

Of course, some democrats apparently learned absolutely nothing from the 2016 presidential election and still insist that Pelosi’s fundraising efforts are critical to the future of the party.  But as Tim Ryan points out “if money was the answer, Hillary Clinton would be president and
we would be in charge of the House of Representatives right now.”

“The most important messenger in American politics is money, and the ability to get on the air, get on social media, get on media that are relevant to voters is really expensive, and she has done a phenomenal job at giving us that opportunity,” the former lawmaker said Monday. “I don’t think there’s anyone who can come close to matching what she has done.”

 

Ryan has rejected that argument, saying the focus on campaign cash is misguided.

Meanwhile, Ryan has also drawn support from a host of young House democrats who have been prevented from rising up the leadership ranks by a stagnant group of Pelosi loyalists.

The elections have also heightened long-standing aggravations among newer members that the long reign of Pelosi and her top deputies — all of whom are in their mid-70s — has prevented other members from rising through the leadership ranks.

 

“There’s a generation of Democratic leaders who have been stymied or held down or even cut off at the knees to keep her and [Maryland Rep. Steny] Hoyer and others in power,” the former aide added.

 

“So you have a number of members who look at the agendas and question why, when the country is worried about the economy and jobs, the Democrats are out talking about women power and some of the core liberal issues that aren’t going to play well in the places that Democrats have to win if they’re going to take back the majority.”

Certainly, if the democrats learned anything from the 2016 presidential election they would understand that it represented a rebellion of the American people against establishment political figures like Nancy Pelosi.  That said, somehow we suspect the message hasn’t quite sunk in yet.

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Ask Elizabeth Nolan Brown Your Burning Questions About Sex Policy Right Now!

From her award-winning Reason cover story “The War on Sex Trafficking Is the New War on Drugs” to her hardboiled quantitative reporting on modern vice squads, Elizabeth Nolan Brown is your gal for smart, readable journalism about sex policy and politics. Her work was cited throughout an amicus brief in the Backpage.com First Amendment case that later got called out favorably by Judge Richard Posner in his decision siding with Backpage. Also, sex columnist Dan Savage quotes her.

Basically, she knows her sex policy stuff. And a beat like Brown’s is pretty much only possible at Reason, where we understand and love sex and commerce in equal measure.

So ask her anything over at her Twitter account using the #askalibertarian hastag. And then donate!

.

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Guess Who Just Approved a Pipeline to Transport Canadian Oilsands Crude?

CanadaPipelineFredChartrandZUMAPressNewscomPresident Obama nixed the Keystone XL pipeline two years ago that would have transported nearly 900,000 barrels of crude oil from Alberta’s oilsands regions to refineries on the Gulf Coast. Just in an advance of the Paris climate change conference in 2015, President Obama found that the pipeline was not our country’s national interest and declared, “The pipeline would not make a meaningful long-term contribution to our economy.”

Well, another leader has decided that getting oilsands crude to foreign markets is in his country’s national interest: Canadian Prime Minister Justin Trudeau. Consequently, his cabinet has approved the construction of the Kinder Morgan pipeline from Alberta that will transport about 900,000 barrels of oilsands crude per day to a port in British Columbia where it can be exported to whichever companies and countries wish to buy it. In addition, the Canadian cabinet approved the construction of the replacement for Line 3 pipeline that would transport 760,000 barrels oil from Alberta through northern Minnesota to Superior, Wisconsin.

CBC News reports:

“The decision we took today is the one that is in the best interests of Canada,” Trudeau said in announcing his government’s support for the two major projects. “It is a major win for Canadian workers, for Canadian families and the Canadian economy, now and into the future.”

When President Obama rejected the Keystone XL project, environmental activists were ecstatic; the group 350.org released a statement praising the decision:

“President Obama is the first world leader to reject a project because of its effect on the climate. That gives him new stature as an environmental leader, and it eloquently confirms the five years and millions of hours of work that people of every kind put into this fight. We’re still well aware that the next president could undo all this, but this is a day of celebration.”

In response to Trudeau’s decision, Aurore Fauret, campaign co-ordinator with 350.org had this to say:

Today’s announcement may as well have said that Canada is pulling out of the Paris climate agreement. By approving the Kinder Morgan and Line 3 pipelines, there is no way Canada can meet those commitments. Justin Trudeau has broken his promises for real climate leadership, and broken his promise to respect the rights of indigenous peoples.

In the meantime, Republicans in Congress are calling on Donald Trump to reverse Obama’s decision on the Keystone pipeline as soon as he takes office. Given the new outlets for Alberta crude, it may be too late for American workers, American families, and the American economy to “win” from the construction of the Keystone pipeline.

For more background, see my article: “The Man-Made Miracle of Oil from Sand.”

Disclosure: Five years ago, my travel expenses to visit Alberta’s oil sands were covered by the American Petroleum Institute. The API did not ask for nor does it have any editorial control over my reporting of this trip.

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California’s New Cow Fart Regulations Totally Stink

Livestock are responsible for roughly 15 percent of the world’s greenhouse gases, but if you think getting people to stop driving their cars or using electricity is a difficult task, good luck preventing cows from farting.

California is going to try.

“This bill curbs these dangerous pollutants and thereby protects public health and slows climate change,” said Gov. Jerry Brown said in a statement when he signed the bill in September, against the wishes of the state’s farmers.

The law won’t stop cows from farting, of course, because cows are notoriously disrespectful of human-passed laws. Instead, it will make life more difficult for dairy farmers in California.

Dairy farms will be required to reduce methane emissions to 40 percent below their 2013 levels by 2030. The state will spend $50 million help offset the cost of so-called “dairy digesters,” which are intended to capture methane spewed from cows and convert it into electricity. After that, the state’s Air Resources Board will have the authority to set whatever regulations they deem necessary to reach the stated goal.

Cow farts—or “bovine entric fermentation” if you want to sound smart—pump a lot of methane into the environment. A single cow can produce up to 130 gallons of methane in a single day (even that’s not as bad as what dinosaur farts could do), and methane is a more potent greenhouse gas than carbon dioxide.

Even if California were to find a way to stop cows from farting—or, more likely, if it were to regulate all its dairy farms out of existence—there would be a miniscule impact on global methane levels. California isn’t even the leading producer of agricultural methane in the United States, according to the Environmental Protection Agency.

On a global scale, the tiny microbes that grow on the roots of rice plants produce 30 percent of all agricultural methane on Earth.

California’s not the first to target cows in an effort to rein-in global warming. Some ethical vegetarian groups have allied with global warming activists to call for reducing the number of cows in Africa.

The attack on dairy cows is part of a broader effort to reduce California’s greenhouse gas emissions to 40 percent below 1990 levels by 2030. Doing that means giving a lot more power ot the state’s Air Resources Board, which now finds itself in the business of regulating what comes out of bovine buttocks. According to an Associated Press report this week, the board is hoping California’s proposal will be a model for other states to follow.

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California’s New Cow Fart Regulations Totally Stink

Livestock are responsible for roughly 15 percent of the world’s greenhouse gases, but if you think getting people to stop driving their cars or using electricity is a difficult task, good luck preventing cows from farting.

California is going to try.

“This bill curbs these dangerous pollutants and thereby protects public health and slows climate change,” said Gov. Jerry Brown said in a statement when he signed the bill in September, against the wishes of the state’s farmers.

The law won’t stop cows from farting, of course, because cows are notoriously disrespectful of human-passed laws. Instead, it will make life more difficult for dairy farmers in California.

Dairy farms will be required to reduce methane emissions to 40 percent below their 2013 levels by 2030. The state will spend $50 million help offset the cost of so-called “dairy digesters,” which are intended to capture methane spewed from cows and convert it into electricity. After that, the state’s Air Resources Board will have the authority to set whatever regulations they deem necessary to reach the stated goal.

Cow farts—or “bovine entric fermentation” if you want to sound smart—pump a lot of methane into the environment. A single cow can produce up to 130 gallons of methane in a single day (even that’s not as bad as what dinosaur farts could do), and methane is a more potent greenhouse gas than carbon dioxide.

Even if California were to find a way to stop cows from farting—or, more likely, if it were to regulate all its dairy farms out of existence—there would be a miniscule impact on global methane levels. California isn’t even the leading producer of agricultural methane in the United States, according to the Environmental Protection Agency.

On a global scale, the tiny microbes that grow on the roots of rice plants produce 30 percent of all agricultural methane on Earth.

California’s not the first to target cows in an effort to rein-in global warming. Some ethical vegetarian groups have allied with global warming activists to call for reducing the number of cows in Africa.

The attack on dairy cows is part of a broader effort to reduce California’s greenhouse gas emissions to 40 percent below 1990 levels by 2030. Doing that means giving a lot more power ot the state’s Air Resources Board, which now finds itself in the business of regulating what comes out of bovine buttocks. According to an Associated Press report this week, the board is hoping California’s proposal will be a model for other states to follow.

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University Stuns World: Pledges To Support Free Speech, “Censorship Is Not The Answer”

Did the politically-correct insanity just reach its tipping point? Just weeks after a notably politically-incorrect Donald Trump was swept to victory in the US election, HeatSt.com's Kieran Corcoran reports a university has pledged to end its culture of censorship and no-platforming, and has instead pledged to defend free speech.

Cardiff University in Wales has said it will no longer ban events by controversial speakers, declaring “censorship is not the answer.”

The decision was made by the Cardiff University Students’ Union at their annual conference last week, where they passed a motion called “Challenge, Don’t Censor.”

 

 

The move pushes back against the tide of safe space culture which seeks to insulate students from opinions they might find challenging.

Cardiff itself was the scene of one such incident last year, playing host to a virulent campaign to shut down a speech by feminist Germaine Greer over her views on transgender surgery.

Cardiff students passed their free speech motion – the full text of which can be found on page 25 of this document – on Thursday.

 

 

The motion committed the union to the observation that “students are capable of challenging intolerable views through rigorous debate; censorship is not the answer.”

It added: “All students should be allowed a voice on campus regardless of age, sex, gender identity, race, sexual orientation, religion, political views and disability within the remits of national and devolved law.”

In pursuit of these principles, it said that “All students, no matter their views, will not be censored in so far as their actions are performed inside the law.

“Events, societies and sports clubs at the SU will not be banned as long as their actions are within the law and subject to the Union’s bylaws.”

Speaking to Heat Street about his decision to propose the motion, Cardiff student James Daly said the “negative perception” of the student body’s approach to free speech after the Greer debacle helped spur him on.

He added that few people opposed the motion at the crucial moment, though some have criticised it on social media since.

The stand against being told what they can hear and think echoes the response of a group of sixth-form students, who were due to hear from Milo Yiannopoulos before his speech was shut down by the UK Government.

In an open letter to censorious authorities, pupils from Simon Langton Grammar School expressed their dismay, saying “we do not need to be protected” from controversial speakers.

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Oil Soars 9% As OPEC Deal Details Emerge

And the funniest news of the day: this is who will monitor the deal to make sure everyone complies:

  • KUWAIT, ALGERIA, VENEZUELA TO MONITOR OPEC DEAL: DEL PINO

Update: It appears the short-squeeze ammo has run out…

 

*  *  *

As the details of the OPEC ‘deal‘ emerge during the press conference, WTI Crude prices have just burst through $49 stops (from 11/22 highs) and are up 9% on the day.

Headlines:

  • AL-FALIH: OPEC HAS MADE A ‘VERY HEALTHY’’ AGREEMENT
  • AL-FALIH: OPEC DEAL WILL START IN JAN
  • AL-FALIH: SAUDI OIL OUTPUT LIMIT 10.058M B/D
  • IRAQ AGREED TO CUT OUTPUT BY 209K B/D, KUWAIT OIL MINISTER SAYS
  • IRAQI MINISTER SAYS RUSSIA AGREED TO CUT OUTPUT BY 300,000 B/D
  • IRAQ OIL MINISTER CONFIRMS HIS COUNTRY WILL CUT OIL PRODUCTION
  • KUWAIT WILL CUT OIL OUTPUT 130K B/D, OIL MINISTER SAYS
  • SAUDI ARABIA: NON-OPEC TO CONTRIBUTE 600K BPD TO CUTS
  • RUSSIA HAS OFFERED 300,000 B/D OIL CUT: QATAR
  • LIBYA SEES NON-OPEC COUNTRIES COOPERATING IN OUTPUT DEAL
  • NON-OPEC NATIONS HAVE GIVEN COMMITMENT TO PARTICIPATE IN DEAL
  • IRAN TO CUT PRODUCTION BY 90K B/D FROM OCT. LEVEL: ZANGANEH
  • IRAN OIL MINISTER: OPEC WILL CUT PRODUCTION TO 32.5 MLN BPD
  • OPEC NEEDS COOPERATION WITH OTHER OIL PRODUCERS: U.A.E. MIN
  • UAE SAYS OPEC NEEDS COOPERATION WITH `OTHERS’
  • NIGERIA IS EXEMPT FROM AGREEMENT TO CUT OUTPUT BY 1.2M B/D
  • OPEC ESTABLISHED MONITORING COMMITTEE TO IMPLEMENT DEAL: SADA
  • SECONDARY SOURCES WILL BE BASIS FOR MONITORING: QATAR
  • OPEC’S NEW 32.5M B/D OUTPUT TARGET INCLUDES INDONESIA: SEC-GEN
  • OPEC TO PUBLISH A TABLE WITH ALL INDVIDUAL COUNTRIES’ TARGETS
  • OPEC TO MEET AGAIN ON MAY 25 2017, SAYS QATAR MINISTER, OPEC INTENDS TO EXTEND THE CUTS THEN BY ANOTHER 6 MONTHS
  • RUSSIA TO MAKE STATEMENT ON OUPUT CUTS IN NEXT FEW HOURS: SADA

 

And the resultant squeeze…

 

Some context…

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FX Markets Are Turmoiling

The US Dollar index is soaring, up most in a week as OPEC events and the London Fix ripple through FX markets. Yen, Euro, and Aussie Dollar are all plunging…

FX chaos into the EU close…

 

EURUSD breaks below 1.06 and USDJPY blows thru 114…

 

And the Aussie Dollar is collapsing after last night's terrible housing data…

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Wall Street Reacts To Steve Mnuchin Choice For Treasury Secretary

Following the news that Steve Mnuchin would be US Trasury Secretary, Wall Street analysts offered mixed predictions on which policies Donald Trump’s choice for Treasury secretary may pursue, as they have little to go on other than Mnuchin’s background with Goldman, buying/selling the former Indy Mac.

The prevailing consensus is that Mnuchin’s Wall Street past will lead to easing regulations, tax policies; but at the same time, Mnuchin may not help larger banks as he may focus on regionals and/or seek to distance himself from his GS/IndyMac past. For now optimism dominates, as banks gain, with the KBW banks index up as much as 2% to highest intraday since May 2008. Not surprisingly, Goldman Sachs is up as much as 3.5% to highest since Dec. 2007.

Earlier, Mnuchin said that FNMA, FMCC should exit government’s grip and didn’t mimic Republicans who’ve said FNMA, FMCC should be wound down or eliminated. As a result the stock of the GSEs has soared, with Fannie up as much as 32% to highest since Aug. 2014; Freddie up as much as 28%, also since Aug. 2014

Among Mnuchin’s biggest fans, Carl Icahn had a glowing review of Mnuchin, and new Commerce Secretary Wilbur Ross:

Also not surprisingly, former Goldman CEO and former Treasury Secretary Hank :Paulson also applaued the pick of Mnuchin:

Others were more reserved. Here is a sampling of reactions:

FBR (Edward Mills)

  • Mnuchin’s Wall Street, banking background sends “strong signal” he’ll pursue “much less aggressive” regulatory, policy agendas, though little is known of specific policy positions
  • Likely “net positive” for financials as shows Trump’s willingness to pick individuals from industry who may change current financial policy; may foreshadow painting DoddFrank as drag on the economy, economic growth
  • Has “significant powers” related to FNMA, FMCC conservatorship; tenure as head of mortgage bond trading at GS, role at OneWest demonstrate “significant background” in mortgage industry

COWEN (Jaret Seiberg)

  • Positive for regional banks; cautious about influence on biggest banks, GSEs, as Trump adviser Steve Bannon (mega- bank critic, self-described “economic nationalist”) may play bigger role on bank policy from White House
  • Nomination isn’t GS ‘‘revival”; cites Mnuchin’s ‘‘second career’’ distancing him from GS, including creating OneWest from IndyMac’s remains, selling it to CIT, which suggests he understands regional banks’ challenges; GS ‘‘lineage” might force him to be tough on mega banks
  • Notes Trump on campaign trail “ripped” Wall Street, vowed not to let Wall Street control the country, yet picked former GS partner as Treasury secretary, met Nov. 29 with top GS official, is expected to name another GS alumnus/SkyBridge’s Anthony Scaramucci as top Treasury deputy
  • Says Scaramucci “best known as the former Obama supporter” who once asked president when he’d stop bashing Wall Street
  • Cowen still worried about push to leverage capital from risk-based capital (supported by conservatives); watching for Trump nomination of Fed vice chairman for supervision; may give job to conservative to build goodwill with party; doesn’t see “quick deal” for FNMA, FMCC

KBW (Brian Gardner)

  • “Unorthodox” pick creates uncertainty about future policy as Mnuchin is “blank slate,” with broad experience in finance, who seems to have said or written little on financial regulation, tax policy
  • Too early to know whether selection will be positive or negative for financial services
  • Notes any Dodd-Frank changes will have to pass Senate, possible Senate Democrats filibuster; Mnuchin political skill in achieving compromise “remains to be seen”

HEIGHT SECURITIES (Edwin Groshans)

  • Mnuchin’s comments positive for GSE pfd, common shareholders
  • At the same time, est. FNMA would need to raise at least $190b of capital, FMCC would need $119b in order to meet minimum risk-based capital requirements — which means no capital would flow to shareholders for a decade or longer
  • April 20, If Fannie, Freddie Holders Win, Need ‘a Lot’ of Capital: Height

BEACON ADVISORS

  • Trump expected to direct Mnuchin early in his term to designate China as currency manipulator; Mnuchin will be “heavily involved” in shaping tax reform package congressional Republicans will shepherd through legislative process next year
  • Reported choice of Scaramucci as deputy means neither of Treasury’s top 2 people will have had prior government experience

COMPASS POINT (Isaac Boltansky)

  • Mnuchin may be “comparatively moderate voice” on financial regulations vs other potential candidates like Rep. Jeb Hensarling or John Allison, who may have advocated for “far more draconian” Dodd-Frank rollback
  • Sees populist anti-big bank rhetoric reemerging as Mnuchin will join fellow Goldman alum, at least 2 billionaires in Trump’s inner circle; Trump may face pressure to renew populist “bona fides”

Source: Bloomberg

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