For Immediate Release
Chicago, IL – March 17, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Fannie Mae (FNM), Freddie Mac (FRE), GMAC Inc. (GJM), Citigroup Inc. (C) and American International Group Inc. (AIG).
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Here are highlights from Tuesday’s Analyst Blog:
Fed Stays On Hold
While the Fed is not about to raise the fed funds rate, it is tightening up monetary policy in other ways. Due to the severity of the financial crisis that started 18 months ago with the fall of Lehman Brothers (OK, one can make a good case that it started before that, and the mistakes that caused it happened years before things came to a head in September 2008) was so severe that even a 0% Fed funds rate was not enough to provide the sort of liquidity needed to put out the raging wild fire that was the panic.
The Fed had to invent all sorts of different ways to inject liquidity into the system. It has been shutting those down, with the closure of several of them discussed last meeting and this time announcing that the last of them, the TALF, is on schedule to disappear in stages, with it mostly shut down by the end of the month.
No mention was made this time of the program to purchase $1.25 trillion in agency-backed mortgage-backed securities. That program is substantially complete and will finish up by the end of the month. The program amassed about 25% of all the mortgages backed by Fannie Mae (FNM) and Freddie Mac (FRE).
It will be extremely interesting to see what happens to mortgage rates after the program is finished. Based on the historical relationship between mortgage rates and the 10-year Treasury bill, we should see mortgage rates rise by about 50 basis points. However, the rate at which they have been buying them has slowed down significantly, so there has been a gradual easing of the distortions cause by the massive Fed buying program.
Pay Czar Caps GMAC Executives
Pay czar Kenneth Feinberg has put a cap on the compensation for top executives at auto finance company GMAC Inc. (GJM), which continues to post losses without any likelihood of repaying the $16.3 billion of funds that it had received under the Troubled Asset Repurchase Program (TARP).
Michael Carpenter, a 62-year-old ex- Citigroup Inc. (C) executive was appointed as the CEO of GMAC in November 2009. He had been on the board since May 2009. Carpenter will only receive compensation in the form of stock and no cash in 2010. In 2009, he earned $1.2 million. Only one of the top 25 executives will earn more than $500,000 in cash, thereby restricting the salary of the remaining 24 executives.
GMAC has been reporting losses in 9 of the past 10 quarters and hasn’t had a profit since the final quarter of 2008. The company posted a record $3.9 billion loss in the fourth quarter and lost $10.3 billion for full year 2009.
Kenneth Feinberg, the Obama administration paymaster, is dictating these salary caps because of the company’s involvement in TARP. The U.S. Treasury owns 56.3% of GMAC.
Since taking over, Carpenter has written down legacy mortgage assets, reclassified others for sale and funneled additional capital into GMAC’s mortgage and retail banking businesses. In February, GMAC raised $2.0 billion from a bond sale, the first time it was able to raise money without government backing since May 2007.
The extraordinary federal help GMAC has received underscores the auto lender’s role in federal efforts to revive General Motors and Chrysler. Traditionally, GMAC has served as the financing arm for General Motors’ vast network of dealers and thousands of car buyers. But the company’s Residential Capital unit branched out into subprime mortgage lending.
The company has been facing operating losses due to souring subprime mortgages and other real estate loans it made at the height of the housing bubble. This, along with the drop in auto sales demand, pushed the company further into red.
Other companies that continue to use TARP money are American International Group Inc. (AIG), General Motors and Chrysler. Top executives’ compensations for all these companies are regulated by the pay czar.
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