Week in Review: MBIA v. BofA; Aug. jobs report; Consumer confidence up

Good Friday Afternoon! Leading off, we have…

BILLIONS OF IMPLICATIONS FOR MBIA-COUNTRYWIDE SUIT – In a case that has several dimensions, the bottom line is that billions of dollars are at stake here (for the full story on MBIA v. Countrywide, see here, and for the corresponding story on the Federal Housing Finance Agency lawsuits, see here). After speaking with analysts, bankers, attorneys and academics, these are my initial conclusions:

  • To some level, both parties are at fault: Countrywide for misleading MBIA as to the quality of the packaged mortgages, and MBIA for its lack of due diligence and failure to adequately examine the mortgages prior to insuring them.
  • HOWEVER, I would say that the ratings agencies should be held equally responsible for the failure of the securities: it was their neglect that led insurers like MBIA and investors in mortgage-backed securities to make the regrettable decisions they did.
  • This lawsuit has come a long way: it was one of the first suits filed against a name-brand lender after the subprime mortgage crisis hit back in ’08. That  means that this case could set a big precedent when looking at future cases (such as AIG’s $10B suit against Bank of America/Countrywide and the $8.5B settlement agreed to – but not yet ratified by the courts – between investors and the bank regarding RMBS repurchasing).
  • In various news reports, BofA has strongly disputed San Fran’s Branch Hill Capital, which is betting against BofA in cases such as the MBIA lawsuit and which is predicting BofA could be on the hook for $9B more than the bank is planning for. While that $9B number might be off a bit, there is more wisdom in that analysis than is given credit.
  • REGARDING THE FHFA lawsuits against 17 major lenders (18, if you count a lawsuit filed against UBS in July), all indications are that the impact of those suits will be minimal; by all accounts, Fannie and Freddie did not perform due diligence before taking on the mortgages, and therein lies the theory that these lawsuits are pretty thin.

N.Y. AUGUST JOBS REPORT DISAPPOINTING, BUT EXPECTED – As was discussed yesterday in a previous post, there is no sugar-coating of the state’s August jobs report. For those of you who missed it, the state’s private sector job count declined in August by 30,700 (or 0.4 percent).

The Westchester-Putnam-Rockland region did not fare any better: total non-farm jobs declined by 10,500 (or 1.8 percent) in August (**However, those numbers are not seasonally adjusted), with every major private sector subdivision posting losses (i.e. Leisure and Hospitality, Information, Professional Services, etc).

HOWEVER, we need to recall two things. First, while we are nearing the end of September, these job numbers correspond to the month of August, which was an extremely volatile month. Second, going off of the latter point, the job market does not adjust to volatility as fast as the stock market does. Even though the debt ceiling talks seem like months ago, this drop in private-sector employment is likely directly related to the shortcomings of those talks.   

CONSUMER CONFIDENCE POSTS GAINS – In a monthly survey conducted by the University of Michigan, consumer confidence increased in September above expectations, rising from a 55.7 rating in August to 57.8 this month (with analysts only expecting a more modest increase to roughly 57.0).

HIGHLIGHTS OF THE WEEK’S BUSINESS NEWS FROM THE WESTCHESTER COUNTY BUSINESS JOURNAL –

Westchester Mourns a Business Giant: Martin Berger, a pioneering developer in Westchester County, is remembered and mourned by the business community.

French American School Promises Job Creation, Economic Boost: The planned French American School of New York campus in White Plains would generate 750 construction-related jobs, $14.3 million annually in economic impact to the city, according to a new report released by school officials.

Big Risk, Big Reward for White Plains Firm: A White Plains law firm has spent eight years representing 10,000 World Trade Center disaster workers in a federal court case.

OrthoNet Holdings to Expand, Add Jobs: OrthoNet Holdings, a health care services provider, announced it would keep its headquarters in White Plains and would add 155 new jobs as part of a $4.5 million expansion.

Lowey, WCA Call For A National Infrastructure Bank: U.S. Rep. Nita Lowey, N.Y.-18, and local business leaders have renewed calls for a national infrastructure bank to be established to support job creation and needed repairs.

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