As One-Time Gains Fade, Fannie and Freddie Face a Less-Profitable Future (WSJ)
Fannie Mae and Freddie Mac had another blockbuster quarter and will deliver $10.2 billion in dividends to the U.S. Treasury next month, but earnings reports Thursday hinted that their recent run of profitability could soon moderate as a string of one-time gains fades. The mortgage-finance firms, which the government seized in 2008 to prevent a broader market meltdown, notched combined first-quarter net income of $9.3 billion, driven by legal settlements with big banks on lawsuits that were filed by the companies’ regulator. Fannie and Freddie reported $4.1 billion and $4.9 billion, respectively, from those settlements…The companies—which don’t make mortgages but instead buy them from lenders and package them for issuance as securities—warned that profits aren’t likely to remain at such lofty levels, in large part because many of the unusual benefits will run their course. That will leave the firms heavily dependent on the fees they charge banks to guarantee mortgages, especially as they wind down the large mortgage portfolios that have historically been a larger source of core earnings.
Could take 5-8 years to shrink Fed portfolio: Yellen (Reuters)
The U.S. Federal Reserve is in no rush to decide the appropriate size of its balance sheet, but if it ultimately shrinks it to a pre-crisis size, the process could take the better part of a decade, Fed Chair Janet Yellen said on Thursday. Yellen, in testimony to a Senate panel, said no decision had yet been made on the central bank’s portfolio of assets, which has swollen to $4.5 trillion from about $800 billion in 2007. Three rounds of asset purchases meant to stimulate the economy in the wake of the 2007-2009 financial crisis have boosted the balance sheet to this record level. Unsatisfied with the U.S. recovery, the Fed is still adding $45 billion in bonds each month, though the purchases should end later this year. Yellen said the portfolio should start to shrink once the Fed decides to raise near-zero interest rates.
Geithner in Book Says U.S. Considered Nationalizing Banks (Bloomberg)
Geithner disagreed when Lawrence Summers, then head of the White House’s National Economic Council, suggested to President Barack Obama that the administration “pre-emptively nationalize” banks including Citigroup and Bank of America Corp., or try to embarrass them into changing their pay structures, according to the Times. The article includes quotes from the book, “Stress Test: Reflections on Financial Crises,” and interviews with Geithner. Geithner feared “fueling unrealistic expectations about our ability to eradicate extravagance in the financial industry,” he wrote in the book, to be published May 12. “I did not view Wall Street as a cabal of idiots or crooks,” Geithner wrote. “My jobs mostly exposed me to talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.”
Bankers risk reprisals if they skip Russian summit (MarketWatch)
Those who decide to attend the May 22-24 St. Petersburg International Economic Forum probably won’t risk much pushback from the Obama administration, which according to media reports is pressuring executives not to participate in the annual event held to showcase the Russian economy, says John C. Coffee Jr., a law professor at Columbia University. But Russia and its president, Vladimir Putin, who faces increasing economic sanctions for the Ukraine crisis, could be a different matter, Coffee says. “Russia has no hesitation about retaliating, because that is way they operate,” he explained. The risks depend on the companies’ stakes in Russia, experts say. JP Morgan recently revealed its exposure to Russia was $4.7 billion at the end of the first-quarter and it is closely monitoring the Ukraine situation. “There is all [kinds of] injuries that could occur from this,” said Coffee. “The most serious is if you had a serious business negotiations going on right now.”
Ex-NFL pro warns rookies: Watch your millions (CNBC)
“Let’s just hope that this year’s rookie class understands the reality behind the numbers and takes measures to save and invest their earnings, keeping in mind that, on average, their career will only last shortly over three years,” said Jack Brewer, a former NFL player who now runs The Brewer Group, an investment company that caters to athletes.
Happy birthday, Cronut! A look back at the pastry’s first year (NYP)
May 10, 2013: Pastry chef Dominique Ansel debuts the Cronut, a doughnut-croissant hybrid, at his eponymous Soho bakery. Mid-May, 2013: Cronut mania strikes the city full-on. People line up for hours before the bakery opens. Ansel reports customers crying and insulting staff when they run out of Cronuts, which they are only making a few hundred of each day. June 2013: Ansel institutes a two-Cronut-per-customer limit in an attempt to crack down on scalpers, who are reselling the $5 pastry for as much as $100 a pop. “Waiting in line for two Cronuts isn’t a very profitable business,” Ansel says of his scalper crackdown. April 4, 2014: The NYC Health Department shuts down Dominique Ansel Bakery over a “severe” mice infestation. “The pastries are delicious, so I can’t blame the mice,” quips a customer. April 8, 2014: The bakery reopens after passing a 2 ¹/₂ hour health department inspection.
NYSE to Curtail Order Types Amid Debate Over Their Fairness (Bloomberg)
The New York Stock Exchange wants to pare back the types of orders customers can place, potentially quieting critics who say their proliferation gives high-frequency traders an unfair edge. NYSE staff have identified more than a dozen to abolish, pending regulatory approval, IntercontinentalExchange Group (ICE) Chief Executive Officer Jeffrey Sprecher said today. Shares of Atlanta-based ICE, which bought NYSE last year, fell the most since 2011 today after the company released quarterly results.
Omnicom, Publicis call off $35 billion merger (MarketWatch)
Advertising giants Omnicom Group Inc. and Publicis Groupe SA have called off their $35 billion merger. The deal billed as a “merger of equals” had been challenged by battles over position and power, including difficulties in getting tax and other regulatory approvals, as well as differences over which company would be listed as the technical acquirer of the other, people familiar with the matter have said.
Yahoo! mobilizing for $10 billion bounty (NYP)
Yahoo! CEO Marissa Mayer will face a $10 billion decision in a few months thanks to her company’s stake in Alibaba.
Judging by comments made Wednesday at a conference hosted by TechCrunch, she might want to plop down a good part of that windfall on a mobile startup. “[Mobile is] a really critical issue,” Mayer said on stage at the conference. “It’s certainly one of the biggest missed opportunities that I saw when I came here.” While she has already made many changes since taking over nearly two years ago, all the deal-making and internal shuffling may be just a prelude to her biggest test — what to do with proceeds from the Alibaba IPO. The sale is expected to intensify the pressure on Mayer to revive Yahoo!’s revenue growth after years of lethargy.
Poll Finds 1 In 5 People Would Have Sex With A Robot (TDB)
A new survey has found that one in five U.K.-dwellers would be willing to have sex with robots, marking something of a leap in the realm of digitized romance…“It seems to have got to the stage where people would rather have sex with something that knows exactly what it’s doing, where we know exactly how it will react, and how long it will take, and how good it will be,” adds Anna Hughes, a schoolteacher with a long-term boyfriend. “But this obliterates the excitement of the uncertainty of being with a living person and the risk of it all going wrong, which is big part of having sex with someone in the first place. I’m just glad I got into a relationship before sleeping with C-3PO became the norm.” With 46% of those surveyed admitting that they’d either get under the covers with a sexbot or not judge those who choose to, that’s a fair proportion of people prepared to embrace getting dirty with droids. This isn’t a uniquely U.K. trend, though: Sex between live humans has been steadily sloping downwards in numerous countries around the world, including Japan, where nearly half of women aged 16-24 are “not interested in or despise sexual contact.” And this isn’t just a problem across the one gender—there’s also a burgeoning movement called otaku, which denotes the rising number of men opting for relationships with virtual lady friends in the absence of real ones. These so-called “herbivores”—young men who show no carnal desire—also fare badly when it comes to the figures, with 36% professing zero inclination whatsoever in getting it on. Many members of the otaku clan were able to maintain relationships with the opposite sex, but only if they existed in the form of computer games.