The Wall Street Journal is calling it the “most dramatic market intervention in years.” After weeks of speculation, the U.S. government is now in control of Fannie Mae and Freddie Mac. In a deal structured by Treasury Secretary Henry Paulson, the Feds seized the troubled lenders over the weekend, pledging up to $200 billion to cover a feared deluge of mortgage defaults. The Financial Times says the Fannie-Freddie seizure amounts to the “ world’s biggest financial bailout.” It saves, for now, the two chief backers of up to $5.4 trillion in U.S. home mortgages. “While the Bush administration stopped short of using the word ‘nationalization,’ analysts said the moves amounted to a de facto government control,” the FT reports. The New York Times, in its six-story package on the historic deal, reports that Daniel H. Mudd, departing CEO of Fannie Mae, is guaranteed a severance package of $9.3 million, while Freddie Mac chief Richard F. Syron will walk away with at least $14.1 million. And who is on the losing end of this historic bailout? They include: “shareholders, rank-and-file employees and, in the worst case, American taxpayers,” the NYT says.
The news was greeted with cheers Monday morning in Asia. Japan’s Nikkei index and Hong Kong’s Hang Seng index surged more than 3 percent in early trading on hopes the Fannie-Freddie “conservatorship” would stabilize the U.S. housing market, the BBC reports. For China, owners of $376 billion in U.S. debt (the majority is Fannie-Freddie debt), the seizure confirms what many have long known: “Beijing’s huge U.S. exposure still poses a serious risk,” Reuters reports.
Kerry Killinger, CEO of Washington Mutual, is the latest scalp claimed by the mortgage crisis, the WSJ reports in a Page One scoop. WaMu’s once fiercely loyal board pushed out Killinger after the lender disclosed $19 billion in losses and the share price plummeted 85 percent. According to the WSJ, “succeeding Mr. Killinger will be Alan Fishman, currently chairman of New York commercial mortgage broker Meridian Capital Group.” Prior to that, Fishman was head of Philadelphia-based Sovereign Bank, the nation’s second-largest thrift. The NYT, citing people briefed on the Killinger ouster, confirmed that WaMu’s new chairman, Stephen Frank, told Killinger on Thursday he ought to retire. According to the NYT, thus “ends an 18-year run in which he built the bank into one of the nation’s biggest financial institutions through a series of acquisitions. But his failure to properly integrate those deals and manage the growing losses from subprime mortgages and credit card loans proved to be his undoing.”
And the revolving door didn’t shut there. Wachovia’s new CEO, Robert K. Steel, just weeks into the new job, will be appointing Carlyle Group’s David Zwiener as the troubled lender’s new CFO, the WSJ reports. He will replace Thomas J. Wurtz. Zwiener will likely have to oversee Wachovia’s plan to eliminate 10,750 jobs.
More than 27,000 machinists for Boeing will take to the picket line today after contract talks between the aircraft manufacturer and one of its largest unions broke down over the weekend. The Seattle Post-Intelligencer reports today there is no sign that contract negotiations will resume anytime soon. The strike is expected to cost Boeing about $100 million to $120 million a day in revenue, the newspaper says, citing analysts. The work stoppage could also delay the inaugural flight of the 787 wide-body Dreamliner, which had been anticipated for November. If the strike lengthens, it would affect much of the aviation industry, Reuters reports. “Japan’s heavy engineering firms Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries are taking part of the project risk in developing new carbon-fiber fuselage and wing structures for the 787, and stand to lose if the project is further derailed,” a Reuters report says.
Oil bounced back from a five-month low in early trading Monday on fears that Hurricane Ike will barrel into Gulf waters in the coming days and once again disrupt oil and gas production, the Associated Press reports. The price of light, sweet crude rose more than $2 to $108.80 in midday trading in Singapore on Monday, the AP says. The region survived the worst of Hurricane Gustav last week, but not all the rigs are up and operating again; Ike’s possible arrival later this week complicates matters further as personnel continue to evacuate at-risk rigs, the Houston Chronicle reports. “Offshore oil and gas operators in the Gulf of Mexico who are reboarding platforms and rigs and restoring production following Hurricane Gustav are now starting to take precautions for Hurricane Ike,” the U.S. Minerals Management Service told the Chronicle.
Forget India, Taiwan, or China. For many of Europe’s largest companies, it’s cheaper to outsource manufacturing to the United States, the FT reports. “It may sound like a joke but it can be cheaper than you imagine to manufacture there,” the chairman of one of Germany’s largest automobile groups tells the newspaper. The lure of a cheap dollar and, more importantly, fiscal perks thrown in by enterprising communities has sent firms like Volkswagen and ThyssenKrupp to open plants recently. The Italians, too, say America is a bargain. “It is one of the low-cost locations to be in at the moment,” a Fiat official told the FT.