GFC 2009
January 2009 The two month period from January 1-February 27 represented the worst start to a year in the history of the S&P 500 with a drop in value of 18.62%. By March 2, the Dow Jones Industrial Average Index had dropped more than 50% from its summer 2008 peak. The decline has been compared to that of the 1929 Great Depression, which was 53% between September 1929 and March 1931.
January 5 The Federal Reserve Bank of New York begins purchasing fixed-rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae under a program first announced on November 25, 2008.
January 8 The Bank of England cuts interest rates to 1.5%, the lowest level in its 315-year history, as it continues efforts to aid an economic recovery in the UK.
January 9 The U.S. Treasury Department purchases a total of $4.8 billion in preferred stock from 43 U.S. banks under the Capital Purchase Program. Official figures show the US jobless rate rose to 7.2% in December, the highest in 16 years. The figures also indicate that more US workers lost jobs in 2008 than in any year since World War II.
January 12 At the request of President-Elect Obama, President Bush submits a request to Congress for the remaining $350 billion in TARP funding for use by the incoming administration.
January 13 China’s exports register their biggest decline in a decade. German Chancellor Angela Merkel unveils an economic stimulus package worth about 50bn euros ($67bn; £45bn) to kick-start Europe’s largest economy.
January 14 The UK government unveils a plan to guarantee up to £20bn of loans to small and medium-sized firms, to help them survive the downturn. US Commerce Department figures show retail sales fell by more than expected in December, as shoppers cut back on spending over the Christmas period. The news prompts big falls in share prices in the US and Europe.
January 15 The European Central Bank (ECB) cuts eurozone interest rates by half a percentage point to 2%. The ECB has now reduced rates four times from 4.25% in September as it continues efforts to bolster the eurozone economy. The Irish government says it is to nationalise the Anglo Irish Bank after deciding pumping money into the lender was not enough to secure its future.
January 16 The U.S. Treasury Department, Federal Reserve, and FDIC announce a package of guarantees, liquidity access, and capital for Bank of America. The U.S. Treasury and the FDIC will enter a loss-sharing arrangement with Bank of America on a $118 billion portfolio of loans, securities, and other assets in exchange for preferred shares. In addition, and if necessary, the Federal Reserve will provide a non-recourse loan to back-stop residual risk in the portfolio. Separately, the U.S. Treasury will invest $20 billion in Bank of America from the TARP in exchange for preferred stock.
January 16 The U.S. Treasury Department announces that it will lend $1.5 billion from the TARP to a special purpose entity created by Chrysler Financial to finance the extension of new consumer auto loans. The US government reaches an agreement to provide Bank of America with another $20bn in fresh aid from its $700bn financial rescue fund. The emergency funding will help the troubled bank absorb the losses it incurred when it bought Merrill Lynch. Struggling US banking giant Citigroup announces plans to split the firm in two, as it reports a quarterly loss of $8.29bn (£5.6bn).
January 18 the Danish Parliament agreed to a financial package worth 100 billion Danish kroner (17.6 billion USD). In response, markets panicked yet again.
Jan. 19 – Britain launches a second bank rescue plan, under which the BoE will set up an asset purchase program to buy private sector assets with an initial fund of 50 billion pounds.
January 22 the editorial board of The Christian Science Monitor wrote that the four largest U.S. banks “have lost half of their value since January 2.”
January 23 The U.S. Treasury Department purchases a total of $326 million in preferred stock from 23 U.S. banks under the Capital Purchase Program. The UK has officially entered a recession as fourth quarter GDP falls by 1.5% compared to the previous three months.
January 28 The National Credit Union Administration (NCUA) Board announces that the NCUA will guarantee uninsured shares at all corporate credit unions through February 2009. World economic growth is set to fall to just 0.5% this year, its lowest rate since World War II, warns the International Monetary Fund (IMF). It now projects the UK will see its economy shrink by 2.8% next year, the worst contraction among advanced nations. The International Labour Organization said that as many as 51 million jobs worldwide could be lost this year because of the global economic crisis.
February 5 The Bank of England cuts interest rates to a record low of 1% from 1.5% – the fifth interest rate cut since October.
February 6 – US Congress debates $800B Stimulus package
February 10 U.S. Treasury Secretary Timothy Geithner announces a Financial Stability Plan involving Treasury purchases of convertible preferred stock in eligible banks, the creation of a Public-Private Investment Fund to acquire troubled loans and other assets from financial institutions, expansion of the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), and new initiatives to stem residential mortgage foreclosures and to support small business lending.
February 17 President Obama signs into law the “American Recovery and Reinvestment Act of 2009”, which includes a variety of spending measures and tax cuts intended to promote economic recovery.
February 18 President Obama announces The Homeowner Affordability and Stability Plan. The plan includes a program to permit the refinancing of conforming home mortgages owned or guaranteed by Fannie Mae or Freddie Mac that currently exceed 80 percent of the value of the underlying home. The plan also creates a $75 billion Homeowner Stability Initiative to modify the terms of eligible home loans to reduce monthly loan payments. In addition, the U.S. Treasury Department will increase its preferred stock purchase agreements with Fannie Mae and Freddie Mac to $200 billion, and increase the limits on the size of Fannie Mae and Freddie Mac’s portfolios to $900 billion.
February 23 The U.S. Treasury Department, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, and the Federal Reserve Board issue a joint statement that the U.S. government stands firmly behind the banking system, and that the government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Further, the agencies reiterate their determination to preserve the stability of systemically important financial institutions.
February 25 The Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Office of Thrift Supervision announce that they will conduct stress tests of eligible U.S. bank holding companies with assets exceeding $100 billion. The firms must estimate the range of possible future losses and the resources to absorb such losses over a two-year period.
February 26 The FDIC announces that the number of “problem banks” increased from 171 institutions with $116 billion of assets at the end of the third quarter of 2008, to 252 insured institutions with $159 billion in assets at the end of fourth quarter of 2008. The FDIC also announces that there were 25 bank failures and five assistance transactions in 2008, which was the largest annual number since 1993.
February 26 Fannie Mae reports a loss of $25.2 billion in the fourth quarter of 2008, and a full year 2008 loss of $58.7 billion. Fannie Mae also reports that on February 25, 2009, the Federal Housing Finance Agency submitted a request for $15.2 billion from the U.S. Treasury Department under the terms of the Senior Preferred Stock Purchase Agreement in order to eliminate Fannie Mae’s net worth deficit as of December 31, 2008.
March 2009 Blackstone Group CEO Stephen Schwarzman said that up to 45% of global wealth had been destroyed by the global financial crisis.
March 2 The U.S. Treasury Department and Federal Reserve Board announce a restructuring of the government’s assistance to American International Group (AIG). Under the restructuring, AIG will receive as much as $30 billion of additional capital from the Troubled Asset Relief Program (TARP). In addition, the U.S. Treasury Department will exchange its existing $40 billion cumulative preferred shares in AIG for new preferred shares with revised terms that more closely resemble common equity. Finally, AIG’s revolving credit facility with the Federal Reserve Bank of New York will be reduced from $60 billion to no less than $25 billion and the terms will be modified. In exchange, the Federal Reserve will receive preferred interests in two special purpose vehicles created to hold the outstanding common stock of two subsidiaries of AIG: American Life Insurance Company and American International Assurance Company Ltd. Separately, AIG reports a fourth quarter 2008 loss of $61.7 billion, and a loss of $99.3 billion for all of 2008. HSBC confirms it is seeking to raise £12.5bn ($17.7bn) from shareholders through a UK rights issue .The news came as HSBC revealed pre-tax profits for 2008 of $9.3bn (£6.5bn), down 62% on the previous year.
March 3 The U.S. Treasury Department and the Federal Reserve Board announce the launch of the Term Asset-Backed Securities Loan Facility (TALF). Under the program, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated asset-backed securities backed by newly and recently originated auto loans, credit card loans, student loans and small business loans that are guaranteed by the Small Business Administration.
March 9 Dow at 6440, a percentage decline exceeding the pace of the market’s fall during the Great Depression and a level which the index had last seen in 1996. On March 10, a countertrend Bear Market Rally began, taking the Dow up to 8500 by May 6, 2009. Financial stocks were up more than 150% during this rally. By May 9, financial stocks had rallied more than 150% in just over two months.
March 11 Freddie Mac announces that it had a net loss of $23.9 billion in the fourth quarter of 2008, and a net loss of $50.1 billion for 2008 as a whole. Further, Freddie Mac announces that its conservator has submitted a request to the U.S. Treasury Department for an additional $30.8 billion in funding for the company under the Senior Preferred Stock Purchase Agreement with the Treasury.
March 18 FOMC decides to increase the size of the Federal Reserve’s balance sheet by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. The FOMC also decides to purchase up to $300 billion of longer-term Treasury securities over the next six months to help improve conditions in private credit markets.
March 19 The U.S. Department of the Treasury announces an Auto Supplier Support Program that will provide up to $5 billion in financing to the automotive industry.
March 19 The FDIC completes the sale of IndyMac Federal Bank to OneWest Bank.
March 26 The U.S. Treasury Department outlines a framework for comprehensive regulatory reform that focuses on containing systemic risks in the financial system. The framework calls for assigning responsibility over all systemically-important firms and critical payment and settlement systems to a single independent regulator. Further, it calls for higher standards on capital and risk management for systemically-important firms; for requiring all hedge funds above a certain size to register with a financial regulator; for a comprehensive framework of oversight, protection and disclosure for the over-the-counter derivatives market; for new requirements for money market funds; and for stronger resolution authority covering all financial institutions that pose systemic risks to the economy.
March 31 The U.S. Treasury Department announces an extension of its temporary Money Market Funds Guarantee Program through September 18, 2009. The Program currently covers over $3 trillion of combined fund assets and was scheduled to end on April 30, 2009.
March 31 Four bank holding companies announced that they had redeemed all of the preferred shares that they had issued to the U.S. Treasury under the Capital Purchase Program of the Troubled Asset Relief Program (TARP). The four banks are Bank of Marin Bancorp (Novato, CA), Iberiabank Corporation (Lafayette, LA), Old National Bancorp (Evansville, IN), and Signature Bank (New York, NY).
April 2 The Financial Accounting Standards Board approves new guidance to ease the accounting of troubled assets held by banks and other financial companies. In particular, the Board provides new guidance on how to determine the fair value of assets for which there is no active market. Leaders of the world’s largest economies reach an agreement at the G20 summit in London to tackle the global financial crisis with measures worth $1.1 trillion (£681bn).
April 22 IMF raises its forecast of total financial sector writedowns to $4 trillion. It says in its Global Stability Report that only $1 trillion has been written down so far, and that almost half the exposure is outside the US. The UK reveals its most pessimistic Budget forecast yet. Chancellor Alistair Darling says the UK economy will shrink by 3.5% in 2009 and predicts a £175bn budget deficit amounting to more than 10% of GDP.
May 4 EU economies will shrink by 4% in 2009, the European Commission has forecast in its bleakest forecast to date. It also says unemployment will rise to 10.9%.
May 7 The Federal Reserve releases the results of the stress test of the 19 largest U.S. bank holding companies. The assessment finds that the 19 firms could lose $600 billion during 2009 and 2010 if the economy were to track the more adverse scenario considered in the program. The assessment also finds that 9 of the 19 firms already have adequate capital to maintain Tier 1 capital in excess of 6 percent of total assets and common equity capital in excess of 4 percent under the more adverse scenario. Ten firms would need to add $185 billion to their capital to maintain adequate buffers under the more adverse scenario. However, transactions and revenues since the end of 2008 have reduced to $75 billion the additional capital that these firms must raise in order to establish the capital buffer required under the program.
May 13 The U.S. Treasury Department proposes amendments to the Commodity Exchange Act and securities laws to enhance government regulation of over-the-counter (OTC) derivatives markets. The proposed changes include requirements that all standardized OTC derivatives be cleared through regulated central counterparties, and that all OTC derivatives dealers and all other firms whose activities in those markets create large exposures to counterparties be subject to prudential supervision and regulation. In addition, the U.S. Treasury Department proposes new recordkeeping and reporting requirements on all OTC derivatives, and increased authority for the Commodity Futures Trading Commission to regulate OTC derivatives trading.
May 21 Standard and Poor’s Ratings Services lowers its outlook on the United Kingdom government debt from stable to negative because of the estimated fiscal cost of supporting the nation’s banking system. S&P estimates that this cost could double the government’s debt burden to about 100 percent of GDP by 2013.
May 27 FDIC announces that the number of “problem banks” increased from 252 insured institutions with $159 billion in assets at the end of fourth quarter of 2008, to 305 institutions with $220 billion of assets at the end of the first quarter of 2009. The FDIC also announces that there were 21 bank failures in the first quarter of 2009, which is the largest number of failed institutions in a quarter since the first quarter of 1992.
June 1 General Motors Corporation and three domestic subsidiaries announce that they have filed for relief under Chapter 11 of the U.S. Bankruptcy Code.
June 9 The U.S. Treasury Department announces that 10 of the largest U.S. financial institutions participating in the Capital Purchase Program have met the requirements for repayment established by the primary federal banking supervisors. If these firms choose to repay the capital acquired through the program, the Treasury will receive up to $68 billion in repayment proceeds. The banks would have faced restrictions on executive pay. This list includes JP Morgan Chase, Goldman Sachs and Morgan Stanley.
June 10 Global oil consumption fell for the first time since 1993 in 2008, according to BP’s global energy outlook, in another sign of the depth of the recession.
June 11 Japan’s economy contracted at an annualised rate of 14.2% in the first three months of 2009, a record rate of decline.
June 22 World Bank projects that the global production for 2009 would fall by 2.9%, the first decline since the second world war
June 23 Mortgage brokers report that Stated Income loans are making a comeback in some markets.
June 24 The Organisation for Economic Co-operation and Development says the world economy is near the bottom of the worst recession in post-war history, predicting that the 30 most industrialised nations will see negative growth of 4.1% this year.
June 25 American International Group (AIG) announces that it has entered into an agreement with the Federal Reserve Bank of New York to reduce the debt AIG owes the Federal Reserve Bank of New York by $25 billion. The Federal Reserve Bank of New York will receive preferred interests of $16 billion and $9 billion, respectively, in two new special purpose vehicles holding the equity of AIG subsidiaries American International Assurance Company and American Life Insurance Company.
June 30 The U.S. Treasury proposes a bill to Congress that would create a new Consumer Financial Protection Agency. The bill would transfer all current consumer protection functions of the Federal Reserve System, Comptroller of the Currency, Office of Thrift Supervision, FDIC, FTC, and the National Credit Union Administration to the new agency. In addition, Treasury proposes amendments to the Federal Trade Commission Act with regards to coordination with the proposed Consumer Financial Protection Agency.
July 10 General Motors says it has emerged from bankruptcy protection after creating a “new GM” made up of the carmaker’s best assets. The leaner GM will own four key brands including Cadillac and will be 61% owned by the US government.
July 14 US bank Goldman Sachs beats analysts’ forecasts with a net profit of $3.44bn (£2.1bn) for April to June. It says it has set aside $6.65bn for pay and bonuses in the quarter. Several – but not all – other US banks subsequently announce big profits. However, analysts warn that the US banking crisis is not yet over.
July 16 China’s economy grew at an annual rate of 7.9% between April and June, up from 6.1% in the first quarter, thanks to the government’s big stimulus package. Beijing now expects China to achieve 8% growth for 2009 as a whole.
July 21 Bernanke presents the second of the Federal Reserve’s semi-annual Monetary Policy Report to the Congress. Chairman Bernanke testifies that “the extreme risk aversion of last fall has eased somewhat, and investors are returning to private credit markets.”
July 23 The Federal Reserve Board proposes significant changes to Regulation Z (Truth in Lending) intended to improve the disclosures consumers receive in connection with closed-end mortgages and home-equity lines of credit. Among other changes, the Board’s proposal would improve the disclosure of the annual percentage rate on closed-end mortgages and require lenders to show consumers how much their monthly payments might increase for adjustable-rate mortgages. The proposal would also prohibit payments to a mortgage broker or loan officer that are based on a loan’s interest rate or other terms, and prohibit lenders from steering consumers to transactions that are not in their interest in order to increase the lender’s compensation.
July 24 The UK economy contracted 0.8% between April and June, more than double the figure economists had expected. The latest figures take the annual rate of decline to 5.6%, the biggest fall since records began in 1955.
August 3 Barclays announces an 8% rise in first-half profits, boosted by its investment banking division. In subsequent days, as other UK banks announce their results for the period, a mixed picture emerges.
August 6 Fannie Mae reports a loss of $14.8 billion in the second quarter of 2009. The Director of the Federal Housing Finance Agency, which has been acting as Fannie Mae’s conservator since September 6, 2008, requests $10.7 billion from the U.S. Treasury Department under the terms of the senior preferred stock purchase agreement between Fannie Mae and the Treasury in order to eliminate the firm’s net worth deficit. Under the agreement, the Treasury will have provided $45.9 billion of capital to Fannie Mae to cover net worth deficits through the second quarter of 2009.
August 25 President Obama nominates Ben S. Bernanke for a second term as Chairman of the Board of Governors of the Federal Reserve System.
August 27 The FDIC announces that the number of “problem banks” increased from 305 insured institutions with $220 billion in assets at the end of first quarter of 2009, to 416 institutions with $299.8 billion of assets at the end of the second quarter of 2009.
September 14 The U.S. Treasury releases the report “The Next Phase of Government Financial Stabilization and Rehabilitation Policies.” This report focuses on winding down those programs that were once deemed necessary to prevent systemic failure in the financial markets and the broader economy.
September 18 Treasury announces the expiration of the Guarantee Program for Money Market Funds, which was implemented in the wake of the failure of Lehman Brothers in September 2008.
October 14 The Dow Jones Industrial Average closes above 10,000 for the first time since October 3, 2008.
October 22 The Special Master for TARP Executive Compensation releases determinations on the compensation packages for the top 25 most highly paid executives at the seven firms that received exceptional TARP assistance (AIG, Citigroup, Bank of America, Chrysler, Chrysler Financial, GM, and GMAC).
October 22 The Federal Reserve Board issues a proposal designed to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of their organizations. The proposal includes two supervisory initiatives. One, applicable to 28 large, complex banking organizations, will review each firm’s policies and practices to determine their consistency with the principles for risk-appropriate incentive compensation set forth in the proposal. Second, supervisors will review compensation practices at regional, community, and other banking organizations not classified as large and complex as part of the regular, risk-focused examination process.
November 1 CIT Group, Inc., files for bankruptcy protection under Chapter 11 of the bankruptcy code. The U.S. Government purchased $2.3 billion of CIT preferred stock in December 2008 under the Troubled Asset Relief Program (TARP). The firm’s prepackaged bankruptcy is expected to wipe out the equity stakes of CIT’s current shareholders, including the U.S. Government.
November 9 The Federal Reserve Board announces that 9 of the 10 bank holding companies that were determined in the Supervisory Capital Assessment Program earlier this year to need to raise capital or improve the quality of their capital now have increased their capital sufficiently to meet or exceed their required capital buffers. GMAC was the one firm that to date has not raised enough capital to meet its required capital buffer.
December 9: Bank of America fully repays the $45 B of TARP funds that they had received. The Treasury Department said that TARP funds repaid so far totaled $116 billion. The Treasury forecast total repayment could reached $175 billion by the end of 2010.
December 15: Wells Fargo & Co. announces that it will pay back $25 billion in government bailout funds.
December 23: CitiGroup repays $20 B of TARP funds. The US government is 25% owner of CitiGroup.
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