Fannie and Freddie: Will foreign agencies fill the gap?
The fee hiatus left by Fannie and Freddie will be filled. But not just yet.
With Fannie Mae and Freddie Mac being wound down, the big question is where are Wall Street’s fees going to come from now? According to Thomson Reuters, from the beginning of 2009 to the end of March 2011, Fannie Mae produced $1.57 billion in fees for the investment banks and Freddie Mac $1.26 billion – the largest contributors of fees globally, with JPMorgan, Bank of America Merrill Lynch and Goldman Sachs the biggest beneficiaries. Total global market fees were $188 billion for the period, making those two agencies accountable for 1.5% of all fees.
Market participants seem unperturbed. Much of their reasoning is that investors have to buy something, so ‘something’ will replace them. That something apparently lies in foreign triple-A-rated agencies – good news for those entities that have struggled to attract a US investor base.
Already this year US dollar covered bond issuance from foreign banks has shown signs of taking off. US investors are beginning to thaw to foreign names as they start to contemplate where triple-A-rated paper supply might come from, and foreign issuers are grateful for the diversification of their investor base.
The growth of a foreign covered bond market in US dollars and seemingly positive developments in legislative discussions point to a US covered bond market being formalized that could also help fill the gap, if not for some time.