CrunchedCredit : Capital Markets Finance and Real Estate Attorneys

While Europe is sorting through Dexia’s assets, it is worth exploring Dexia’s fall in light of Basel III. As mentioned here previously, Dexia had been reporting Tier I capital of roughly 10%. Well done! That would clearly meet the proposed capital requirements to be phased in over the next year. So what went wrong?

Dexia had pursued a strategy of aiming to be the largest player in municipal financing. It owned gobs of sovereign debt. Down-grades and write-downs of that sovereign debt have now left Dexia well short of its Tier I capital requirements (to the tune of 1.7 billion Euros).

This is hardly a man bites dog story. The Gnomes of Basel, and pretty much everyone else, misjudged the perceived credit risks of sovereign debt. Basel I (and, to be honest, II and III) encouraged the holding of sovereign debt by assigning the lowest risk-weight to such assets, meaning a reduced capital requirement. So, the banks bulked up and then: Off the cliff we all go! Is there still a warm glow of knowing one had met international norms?

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In August I wrote about an amendment to a Chicago vacant buildings ordinance that I thought (and I was one of many) was crazy, despite being sympathetic to the plight resulting from the city’s blight. The City of Chicago subsequently passed a less onerous, yet still problematic, vacant buildings ordinance effective as of November 19, 2011.

In a nutshell, the ordinance requires mortgagees to pay registration fees for vacant residential properties, requires monthly inspections of mortgaged properties to determine vacancy status and imposes maintenance requirements on mortgagees, as if such mortgagees were property owners, even when such mortgagees do not own the property because they have not yet foreclosed on the related mortgage loan and therefore have not obtained title to the related property. Fines and penalties of up to $1000 per day could be imposed for failure to comply with the ordinance.

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While wrapping your holiday presents, don’t forget about another regulatory gift that springs to life as of the new year: Rule 193 and the accompanying joys of Items 1111(a)(7) and 1111(a)(8) of Reg AB. The final rules for Dodd-Frank’s Section 945 – which we at CrunchedCredit.com have addressed before - are almost a year old and their effects are coming to a public transaction near you by requiring “issuers” (1) to perform (or have a third party perform) a due diligence review of a deal’s underlying assets with the aim of reasonably assuring that disclosure included in the related offering documents is materially accurate and (2) to disclose in offering documents the nature of the review, any findings or conclusions of the review and any details regarding assets that deviate from the disclosed underwriting criteria. And this is a gift that keeps on giving.

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Senators Kaye Hagan and Bob Corker’s co-sponsorship of Chuck Schumer and Mike Crappo (who says we all can’t get along) filed “The United States Covered Bond Act of 2011.” I almost think this bill gets support because no one can figure out a compelling reason to be for or against it, so why not show a little whiff of bi-partisanship? The new bill broadly tracks the bill that Congressman Garrett introduced into the House earlier this year, HR-940. We’ve written about this before (it is getting to be quite a list, see here, here, here, here, here, here, here, here, here, here and even as a Golden Turkey), and, I gotta say, my views have not materially changed. This remains an answer to a question no one has. Please, someone, tell me why this is important and useful!? 

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