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Finance Brief: Freddie Mac Posts $1.66 Billion in Net Income for Second Quarter


Government Brief

  • The Trump administration is said to be planning a wide-ranging investigation into Chinese trade practices, with a focus on possible violations of intellectual property rights. After the probe the Office of the U.S. Trade Representative could take measures such as raising tariffs on specific imports from China, or stripping Chinese companies of their licenses to do business in the United States. (The New York Times)
  • National Economic Council Director Gary Cohn is seen by economists as the most likely candidate to lead the Federal Reserve when Janet Yellen’s term expires in February, according to a survey conducted last week. Yellen came in second, followed by former Fed Gov. Kevin Warsh. (Bloomberg)
  • Senators from both parties called for a tax reform package to preserve, or even expand, the Low Income Housing Tax Credit that gives real estate developers tax breaks for building affordable housing. The provision’s future under a revised tax code has been uncertain, since tax writers could opt to eliminate it. (The Washington Examiner)

Business Brief

  • Freddie Mac reported a net income of $1.66 billion in the second quarter, up from $933 million during the same three-month period last year. However, the government-sponsored enterprise held open the possibility that it won’t pay a dividend to the U.S. Treasury Department as scheduled. (Bloomberg)
  • Sens. Tim Scott (R-S.C.) and Mark Warner (D-Va.) introduced bipartisan legislation that would require Fannie Mae and Freddie Mac to explore alternative credit scoring models beyond FICO scores. The bill’s goal is to make homeownership more accessible to customers who are “credit invisible.” (National Mortgage News)
  • President Donald Trump celebrated the state of corporate profits during his presidency, saying in a tweet that “corporations have NEVER made as much money as they are making now.” Some critics said that highlighting business profits undercuts the administration’s arguments in favor of cutting corporate tax rates. (Reuters)

Chart Review

Events Calendar (All Times Local)

Wednesday
ABA webinar on cross-border issues in M&A and tax planning 1 p.m.
Thursday
Federal Reserve Board conference on regional food system investments 10 a.m.
Friday
No events scheduled
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General

Trump Administration Is Said to Open Broad Inquiry Into China’s Trade Practices
Keith Bradsher, The New York Times

The White House is preparing to open a broad investigation into China’s trade practices, according to people with knowledge of the Trump administration’s plans, amid growing worries in the United States over a Chinese government-led effort to make the country a global leader in microchips, electric cars and other crucial technologies of the future. The move, which could come in the next several days, signals a shift by the administration away from its emphasis on greater cooperation between Washington and Beijing, in part because administration officials have become frustrated by China’s reluctance to confront North Korea over its nuclear and ballistic missile programs.

Trump touts 2.6 percent GDP growth, promises higher than 3 percent soon
Joseph Lawler, The Washington Examiner

President Trump touted the second-quarter rebound in economic growth Tuesday and reiterated his pledge to drive U.S. economic growth above 3 percent. “That’s so much higher than anticipated,” Trump said of the 2.6 percent annual growth rate in the gross domestic product for the April-June quarter.

SkyBridge Says HNA Sale Is on Track After Scaramucci Ouster
Simone Foxman and Sara Forden, Bloomberg

SkyBridge Capital said Anthony Scaramucci’s deal to sell his stake is still on track following his ouster as White House communications director, though the deal still needs approval from a secretive national security panel that vets sales of U.S. companies to foreign buyers. SkyBridge’s deal to sell a majority stake to a subsidiary of HNA Group Co., the Chinese conglomerate, and a little-known investment firm called RON Transatlantic is moving forward and could clear regulatory hurdles to close within the next few weeks, spokesmen for the firms said Tuesday.

Commodity Dip, Euro Gains Hit Stocks; Gold Drops: Markets Wrap
Robert Brand, Bloomberg

Mining and oil shares weighed on Europe’s benchmark equity index as crude fell for a second day and most industrial metals traded lower. Futures on the S&P 500 Index advanced 0.1 percent.

Banking

Cohn Tops Yellen as Fed Chair Guessing-Game Heats Up
Rich Miller et al., Bloomberg

White House senior economic adviser Gary Cohn has emerged as the leading candidate to succeed Janet Yellen as Federal Reserve chair when her term expires in February, according to a July 27–28 survey of economists. The former Goldman Sachs executive took over the top spot from Yellen, who was seen as the slight favorite in a similar poll seven weeks ago.

Top Financial Services Dems call for hearing on growing Wells Fargo scandal
Sylvan Lane, The Hill

The top Democrats on the House Financial Services Committee asked the panel’s chairman on Tuesday to hold another hearing on Wells Fargo’s sale practices amid reports the bank charged more than 800,000 customers for unwanted auto insurance. Reps. Maxine Waters (Calif.) and Dan Kildee (Mich.), the ranking and vice ranking Financial Services panel Democrats, asked Chairman Jeb Hensarling (R-Texas) to call Wells Fargo’s top executives for a hearing.

Wall Street is livid over Wells Fargo’s latest scandal: ‘Here we go again’
Tae Kim, CNBC

Analysts are angry over the latest Wells Fargo scandal where hundreds of thousands of the bank’s customers were overcharged. Wells Fargo shares fell 2.6 percent Friday after The New York Times first reported the news.

Financial Products and Investments

Obama trumps Trump in stock-market gains through July
Steve Goldstein, MarketWatch

President Donald Trump has been tweeting more frequently about the stock market, whose record-setting performance has been one of the highlights of the 45th president. But it turns out, equities were advancing even more quickly in the early days of President Barack Obama.

Housing and GSEs

Freddie Mac Says It Will Pay $2 Billion to Taxpayers — Maybe
Joe Light, Bloomberg

Freddie Mac said it earned enough in the second quarter to send a $2 billion dividend to the U.S. Treasury, but the press release announcing the company’s financial results includes new language suggesting uncertainty as to whether the payment will be made as scheduled. The mortgage-finance company on Tuesday reported net income of $1.66 billion for the period that ended June 30, up from $993 million in the same period a year earlier.

Bipartisan Senate bill would force Fannie, Freddie to think outside FICO
Ian McKendry, National Mortgage News

A bipartisan duo of lawmakers is set Tuesday to introduce a bill designed to increase homeownership opportunities for “credit invisible” consumers. Sens. Tim Scott, R-S.C., and Mark Warner, D-Va., are co-sponsoring the measure, which would require the regulator of Fannie Mae and Freddie Mac to direct the government-sponsored enterprises to accept new credit scoring models.

FHFA’s Watt: No change in GSE credit scoring models until 2019
Ian McKendry, American Banker

Any change to the credit scoring models that Fannie Mae and Freddie Mac use will have to wait until 2019, Federal Housing Finance Agency Director Mel Watt said late Tuesday. “Any credit score model change would not go into effect before 2019 even if I announced a decision today,” Watt said in prepared remarks before the National Association of Real Estate Brokers annual convention in New Orleans, La.

Taxes

Affordable housing tax break has bipartisan support in tax reform effort
Joseph Lawler, The Washington Examiner

At least one tax break has bipartisan support, as Republicans gear up to simplify the tax code. Senators from both parties praised the Low-Income Housing Tax Credit at a Senate Finance Committee hearing Tuesday, with members calling to expand the break rather than limit it.

Republicans Pivot to Tax Cuts But Face Some Frustrated Members
Sahil Kapur, Bloomberg

Representative Ted Yoho had hoped to spend the August recess in his North Florida district making the case for a tax overhaul. Instead, the third-term Republican said he doesn’t know what to say when his constituents ask what the revamp will mean for them.

Senate Democrats Lay Out Conditions for Working With GOP on Tax Policy
Richard Rubin, The Wall Street Journal

Senate Democrats outlined their conditions for working with the Trump administration and congressional Republicans on tax policy, and their principles didn’t seem to leave much room for common ground. In a letter dated Tuesday, Democrats argued against tax cuts for the top 1% of households, declared it crucial that Republicans not use the fast-track procedures known as reconciliation and said they wouldn’t back deficit-financed tax cuts.

Trump extols corporate profits while seeking corporate tax cut
David Morgan, Reuters

U.S. President Donald Trump sent a Twitter message bragging about corporate America’s high profits under his presidency on Tuesday, prompting critics to say he was undercutting Republican arguments in favor of a tax cut for corporations. As Republicans in Washington try to refocus on taxes after the collapse of their failed drive to repeal Obamacare, Trump sent a morning tweet that said: “Corporations have NEVER made as much money as they are making now.”

Financial Technology

Bitcoin has split in two, so you can have double the cryptocurrency
Shannon Liao, The Verge

A little after 8AM ET today, Bitcoin was split into Bitcoin Cash, an alternative cryptocurrency, in a chain split that had been anticipated for months. The split, called a “hard fork,” comes out of a bitcoin group’s desire to combat high transaction fees and a bitcoin size limit that made mining larger blocks invalid.

Opinions, Editorials and Perspectives

Anti-Pyramid Scheme Bill Would Protect Consumers and Entrepreneurs
Anne T. Coughlan, Morning Consult

As an economist who has devoted my academic career to the area of distribution channel design and management, there is no question the direct-selling industry has offered tremendous economic benefits to millions of Americans, consumers and entrepreneurs alike. At the same time, I’ve also seen firsthand the tremendous importance of protecting consumers — and legitimate business organizations — from the deceptive (and economically harmful) trade practices of a few bad actors.

The abuse of Freddie and Fannie Mae
Editorial Board, The Washington Times

Freddie Mac and Fannie Mae almost took down the U.S. economy by transforming bad mortgages into something that looked valuable, but were anything but. The extraordinary bailouts that followed put everyone, for one good reason and another, shaking in their boots.

Free-Trade is a Two-Way Street
Wilbur Ross, The Wall Street Journal

The Trump administration recently celebrated the workers and businesses that make this country great. The purpose of “Made in America Week” was to recognize that, when given a fair chance to compete, Americans can make and sell some of the best, most innovative products in the world.

Time for the Trump administration to speak with one voice on the debt ceiling
Editorial Board, The Washington Post

There seem to be two kinds of Republicans: those who think that the full faith and credit of the United States can be the subject of political experimentation, and sensible ones. Treasury Secretary Steven Mnuchin fits in the latter category. He has repeatedly called upon Congress, controlled by the GOP, to pass an increase in the statutory debt limit, with no policy strings attached, so that the United States government may continue borrowing past the current, already expired ceiling of $20 trillion — and pay all of its obligations on time.

Schumer’s ‘Compromise’: No Tax Cuts
James Freeman, The Wall Street Journal

To their credit, Senate Democrats have generously decided to save everyone’s time by ruling out anything that deviates from their agenda of raising more government revenue and maintaining high marginal tax rates. In a six-paragraph note on “tax reform” signed by 45 of the Senate’s 48 Democrats, the pols don’t propose any particular measures to simplify or cut anyone’s taxes.

Research Reports

Low-income Housing Tax Credit: Actions Needed to Strengthen Oversight and Accountability
Government Accountability Office

In its May 2016 report on the Low-Income Housing Tax Credit (LIHTC) program of the Internal Revenue Service (IRS), GAO found that state and local housing finance agencies (allocating agencies) implemented requirements for allocating credits, reviewing costs, and monitoring projects in varying ways. Moreover, some allocating agencies’ day-to-day practices to administer LIHTCs also raised concerns.