Magazine article American Banker

FHLB of Boston Halts Redemption of Excess Shares

Magazine article American Banker

FHLB of Boston Halts Redemption of Excess Shares

Article excerpt

Byline: Steven Sloan

WASHINGTON - Facing losses on its private-label mortgage holdings, the Federal Home Loan Bank of Boston is refusing to redeem excess stock held by its members.

"This action will help preserve the bank's capital," Michael Jessee, the Boston bank's president and chief executive, wrote in a Dec. 8 letter to its member banks and thrifts. "While the bank has always had the discretion to approve or deny excess stock repurchase requests on a case-by-case basis, the moratorium will ensure that all members, large and small, receive fair and consistent treatment."

In its third-quarter earnings report, the Boston bank said members had already cashed in $154.5 million in excess stock this year, or nearly 42% of the $368.1 million in excess capital it had as of Sept. 30. Monday's decision means financial institutions will not be able to redeem the remaining $213.6 million in excess stock, or investments made above what is needed to belong to the Boston bank.

The Home Loan Bank of Chicago is the only other institution in the Federal Home Loan Bank System to adopt similar restirctions, but it is under a regulatory agreement that prevents redemptions of excess stock unless it is used to support new advance borrowings.

John von Seggern, the president of the Council of Federal Home Loan Banks, downplayed the significance of the Boston bank's decision. "This isn't unique," he said. "The way the capital structure is set up, you buy stock in the Federal Home Loan Bank System under the agreement that it's five-year stock. The Federal Home Loan banks have the right to redeem, but they're not required to."

A representative of the Boston bank would not comment beyond Mr. Jessee's letter.

In the letter, Mr. Jessee wrote that his bank could face losses related to its private-label mortgage-backed securities. …

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