Is the Federal Home Loan Bank System becoming a Piggy Bank for Private Equity, asks UFCW?

UFCW International Union presents case of Apollo-owned Athene Annuity & Life in “FHLBank System at 100” Mission Review

WASHINGTON–(BUSINESS WIRE)–United Food and Commercial Workers International Union submitted public comments to the Federal Home Loan Bank System (“FHLB System”), which is conducting a 100-year mission review and holding a regional roundtable today in Los Angeles, California.

UFCW’s comment letter explores this primary issue: “As private equity companies step up their acquisition of life insurers who are members of Federal Home Loan Banks, the FHLB System is becoming a government-sponsored¹ piggy bank for a financial industry which has pioneered financial engineering and risk taking in many areas of the economy and which is underregulated at the firm level.”

The comment letter details an example of one private equity-owned life insurance company, Athene Annuity & Life Insurance, which is a member of the Federal Home Loan Bank of Des Moines and owned by Apollo Global Management [NYSE: APO].²

According to UFCW’s submission, “We believe the Athene example can inform the policy review, ‘FHLBank System at 100: Focusing on the Future’, as a case study in how private equity ownership of life insurance companies can change the nature of FHLB System membership and potential risk.

“We make the following recommendations:

• The FHLB System should facilitate home ownership and affordable housing for working families in America. As such, members in the System should be required to maintain substantial operations to support that goal, in exchange for access to government-sponsored capital.
• Private equity-owned companies should not be eligible for membership in the FHLB System, given the lack of regulatory oversight of private equity at the parent company level and a higher tolerance for risk.
• Financial institutions with substantial foreign operations should not be eligible for membership in the FHLB System.
• Insurers who reinsure a majority of their liabilities through captive reinsurers in foreign countries should not be eligible for membership in the government-sponsored FHLB System, given taxpayer-subsidized access to capital and the potential for weaker regulatory regimes outside the U.S.
• The FHLB System should reduce risk in the U.S. financial system by establishing guidelines for members on acceptable levels of asset-backed securities and collateralized loan obligations in their investment portfolio.”

“For the approximately 1 million union members in the food and retail industries represented by the United Food and Commercial Workers International Union, the American Dream of home ownership is often difficult to reach and escalating rents pose a daunting hurdle,” states Courtney Alexander, author of the comment letter and analyst in the UFCW Research Department.

Ms. Alexander continues: “As the Federal Housing Finance Agency reviews the mission of the FHLB System, we urge you to critically analyze the role of private equity as members of FHLBanks and refocus the mission of the FHLB System and its members on facilitating individual home ownership and affordable housing for working families in America.”

More details and analysis are available in the comment letter, located here: https://www.fhfa.gov//AboutUs/Contact/Pages/input-submission-detail.aspx?RFIId=2029

¹ “However, the FHLBanks’ status as a government-sponsored enterprise accords certain privileges and enables the FHLBanks to raise funds at rates slightly above comparable obligations issued by the U.S. Department of the Treasury.” https://www.fhfa.gov/SupervisionRegulation/FederalHomeLoanBanks/Pages/About-FHL-Banks.aspx

² https://www.sec.gov/ix?doc=/Archives/edgar/data/0001858681/000185868122000045/apo-20220630.htm Apollo Global Management 10-Q Report to the Securities and Exchange Commission for the period ending 6/30/2022, p. 90. “Athene is a member of the Federal Home Loan Bank of Des Moines (“FHLB”) and, through its membership, has issued funding agreements to the FHLB in exchange for cash advances. As of June 30, 2022, Athene had $3.0 billion of FHLB funding agreements outstanding. Athene is required to provide collateral in excess of the funding agreement amounts outstanding, considering any discounts to the securities posted and prepayment penalties.”

Contacts

Courtney Alexander, calexander@ufcw.org