Vanishing Point
http://www.kunstler.com/mags_diary21.html
July 30, 2007
Comment on current events by the author of "The Long Emergency" (also
on www.kunstler.com).
Last week's stock market meltdown suggested that a financial sector rigged for the falsification of reality eventually enters a danger zone where reality implacably reasserts itself, expectations dissolve, and all that remains is the sour odor of fraud.
This long episode of market mania, running for seven years, was based on the idea that non-performing loans could be turned into money by removing them from their point of origin and dressing them up in respectable clothes -- like taking all the winos in downtown Los Angeles, putting them in Prada suits, and passing them off as the faculty of the Harvard Business School. It was a transparently ludicrous racket and the wonder is that America proved to be so utterly bereft of regulating authority -- not to mention plain decency and self-restraint --at every stage.
It's really hard to account for the stunning failure of responsibility. What you had was a whole industry that surrendered the standards and norms that brought it into being and enabled it to function in the first place.
Mortgage lenders stopped requiring house-buyers to qualify for loans; bankers stopped caring what stood behind the paper they issued; dubious loans were bundled and resold like barrels of rotten anchovies -- in such numbers that no individual stinking minnow would stand out -- and the barrels were traded up the line, leveraged, hedged, fudged, fobbed, and fiddled until, abracadabra, they were transformed into so many Tribeca lofts, Hampton villas, Piaget wristwatches, million-dollar birthday parties, and Gulfstream jets.
It worked for the Goldman Sachs bonus babies, and the private equity scammers, and for the corporate CEOs and their board members, and for the politicians who parlayed their votes into cushy lobbying jobs, and even for the miserable quants in the federal government's termite mounds of statistical reportage. It even worked for about 18 months for millions of feckless US citizens gulled into contracts for houses they could never hope to pay for, under arrantly false and ruinous terms.
My critical auditors never tire of pointing out how consistently wrong I have been about weakness in the US economy, but I really do think we've reached the vanishing point, and that spot on the horizon is looking more and more like a black hole -- with dire gravitational powers of suckage. It first appeared a few weeks ago when two Bear Stearns hedge funds got into trouble over the barrels of rotten anchovies they had bought for their investors. The B/S boys tried desperately to sell the barrels, but nobody showed up for the auction. Word began to spread that all the other companies sitting on barrels of rotten anchovies might not be able to sell theirs either. All of a sudden there was a lot less notional "money" in the system. The "positions" held by the hedge funds (bets made on all kinds of other things leveraged by rotten anchovy collateral) have not themselves unwound quite yet. But enough nervousness ran through the system last week that the stock markets came down with irritable bowel syndrome. The blood and fecal matter whirling around the exit pipe is what remains of the "money."
By the way, I believe the stunning failure of responsibility actually can be accounted for, though my theory may not be to everyone's taste (especially the science hard-asses out there). In a word: entropy. The US has enjoyed unprecedented energy inputs and the result is unprecedented entropy outputs. The protean force of entropy then manifests as degradation in just about everything around us from the immersive ugliness of a landscape overbuilt with WalMarts, Pizza Huts, and vinyl houses, to the sexual perversion available on the Internet, to the surrender of standards and norms by executives in the financial sector. It's as simple as that. Entropy rules.
What reinforces my feeling that we are at the vanishing point is the additional simple fact that on Friday, West Texas crude oil closed one-cent short of its previous record high of $77.03 reached on July 14 last year (thanks to John William's Shadowstats.com for the date). Apart from turmoil in the financial markets, there is nothing especially traumatic going on out there for the moment – no hurricanes, no terror bombings in Europe or America, no guerilla action against Nigerian oil platforms and pipelines. Of course, any of those problems could spring up tomorrow, but right now things are kind of quiet, by current standards. And yet there was oil closing at $77.02 on Friday.
The reason for that high price, I believe, is that we really have entered the zone of the permanent oil export crisis, meaning that the oil exporting nations (Saudi Arabia, Mexico, Russia, Iran, Venezuela, etc) are using ever more of their own depleting product and are able to send less and less along to the places that import their oil (the US, Europe, China, India, and Japan). There is just enough of an export bottleneck now to put upward pressure of a-dollar-here-and-there on the oil in the futures markets . It is certain to get worse. A lot worse.
The launching of this new oil export crisis is coinciding with the crisis in confidence in the financial sector. In fact, the oil export crisis is the un-recognized reality test that is challenging the habitual falsification of reality in finance. This oil export crisis will also have a palpable effect on the reality of everyday life in America. It will bring our system of extreme car dependency closer to failure every day, with each upward one-penny click.
Whether the public ever comes to recognize what this means, it will still affect millions of individual decisions. Among these decisions will be a refusal to consider buying a new house 27 miles outside Minneapolis (or Dallas, or Atlanta....). At the same time this is occurring, and the anchovy barrels stashed around Wall Street start exploding from the gases of putrefaction within, there will be no more mortgages available for new houses anyway. And so the only real activity still driving the US economy -- the building of ever more suburban sprawl -- will come closer to a complete shut-down. I don't think the financial markets will survive that.
July 30, 2007 in Commentary on Current Eve
Vanishing Point
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Vanishing Point
by Oscar » Sun Aug 05, 2007 4:49 pm
- Oscar
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Economic Meltdown?
by Oscar » Sun Aug 05, 2007 5:19 pm
Economic Meltdown?
INDEX
[0] Wall Street awaits Fed rate decision
Yahoo News -Associated Press, Aug 5
[1] Investors are nervous. Who can blame them?
Globe and Mail Business Report Aug 4
[2] World Stocks in Meltdown Over US Economy Fears
Yahoo News, Aug 1
[3] Bear Stearns Halts Redemptions on Third Hedge Fund
Boomberg, July 31
[4] German Victim as Credit Turmoil Hits Europe
Business Times Online, July 31
[5] C-Bass Owners May Write Off $1 Billion Stake
baltimoresun.com, Aug 1
[6] Mizuho Leads Japan Bank Stocks Lower on Profit Slump
Boomberg Aug 1
[7] European, Asian Stocks Decline; RBS, Mizuho, Macquarie Fall
Boomberg Aug 1
[8] U.S. Stocks Tumble a Third Week on Lending Crisis; Bear Falls
By Nick Baker - Bloomberg Aug 4th
=================================
TEXT:
[0] Wall Street awaits Fed rate decision
Yahoo News -Associated Press Aug 5
http://news.yahoo.com/s/ap/20070805/ap_ ... w.nj1saMYA
By MADLEN READ, AP Business Writer 1 hour, 15 minutes ago
NEW YORK - With two weeks of volatility behind it, Wall Street faces the prospect of more turbulence - unless the Federal Reserve comes to the rescue.
Waxing and waning worries about a shrinking availability of credit have sent stocks gyrating, with the Dow Jones industrials swinging by triple digits four straight days last week.
On Friday, the Dow plunged more than 280 points after Bear Stearns Cos.' chief financial officer described the current turmoil in the credit market as being the worst he'd seen in 22 years. On other days, news of mortgage lenders' problems or disappointing housing data provided the impetus to sell.
The Fed's Open Market Committee's regularly scheduled August meeting on Tuesday might be key in whether the markets can settle down or not.
The Fed is widely expected to keep the benchmark rate steady at 5.25 percent, as it has done since last summer, so the focus will as usual be on its economic policy statement.
For months, Fed policy makers have stated they expect the economy to recover, and that curbing costs is their primary concern in light of uncomfortably high inflation. Given the past two weeks on Wall Street, investors are likely to be more interested in whether the central bank addresses credit conditions, and, if it does, what it has to say ... [ ] ...
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[1] Investors are nervous. Who can blame them?
http://www.reportonbusiness.com/servlet ... iness/home
BRIAN MILNER
From Saturday's Globe and Mail Business Report
August 4, 2007 at 12:42 AM EDT
The latest troubling U.S. economic signals, spreading housing woes, the worsening credit squeeze and more turmoil in the markets were enough to spur talk of the dreaded "R" word this week.
"We believe that the S&P 500 is now pricing [in] a U.S. recession starting in late 2007 lasting through most of 2008," UBS's chief equity strategist David Bianco said in a research note on Wednesday.
Using a calculation based on price-earnings multiples and interest rates, Mr. Bianco said the market is expecting the recession to cut S&P 500 earnings per share by about 10 per cent. But he hastened to add that he doesn't consider such an outcome likely, which is understandable. It's not good for business if too many clients cash out of the markets and hunker down to wait out coming economic storms.
But as if on cue, the S&P proceeded yesterday to post its worst single-day percentage decline since the Shanghai surprise that triggered a global stock selloff on Feb. 27.
Most economy watchers remain convinced that the spillover from the U.S. mortgage crisis and the severe slump in the housing sector will stop short of triggering a full-blown downturn, although they are definitely starting to worry as they sift through the tea leaves.
Now, when it comes to forecasting recessions, we'll take the markets over most economists. The latter have an excellent record of predicting downturns - usually only after they have run their course.
But a few weeks of market turbulence after such a long period of calm, sunny weather tells us nothing about whether a recession is lurking around the corner. If we were heading toward a severe downturn in the next few months, punters would be stampeding to the exits instead of walking slowly.
What both the equity and bond markets do tell us, though, is that people are nervous, and with good reason.
To find out why, we went to Anthony Chan, an economist with a track record as a pragmatic prognosticator who has a good handle on Main Street concerns stemming from his time with a bank in the U.S. Midwest.
He also once toiled for the Fed. So if he sees trouble ahead, he's one economist worth paying attention to.
"There is quite a bit of slowdown in the pipeline," said Mr. Chan, chief economist with J.P. Morgan Private Client Services in New York.
"The big question is: `Is that enough to push the economy into a recession?' At this point, I don't see that."
What he does see is a difficult road ahead for rest of this year as the subprime mortgage meltdown takes its toll. It claimed another direct victim this week with the failure of American Home Mortgage Investment, a company that until yesterday employed 7,000 people.
Today, about 90 per cent of them are looking for other work. The indirect impact of such job losses on the economy is just beginning.
And it promises to be painful, as all bursting bubbles tend to be.
"We know that the unwinding of the subprime situation is still ahead of us, rather than behind us," Mr. Chan said.
Sifting through the latest labour market numbers released yesterday, he noted the slower job growth, but warned "that the other shoe" has yet to drop. Translation: Expect big housing-related job losses to weigh down the economy. And what catches his eye this time is a dip in the average work week of 0.1 hours to 33.8 hours. Why does such a tiny change matter? It translates into a loss of about 200,000 jobs.
As always, the key to keeping the economy moving lies with the resilient American consumer, who has been soldiering on bravely in the face of painful asset declines, tightened credit conditions and growing job concerns.
When housing tanked, people were told not to worry, because equities were so strong and there was still plenty of cheap credit available. Now the markets have given up about half of this year's gains, the job market is looking more precarious and bank loans are getting more costly and harder to get. All of which point to a lot less borrowing and spending.
If the consumer packs it in and the markets keep tumbling, that would leave only one potential white knight to ride to the rescue - Fed chairman Ben Bernanke.
The central bank's track record over the past few decades does not inspire great confidence. It was, after all, the Fed's heavy interest-rate cuts of 2001 that triggered the housing bubble in the first place.
But we're not going to need Mr. Bernanke to save us yet.
Corporate profits for the second quarter were above expectations, though they're slowing. The markets are still up on the year and interest rates remain low. "I still see enough positive developments out there," Mr. Chan said, "to suggest that we'll be able to avoid a recession."
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[2] World stocks in meltdown over US economy fears
Thursday August 2, 1:53 AM
http://sg.biz.yahoo.com/070801/1/4a9y7.html
Yahoo News
European and Asian stock markets sank on Wednesday, mirroring losses the previous day in New York, on mounting fears that weakness in the US housing sector could infect the world economy.
However, the major European stock markets wiped out some of their losses of earlier in the day, amid a mixed opening on Wall Street.
In London the FTSE 100 index lost 1.72 percent to close at 6,250.60 points, while in Paris the CAC 40 lost 1.68 percent to 5,654.30 while in Frankfurt the Dax lost 1.45 percent to finish at 7,473.93 points.
The DJ Euro Stoxx 50 index of top eurozone shares lost 1.82 percent to 4,237.05 points.
The euro stood at 1.3679 dollars.
The yen meanwhile hit a four-month high against the dollar and oil passed an all-time peak in New York as investors exited risky investments and turned to safe-havens, dealers said.
Across the Atlantic US shares traded mixed in morning deals in a choppy session following the prior day's selloff as investors worried about contagion from credit problems linked to the ailing US housing sector.
Japanese stocks slumped by more than two percent on Wednesday, with the Nikkei-225 index ending below 17,000 points for the first time in more than four months.
In New York the Dow Jones Industrial Average was up 0.14 percent to 13,230.52 around 1540 GMT while the Nasdaq composite fell 0.42 percent to 2,535.61.
The broad-market Standard Poor's 500 index edged down 0.08 percent to
1,454.17.
On Tuesday shares nose-dived amid news of spreading troubles in the mortgage sector that led investors to shrug off positive economic and earnings reports.
"It doesn't matter that the direct implications of these specific problems are not large for the overall economy. They are bringing forth fears of deeper problems in the flow of credit throughout the economy," said Dick Green, an analyst at Briefing.com.
"These concerns are legitimate but impossible to quantify," he said.
"The risks of a market downturn on any negative news related to mortgages or credit standards remains significant."
Wall Street took a pounding Tuesday, with its three main markets closing down more than 1.0 percent as news of spreading troubles in the US mortgage sector prompted investors to bank profits.
Economists said there were growing jitters about the potential fallout from problems in US subprime lending sector, where mortgages are provided to people with questionable credit histories.
Analysts are concerned that growing mortgage defaults will hurt banks and finance companies enough to curb the availability of credit on which the economy feeds.
That, in turn, could affect private equity groups because their takeover bids are often financed by large amounts of bank debt.
"The central issue that concerns the equity market is really the extent to which this whole subprime fallout will affect a general credit squeeze and reverse the expansion we have seen in the global economy," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London.
"There is this worry now that the ease with which lending has taken place and the ease with which there has been access to borrowing to finance the global economy is being unwound."
No market was immune to plunging equities on Wednesday, as Hong Kong's key Hang Seng Index closed down 3.15 percent, China share prices shed 3.81 percent and Indian's main equity market plunged 3.96
percent.
Sydney's main stock market meanwhile dived 3.3 percent after market favourite Macquarie Bank said two high-yielding funds faced losses of up to 300 million dollars (258 million US).
Shares in Macquarie Bank, known for its deal making and massive executive pay-checks, shed 10.7 percent as a result, enough to prompt
Australian Treasurer Peter Costello to offer assurances that all was well.
US stocks had powered ahead on Monday as investors shrugged off unease about a widening economic crisis that led to last week's bruising for the equity market.
"We're likely to see the volatility persist for a while," Lenhoff said.
"We'll have some good days, we'll have some bad days and eventually we'll see a slightly clearer picture of what this subprime fallout really means for the banks as well as for the credit markets.
"In turn that will hopefully help the credit markets to settle down and move ahead," he added.
Losses were widespread in Europe. In Amsterdam the AEX index fell 1.79 percent to 524.45 while Milan's SP/Mib dropped by 2.04 percent to 39,401, and in Madrid the Ibex-35 lost 1.40 percent to 14,595.7.
In Brussels the Bel-20 closed 1.66 percent lower at 4,311.80 points.
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[3] Bear Stearns Halts Redemptions on Third Hedge Fund (Update1)
http://www.bloomberg.com/apps/news?pid= ... refer=home
Boomberg, July 31 By Yalman Onaran
July 31 (Bloomberg) -- Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after a slump in credit markets prompted investors to demand their money back.
The Bear Stearns Asset-Backed Securities Fund had about $900 million
invested in asset-backed securities, including mortgage bonds, spokesman Russell Sherman said today in a telephone interview. The fund was overwhelmed by redemption requests, Sherman said.
The fund's stumble is a setback for New York-based Bear Stearns and illustrates how the crisis in the subprime mortgage market has spread. The fund had less than 0.5 percent of its assets in securities linked to loans to subprime borrowers, Sherman said. The two funds that collapsed invested almost fully in subprime bonds.
Losses have spread to banks, insurers and hedge funds in France and Australia, including one run by Macquarie Bank Ltd.
``This shows you don't necessarily have to be a subprime fund now to be having problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.
Bear Stearns shares have dropped more than 25 percent this year on concern that the drop in subprime securities will hurt its income. The firm was the largest underwriter of U.S. mortgage bonds in the past two years, ceding the title to rival Lehman Brothers Holdings Inc. this year. Lehman shares have dropped 21 percent.
Being `Prudent'
Bear Stearns has no plans to close the fund, which has $50 million in cash and gets about $13 million in principal and interest monthly, Sherman said. By suspending redemptions, the fund managers can avoid selling assets at depressed prices.
The Wall Street Journal earlier reported that the fund was up 5 percent this year through June, before its performance plummeted in July.
The fund's managers can wait until the decline in mortgage securities is over because it owes no money, Sherman said.
``We don't believe it's prudent or in the interests of our investors to sell assets in this current environment,'' Sherman said. ``The fund portfolio is well positioned to wait out the market uncertainty.''
The two previous funds, the Bear Stearns High-Grade Structured Credit
Strategies fund and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage fund both filed for bankruptcy protection in the Cayman Islands today.
`Unprecedented Declines'
The funds collapsed last month when creditors asked for more collateral after the value of its securities dropped. Bear Stearns extended $1.6 billion in credit to one of the funds before seizing its assets last week.
Bear Stearns told investors two weeks ago that they will get little if any money back after ``unprecedented declines'' in the value of securities used to bet on subprime mortgages. Bear Stearns has said it expects to lose no money on its loan.
Late payments on subprime home loans nationwide rose in the first quarter to the highest level since 2002, the Mortgage Bankers Association has reported. At least 60 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data.
The ABX index that tracks derivatives linked to subprime mortgage securities with the highest investment-grade ratings, created in the second half of 2006, has fallen by more than 6 percent last month. An ABX index tracking subprime debt with the lowest investment-grade ratings has declined 30 percent.
A fund run by Macquarie, Australia's largest securities firm, said that investors in two of its high-yield funds may lose as much as 25 percent of their money because of declining asset prices in the U.S. subprime mortgage market.
To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net .
Last Updated: July 31, 2007 19:58 EDT
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[4] German victim as credit turmoil hits Europe
Tom Bawden and Gary Duncan July 31
http://business.timesonline.co.uk/tol/b ... 169971.ece
The turmoil gripping world credit markets spread to Germany yesterday, claiming another victim as one of the country´s leading small business lenders was bailed out after succumbing to financial strains from the American sub-prime mortgage crisis.
After IKB Deutsche Industriebank issued a surprise profits warning and replaced its chief executive, KfW Group, the state-owned bank that is its largest shareholder, was forced to step in. KfW, which owns 38 per cent of IKB, said that it would cover potential losses in an effort to shore up the beleaguered lender´s credit rating.
As IKB´s shares tumbled by more than a fifth, the blow to Germany´s
financial sector also sent shares in other banking groups in Europe´s
biggest economy tumbling.
IKB´s woes added to fears that the credit crunch sweeping America would take a firm grip across Europe, as new figures showed that filings by lenders seeking to foreclose on bad US home loans leapt by 58 per cent in the first half.
Amid mounting market anxieties, the benchmark gauge of investors´ sentiment towards European low-grade corporate debt yesterday hit the
worst levels on record.
Germany´s first sub-prime casualty emerged as the mortgage meltdown continued to wreak havoc in the American financial services industry.
American Home Mortgage Investment shares plunged by 45 per cent yesterday as the market digested the news that the "prime" and near-prime home-loan group would delay payment of its quarterly dividend and make what it called "major" write-downs on its loan book.
A leading consultancy, Oxford Economics, meanwhile sounded a warning that Britain´s heavy dependence on the booming financial sector for as much as half its recent GDP growth meant that the fall-out from a credit crunch could lead to wider repercussions for the economy. The consultancy estimated that were market turmoil to see the pace of expansion in financial services halve, that could knock almost half a
percentage point of the economy´s overall rate of growth.
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[5] C-Bass owners may write off $1 billion stake
www.baltimoresun.com/business/balbz.fie ... oresun.com
By Laura Smitherman Sun reporter August 1, 2007
The company that acquired subprime lender Fieldstone Investment Corp. of Columbia two weeks ago is now in financial trouble and could be written off as worthless by its owners.
MGIC Investment Corp. and Radian Group Inc. announced late Monday that they may write off their stakes in Credit-Based Asset Servicing and Securitization LLC.
The New York joint venture, known as C-BASS, invests in subprime mortgages and packages the debt for sale. MGIC and Radian had valued
their combined investments in C-BASS at roughly $1 billion.
C-BASS, where management also owns a small stake, said yesterday that it was in "advanced discussions" with a number of investors to
alleviate a cash crunch, according to a news release.
The company said it remained confident in the overall credit quality of its portfolio.
The development illustrates the swift deterioration of the subprime mortgage industry and the breadth of those affected. MGIC, the largest U.S. insurer of home loans, and competitor Radian were not directly involved in extending the subprime loans, which often carry higher or adjustable interest rates and are typically reserved for borrowers with weaker credit.
MGIC and Radian had previously agreed to merge.
Also yesterday, American Home Mortgage Investment Corp. said that it
doesn't have cash to fund new loans and may liquidate its assets.
The company focused on higher-quality loans than subprime but also made so-called "low-doc" loans that allow borrowers to produce little documentation of income or assets.
It relied on bank financing to help fund home loans, and revealed that it has "substantial" unpaid margin calls pending to lenders.
C-BASS reported yesterday an "unprecedented" level of margin calls, which typically means a request for additional collateral or cash from lenders, and blamed the situation on "the current severe state of disruption in the credit markets."
C-BASS said it had met $290 million in margin calls in the first six months of this year and then an additional $260 million worth in the first 24 days of July.
The Fieldstone acquisition by C-BASS for $188 million closed in mid-July. Fieldstone, which sold mortgages nationwide, had been hit by a rising number of loan defaults and was facing a liquidity crunch of its own.
Fieldstone also is the target of an investigation by the Labor Department into allegations from its former general counsel, Cynthia L. Harkness. She claims she was fired in retaliation for reporting alleged violations of securities and other laws by senior management.
She made the complaint under the Sarbanes-Oxley corporate accountability law.
Dozens of subprime mortgage companies have declared bankruptcy, shuttered operations or been sold in recent months, and the news has roiled stock markets. Amid fears about credit conditions last week, the Dow Jones industrial average and Standard & Poor's 500 index posted their worst week in five years. The Dow and S&P 500 each slipped more than 1 percent yesterday.
"A few very short days is all it takes for liquidity providers to get nervous and start to pull credit lines," said Steve Stelmach, an analyst at Friedman Billings Ramsey. "There are larger ramifications.
If liquidity dries up in the mortgage market, it's going to be tougher for everyone to finance home purchases."
laura.smitherman@baltsun.com
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[6] Mizuho Leads Japan Bank Stocks Lower on Profit Slump (Update3)
http://www.bloomberg.com/apps/news?pid= ... refer=home
By Finbarr Flynn
Aug. 1 (Bloomberg) -- Shares of Mizuho Financial Group Inc., Japan's second-largest bank, led the biggest drop in the nation's bank stocks in three years after reporting first-quarter profit tumbled because of rising credit costs.
The 86-member Topix Banks Index slid 4.7 percent, the steepest plunge since May 2004. Mizuho fell 9 percent, the most since the same month and the fifth-largest percentage decline on the MSCI World Index.
Shares of the Tokyo-based bank closed at 766,000 yen.
Lending at Japan's largest banks fell 0.5 percent in June, the biggest drop in 15 months, as cash-rich companies shunned borrowing.
The tumble in earnings suggests Mizuho and larger Mitsubishi UFJ Financial Group Inc. failed to capitalize on the 65 months of expansion by the world's second-biggest economy.
``Mitsubishi UFJ and Mizuho have come in below street expectations,''
said Scott McGlashan, a London-based fund manager at J O Hambro Capital Management Ltd., which manages $8 billion globally. ``They've
given investors zero reasons to buy.''
Mizuho yesterday cited 38.2 billion yen of credit costs as helping cause net income to fall by half to 116.5 billion yen ($983 million) in the three months ended June 30. A year earlier, it recouped 15.1 billion yen previously set aside.
`Disappointing' Profits
Mizuho also reported declines in interest income, trading revenue and fees, suggesting an economy that grew 3.3 percent in the first quarter didn't translate into rising earnings at the bank's different divisions.
The earnings were ``very disappointing,'' said Kristine Li, a Tokyo-based analyst at KBC Securities Japan, in an interview this morning.
``Net interest income was flat, fee income was down and operating expenses and credit costs were up.''
Mitsubishi UFJ's first-quarter profit slid 31 percent as credit costs swelled sevenfold to 84 billion yen, partly because the bank wrote back fewer earlier provisions for bad loans. Sliding profits at small corporate customers and an increase in risky loans at consumer finance unit Mitsubishi Nicos Co. also boosted credit expenses, bank spokesman Yusuke Fukui said.
Shares of Tokyo-based Mitsubishi UFJ fell 4.7 percent to 1.21 million yen today.
Total lending at the 10 Japanese banks that operate nationwide contracted in each of the past three months, capped by a 0.5 percent tumble in June, the biggest drop since March 2006, a central bank report showed last month.
Widening Spreads
Analysts including Brett Hemsley at HSBC Holdings Plc have argued that two rate increases by the Bank of Japan in the past 12 months would benefit lenders by allowing them to charge more for loans while
delaying increases in deposit rates.
Instead, ``the rising cost of market funding, on which Mizuho depends more than its peers, more than absorbed the benefit of wider spreads,'' Hemsley said today. It's still ``too early to give up on the prospect of rising net interest income at Mizuho.''
Mitsubishi UFJ's interest rate margin rose to 1.43 percent in the first quarter from 1.32 percent in the six months ended Sept. 30, according to Hemsley.
Analysts including Katsuhito Sasajima at JPMorgan Securities Japan Co. said bank earnings may rebound as they raise lending rates more than returns on deposits.
``Although first-quarter results were negative, we see the potential for a recovery from the second quarter,'' Sasajima said.
Rates to Rise?
Japan's key interest rate stands at 0.5 percent, the lowest among developed economies, and economists expect the BOJ to keep boosting
borrowing costs. That may help bolster profits at banks because they typically are quicker to raise loan charges than deposit rates.
None of Japan's three biggest banks, including Sumitomo Mitsui Financial Group Inc., increased lending by more than 1.3 percent in the quarter.
There's still no sign cash-rich Japanese corporations are ready to start borrowing from the banks, said KBC's Li, adding that the small increase in total lending at the banks came from an increase in home loans.
Sumitomo Mitsui was the only one of Japan's three largest banks to increase net interest income in the quarter, thanks in part to its ability to charge more for loans to the smaller businesses and homebuyers that make up 60 percent of its borrowers. Mitsubishi UFJ makes about 50 percent of its lending to that market segment.
To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net
Last Updated: August 1, 2007 03:21 EDT
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[7] Stocks Decline Worldwide; Bear Stearns, Mizuho, Macquarie Fall
http://www.bloomberg.com/apps/news?pid= ... refer=home
By Alexis Xydias
Aug. 1 (Bloomberg) -- Stocks dropped worldwide after Bear Stearns Cos. stopped investors from pulling money out of a hedge fund and Macquarie Bank Ltd. said two of its funds may post losses as the U.S. subprime-market rout spreads.
Bear Stearns shares traded at a 19-month low before the open of U.S. exchanges. Royal Bank of Scotland Group Plc and ING Groep NV led shares of financial companies lower in Europe, while Mizuho Financial
Group Inc. slid in Japan. Macquarie, Australia's largest securities firm, tumbled the most in five years.
The Morgan Stanley Capital International World Index, a global benchmark, fell 0.8 percent to 1,553.62 as of 8:33 a.m. in New York, with all 10 industry groups slipping. Futures on the Standard & Poor's 500 index declined 0.5 percent. The dollar also retreated, while the risk of owning European corporate bonds soared.
``No one knows where the ultimate subprime risk resides so investors across the globe are ducking for cover,'' said Simon Carter, head of North American equities at Aegon Asset Management in Edinburgh, where he helps oversee $3 billion. ``Incremental news of hedge funds and
subprime issuers shutting their doors will likely continue.''
Concern that defaults among subprime mortgages may be spilling over to other credit markets and hurt earnings and takeovers is forcing investors to reappraise the risk of owning equities. The MSCI World has dropped 6.3 percent since its 2007 high on July 19.
National benchmarks fell in all 17 western European markets that were
open today. The U.K.'s FTSE 100 retreated 1.4 percent, while France's CAC 40 slid 1.9 percent. Germany's DAX slipped 1.1 percent.
Yen, Treasuries
The yen rose to the highest in 12 weeks against the dollar, climbing to 117.86 from 118.61. It topped 118 for the first time since April 19. The yield on the benchmark U.S. 10-year note was little changed at 4.74 percent, according to bond broker Cantor Fitzgerald LP.
All Asian markets dropped except Vietnam. Japan's Topix Index lost 2.2 percent. South Korea's Kospi plunged 4 percent. The MSCI Emerging Markets Index, which includes Russian, Chinese and Brazilian equities, lost 3.3 percent.
U.S. stocks tumbled yesterday after American Home Mortgage Investment Corp., which caters to homeowners with more reliable payment records, said it lacks cash to fund new loans.
Bear Stearns, manager of two hedge funds that collapsed last month, said after U.S. markets closed that it halted redemptions from a third fund as losses in the credit markets expand beyond securities related to subprime mortgages.
Asset-Backed Securities
The Bear Stearns Asset-Backed Securities Fund had less than 0.5 percent of its $900 million of assets in securities linked to subprime loans, spokesman Russell Sherman said in an interview yesterday. Even so, investors concerned about losses sought to withdraw their money, he said.
Bear Stearns declined $3.62 to $117.60. Citigroup Inc., the biggest U.S. bank, dropped 37 cents to $46.20. Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage bonds, slipped 99 cents to $61.01.
Macquarie tumbled 11 percent to A$73.70, the biggest drop since Feb. 6, 2002. The bank said investors in some of its high- yield funds may lose as much as 25 percent of their money. Macquarie Fortress Investments Ltd. was forced to sell assets and use the proceeds to reduce borrowings.
Funds losses may worsen because banks are forcing borrowers to sell assets as the value of collateral declines.
``Issues once specific to America are now flowing through to the rest of the world,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney. ``People are nervous because Macquarie looks and smells a lot like the companies that have been affected by this in the U.S.''
Bond Risk
Contracts on 10 million euros ($13.8 million) of debt included in the iTraxx Crossover Series 7 Index of 50 European companies increased
59,000 euros to 459,000 euros today, according to JPMorgan Chase & Co.
A rise in the cost of the five-year contracts signals worsening perceptions of credit quality.
The Chicago Board Options Exchange Volatility Index, derived from the prices paid for options on the Standard & Poor's 500 Index, yesterday finished less than 1 point, or 2.7 percent, short of its highest since April 2003, a level reached on July 27.
Royal Bank, Britain's second-largest bank, decreased 5.2 percent to 562 pence. ING, the biggest Dutch financial-services company, retreated 2.8 percent to 30.45 euros.
Mizuho, Sumitomo Mitsui
Mizuho, Japan's second-biggest lender by assets, slumped 10 percent to 755,000 yen. The company said net income plunged by half to 116.5 billion yen ($983 million) for the three months to June 30 as swelling credit costs eroded interest income, and fees and commissions declined.
Sumitomo Mitsui Financial Group Inc. declined 5.6 percent to 1.02 million yen. Babcock & Brown Ltd., Australia's second- largest investment bank, slumped 11 percent to A$25.
Deutsche Bank AG fell 2.7 percent to 98.20 euros even after Germany's
biggest bank said second-quarter profit rose 31 percent, beating analysts' estimates, on record trading revenue. HBOS Plc, Britain's biggest mortgage bank, slumped 4.2 percent to 928.5 pence even as first-half profit climbed 20 percent.
Man Group Plc, the world's largest publicly traded hedge fund company, retreated 5 percent to 539.5 pence. The company said yesterday after U.K. markets closed that its AHL Diversified Futures Ltd. fund fell 6.8 percent in the week ended July 30.
Cadbury Schweppes Plc declined 7.3 percent to 575 pence. The world's
largest confectionery maker said first-half net income and sales missed analysts' estimates and margins are unlikely to improve this year.
S&P 500 futures expiring in September lost 13.10 to 1,448.80. Dow Jones Industrial Average futures fell 102 to 13,173. Nasdaq-100 Index futures decreased 12.75 to 1,933.
To contact the reporter on this story: Alexis Xydias in London at
axydias@bloomberg.net
[8] U.S. Stocks Tumble a Third Week on Lending Crisis; Bear Falls
http://www.bloomberg.com/apps/news?pid= ... refer=home
By Nick Baker - Bloomberg Aug 4th
Aug. 4 (Bloomberg) -- U.S. stocks fell, pushing the Standard & Poor's 500 Index to its steepest three-week skid since 2003, on deepening concern that mortgage losses will hurt bank earnings and reduce the pace of takeovers.
Bear Stearns Cos., the manager of two hedge funds that collapsed last month because of rising defaults in home loans, tumbled the most since September 2001. Shares of the largest U.S. mortgage lender, Countrywide Financial Corp., had the biggest loss in almost three years.
``The market's walking on eggshells,'' said Ryan Larson, senior equity trader at Voyageur Asset Management in Chicago. ``It doesn't have all the subprime and credit news yet. It's the great unknown.''-
INDEX
[0] Wall Street awaits Fed rate decision
Yahoo News -Associated Press, Aug 5
[1] Investors are nervous. Who can blame them?
Globe and Mail Business Report Aug 4
[2] World Stocks in Meltdown Over US Economy Fears
Yahoo News, Aug 1
[3] Bear Stearns Halts Redemptions on Third Hedge Fund
Boomberg, July 31
[4] German Victim as Credit Turmoil Hits Europe
Business Times Online, July 31
[5] C-Bass Owners May Write Off $1 Billion Stake
baltimoresun.com, Aug 1
[6] Mizuho Leads Japan Bank Stocks Lower on Profit Slump
Boomberg Aug 1
[7] European, Asian Stocks Decline; RBS, Mizuho, Macquarie Fall
Boomberg Aug 1
[8] U.S. Stocks Tumble a Third Week on Lending Crisis; Bear Falls
By Nick Baker - Bloomberg Aug 4th
=================================
TEXT:
[0] Wall Street awaits Fed rate decision
Yahoo News -Associated Press Aug 5
http://news.yahoo.com/s/ap/20070805/ap_ ... w.nj1saMYA
By MADLEN READ, AP Business Writer 1 hour, 15 minutes ago
NEW YORK - With two weeks of volatility behind it, Wall Street faces the prospect of more turbulence - unless the Federal Reserve comes to the rescue.
Waxing and waning worries about a shrinking availability of credit have sent stocks gyrating, with the Dow Jones industrials swinging by triple digits four straight days last week.
On Friday, the Dow plunged more than 280 points after Bear Stearns Cos.' chief financial officer described the current turmoil in the credit market as being the worst he'd seen in 22 years. On other days, news of mortgage lenders' problems or disappointing housing data provided the impetus to sell.
The Fed's Open Market Committee's regularly scheduled August meeting on Tuesday might be key in whether the markets can settle down or not.
The Fed is widely expected to keep the benchmark rate steady at 5.25 percent, as it has done since last summer, so the focus will as usual be on its economic policy statement.
For months, Fed policy makers have stated they expect the economy to recover, and that curbing costs is their primary concern in light of uncomfortably high inflation. Given the past two weeks on Wall Street, investors are likely to be more interested in whether the central bank addresses credit conditions, and, if it does, what it has to say ... [ ] ...
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[1] Investors are nervous. Who can blame them?
http://www.reportonbusiness.com/servlet ... iness/home
BRIAN MILNER
From Saturday's Globe and Mail Business Report
August 4, 2007 at 12:42 AM EDT
The latest troubling U.S. economic signals, spreading housing woes, the worsening credit squeeze and more turmoil in the markets were enough to spur talk of the dreaded "R" word this week.
"We believe that the S&P 500 is now pricing [in] a U.S. recession starting in late 2007 lasting through most of 2008," UBS's chief equity strategist David Bianco said in a research note on Wednesday.
Using a calculation based on price-earnings multiples and interest rates, Mr. Bianco said the market is expecting the recession to cut S&P 500 earnings per share by about 10 per cent. But he hastened to add that he doesn't consider such an outcome likely, which is understandable. It's not good for business if too many clients cash out of the markets and hunker down to wait out coming economic storms.
But as if on cue, the S&P proceeded yesterday to post its worst single-day percentage decline since the Shanghai surprise that triggered a global stock selloff on Feb. 27.
Most economy watchers remain convinced that the spillover from the U.S. mortgage crisis and the severe slump in the housing sector will stop short of triggering a full-blown downturn, although they are definitely starting to worry as they sift through the tea leaves.
Now, when it comes to forecasting recessions, we'll take the markets over most economists. The latter have an excellent record of predicting downturns - usually only after they have run their course.
But a few weeks of market turbulence after such a long period of calm, sunny weather tells us nothing about whether a recession is lurking around the corner. If we were heading toward a severe downturn in the next few months, punters would be stampeding to the exits instead of walking slowly.
What both the equity and bond markets do tell us, though, is that people are nervous, and with good reason.
To find out why, we went to Anthony Chan, an economist with a track record as a pragmatic prognosticator who has a good handle on Main Street concerns stemming from his time with a bank in the U.S. Midwest.
He also once toiled for the Fed. So if he sees trouble ahead, he's one economist worth paying attention to.
"There is quite a bit of slowdown in the pipeline," said Mr. Chan, chief economist with J.P. Morgan Private Client Services in New York.
"The big question is: `Is that enough to push the economy into a recession?' At this point, I don't see that."
What he does see is a difficult road ahead for rest of this year as the subprime mortgage meltdown takes its toll. It claimed another direct victim this week with the failure of American Home Mortgage Investment, a company that until yesterday employed 7,000 people.
Today, about 90 per cent of them are looking for other work. The indirect impact of such job losses on the economy is just beginning.
And it promises to be painful, as all bursting bubbles tend to be.
"We know that the unwinding of the subprime situation is still ahead of us, rather than behind us," Mr. Chan said.
Sifting through the latest labour market numbers released yesterday, he noted the slower job growth, but warned "that the other shoe" has yet to drop. Translation: Expect big housing-related job losses to weigh down the economy. And what catches his eye this time is a dip in the average work week of 0.1 hours to 33.8 hours. Why does such a tiny change matter? It translates into a loss of about 200,000 jobs.
As always, the key to keeping the economy moving lies with the resilient American consumer, who has been soldiering on bravely in the face of painful asset declines, tightened credit conditions and growing job concerns.
When housing tanked, people were told not to worry, because equities were so strong and there was still plenty of cheap credit available. Now the markets have given up about half of this year's gains, the job market is looking more precarious and bank loans are getting more costly and harder to get. All of which point to a lot less borrowing and spending.
If the consumer packs it in and the markets keep tumbling, that would leave only one potential white knight to ride to the rescue - Fed chairman Ben Bernanke.
The central bank's track record over the past few decades does not inspire great confidence. It was, after all, the Fed's heavy interest-rate cuts of 2001 that triggered the housing bubble in the first place.
But we're not going to need Mr. Bernanke to save us yet.
Corporate profits for the second quarter were above expectations, though they're slowing. The markets are still up on the year and interest rates remain low. "I still see enough positive developments out there," Mr. Chan said, "to suggest that we'll be able to avoid a recession."
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[2] World stocks in meltdown over US economy fears
Thursday August 2, 1:53 AM
http://sg.biz.yahoo.com/070801/1/4a9y7.html
Yahoo News
European and Asian stock markets sank on Wednesday, mirroring losses the previous day in New York, on mounting fears that weakness in the US housing sector could infect the world economy.
However, the major European stock markets wiped out some of their losses of earlier in the day, amid a mixed opening on Wall Street.
In London the FTSE 100 index lost 1.72 percent to close at 6,250.60 points, while in Paris the CAC 40 lost 1.68 percent to 5,654.30 while in Frankfurt the Dax lost 1.45 percent to finish at 7,473.93 points.
The DJ Euro Stoxx 50 index of top eurozone shares lost 1.82 percent to 4,237.05 points.
The euro stood at 1.3679 dollars.
The yen meanwhile hit a four-month high against the dollar and oil passed an all-time peak in New York as investors exited risky investments and turned to safe-havens, dealers said.
Across the Atlantic US shares traded mixed in morning deals in a choppy session following the prior day's selloff as investors worried about contagion from credit problems linked to the ailing US housing sector.
Japanese stocks slumped by more than two percent on Wednesday, with the Nikkei-225 index ending below 17,000 points for the first time in more than four months.
In New York the Dow Jones Industrial Average was up 0.14 percent to 13,230.52 around 1540 GMT while the Nasdaq composite fell 0.42 percent to 2,535.61.
The broad-market Standard Poor's 500 index edged down 0.08 percent to
1,454.17.
On Tuesday shares nose-dived amid news of spreading troubles in the mortgage sector that led investors to shrug off positive economic and earnings reports.
"It doesn't matter that the direct implications of these specific problems are not large for the overall economy. They are bringing forth fears of deeper problems in the flow of credit throughout the economy," said Dick Green, an analyst at Briefing.com.
"These concerns are legitimate but impossible to quantify," he said.
"The risks of a market downturn on any negative news related to mortgages or credit standards remains significant."
Wall Street took a pounding Tuesday, with its three main markets closing down more than 1.0 percent as news of spreading troubles in the US mortgage sector prompted investors to bank profits.
Economists said there were growing jitters about the potential fallout from problems in US subprime lending sector, where mortgages are provided to people with questionable credit histories.
Analysts are concerned that growing mortgage defaults will hurt banks and finance companies enough to curb the availability of credit on which the economy feeds.
That, in turn, could affect private equity groups because their takeover bids are often financed by large amounts of bank debt.
"The central issue that concerns the equity market is really the extent to which this whole subprime fallout will affect a general credit squeeze and reverse the expansion we have seen in the global economy," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London.
"There is this worry now that the ease with which lending has taken place and the ease with which there has been access to borrowing to finance the global economy is being unwound."
No market was immune to plunging equities on Wednesday, as Hong Kong's key Hang Seng Index closed down 3.15 percent, China share prices shed 3.81 percent and Indian's main equity market plunged 3.96
percent.
Sydney's main stock market meanwhile dived 3.3 percent after market favourite Macquarie Bank said two high-yielding funds faced losses of up to 300 million dollars (258 million US).
Shares in Macquarie Bank, known for its deal making and massive executive pay-checks, shed 10.7 percent as a result, enough to prompt
Australian Treasurer Peter Costello to offer assurances that all was well.
US stocks had powered ahead on Monday as investors shrugged off unease about a widening economic crisis that led to last week's bruising for the equity market.
"We're likely to see the volatility persist for a while," Lenhoff said.
"We'll have some good days, we'll have some bad days and eventually we'll see a slightly clearer picture of what this subprime fallout really means for the banks as well as for the credit markets.
"In turn that will hopefully help the credit markets to settle down and move ahead," he added.
Losses were widespread in Europe. In Amsterdam the AEX index fell 1.79 percent to 524.45 while Milan's SP/Mib dropped by 2.04 percent to 39,401, and in Madrid the Ibex-35 lost 1.40 percent to 14,595.7.
In Brussels the Bel-20 closed 1.66 percent lower at 4,311.80 points.
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[3] Bear Stearns Halts Redemptions on Third Hedge Fund (Update1)
http://www.bloomberg.com/apps/news?pid= ... refer=home
Boomberg, July 31 By Yalman Onaran
July 31 (Bloomberg) -- Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after a slump in credit markets prompted investors to demand their money back.
The Bear Stearns Asset-Backed Securities Fund had about $900 million
invested in asset-backed securities, including mortgage bonds, spokesman Russell Sherman said today in a telephone interview. The fund was overwhelmed by redemption requests, Sherman said.
The fund's stumble is a setback for New York-based Bear Stearns and illustrates how the crisis in the subprime mortgage market has spread. The fund had less than 0.5 percent of its assets in securities linked to loans to subprime borrowers, Sherman said. The two funds that collapsed invested almost fully in subprime bonds.
Losses have spread to banks, insurers and hedge funds in France and Australia, including one run by Macquarie Bank Ltd.
``This shows you don't necessarily have to be a subprime fund now to be having problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.
Bear Stearns shares have dropped more than 25 percent this year on concern that the drop in subprime securities will hurt its income. The firm was the largest underwriter of U.S. mortgage bonds in the past two years, ceding the title to rival Lehman Brothers Holdings Inc. this year. Lehman shares have dropped 21 percent.
Being `Prudent'
Bear Stearns has no plans to close the fund, which has $50 million in cash and gets about $13 million in principal and interest monthly, Sherman said. By suspending redemptions, the fund managers can avoid selling assets at depressed prices.
The Wall Street Journal earlier reported that the fund was up 5 percent this year through June, before its performance plummeted in July.
The fund's managers can wait until the decline in mortgage securities is over because it owes no money, Sherman said.
``We don't believe it's prudent or in the interests of our investors to sell assets in this current environment,'' Sherman said. ``The fund portfolio is well positioned to wait out the market uncertainty.''
The two previous funds, the Bear Stearns High-Grade Structured Credit
Strategies fund and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage fund both filed for bankruptcy protection in the Cayman Islands today.
`Unprecedented Declines'
The funds collapsed last month when creditors asked for more collateral after the value of its securities dropped. Bear Stearns extended $1.6 billion in credit to one of the funds before seizing its assets last week.
Bear Stearns told investors two weeks ago that they will get little if any money back after ``unprecedented declines'' in the value of securities used to bet on subprime mortgages. Bear Stearns has said it expects to lose no money on its loan.
Late payments on subprime home loans nationwide rose in the first quarter to the highest level since 2002, the Mortgage Bankers Association has reported. At least 60 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data.
The ABX index that tracks derivatives linked to subprime mortgage securities with the highest investment-grade ratings, created in the second half of 2006, has fallen by more than 6 percent last month. An ABX index tracking subprime debt with the lowest investment-grade ratings has declined 30 percent.
A fund run by Macquarie, Australia's largest securities firm, said that investors in two of its high-yield funds may lose as much as 25 percent of their money because of declining asset prices in the U.S. subprime mortgage market.
To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net .
Last Updated: July 31, 2007 19:58 EDT
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[4] German victim as credit turmoil hits Europe
Tom Bawden and Gary Duncan July 31
http://business.timesonline.co.uk/tol/b ... 169971.ece
The turmoil gripping world credit markets spread to Germany yesterday, claiming another victim as one of the country´s leading small business lenders was bailed out after succumbing to financial strains from the American sub-prime mortgage crisis.
After IKB Deutsche Industriebank issued a surprise profits warning and replaced its chief executive, KfW Group, the state-owned bank that is its largest shareholder, was forced to step in. KfW, which owns 38 per cent of IKB, said that it would cover potential losses in an effort to shore up the beleaguered lender´s credit rating.
As IKB´s shares tumbled by more than a fifth, the blow to Germany´s
financial sector also sent shares in other banking groups in Europe´s
biggest economy tumbling.
IKB´s woes added to fears that the credit crunch sweeping America would take a firm grip across Europe, as new figures showed that filings by lenders seeking to foreclose on bad US home loans leapt by 58 per cent in the first half.
Amid mounting market anxieties, the benchmark gauge of investors´ sentiment towards European low-grade corporate debt yesterday hit the
worst levels on record.
Germany´s first sub-prime casualty emerged as the mortgage meltdown continued to wreak havoc in the American financial services industry.
American Home Mortgage Investment shares plunged by 45 per cent yesterday as the market digested the news that the "prime" and near-prime home-loan group would delay payment of its quarterly dividend and make what it called "major" write-downs on its loan book.
A leading consultancy, Oxford Economics, meanwhile sounded a warning that Britain´s heavy dependence on the booming financial sector for as much as half its recent GDP growth meant that the fall-out from a credit crunch could lead to wider repercussions for the economy. The consultancy estimated that were market turmoil to see the pace of expansion in financial services halve, that could knock almost half a
percentage point of the economy´s overall rate of growth.
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[5] C-Bass owners may write off $1 billion stake
www.baltimoresun.com/business/balbz.fie ... oresun.com
By Laura Smitherman Sun reporter August 1, 2007
The company that acquired subprime lender Fieldstone Investment Corp. of Columbia two weeks ago is now in financial trouble and could be written off as worthless by its owners.
MGIC Investment Corp. and Radian Group Inc. announced late Monday that they may write off their stakes in Credit-Based Asset Servicing and Securitization LLC.
The New York joint venture, known as C-BASS, invests in subprime mortgages and packages the debt for sale. MGIC and Radian had valued
their combined investments in C-BASS at roughly $1 billion.
C-BASS, where management also owns a small stake, said yesterday that it was in "advanced discussions" with a number of investors to
alleviate a cash crunch, according to a news release.
The company said it remained confident in the overall credit quality of its portfolio.
The development illustrates the swift deterioration of the subprime mortgage industry and the breadth of those affected. MGIC, the largest U.S. insurer of home loans, and competitor Radian were not directly involved in extending the subprime loans, which often carry higher or adjustable interest rates and are typically reserved for borrowers with weaker credit.
MGIC and Radian had previously agreed to merge.
Also yesterday, American Home Mortgage Investment Corp. said that it
doesn't have cash to fund new loans and may liquidate its assets.
The company focused on higher-quality loans than subprime but also made so-called "low-doc" loans that allow borrowers to produce little documentation of income or assets.
It relied on bank financing to help fund home loans, and revealed that it has "substantial" unpaid margin calls pending to lenders.
C-BASS reported yesterday an "unprecedented" level of margin calls, which typically means a request for additional collateral or cash from lenders, and blamed the situation on "the current severe state of disruption in the credit markets."
C-BASS said it had met $290 million in margin calls in the first six months of this year and then an additional $260 million worth in the first 24 days of July.
The Fieldstone acquisition by C-BASS for $188 million closed in mid-July. Fieldstone, which sold mortgages nationwide, had been hit by a rising number of loan defaults and was facing a liquidity crunch of its own.
Fieldstone also is the target of an investigation by the Labor Department into allegations from its former general counsel, Cynthia L. Harkness. She claims she was fired in retaliation for reporting alleged violations of securities and other laws by senior management.
She made the complaint under the Sarbanes-Oxley corporate accountability law.
Dozens of subprime mortgage companies have declared bankruptcy, shuttered operations or been sold in recent months, and the news has roiled stock markets. Amid fears about credit conditions last week, the Dow Jones industrial average and Standard & Poor's 500 index posted their worst week in five years. The Dow and S&P 500 each slipped more than 1 percent yesterday.
"A few very short days is all it takes for liquidity providers to get nervous and start to pull credit lines," said Steve Stelmach, an analyst at Friedman Billings Ramsey. "There are larger ramifications.
If liquidity dries up in the mortgage market, it's going to be tougher for everyone to finance home purchases."
laura.smitherman@baltsun.com
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[6] Mizuho Leads Japan Bank Stocks Lower on Profit Slump (Update3)
http://www.bloomberg.com/apps/news?pid= ... refer=home
By Finbarr Flynn
Aug. 1 (Bloomberg) -- Shares of Mizuho Financial Group Inc., Japan's second-largest bank, led the biggest drop in the nation's bank stocks in three years after reporting first-quarter profit tumbled because of rising credit costs.
The 86-member Topix Banks Index slid 4.7 percent, the steepest plunge since May 2004. Mizuho fell 9 percent, the most since the same month and the fifth-largest percentage decline on the MSCI World Index.
Shares of the Tokyo-based bank closed at 766,000 yen.
Lending at Japan's largest banks fell 0.5 percent in June, the biggest drop in 15 months, as cash-rich companies shunned borrowing.
The tumble in earnings suggests Mizuho and larger Mitsubishi UFJ Financial Group Inc. failed to capitalize on the 65 months of expansion by the world's second-biggest economy.
``Mitsubishi UFJ and Mizuho have come in below street expectations,''
said Scott McGlashan, a London-based fund manager at J O Hambro Capital Management Ltd., which manages $8 billion globally. ``They've
given investors zero reasons to buy.''
Mizuho yesterday cited 38.2 billion yen of credit costs as helping cause net income to fall by half to 116.5 billion yen ($983 million) in the three months ended June 30. A year earlier, it recouped 15.1 billion yen previously set aside.
`Disappointing' Profits
Mizuho also reported declines in interest income, trading revenue and fees, suggesting an economy that grew 3.3 percent in the first quarter didn't translate into rising earnings at the bank's different divisions.
The earnings were ``very disappointing,'' said Kristine Li, a Tokyo-based analyst at KBC Securities Japan, in an interview this morning.
``Net interest income was flat, fee income was down and operating expenses and credit costs were up.''
Mitsubishi UFJ's first-quarter profit slid 31 percent as credit costs swelled sevenfold to 84 billion yen, partly because the bank wrote back fewer earlier provisions for bad loans. Sliding profits at small corporate customers and an increase in risky loans at consumer finance unit Mitsubishi Nicos Co. also boosted credit expenses, bank spokesman Yusuke Fukui said.
Shares of Tokyo-based Mitsubishi UFJ fell 4.7 percent to 1.21 million yen today.
Total lending at the 10 Japanese banks that operate nationwide contracted in each of the past three months, capped by a 0.5 percent tumble in June, the biggest drop since March 2006, a central bank report showed last month.
Widening Spreads
Analysts including Brett Hemsley at HSBC Holdings Plc have argued that two rate increases by the Bank of Japan in the past 12 months would benefit lenders by allowing them to charge more for loans while
delaying increases in deposit rates.
Instead, ``the rising cost of market funding, on which Mizuho depends more than its peers, more than absorbed the benefit of wider spreads,'' Hemsley said today. It's still ``too early to give up on the prospect of rising net interest income at Mizuho.''
Mitsubishi UFJ's interest rate margin rose to 1.43 percent in the first quarter from 1.32 percent in the six months ended Sept. 30, according to Hemsley.
Analysts including Katsuhito Sasajima at JPMorgan Securities Japan Co. said bank earnings may rebound as they raise lending rates more than returns on deposits.
``Although first-quarter results were negative, we see the potential for a recovery from the second quarter,'' Sasajima said.
Rates to Rise?
Japan's key interest rate stands at 0.5 percent, the lowest among developed economies, and economists expect the BOJ to keep boosting
borrowing costs. That may help bolster profits at banks because they typically are quicker to raise loan charges than deposit rates.
None of Japan's three biggest banks, including Sumitomo Mitsui Financial Group Inc., increased lending by more than 1.3 percent in the quarter.
There's still no sign cash-rich Japanese corporations are ready to start borrowing from the banks, said KBC's Li, adding that the small increase in total lending at the banks came from an increase in home loans.
Sumitomo Mitsui was the only one of Japan's three largest banks to increase net interest income in the quarter, thanks in part to its ability to charge more for loans to the smaller businesses and homebuyers that make up 60 percent of its borrowers. Mitsubishi UFJ makes about 50 percent of its lending to that market segment.
To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net
Last Updated: August 1, 2007 03:21 EDT
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[7] Stocks Decline Worldwide; Bear Stearns, Mizuho, Macquarie Fall
http://www.bloomberg.com/apps/news?pid= ... refer=home
By Alexis Xydias
Aug. 1 (Bloomberg) -- Stocks dropped worldwide after Bear Stearns Cos. stopped investors from pulling money out of a hedge fund and Macquarie Bank Ltd. said two of its funds may post losses as the U.S. subprime-market rout spreads.
Bear Stearns shares traded at a 19-month low before the open of U.S. exchanges. Royal Bank of Scotland Group Plc and ING Groep NV led shares of financial companies lower in Europe, while Mizuho Financial
Group Inc. slid in Japan. Macquarie, Australia's largest securities firm, tumbled the most in five years.
The Morgan Stanley Capital International World Index, a global benchmark, fell 0.8 percent to 1,553.62 as of 8:33 a.m. in New York, with all 10 industry groups slipping. Futures on the Standard & Poor's 500 index declined 0.5 percent. The dollar also retreated, while the risk of owning European corporate bonds soared.
``No one knows where the ultimate subprime risk resides so investors across the globe are ducking for cover,'' said Simon Carter, head of North American equities at Aegon Asset Management in Edinburgh, where he helps oversee $3 billion. ``Incremental news of hedge funds and
subprime issuers shutting their doors will likely continue.''
Concern that defaults among subprime mortgages may be spilling over to other credit markets and hurt earnings and takeovers is forcing investors to reappraise the risk of owning equities. The MSCI World has dropped 6.3 percent since its 2007 high on July 19.
National benchmarks fell in all 17 western European markets that were
open today. The U.K.'s FTSE 100 retreated 1.4 percent, while France's CAC 40 slid 1.9 percent. Germany's DAX slipped 1.1 percent.
Yen, Treasuries
The yen rose to the highest in 12 weeks against the dollar, climbing to 117.86 from 118.61. It topped 118 for the first time since April 19. The yield on the benchmark U.S. 10-year note was little changed at 4.74 percent, according to bond broker Cantor Fitzgerald LP.
All Asian markets dropped except Vietnam. Japan's Topix Index lost 2.2 percent. South Korea's Kospi plunged 4 percent. The MSCI Emerging Markets Index, which includes Russian, Chinese and Brazilian equities, lost 3.3 percent.
U.S. stocks tumbled yesterday after American Home Mortgage Investment Corp., which caters to homeowners with more reliable payment records, said it lacks cash to fund new loans.
Bear Stearns, manager of two hedge funds that collapsed last month, said after U.S. markets closed that it halted redemptions from a third fund as losses in the credit markets expand beyond securities related to subprime mortgages.
Asset-Backed Securities
The Bear Stearns Asset-Backed Securities Fund had less than 0.5 percent of its $900 million of assets in securities linked to subprime loans, spokesman Russell Sherman said in an interview yesterday. Even so, investors concerned about losses sought to withdraw their money, he said.
Bear Stearns declined $3.62 to $117.60. Citigroup Inc., the biggest U.S. bank, dropped 37 cents to $46.20. Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage bonds, slipped 99 cents to $61.01.
Macquarie tumbled 11 percent to A$73.70, the biggest drop since Feb. 6, 2002. The bank said investors in some of its high- yield funds may lose as much as 25 percent of their money. Macquarie Fortress Investments Ltd. was forced to sell assets and use the proceeds to reduce borrowings.
Funds losses may worsen because banks are forcing borrowers to sell assets as the value of collateral declines.
``Issues once specific to America are now flowing through to the rest of the world,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney. ``People are nervous because Macquarie looks and smells a lot like the companies that have been affected by this in the U.S.''
Bond Risk
Contracts on 10 million euros ($13.8 million) of debt included in the iTraxx Crossover Series 7 Index of 50 European companies increased
59,000 euros to 459,000 euros today, according to JPMorgan Chase & Co.
A rise in the cost of the five-year contracts signals worsening perceptions of credit quality.
The Chicago Board Options Exchange Volatility Index, derived from the prices paid for options on the Standard & Poor's 500 Index, yesterday finished less than 1 point, or 2.7 percent, short of its highest since April 2003, a level reached on July 27.
Royal Bank, Britain's second-largest bank, decreased 5.2 percent to 562 pence. ING, the biggest Dutch financial-services company, retreated 2.8 percent to 30.45 euros.
Mizuho, Sumitomo Mitsui
Mizuho, Japan's second-biggest lender by assets, slumped 10 percent to 755,000 yen. The company said net income plunged by half to 116.5 billion yen ($983 million) for the three months to June 30 as swelling credit costs eroded interest income, and fees and commissions declined.
Sumitomo Mitsui Financial Group Inc. declined 5.6 percent to 1.02 million yen. Babcock & Brown Ltd., Australia's second- largest investment bank, slumped 11 percent to A$25.
Deutsche Bank AG fell 2.7 percent to 98.20 euros even after Germany's
biggest bank said second-quarter profit rose 31 percent, beating analysts' estimates, on record trading revenue. HBOS Plc, Britain's biggest mortgage bank, slumped 4.2 percent to 928.5 pence even as first-half profit climbed 20 percent.
Man Group Plc, the world's largest publicly traded hedge fund company, retreated 5 percent to 539.5 pence. The company said yesterday after U.K. markets closed that its AHL Diversified Futures Ltd. fund fell 6.8 percent in the week ended July 30.
Cadbury Schweppes Plc declined 7.3 percent to 575 pence. The world's
largest confectionery maker said first-half net income and sales missed analysts' estimates and margins are unlikely to improve this year.
S&P 500 futures expiring in September lost 13.10 to 1,448.80. Dow Jones Industrial Average futures fell 102 to 13,173. Nasdaq-100 Index futures decreased 12.75 to 1,933.
To contact the reporter on this story: Alexis Xydias in London at
axydias@bloomberg.net
[8] U.S. Stocks Tumble a Third Week on Lending Crisis; Bear Falls
http://www.bloomberg.com/apps/news?pid= ... refer=home
By Nick Baker - Bloomberg Aug 4th
Aug. 4 (Bloomberg) -- U.S. stocks fell, pushing the Standard & Poor's 500 Index to its steepest three-week skid since 2003, on deepening concern that mortgage losses will hurt bank earnings and reduce the pace of takeovers.
Bear Stearns Cos., the manager of two hedge funds that collapsed last month because of rising defaults in home loans, tumbled the most since September 2001. Shares of the largest U.S. mortgage lender, Countrywide Financial Corp., had the biggest loss in almost three years.
``The market's walking on eggshells,'' said Ryan Larson, senior equity trader at Voyageur Asset Management in Chicago. ``It doesn't have all the subprime and credit news yet. It's the great unknown.''-
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