Mayors of Hoboken, Secaucus, Several Rabbis Arrested
excellent comment from PM
By David Voreacos
July 23 (Bloomberg) -- The mayors of Hoboken, Ridgefield and Secaucus, New Jersey, and several rabbis are among 44 people charged today as part of a public corruption and money- laundering investigation by U.S. authorities.
Hoboken Mayor Peter Cammarano, 32, Secaucus Mayor Dennis Elwell, 64, Ridgefield Mayor Anthony Suarez, 42, all Democrats, Jersey City Council President Mariano Vega Jr., 59, and State Assemblyman Daniel Van Pelt, 44, a Republican from Ocean Township, and Assemblyman L. Harvey Smith, a Jersey City Democrat, were charged by the Federal Bureau of Investigation. They will appear today in federal court in Newark, New Jersey.
The corruption probe, based in Hudson County, netted many public officials accused of pledging assistance for bribes. A cooperating witness infiltrated a “pre-existing money laundering network” that moved “at least tens of millions of dollars through charitable, non-profit entities controlled by rabbis in New York and New Jersey,” according to a release by acting U.S. Attorney Ralph Marra.
“The fact that we arrested a number of rabbis this morning does not make this a religiously motivated investigation,” Weysan Dun, special agent in charge of the FBI office in Newark, said at a news conference. “It is not a politically motivated investigation. It is about crime, corruption, arrogance, and a shocking betrayal of public trust.”
Cooperating Witness
The roundup of suspects is one of the largest ever in New Jersey, where more than 100 public officials have been convicted of corruption in the past few years. The cooperating witness laundered $3 million through the rabbis and also made bribe payments to public officials, prosecutors said. Investigators made hundreds of hours of audio and video recordings of illicit transactions, according to prosecutors.
The cooperating witness is Solomon Dwek, a real estate developer in Monmouth County, New Jersey, who was charged May 11, 2006, with scheming to defraud PNC Bank out of $50 million, according to three people familiar with the matter. Dwek is a rabbi’s son who was vice president of the Deal Yeshiva School in West Long Branch, New Jersey.
Cammarano, Hoboken’s youngest mayor, was sworn in July 1. Former state Assemblyman Louis Manzo, 54, a Democrat from Jersey City, Leona Beldini, a deputy mayor of Jersey City, and several rabbis were charged.
The rabbis included Saul Kassin, 87, chief rabbi of Sharee Zion, a synagogue in Brooklyn, New York; Eliahu Ben Haim, 58, the principal rabbi of Congregation Ohel Yaacob in Deal, New Jersey; Edmond Nahum, 56, of Deal Synagogue in Deal; Mordchai Fish, 56, of Congregation Sheves Achim in Brooklyn; and Lavel Schwartz, 57, Fish’s brother.
Syrian, Hasidic Jews
They were charged with money laundering. The rabbis are members of the Syrian Jewish or Hasidic Jewish communities, Marra said at the news conference.
“This case uncovered a web of corruption that spanned the state,” Dun said. “All of the individuals were connected through their illicit activities with the undercover witness.”
Kassin is accused of laundering more than $200,000 through Dwek from June 2007 through December 2008 by accepting “dirty checks” from the cooperator and exchanging them for “clean” checks, according to prosecutors.
Fish, Schwartz and two other defendants used a charitable, tax-exempt organization called BCG, which was associated with Fish’s synagogue, to launder money, according to the FBI.
Human Organs
Levy-Izhak Rosenbaum, 58, of Brooklyn was accused of conspiring with others to acquire and trade human organs for use in transplantation. Rosenbaum, who was “purportedly” involved in real estate, was approached by a cooperating witness and an undercover FBI agent about buying a human kidney from a human organ broker, according to the complaint.
Rosenbaum said it would cost $150,000, with half payable up front, according to the complaint. Rosenbaum said some of the money would go to the donor and some to doctors in Israel, according to the complaint.
“One of the reasons it’s so expensive is because you have to shmear (meaning pay various individuals for their assistance) all the time,” according to the complaint. “It’s illegal to buy. It’s illegal to sell.”
Prosecutors charged the men in a series of criminal complaints detailing the allegations. Ben Haim was accused of laundering $1.5 million through the undercover witness, who said he “was engaged in illegal businesses and schemes including bank fraud, trafficking in counterfeit goods and concealing assets and monies in connection with bankruptcy proceedings,” according to an FBI criminal complaint.
PNC Bank
Before his 2006 arrest, Dwek deposited two $25 million checks from another account of his, which had a zero balance, prosecutors alleged. Dwek then wired $22.8 million out of PNC, falsely assuring bank officials that he would forward funds to cover the overdraft, according to prosecutors.
Dwek posted a $10 million bond, secured by $3 million in equity in the homes of his mother-in-law and sister-in-law. Dwek was never indicted, instead receiving 17 extensions from a judge to continue the period in which his case had to be presented to a federal grand jury.
Michael Himmel and Christopher Porrino, lawyers for the cooperating witness, didn’t immediately return calls or e-mails requesting comment.
300 FBI, IRS Agents
More than 300 agents of the FBI and the Internal Revenue Service arrested the suspects and executed search warrants this morning, according to Dun.
Agents searched the house of Joseph Doria, a former Democratic assemblyman and the commissioner of the state Department of Community Affairs. He hasn’t been charged. They also searched the offices of the president of St. Peter’s College, a school in Jersey City, as well as a synagogue in Deal, Dun said.
“Any corruption is unacceptable -- anywhere, anytime, by anybody,” New Jersey Governor Jon Corzine, a Democrat seeking reelection against Republican Christopher Christie, the former U.S. attorney in New Jersey, said in a statement.
“The scale of corruption we’re seeing as this unfolds is simply outrageous and cannot be tolerated,” Corzine said.
Doria resigned today at Corzine’s request, the governor’s spokesman said.
The arrests today emerged from an investigation that spans a decade and has led to two earlier roundups.
“New Jersey’s corruption problem is one of the worst, if not the worst, in the country,” said FBI supervising agent Ed Kahrer. “Corruption is a cancer that is destroying the core values of this state and this great nation.”
To contact the reporter on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.
Last Updated: July 23, 2009 15:44 EDT
Showing posts with label bloomberg. Show all posts
Showing posts with label bloomberg. Show all posts
15 June 2009
Bank Rescue Costs EU States $5.3 Trillion, More Than German GDP
June 12 (Bloomberg) -- European governments have approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, to support banks during the credit crunch, according to a European Union document.
The U.K. pledged 781.2 billion euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states and obtained by Bloomberg News. Denmark, where 13 of the country’s 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion euros.
The measures, designed to save banks and revive economic growth, surpass Germany’s $3.3 trillion economy, the region’s biggest. They also helped to widen the Euro area’s budget deficit to the most in three years in 2008. The commission, the EU’s executive arm, is seeking to create the first EU-wide agencies with rule-making powers to monitor risk in the economy after the crisis led to $460 billion of losses and writedowns across the continent, according to data compiled by Bloomberg.
“The operating environment for banks is likely to remain challenging, in particular in respect of credit losses linked to their loan portfolios,” according to the document, produced by the EU’s Economic and Financial Committee. The draft document, partially entitled “the effectiveness of financial support measures,” will be debated at the next meeting of EU leaders on June 18-19 in Brussels.
Government Pledges
EU governments approved about 311.4 billion euros for capital injections, 2.92 trillion euros for bank liability guarantees, 33 billion euros for relief of impaired assets and 505.6 billion euros for liquidity and bank funding support, a total of 3.77 trillion euros, the document shows.
The U.S. government and the Federal Reserve had spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, as of March 31.
A majority of new member states including Slovakia, the Czech Republic, Estonia and Lithuania have not taken public measures to support their financial markets, the draft said. Many banks in the region are foreign-owned. More than 80 percent of bank loans in central and eastern Europe come from lenders owned by six western European EU countries, according to Moody’s Investors Service.
All together, the EU paper said that 18 member states have introduced bank liability guarantees, 15 have approved recapitalization measures, and 11 have given liquidity support.
The programs have “contributed to a stabilization of the extremely tense financial market conditions that were witnessed in the autumn of last year,” according to the document. Still, there remain “elevated risk premiums in many parts” of the financial markets and this is “likely to remain challenging.”
‘High Risk Premiums’
The decline of lending in Europe “remains mainly demand- driven, but banks’ balance sheet constraints and limited access to medium- and long-term financing” and high risk premiums “may also have contributed,” according to preliminary ECB analysis, the document said.
Government’s attempts to make banks pledge to increase lending as a condition of taxpayer support may “imply that banks lose one of their credit tools to manage credit risk if no safeguards are established to ensure” that loans are made on commercial terms and with “sound risk management techniques.”
The British government this year secured promises of additional mortgage and business lending from Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Northern Rock Plc in return for aid.
Further Disclosure
The document called on European leaders to seek further disclosure on impaired assets and to restore confidence in the industry. New EU guidelines may require banks in receipt of aid to sell branches or units to win approval for restructuring plans, according to the document. These guidelines could be approved as soon as the end of the month.
Banks in Germany received the third-largest amount in aid, the document showed, for a total of 554.2 billion euros. Commerzbank AG, Germany’s second-biggest bank, was told to sell its Eurohypo commercial property unit by the Commission on May 7 to win approval for a second bailout by the German government.
Following is a table of European government’s commitments. All figures are in billions of euros and include capital injections, guarantees granted, effective asset relief and liquidity interventions.
United Kingdom 781.2
Denmark 593.9
Germany 554.2
Ireland 384.5
France 350.1
Belgium 264.5
Netherlands 246.1
Austria 165
Sweden 142
Spain 130
To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net
http://bloomberg.com/apps/news?pid=20601109&sid=aI.TvvSBYXBM
The U.K. pledged 781.2 billion euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states and obtained by Bloomberg News. Denmark, where 13 of the country’s 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion euros.
The measures, designed to save banks and revive economic growth, surpass Germany’s $3.3 trillion economy, the region’s biggest. They also helped to widen the Euro area’s budget deficit to the most in three years in 2008. The commission, the EU’s executive arm, is seeking to create the first EU-wide agencies with rule-making powers to monitor risk in the economy after the crisis led to $460 billion of losses and writedowns across the continent, according to data compiled by Bloomberg.
“The operating environment for banks is likely to remain challenging, in particular in respect of credit losses linked to their loan portfolios,” according to the document, produced by the EU’s Economic and Financial Committee. The draft document, partially entitled “the effectiveness of financial support measures,” will be debated at the next meeting of EU leaders on June 18-19 in Brussels.
Government Pledges
EU governments approved about 311.4 billion euros for capital injections, 2.92 trillion euros for bank liability guarantees, 33 billion euros for relief of impaired assets and 505.6 billion euros for liquidity and bank funding support, a total of 3.77 trillion euros, the document shows.
The U.S. government and the Federal Reserve had spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, as of March 31.
A majority of new member states including Slovakia, the Czech Republic, Estonia and Lithuania have not taken public measures to support their financial markets, the draft said. Many banks in the region are foreign-owned. More than 80 percent of bank loans in central and eastern Europe come from lenders owned by six western European EU countries, according to Moody’s Investors Service.
All together, the EU paper said that 18 member states have introduced bank liability guarantees, 15 have approved recapitalization measures, and 11 have given liquidity support.
The programs have “contributed to a stabilization of the extremely tense financial market conditions that were witnessed in the autumn of last year,” according to the document. Still, there remain “elevated risk premiums in many parts” of the financial markets and this is “likely to remain challenging.”
‘High Risk Premiums’
The decline of lending in Europe “remains mainly demand- driven, but banks’ balance sheet constraints and limited access to medium- and long-term financing” and high risk premiums “may also have contributed,” according to preliminary ECB analysis, the document said.
Government’s attempts to make banks pledge to increase lending as a condition of taxpayer support may “imply that banks lose one of their credit tools to manage credit risk if no safeguards are established to ensure” that loans are made on commercial terms and with “sound risk management techniques.”
The British government this year secured promises of additional mortgage and business lending from Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Northern Rock Plc in return for aid.
Further Disclosure
The document called on European leaders to seek further disclosure on impaired assets and to restore confidence in the industry. New EU guidelines may require banks in receipt of aid to sell branches or units to win approval for restructuring plans, according to the document. These guidelines could be approved as soon as the end of the month.
Banks in Germany received the third-largest amount in aid, the document showed, for a total of 554.2 billion euros. Commerzbank AG, Germany’s second-biggest bank, was told to sell its Eurohypo commercial property unit by the Commission on May 7 to win approval for a second bailout by the German government.
Following is a table of European government’s commitments. All figures are in billions of euros and include capital injections, guarantees granted, effective asset relief and liquidity interventions.
United Kingdom 781.2
Denmark 593.9
Germany 554.2
Ireland 384.5
France 350.1
Belgium 264.5
Netherlands 246.1
Austria 165
Sweden 142
Spain 130
To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net
http://bloomberg.com/apps/news?pid=20601109&sid=aI.TvvSBYXBM
21 May 2009
Gold demand up ~ Bloomberg
May 20 (Bloomberg) -- Gold purchases rose 38 percent in the first quarter, led by investment demand that exceeded usage by jewelers for the first time since at least 2004, according to the World Gold Council.
Global demand increased to 1,015.5 metric tons, from 733.9 tons a year earlier, the London-based council said today in a report based on figures from research company GFMS Ltd. Investment purchases more than tripled to 595.9 tons while jewelry demand fell 24 percent to 339.4 tons.
Gold rose to an 11-month high of $1,006.29 an ounce on Feb. 20 as governments spent trillions of dollars to fight recession, sparking speculation inflation will accelerate. In India, the world’s largest gold buyer last year, jewelry demand was the lowest in at least 20 years and net retail investment turned negative for the first time as holders sold metal for recycling, the council said. Chinese demand was six times that of India.
“In the current environment, investment demand is part of the diversification of assets in portfolios and therefore is less sensitive to price than jewelry demand,” said John Meyer, research director at Fairfax IS in London.
Investment demand for coins, bars and exchange-traded funds was the highest since at least 2004, when GFMS began tracking them, and “could well be” a record, GFMS senior metals analyst Philip Newman said. Jewelry demand had accounted for about two- thirds of gold demand in the past 30 years, he said.
Investment Flows
“Investment flows in the first quarter of this year were unprecedented and, based on an analysis of the past 30 years of the gold market, probably unsustainable in the long term,” UBS AG analyst John Reade wrote in an e-mail. Concerns about inflation and currencies “are likely to continue for the next year or so and this should keep investment flows strong, if not perhaps at the super-strong levels seen in the first quarter.”
The U.K. Royal Mint used 75 percent more gold in the first quarter than a year earlier and the U.S. Mint’s sales of 1-ounce American Eagle gold coins more than quadrupled in January.
Gold for immediate delivery climbed $2.98, or 0.3 percent, to $928.04 an ounce by 8:24 a.m. in London.
Total demand from India fell 83 percent to 17.7 tons, from 107.2 tons a year earlier. In Thailand, total usage was a negative 16.9 tons, compared with net demand of 2.1 tons a year earlier. Purchases in China rose 1.8 percent to 105.2 tons from 103.3 tons. In the U.S., demand rose 15 percent to 55.2 tons.
‘A Bigger Role’
“Certainly over the long run, you’re going to see China permanently taking a bigger role,” said Rozanna Wozniak, London-based investment manager at the council. “Across the world, there has been an increase in recycled gold sales, due to a combination of profit taking and distress selling due to difficult economic conditions.”
Demand in Germany for bars and coins expanded fivefold in the first quarter to 59 tons, according to the report.
“Throughout the western world, the safe-haven motive to buy gold was very strong due to economic uncertainty,” Wozniak said. “In Germany, it also appears to be motivated by inflation.”
Owners of gold sold a record 558 tons of metal back into the market, with net retail investment a negative 17 tons in India and 19.9 tons in Thailand, according to the report.
Gold mine production rose 2.9 percent to 560 tons from 544 tons. Central bank sales slumped 55 percent to 35 tons from 77 tons.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
Last Updated: May 20, 2009 03:52 EDT
Global demand increased to 1,015.5 metric tons, from 733.9 tons a year earlier, the London-based council said today in a report based on figures from research company GFMS Ltd. Investment purchases more than tripled to 595.9 tons while jewelry demand fell 24 percent to 339.4 tons.
Gold rose to an 11-month high of $1,006.29 an ounce on Feb. 20 as governments spent trillions of dollars to fight recession, sparking speculation inflation will accelerate. In India, the world’s largest gold buyer last year, jewelry demand was the lowest in at least 20 years and net retail investment turned negative for the first time as holders sold metal for recycling, the council said. Chinese demand was six times that of India.
“In the current environment, investment demand is part of the diversification of assets in portfolios and therefore is less sensitive to price than jewelry demand,” said John Meyer, research director at Fairfax IS in London.
Investment demand for coins, bars and exchange-traded funds was the highest since at least 2004, when GFMS began tracking them, and “could well be” a record, GFMS senior metals analyst Philip Newman said. Jewelry demand had accounted for about two- thirds of gold demand in the past 30 years, he said.
Investment Flows
“Investment flows in the first quarter of this year were unprecedented and, based on an analysis of the past 30 years of the gold market, probably unsustainable in the long term,” UBS AG analyst John Reade wrote in an e-mail. Concerns about inflation and currencies “are likely to continue for the next year or so and this should keep investment flows strong, if not perhaps at the super-strong levels seen in the first quarter.”
The U.K. Royal Mint used 75 percent more gold in the first quarter than a year earlier and the U.S. Mint’s sales of 1-ounce American Eagle gold coins more than quadrupled in January.
Gold for immediate delivery climbed $2.98, or 0.3 percent, to $928.04 an ounce by 8:24 a.m. in London.
Total demand from India fell 83 percent to 17.7 tons, from 107.2 tons a year earlier. In Thailand, total usage was a negative 16.9 tons, compared with net demand of 2.1 tons a year earlier. Purchases in China rose 1.8 percent to 105.2 tons from 103.3 tons. In the U.S., demand rose 15 percent to 55.2 tons.
‘A Bigger Role’
“Certainly over the long run, you’re going to see China permanently taking a bigger role,” said Rozanna Wozniak, London-based investment manager at the council. “Across the world, there has been an increase in recycled gold sales, due to a combination of profit taking and distress selling due to difficult economic conditions.”
Demand in Germany for bars and coins expanded fivefold in the first quarter to 59 tons, according to the report.
“Throughout the western world, the safe-haven motive to buy gold was very strong due to economic uncertainty,” Wozniak said. “In Germany, it also appears to be motivated by inflation.”
Owners of gold sold a record 558 tons of metal back into the market, with net retail investment a negative 17 tons in India and 19.9 tons in Thailand, according to the report.
Gold mine production rose 2.9 percent to 560 tons from 544 tons. Central bank sales slumped 55 percent to 35 tons from 77 tons.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
Last Updated: May 20, 2009 03:52 EDT
7 April 2009
Bank Loan Losses Will Exceed Depression Levels
Mayo Says Loan Losses Will Exceed Depression Levels
By Michael J. Moore
April 6 (Bloomberg) -- Mike Mayo, who left Deutsche Bank AG last month and joined CLSA, assigned an “underweight” rating to U.S. banks and predicted loan losses will exceed levels from the Great Depression.
U.S. stocks dropped after Mayo gave “sell” ratings to banks including Winston-Salem, North Carolina-based BB&T Corp. and Cincinnati’s Fifth Third Bancorp. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, were assigned “underperform” ratings, Mayo said in a report today.
“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”
The 46-year-old Mayo gained a reputation for independence at Frankfurt-based Deutsche Bank for his willingness to put a “sell” rating on banks and to criticize investors and companies for trying to curb objective analysis. At Deutsche, Mayo had “sell” or “hold” ratings on all 18 companies he covered, according to data compiled by Bloomberg. CLSA is an affiliate of New York-based Calyon Securities.
Bank of America, based in Charlotte, North Carolina, fell 21 cents, or 2.8 percent to $7.39 at 10:14 a.m. in New York Stock Exchange composite trading. New York-based JPMorgan dropped 91 cents, or 3.1 percent, to $28.37. The KBW Bank Index lost 4.2 percent, the first decline in five days.
Card Losses
Mayo said he expects loan losses to increase to 3.5 percent, and even as high as 5.5 percent in a stress scenario, by the end of 2010. Mortgage-related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels, according to Mayo, who declined to comment beyond the report.
The nation’s largest banks may be transitioning from a financial crisis marked by writedowns of capital to an economic crisis featuring large loan losses, Mayo wrote. The U.S. government cannot provide much relief because its actions will lead to either banks having to raise new capital or toxic assets remaining on banks’ balance sheets, Mayo wrote.
Mayo said solutions to the banking crisis will take time, as the increase in risk happened over a decade or more.
CLSA’s underperform rating reflects the expectation that the stock will underperform the local market by 0 to 10 percent, while a sell rating expects it to fare worse by more than 10 percent, according to the report.
Meredith Whitney, who left Oppenheimer & Co. in February to found Meredith Whitney Advisory Group LLC, said in a Forbes interview that banks will continue to write down their mortgage assets as home prices decline further than lenders expected. The unemployment rate also has exceeded banks’ projections and could lead to further loan losses, Whitney said.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net.
Last Updated: April 6, 2009 10:29 EDT
By Michael J. Moore
April 6 (Bloomberg) -- Mike Mayo, who left Deutsche Bank AG last month and joined CLSA, assigned an “underweight” rating to U.S. banks and predicted loan losses will exceed levels from the Great Depression.
U.S. stocks dropped after Mayo gave “sell” ratings to banks including Winston-Salem, North Carolina-based BB&T Corp. and Cincinnati’s Fifth Third Bancorp. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, were assigned “underperform” ratings, Mayo said in a report today.
“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”
The 46-year-old Mayo gained a reputation for independence at Frankfurt-based Deutsche Bank for his willingness to put a “sell” rating on banks and to criticize investors and companies for trying to curb objective analysis. At Deutsche, Mayo had “sell” or “hold” ratings on all 18 companies he covered, according to data compiled by Bloomberg. CLSA is an affiliate of New York-based Calyon Securities.
Bank of America, based in Charlotte, North Carolina, fell 21 cents, or 2.8 percent to $7.39 at 10:14 a.m. in New York Stock Exchange composite trading. New York-based JPMorgan dropped 91 cents, or 3.1 percent, to $28.37. The KBW Bank Index lost 4.2 percent, the first decline in five days.
Card Losses
Mayo said he expects loan losses to increase to 3.5 percent, and even as high as 5.5 percent in a stress scenario, by the end of 2010. Mortgage-related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels, according to Mayo, who declined to comment beyond the report.
The nation’s largest banks may be transitioning from a financial crisis marked by writedowns of capital to an economic crisis featuring large loan losses, Mayo wrote. The U.S. government cannot provide much relief because its actions will lead to either banks having to raise new capital or toxic assets remaining on banks’ balance sheets, Mayo wrote.
Mayo said solutions to the banking crisis will take time, as the increase in risk happened over a decade or more.
CLSA’s underperform rating reflects the expectation that the stock will underperform the local market by 0 to 10 percent, while a sell rating expects it to fare worse by more than 10 percent, according to the report.
Meredith Whitney, who left Oppenheimer & Co. in February to found Meredith Whitney Advisory Group LLC, said in a Forbes interview that banks will continue to write down their mortgage assets as home prices decline further than lenders expected. The unemployment rate also has exceeded banks’ projections and could lead to further loan losses, Whitney said.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net.
Last Updated: April 6, 2009 10:29 EDT
26 March 2009
Bonds not selling so good ~ rates will rise ~ Bloomberg
March 25 (Bloomberg) -- Treasury 10-year note yields rose the most in more than two weeks after an auction of $34 billion in five-year notes drew a higher-than-forecast yield, spurring concern record sales of U.S. debt are overwhelming demand.
U.S. securities dropped even after the Federal Reserve today bought $7.5 billion of Treasury notes, its first targeted purchases of U.S. securities since the early 1960s. The five- year auction drew a yield of 1.849 percent, higher than the 1.801 percent forecast in a Bloomberg News survey of eight trading firms. The Treasury will sell $24 billion of seven-year notes tomorrow.
“In light of all the supply that’s in the market it’s not a surprise that yields have moved back up,” said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd., which advises community banks investing $20 billion of assets. “You don’t want to fight the Fed in this market environment. Even though there is enormous supply, the Fed will do what it can to keep a cap on yields.”
The 10-year note yield rose eight basis points, or 0.08 percentage point, to 2.78 percent at 4:40 p.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 fell 21/32, or $6.56 per $1,000 face amount, to 99 23/32.
Yields have now gained 24 basis points in the five days since the Fed’s March 18 announcement it would buy Treasuries sent yields down 47 basis points, the most since 1962.
Five-Year Auction
The 30-year bond yield gained 10 basis points today to 3.73 percent, while the current five-year note yield appreciated eight basis points to 1.81 percent.
The bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, fell to 2.02 from an average 2.18 at the previous 10 sales.
The Treasury Department is selling a record $98 billion in notes this week, eclipsing the record $94 billion auctioned the week ended Feb. 27. The U.K. failed to attract enough bidders today at an auction of 1.75 billion pounds ($2.55 billion) of gilts for the first time in almost seven years.
President Barack Obama’s government is selling record amounts of debt to revive economic growth, service deficits, and cushion the failures in the financial system. Debt sales will almost triple this year to a record $2.5 trillion, according to estimates from Goldman Sachs Group Inc.
Orders for U.S. durable goods unexpectedly rose by 3.4 percent in February, the Commerce Department said today in Washington. Purchases of new homes in the U.S. unexpectedly jumped in February, increasing 4.7 percent to an annual pace of 337,000 after a 322,000 rate in January, Commerce said.
Fed Purchases
“Better than expected economic data, failure of the long- end auction in the U.K. and low demand at the five-year Treasury auction; all these factors combined are leading to higher yields,” said Anshul Pradhan, an interest-rate strategist in New York at Barclays Capital Inc., another primary dealer.
The Fed said it purchased $7.5 billion of U.S. debt spread among 13 of the possible 19 securities eligible for purchase. The notes mature from February 2016 to February 2019, the Federal Reserve Bank of New York said in a statement today. Nearly $22 billion was submitted to the central bank in the first day of buying, the New York Fed said.
“We are really not seeing any kind of meaningful support for the Treasury market,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley’s individual investor clients. “Conventional wisdom in the market is that the Fed will concentrate on the five- to 10-year or the seven- to 10-year sector.”
‘Poor Communication’
The Fed joins central banks in the U.K. and Japan in extraordinary purchases of government debt. U.S. policy makers announced the decision last week to buy $300 billion of government debt in the next six months along with a plan to more than double purchases of housing debt to $1.45 trillion, hoping to reduce rates on home loans.
The dollar fell the most in almost a week against the euro on concern Treasury Secretary Timothy Geithner supported a Chinese plan to blunt demand among global central banks for the U.S. currency. The dollar weakened as much as 1.2 percent to $1.3651 per euro, the biggest intraday decline since March 19, before trading at $1.3601 at 4:20 p.m. in New York.
Geithner later affirmed the dollar’s role as the world’s reserve currency.
“The poor communication from the Treasury department has complicated the market for Treasuries,” said Baker Group’s Caughron.
Failed Auction
The U.K.’s effort to buy government debt wasn’t enough to prevent today’s failed auction of 40-year gilts, the first time that the government failed to attract enough bids at a sale of debt since 2002. Investors bid for 1.63 billion pounds ($2.4 billion) of 4.25 percent notes, less than the 1.75 billion pounds offered.
“The failed gilt auction doesn’t bode well for Treasuries,” said Michael Franzese, head of government bond trading for Standard Chartered in New York.
Average 30-year fixed mortgage rates were about 2.29 percentage points more than 10-year Treasury yields, versus 1.57 percentage points five years ago. Mortgage rates declined to 4.98 percent in the week ended March 19, according to Freddie Mac, the mortgage-finance company under U.S. government control.
TED Spread
Treasuries lost 1.68 percent this year, according to Merrill Lynch & Co.’s Treasury Master Index. U.S. debt was down 3.4 percent before the Fed announced its purchase program last week.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 1.04 percentage point from 91 basis points on Feb. 10. It reached a two-month high of 1.13 percentage point on March 13. The spread averaged 36 basis points in 2006 before credit markets began to decline the next year.
To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net
U.S. securities dropped even after the Federal Reserve today bought $7.5 billion of Treasury notes, its first targeted purchases of U.S. securities since the early 1960s. The five- year auction drew a yield of 1.849 percent, higher than the 1.801 percent forecast in a Bloomberg News survey of eight trading firms. The Treasury will sell $24 billion of seven-year notes tomorrow.
“In light of all the supply that’s in the market it’s not a surprise that yields have moved back up,” said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd., which advises community banks investing $20 billion of assets. “You don’t want to fight the Fed in this market environment. Even though there is enormous supply, the Fed will do what it can to keep a cap on yields.”
The 10-year note yield rose eight basis points, or 0.08 percentage point, to 2.78 percent at 4:40 p.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 fell 21/32, or $6.56 per $1,000 face amount, to 99 23/32.
Yields have now gained 24 basis points in the five days since the Fed’s March 18 announcement it would buy Treasuries sent yields down 47 basis points, the most since 1962.
Five-Year Auction
The 30-year bond yield gained 10 basis points today to 3.73 percent, while the current five-year note yield appreciated eight basis points to 1.81 percent.
The bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, fell to 2.02 from an average 2.18 at the previous 10 sales.
The Treasury Department is selling a record $98 billion in notes this week, eclipsing the record $94 billion auctioned the week ended Feb. 27. The U.K. failed to attract enough bidders today at an auction of 1.75 billion pounds ($2.55 billion) of gilts for the first time in almost seven years.
President Barack Obama’s government is selling record amounts of debt to revive economic growth, service deficits, and cushion the failures in the financial system. Debt sales will almost triple this year to a record $2.5 trillion, according to estimates from Goldman Sachs Group Inc.
Orders for U.S. durable goods unexpectedly rose by 3.4 percent in February, the Commerce Department said today in Washington. Purchases of new homes in the U.S. unexpectedly jumped in February, increasing 4.7 percent to an annual pace of 337,000 after a 322,000 rate in January, Commerce said.
Fed Purchases
“Better than expected economic data, failure of the long- end auction in the U.K. and low demand at the five-year Treasury auction; all these factors combined are leading to higher yields,” said Anshul Pradhan, an interest-rate strategist in New York at Barclays Capital Inc., another primary dealer.
The Fed said it purchased $7.5 billion of U.S. debt spread among 13 of the possible 19 securities eligible for purchase. The notes mature from February 2016 to February 2019, the Federal Reserve Bank of New York said in a statement today. Nearly $22 billion was submitted to the central bank in the first day of buying, the New York Fed said.
“We are really not seeing any kind of meaningful support for the Treasury market,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley’s individual investor clients. “Conventional wisdom in the market is that the Fed will concentrate on the five- to 10-year or the seven- to 10-year sector.”
‘Poor Communication’
The Fed joins central banks in the U.K. and Japan in extraordinary purchases of government debt. U.S. policy makers announced the decision last week to buy $300 billion of government debt in the next six months along with a plan to more than double purchases of housing debt to $1.45 trillion, hoping to reduce rates on home loans.
The dollar fell the most in almost a week against the euro on concern Treasury Secretary Timothy Geithner supported a Chinese plan to blunt demand among global central banks for the U.S. currency. The dollar weakened as much as 1.2 percent to $1.3651 per euro, the biggest intraday decline since March 19, before trading at $1.3601 at 4:20 p.m. in New York.
Geithner later affirmed the dollar’s role as the world’s reserve currency.
“The poor communication from the Treasury department has complicated the market for Treasuries,” said Baker Group’s Caughron.
Failed Auction
The U.K.’s effort to buy government debt wasn’t enough to prevent today’s failed auction of 40-year gilts, the first time that the government failed to attract enough bids at a sale of debt since 2002. Investors bid for 1.63 billion pounds ($2.4 billion) of 4.25 percent notes, less than the 1.75 billion pounds offered.
“The failed gilt auction doesn’t bode well for Treasuries,” said Michael Franzese, head of government bond trading for Standard Chartered in New York.
Average 30-year fixed mortgage rates were about 2.29 percentage points more than 10-year Treasury yields, versus 1.57 percentage points five years ago. Mortgage rates declined to 4.98 percent in the week ended March 19, according to Freddie Mac, the mortgage-finance company under U.S. government control.
TED Spread
Treasuries lost 1.68 percent this year, according to Merrill Lynch & Co.’s Treasury Master Index. U.S. debt was down 3.4 percent before the Fed announced its purchase program last week.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 1.04 percentage point from 91 basis points on Feb. 10. It reached a two-month high of 1.13 percentage point on March 13. The spread averaged 36 basis points in 2006 before credit markets began to decline the next year.
To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net
11 February 2009
China Needs U.S. Guarantees for Treasuries, Yu Says
Feb. 11 (Bloomberg) -- China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.
Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.
China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets. A People’s Bank of China official, who didn’t wish to be identified, declined to comment on the telephone.
Clinton Talks
“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
Chinese Foreign Ministry Spokeswoman Jiang Yu said yesterday that talks with Clinton would cover bilateral relations, the financial crisis and international affairs, according to the Xinhua news agency.
The dollar fell 0.6 percent to 89.96 yen today on concern that the U.S. government’s bank-rescue plan will fail to revive lending. Treasuries declined as investors prepared to bid for a record $21 billion sale of 10-year notes today. The yield on the benchmark 10-year note rose three basis points to 2.83 percent.
Currency Reserves
“These comments are some sort of a threat but of course China can never get such a guarantee,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. The U.S. may assure China that it will clean up the financial system and that it “won’t push for a weaker dollar but they can’t promise not to increase the fiscal deficit,” he said.
U.S. government bonds returned 14 percent last year including price gains and reinvested interest, the most since rallying 18.5 percent in 1995, according to indexes compiled by Merrill Lynch & Co. Concern that the flood of bonds would overwhelm demand caused Treasuries to lose 3.08 percent in January, the steepest drop in almost five years, Merrill data show.
China’s loss of more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007 may increase its demand for the relative safety of Treasuries.
“The government will be a net buyer of Treasuries in the short term because there’s no sign they have changed their strategy,” said Zhang Ming, secretary general of the international finance research center at the Chinese Academy of Social Sciences in Beijing. “But personally, I don’t think we should increase holdings because the medium- and long-term risks are quite high.”
Fed Buying
Bill Gross, co-chief investment officer of Pacific Investment Management Co., said on Feb. 5 the Federal Reserve will have to buy Treasuries to curb yields as debt sales increase. Fed officials said Jan. 28 they were “prepared” to buy longer-term Treasuries.
“The biggest concern for China to continue buying U.S. Treasuries is that if Obama’s stimulus doesn’t work out as expected, the Fed may have to print money to cover the deficit,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., partly owned by Morgan Stanley. “That will cause a dollar slump.”
China’s foreign-exchange reserves grew about $40 billion in the fourth quarter, the least since mid-2004, as an end to yuan appreciation since July prompted investors to pull money out.
The world’s third-biggest economy grew 6.8 percent in the fourth quarter, the slowest pace in seven years. Policy makers announced a 4 trillion yuan ($585 billion) economic stimulus plan in November to spur domestic demand.
Linking Disputes
Yu said China has no plans to channel its reserves toward stimulating its own economy because its trade surplus is sufficient to fund any import needs. China’s trade surplus was $39 billion in January.
China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign-exchange reserves is in danger of being inflated away by the U.S. government’s pump- priming,” he said.
China may try to link trade and currency policy disputes to its future investment in Treasuries, said Lu Zhengwei, an economist in Shanghai at Industrial Bank Co., a Chinese lender partly owned by a unit of HSBC Holdings Plc.
U.S. Treasury Secretary Timothy Geithner accused China on Jan. 22 of “manipulating” the yuan to give an unfair advantage to its exporters. The currency has dropped 0.16 percent this year to 6.8342 per dollar, following a 21 percent gain since a peg against the dollar was abandoned in July 2005.
“China can also use this opportunity to get a promise from the U.S. not to make inappropriate requests on bilateral trade and the Chinese yuan,” Lu said. “We can’t afford more yuan appreciation as the economy is facing a serious slowdown.”
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.
Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.
China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets. A People’s Bank of China official, who didn’t wish to be identified, declined to comment on the telephone.
Clinton Talks
“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
Chinese Foreign Ministry Spokeswoman Jiang Yu said yesterday that talks with Clinton would cover bilateral relations, the financial crisis and international affairs, according to the Xinhua news agency.
The dollar fell 0.6 percent to 89.96 yen today on concern that the U.S. government’s bank-rescue plan will fail to revive lending. Treasuries declined as investors prepared to bid for a record $21 billion sale of 10-year notes today. The yield on the benchmark 10-year note rose three basis points to 2.83 percent.
Currency Reserves
“These comments are some sort of a threat but of course China can never get such a guarantee,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. The U.S. may assure China that it will clean up the financial system and that it “won’t push for a weaker dollar but they can’t promise not to increase the fiscal deficit,” he said.
U.S. government bonds returned 14 percent last year including price gains and reinvested interest, the most since rallying 18.5 percent in 1995, according to indexes compiled by Merrill Lynch & Co. Concern that the flood of bonds would overwhelm demand caused Treasuries to lose 3.08 percent in January, the steepest drop in almost five years, Merrill data show.
China’s loss of more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007 may increase its demand for the relative safety of Treasuries.
“The government will be a net buyer of Treasuries in the short term because there’s no sign they have changed their strategy,” said Zhang Ming, secretary general of the international finance research center at the Chinese Academy of Social Sciences in Beijing. “But personally, I don’t think we should increase holdings because the medium- and long-term risks are quite high.”
Fed Buying
Bill Gross, co-chief investment officer of Pacific Investment Management Co., said on Feb. 5 the Federal Reserve will have to buy Treasuries to curb yields as debt sales increase. Fed officials said Jan. 28 they were “prepared” to buy longer-term Treasuries.
“The biggest concern for China to continue buying U.S. Treasuries is that if Obama’s stimulus doesn’t work out as expected, the Fed may have to print money to cover the deficit,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., partly owned by Morgan Stanley. “That will cause a dollar slump.”
China’s foreign-exchange reserves grew about $40 billion in the fourth quarter, the least since mid-2004, as an end to yuan appreciation since July prompted investors to pull money out.
The world’s third-biggest economy grew 6.8 percent in the fourth quarter, the slowest pace in seven years. Policy makers announced a 4 trillion yuan ($585 billion) economic stimulus plan in November to spur domestic demand.
Linking Disputes
Yu said China has no plans to channel its reserves toward stimulating its own economy because its trade surplus is sufficient to fund any import needs. China’s trade surplus was $39 billion in January.
China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign-exchange reserves is in danger of being inflated away by the U.S. government’s pump- priming,” he said.
China may try to link trade and currency policy disputes to its future investment in Treasuries, said Lu Zhengwei, an economist in Shanghai at Industrial Bank Co., a Chinese lender partly owned by a unit of HSBC Holdings Plc.
U.S. Treasury Secretary Timothy Geithner accused China on Jan. 22 of “manipulating” the yuan to give an unfair advantage to its exporters. The currency has dropped 0.16 percent this year to 6.8342 per dollar, following a 21 percent gain since a peg against the dollar was abandoned in July 2005.
“China can also use this opportunity to get a promise from the U.S. not to make inappropriate requests on bilateral trade and the Chinese yuan,” Lu said. “We can’t afford more yuan appreciation as the economy is facing a serious slowdown.”
24 December 2008
Blomberg on Iceland
Dec. 23 (Bloomberg) -- It was the week before Christmas in Reykjavik, and all through the town Eva Hauksdottir led a band of 60 whistle-blowing, pan-banging, shouting demonstrators.
“Pay your own debts,” they yelled as they visited one bank office after another in Iceland’s capital. “Don’t make the children pay.”
When she isn’t leading one of the almost daily acts of protest in this land devastated by the global financial meltdown, Hauksdottir sells good luck charms made from the claws of ptarmigans, a local bird, and voodoo dolls in the form of bankers. She says she expects to lose her home, worth less than when she bought it two years ago, after the amount she owes jumped more than 20 percent.
Unrest following the end of a five-year economic boom is overshadowing the holidays in a country of 320,000 near the Arctic Circle, where the folklore is filled with magic, trolls and elves. Expansion ended with the collapse of the U.S. subprime mortgage market. The fallout in Iceland may presage civil disruptions elsewhere, as job losses multiply and credit bills come due. Few nations can count themselves safe, says Ian Bremmer, president of the New York-based Eurasia Group, which analyzes political risk for businesses.
“As people have their expectations changed radically, you can have protests come out of nowhere,” even in developed countries, Bremmer said.
‘Maybe Axes’
Riots in Greece this month, sparked by the police shooting of a teenager, became tinged with economic dissension. A group of Kuwaiti equity traders marched on the emir’s office in October to demand the closing of the stock exchange to stem losses. Even in U.S. cities, civil disorder is “conceivable” if unemployment rises above 10 percent from November’s 6.7 percent, Bremmer says.
Hauksdottir, the owner of a Reykjavik witchcraft shop, says over a cup of thyme and juniper tea that only civil disobedience can force banks to stop collecting debts that people can’t pay.
“We’ll use our voices, and then if we have to we’ll use our hands, and maybe axes,” Hauksdottir says.
At Reykjavik’s half-built concert hall, a symbol of the good times that juts from the harbor toward the North Pole, the visitor center is closed to visitors. The principal owner, Landsbanki Islands hf, failed in October. Marketing director Thorhallur Vilhjalmsson says he’s making ends meet on severance pay.
“Iceland right now is like Chernobyl after the blast,” Vilhjalmsson says. “It looks normal, but there’s radiation.”
Kicking Down Doors
The protests may escalate as bills come due and severance pay runs out for those who lost jobs at the three biggest lenders, including Landsbanki, the second-largest, says Stefan Palsson, a historian. He once led the Campaign Against Militarism, opposing NATO bases in the 1960s.
He said he’s surprised ordinary people are backing activists once considered “hooligans.” There was public outrage three years ago when environmentalists poured yogurt over aluminum representatives to protest a new plant.
“Now you have protesters kicking down doors at police stations, and respectable elderly people saying ‘Well, they’re young and full of enthusiasm, and anyway, they’re right!’” he said.
Inflation rose to 18.1 percent this month, and the International Monetary Fund predicts that Iceland’s economy will shrink 9.6 percent next year. The Washington-based global lender of last resort put together a rescue package for the country worth as much as $5.3 billion last month.
No-Debt Ethics
The decline in the krona and surge in prices are creating a triple whammy for borrowers whose home loans are typically linked to inflation or foreign currencies. Households owed more than double their disposable income at the end of 2006, almost twice the level in the U.S., according to the IMF.
Some Icelanders say the easy money of the past decade eroded the island’s traditions. A sheep farmer in the 1934 novel, “Independent People,” by Iceland’s only Nobel laureate, Halldor Laxness, preferred freedom from debt to any material comforts. His motto was: “I don’t owe anyone a penny.”
That philosophy may return, says Birgir Asgeirsson, 63, the priest at Reykjavik’s Hallgrimskirkja Lutheran church.
“I grew up learning that you work for what you get, but kids today just get what they want,” Asgeirsson says. “Now I can hear parents say ‘No, my little boy, it’s not that easy.’”
Gunnlaugur Gudmundsson is an astrologer and chief executive officer of a company that provides horoscope predictions for phone operators such as Vodafone Group Plc. Customer numbers have more than doubled since the crisis broke, he said.
“The classic question used to be, ‘I’m in love with this guy, will he marry me?’” he said at a table strewn with star- charts. “Now the questions are about jobs, and when the good times will return.”
Two-Year Contraction
The answer may be 2011, according to the IMF, which projects two years of economic contraction first.
That may take Iceland back to the income levels of five or 10 years ago, “and we weren’t badly off then,” said Hannes Holmstein Gissurarson, professor of politics at the University of Iceland and a central bank supervisory board member. Banks and politicians were victims of an “external shock,” and weren’t behaving much worse than their counterparts elsewhere, he said.
The difference was one of scale. As governments worldwide pumped money into stricken banks, Iceland couldn’t follow suit. By the end of last year, local banks had accumulated assets almost nine times the size of the country’s $12 billion economy, according to the IMF.
The lack of backup was a “systemic error no one thought of,” Gissurarson said.
‘Cocktail Party’
The Reykjavik concert hall was budgeted at 170 million pounds ($252 million), Vilhjalmsson says. That was more than 2 percent of gross domestic product -- equivalent to a $250 billion project in the U.S. Pointing to miniature models, Vilhjalmsson says the building’s glass shell was designed to refract the low Arctic sun in kaleidoscopic shades.
In midwinter in the world’s northernmost capital the sun appears for just four hours a day, leaving long evenings for Icelanders to figure out how their country got caught up in the global boom-and-bust. Vilhjalmsson has his own version.
“The West is having this great, long cocktail party,” Vilhjalmsson says. “And then, late in the evening, in comes this cute little dwarf, Iceland. And he gets drunk.”
“Pay your own debts,” they yelled as they visited one bank office after another in Iceland’s capital. “Don’t make the children pay.”
When she isn’t leading one of the almost daily acts of protest in this land devastated by the global financial meltdown, Hauksdottir sells good luck charms made from the claws of ptarmigans, a local bird, and voodoo dolls in the form of bankers. She says she expects to lose her home, worth less than when she bought it two years ago, after the amount she owes jumped more than 20 percent.
Unrest following the end of a five-year economic boom is overshadowing the holidays in a country of 320,000 near the Arctic Circle, where the folklore is filled with magic, trolls and elves. Expansion ended with the collapse of the U.S. subprime mortgage market. The fallout in Iceland may presage civil disruptions elsewhere, as job losses multiply and credit bills come due. Few nations can count themselves safe, says Ian Bremmer, president of the New York-based Eurasia Group, which analyzes political risk for businesses.
“As people have their expectations changed radically, you can have protests come out of nowhere,” even in developed countries, Bremmer said.
‘Maybe Axes’
Riots in Greece this month, sparked by the police shooting of a teenager, became tinged with economic dissension. A group of Kuwaiti equity traders marched on the emir’s office in October to demand the closing of the stock exchange to stem losses. Even in U.S. cities, civil disorder is “conceivable” if unemployment rises above 10 percent from November’s 6.7 percent, Bremmer says.
Hauksdottir, the owner of a Reykjavik witchcraft shop, says over a cup of thyme and juniper tea that only civil disobedience can force banks to stop collecting debts that people can’t pay.
“We’ll use our voices, and then if we have to we’ll use our hands, and maybe axes,” Hauksdottir says.
At Reykjavik’s half-built concert hall, a symbol of the good times that juts from the harbor toward the North Pole, the visitor center is closed to visitors. The principal owner, Landsbanki Islands hf, failed in October. Marketing director Thorhallur Vilhjalmsson says he’s making ends meet on severance pay.
“Iceland right now is like Chernobyl after the blast,” Vilhjalmsson says. “It looks normal, but there’s radiation.”
Kicking Down Doors
The protests may escalate as bills come due and severance pay runs out for those who lost jobs at the three biggest lenders, including Landsbanki, the second-largest, says Stefan Palsson, a historian. He once led the Campaign Against Militarism, opposing NATO bases in the 1960s.
He said he’s surprised ordinary people are backing activists once considered “hooligans.” There was public outrage three years ago when environmentalists poured yogurt over aluminum representatives to protest a new plant.
“Now you have protesters kicking down doors at police stations, and respectable elderly people saying ‘Well, they’re young and full of enthusiasm, and anyway, they’re right!’” he said.
Inflation rose to 18.1 percent this month, and the International Monetary Fund predicts that Iceland’s economy will shrink 9.6 percent next year. The Washington-based global lender of last resort put together a rescue package for the country worth as much as $5.3 billion last month.
No-Debt Ethics
The decline in the krona and surge in prices are creating a triple whammy for borrowers whose home loans are typically linked to inflation or foreign currencies. Households owed more than double their disposable income at the end of 2006, almost twice the level in the U.S., according to the IMF.
Some Icelanders say the easy money of the past decade eroded the island’s traditions. A sheep farmer in the 1934 novel, “Independent People,” by Iceland’s only Nobel laureate, Halldor Laxness, preferred freedom from debt to any material comforts. His motto was: “I don’t owe anyone a penny.”
That philosophy may return, says Birgir Asgeirsson, 63, the priest at Reykjavik’s Hallgrimskirkja Lutheran church.
“I grew up learning that you work for what you get, but kids today just get what they want,” Asgeirsson says. “Now I can hear parents say ‘No, my little boy, it’s not that easy.’”
Gunnlaugur Gudmundsson is an astrologer and chief executive officer of a company that provides horoscope predictions for phone operators such as Vodafone Group Plc. Customer numbers have more than doubled since the crisis broke, he said.
“The classic question used to be, ‘I’m in love with this guy, will he marry me?’” he said at a table strewn with star- charts. “Now the questions are about jobs, and when the good times will return.”
Two-Year Contraction
The answer may be 2011, according to the IMF, which projects two years of economic contraction first.
That may take Iceland back to the income levels of five or 10 years ago, “and we weren’t badly off then,” said Hannes Holmstein Gissurarson, professor of politics at the University of Iceland and a central bank supervisory board member. Banks and politicians were victims of an “external shock,” and weren’t behaving much worse than their counterparts elsewhere, he said.
The difference was one of scale. As governments worldwide pumped money into stricken banks, Iceland couldn’t follow suit. By the end of last year, local banks had accumulated assets almost nine times the size of the country’s $12 billion economy, according to the IMF.
The lack of backup was a “systemic error no one thought of,” Gissurarson said.
‘Cocktail Party’
The Reykjavik concert hall was budgeted at 170 million pounds ($252 million), Vilhjalmsson says. That was more than 2 percent of gross domestic product -- equivalent to a $250 billion project in the U.S. Pointing to miniature models, Vilhjalmsson says the building’s glass shell was designed to refract the low Arctic sun in kaleidoscopic shades.
In midwinter in the world’s northernmost capital the sun appears for just four hours a day, leaving long evenings for Icelanders to figure out how their country got caught up in the global boom-and-bust. Vilhjalmsson has his own version.
“The West is having this great, long cocktail party,” Vilhjalmsson says. “And then, late in the evening, in comes this cute little dwarf, Iceland. And he gets drunk.”
27 October 2008
CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic
I think its all going pear shaped here, sub-prime, alt-a, corporate CDO's and the financial implications of a sudden demand shock. The whole thing is spinning out of control because it ran on trust alone.
Oct. 22 (Bloomberg) -- Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.
The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.
``We'll see the same problems we've seen in subprime,'' said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. ``Banks will take substantial markdowns.''
The collapse of Lehman Brothers, Washington Mutual Inc. and the three banks in Iceland prompted Susquehanna Bancshares Inc., a Lititz, Pennsylvania-based lender, to lower the value of $20 million in so-called synthetic CDOs by almost 88 percent last week.
KBC Groep NV, Belgium's biggest financial-services firm, which had 377.4 billion euros ($485 billion) in assets as of June 30, wrote down 1.6 billion euros after downgrades on company- and asset-backed debt. Brussels-based KBC had 9 billion euros in CDOs as of Oct. 15, primarily linked to corporate debt, according to an investor presentation.
10 Cents
CDOs pooling asset-backed securities have been blamed for losses at the world's biggest banks, from UBS AG to Citigroup Inc. Now, corporate CDOs are starting to be affected as defaults rise and speculation mounts that the world economy is headed for a recession.
Some synthetic CDOs, tied to credit-default swaps on corporate bonds, are trading at less than 10 cents on the dollar, according to Sivan Mahadevan, a derivatives strategist at Morgan Stanley in New York.
CDOs parcel fixed-income assets such as bonds or loans and slice them into new securities of varying risk, providing higher returns than other investments of the same rating.
Credit-default swaps are derivatives based on bonds and loans and used to protect against or speculate on defaults. Should a borrower fail to meet debt agreements, the contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent. An increase in the agreement's cost indicates a deteriorating perception of credit quality.
Private Market
About $254 billion of CDOs tied to mortgages for borrowers with poor credit histories have defaulted, according to Wachovia Corp. Estimating losses on those linked to corporate bonds is difficult because the underlying debt and the structure of the transaction can vary in this private market, said Mahadevan.
Derivatives are contracts whose value is derived from assets including stocks, bonds, currencies and commodities, or from events such as the weather or changes in interest rates.
Downgrades of corporate CDOs will force investors to boost capital, according to an Oct. 17 report from Barclays Capital analysts led by Puneet Sharma in London.
Buyers of deals graded AA by Standard & Poor's and Aa2 by Moody's Investors Service, the third-highest rankings, may have to increase cushions against losses to cover the full amount of the investment, up from 1.2 percent now, Sharma said. His estimate is based on the world economy entering a ``severe'' recession.
Record Lows
Demand for synthetic CDOs helped fuel growth in the credit- default swap market and pushed the cost of default protection to record lows in 2007. That in turn drove down company borrowing expenses. Sales of such CDOs surged to $503 billion in 2006, from $84 billion five years earlier, according to Morgan Stanley.
Bankers loaded the securities with bonds and swaps offering the highest return for a given credit ranking, indicating higher risk. An AA rated European issue offered an average yield of 50 basis points over money-market rates when sold in 2006, according to UniCredit SpA analysts in Munich. Similarly rated corporate bonds paid 9 basis points. A basis point is 0.01 of a percentage point.
``The maths ended up driving the way CDO portfolios were put together,'' said Nigel Sillis, a fixed-income and currency analyst at Baring Asset Management Ltd. in London.
Credit Analysis
The banks that structured the securities and investors both failed to do ``fundamental credit analysis,'' said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago. ``They were using correlation models, they were using spread models, but they weren't doing analysis on the underlying corporations.''
Fitch downgraded 422 classes of CDOs on Oct. 13 after seven financial companies defaulted or were bailed out since September. The company didn't disclose the total number of classes it rated.
Defaults and so-called ``credit events,'' which can include government takeovers, force payment of the credit-default swaps packaged in the debt. This causes losses for investors or erodes capital.
The U.S. Treasury has broad powers under a $700 billion rescue plan enacted on Oct. 3 to purchase an array of distressed assets. While Treasury Secretary Henry Paulson has said that home loans and related securities are the main focus of the plan, CDOs or other non-mortgage-related derivatives could qualify under the law. Congress would have to be notified of their inclusion.
Treasury spokeswoman Michele Davis didn't immediately respond to a request for comment.
Barclays Capital estimates that 70 percent of synthetic CDOs sold swaps on Lehman. Swaps on Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Banki hf were included in 376 CDOs rated by S&P. The company ranks almost 3,000.
Fannie, Freddie
About 1,500 also sold protection on Washington Mutual, the bankrupt holding company of the biggest U.S. bank to fail, according to S&P. More than 1,200 made bets on both Fannie Mae and Freddie Mac, the New York-based rating company said.
The collapse of Lehman, WaMu and the Icelandic banks, as well as the U.S. government's seizure of the mortgage agencies, will have a ``substantial'' impact on corporate CDO ratings, S&P said in a report Oct. 16.
The government in Reykjavik seized Kaupthing Bank, the country's largest lender, earlier this month. Assets and liabilities from Landsbanki Islands and Glitnir Banki were transferred to state-owned entities, triggering default swaps.
Default Forecasts
Nonpayment on speculative-grade corporate bonds may rise to 7.9 percent worldwide in a year, from 2.8 percent at the end of the third quarter, as the credit crisis deepens, Moody's said Oct. 8. Those in the U.S. may rise to 7.6 percent, said S&P.
``As there are credit events, you'll have losses in portfolios and marking down of other assets,'' said Claude Brown, a partner at law firm Clifford Chance LLP in London.
Investors may sell the CDOs back to the banks that structured them, which will unwind protection they wrote to hedge swap transactions, Barclays said. The chain of events will push up the price of default protection and company borrowing, according to Barclays.
Banks unwinding hedges helped double the cost since April of default insurance on the lowest-ranking equity portion of the benchmark Markit CDX North America Investment Grade Index, to 75 percent upfront and 5 percent a year. That equates to $7.5 million in advance plus $500,000 annually on $10 million of debt for five years.
For European investment-grade company debt, as shown by the Markit iTraxx Europe index of credit-default swaps, the price for protecting against nonpayment may climb 50 basis points to a record 200 next year, Barclays forecasts.
Buy Now
Some investors are choosing to buy protection and determine their losses now, according to Edmund Parker, head of derivatives at law firm Mayer Brown LLP in London.
National Australia Bank, the country's biggest lender by assets, paid A$100 million ($67 million) this year to hedge the risk of loss on six company-linked CDOs totaling A$1.6 billion. It will pay a further A$60 million annually for the next five years, according to company filings.
``The upside is that you've now drawn a line on those assets and you know you're not going to lose more than your hedging costs,'' Parker said. ``Unless, of course, your counterparty goes under.''
Still, investors don't have to unwind CDOs. They could hold on until the debt instrument matures if they judge defaults won't be bad enough to prevent them getting their money back, according to Barclays Capital analysts.
Radian, CIT
Companies most frequently referenced in synthetic CDOs include Philadelphia-based Radian Group Inc., the third-largest U.S. mortgage insurer, whose stock fell 68 percent in New York trading this year. Another is CIT Group Inc., an unprofitable commercial lender in New York that dropped 83 percent. The company faces about $2.4 billion in debt repayments by the end of 2008, according to data compiled by Bloomberg.
``We feel very strongly that we have adequate claims-paying capabilities for both our financial-guarantee business and our mortgage-insurer business,'' said Radian spokesman Richard Gillespie.
CIT spokesman Curtis Ritter declined to comment, pointing to the company's statement last week that it will meet funding needs for the next 12 months.
Forecasts for ratings downgrades are ``going to force a lot of activity'' in unwinding CDOs, said Rohan Douglas, former director of global credit derivatives research at Citigroup. He now heads Quantifi Inc., a provider of valuation models for the debt. ``Buy-and-hold investors suddenly find themselves in a situation where they will have to sell these assets.''
To contact the reporters on this story: Abigail Moses in London Amoses5@bloomberg.net; Neil Unmack in London nunmack@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net
Oct. 22 (Bloomberg) -- Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.
The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.
``We'll see the same problems we've seen in subprime,'' said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. ``Banks will take substantial markdowns.''
The collapse of Lehman Brothers, Washington Mutual Inc. and the three banks in Iceland prompted Susquehanna Bancshares Inc., a Lititz, Pennsylvania-based lender, to lower the value of $20 million in so-called synthetic CDOs by almost 88 percent last week.
KBC Groep NV, Belgium's biggest financial-services firm, which had 377.4 billion euros ($485 billion) in assets as of June 30, wrote down 1.6 billion euros after downgrades on company- and asset-backed debt. Brussels-based KBC had 9 billion euros in CDOs as of Oct. 15, primarily linked to corporate debt, according to an investor presentation.
10 Cents
CDOs pooling asset-backed securities have been blamed for losses at the world's biggest banks, from UBS AG to Citigroup Inc. Now, corporate CDOs are starting to be affected as defaults rise and speculation mounts that the world economy is headed for a recession.
Some synthetic CDOs, tied to credit-default swaps on corporate bonds, are trading at less than 10 cents on the dollar, according to Sivan Mahadevan, a derivatives strategist at Morgan Stanley in New York.
CDOs parcel fixed-income assets such as bonds or loans and slice them into new securities of varying risk, providing higher returns than other investments of the same rating.
Credit-default swaps are derivatives based on bonds and loans and used to protect against or speculate on defaults. Should a borrower fail to meet debt agreements, the contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent. An increase in the agreement's cost indicates a deteriorating perception of credit quality.
Private Market
About $254 billion of CDOs tied to mortgages for borrowers with poor credit histories have defaulted, according to Wachovia Corp. Estimating losses on those linked to corporate bonds is difficult because the underlying debt and the structure of the transaction can vary in this private market, said Mahadevan.
Derivatives are contracts whose value is derived from assets including stocks, bonds, currencies and commodities, or from events such as the weather or changes in interest rates.
Downgrades of corporate CDOs will force investors to boost capital, according to an Oct. 17 report from Barclays Capital analysts led by Puneet Sharma in London.
Buyers of deals graded AA by Standard & Poor's and Aa2 by Moody's Investors Service, the third-highest rankings, may have to increase cushions against losses to cover the full amount of the investment, up from 1.2 percent now, Sharma said. His estimate is based on the world economy entering a ``severe'' recession.
Record Lows
Demand for synthetic CDOs helped fuel growth in the credit- default swap market and pushed the cost of default protection to record lows in 2007. That in turn drove down company borrowing expenses. Sales of such CDOs surged to $503 billion in 2006, from $84 billion five years earlier, according to Morgan Stanley.
Bankers loaded the securities with bonds and swaps offering the highest return for a given credit ranking, indicating higher risk. An AA rated European issue offered an average yield of 50 basis points over money-market rates when sold in 2006, according to UniCredit SpA analysts in Munich. Similarly rated corporate bonds paid 9 basis points. A basis point is 0.01 of a percentage point.
``The maths ended up driving the way CDO portfolios were put together,'' said Nigel Sillis, a fixed-income and currency analyst at Baring Asset Management Ltd. in London.
Credit Analysis
The banks that structured the securities and investors both failed to do ``fundamental credit analysis,'' said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago. ``They were using correlation models, they were using spread models, but they weren't doing analysis on the underlying corporations.''
Fitch downgraded 422 classes of CDOs on Oct. 13 after seven financial companies defaulted or were bailed out since September. The company didn't disclose the total number of classes it rated.
Defaults and so-called ``credit events,'' which can include government takeovers, force payment of the credit-default swaps packaged in the debt. This causes losses for investors or erodes capital.
The U.S. Treasury has broad powers under a $700 billion rescue plan enacted on Oct. 3 to purchase an array of distressed assets. While Treasury Secretary Henry Paulson has said that home loans and related securities are the main focus of the plan, CDOs or other non-mortgage-related derivatives could qualify under the law. Congress would have to be notified of their inclusion.
Treasury spokeswoman Michele Davis didn't immediately respond to a request for comment.
Barclays Capital estimates that 70 percent of synthetic CDOs sold swaps on Lehman. Swaps on Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Banki hf were included in 376 CDOs rated by S&P. The company ranks almost 3,000.
Fannie, Freddie
About 1,500 also sold protection on Washington Mutual, the bankrupt holding company of the biggest U.S. bank to fail, according to S&P. More than 1,200 made bets on both Fannie Mae and Freddie Mac, the New York-based rating company said.
The collapse of Lehman, WaMu and the Icelandic banks, as well as the U.S. government's seizure of the mortgage agencies, will have a ``substantial'' impact on corporate CDO ratings, S&P said in a report Oct. 16.
The government in Reykjavik seized Kaupthing Bank, the country's largest lender, earlier this month. Assets and liabilities from Landsbanki Islands and Glitnir Banki were transferred to state-owned entities, triggering default swaps.
Default Forecasts
Nonpayment on speculative-grade corporate bonds may rise to 7.9 percent worldwide in a year, from 2.8 percent at the end of the third quarter, as the credit crisis deepens, Moody's said Oct. 8. Those in the U.S. may rise to 7.6 percent, said S&P.
``As there are credit events, you'll have losses in portfolios and marking down of other assets,'' said Claude Brown, a partner at law firm Clifford Chance LLP in London.
Investors may sell the CDOs back to the banks that structured them, which will unwind protection they wrote to hedge swap transactions, Barclays said. The chain of events will push up the price of default protection and company borrowing, according to Barclays.
Banks unwinding hedges helped double the cost since April of default insurance on the lowest-ranking equity portion of the benchmark Markit CDX North America Investment Grade Index, to 75 percent upfront and 5 percent a year. That equates to $7.5 million in advance plus $500,000 annually on $10 million of debt for five years.
For European investment-grade company debt, as shown by the Markit iTraxx Europe index of credit-default swaps, the price for protecting against nonpayment may climb 50 basis points to a record 200 next year, Barclays forecasts.
Buy Now
Some investors are choosing to buy protection and determine their losses now, according to Edmund Parker, head of derivatives at law firm Mayer Brown LLP in London.
National Australia Bank, the country's biggest lender by assets, paid A$100 million ($67 million) this year to hedge the risk of loss on six company-linked CDOs totaling A$1.6 billion. It will pay a further A$60 million annually for the next five years, according to company filings.
``The upside is that you've now drawn a line on those assets and you know you're not going to lose more than your hedging costs,'' Parker said. ``Unless, of course, your counterparty goes under.''
Still, investors don't have to unwind CDOs. They could hold on until the debt instrument matures if they judge defaults won't be bad enough to prevent them getting their money back, according to Barclays Capital analysts.
Radian, CIT
Companies most frequently referenced in synthetic CDOs include Philadelphia-based Radian Group Inc., the third-largest U.S. mortgage insurer, whose stock fell 68 percent in New York trading this year. Another is CIT Group Inc., an unprofitable commercial lender in New York that dropped 83 percent. The company faces about $2.4 billion in debt repayments by the end of 2008, according to data compiled by Bloomberg.
``We feel very strongly that we have adequate claims-paying capabilities for both our financial-guarantee business and our mortgage-insurer business,'' said Radian spokesman Richard Gillespie.
CIT spokesman Curtis Ritter declined to comment, pointing to the company's statement last week that it will meet funding needs for the next 12 months.
Forecasts for ratings downgrades are ``going to force a lot of activity'' in unwinding CDOs, said Rohan Douglas, former director of global credit derivatives research at Citigroup. He now heads Quantifi Inc., a provider of valuation models for the debt. ``Buy-and-hold investors suddenly find themselves in a situation where they will have to sell these assets.''
To contact the reporters on this story: Abigail Moses in London Amoses5@bloomberg.net; Neil Unmack in London nunmack@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net
3 August 2007
U.S. Housing Is Among `Biggest Bubbles,'
By Chen Shiyin and Pimm Fox
Jim Rogers, chairman of Beeland Interests Inc. Aug. 3 (Bloomberg) -- The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, a New York-based fund manager who predicted the start of the commodities rally in 1999.
This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.
``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''
The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may be in store even after the index, which tracks $32.6 trillion of stocks, advanced 0.7 percent this week.
``Given the stage of the credit cycle that we're in now, we would have to expect more negative news popping up,'' Beat Lenherr, who oversees $7 billion as chief investment officer for Asia at LGT Bank in Liechtenstein AG, said late yesterday in an interview in Singapore. ``The market sentiment is a bit nervous to the degree that every bad news is answered with selling.''
Worse to Come
The MSCI World Index today climbed 0.1 percent, its fourth gain this week, as investors speculated that better-than-forecast earnings will help offset the impact of mortgage losses.
Gains may be capped by further signs of turmoil among borrowers. Accredited Home Lenders Holding Co., the subprime mortgage company being acquired by Lone Star Funds, plunged 35 percent yesterday after saying it may go bankrupt.
American Home Mortgage Investment Corp. yesterday said it plans to halt operations, becoming the second-biggest residential lender to fail this year. The company's shares dropped 86 percent this week, cutting its value to $79 million, from $1.8 billion in December.
A measure of financial companies such as Countrywide Financial has dropped 3.7 percent so far this year, the only group to decline within the MSCI World Index.
``This is the only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,'' Rogers said. ``So this bubble is the worst we've had in housing and it's going to be the worst before its over cleaning it out.''
Buying China
China is a market that Rogers isn't selling even as share prices fall, he said. He's sold his other emerging market holdings as stock gains outstripped the prospect for earnings, Rogers added.
The CSI 300 Index last week jumped 8.4 percent. The index had gained 2.7 percent to a record as of 2 p.m. in Beijing, heading for its fourth weekly gain in a row. The benchmark has more than doubled this year and is the best performer among 89 stock indexes tracked by Bloomberg.
``China's the next great country in the world and we must learn about investing in China, because that's where fantastic fortunes are going to be made in the next century,'' Rogers said. ``I would be looking at China very carefully.''
Jim Rogers, chairman of Beeland Interests Inc. Aug. 3 (Bloomberg) -- The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, a New York-based fund manager who predicted the start of the commodities rally in 1999.
This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.
``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''
The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may be in store even after the index, which tracks $32.6 trillion of stocks, advanced 0.7 percent this week.
``Given the stage of the credit cycle that we're in now, we would have to expect more negative news popping up,'' Beat Lenherr, who oversees $7 billion as chief investment officer for Asia at LGT Bank in Liechtenstein AG, said late yesterday in an interview in Singapore. ``The market sentiment is a bit nervous to the degree that every bad news is answered with selling.''
Worse to Come
The MSCI World Index today climbed 0.1 percent, its fourth gain this week, as investors speculated that better-than-forecast earnings will help offset the impact of mortgage losses.
Gains may be capped by further signs of turmoil among borrowers. Accredited Home Lenders Holding Co., the subprime mortgage company being acquired by Lone Star Funds, plunged 35 percent yesterday after saying it may go bankrupt.
American Home Mortgage Investment Corp. yesterday said it plans to halt operations, becoming the second-biggest residential lender to fail this year. The company's shares dropped 86 percent this week, cutting its value to $79 million, from $1.8 billion in December.
A measure of financial companies such as Countrywide Financial has dropped 3.7 percent so far this year, the only group to decline within the MSCI World Index.
``This is the only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,'' Rogers said. ``So this bubble is the worst we've had in housing and it's going to be the worst before its over cleaning it out.''
Buying China
China is a market that Rogers isn't selling even as share prices fall, he said. He's sold his other emerging market holdings as stock gains outstripped the prospect for earnings, Rogers added.
The CSI 300 Index last week jumped 8.4 percent. The index had gained 2.7 percent to a record as of 2 p.m. in Beijing, heading for its fourth weekly gain in a row. The benchmark has more than doubled this year and is the best performer among 89 stock indexes tracked by Bloomberg.
``China's the next great country in the world and we must learn about investing in China, because that's where fantastic fortunes are going to be made in the next century,'' Rogers said. ``I would be looking at China very carefully.''
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