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Ally’s Residential Capital Files for Bankruptcy - (www.bloomberg.com) Residential Capital LLC, the unprofitable mortgage company whose parent Ally Financial Inc. (ALLY) is
trying to repay a U.S. government bailout, filed for bankruptcy and plans to
sell most of its assets to Fortress
Investment Group LLC. (FIG) ResCap listed assets of $15.7 billion
and debt of $15.3 billion in a petition filed today in U.S. Bankruptcy Court in Manhattan. ResCap’s Chapter 11 filing is the
biggest so far this year, based on liabilities, according to data compiled by
Bloomberg. “The action by ResCap will enable Ally to achieve a permanent
solution to its legacy mortgage risks and put these issues behind us,” Ally
Chief Executive Officer Michael A. Carpenter said today in a statement. Ally
said it also may sell its international auto-finance and insurance operations
to help repay a $17.2 billion U.S. bailout.
GARY
SHILLING: Home Prices Will Plummet 20% From Here - (www.businessinsider.com) Despite
growing consensus that it is now cheaper to buy a home than rent one, Gary
Shilling, president of A. Gary Shilling & Co. says by previous standards
home prices are still high relative to rents. In his latest editorial in The Wall Street Journal, Shilling writes
while home prices have fallen 34 percent since their peak in early 2006, they
are not cheap if prices continue to fall: "But even if homeownership was
cheaper than renting, as some claim, buying a house now would be a disastrous investment if prices
fall another 20% or more." Shilling says homes are going to lose market
value in coming years because of excess inventories. He says there are an
excess of 2 million inventories and that it will take at least four years to
work off this excess and quite some time for those surplus homes to bring down prices:
European austerity bites deep into Spain - (www.washingtonpost.com) When officials in Madrid slashed support for alternative-energy programs
this year as part of the campaign of government austerity sweeping Europe,
ripples quickly hit this rural town with the cancellation of plans for a solar
energy plant. The decision forced several dozen layoffs at the company that
would have built and run the project, adding to an unemployment rate that is
running at 30 percent in the region. The move also undercut hopes at local
firms that had expected to provide heavy equipment and fencing for the plant.
At a cement company that was to supply material for the project, mixers now sit
idle and the fear of further layoffs looms. Hours after police in Madrid
arrested 18 people, thousands of demonstrators reassembled to protest the
government's harsh austerity measures. Police say the protests drew more than
70-thousand people nationwide this past weekend. The economic debate consuming
Europe comes down to the question of whether struggling countries should choose
austerity by clamping down on government spending to rein in unsustainable
deficits or pursue growth stimulated by more spending.
Credit-Default Swaps in U.S. Rise on Talk Greece May Exit Euro
- (www.bloomberg.com) A gauge of corporate credit risk increased for an eighth day, the
longest streak since January 2010, on concern that Greece will exit the single European currency. The
Markit CDX North America Investment Grade Index, a credit-default swaps
benchmark that investors use to hedge against losses on corporate debt or to
speculate on creditworthiness, added 3.6 basis points to a mid-price of 112.2
basis points at 8:25 a.m. in New York, according to prices compiled by
Bloomberg. The swaps index rose as Greek leaders struggled to form a government
following inconclusive elections May 6. The nation’s exit from the euro “is not
necessarily fatal, but it is not attractive,” European Central Bank Governing
Council member Patrick Honohan said
May 12.
Dimon Fortress Breached as Push From Hedging to Betting Blows
Up - (www.bloomberg.com) David Olson, a former head of credit trading in JPMorgan Chase & Co. (JPM)’s
chief investment office, learned about risk as a U.S. Navy nuclear submarine
pilot. When he joined the bank in 2006, his new commander, Chief Executive
Officer Jamie Dimon, was
transforming the once- conservative unit from a risk manager to a profit
center. “We want to ramp up the ability
to generate profit for the firm,” Olson, 43, recalled being told by two
executives. “This is Jamie’s new vision for the company.” That drive has now
shattered JPMorgan’s cultivated reputation for policing risk and undermined
Dimon’s authority as a critic of regulatory efforts to curb speculation by too-big-
to-fail banks. It also cost Chief Investment Officer Ina R. Drew, one of the
most powerful women on Wall Street, her job. As
U.S. and U.K. investigators descend on the firm following Dimon’s announcement
last week of a $2 billion trading loss, lawmakers are pointing to the breakdown
at the largest U.S. bank as evidence that tougher rules are needed.
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