KeNo's Housing and Economic Portal: Wednesday March 11 Housing and Economic stories

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Heta Senior Bonds Plunge After Austria Cuts Off Aid to Bad Bank - (www.bloomberg.com) Senior bonds of Heta Asset Resolution AG tumbled to record lows after Austria said it won’t pump more money into the “bad bank,” the first test of European legislation designed to ensure investors pay for bank failures. Austria’s decision to cut funding to the vehicle that’s winding down assets of the failed Hypo Alpe-Adria-Bank International AG is the first test of the European Union’s Bank Recovery and Resolution Directive, which takes full effect across the bloc next year. The rules, which Austria implemented earlier than most EU member states, give regulators the power to impose losses on both shareholders and creditors in the event of a bank collapse. The EU enacted the bank-resolution law last year in a bid to end taxpayer bailouts that prevailed in the financial crisis. The bloc granted 661 billion euros ($742 billion) for recapitalization and asset-relief measures from 2008 to 2013, according to European Commission data. Member states had to transpose the directive into national law by the end of 2014 and have until Jan. 1, 2016 to apply all rules.

Greece lashes out as pressure to reform rises - (www.cnbc.com) Germany and the rest of euro zone have begun to tighten the screws on the Greek government, urging it to implement reforms it promised to get its four-month extension on its bailout now. However in the meantime, Athens has only managed this weekend to alienate itself further from its neighbors. The German government approved Greece's bailout extension on Friday. But this does not mean that Greece is under any less pressure to overhaul its economy and the way it does business. On Sunday, German Finance Minister Wolfgang Schaeuble urged the Greek government to use the time to implement its reform plans if it wanted to secure future help from abroad. Meanwhile, in an interview with the Financial Times on Sunday, Jeroen Djisselbloem, the head of the Eurogroup of euro zone finance ministers, warned Greece had to start adopting economic reforms demanded by its creditors if it was to receive a remaining tranche of aid from its bailout program.

Spanish Official Says Greece Seeking Third Bailout - (online.wsj.com) A political clash between Spain and Greece is taking a turn for the worse, after a top Spanish official said that Greece is negotiating a third bailout with the European Union, a claim that was denied by a representative of the eurozone’s finance ministers. The spat has been simmering for weeks but is quickly becoming a significant irritant in talks over the future of Greece within the eurozone. Officials from both countries have been trading barbs, with the radical left government in Athens accusing the conservative government in Madrid of putting pressure on Greece to accept continued EU monitoring over its finances, in contravention of the political program under which the Syriza party won a Greek election in January. The dispute rose to a new level Monday, when Spain’s Finance Minister Luis de Guindos said EU and Greek officials are currently negotiating a third bailout for Greece, according to a statement released by his press office. Mr. De Guindos’s office said such a bailout could imply between €30 billion ($33.6 billion) and €50 billion ($56 billion) being transferred to Greece, but the figure should be taken as an estimate rather than an actual offer on the table.

Housing Bubble Redux: Subprime Auto Market Begins To Crack - (www.zerohedge.com) As noted last week, the aggregate amount of loans for new and used cars will in short ordereclipse the $1 trillion mark, joining total student debt in full-on bubble mode. Better still, early delinquencies on auto loans are now sitting back at their 2008 highs (both for all borrowers and for subprime borrowers, with 9% of the latter now missing a payment within the first 8 months of origination). Despite this, and despite the fact that nearly a third of all auto loans in 2013 were made to subprime borrowers (the same amount we saw in 2006 at the very height of reckless underwriting standards), Experian says everything is fine. Meanwhile, Wells Fargo recently noted that although lending standards had indeed gotten back to “normal” (and as a reminder, “normal” now means how things were in 2006) it’s beginning to look like some households “might be overleveraged.” Simultaneously, lenders are again showing a propensity towards origination for the purpose of selling loans rather than holding them; that is, originating loans and then happily passing them on to the Wall Street securitization machine, which explains why despite a collapse in the issuance of ABS backed by home equity loans since the crisis, total ABS issuance in the U.S. hit its highest level since 2008 last year.

Wells Fargo Puts a Ceiling on Subprime Auto Loans - (www.nytimes.com) Wells Fargo, one of the largest subprime car lenders, is pulling back from that roaring market, a move that is being felt throughout the broader auto industry. The giant San Francisco bank, known for its stagecoach logo and its steady profits, has been at the center of the boom in making loans to people with tarnished credit scores. Wall Street, meanwhile, has been bundling and selling such loans as securities to investors, reaping big profits while allowing millions of financially troubled borrowers to buy cars. But now, amid signs that the market is overheating, Wells Fargo has imposed a cap for the first time on the amount of loans it will extend to subprime borrowers. The bank is limiting the dollar volume of its subprime auto originations to 10 percent of its overall auto loan originations, which last year totaled $29.9 billion, bank executives said. The decision, detailed in interviews with top Wells Fargo executives, along with other large auto lenders, is a sobering moment for the booming market. Other lenders may decide to take their cue from Wells Fargo, one of the nation’s largest lenders. After successfully sidestepping many of the catastrophic mortgage losses that hit its competitors during the financial crisis, the bank has developed a reputation for deftly managing risk.

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