Tuesday November 25 Housing and Economic stories

TOP STORIES:

Downey Savings, PFF Bank among 3 banks seized by federal regulators - (www.latimes.com) Federal regulators seized Downey Savings & Loan and PFF Bank & Trust late Friday, saying hundreds of millions of dollars in bad loans from the housing bubble had rendered the Southern California banking fixtures unsound. Government officials said the banks' branches would continue operating as usual under the ownership of Minneapolis-based U.S. Bank, one of the country's largest banks. No depositors will lose any money because of the failures, regulators said. Newport Beach-based Downey lost $547.7 million in the first nine months of 2008, largely because of risky "option ARM" mortgages -- adjustable-rate loans that allowed borrowers to pay so little each month that the loan balance rose. PFF, short for Pomona First Federal, specialized in loans to Inland Empire developers and home builders, running up $289.5 million in losses in the January-September period. "The closing of these two thrifts once again demonstrates the tremendous impact of the housing market distress on the state of California," John Reich, director of the Office of Thrift Supervision, said in a statement announcing the seizure of the institutions.

Goldman Sachs and Citigroup Plan to Issue FDIC Guaranteed Debt - (www.bloomberg.com) Goldman Sachs Group Inc. and Citigroup Inc. said they plan to sell debt guaranteed by the government after the U.S. Federal Deposit Insurance Corp. agreed to change rules to make the debt more attractive. Goldman, the biggest U.S. securities firm that converted to a bank in September, will start a debt sale as early as Nov. 24, spokesman Michael DuVally said today in a statement. Citigroup also intends to use the program, according to spokesman Michael Hanretta. The FDIC strengthened the guarantee on bank bonds today, clearing the way for financial institutions to access markets with the “full faith and credit” of the U.S. government. Banks have been holding off issuing the debt until the rules were finalized. Analysts at Barclays Plc estimated total issuance under the program could reach $600 billion as banks seize the chance to fund themselves. The FDIC will provide the guarantee on senior unsecured bank debt, ensuring creditors get a timely payment of principal and interest in the event of a default. Banks had said bond investors would reject the debt because the original guarantee wasn’t strong enough to put the bonds on par with other government or government-backed securities. The FDIC excluded from the program any loans with maturities of less than 30 days.

All US Financials Will be Nationalized in a Year: Manager - (www.cnbc.com) It's not preferable, but all major U.S. financial companies will eventually be under government control because the alternative is so much worse, Hugh Hendry, chief investment officer at hedge fund Eclectica Asset Management, said Friday."All financials will be owned by the U.S. government in a year," Hendry said. "I bet you." Nationalizations take dramatic losses from the private sector and places them on the larger balance sheet of the public sector, he said. "It's not good," but society is vulnerable and society is going to have to intervene, Hendry said. Shareholders Should Get Nothing: Because the taxpayers are forced to foot the bill for bailout out the banks, shareholders shouldn't be compensated, Hendry added.
(Watch the accompanying video for Hendry's full comments...) "Actually the shareholders of Citigroup have looked the other way for more than a decade" while management took excessive risk, he said. Shareholders should take nothing away if it is nationalized, because the taxpayer will be "paying this for a long, long time," he added.

Bank Shareholders Face 'the Unthinkable': El-Erian - (www.cnbc.com) Very odd that the Rating Agencies HAVE NOT downgraded the banks yet!!! As the nation's largest banks continue to stand on shaky ground, it is the company's shareholders that bear the biggest risk, Pimco's Mohammed El-Erian said. "The unthinkable is thinkable," the co-chairman of the bond fund management giant said on CNBC. "The equity holder is the most vulnerable in this economy because either they get diluted, or when the government comes in the government tries to protect the taxpayer, which means the government comes above the equity holder in the capital structure." That means that in any type of government rescue plan for the banking system, the US taxpayer gets repaid before the shareholders collect returns or dividends. Such a consideration is important as Citigroup's [C 3.66 -1.05 (-22.29%) ] shares lose more than half their market value and a handful of other major institutions vie for government funds to boost their liquidity. It all adds up to a treacherous investment environment in which even major institutions pose risk of seeing their credit evaluations drop to junk status. "This is a problem of equity," El-Erian said. "The great risk is that the rating agencies may move, and if the ratings agencies move to downgrade the banks we are in a completely different world."

General Growth hires bankruptcy advisor Sidley Austin - (www.chicagotribune.com) Debt-laden mall giant General Growth Properties Inc. has hired the law firm Sidley Austin as bankruptcy counsel while it negotiates with lenders for more time to restructure its $27 billion debt load. The move doesn't mean a Chapter 11 filing is imminent. Financially distressed companies often hire bankruptcy advisers and never take that step. Larry Nyhan, co-chair of Sidley Austin's bankruptcy practice, didn't return calls seeking comment. General Growth Properties spokesman David Keating confirmed the company hired Sidley Austin in "an advisory role." General Growth's financial situation has steadily deteriorated this year and it's stock is trading for loose change. The company, which owns more than 200 U.S. malls, has struggled to repay debt it amassed during an acquisition binge near the market's peak. Hope has faded as retailers, in the face of slackening consumer spending, began closing stores, curbing expansion plans and, in some cases, going out of business.

Citigroup directors weigh options as crisis deepens - (www.ft.com) Shares fall further as board meets to consider sale of part or all of company. Citigroup’s board was preparing to meet on Friday as the crisis surrounding the company deepened in spite of a planned investment of about $250m by Prince Alwaleed Bin Talal, its largest individual investor. The 26.4 per cent fall in the shares on Thursday prompted Citi’s directors and executives to look at strategic options, including the sale of part or all of the company.

Citigroup liquidates fund that fell 53% in a month - (www.ft.com) Citigroup is liquidating its Corporate Special Opportunities hedge fund after it lost 53 per cent of its value last month, marking the ninth time in recent months that the bank has had to close or rescue a fund in its alternative investment unit. The collapse represents the latest setback for Citi’s chief executive, Vikram Pandit, a former head of the alternative investment unit, who revealed plans on Monday to cut the bank’s headcount by 52,000. Citi shares fell 6 per cent on Tuesday to $8.36, giving it a market value of $45.5bn.

Citi ends SIV foray as last $17.4bn is returned - (www.ft.com) Citigroup moved on Wednesday to end its troubled involvement with structured investment vehicles, buying back the last $17.4bn in SIV assets for a loss of $1.1bn. The decision to wind down its SIVs – one of the first instruments to run into trouble at the outset of the crisis last year – underlines the desire by Vikram Pandit, Citi’s chief executive, to put an end to the company’s loss-making foray in that market. In December, two days after Mr Pandit was named chief executive, Citi was forced to reverse its previous stance against a bail-out of the SIVs and bring $49bn in assets on to its balance sheet amid fears over a lack of liquidity. The move to buy back the remaining assets held by the SIVs, an off-balance sheet vehicle that Citi pioneered in the late 1990s, will stop the litany of quarterly writedowns on those assets that have beset its balance sheet for the past year.

`Unprecedented' Biotech Bankruptcies Erupt Amid Finance Crisis - (www.bloomberg.com) The global economic crisis has cut funding for biotechnology companies to the lowest level in a decade, triggering bankruptcies and threatening development of drugs based on biomedical breakthroughs. In the past month, at least five biotechnology businesses have sought bankruptcy protection, according to company news releases, and others may be heading toward a similar fate. Those at highest risk have experimental compounds moving into costly human research. Peptimmune Inc., a 6-year-old closely held firm, says it’s struggling to pay for clinical trials of its promising multiple sclerosis drug. “I’m looking down the barrel of a gun,” said Peptimmune’s Chief Executive Officer Thomas Mathers in an interview. The Cambridge, Massachusetts-based company’s cut staff by more than half to 22 people, moved to smaller offices to conserve the $6.5 million on hand and is delaying research on new drugs for Alzheimer’s disease and Parkinson’s, Mathers said.

Treasury to Buy Reserve Government Fund's Holdings - (www.bloomberg.com) The U.S. Treasury agreed to help speed up the liquidation of the $6.3 billion Reserve U.S. Government Fund, ensuring investors are paid in full after their money was frozen in September. The Treasury, drawing from its Exchange Stabilization Fund, will buy any securities the fund doesn't sell by Jan. 3, according to statements today by the department and New York- based Reserve Management Corp., the fund's owner. Shareholders can expect their money by Jan. 7. The agreement goes beyond the assistance offered under programs set up by the Treasury and the U.S. Federal Reserve since September to help money-market funds maintain liquidity and unload hard-to-sell assets. Government debt held by the Reserve U.S. Government isn't eligible for purchase by the Fed's Money Market Investor Funding Facility. The Treasury ``doesn't foresee'' a similar agreement with any other funds, Jennifer Zuccarelli, a spokeswoman for the department, said in an interview.



OTHER STORIES:

Financial crisis: the deleveraging monster will get hungrier and hungrier - (www.telegraph.co.uk) - Deleveraging, deflation and depression are feeding one another in a potentially vicious manner. With banks facing strain again, governments must rapidly complete existing recapitalisation plans and probably take further steps to prevent excessive belt-tightening. The most recent downward lurch in the markets has been driven by news of inflation turning negative in the US and fears that the main industrialised economies could face a depression rather than just a severe recession. Worries have also resurfaced about the banks. Citigroup’s shares dived 23pc on Wednesday, while spreads on bank credit default swaps – which measure the market’s view of the likelihood of going bust – have started to rise again. A key component in this tangled story is deleveraging. Unfortunately, so much debt was built up in the good times that the deleveraging story has a long way to go. Between 1983 and 2007, the ratio of private credit to GDP in the Group of Seven large industrial economies plus China rose from 92pc to 155pc, according to a Nomura Securities calculation.
Goldman Slashes GDP forecast - (www.ml-implode.com) - "In a research note released this morning, Goldman Sachs slashed their Q4 GDP forecast from a decline of 3.5%, to a decline of 5...
Mortgage REIT Insider: Walking the Plank - (www.ml-implode.com) - "One of these days, I’ll be able to write a positive column about the mortgage REIT sector. Today, however, is not one of those ...
The Next Bubble… - (optionarmageddon.ml-implode.com)- "Hopefully, this bubble doesn’t pop. Hopefully it just slowly deflates. Still, I fear there is no escaping major wealth destru...
SEC calls meeting of world regulators amid crisis - (biz.yahoo.com/ap) - Crooked Christopher Cox speaks again at the behest of the Big Banks (Citigroup, JP Morgan Chase): "In addressing turbulent market conditions, it is essential not only that regulators act against securities law violations, including abusive short selling, but also that there be close coordination among international markets to avoid regulatory gaps and unintended consequences," Cox said in a statement. Cox said the meeting will allow regulators to review recent international steps including those taken to curtail abuses by short sellers, and coordinate future policies so that they are "effective and mutually reinforcing." The meeting comes as Citigroup Inc. and other big banks are lobbying the SEC to reinstate a temporary ban on short selling stocks in financial companies, which have seen their shares relentlessly hammered during the market downturn.

Citi Weighs Its Options, Including Firm's Sale - (online.wsj.com)
Citigroup slides as WSJ says sale eyed - (www.reuters.com)
Citigroup eyes options including merger - (www.reuters.com)
Fannie, Freddie halt foreclosures for the holidays - (www.usatoday.com)
Honda to cut global production through March to deal with slowing demand - (www.chicagotribune.com)
Basel outlines stricter limits for banks’ capital - (www.ft.com)

Private labels part of grocers' strategies - (www.chicagotribune.com)
Goldman's Gold Standard Is Less Golden - (online.wsj.com)
Quids pro quo - (www.economist.com)
Desperately seeking a cash cure - (www.economist.com)
Accounting for concern - (www.economist.com)

Few buyers for distressed assets - (www.ft.com)
More Hedge Funds Expected to Succumb - (online.wsj.com)
Crisis Hits Values of Commercial Mortgages - (www.washingtonpost.com)
California's median home price falls 34% - (www.latimes.com)
Bear market swipes at more than just stocks - (www.usatoday.com)

Architects worldwide facing downturn - (www.ft.com)
Emerging Market Debt Costs Jump in Week, Hastening IMF Bailouts - (www.bloomberg.com)
Eurozone recession deepening rapidly - (www.ft.com)
Europe's Services, Manufacturing Recession Worsens - (www.bloomberg.com)
British mortgage lending in October down 44 percent from a year ago - (www.chicagotribune.com)