Saturday December 6 Housing and Economic stories

TOP STORIES:

'Ponzi Scheme' at Citi - (www.nypost.com) A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking. Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths. Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted - and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities. The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi's stock collapsed, wiping out more than $122 billion of shareholder value. However, Rubin and other top insiders were able to keep Citi shares afloat until they could cash out more than $150 million for themselves in "suspicious" stock sales "calculated to maximize the personal benefits from undisclosed inside information," the lawsuit said.

GM may pull plug on Saturn - (www.latimes.com) The brand was created to compete with efficient imports but has never shown a profit, making it vulnerable as automakers struggle. General Motors Corp. launched its Saturn division in 1985 as a "different kind of car company," one given the task to sell cars in a new way and compete with Japanese juggernauts like Honda and Toyota. The idea, simply, was to make money on the small, economical vehicles that had always been losers for the Detroit giant. Now GM may be abandoning the brand altogether. The sweeping restructuring plan GM released this week in hopes of squeezing $18 billion in aid out of Congress includes a pledge to "explore alternatives" for Saturn. GM officials say options include overhauling the lineup, partnering with another carmaker, selling the brand and, potentially, sending Saturn off to the junkyard. GM's Swedish luxury brand Saab might also be sold, and Pontiac could be transformed into a "niche" brand inside other dealerships. But the decision to consider pulling the plug on Saturn, the agile little start-up that GM developed to reinvent the way it produced and sold cars, is a bitter reminder of just how deep the automaker's troubles run.

Bally Total Fitness again files for Chapter 11 - (www.latimes.com) It's the second time in less than two years for the gym operator, hindered by debt and limited refinancing options amid the national credit crunch. Bally Total Fitness Corp. filed for Chapter 11 bankruptcy protection Wednesday for the second time in less than two years, hindered by debt and limited refinancing options amid the national credit crunch. The Chicago-based gym company will use existing cash reserves to continue operating. Bally, which filed in U.S. Bankruptcy Court for the Southern District of New York, plans to sell itself or reorganize under Chapter 11. Early last year, faced with more than $800 million in debt and $45 million in cash, Bally defaulted on its debt

Fortress Halts Drawbridge Global Fund Withdrawals - (www.bloomberg.com) Fortress Investment Group LLC fell 25 percent to a record low after the private-equity and hedge-fund manager halted redemptions from its Drawbridge Global Macro fund, which had lost value this year. Investors asked to withdraw $3.51 billion by year-end, including the $1.5 billion in redemption notices disclosed last month, the New York-based company said today in a filing with the U.S. Securities and Exchange Commission. Fortress spokeswoman Lilly Donohue declined to comment. “The market essentially lost faith in Fortress as a franchise so that anything Fortress does is tainted by problems that it had in its private-equity portfolio,” said Jackson Turner, an analyst with Argus Research Co. in New York, who has a “sell” rating on the company.

Fortress To Keep Funds Locked Up - (www.forbes.com) Tough luck, Fortress Investment Group basically said to investors seeking to pull their money from the company. Directors of Fortress Investment Group (nyse: FIG - news - people ) voted to temporarily suspend pending redemptions after investors asked to pull out roughly $3.5 billion by year's end from its Drawbridge funds, nearly as much as the vehicles have in assets. In other words, Fortress's hedge-fund shareholders won't be getting their money back for a while, and investors in the company didn't take the news well. Shares in the company, one of Wall Street's few publicly held firms that manages both private-equity and hedge funds, dropped 25.2%, or 63 cents during Wednesday's trading session, closing at $1.87. Its shares have fallen 88.0% since the beginning of the year. "What the market has ended up doing here is pricing in a wind-down of the business over some period of time," said Roger Smith, an analyst at Fox-Pitt Cochran Caronia. "That is difficult to do though because you have to have expectations of how long it will take to redeem assets and what a required rate of return investors would need."

Insurer Dumps Long-Term-Care Policies - (online.wsj.com) A major insurer has dumped a chunk of its long-term-care policies into an independent trust, putting tens of thousands of policyholders at risk of reduced benefits or big premium increases. Conseco Inc. officials have said the transfer of many of the insurers' long-term care policies to a new state-supervised nonprofit trust, Senior Health Insurance Co. of Pennsylvania, allows it to concentrate on its core businesses. The policies were a drag on the company's earnings because they were underpriced and required continuing capital infusions to meet the long-term needs of policyholders. The trust will pay claims from a pool of funds transferred to it from Conseco, including $175 million in capital. But A.M. Best Co., the insurance-rating firm, warns that the trust may need to raise rates and reduce benefits and has no access to additional capital. If the trust were to become insolvent, some policyholders might ultimately have to rely on the Pennsylvania state guaranty association to pay any claims, up to limits set by state

D.E. Shaw, Farallon Restrict Withdrawals as Fund Freeze Deepens - (www.bloomberg.com) D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months. D.E. Shaw, which oversees $36 billion, capped redemptions from its Composite and Oculus funds, said two people familiar with the New York-based company. Farallon, a $30 billion firm based in San Francisco, did the same with its biggest fund after investors asked to get back more than 25 percent of their money. The firms are two of the biggest to block withdrawals, known as putting up gates, so they aren't forced to liquidate investments at distressed prices to raise cash. New York-based Fortress Investment Group LLC said yesterday it froze an $8 billion fund after getting redemption requests for 40 percent of its assets. Tudor Investment Corp., the Greenwich, Connecticut, firm run by Paul Tudor Jones, locked the $10 billion BVI Global fund last week ahead of plans to split the fund into two. “There's no longer the stigma associated with putting up gates or suspending redemptions as it was before this crisis,” said Jaeson Dubrovay, head of the $19 billion hedge-fund group at consulting firm NEPC LLC in Cambridge, Massachusetts. “It's actually being encouraged by some large institutions as a way to protect longer-term investors from those who panic and redeem.”

Harvard Endowment Loses 22% - (www.nytimes.com) In a sign of the economic times, Harvard has sent a letter to its deans saying that the university’s $36.9 billion endowment fund lost 22 percent of its value in the last four months and could decline as much as 30 percent by the end of the fiscal year on June 30. Skip to next paragraph Normally Harvard reports on the endowment’s performance once a year, but the letter signed by the university’s president, Drew Faust, and its executive vice president, Edward C. Forst, cited the “current extraordinary circumstances” as the rationale for providing an interim report. Harvard depends on its endowment for about 35 percent of its operating budget, and some of its schools rely on endowment income to cover more than 50 percent of their expenses. As a result, the letter noted that the endowment’s performance would have a significant impact on budgets. The decline, about $8 billion, does not capture the full extent of losses, the letter said, because some investments are harder to value and are valued only periodically.


OTHER STORIES:

Treasuries Rise, Yields Fall to Records, Before Jobs Reports - (www.bloomberg.com)
Sterling sinks as UK house prices tumble - (www.ft.com)
Oil falls below $46 - (www.reuters.com)

Harvard Hit by Loss as Crisis Spreads to Colleges - (online.wsj.com)
Fortress, the Hedge Fund, Is Crumbling - (www.bloomberg.com)
Alternative Holdings Sour for Endowments, Pensions - (abcnews.go.com)
Another Goldman unit hit by decline - (www.ft.com)

Buyout Titan Weighs Hedge-Fund Revamp - (online.wsj.com)
Carlyle Feels the Squeeze: Layoffs - (online.wsj.com)
Bank of England Cuts Key Interest Rate to 2%, Lowest Since 1951 - (www.bloomberg.com)
New Zealand Cuts Key Interest Rate by Record to 5% - (www.bloomberg.com)
US, China headed for possible currency clash - (www.breitbart.com)
China Urges U.S. to Counter Crisis, Prepares for ‘Worst Case’ - (www.bloomberg.com)
Sweden Cuts Key Rate to 2% as Economy Nears Recession - (www.bloomberg.com)
UK house prices fall at fastest rate in 16 years - (finance.yahoo.com)
Calls for $1 Trillion Stimulus Package Grow as Economy Tumbles - (www.bloomberg.com)
Downturn Spares Few Areas of U.S. - (online.wsj.com)
Treasury Weighs Action on Mortgage Rates - (www.washingtonpost.com)
U.S. Eyes Plan to Lift Home Sales - (online.wsj.com)
Economic Weakness Pervasive, Fed Says - (www.washingtonpost.com)
Layoffs mount as crisis drags on - (www.reuters.com)
Merck Expects 2009 Profit to Miss Analysts’ Estimates - (www.bloomberg.com)
GM, Chrysler May Accept Bankruptcy to Receive Bailout - (www.bloomberg.com)
Credit Suisse to Eliminate 5,300 Jobs After Losses This Quarter - (www.bloomberg.com)
Nokia Cuts Mobile Device Industry Outlook for Fourth Quarter - (www.bloomberg.com)
State Street Joins Fidelity, Legg Mason in Shedding Fund Jobs - (www.bloomberg.com)