KeNo's Housing and Economic Portal: Wednesday December 29 Housing and Economic stories

Tuesday, December 28, 2010

Wednesday December 29 Housing and Economic stories

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TOP STORIES:

The Weak Get Weaker as Muni Bonds Are Sold Off - (online.wsj.com) Amid the recent selloff in the municipal-bond market, investors are increasingly differentiating between state and local governments with strong finances and those facing big fiscal woes. That trend could have significant implications for holders of bonds issued by weaker state and local governments, some of which are already paying higher interest rates and have seen the prices of their bonds decline in value. The growing gap between what the strongest and weakest government issuers pay to borrow brings unpleasant echoes of the European debt crisis, where escalating yields paid by countries such as Greece and Ireland made their fiscal situations untenable. For muni investors, the scenario could prove similar—a series of rolling crises as the spotlight goes from one troubled issuer to the next. Underlying this dynamic are issuers struggling not just with budget woes but with higher borrowing costs that end up inflating budget deficits. That prompts still more borrowing and also can result in ratings downgrades that can further raise borrowing costs.

This Bonus Season on Wall Street, Many See Zeros - (www.nytimes.com) Bonus season is fast approaching on Wall Street, but this year the talk does not center just on multimillion-dollar paydays. It’s about a new club that no one wants to join: the Zeros. Drawn from a broad swath of back-office employees and middle-level traders, bankers and brokers, the Zeros, as they have come to be called, are facing a once-unthinkable prospect: an annual bonus of ... nothing. “It’s going to a cause a lot of panic on Wall Street,” said Richard Stein of Global Sage, an executive search firm. “Everybody is talking about it, but they’re actually concerned about it becoming public. I would not want to be head of compensation at a Wall Street firm right now.” In some ways, a zero bonus should not come as a surprise to many bankers. As a result of the 2008 financial crisis, Wall Street firms like Goldman Sachs and banks like Citigroup raised base pay substantially in 2009 and 2010. They were seeking to placate regulators who had argued that bonuses based on performance encouraged excessive risk.

ECB raises fears over Irish rescue package - (www.ft.com) The European Central Bank has expressed concern that Ireland’s rushed bank rescue package may interfere with the Frankfurt institution’s operations to provide funds in support of the eurozone financial system. The euro’s monetary guardian has “serious concerns” that flaws in the Irish bail-out legislation would usurp the ECB’s rights over the collateral proffered as security for liquidity, according to a position paper posted on the ECB’s website. The warning reflects ECB fears of the risks involved in providing liquidity to Ireland’s banks. The most recent data show Irish banks having €136bn ($179bn) in loans outstanding from the ECB – a quarter of the total in the eurozone – and €45bn in emergency liquidity assistance from the Irish central bank. To obtain liquidity, eurozone banks have to put up assets as collateral.

France’s AAA Grade at Risk as Rating Cuts Spread: Euro Credit - (www.bloomberg.com) France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut. Moody’s Investors Service said Dec. 15 it may lower Spain’s rating, citing “substantial funding requirements,” and slashed Ireland’s rating by five levels on Dec. 17. Standard & Poor’s is reviewing its assessments of Ireland, Portugal and Greece. Costs to insure French government debt rose to a record today with the country’s credit default swaps more expensive than lower-rated securities from the Czech Republic and Chile. “Every sovereign may get penalized in the year ahead,” said Toby Nangle, who helps oversee $46 billion as director of asset allocation at Baring Asset Management in London. “It would be a big deal if France was to have its AAA rating stripped. I don’t think the likelihood of a downgrade is reflected in the market.”

Brazil Frets as Panamericano Exposes Weak Credit Hitting Stocks - (www.bloomberg.com) The first investigation into Brazil’s asset-backed securities industry, rising consumer delinquencies and the biggest rout of a bank stock in more than a decade are opening cracks in the country’s financial system. Funding costs for smaller banks have climbed since a Nov. 9 bailout of Banco Panamericano SA triggered the probe, pushing average yields on certificates of deposit to 12.9 percent from 11.8 percent. The market for selling loan portfolios has dried up, and funds of asset-backed commercial paper have had 2.3 billion reais ($1.3 billion) in redemptions since the rescue, according to Brazil’s capital markets association. The stress in Brazil’s credit markets is damping euphoria among investors that helped the Bovespa index gain 81 percent since December 2008. The index is the only benchmark stock index in the Americas to decline this year.