KeNo's Housing and Economic Portal: Wednesday October 19 Housing and Economic stories

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Banking crisis set to trigger a new credit crunch - (www.telegraph.cco.uk) The global financial system is on the edge of a new credit crunch as the cost of insuring the bonds of banks across the world hits new highs, analysts have said. Credit default swaps on lenders as far afield as China and Australia, countries that until recently seemed immune to the chaos, have doubled in the last two months to levels not seen since the financial crisis. In Europe, French and Belgian government officials are due to meet on Monday to discuss the crisis enveloping Dexia as speculation mounts about a possible break-up of the Franco-Belgian lender. Last week, the cost of insuring Dexia bonds hit an all-time high of 900 basis points, nearly double the level just two months ago, meaning the annual cost to insure €10m (£8.59m) of the bonds is £900,000. "The money ran out in June and what you are seeing now is the beginning of a new credit crunch, except this time it will be truly global, not Western," said one senior London-based credit analyst. Dexia, along with other European lenders, has been hard hit by the closure of the interbank lending markets and the continuing unwillingness of investors to buy the bonds of eurozone banks.

Far-Off Region Piles More Debt on Portugal - (www.nytimes.com) Alberto João Jardim has won every election in Madeira — an archipelago famous for its robust wine — since 1978, shortly after Portugal’s return to democracy. Next Sunday, he is confident that voters will give him another four-year term as head of the regional government. But while he has managed over the past three decades to turn the islands from a poverty-stricken outpost in the North Atlantic into one of the country’s wealthiest regions, progress has come at a high price — one that is only now becoming clear. Last month, the Portuguese Finance Ministry ordered an investigation of Madeira’s accounts after unearthing what it called “a grave irregularity” — €1.1 billion, or $1.5 billion, of debt that had been accumulated since 2008 but not accounted for. The discovery of yet more debt — equal to 0.3 percent of Portugal’s gross domestic product — complicates life for the national government as it struggles to meet financial targets agreed to last May with international creditors in return for a €78 billion bailout.

Dexia Joins BNP Resisting Losses on Greece Three Times Worse Than Booked - (www.bloomberg.com) Dexia SA (DEXB), BNP Paribas SA and Societe Generale SA are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism they haven’t written down the bonds sufficiently. While most banks have marked their Hellenic debt to market prices, a decline of as much as 51 percent, France’s two biggest lenders and Belgium’s largest cut the value of some holdings by 21 percent. The practice, which doesn’t violate accounting rules, may leave them vulnerable to bigger impairments in the event of a default, or if European governments force banks to accept bigger losses than signaled in July. The three would have about 3 billion euros ($4 billion) of extra losses if they took writedowns of 50 percent, data compiled by Bloomberg show. The three are some of the top foreign holders of Greek government bonds. They were also among the worst performers in the 46-member Bloomberg Europe Banks and Financial Services Index yesterday. Europe’s markets regulator last week likened the inconsistency and lack of transparency about the banks’ holdings to subprime mortgages that triggered the credit crisis. French and Belgian financial regulators say they are scrutinizing the practice. European finance ministers are weighing forcing creditors to take bigger losses than the 21 percent proposed in July under a second aid plan for Greece.

Bank Default Swaps Increase in Europe as Bigger Losses on Greek Bonds Loom - (www.bloomberg.com) Credit-default swaps insuring bank debt surged after European lawmakers signaled lenders may have to take bigger losses on holdings of Greek debt. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers jumped 16.5 basis points to 305.5 and the subordinated index climbed 25 to a record 567, according to JPMorgan Chase & Co. at 1:30 p.m. in London. An increase signals deteriorating perceptions of credit quality. Luxembourg Prime Minister Jean-Claude Juncker signaled finance ministers are considering reshaping a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro Greek rescue with debt exchanges and rollovers. The leaders are struggling to prevent the crisis engulfing the rest of the region. “It is going to be challenging to persuade the banks to take a bigger hit at this stage when they are already under such pressure,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “Any larger Greek write off will no doubt encourage investors to revisit valuations for the likes of Portugal, Italy etc. which in turn will put the banks under more pressure.”

Banks Reliving 2008, Bank Of America In The Pressure Cooker – (www.seekingalpha.com) It is looking more and more like 2008, and in a scary coincidence, the S&P 500 closed Monday at 1099.23, the exact price is closed at precisely three years ago on October 3, 2008. The sentiment reversed somewhat throughout the day, but the banks were on the hotseat. Mainly, it is Morgan Stanley (MS) and Goldman Sachs (GS) which are under the most scrutiny at the moment. There have been increasing call outs of Morgan Stanley's European exposure and now that the situation in Greece looks a little more hopeless, the chances are rising that it can fall victim to sovereign debt contagion (remember in 2008 when the catchphrase was subprime contagion?). With respect to Goldman Sachs, there have been estimates that the company will report its first quarterly loss in years, and that bonuses may be cut to nearly nothing; not to mention all the various legal battles it has been getting itself into. Credit Default Swap costs on MS and GS debt have spiked over the last few days, and are now at 2008 crisis levels.