KeNo's Housing and Economic Portal: Monday March 19 Housing and Economic stories

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A Record Buyout Turns Sour for Investors - (www.nytimes.com) Struck at the peak of the buyout boom five years ago, the $45 billion acquisition of the Texas energy giant TXU — the biggest leveraged buyout in history — has been a painful investment for its private equity owners. They did not need Warren E. Buffett to remind them how bad things were. America’s most famous investor, in his annual shareholder letter on Saturday, highlighted his $2 billion wrong-way bet on the bonds of the company, which its new owners have renamed Energy Future Holdings. He called the investment “a big mistake” and said it was at risk of losing all of its value. “In tennis parlance, this was a major unforced error,” Mr. Buffett wrote. Mr. Buffett’s grim view of his Energy Future Holdings position underscores the troubles facing the Texas utility, which is owned by a group of private equity firms led by Kohlberg Kravis Roberts, TPG Capital and the buyout arm ofGoldman Sachs. Last week, Energy Future Holdings reported a 2011 loss of $1.9 billion amid record low natural gas prices.

Home Prices Hit New Depths - (online.wsj.com) Home prices fell to fresh lows in December, but economists say that a drop in the number of homes listed for sale could help stabilize prices in parts of the country this year. Home prices fell by 4% last year, according to the Standard & Poor's/Case-Shiller index that tracks 20 metro areas. Prices dropped by 1.1% for the three-month period ending in December compared with the same period ending in November.That was slightly better than November's reading, when prices were down 1.3% from October. Tuesday's report is the latest evidence that the housing market still faces a cloudy outlook after a six-year downturn. The inventory of homes for sale has contracted, reducing competition among sellers, according to The Wall Street Journal's quarterly survey of housing-market conditions in 28 metro areas.

Exclusive: U.S. conducting criminal Libor probe - (www.reuters.com) The Justice Department is conducting a criminal probe into whether the world's biggest banks manipulated a global benchmark rate that is at the heart of a wide range of loans and derivatives, from trillions of dollars of mortgages and bonds to interest rate swaps, a person familiar with the matter said. While the Justice Department's inquiry into the setting of the London interbank offered rate, or Libor, was known, the criminal aspect of the probe was not. A criminal inquiry underscores the serious nature of a worldwide investigation that includes regulators and law-enforcement agencies in the United States, Japan, Canada and the UK. Several major global banks, including Citigroup Inc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG, have disclosed that they have been approached by authorities investigating how Libor is set.

Banks in Europe Tap ECB for More Three-Year Cash Than Economists Estimated - (www.bloomberg.com) The number of financial institutions flocking to the European Central Bank’s three-year loans soared to 800 and borrowing rose to a record in an operation that may boost the euro-area economy. The Frankfurt-based ECB said it will lend banks 529.5 billion euros ($712.2 billion) for 1,092 days, topping the 489 billion euros handed out to 523 institutions in the first three- year operation in December. Economists predicted an allotment of 470 billion euros in today’s tender, according to the median of 28 estimates in a Bloomberg News survey. “The astonishing number this time is the number of banks participating, which signals that a lot more small banks looked for the money and it is likely they will pass it on to the economy,” said Laurent Fransolet, head of fixed income strategy at Barclays Capital in London. “So the impact may be bigger than with the first one.”

Goldman May Face Mortgage-Securities Claims - (www.bloomberg.com) Goldman Sachs Group Inc. (GS), Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM)are among banks warned by federal regulators that they may face civil claims tied to sales of mortgage-backed securities. Goldman Sachs and Wells Fargo said yesterday that they received Wells notices from the Securities and Exchange Commission, warning that agency staff may recommend enforcement. The SEC has issued such notices to multiple banks including JPMorgan, the nation’s largest, in probes focusing on mortgage securities, said people with knowledge of the matter who asked not to be identified because the communications weren’t public. “It’s a big deal given the level of anticipation that has been in the markets about whether there would be further actions,” saidJacob Frenkel, a former SEC lawyer now with Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland. “These cases were complicated and time-consuming and the government has said for a long time that its investigations were continuing. These Wells notices are the manifestation of these investigations coming to their conclusion.”