Thursday September 10 Housing and Economic stories

TOP STORIES:

Margin Calls Bite Investors, Banks - (online.wsj.com) Loans backed by investment portfolios have become a booming business for Wall Street brokerages, but the bill is coming due. Loans backed by investment portfolios have become a booming business for Wall Street brokerages. Now the bill is coming due—for both the banks and their clients. Some lenders, including Bank of America Corp., are issuing margin calls to clients after the global market drubbing of the past week, forcing investors to choose between either putting up more money or selling some of the securities underlying the loans. Banks, meanwhile, are likely to take a hit to a key profit source if investors pull back from these loans as many expect. Among the largest firms, Morgan Stanley had $25.3 billion in securities-based loans outstanding as of June 30, up 37% from a year earlier. Bank of America, which owns brokerage firm Merrill Lynch, had $38.6 billion in such loans outstanding as of the end of June, up 14.2% from the same period last year. And Wells Fargo & Co. said last month that its wealth unit saw average loans, including these loans and traditional margin loans, jump 16% to $59.3 billion from last year.

Venezuela Is Adding More Zeroes to Its Currency to Deal With Hyperinflation - (www.bloomberg.com) Venezuela is preparing to issue bank notes in higher denominations next year as rampant inflation reduces the value of a 100-bolivar bill to just 14 cents on the black market. The new notes -- of 500 and possibly 1,000 bolivars -- are expected to be released sometime after congressional elections are held on Dec. 6, said a senior government official who isn’t authorized to talk about the plans publicly. Many Venezuelans have to carry wads of cash in bags instead of wallets as soaring inflation and a declining currency increase the number of bills needed for everyday purchases. The situation is set to get worse. Inflation, already the fastest in the world, could end the year at 150 percent, said the official. The government stopped releasing regular economic statistics in December, when it reported inflation had reached 69 percent.

Goldman Distressed-Debt Traders Ensnared in Market Turmoil - (www.bloomberg.com) Even Goldman Sachs Group Inc. hasn’t been left unscathed by the carnage in the market for distressed debt this year. Goldman Sachs has lost $50 million to $60 million on its distressed-trading desk in 2015, according to people familiar with the performance. The unit suffered losses on its position in Verso Corp., a paper producer whose bonds lost two-thirds of their value this year, as well as on debt of energy companies, said the people, who asked not to be named discussing the information because it isn’t public. Banks and investors who buy debt that mainstream money managers jettison have had a tough year making profits. Not only are they chasing a limited number of opportunities, they’re losing out on usually successful strategies. Commodities-linked debt has been disastrous. Even litigation-dependent investments, where distressed-debt buyers have an edge in predicting how a bankruptcy court will treat particular slices of debt, haven’t panned out.

Oil Industry Needs Half a Trillion Dollars to Endure Price Slump - (www.bloomberg.com) At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it. The number of oil and gas company bonds with yields of 10 percent or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades. If oil stays at about $40 a barrel, the shakeout could be profound, according to Kimberley Wood, a partner for oil mergers and acquisitions at Norton Rose Fulbright LLP in London. West Texas Intermediate crude was up 3.8 percent to $40.06 a barrel at 8:13 a.m. in New York.

Petrobras Taps Brazil Bond Market as Dollar Borrowing Costs Soar - (www.bloomberg.com) Petroleo Brasileiro SA is seeking refuge in Brazil’s domestic bond market as overseas borrowing costs surge amid a plunge in the local currency has exposed a mismatch between its real-based revenues and dollar debt payments. The world’s most-indebted oil producer said it’s planning to sell 3 billion reais ($830 million) in local bonds. The move from the state-controlled company comes as crude prices trade near the lowest in a decade and after Brazil’s currency tumbled 27 percent this year, pushing up the cost of its debt. Yields on benchmark dollar bonds due in 2024 jumped to a record 8.71 percent this week amid a global selloff in emerging markets and heightened concern that Brazil won’t be able to maintain its investment-grade credit rating. Petrobras’s revenue is mainly in reais, while the bulk of its debt costs are in foreign currency, making it one of the developing nations most at risk of the effects of foreign-exchange volatility.

OTHER STORIES:

The U.S. Is Short on Options to Confront Next Crisis - (www.bloomberg.com)
Hedge Funds Bruised by Stocks’ Meltdown - (online.wsj.com)
Emerging-Market Currency Risk Shifts to Lenders v

China’s push-me-pull-you policies leave the world reeling - (www.ft.com)
A Key Federal Reserve Official Sees September Rate Increase as Less Likely - (www.nytimes.com)
Young Kurds take up arms as clashes increase in south-east Turkey - (www.ft.com)