KeNo's Housing and Economic Portal: Monday July 11 2016 Housing and Economic stories

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Slowdown in Shadow Lending Tightens Credit on Main Street - (www.wsj.com) America’s shadow banking system slowed sharply through the end of June, with the value of bonds backed by personal, corporate and real-estate loans falling $98 billion from the first half of 2015. That drop, which excludes bonds from state-backed issuers like Fannie Mae, represents a 37% decline from a year earlier, according to industry newsletter Asset-Backed Alert, and is making it harder for businesses, shopping-mall owners and consumers to refinance their debt. The pullback was triggered by the investor flight from riskier types of bonds around the New Year and persisted even as broader market conditions improved. One contributing factor is a regulation that will require producers to hold some of the securities they create, a requirement that makes the business less profitable and has slowed the packaging of new loans into bonds. Another is uncertainty raised by Britain’s vote to leave the European Union.

Italy’s Bonds Fall With Its Banking Crisis Back in the Spotlight - (www.bloomberg.com) Italy’s bonds fell for a second day as the crisis in the nation’s banking sector deepened, with regulators pressing lenders to raise capital and clean up their balance sheets. Yields on the nation’s 10-year government securities rose, having reached their lowest in more than a year last week. Italy is considering injecting fresh capital into Banca Monte dei Paschi di Siena SpA to boost the finances of its third-biggest lender before stress-test results, a person with knowledge of the plan said. Britain’s June 23 vote to leave the European Union exacerbated the selloff in Italian banking shares and further weighed on the nation’s bonds, which have been plagued by a weak economic outlook and growing political risk. “Italian banks were quite badly beaten up,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “There’s going to be a renewed focus on them over the next few months.”

UK commercial property feels chill of Brexit fallout - (www.reuters.com) Three British commercial property funds worth about 10 billion pounds suspended trading within 24 hours, in the first sign of markets seizing up since Britain's vote to exit the European Union sent asset prices into a tailspin. Policymakers rushed on Tuesday to emphasise that the seize-up was confined to the sector of "open-ended" funds in real estate that normally allow investors to exit at will, and did not signal a liquidity problem in wider financial markets. However other shares and funds in the commercial property sector also faced a sharp sell-off on Tuesday as the implications set in that assets could be due for a fall. Commercial real estate has wider implications for the financial system because it is often used as collateral by companies that borrow from banks. The three suspended funds collectively account for nearly a third of the 35 billion pounds ($46 billion) in open-ended British commercial property funds, which the Bank of England had flagged as a major risk ahead of the June 23 vote.

Aviva Joins Standard Life in Freezing Property Fund After Brexit - (www.bloomberg.com) Aviva Investors suspended trading in a 1.8 billion-pound ($2.4 billion) real estate investment fund, after Standard Life Investments froze its fund Monday, as investors demanded their money back in the wake of Britain’s vote to leave the European Union. The money manager halted the Aviva Investors Property Trust following a “lack of immediate liquidity,” according to a statement Tuesday. “We have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.” Investors are pulling money as industry commentators warn that London office values could fall by as much as 20 percent within three years of the country leaving the EU. During the financial crisis of 2007 and 2008, real estate funds were forced to freeze operations after withdrawals surged, contributing to a property-market slump that saw values drop more than 40 percent from their peak in the U.K.

Italy Considers Capital Injection in Monte Paschi - (www.bloomberg.com) Italy is looking to pump capital into Banca Monte dei Paschi di Siena SpA in what may become the lender’s third bailout since the financial crisis, a person with knowledge of the plan said. The government would invoke a European Union rule allowing temporary state aid if regulatory stress tests uncover a shortfall, said the person, asking to not be identified because the plan isn’t public. Talks are underway with European regulators to win approval, the person said. An Italian bank rescue would evoke the taxpayer bailouts of the financial crisis as well as test the bailout rules, which took full effect this year, forcing bondholders and shareholders to share losses. The present crisis deepened after Britain voted to leave the European Union at the end of June, triggering a fresh share selloff in some of the region’s weakest lenders amid concern over a worsening economic outlook.

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