US - Subprime

[kennynah]

this is like our HDB grant....take a small amount and pay subsequent sales levy of 25% of sales revenue...stupid and meaningless...outright daylight robbery

i've previously worked out the sums...no way, is the grant ever going to be larger or even come close to the 25% sales levy...

sorry, if i have offended many who might have taken up this ridiculous grant. but i am just calling a spade a spade here...

[winston]

Bush signs housing bill

US President George W Bush has signed a massive housing bill intended to provide mortgage relief for 400,000 struggling US homeowners and to stabilize financial markets.

Bush signed the bill without any fanfare or signing ceremony, affixing his signature to the measure he once threatened to veto, in the White House's Oval Office in the early morning hours.

He was surrounded by top administration officials, including Treasury Secretary Henry Paulson and Housing Secretary Steve Preston.

ASSOCIATED PRESS

[ishak]

Wall Street Hangs On As Credit Crisis Hits 1st Year
By Reuters
Reuters | 30 Jul 2008 | 12:35 PM ET

One year into the credit crisis that led to the near-collapse of Bear Stearns, some of the remaining big U.S. investment banks are down, but probably will not get taken out right now.

While experts say the weaker Wall Street banks like Merrill Lynch and Lehman Brothers Holdings face pressures that could drive deals, they do not see more takeovers following JPMorgan Chase acquisition of Bear Stearns, at least in the near future.

Of the small pool of potential buyers, some face problems of their own, and it is unclear whether the worst of the credit crisis is over.

"Some (brokerages) will need financial assistance, shall we say, whether that's a cash infusion or the deeper pockets of a merger partner," said Wesley Fredericks, a mergers and acquisitions partner at law firm Heller Ehrman. "What I see is a potential strategic investment more than a takeover."

Merrill Lynch took the latest hit Monday, when it said it would take a $5.7 billion third-quarter write-down and raise $8.5 billion by selling new stock.

The move had a fire sale flavor to it, causing at least some investors to conclude that the crisis, which has already led to more than $400 billion of write-downs and losses at major banks, could still have a long way to run.

Stand-alone investment banks such as Merrill and Lehman may struggle to keep earning the same kind of returns their shareholders have come to expect.

Experts say these companies may have to look for alternatives like partnering with commercial banks, which would give them a stable source of funds as well as help deal with future shocks and sustain growth even if regulators restrict the amount of debt they can take on.

Some of these brokerages could also become tempting acquisition targets, experts said, but they added that things would have to stabilize—or maybe get worse—before any would-be suitor makes a move.

"The question is, can any of the larger investment banks, now that they have gone so far astray, get back to a profitable, reasonable financial position," said Michael Farr, president of Farr, Miller & Washington, which invests about $600 million. "When you see firms trading at 40 percent of book value, that has to whet someone's appetite."

"Somebody is always interested at a price." Lehman, the smallest of the major Wall Street brokerages, is trading at about half its book value, but Merrill -- the third-largest -- is trading at a little above that benchmark.

Goldman Sachs Group , which is the biggest of these firms and has largely avoided the credit losses that have hurt rivals, is trading at nearly twice its book value.

Of late, the fate of Lehman has been the subject of intense and sometimes contradictory speculation, with analysts and media reports suggesting a range of options, from going private to asset sales.

Farr said Lehman was a more likely acquisition target than Merrill, which has a better chance of surviving the crisis as an independent entity.

"Lehman is a size that it could be a bolt-on acquisition at the right price," he said. "Merrill is a very big bite for anyone to swallow." Lehman's market capitalization is about $11 billion, less than half of Merrill's.

Both companies declined to comment.

Potential buyers for an investment bank could include large asset managers like BlackRock , as well as U.S. and foreign banks like JPMorgan, Barclays or Royal Bank of Scotland , said Marshall Sonenshine, chairman of New York-based investment bank Sonenshine Partners.

Farr said he thought international banks were the most likely buyers, and ruled out JPMorgan and BlackRock, in which Merrill has a 49.8 percent stake.

But the list of potential acquirers is small, and even among those, some are dealing with problems of their own stemming from the credit crisis. And that is only one part of the equation.

"The relevant factors are not only the dust settling internally within any one firm, but also the dust settling externally," Sonenshine said. "Where are we in the credit crisis? At what point does credit become more available?"

Moreover, investment banks can now borrow from the U.S. Federal Reserve, which is almost a guarantee against their suffering the same kind of run-on-the-bank that hobbled Bear Stearns.

The Fed said Wednesday that it was extending the facility through Jan. 30.

Merrill's ability to line up investors and raise money means that the company can get along without a merger, said Robert Albertson, a former Goldman banking analyst who is now chief strategist at Sandler O'Neill.

"It strikes me as a little bit of overkill to say they can't remain independent," Albertson said. "There could be (deals). But it's a little premature to count them (Wall Street firms) out, to say they need a larger safe harbor."

[LenaHuat]

I'm still wondering when the Saudi SWF will buy up the banks.
The Chinese, Singaporeans, UAEs and Qataris have oredi taken stakes in them.

[ishak]

IndyMac Bancorp Files for Liquidation After Seizure
Bloomberg 1 Aug 2008
By Jeff St.Onge and Tiffany Kary

Aug. 1 (Bloomberg) -- IndyMac Bancorp Inc., the second- largest U.S. independent mortgage lender before it was seized by federal bank regulators three weeks ago, filed to liquidate its remaining assets under bankruptcy protection.

IndyMac's liabilities are between $100 million and $500 million, according to the Chapter 7 filing yesterday in U.S. Bankruptcy Court in Los Angeles. The bank holding company said it has less than 50 creditors, which it didn't list.

IndyMac was seized by U.S. regulators on July 11 after a run by depositors left the mortgage lender strapped for cash. The Federal Deposit Insurance Corp. is running a successor institution, IndyMac Federal Bank, and regulators have said they intend to eventually sell the seized bank.

The FDIC ``has been in sole possession custody and control of all of the books and records of'' IndyMac Bancorp and the court filing was made without access to information that bankruptcy laws typically require, Chief Executive officer Michael W. Perry said in court papers.

While banks are prohibited from filing for U.S. bankruptcy protection, bank holding companies aren't. Perry is Pasadena, California-based IndyMac Bancorp's sole remaining employee, according to the filing. The company has $50 million to $100 million in assets.

IndyMac Bancorp racked up almost $900 million in losses as home prices tumbled and foreclosures hit records. California ranked second among U.S. states, with one foreclosure filing for every 192 households in June, 2.6 times the national average.

IndyMac came under fire in June from U.S. Senator Charles Schumer, who said lax lending standards and deposits purchased from third parties left it on the brink of collapse. In the 11 business days after Schumer explained his concerns in a June 26 letter, depositors withdrew more than $1.3 billion, the Office of Thrift Supervision said.

IndyMac was the largest OTS-regulated savings and loan to fail and second-biggest financial institution to close behind Continental Illinois in 1984, according to the FDIC. The failure will cost the federal deposit insurance program that repays customers when a bank fails about $4 billion to $8 billion, the FDIC said in a statement last month.

The company is represented by the law firm Alston & Bird LLP in the bankruptcy case.

The case is In re IndyMac Bancorp Inc., 08-21752, U.S. Bankruptcy Court, Central District of California (Los Angeles).

[ishak]

A year into credit crunch, more pain expected
Government bailouts limit the damage, but may delay recovery
By Alistair Barr, MarketWatch, Last update: 7:37 p.m. EDT Aug. 1, 2008

SAN FRANCISCO (MarketWatch) -- "Troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system," -- Federal Reserve Chairman Ben Bernanke, June 5, 2007, during a speech from Cape Town, South Africa.

Just two months later, last August, those words seemed a distant memory. The financial system was in disarray, forcing the Fed and the European Central Bank to pump more than $250 billion into short-term funding markets to keep them working properly. The subprime mortgage crisis had gone global and the credit crunch had begun.

As the first anniversary of the crisis arrives this coming week, the Dow Jones Industrial Average is down 14%, U.S. economic growth has more than halved, financial institutions have suffered $350 billion in write-downs and fired chief executives and thousands of workers, while house prices have slumped as much as 40% in some areas. Bear Stearns, the nation's fifth-largest investment bank, had to be bailed out by the Fed and J.P. Morgan Chase. Fannie Mae and Freddie Mac, the bedrock of the U.S. mortgage market, may be next.

Eight U.S. banks have failed since the beginning of the year, including First Priority Bank of Bradenton, Fla. late Friday.

"I doubt we're even a third of the way through it," said Michael Burry, head of Scion Capital, LLC, an $800 million hedge fund firm, which made huge returns betting against riskier parts of subprime mortgage-backed securities. "A real recovery won't happen until late 2010 or early 2011. A lot of the bills from the credit bubble haven't come due yet."

Burry expects inflation to increase and the U.S. dollar to decline further as the government creates more dollars to try to ease the pain of the credit crunch. To prepare, he's invested in commodities, foreign currencies and overseas stocks, with a focus on Asia.

Nowhere near bottom
To be sure, Burry has profited from negative bets against the housing and mortgage markets and may be more bearish than others because of that. However, he isn't alone in his views. "We probably have at least another year to two years to go in this process," said Eric Hovde, chief executive and portfolio manager at Hovde Capital, which manages a series of hedge funds focused on financial services. House prices have taken another sharp leg down recently and that won't show up on the balance sheets of banks and other financial institutions for three to six months, he noted.

"Housing alone will keep credit destruction and depletion of capital in the financial sector at a rapid clip for another year," Hovde said. Greg Case, chief executive of Aon Corp, the world's largest insurance broker, is perturbed by the beginning of what may be a slowdown in Europe. "We're a very global firm operating in 120 countries. Our concern is that we're beginning to see some of the same characteristics in Europe as we've seen in the U.S.," Case said. "Overall economic pressure is increasing. That leads to tightness in credit and pressure on financial institutions. We see it everyday with our clients." Max Bublitz, chief strategist at $5.8 billion investment firm SCM Advisors LLC, reckons the credit crunch is in its fourth or fifth inning. House price deflation is probably in the sixth or seventh inning.

However, a pullback by consumers, the engine of the U.S. economy, is still in the early stages, he warned.
"The consumer is dealing with their homes going down in value and their stock portfolios falling -- they're being hit on the asset side of their balance sheet," he said. "They're also suffering on the income side too, with wages stagnating and food and energy prices climbing." Government intervention means there probably won't be a devastating decline in the U.S. economy, but Bublitz expects economic headwinds well into 2009. Growth in gross domestic product, adjusted for inflation, may not return until 2010, he added.

House prices
House prices have to stop falling before the credit crunch can begin to ease, Bublitz and Hovde said.
But how? The residential real estate boom was partly fueled by new types of mortgages that helped many people buy homes that were previously too expensive. These loans were extended on the assumption that house prices would rise indefinitely.
Now that's turned out to be wrong, these mortgages have disappeared and won't come back for years, Scion's Burry said. Without such financing, buyers may struggle to pay up and home prices may languish, he explained.

Bank lending
The supply of loans for home purchases can begin to increase again when banks and other financial institutions resolve the bad debts that are weighing down their balance sheets, Burry and others said. That process will take time.
In the second quarter of 2007, just before the credit crisis hit, U.S. banks had set aside reserves representing just 1.23% of their total loans, according to data from RiskMetrics Group.
That was one of the lowest levels of reserves ever in the U.S. banking system and made banks look better capitalized than they actually were, Zach Gast, a financial sector analyst at RiskMetrics, said.
By the end of March, banks had increased reserves to 1.71% of total loans. But that didn't keep up with the speed at which their assets deteriorated during the first quarter, he noted.
RiskMetrics hasn't finished compiling data from the second quarter, but Gast reckons banks have increased reserves a lot more and have probably kept pace with rising bad loans.
The problem is, as reserves increase, that eats into banks' capital, which makes them less willing to lend, Gast explained.
"If banks don't have enough capital, they may not be able to grow assets by lending more," the analyst said. "People have to get comfortable that an increase in reserves isn't going to detract from the capital adequacy of banks. I don't know when we get there."
To get a sense of how long this may take, Gast looked back at previous downturns in the credit cycle and focused on how banks dealt with souring commercial and industrial loans, which are usually among the most volatile.
"Typically it takes three to five years to work through the system," Gast concluded.
In the current credit crunch, loan delinquencies began climbing just two quarters ago, he added, while noting that some types of bad loans, such as credit card debt, work their way through the banking system more quickly than commercial and industrial loans.

Purging process
The situation is clearer with securities that are collateralized by loans, such as mortgage-backed securities. Financial institutions have had to report the fair value of these assets based on market prices or computer models, Gast explained.
Recent write-downs and sales of these types of securities by Merrill Lynch bolstered confidence because they suggest that some large financial firms may be finally dealing with problem assets.
However, efforts by the U.S. government to cushion the impact of the credit crunch has slowed this purging process, Burry said.
After Bear Stearns almost collapsed, the Fed began lending directly to brokerage firms for the first time since the Great Depression. That prevented more force selling by allowing some firms to continue financing large exposures to mortgage-related securities. But it also means such assets remain on the balance sheets of several financial institutions.
"The government should not be involved in bailing out financial companies that have taken risks incompatible with their survival," Burry said.
"This might all go very quickly if the government asks society to take responsibility for the troubles it brought upon itself," he added. "But instead, the government is creating dollars left and right to manipulate the economy into a better showing in the short term."
Such action will create longer-term problems, such as further drop in the U.S. dollar and rampant inflation, Burry said.
But policymakers probably had no choice. Without the bailout of Bear Stearns and plans to support Fannie and Freddie, there may have been a catastrophic economic slump, SCM's Bublitz argues.
"Hands-off government sounds great in theory, but who knows what it would be like without such support?" he said. "Bailouts, while repugnant to some, just had to happen because the alternatives were too dire."
Bublitz expects a less intense but longer credit crunch. But unlike Burry, he expects a sluggish economy to restrain overall inflation.

Step up and leverage up
The credit crunch could be eased sooner if a major investor steps up by borrowing more money and using that to buy trouble assets from financial institutions, Paul McCulley, managing director of fixed-income giant Pimco, wrote in a July note to investors. That entity should be the U.S. government, he said. Otherwise, financial institutions will continue to cut leverage and sell assets into a market of few buyers. This in turn will drive prices lower again, pressuring firms into more de-leveraging and more asset sales, McCulley explained.
"The federal government ... needs to lever up its balance sheet to absorb assets being shed through private sector de-levering, so as to avoid pernicious asset deflation," he wrote. "It really is as simple as that."
A structure similar to the Resolution Trust Corporation, or RTC, has been suggested by some economists, Bublitz noted.
RTC was a government-owned investment fund that bought bad loans after the savings and loan crisis at the end of the 1980's. The fund helped get financial institutions lending again by relieving them of soured debt.
"I do see some type of government entity," Hovde said.
But RTC was a conduit that eventually sold on bad loans to other investors. If a similar structure is used to relieve the current credit crisis, there will still need to be investors willing to buy after bad debts are resolved, he noted.
"Unfortunately a solution like this will cost taxpayers a ton of money," Hovde said.

[kennynah]

ishak : on behalf of huatopedia, thanks for alerting us to a potential problematic forummer....much appreciated...have a great sunday...

[millionairemind]

Ishak,

NOticed that you seem to favor financials...

Do you trade them exclusively?

Cheers,
mm

[ishak]

Yes, i trade financials but only in the US market as i deem the opportunity (volatility) is there. I invest in blue chips and reits in SG as the buying opportunity arises.

[kennynah]

ishak : we sama sama lah..... but i dont restrict to financials only...basically anything that has volume and volatility is good enuf for me...sing side... i am a "value investor" hahaha...buy and forget type...