Iceland melting Icelandic expansion

A large current account deficit coupled with high inflation at a time when the housing bubble and consumer credit boom is about to come to a very abrupt standstill are all ingredients which we should be well aware of at this point. As can be expected this has also taken its toll on the financial sector which has played a seminal role in the recent Icelandic expansion. In this way, Iceland's three largest banks (Kaupting, Glitnir, and Landsbanki) have all seen their credit rating being scythed by the rating agencies recently. In one of their recent much appreciated daily digests Eurointelligence reports how credit default swaps have risen to alarming levels even if we should note that the three big Icelandic banks have branches in mainland Europe allowing them to potentially knock down the ECB's door for liquidity.

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Posted in: Iceland

US banks are likely to fail as a result of the housing crisis

US banks are likely to fail as a result of the housing crisis, Ben -Bernanke said yesterday, warning that his country faced a more difficult situation than in the aftermath of the dotcom bust in 2001."There will probably be some bank failures," the Fed chairman told the Senate banking committee in his second day of biannual testimony to Congress.He said the banks at risk were "small and in many cases de novo [new] banks that are heavily invested in real estate in localities where prices have fallen".But he said: "I do not anticipate any serious problems" at any of the big banks, which played the most important role in the US financial system.The Standard & Poor's financials index declined 3 per cent yesterday.
Mr Bernanke, meanwhile, dodged efforts by senators to enlist his support for proposals to reform the bankruptcy code or use taxpayers' money to intervene directly in the mortgage market.He said it was worth "thinking about" additional steps but could not recommend any at this point, beyond existing proposals to modernise the Federal Housing Administration and reform Fannie Mae and Freddie Mac.
The Fed chairman said there were "some similarities with the 2001 experience" - in so far as this downturn, like the previous one, was being driven by a sharp fall in asset prices.But he said there were "important differences". The fall in house prices was creating a "much broader set of issues" than the slump in tech stocks did.
Falling house prices affected more consumers than falling stock prices, while the house prices had also caused a "sustained disruption in the credit market".Moreover, the US was in a weaker position to respond to the negative growth shock today than it was in 2001.

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Posted in: Standard and Poor's financials index

Bear Stearns goes belly up

Battered Wall Street brokerage Bear Stearns said Friday that it is receiving short-term emergency funding to prevent its collapse. JPMorgan Chase & Co. and the Federal Reserve Bank of New York said they would provide Bear Stearns funding for up to 28 days, with the Fed providing the money to JPMorgan through its discount window.
With the credit crisis worsening, the government took action to prevent the investment bank from going under and igniting widespread panic through the financial markets.Bear Stearns (BSC, Fortune 500) shares plunged as much as 53% before moving off their lows to trade 39% lower in the early afternoon.The announcement did not indicate how much funding Bear Stearns would receive, but executives said in a conference call Friday afternoon that with the money, the firm will "have the ability to fund ourselves every day, to do business as usual."
"It's a bridge to a more permanent solution," said Chief Financial Officer Sam Molinaro Jr. During the call, Chief Executive Alan Schwartz said the firm's liquidity crunch hit Thursday, when many customers demanded cash after hearing rumors of trouble at Bear Stearns all week.Bear Stearns had already been working with investment bank Lazard & Co. to explore alternatives when the cash calls came in. The brokerage house decided to secure funding from JPMorgan to give it time to "get some more facts out to the marketplace and give people time to assess them," Schwartz said. The company, which is continuing to work with Lazard, also announced it is moving up the date of its first-quarter earnings release to Monday and provide more information about its current condition. Prior to Friday's announcement, the consensus among analysts was that the New York-based broker would post a profit of $135 million on revenue of $1.35 billion. Executives reiterated that they were comfortable with the range of earnings estimates.Schwartz said the firm's capital position, a measure of its soundness, is in "good shape

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Posted in: Bear Stearns

Second bank has Bankrupt this year

A second bank has failed this year, the Federal Deposit Insurance Corp. said Friday. The FDIC and the Commissioner of Missouri's Division of Finance closed Hume Bank in Hume, Mo., on Friday, the federal banking regulator announced.
It was the second bank to fail this year, the FDIC said. The first was Douglass National Bank in Kansas City, Mo., on Jan. 25.
The FDIC didn't give a reason for the failure.
Security Bank of Rich Hill, Mo., will assume Hume Bank's insured deposits. The failed bank's sole office will open Monday as a branch of Security Bank.
As of Dec. 31, Hume Bank had assets of $18.7 million and total deposits of $13.6 million. Security Bank agreed to assume $12.5 million of the failed bank's insured deposits for a premium of 4.26%, the FDIC said.

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Posted in: Federal Deposit Insurance Corp

Morgan Crucible Co. Chief Executive Officer Ian Norris extradition NO

Former Morgan Crucible Co. Chief Executive Officer Ian Norris, who is accused by U.S. prosecutors of price-fixing, won a ruling from the U.K.'s highest court that hinders attempts to extradite him for a trial in Pennsylvania. Norris, 65, has been charged in the U.S. with conspiring with other executives to rig the price of carbon products, including brushes, in the 1990s and trying to obstruct an ensuing investigation. The House of Lords today ruled he couldn't be extradited on the antitrust claims because price-fixing wasn't a crime in the U.K. at the time of the alleged misconduct. ``Mere price fixing was not at any time'' a criminal offense in the U.K. when the cartel operated, the House of Lords said in a ruling today. While Norris doesn't have to face U.S. antitrust charges, the Lords said he may be extradited over the obstruction of justice claim and sent the issue to a lower court for review. Britain's business community lobbied the U.K. to prevent the U.S. from using an extradition treaty to prosecute white collar criminals after three former bankers at Royal Bank of Scotland Group Plc's Greenwich NatWest were extradited to Texas to face charges related to the collapse of Enron Corp. ``The House of Lords have signaled that the government should start to change its mind on extradition rules, particularly on America, which is very aggressive in terms of territorial reach,'' Mark Spragg, who represented the NatWest bankers, said in an interview today. His clients eventually pleaded guilty and were sentenced to 37 months in prison. While the U.K.'s Enterprise Act 2002 criminalized cartels, the law wasn't in force until after the alleged cartel activity had stopped in the Norris case.
The ruling is ``a huge defeat for the U.S. antitrust division,'' Larry Byrne, a U.S. lawyer for Norris, said today. ``The House of Lords has completely rejected the position of the'' U.S. Department of Justice. Following today's ruling, U.S. prosecutors who pursue British businessmen for antitrust violations must ensure the cartel was operating after the introduction of the Enterprise Act, said Tom Epps, a partner at Russell Jones & Walker. ``The business community needs to remain vigilant,'' Epps said. ``The Department of Justice will continue to flex its muscles in the U.K. by focusing on cartel offenses that have occurred post June 2003.''
Norris retired from Morgan Crucible in 2002 after battling prostate cancer. U.S. prosecutors claim he colluded with rivals to fix prices on carbon parts, to avoid undercutting each other on sales. The cartel, which originally operated in Europe, spread to the U.S. in 1989 and continued until 2000, according to a U.S. indictment.
Morgan Crucible, which was founded in 1856, sells ceramic and carbon parts for use in the steel-making industry. Current management has sought to expand the company into other markets such as aerospace, medical equipment and defense, CEO Mark Robertshaw said in an interview in December. A call to the Windsor, England-based company wasn't immediately answered. Morgan Crucible and its North Carolina subsidiary, Morganite Inc., agreed to pay a total of $11 million in fines to settle related antitrust charges in 2002. Norris wasn't covered by that agreement and has been fighting the charges since his arrest in London in January 2005. In a separate ruling today, the House of Lords applied the same principle to a U.K. antitrust case involving a group of generic drug-makers including Goldshield Group Plc for conspiring to defraud the National Health Service of 120 million pounds ($60 million) by fixing prices. The U.K.'s Serious Fraud Office claims that the cartel ran through 2000, prior to the Enterprise Act. The Lords said prosecutors must amend the charges if they want to continue with the case. Keith Hellawell, chairman of Goldshield said in a statement that ``we very much hope'' this will lead to the SFO dropping the charges. SFO spokesman David Jones said he wasn't immediately able to comment.

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Posted in: U.K.'s Serious Fraud Office

Cost of borrowing euros for three months rose to the highest level in seven weeks

The cost of borrowing euros for three months rose to the highest level in seven weeks, adding to evidence central bank attempts to ease a shortage of cash in the money markets are misfiring. The euro interbank offered rate, or Euribor, for the loans climbed 7 basis points to 4.50 percent today, the European Banking Federation said. It was the biggest gain since Jan. 25. The one-week rate was little changed at 4.11 percent. The Federal Reserve said today it plans to increase loans to banks this month to offset ``heightened liquidity pressures'' and a deepening credit crisis. Money-market rates are rising as banks hoard cash after at least $188 billion in credit losses and writedowns linked to the U.S. subprime-mortgage collapse since the beginning of 2007. Credit-default swaps showed bank debt hasbecome more risky than corporate bonds. ``Nothing has actually been solved,'' said Padhraic Garvey, head of investment-grade debt strategy in Amsterdam at ING Bank NV, a unit of the biggest Dutch financial-services company. ``An elevated Euribor is an indication of stress in the financial system. Very clearly, things haven't been sorted out and the U.S. subprime story continues to reverberate throughout the market.'' Today's increase pushed the difference, or spread, between the three-month euro money-market rate and the European Central Bank's benchmark rate to 50 basis points, compared with an average of 25 basis points in the first half of 2007.

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Posted in: European Central Bank's

Europe's biggest bank unloaded $24 billion (U.S.) of opaque mortgage securities in a fire

Faltering credit markets have tipped over into a new and more dangerous phase – and everyone from municipalities trying to get sewers fixed to people shopping for a car loan will pay the price.Yesterday, Alabama's most populous county teetered on the verge what could become the United States' largest municipal bankruptcy. A pair of financial companies said they received default notices from banks nervously looking for loan payments. Reports swirled that Europe's biggest bank unloaded $24 billion (U.S.) of opaque mortgage securities in a fire sale.Those on the front lines – from bond traders to investment managers – say the latest batch of bad news indicates a harrowing new time in the credit crisis. And that could send a shock wave through the U.S. economy as consumers feel their own version of the pain.
"We are in historic scarier-than-all-hell territory," said T.J. Marta, an analyst who monitors the fixed-income markets for RBC Capital Markets. "I am hearing many people say that the market is more broken now than it ever has been.''
Problems are popping up on multiple fronts and all have different implications.
Alabama's Jefferson County is considering a bankruptcy filing to resolve a financial crisis surrounding $3.2 billion of sewer debt. The county is in talks with banks to work out a solution to its liquidity crisis.
Meanwhile, the insurance cities were able to purchase to protect their bonds is losing its lustre. Ratings agencies worry a rise in defaults on bonds backed by riskier debt would cost bond insurers so much they would no longer be worthy of their highest ratings. Those pristine ratings are essential to keep bond insurers in business."The problem now with insurance products is their value is only as good as the perceived view on the insurer," said Richard Tortora, president of Capital Markets Advisors, which provides bond advisory services. Those negative perceptions could last for years, he said.It demonstrates that credit markets are facing a new round of tightening, hitting parts of the market deemed relatively safe months ago.
Many of the largest investment banks are due to report results in two weeks, amid fears of a new round of massive writedowns.
Paul Lueken, president of 1st Advantage Mortgage in Lombard, Ill, said mortgage loan costs are rising as conditions worsen.In the past few weeks, the "spread" of a home loan's interest rate over the interest rate on a Treasury bond – a key measure of the cost of a mortgage – has spiked to a 25-year high.

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Posted in: Bankrupt Alabama

U.K., homeowners are using their credit cards to pay morgages

The U.K, usually 18 months ahead of the U.S. in its credit cycle, is perhaps a harbinger of things to come in the U.S. credit picture.Fears are now rising that U.S. consumer credit cardproblems could ripple out into the global credit market, starting in Europe.Think the estimated subprime debt load carried by the big international banks is big, at $1 trillion?How about this: Americans now owe nearly as much record $915 billion – on their credit cards alone.
And defaults and delinquencies in the credit card sector are piling up – which means big banks are on the hook, again. More sand in the gears for the globaleconomy.
Credit card companies wrote off 4.58 percent in payments between January and May, almost a third morethan in the same period in 2006, according to Moody's Investors Service. As a result, lenders such asCitigroup, Bank of America, and American Express,among others already reeling from the subprimemortgage disaster, are being further weakened.Not to mention the staggering U.S. economy, which is
so dependent on a vigorous consumer credit sector tokeep it healthy. Seventy-two percent of the U.S.economy rides on consumption alone.Third quarter numbers for banks were the worst since2001. First Citigroup took a 57 percent hit in
earnings. The decline was attributed, in large part,to consumer-credit problems. Anticipating additional defaults, they stashed away $2.24 billion in loan-loss
reserves.Other major banks also took a beating and are also
preparing for the expected credit card delinquencies
and defaults.American Express added 44 percent to its U.S. card division loss reserves. Bank of America, Capital Oneand Washington Mutual are all expecting at leastanother 20 percent in credit card losses over the next two to four quarters.
An increase in credit card balances and first-time cash advances were cited by Citi Chief Financial Officer Gary Crittenden as indicators of possibletrouble to come. The change in loan losses was"inherent in the [Citigroup] portfolio but not yet
visible in delinquencies," Crittenden told Fortune magazine.An increase in bankruptcies is a major contributor to card defaults, according to Jay Eisbruck,
managing director of Moody's Asset-Backed Finance
Group.Falling home prices and rising gasoline costs also add to bankruptcy woes.U.S. home prices fell 3.2 percent in the second quarter, the sharpest decline since 1987, according to Standard & Poor's.As home prices fall, homeowners have a harder time
getting cash by refinancing high-rate mortgages. Thehigh cost of gas, often purchased with credit cards,doesn't help either.On Monday, the national average price for a gallon of regular gasoline was $2.971, according to the U.S.Energy Department, up 10 cents from last week, and the highest since the peak summer travel period of August.A three-buck a gallon average is inevitable, say
analysts.Low- and middle-income workers who must drive to work have been hardest hit by the increases, further boosting delinquencies and defaults.Fears are now rising that U.S. consumer credit card problems could ripple out into the global credit
market, starting in Europe. Deutsche Bank, forexample, is now "…in a heightened state of alert tomonitor a potential domino effect," says the bank'sU.S. analyst, Michael Mayo.In the U.K., homeowners are reportedly using their credit cards for mortgage payments. Credit card interest typically runs much higher than mortgage
rates, so reducing one debt by increasing another at ahigher rate can be the first step on the road to default and eventual bankruptcy.

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Posted in: Morgage crunch