Brett Travis Wynne used internet banking facilities to transfer the money in 72 transactions from December last year.

A finance broker has been charged with stealing more than $23,000 from his employee in the Perth suburb of Northbridge.Police allege 23-year-old Brett Travis Wynne used internet banking facilities to transfer the money in 72 transactions from December last year.They say Mr Wynne had access to the finance company's bank account number and password.The transfers were discovered following an audit of the company's accounts.Mr Wynne has been charged with 72 counts of fraud.He is due to appear in the Perth Magistrate's Court today.

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Posted in: Perth

European stocks fell the most in a week after record oil prices dimmed the earnings

European stocks fell the most in a week after record oil prices dimmed the earnings outlook for airlines and carmakers and a slowing housing market weighed on Schneider Electric's sales.
Air France-KLM and Daimler slipped the most in a week after crude climbed above $US117 a barrel. Schneider Electric, the world's biggest maker of circuit breakers, posted its biggest drop since January as sales missed analysts' estimates. Royal Bank of Scotland led banks lower after saying it may sell shares to shore up capital, while Barclays declined on a Merrill Lynch downgrade.
Europe's Dow Jones Stoxx 600 Index lost 1.2% to 316.96, extending this year's decline to 13% on concern that rising energy costs and $US290 billion in writedowns and credit losses at financial companies will cut profit growth.
''Oil prices account for a large proportion of costs for many companies,'' said Chirin Gill, a fund manager at Daiwa SB Investments in London, which has about $US60 billion. ''Prices are likely to be stronger for longer, which is hurting the stocks.''

European companies will see their earnings shrink in 2008 for the first time in six years, according to analysts' estimates compiled by Bloomberg. Profit for companies in the Stoxx 600 may drop 0.5%, the data show. That's down from 11% growth forecast at the end of last year.

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Posted in: European stocks

European banks may have exacerbated financial market turmoil resulting from a global credit crunch by failing to come clean

Some European banks may have exacerbated financial market turmoil resulting from a global credit crunch by failing to come clean about their exposure to risky assets, a top European Union banking supervisor said Tuesday.
The Committee of European Banking Supervisors has analyzed 20 big cross-border banks in Europe and is concerned by some of its findings, particularly how the banks value and disclose investments whose markets have dried up because of the credit squeeze.
"Our preliminary findings show there are differences in terms of content of disclosure and presentations banks make in statements," Kerstin af Jochnick, head of the committee, told the European Parliament's economic affairs committee.
"Lack of consistency in banks' valuations, uncertainty about their accuracy and inadequate transparency may have contributed to the lack of confidence of market participants and exacerbated the market turbulence," said Jochnick, who is also an official with the Swedish banking supervisory body.
"We have seen there is still significant stress in the market," she said.

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Posted in: European Union banking supervisor

HSBC banking group has admitted losing a computer disc with the details of 370,000 customers

The HSBC banking group has admitted losing a computer disc with the details of 370,000 customers. The disc was lost four weeks ago after being sent by courier from the bank's life insurance offices in Southampton. The customers' details included their names, dates of birth, and their levels of insurance cover. However, there were no addresses or bank account details and HSBC said the customers' exposure to potential fraud was limited."We are looking into it and basically it has got lost from A to B," said an HSBC spokesman. "The reinsurer we sent it to is doing a thorough search for the disc. We will do anything we can to find it." "There are no financial details there in terms of banking details. There are no address details or anything like that," he added. As well as name, date of birth and value of the cover, the documents revealed only the customer's policy number and whether or nor the customer was a smoker.”
HSBC is claiming that customers’ exposure to potential fraud will be limited. I think that that ‘limit’ will be determined once the investigation has been completed. However, if the disc fell into the hands of professional identify thieves, the potential for fraud will not be limited.

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Posted in: HSBC

Banks new code shifts responsibility to customers

The latest edition of the Banking Code, the voluntary consumer-protection standard for UK banks, was released last week. The new code claims to “give customers the most up to date information on how to protect their accounts from fraud.” This sounds like a worthy cause, but closer inspection shows customers could be worse off than they were before.Clause 12.11 of the code deals with liability for losses:
If you act fraudulently, you will be responsible for all losses on your account. If you act without reasonable care, and this causes losses, you may be responsible for them. (This may apply, for example, if you do not follow section 12.5 or 12.9 or you do not keep to your account’s terms and conditions.)Clauses 12.5 and 12.9 include some debatable advice about anti-virus software and clicking on links in email (more on this in a later post). While malware and phishing emails are a serious fraud threat, it is unrealistic to suggest that home users’ computers can be adequately secured to defeat attacks.Fraud-detection algorithms are more likely to be effective, since they can examine patterns of transactions over all customers. However, these can only be deployed by the banks themselves.
Existing phishing schemes would be defeated by two-factor authentication, but UK banks have been notoriously slow at rolling out these, despite being widespread in many other European countries. Although not perfect, these defences might cause fraudsters to move to easier targets. Two-channel and transaction authentication techniques additionally give protection against man in the middle attacks.
Until the banks are made liable for fraud, they have no incentive to make a proper assessment as to the effectiveness of these protection measures. The new banking code allows the banks to further dump the cost of their omission onto customers.
When the person responsible for securing a system is not liable for breaches, the system is likely to fail. This situation of misaligned incentives is common, and here we see a further example. There might be a short-term benefit to banks of shifting liability, as they can resist introducing further security mechanisms for a while. However, in the longer term, it could be that moves like this will degrade trust in the banking system, causing everyone to suffer.
The House of Lords Science and Technology committee recognized this problem of the banking industry and recommended a statutory change (8.17) whereby banks would be held liable for electronic fraud. The new Banking Code, by allowing banks to dump yet more costs on the customers, is a step in the wrong direction.

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Posted in: by allowing banks to dump yet more costs on the customers,is a step in the wrong direction.,new Banking Code

Veronica Fong,accused of taking the money from the Montgomery Street bank over an eight-year period between 2000 and 2008.

Veronica Fong, 44, appeared in Sydney's Central Local Court yesterday facing 22 charges of obtaining money by deception.Fong, of Baptist Street, Redfern, is accused of taking the money from the Montgomery Street bank over an eight-year period between 2000 and 2008.The mother of one, who started working at the bank in March 1987, was arrested on Tuesday April 8 after the police phoned her and asked her to go to the City Central police station. Fong, who was sacked by the bank this week when the allegations came to light, worked as a client co-ordinator in the private division for most of her career, apart from in 2006 when she was the senior lending officer for specialised mortgage solutions.Her duties included updating and granting temporary overdrafts. She is accused of granting $1,432,071.58 to accounts in her husband's and father's names.As part of her job Fong trained staff and she is said to have accessed the St George banking computer system when her colleagues were logged on in their names. No other staff were aware of the alleged fraud, police said.The alleged offence was detected via a random audit conducted by the bank.
Fong did not enter a plea yesterday and she was released on bail after a surety was put up in her name. She is due to appear at Downing Centre Local Court on April 22.

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Posted in: Montgomery Street bank

Weserbank AG to stop doing business, making it the first German bank to close since the subprime crisis started.

German financial-market regulator BaFin ordered Weserbank AG to stop doing business, making it the first German bank to close since the subprime crisis started.BaFin said it closed the Bremerhaven, Germany-based bank to preserve remaining assets and started insolvency proceedings. The lender is over-indebted and would struggle to cover operating costs, BaFin said.Weserbank, founded in 1912 as a cooperative lender for butchers and cattle dealers, is the first German lender since 2006 to file for insolvency.

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Posted in: Weserbank AG

Another airline Bankrupt

Oasis Hong Kong Airlines, a long-haul budget carrier that tried to offer premium service and spacious seats at low prices, suddenly went into liquidation on Wednesday and canceled all flights.
It was the fourth budget carrier worldwide to halt operations in the last week and a half. The bankruptcy filing by Oasis stranded thousands of passengers in Hong Kong, London and Vancouver.High jet fuel prices have taken a heavy toll on the airline industry and particularly on low-margin budget carriers trying to compete on price. The three others to shut down since March 31, all in the United States, were Aloha Airgroup, ATA Airlines and Skybus Airlines.

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Posted in: Oasis Hong Kong Airlines

financial industry in the United Kingdom recently reaffirmed a policy that holds online banking customers liable for losses if they fail to secure

The financial industry in the United Kingdom recently reaffirmed a policy that holds online banking customers liable for losses if they fail to secure their personal computers against data-stealing computer viruses. While this policy may seem surprising or even draconian to some Americans, the reality is that most U.S. consumers remain woefully uninformed as to their own security liabilities when banking online. News of the new U.K. banking codes comes via The Register, which reported that under the new regulations "banks will not be responsible for losses on online bank accounts if consumers do not have up-to-date anti-virus, anti-spyware and firewall software installed on their machines." The full text of the updated banking code is here (PDF). The relevant sections are 12.5 through 12.13.
This touches on a question Security Fix receives quite often from readers: "If my computer gets hacked and someone uses it to steal money from my online bank account, will I get that money back?" The answer is that beyond the protections afforded to consumers under the law, whether or not consumers are reimbursed for online banking losses due to computer intrusions is entirely at the discretion of the banks.
By law, U.S. consumers can get reimbursed for any funds fraudulently transferred out of their accounts if they notify their financial institution of the bogus debits within 60 days of the transaction first appearing on their bank statement. Provided victims alert their banks within that time frame, their liability is generally limited to $50 (this applies only to consumers; businesses typically aren't afforded anywhere near that amount of flexibility).Check the service agreement tied to nearly any U.S.-based online banking service and you will see roughly the same thing. Take this disclosure, from Bank of America's online banking agreement:
"If you do not notify us within these 60 days, you may not be reimbursed for subsequent transactions. Additionally, we will reverse or reimburse you for any bank or payee fees resulting from your loss. You should always guard your Online ID and Passcode from unauthorized use. If you share this information with someone, all transactions they initiate with the information are considered as authorized by you, even for transactions you did not intend for them to make."
It remains to be seen whether U.K. banks will enforce the tough new policy on consumer liability. But to be fair, most banks in the U.K. have taken concrete -- albeit hardly foolproof -- steps to employ true two-factor authentication methods for verifying that the person logging into a bank account online is in fact the owner of said account. The same is largely not true for financial institutions in the United States today, and this is principally due to the fact that U.S. banking regulators here haven't required such measures. Rather, they have left it up to the banks to determine their appropriate risk levels and which back-end and customer-facing anti-fraud technologies should be deployed.
According to APACS, the U.K. payments association that reports banking fraud and loss statistics for financial institutions there, stricter measures are helping to bring down the cost of online banking fraud. In March, APACS reported that online banking fraud losses totaled £22.6m in 2007 -- a 33 percent decrease from 2006 losses. Unfortunately, it's not possible to correlate that figure with fraud numbers from U.S. banks, because they're not required to report those numbers, and our government sadly does not publish much of the information it does have on the subject (save for the odd internal report that leaks out to the media once in a blue moon).If you think the U.K. rules are too strict, consider the recent actions by some banks in Brazil, a country that has a phenomenally active and organized cyber criminal element that produces some of the world's most advanced malware targeting online banking customers (mercifully, the Brazilian cyber crooks generally stick to picking on their own citizens). I spoke recently with Tony Reyes, founder of the New York-based ARC Group, a company that has set up a shop in Brazil to help at least one financial institution there investigate customers who have had their online accounts cleaned out as a result of cyber cime. Reyes, a former cyber cop for the NYPD, said some of Brazilian banks have taken to investigating the victims of online financial crime."Some of these Brazilian banks are hiring investigators to visit the customer's house and look at the security of their setup, and if [the customer] doesn't have software patches, a firewall and up-to-date anti-virus on his system, in a lot of cases the banks will turn around and say it was the consumer's fault, and [the banks] don't return the money," Reyes said.

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Posted in: EDont Bank online

British banks will have to take an extra £11 billion from sub-prime losses - in addition to the £9.6 billion write-downs already announced.

A report from the International Monetary Fund (IMF) shows that British banks will have to take an extra £11 billion from sub-prime losses - in addition to the £9.6 billion write-downs already announced.
UK lenders are sitting on far larger undisclosed mortgage-related losses than its European counterparts, according to figures in the Global Financial Stability report. In comparison, lenders in the US and the rest of Europe have already revealed their losses. In Europe, top lenders will probably total around £6 billion of additional losses while lenders in the US could report a further £25 billion of write-downs, but that is only half the figure they have already confessed to.
Earlier this week, the IMF warned that losses from the worldwide credit crunch could reach $1 trillion (£500 billion).
Experts have tried to estimate the cost of one of the worst financial disasters in history but have not exceeded $600 billion. The trillion figure (a million billion) will result in requests for further state intervention to balance credit markets.
Commenting on the report, IMF official Jaime Caruana said the credit shock emanating from the US sub-prime crisis is set to broaden amid a significant economic slowdown.
With a weakening economy, write-downs and prospects for further losses are placing additional pressure on banks’ balance sheets, which may limit their capacity to lend. Britain is particularly vulnerable to the cash crunch because of its over extended property market, concluded Mr Caruana.

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Posted in: banks’ balance sheets

More shoes to drop in the credit crisis

Financial Times of London Friday that there are more shoes to drop in the credit crisis if authorities don’t prepare to head them off. One area is credit default swaps:

“Instead of reshuffling regulatory agencies, the authorities ought to prepare for the next shoes to drop …. There is an esoteric financial instrument called credit default swaps. The notional amount of CDS contracts outstanding is roughly $45,000 billion … The market is totally unregulated and those who hold the contracts do not know whether their counterparties have adequately protected themselves. If and when defaults occur, some of the counterparties are likely to prove unable to fulfill their obligations. This prospect hangs over the financial markets like a sword of Damocles that is bound to fall, but only after some defaults have occurred … One possible solution is to establish a clearing house or exchange with a sound capital structure and strict margin requirements to which all existing and future contracts would have to be submitted.”

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Posted in: London

Bankrupt Banker News Adam Applegarth joined the ranks of chiefs rewarded for spectacular failures when it emerged that he will pocket £760,000

Adam Applegarth joined the ranks of chiefs rewarded for spectacular failures when it emerged that he will pocket £760,000 after being sacked in December as Northern Rock's chief executive.Mr Applegarth's package includes a £2.6 million pension – despite overseeing a £167.6 million loss. A third of the bank's 6,000-plus jobs will disappear as it attempts to rebalance its books and repay £24 billion in government loans by 2010.The pay-off – which gives him £63,333 a month until November– is on top of the £785,000 he earned in 2007 and the £1.36 million in 2006.
Vince Cable, the Liberal Democrat treasury spokesman, branded the compensation an "utter disgrace".He said: "This is a straightforward case of reward for failure. The chief executive who led the disastrous business strategy is being generously rewarded for failures of leadership whereas shareholders get nothing and large numbers of workers are being made redundant."Labour MP Kevan Jones, whose North Durham constituency includes many of the workers facing the sack, called on Mr Applegarth to surrender the cash.He said: "I find it incredulous that a man who has already made millions will be paid this amount of money. It will appear to the average person that he is being rewarded for failure."Northern Rock said Mr Applegarth's termination payment, which emerged with the publication of its annual accounts for 2007, was "substantially less" than he was due.
But Mr Applegarth will continue to enjoy a staff discount on his mortgage and can reclaim almost £6,000 in legal fees. The accounts also reveal that his home has been fitted with £5,000-worth of security measures since the bank's collapse. He joins the growing number of executives receiving huge pay cheques despite their record in office being held in contempt.Sir John Gieve, the deputy governor of the Bank of England, tops a list of shame compiled by the Taxpayers' Alliance by taking home £234,467 last year – when he was accused of failing to prevent Northern Rock's descent into crisis. Labour MP John McFall said Sir John had been "asleep in the back shop while there was a mugging out front".Health Secretary Alan Johnson suspended a £150,000 pay-out to Rose Gibb, who resigned as chief executive of Maidstone and Tunbridge Wells NHS Trust after an outbreak of Clostridium difficile killed 90 people. Roger Lawson, the chairman of the Northern Rock Shareholders Association Group, said: "A lot of shareholders will be very unhappy with the size of Mr Applegarth's pay-off but it looks like, legally, the company could not have avoided paying that amount.
"Had Mr Applegarth taken the company to court then it could have ended up having to pay him even more, so perhaps it has got away with having to pay slightly less than its legal obligation, so I have to be philosophical about it."

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Posted in: Northern Rock

Opes Prime, was put into receivership last week owing $1 billion to lenders.

The corporate watchdog is investigating allegations of fraud and manipulation against the head of Opes Prime, which was put into receivership last week owing $1 billion to lenders. The Australian Securities and Investments Commission (ASIC) is looking into allegations that Opes Prime Chief Executive Laurie Emini instructed staff to falsify the accounts of six wealthy clients to help prevent them from personal losses of up to $200 million, according to a transcript of court documents from a Federal Court hearing last Friday. The collapse of Opes Prime is the biggest of its kind in Australia since the global credit crunch took hold in August last year. Opes Prime's problems stemmed from severe and sustained financial market volatility, which continues to adversely affect some market participants.
ASIC sent a special team into Melbourne-based Opes Prime late last week after the group was placed into receivership by creditor Australia & New Zealand Banking Group after "irregularities" in trading accounts were uncovered.
A senior ASIC investigator, Richard Vandeloo, told the Federal Court that Opes staff were instructed to falsify trading accounts so that the group's high net worth clients would avoid margin calls, according to the transcript.
"Based on conversations of the receiver's staff with employees of the stockbroking company (Thursday), I'm advised that Mr. Emini, over a three month period between December last year and February this year, instructed various staff to make entries in clients of high net worth to avoid margin calls being made...," Vandeloo said.
He said that staff were instructed to change the loan-to-value ratio within the group's client portfolio. Traders said this would make the portfolio appear healthier than it was. Vandeloo also said there are allegations that there may have been a "round robin" of stocks to cover the positions of the clients in question.
When asked by judge Ray Finkelstein if there was any suspicion that the clients were involved in the alleged falsification of accounts, Vandeloo said: "In relation to ... one client worth A$145 million, there is business connections between Mr. Emini and that particular client." After being pressed by the judge about whether there was any suggestion by staff or the receivers that the clients were involved, Vandeloo said: "Of the six they have only made that suggestion in relation to one."
Vandeloo also said there were allegations of the falsification of company records, which could include accounting records. A spokeswoman for ASIC said the investigation is continuing. The comments were made at a hearing where ASIC sought an order preventing Emini from leaving Australia.
When Opes Prime was put into receivership it owed ANZ $650 million and Merrill Lynch & Co. a further $350 million, receiver Deloitte said last week.
Merrill Lynch and ANZ took control of Opes Prime's shares last week and started selling them off to recoup the loan amounts. Merrill Lynch has largely finished selling shares to cover its loan to the group, a person familiar with the situation said Tuesday. ANZ, which hired Goldman Sachs JBwere to handle the sales, has sold around 25% of the portfolio it received, according to the Australian newspaper. ANZ said last week it doesn't anticipate a material loss from its exposure to Opes.
Brokers who did not want to be named, but who have knowledge of the affected stocks, said ANZ took on shares in around 675 companies, including major stocks such as Westfield Group, QBE Insurance Group, Orica and Aristocrate Leisure. An ANZ spokeswoman declined to comment on this matter, as did a spokeswoman for Goldman Sachs JBWere. The ANZ spokeswoman said that the bank continues to realise "solid" value for the shares sold, consistent with the bank's objective to undertake an "orderly unwind" of the portfolio. A number of small and mid-cap companies, including Gindalbie Metals, have requested trading halts in recent days while they clarify the impact of the Opes collapse on shareholders who held shares through the brokerage.

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Posted in: Opes Prime

Deutsche Bank AG, Germany's biggest bank, will write down 2.5 billion euros ($3.9 billion) of loans and asset-backed securities and said markets are d

``Conditions have become significantly more challenging during the last few weeks,'' Deutsche Bank said today in a statement. The Frankfurt-based company's shares, which have declined 17 percent this year, rose on speculation the worst of the losses in the banking industry may almost be over. Deutsche Bank AG, Germany's biggest bank, will write down 2.5 billion euros ($3.9 billion) of loans and asset-backed securities and said markets are deteriorating.
Deutsche Bank, which increased earnings in 2007, said a week ago its 2008 pretax profit target is under threat. Chief Executive Officer Josef Ackerman cited ``difficult'' market and economic conditions. UBS AG said today Chairman Marcel Ospel will depart after reporting an extra $19 billion of writedowns.
``The subprime crisis is catching up to Deutsche Bank,'' said Konrad Becker, a Munich-based analyst at Merck Finck & Co. who recommends holding the shares. ``This means that Deutsche Bank is at risk of reporting a first-quarter pretax loss.''
Deutsche Bank rose 2.9 percent to 73.81 euros at 1:05 p.m. in Frankfurt trading. The 60-member Bloomberg Europe Banks and Financial Services Index gained 2.2 percent, cutting this year's decline to 16 percent.
``The immediate stock reaction is hope among investors that we've touched bottom,'' said Derek Chambers, an analyst at Standard & Poor's Equity Research in London who has a ``hold'' rating on Deutsche Bank. ``Deutsche Bank shares are reacting more to the general financial sector trend than anything else.'' Deutsche Bank said today it will cut the value of leveraged-buyout and commercial real-estate loans and residential mortgage-backed securities in the first quarter. Markdowns on assets backed by residential mortgages ``principally'' involve 7.91 billion euros of so-called ALT-A mortgages, which fall between subprime and prime, the bank said.
``The market was prepared,'' said Thomas Nagel, a Frankfurt-based trader at Equinet AG. ``Bank stocks could even being nearing a turnaround because the drops have been exaggerated.'' Ackerman, attending a banking conference in London today, wouldn't answer questions. Deutsche Bank spokesman Christian Streckert cited last week's annual report when asked today about the 2008 pretax profit forecast of 8.4 billion euros, which excludes one-time effects. The bank on March 26 said writedowns and a worsening economy would ``adversely affect our ability to achieve our pretax profitability objective.''

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Posted in: Deutsche Bank

Interpol cracks down on football betting

Another crackdown on Asian football betting syndicates which are said to be “controlling” European major league results is on the cards. With the coming Euro 2008 competition to be held this summer, Interpol is seeking the cooperation of police forces from several Asian countries to carry out raids. Interpol secretary-general Ronald Noble said in Singapore yesterday that Interpol was planning to launch a second operation to curb illegal football gambling in Asia following last year’s success which netted US$680,000 (RM2.24mil) of suspected criminal proceeds. He was quoted by AFP as saying that more countries would be involved in the second operation against football gambling, which was one of the most rampant organised crimes in the region. The first operation, codenamed ”Soga”, was launched last October and involved 266 raids in Australia, China, Hong Kong, Macau, Malaysia, Singapore, Thailand and Vietnam and resulted in more than 430 individuals arrested and 272 underground gambling dens shut down. Speaking at the Global Conference on Asian Organised Crime hosted by the Singapore police force, Noble said the gambling dens that were closed handled an estimated US$680mil in illegal bets worldwide.As an indication of how widespread football gambling is, European football’s governing body UEFA had asked European police to investigate the results of at least 26 matches last year which were suspected to have been manipulated by Asian betting syndicates. Noble said that while the amount of money involved in match-fixing was unknown, UEFA claimed that an overseas syndicate made US$5mil (RM16.5mil) on one championship match alone last July. Malaysian police and the Malaysia Communications and Multimedia Commission (MCMC) are working together to identify syndicates using the Internet to accept football bets. Inspector-General of Police Tan Sri Musa Hassan said a task force has been set up and CID officers were currently monitoring suspected illegal bookmaking syndicates involved in accepting football bets via the Internet. “Syndicates here operate using servers from other countries and that is why it is difficult for us to trace and nab the main culprits. “That is why we have now asked our Asean counterparts as well as other police forces in the Asian region to provide us with information on syndicates linked with our country,” he told The Star. Musa said police here would exchange information with their counterparts worldwide. About 200 participants from various law enforcement agencies of 32 countries, including Malaysia, attended the two-day conference.

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Posted in: KUALA LUMPUR

Switzerland's role as secret banker to the world’s wealthy is under threat as never before

Last week The New York Times quoted Konrad Hummler, the managing partner of Wegelin & Company, a small private bank in the canton of St. Gallen.The nervous Herr Hummler warned that Switzerland's role as secret banker to the world’s wealthy is under threat as never before, as he sees it. Hummler said what we all know -- that the German tax evasion scandal involving Liechtenstein has been manipulated by the media into a debate about Swiss banking secrecy, just as Europe's Leftists wanted. Worried at the degree to which the traditional discretion of Swiss banks is under assault, Hummler said his foreign clients have been inquiring about their money. The nervous Herr Hummler says that this time, Switzerland may not be able to stop the rest of the world from prying open Swiss banking.

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Posted in: Switzerland

plan to rescue thousands of homeowners at risk of foreclosure

The Bush administration is finalizing details of a plan to rescue thousands of homeowners at risk of foreclosure by helping them refinance into more affordable mortgages backed by public funds, government officials said.
The proposal is aimed at assisting borrowers who owe their banks more than their homes are worth because of plummeting prices, an issue at the heart of the nation’s housing crisis. Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of those loans and issue new, smaller mortgages in exchange for the financial backing of the federal government.
The plan is similar to elements in legislation proposed two weeks ago by Barney Frank (D-Mass.), who chairs the House Financial Services Committee, officials said. Administration officials said they believe they can accomplish some of the same goals through regulatory changes, though important details have yet to be nailed down. If enacted, the plan would mark the first time the White House has committed federal dollars to help the most hard-pressed borrowers, people struggling to repay loans that are huge relative to their incomes and the diminished value of their homes. That may offer encouragement to the banking industry and help silence Democrats, who have accused the White House of rescuing Wall Street investment banks while ignoring distressed homeowners. But it could agitate conservatives, who are likely to view the FHA plan as yet another government bailout. Senior officials in several parts of the administration described the plan on condition of anonymity because the specifics are still being worked out. It is unclear when the plan will be formally unveiled, though one official said it was unlikely to happen before the president returns from a trip to Europe next week. “The administration for a long time had the idealists and the pragmatists. And because the market conditions are what they are right now, the pragmatists are looking at this and saying, ‘How can we achieve something?’ And they seem to be having more sway,” said Francis Creighton, vice president for government affairs at the Mortgage Bankers Association, which has been working with Frank on his proposal. The initiative now being crafted could provide relief to a select group of homeowners who are “under water” on their mortgages, a term that describes the situation when falling home prices leave borrowers with negative equity. These homeowners would have to agree to stay in their homes after refinancing, be able to afford the new monthly payments and have lenders who are willing to go along with the plan, officials said.
Administration officials have yet to iron out other details, such as how big the new mortgage should be relative to the home’s value. An estimated 8.8 million households currently have negative equity, due in part to the rise of loans that often required no money down. Negative equity becomes a problem when the homeowner can no longer make mortgage payments. If the homeowner had some equity, the loan could be refinanced or the house could be sold. But a homeowner who is under water cannot afford to do those things because the new loan or sale proceeds would not cover the cost of the existing mortgage. Treasury Secretary Henry M. Paulson Jr. signaled in a speech Wednesday that the administration was developing an initiative tailored to this specific problem, saying “the people we seek to help” are those who want to keep their homes but are falling behind on their payments. “If they also have negative equity in their homes, refinancing becomes almost impossible and so workouts become even more important,” he said. He credited Alphonso Jackson, secretary of the Department of Housing and Urban Development, with helping to craft the plan. In a recent report, Merrill Lynch identified negative equity as a prime cause of rising default rates, saying borrowers who already have poor credit records are often deciding it makes sense to walk away from their homes when the values fall. Federal Reserve Chairman Ben S. Bernanke has called on lenders to restructure some loans, arguing that it would be less costly to forgive some debt than to foreclose on the properties.

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Posted in: Federal Reserve

Fire sale at Lehman Brothers Holdings Inc first of many

``We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets,'' Callan said.
``It's a step in the right direction,'' said CreditSights Inc. analyst David Hendler. ``If you're a smaller player, you need more capital to do business in tough times. They now need to show that they can keep churning profits in this environment.''
Lehman Brothers Holdings Inc. is seeking to raise at least $3 billion from a share sale it says should help quell concern about a shortage of capital that drove the stock down 42 percent this year.
Lehman is offering 3 million convertible preferred shares in a sale that will be ``an endorsement of our balance sheet by investors,'' Chief Financial Officer Erin Callan said in an interview yesterday. Demand for the stock was three times greater than the amount on sale as of 6:30 p.m. in New York, according to a person familiar with the offering who declined to identified before the sale ends today.
Lehman, led by Chief Executive Officer Richard Fuld, fell as much as 48 percent on March 17 on speculation the New York- based firm would face the same cash shortage that broke Bear Stearns Cos. following a run on the company. Merrill Lynch & Co., Citigroup Inc. and Morgan Stanley have also raised cash from investors after more than $200 billion of writedowns and losses tied to the collapse of mortgage markets at the world's biggest financial companies.
The 3 million of convertible preferred shares have a coupon of 7 percent to 7.5 percent, according to the person familiar with the offering. The stock fell 2.8 percent $36.66 in New York trading yesterday after the market's official close, while credit- default swaps declined, showing investors believe Lehman's ability to pay debts has improved. Lehman closed at $37.64 during the regular session yesterday. Credit-default swaps tied to Lehman's senior unsecured bonds narrowed 15 basis points after the announcement to 285 basis points, according to broker Phoenix Partners Group in New York. A decline signals improvement in investor confidence.


Terms of the deal include a conversion premium of 30 percent to 35 percent above the current stock price, according to people familiar with the offering. Final terms will be set when the sale is completed.

The capital increase will provide ``financial flexibility,'' the firm said in the statement. Lehman said on March 18 that it had $30 billion of cash and $64 billion in assets that could easily be turned into cash. The securities firm has access to an additional $200 billion from a Federal Reserve credit facility, according to Prashant Bhatia, an analyst at New York-based Citigroup. Bhatia upgraded his recommendation for Lehman to ``buy'' from ``neutral'' last week, saying the stock price drop was overdone.
``Reality will trump fear,'' Bhatia wrote on March 28. ``Lehman has ample liquidity to run its business.''
The firm's net income declined 57 percent in the quarter, less than analysts estimated, because of a $1.8 billion writedown on mortgage assets. Merger advisory fees jumped 34 percent, investment-management revenue surged 39 percent and equities rose 6 percent. Fuld, 61, has announced plans to cut 5,300 jobs, or 19 percent of the workforce, and closed mortgage units during the past seven months. He also has expanded in Europe and Asia to gain market share in stock trading as part of his initiatives designed to help Lehman grow faster than its peers once markets recover.
The firm now ranks as the largest trader on the London Stock Exchange and Euronext. Lehman has risen to fourth from sixth on the New York Stock Exchange and Nasdaq. Its share of U.S. bond trading has increased by 1 percentage point to 12 percent.
Bear Stearns, formerly the fifth-largest U.S. securities firm, was forced to sell itself to JPMorgan Chase & Co. this month at a fraction of its market value with financial support from the Fed. Merrill Lynch raised $6.6 billion in January by selling preferred shares to a group including the Kuwaiti Investment Authority and Japan's Mizuho Financial Group Inc.
Lehman announced the financing after the close of regular trading on the New York Stock Exchange, where shares finished 23 cents lower at $37.64.

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Posted in: Lehman Brothers Holdings Inc