With California's cash dwindling and legislators still debating a new budget, Gov. Arnold Schwarzenegger eliminated thousands of part-time and temporary state positions Thursday and ordered that 200,000 state workers receive the federal minimum wage.Legal Showdown?
"Today I am exercising my executive authority to avoid a full-blown crisis and keep our state moving forward," Schwarzenegger said. "This is not an action I take lightly."
Democratic and Republican lawmakers remain divided over how to close a $15.2 billion deficit, with Democrats favoring $8.2 billion in new taxes on corporations and the state's wealthiest residents. Republicans want a spending cap and oppose tax increases.
Schwarzenegger's finance team said of that total, just 10,300 would receive pink slips immediately.
Schwarzenegger also cited a 2003 California Supreme Court ruling allowing him to slash the pay of regular full-time employees when the state lacks a budget. By law, those workers must be paid at least the federal minimum wage of $6.55 an hour and will be reimbursed once a budget is approved.
The first paycheck to be affected by the minimum wage order would be the one state employees receive in early September, but state Controller John Chiang, a Democrat, sent a letter to Schwarzenegger on Thursday saying he will defy the order and issue employees their regular paychecks.
He said the governor's executive order was based on "faulty legal and factual premises." Chiang said the 2003 Supreme Court ruling did not specify the actual amount of the salary his office could pay state employees during a budget impasse.
The controller and the Republican administration also differ over the state's financial condition. Chiang maintains that California has enough money to meet all its expenses through September.
Seasonally Adjusted DataCalculated Risk has some interesting charts in Weekly Claims Hit 5 Year High.
In the week ending July 26, the advance figure for seasonally adjusted initial claims was 448,000, an increase of 44,000 from the previous week's revised figure of 404,000. The 4-week moving average was 393,000, an increase of 11,000 from the previous week's revised average of 382,000.
The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending July 19, an increase of 0.2 percentage point from the prior week's unrevised rate of 2.3 percent.
The U.S. economy may have slipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened, revised government figures indicated.Pollyannas Need To Change Their Tune
The world's largest economy contracted at a 0.2 percent annual pace in the fourth quarter of last year compared with a previously reported 0.6 percent gain, the Commerce Department said today in Washington. Growth for the period from 2005 through 2007 was also trimmed.
"We're in a recession," Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. "It's going to widen, it's going to deepen."
Nine of the 13 quarters under review were revised down, three increased and one was unchanged.
The largest downward revision was for the last three months of 2007, as the previously reported 2.3 percent gain in consumer spending was reduced by more than half, to 1 percent. Americans cut back on the use of electricity and gas as fuel bills soared.
"While everyone focuses on GDP, keep in mind that it is not the only barometer of economic activity," David Rosenberg, chief North American economist at Merrill Lynch & Co. in New York, said in a July 28 note to clients. Growth "is subject to huge historical revisions."
The four other factors that the NBER takes into account, Rosenberg said, peaked between October 2007 and February 2008. The NBER usually declares a recession has started between six to 18 months after it's begun, according to its Web site.
Nonfarm private employment increased 9,000 from June to July 2008 on a seasonally adjusted basis, according to the ADP National Employment Report�. The estimated change in employment from May to June was revised up from a decrease of 79,000 to a decrease of 77,000.Small Business Report
This month�s employment gain was driven by growth in the service-providing sector which advanced 74,000. July employment in the goods-producing sector declined 65,000, while manufacturing employment declined 49,000, marking their twentieth and twenty-third consecutive monthly declines, respectively.
Two sectors of the economy hit hardest by recent problems in mortgage markets have been residential construction and financial activities related to home sales and mortgage lending. Today�s report suggests some lessening of the recent strain on employment in these industries.
In July, construction employment dropped 16,000. Though this was the twentieth consecutive monthly decline, and brings the total decline in construction jobs since the peak in August of 2006 to 350,000, it was one of the smallest declines in recent months. In addition, employment in financial activities rose 4,000 during the month.
� Total employment: +9,000July Is A Revision Month For BLS
� Small businesses: +50,000
� Medium businesses: -9,000
� Large businesses: -32,000
� Goods-producing sector: -65,000
� Service-providing sector: +74,000
� Manufacturing industry: -49,000
Small businesses represent payrolls with 1-49 employees
Medium businesses represent payrolls with 50-499 employees
Large businesses represent payrolls with more than 499 employees
Bannkrupt home furnishings retailer Linens 'n Things' disclosure this week that it plans to dispose of 120 locations is the latest burst in the retail sector's growing flood of store closings this year that has the industry's real estate disposition firms scrambling.On top of that report Starbucks recently announced it will cut 600 stores. Looking ahead, note that Bennigan's Is Bankrupt, Faces Chapter 7 Liquidation.
Home Depot recently said it would shut 15 existing stores this year and reduce the number of new store openings by almost half to 55. Then the Hilco Organization and Gordon Brothers Group, new owners of Sharper Image, announced that they will close all 86 of the chain�s remaining stores. And, Gap Inc. plans to close an unspecified number of stores while downsizing many of its remaining locations.
�You are going to see a lot more closings; we are not even close to the end,� says Graiser. �There are a few thousand more stores� coming on the market.
MGM Mirage and Dubai World are late in raising as much as $3.5 billion for their $11.2 billion CityCenter project in Las Vegas because banks saddled with debt to casinos and hotels are wary of making new loans.Title Companies Complain "Banks Deprived Us Of Cash"
Deutsche Bank AG and Credit Suisse Group, the Zurich-based bank that advised Dubai World last year when it invested $5.1 billion in MGM, are among the holdouts, bankers with knowledge of the matter said. Funding was supposed to be completed by the end of June, MGM Chief Financial Officer Daniel D'Arrigo told analysts in May. President James Murren said Frankfurt-based Deutsche Bank has been part of every MGM loan since 1998.
"Wall Street firms are scrutinizing their extension of credit, particularly to the gaming industry, where the sentiment is pretty weak," said Michael Paladino, an analyst at Fitch Ratings in New York.
Building the 76-acre "city-within-a-city," designed by architects, including Norman Foster and Daniel Liebeskind, is costing Las Vegas-based MGM and Dubai about $100 million each per month, D'Arrigo said in May. MGM and Dubai World will raise at least $3 billion and may increase that to $3.5 billion to fund construction, MGM's Murren said on July 14.
Murren, 46, declined to comment on which banks have signed on for the deal or on its terms.
United Title of Texas has closed all its offices around the state, including six in the Houston area, because of financial troubles related to its Colorado-based parent company.Earlier today I noted Financial Title Shuts Down. Here is the key snip:
"This decision was precipitated by an unexpected, and in our opinion, unwarranted and unjustified act by our syndicate of banks, which deprived us of the cash we needed to sustain and to continue those operations," the Colorado company said in a memo to employees today.
United Title is a subsidiary of Mercury Cos., which owns title agencies in California, Colorado, Texas, Oregon, Nevada and Arizona. Mercury stopped funding operations in Arizona and California, as well.
"We have a lot of closings that are supposed to occur," Hilbun said. "If people miss closing dates, they can lose their loans. The ones today could be in jeopardy."
"Financial Title Co., the largest real-estate title agent in Silicon Valley, has shut its doors as part of a closure of multiple offices and title companies by its parent, Mercury Cos. of Colorado. The decision follows a move by Mercury's lenders to pull their line of credit after Mercury failed to meet loan requirements."We�re Saying No To Almost Everybody
Japan's factory output dropped 2 percent from May, surpassing a decline of 1.7 percent in a Bloomberg News survey of economists and the jobless rate climbed to 4.1 percent.Mervyn's Seeks Bankruptcy
The economy probably contracted an annualized 0.4 percent last quarter ended June 30, economists estimate a report to show next month. Japan's biggest export markets have been hit by the credit crunch stemming from the U.S. housing recession, while higher prices at home have made consumers reluctant to spend.
Toyota Motor Corp. and Honda Motor Co., the nation's two largest automakers, this month cut sales forecasts for 2008 as global demand cools.
Mervyn's LLC, the 59-year-old department-store chain, joined more than a dozen U.S. retailers that have filed for bankruptcy this year as consumers cut spending in the face of the credit crunch and higher oil prices.One Hell Of String For Sun Capital
It's the sixth bankruptcy in the past 12 months by a company owned by Sun Capital Partners Inc., a Florida-based investment firm.
Retailers that have sought court protection over the past year include Steve & Barry's LLC, Sharper Image Corp., Shoe Pavilion Inc., Levitz Furniture Inc. and Linens 'n Things Inc. Declining home values, tightening credit and rising energy costs have left U.S. consumers "tapped out," said Martin Bienenstock, a bankruptcy lawyer with Dewey & LeBoeuf in New York.
Sun Capital was part of a private-equity group that bought Mervyn's from Minneapolis-based Target for $1.65 billion in 2004. The Sun Capital holdings that have sought bankruptcy protection are Lillian Vernon Corp., Powermate Corp., Crafts Retail Holding Corp., Wickes Furniture Co. and Jevic Transportation Inc.
McGraw-Hill Cos., the owner of Standard & Poor's, said second-quarter profit fell 23 percent as a slump in demand for new debt ratings overshadowed revenue gains in the education and investment services units.In similar news Moody's Profit Falls Less Than Estimates on Job Cuts.
Moody's Corp.'s second-quarter profit fell less than analysts' estimated after the world's second- largest credit-rating company reduced the workforce and cut compensation to overcome a drop in demand for bond rankings.Credit Crunch Reaches Critical Mass
Moody's Chief Executive Officer Raymond McDaniel sliced expenses 10 percent by eliminating more than 7.5 percent of the workforce and reducing compensation. Moody's and larger rival Standard & Poor's are finding ways to cut costs as the yearlong credit crunch stifles demand for credit ratings.
"The debt capital market, which is really our core business segment, is going through a very, very difficult time," said Mark Almeida, president of Moody's Analytics, on a management conference call today. "We have a number of customers who are exiting segments of the business and we have had some very large customers go completely out of business."
New York, July 29, 2008 � Data through May 2008, released today by Standard & Poor�s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show annual declines in the prices of existing single family homes across the United States generally continued to worsen in May 2008.
For the second straight month, all 20 MSAs posted annual declines, nine of which are posting record lows and 10 of which are in double-digits. Both the 10-City Composite and the 20-City Composite are reporting record low annual declines.
Financial Title Co., the largest real-estate title agent in Silicon Valley, has shut its doors as part of a closure of multiple offices and title companies by its parent, Mercury Cos. of Colorado.Escrow Funds
The decision follows a move by Mercury's lenders to pull their line of credit after Mercury failed to meet loan requirements, according to an e-mail from Jim Hilbun, president of United Title of Texas, which is also owned by Mercury.
"Mercury is closing all of its companies outside of Colorado, which includes Arizona, California, Oregon and Nevada," Hilbun told employees.
Workers were removing items before dawn on Wednesday from Financial Title's Pruneyard office in Campbell. A sign posted on the door said the office was closing and referred inquiries to First American, Financial's title policy underwriter, and to Mercury.
Sources who have spoken to Financial Title employees said the title company began closing its doors in Santa Clara County Tuesday night. Those sources said all employees have lost their jobs, and Financial's underwriter, First American Title Co., has been collecting open escrow files at the closed offices. They also say Financial Chief Executive Officer Ivy Anderson has resigned.
The abrupt move mirrors that of Financial's former sister company, Alliance Title Co., which also closed with almost no notice late last year. Former employees and landlords of Alliance have filed multiple lawsuits alleging they were not paid. Alliance declared Chapter 7 bankruptcy in Northern California federal court June 5.
Examiners representing the California Department of Insurance, which regulates and polices title-policy underwriters and agents, were on hand at all 57 Financial Title offices in the state Wednesday to ensure that escrow funds were properly handled and not stolen or lost, said Darrel Ng, press secretary for the agency.
Ng said the state has examiners at each of Financial Title's 57 branches. Escrow files have been transferred to First American Title, and "it is our understanding that all escrow funds are intact," he said.Mike "Mish" Shedlock
He said homebuyers might "experience a slight delay" in closing purchases and might have to sign additional paperwork because of the transition to First American. Purchasers can call First American at (925) 249-2819.
Employees were directed to call Mercury's Denver headquarters at (303) 572-9090.
Officials at Mercury Companies and Financial Title couldn't be reached for comment today. But, in a memo to employees, an executive with a Mercury subsidiary based in Texas said Mercury is closing all of its operations outside of Colorado because it's "running out of capital to support their operations."
EU Trade Commissioner Peter Mandelson said he would not block compromise proposals on the EU's controversial banana import tariffs. He warned that if others did, then they would "assume a grave responsibility for the failure of the Doha Round".That anyone would risk a global trade agreement over bananas is pretty absurd in and of itself. However, having banana tariffs in the first place is also absurd. Consumers pay higher prices for bananas and literally no one wins except of course the subsidized banana grower.
The WTO has repeatedly ruled in favour of Latin American banana exporters in a long-running dispute with the EU. They argue that the EU's preferential trade accords with poor African, Caribbean and Pacific (ACP) countries are discriminatory.
"There are still potential potholes in the road...But we are closer to a deal than we have been at any point in the last seven years," Peter Mandelson, EU trade commissioner, said. "What is emerging is a deal that is not perfect, not beautiful, but is good for the global economy and good for development."Snake Eyes
The proposed settlement, brokered by Mr Lamy, calls for cutting limits of European farm subsidies by 80% and US payments by 70% to about $14.5bn.
"This is the last throw of the dice" said Peter Mandelson, EU trade commissioner.
Marathon talks in Geneva aimed at liberalising global trade have collapsed, the head of the World Trade Organisation has said. The main stumbling block was farm import rules, which allow countries to protect poor farmers by imposing a tariff on certain goods in the event of a drop in prices or a surge in imports.The acrimony this year seems worse than ever. Repeatedly every country wants complete open access to exports while wanting some tariffs or restrictions on imports. There is plenty of blame that can be placed, especially on US and EU where farm tariffs, agricultural subsidies, and ethanol tariffs drive up costs and result in massive inefficiencies. However, when there was near agreement to end 70%-80% of the tariffs only to see talks collapse, everyone is a loser and everyone is to blame.
"There's no use beating around the bush, this meeting has collapsed," Mr Lamy said.
Analysts have said that the collapse of the Doha talks could symbolise an end to multilateral trade agreements. Instead, nations may pursue dual agreements with partner nations, preferring to focus on their own requirements rather than a more common negotiating goal.
Trade officials had struck an optimistic tone on Friday, but this evaporated over the weekend amid acrimonious exchanges with the US accusing India and China of blocking progress.
The US said they were being overly protective towards their own farmers and are failing to do enough to open their markets, with US trade representative Susan Schwab calling the stance "blatant protectionism".
"In the face of the global food price crisis, it is ironic that the debate came down to how much and how fast could nations raise their barriers to imports of food," she said.
In a rare, brief televised address, Gov. David A. Paterson announced on Tuesday afternoon that he would call the Legislature into an emergency session on Aug. 19 to address what he called an economic and budget crisis confronting New York State as a result of plummeting revenues and rising costs.Era of �buy now and pay later, and later� is over
The new governor avoided any mention of new taxes, instead arguing forcefully for austerity. He said he was calling on the Legislature to reduce the size of the state workforce; cut agency spending; reduce property taxes for homeowners; aid New Yorkers with the soaring costs of home energy; and even consider public-private partnerships that would take over state assets.
�Revenues are dropping dramatically,� the governor added. At the start of May, the state budget office projected a cumulative deficit of $21.5 billion over the next three years. Now, just two months later, that estimate has risen to $26.2 billion � �a staggering 22 percent increase in less than 90 days.�
Mr. Paterson offered another example of the rapid deterioration in the state�s finances. In June 2007, he said, the 16 banks that pay the most on their business profits remitted $173 million to the state treasury. �This June, just a month ago, they sent us $5 million � a 97 percent decrease,� he said.
He vowed, �We will cut spending. Government will learn to do more with less.� He called for help from business and labor leaders and New York�s representatives in Washington to support him.
He added, �It is time for New York and other governments to cut up our credit cards. The era of �buy now and pay later, and later� is over. The faster we address this crisis, the faster and stronger we will emerge from it.�
Home sales increased 17.5 percent in June in California compared with the same period a year ago, while the median price of an existing home fell 37.7 percent, the CALIFORNIA ASSOCIATION OF REALTORS� (C.A.R.) reported today.Declines From Peak
"Sales were driven in part by large shares of deeply discounted distressed sales in many parts of the state," he said. �With lower prices and favorable interest rates, affordability also has improved significantly in recent months, paving the way for many buyers to purchase their first home."
"The significant declines in the median price over the past several months are largely due to a dramatic shift in the sales mix since the onset of the credit crunch and the increase in the share of distressed sales,� said C.A.R. Chief Economist Leslie Appleton-Young. "A year ago, the under $500,000 price range accounted for 40 percent of sales, the middle segment made up about 45 percent, and the over $1 million segment captured 15 percent of the market. As of June 2008, the shares had shifted to 67 percent, 24 percent, and 9 percent, respectively."
It should come as no surprise that prices are continuing to head lower out here, but the amount of the drop continues to amaze me. Again, these numbers are directly from the California Realtors so there is certainly no reason for them to fib to the downside.I agree with TC on the nature of the flatline bottom, but I think he is at least a couple years early when stating "We are finally beginning to near a nominal price bottom in California."
My quick take from these numbers is that we are finally beginning to near a nominal price bottom in California. Median statewide price drops are now nearing 40% or nearly $230K . Soon enough even the Google millionaires around Santa Clara won't want to overpay.
The big question is what does a "bottom" look like. I think too many envision a bottom consisting of a quick return to rapidly increasing home prices. These individuals are confusing a stock bottom (e.g. 1987) with a housing bottom. Rather than a quick turnaround in my opinion we are likely to see about a 1/2 decade of flat nominal prices (falling real prices) followed by another 1/2 decade of stable real prices (+/- 3% nominal price growth). After that (or around 2020) it's anyone's guess.
National restaurant chains Bennigan's and Steak & Ale have closed their doors and filed for Chapter 7 bankruptcy protection, shuttering more than 300 locations and letting go of thousands of employees.Independent Franchise Locations Remain Open
It is one of the country's largest restaurant bankruptcies and eliminates two sit-down chains that have been part of the casual-dining landscape for decades. The chains will liquidate and aren't likely to re-open.
Late Monday, managers at Bennigan's and Steak & Ale were told not to open restaurants the next day, according to two people familiar with the matter. Employees were told there wouldn't be enough money to pay ... Rest By Subscription
Customers showing up for lunch at Bennigan's restaurants in Chicago and across the country found quite a surprise Tuesday morning, when all the corporate-owned locations had signs on display reading "closed for business."No Warning
As CBS 2's Joanie Lum reports, Bennigan's Grill and Tavern closed all of its corporate-owned locations nationwide after filing for bankruptcy. Independent franchises remain open for business as usual.
The corporate-owned locations comprise about half the entire chain.
Bennigan's spokeswoman Leah Templeton said Bennigan's and Steak & Ale restaurants � both of which are owned by Plano, Texas-based Metromedia Restaurant Group � have filed for bankruptcy, along with the holding company S&A Restaurant Corp.
Chapter 7 filing usually means a company has "major league debt," and it is unlikely that employees would get their last paycheck. He said someone could conceivably buy the assets and reopen the full Bennigan's chain, but that would only be after a long, drawn out court process.
The bankruptcy filing does not affect other two restaurant chains owned by Metromedia, Ponderosa and Bonanza Steakhouse, Templeton said in the statement.
Alphonso Prince, manager of the Bennigan's at 1250 Torrence Ave. in Calumet City, said he was notified of the shutdown at 12:10 a.m. from his area director, who was crying on the telephone. He said there was no forewarning about the shutdown.
"I'm angry," Prince said. "I'm hurt; I'm devastated."
"No blast of e-mails, nothing to say, 'Sorry, we just can't do it anymore,'" Prince continued, "just a phone call from my area director who doesn't know anything, because she just found out. She'd been with the company for 21 years."
Bondholders are demanding the highest interest rates for Wall Street debt since 2000, threatening the industry's business model of acquiring assets with borrowed money. Lehman (LEH) has seen borrowing costs for its five-year bonds rise to 7.7 percent, up from 5.2 percent six months ago, the biggest jump of the four largest U.S. securities firms, data compiled by Bloomberg show.Record In Yield Spreads Coming
"This is almost self-induced balance-sheet destruction," said Joseph Balestrino, a fixed-income strategist at Pittsburgh- based Federated Investors Inc., which manages about $330 billion. "This is far beyond just your basic slowdown."
In some debt maturities, Merrill's bond yields are higher than Lehman's. For instance, Merrill debt that matures in April 2018 yielded 8.15 percent as of July 25, compared with 8.01 percent on Lehman notes that mature on May 2018.
"If you're going to be a big user of capital, then you have to be worried about how you finance your business," said William Cohan, a former investment banker at Lazard Ltd. and JPMorgan Chase & Co. and the author of "The Last Tycoons" about Lazard. "A lot of these guys don't know what to do. They're frozen, and they're just hoping that in time things will get better."
"It's going to be harder and harder for them to borrow long-term in this environment, to pay the spreads that investors are going to want," said David Hendler, an analyst at CreditSights Inc., a research firm in New York. "Can they deal with this type of funding environment?"
Lehman's long-term debt outstanding rose to $128 billion from $123 billion in the first half of fiscal 2008, as the firm cut its dependence on overnight funding, company reports show. Morgan Stanley's long-term borrowings totaled $211 billion on May 31, up from $191 billion at the end of November.
Today, a decade after the Russian government defaulted on bond payments, the country's bonds are yielding less than Lehman's -- meaning investors have more faith in Russia's prospects than in Lehman's future.
Russia's 11 percent BBB+ rated bond that matures in 2018 yields 5.68 percent, two percentage points less than the Lehman 2012 bond that's rated two notches higher by S&P.
"They do have the Fed as a backstop," said Balestrino, whose company owns bonds in Lehman, Morgan Stanley and Goldman Sachs. "In the meantime you probably are setting records in terms of yield spreads."
Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. threw their support behind Treasury Secretary Henry Paulson's effort to spur covered bonds as a new source of mortgage financing.First off, I like the idea of covered bonds. Over time they could allow for a somewhat graceful unwinding of Fannie Mae and Freddie Mac. See Nature of the Fannie Mae Bailout for more on this idea.
"We look forward to being leading issuers as the U.S. covered bond market develops," the banks said in a joint statement in Washington. They applauded Paulson's release today of guidelines for issuers of covered bonds, which detail the types of loans that should go into the securities and how their payments ought to be made.
Even in Europe, where covered bonds are a market in excess of $3 trillion, investors are shunning the debt amid a collapse in appetite for investments in housing.
"Mortgage-backed securities investors are not in the mood right now to buy bonds with anything less than government backing," Kenneth Hackel, managing director of fixed-income strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut, said in an interview, referring to debt guaranteed by Fannie Mae and Freddie Mac.
Paulson said the four U.S. banks are "ready to go" and that sales by the largest banks can help encourage smaller mortgage lenders to proceed. "Covered bonds have the potential to increase mortgage financing, improve underwriting standards and strengthen U.S. financial institutions," he said.
Covered bonds offer greater protection to investors because banks keep the home loans on their books, and must make up shortfalls if homeowners fail to pay.
Covered bonds achieve higher ratings than regular notes by augmenting the issuer's pledge to pay with a group of assets such as mortgages that can be sold in a default. The extra security allows lenders to pay less interest.
While the securities are backed by loans and bank assets to get AAA ratings, most are valued, on average, as if they were three levels lower.
The Treasury's guidelines spell out a formal definition for covered bonds. The bonds should have maturities of at least one year and no more than 30 years. Home loans in covered-bond pools would have a maximum loan-to-value ratio of 80 percent.
The investors in the equity raise would have their investment �protected� by a provision which states that should the bank afterwards raise money at a lower price than what they paid, these investors would be compensated retroactively by having their initial investment priced at this lower price, thereby being issued new shares for free.As expected, Merrill Lynch needed to raise capital again. And this one hurts because Merrill previously agree to ratchet provisions. Inquiring minds may wish to consider Merrill to Sell $8.5 Billion of Stock, Unload Money-Losing CDOs.
It doesn�t take a mathematician to see how these provisions can result in massive dilution should the bank subsequently raise even a paltry amount of capital. A new offering will trigger a lower price because of the dilution it would cause, which would trigger even more dilution because of the lower price, which would then trigger an even lower price because of the even higher dilution, etc. This is why we call such securities a death spiral.
Merrill Lynch & Co., the third biggest U.S. securities firm, will sell $8.5 billion of stock and liquidate $30.6 billion of bonds at a fifth of their face value to shore up credit ratings imperiled by mortgage losses.My Comment: That $2.5 billion is because of ratchet provisions. Mother Merrill is really only raising $6 billion.
Temasek Holdings Pte., the Singapore-owned fund that became Merrill's biggest investor by acquiring shares in December, will buy $3.4 billion of the new stock, Merrill said yesterday in a statement. The New York-based company is paying Temasek $2.5 billion to offset losses on its earlier investment.
Almost $19 billion of net losses in the past year forced Merrill Chief Executive Officer John Thain to backtrack from assurances that the firm had enough capital to weather the credit crisis. Since taking the post in December, Thain has raised $30 billion in an effort to keep pace with mounting charges on mortgage bonds amassed by his predecessor, Stan O'Neal.My Comment: The market cap of Merrill Lynch is $23.97 billion. Mother Merrill has raised $30 billion since December. It is taking herculean capital raising efforts to keep the good ship Merrill afloat.
In yesterday's statement, Merrill said it agreed to sell $30.6 billion of collateralized debt obligations -- the mortgage-related bonds that have caused most of the firm's losses -- for $6.7 billion. The buyer is an affiliate of Lone Star Funds, a Dallas-based investment manager.My Comment: Desperate mothers do desperate things, such as provide 75% of the financing to sell CDOs at 22 cents on the dollar.
Merrill will provide financing for about 75 percent of the purchase price, according to the statement. The financing is secured only by the assets being sold, meaning Merrill would absorb any losses on the CDOs beyond $1.68 billion.
In satisfaction of Merrill Lynch�s obligations under the reset provisions contained in the investment agreement with Temasek Holdings, Merrill Lynch has agreed to pay Temasek $2.5 billion, 100% of which Temasek has contractually agreed to invest in the offering at the public offering price without any future reset protection.Washington Mutual Ratchets
Silver State Bancorp, the Henderson-based holding company for the similarly named bank, reported that Andrew McCain, son of Republican presidential candidate John McCain, resigned today from the boards of directors of the bank and bank holding company.Gettin' While The Gettin' Is Good?
The company cited �personal reasons� for McCain�s resignation, and a Silver State spokesman declined further comment.
The most desirable Safe & Sound� CAEL rating is one, the least desirable is five, in accordance with industry standards. Bankrate.com has reversed this order in its graphic rankings for easy visual recognition. The top star rating is five, the lowest star rating is one. Performing institutions will generally receive a rating of 3 or better stars with the majority of banks falling into the 3-4 star range. By contrast, the performing Safe & Sound CAEL range would be 1, 2 and 3 with the majority of institutions falling into the 2 range.The Street.Com has a bank rating service that they bought from Weiss. However, Silver State Bank was not listed. Furthermore, I could not get that page to work in Firefox. Your results may vary.
Foreclosure action has begun against Macon [Georgia] Mall because of nonpayment on a $141.2 million loan, and a new management company has been approved by the court to take control of the 1.4 million-square-foot facility.The Shopping Center Economic Model Is History. More mall foreclosures are coming. 50-60% writeoffs will be common, and dozens of already stressed banks will fail as a result.
"We don't expect any operational interruptions to the mall," said Brooke Houghton, spokeswoman for Chicago-based Jones Lang LaSalle Americas Inc., the court-appointed retail management company now managing Macon Mall. "We don't think there will be any impact on the stores or the customers we serve. We are open and ready for business as usual."
According to court documents, in June 2005 when New Jersey-based The Lightstone Group borrowed $141.2 million, Macon Mall LLC and Burlington Mall LLC in North Carolina were used as collateral for the loan, as well as rents and other income from the properties. The company purchased the two malls about the same time in 2005 for $166 million. The loan currently is held by LaSalle Bank National Association as trustee for a trust that holds and owns a pool of loans including the one for Macon Mall. The trust filed the complaint.
Since the loan was made, Parisians and the Piccadilly Cafeteria have closed at the mall, and Linens-N-Things - part of the mall property, even though it's not inside the main building - is in the process of closing.
In a letter filed in the case, "Dillard's has apparently communicated its intent to close its store location at Macon Mall."
Based on an appraisal "the value of the property has fallen approximately 60 percent since June 30, 2005."
25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.The problem is not bank regulation or lack thereof. The problem is fractional reserve lending accompanied by runaway spending in Congress.
What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.
For months, the news media have been dispensing reports of a �credit crunch.�It would help to have an idea of what a credit crunch was and for that matter what inflation is.
If credit were being crunched, one supposes that lenders would be willing to pay higher rates for funds placed at their disposal. Yet six-month certificates of deposit are now yielding less than the rate of inflation�people are paying the banks to take their money! Some credit crunch.
Perhaps someone can enlighten me. I simply don�t understand how we can have a �credit crunch� without substantial increases in real interest rates across the board.
Two vital forms of credit used by companies � commercial and industrial loans from banks, and short-term �commercial paper� not backed by collateral � collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.We�re Saying No To Almost Everybody
The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.
When Mr. Greenblatt called the local branch of Wachovia � the same bank that had been aggressively marketing loans to him for years � he was distressed by the response.
"The exact words were, �We�re saying no to almost everybody,� " Mr. Greenblatt recalled.
If credit were being crunched, one supposes that lenders would be willing to pay higher rates for funds placed at their disposal. Yet six-month certificates of deposit are now yielding less than the rate of inflation�people are paying the banks to take their money! Some credit crunch: banks and thrift institutions don't even have to pay a positive real rate of interest to attract funds! This situation makes sense only if the world is awash in loanable funds, so much so that people are clamoring to part with their money for less than zero reward.Well lenders are paying above market rates for money. Many banks, especially the unsound ones, are offering 250 basis points or more above treasury rates. On a percentage basis that is an enormous spread.
Perhaps someone can enlighten me. I simply don't understand how we can have a "credit crunch" without substantial increases in real interest rates across the board.
The Bank of Canada says it is prepared to accept some of the riskiest assets on the market, giving it more power to fight the credit crisis. For the first time, the central bank will accept as collateral for emergency loans asset-backed securities of the type at the heart of the crisis of confidence that has seized financial markets for the past year.There is no evidence the TAF, PDCF, or TSLF do what they are supposed to do. I talked about this back in April in Failures of the Term Auction Facility.
Governor Mark Carney revealed yesterday in the Canada Gazette how he intends to use new powers granted him by Finance Minister Jim Flaherty in legislation that cleared Parliament in June. It was left up to Mr. Carney to decide which assets would be acceptable to the central bank.
The change aligns the Bank of Canada with other major central banks, including the U.S. Federal Reserve and the European Central Bank, and clears the way for Mr. Carney to more forcefully attack a problem that he says has subsided in Canada for now.
"This is a positive development as it brings the Bank of Canada's powers more in line with that of its peers, and it reduces the risk of further credit market problems in Canada," said Eric Lascalles, an economist at Toronto-Dominion Bank.
