Friday, January 13, 2012

Weekend links

1--UPDATE 1-S&P to cut some euro zone countries on Friday-sources, Reuters

Excerpt: Standard & Poor's is set to downgrade the credit ratings of several euro zone countries later on Friday, but not those of Germany and the Netherlands, a senior euro zone government source said.

The source did not say which or how many other countries' debt ratings would be downgraded. Another source confirmed "several" countries would be hit.

"Remain alert tonight when U.S. markets close," said another euro zone source.

In December, S&P placed the ratings of 15 euro zone countries on credit watch negative - including those of top-rated Germany and France, the region's two biggest economies - and said "systemic stresses" were building up as credit conditions tighten in the 17-nation bloc.

Since then, the European Central Bank has flooded the banking system with cheap three-year money to avert a credit crunch.

At the time, S&P said it could also downgrade the euro zone's current bailout fund, the EFSF.

The ratings agency said that if a downgrade did materialize, countries such as Germany, Austria, Belgium, Finland, the Netherlands and Luxembourg would likely see ratings cuts of only one notch.

The other nine countries - most notably triple A-rated France - could suffer downgrades of up to two notches.....A downgrade could automatically require some investment funds to sell bonds of affected states, making those countries' borrowing costs rise still further.

2--ECB overnight deposits hit new high, Reuters

Excerpt: Despite being awash with liquidity, ongoing crisis worries
means euro zone banks currently prefer to park their excess
funds overnight at the ECB rather than lending it on in the open
market for higher returns.

Overnight-deposits at the ECB hit a record high of 490
billion euros on Friday, effectively cancelling out the near
half a trillion euros pumped into the system by the ECB's 3-year
loans last month.

3--Foreclosure Nation: 2012 Could Bring Wave of Foreclosures, Common Dreams

Excerpt: States likely to see surge of long-delayed foreclosure action in 2012
A report today from foreclosure listing firm RealtyTrac Inc. shows that 2011 showed the lowest number of homes entering the foreclosure in four years....

As Reuters reports:
Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, slid by 34 percent in 2011, the lowest level since 2007, just as the housing market was starting to crumble. RealtyTrac said there were filings on 1,887,777 homes last year....

Associated Press reports:

The listing firm anticipates that 2012's foreclosure rate will be higher than last year's, but will remain below the peak of 2010.

High unemployment, a sluggish housing market and falling home values remain major factors in homeowners falling behind on their mortgage payments. Many borrowers also have simply stopped paying their mortgage because they owe more on the mortgage than the home is worth.
A report from the Los Angeles Times also presents a sad picture:

California and other states are likely to see an enormous wave of long-delayed foreclosure action in the coming year as banks deal more aggressively with 3.5 million seriously delinquent mortgages.

4--Some Lenders to Students Face Greater U.S. Scrutiny, NY Times

Excerpt: The Consumer Financial Protection Bureau is stepping up its scrutiny of nontraditional lenders to students at profit-making colleges and trade schools that have high rates of default, the newly appointed director of the bureau said Thursday.

The director, Richard Cordray, compared the practices of some parts of the student loan business to those of the subprime mortgage lending machine that contributed to the financial crisis.

“We’re seeing some of the schools anticipating as much as a 50 percent default rate on their students, yet they’re making those loans anyway,” Mr. Cordray said at a news briefing.

“We will be looking closely at those loans. We will be looking closely at the tactics by which they are marketed and making sure that the law is being followed,” he said. ...

“One of the things we see and have seen is lenders who market loans for borrowers knowing that those borrowers are unlikely to be able to pay those loans,” Mr. Cordray said. “But they may have other incentives that lead them to make those loans nonetheless. We clearly saw that in the mortgage market in the run-up to the financial crisis, when that market got broken. We also see it, say, in student lending as well.”

Holly Petraeus, the consumer bureau’s assistant director for service member affairs, said in an opinion article in The New York Times in September that private, profit-making colleges often see members of the military “as nothing more than dollar signs in uniform” and use “aggressive marketing to draw them in and take out private loans,” producing higher than average default rates.

5--Frightened consumers continue to squirrel away money, zero hedge

Excerpt: Trim Tabs David Santschi of the now-infamous Bay Area backdrop, explains the incredible statistic that in the first 11 months of last year investors poured more than eight times more money into checking and savings accounts than into Fed-inspired risk assets in general. Even with rates ultra-low, the Fed's efforts to drive speculative flows is dwarfed by investors' aggregate sense of the reality of our tenuous situation as a massive $889bn was poured carefully into mattresses while a measly $109bn went into risk-worthy assets (including bonds). As Santschi concludes, as long as most investors keep hiding most of their money away, the economy is unlikely to get off to the races anytime soon and while we agree from a consumptive demand perspective, any recovery will only be truly sustainable via savings which are being desperately drawn-down by a need to maintain standards of living that are perhaps too much to expect.

"In the first 11 months of 2011, investors poured a stunning $889Bil into checking and savings accounts...8X's higher than the $109 bil that flowed into stock and bond mutual funds ...Flows into checking and savings accounts peaked at in July 2011 at $208 bil Flows into checking and savings outstripped flows into stocks and ETFs every month of 2011.
as long as investors continue to hunker down and stick their money under the matress, the economy is unlikely to get off-to-the-races anytime soon.

6--Why Zombie Banks Hate to Write Off Bad Loans: Jonathan Weil, Bloomberg

Excerpt: There’s a simple explanation for why the world’s zombie banks remain so reluctant to write off worthless assets and tap the equity markets for fresh capital. They don’t want to end up like UniCredit SpA. (UCG)

This month has been a nightmare for the Italian bank’s shareholders. Since embarking last week on a 7.5 billion euro ($9.7 billion) stock sale at a steep discount to its Jan. 3 closing price, UniCredit shares have fallen 39 percent to 2.56 euros. It seems no good deed goes unpunished when it comes to lenders besieged by Europe’s debt crisis. A little bit of candor about the true state of a company’s finances can hurt a lot.

That undoubtedly is the message some other lenders facing large capital shortfalls will take from UniCredit’s troubles. The incentive now, just as most banks are undergoing their year- end audits, will be to stick with the pretense that all is well and there’s no need to raise additional capital.

Not that a lot of them have better options. There’s only so much private-sector capital available to go around. As sickening as the plunge in its share price may be, UniCredit secured an early-mover advantage by acting when it did. Even that might not be enough to ensure its survival without a taxpayer rescue. ...

Frightfully Low

The markets sense, with good reason, that the latest cash infusion won’t be enough. UniCredit’s stock market value stands at 14.8 billion euros, taking into account this month’s rights offering. That’s frightfully low, considering the company showed 52.3 billion euros of common shareholder equity and 950 billion euros of assets as of Sept. 30.

7--Little Change in Public's Response to 'Capitalism,' 'Socialism' , Pew Research

Excerpt: The American public’s take on capitalism remains mixed, with just slightly more saying they have a positive (50%) than a negative (40%) reaction to the term. That’s largely unchanged from a 52% to 37% balance of opinion in April 2010.

Socialism is a negative for most Americans, but certainly not all. Six-in-ten (60%) say they have a negative reaction to the word; 31% have a positive reaction. Those numbers are little changed from when the question was last asked in April 2010.

Of these terms, socialism is the more politically polarizing – the reaction is almost universally negative among conservatives, while generally positive among liberals. While there are substantial differences in how liberals and conservatives think of capitalism, the gaps are far narrower. Most notably, liberal Democrats and Occupy Wall Street supporters are as likely to view capitalism positively as negatively. And even among conservative Republicans and Tea Party supporters there is a significant minority who react negatively to capitalism.

8--U.S. retail sales rise scant 0.1% in December, Marketwatch

Excerpt: Sales at U.S. retailers increased 0.1% in December, the government said Thursday, in a report that bucked expectations of stronger sales during the holiday period.

The Commerce Department said sales rose to a seasonally adjusted $400.6 billion, an advance of 6.5% from the prior year. Holiday sales — defined as November and December retail sales excluding autos, gasoline, food services and non-store outlets — grew 4.1% from last year, according to calculations by IHS Global Insight.

Ahead of the report, economists surveyed by MarketWatch had expected monthly sales to rise by 0.3% from November. Sales rose an upwardly revised 0.4% in November, compared with a 0.2% increase originally reported. Sales were also revised up slightly in October.

The sales data are seasonally adjusted, but they aren’t adjusted for price changes.

As often happens with data on retail sales issued immediately after the holidays, the government’s statistics didn’t bear out the conventional wisdom.

“Apparently, all those reports of a robust holiday shopping season were made by people too much into the holiday spirits as retail sales did not surge in December,” said Joel Naroff, president of Naroff Economic Advisors, Inc.

9--Foreclosures expected to rise, pushing home prices lower, LA Times

Excerpt: Banks are getting more aggressive with the 3.5 million U.S. homes with seriously delinquent mortgages, setting the stage for a big wave of foreclosure action this year.

California and other states are likely to see an enormous wave of long-delayed foreclosure action in the coming year as banks deal more aggressively with 3.5 million seriously delinquent mortgages.

And experts said that dealing with the foreclosure process, from issuing notices of default to selling repossessed homes, is likely to push housing prices lower this year before the real estate market has a chance to recover.

A report from RealtyTrac, an Irvine data firm, said about 1.9 million U.S. homes were hit with default notices, foreclosures and other actions last year. That is down from 2.9 million in 2010. Seriously delinquent loans are defined as being four months in arrears.

"There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets," said Brandon Moore, chief executive of RealtyTrac. "We expect that trend to continue this year."...

The days of troubled borrowers spending two years in foreclosure limbo are at an end, she said.

"We're not seeing people have to wait six or seven months to get an answer," she said. "It's more like six or seven weeks."

Worried that the foreclosure flood could further undermine the housing markets, the Federal Reserve urged Congress recently to do more for troubled homeowners....

However, analysts also said they expect housing in California to stabilize more quickly than in many states. The reason: a speedy foreclosure process that normally takes place without court action and is one of the most streamlined in the nation.

RealtyTrac said the average foreclosure took 352 days last year in California, down from a peak of 363 in 2010. By contrast, the foreclosure timeline was 806 days in Florida and 1,019 days in New York, both of which require extensive court review of foreclosures

10--ECB overnight deposit level falls slightly, Marketwatch

Excerpt: Banks' overnight deposits with the European Central Bank fell slightly Wednesday from Tuesday's all-time high but remained extremely elevated, reflecting ongoing tensions in interbank markets and excess liquidity in the financial system.

Euro-zone banks parked EUR470.632 billion in the deposit facility Wednesday, down from EUR485.898 billion parked Tuesday, ECB data showed Thursday.

The overnight deposit level has been elevated since August 2011, with banks using the ECB to hoard excess cash instead of lending it to one another amid fears over their counterparties' exposure to risky euro-zone sovereign debt.

Use of the deposit facility has reached ever higher levels since the ECB in December flooded the market with EUR489.1 billion liquidity in its longer-term refinancing operation. A second such operation is planned for February.

Meanwhile, banks borrowed EUR3.2 billion from the ECB's overnight lending facility Wednesday, up from EUR1.912 billion Tuesday.

11--Foreclosure filings hit four-year low in 2011, Reuters

Excerpt: The number of U.S. homes that received a foreclosure filing fell to a four-year low in 2011 as a slowdown in processing hit the market, RealtyTrac said in a report on Thursday.

Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, slid by 34 percent in 2011, the lowest level since 2007, just as the housing market was starting to crumble. RealtyTrac said there were filings on 1,887,777 homes last year.

Bank seizures of homes fell to 804,423 from 1,050,500 in 2010, also marking the lowest level in four years.

"A big part that is inflating the size of the decrease is a continuing extended foreclosure process," said Daren Blomquist, director of marketing communications at RealtyTrac.

"Especially in some states, we have a dysfunctional foreclosure process that is bogging down foreclosures, but more importantly, it's bogging down and hampering the housing recovery."

12--Greece euro exit worse than catastrophic: Toscafund, Reuters

Excerpt: A Greek exit from the euro zone would be worse than catastrophic and could provoke greater social unrest, Zimbabwe-style inflation and a military coup, said London-based hedge fund firm Toscafund.

In a stark note to clients, chief economist Savvas Savouri said introducing a new currency instantaneously in the wake of a euro exit would be impossible and the delay would lead to "a run on banks and evacuation of capital that would make what has already been seen as nothing by comparison."

"The word catastrophic would not do it justice enough," said Savouri, who comes from a Greek Cypriot background.

"Those who imagine some post-euro-exit stability would be restored ... quite simply fail to understand the magnitude -- social, economic and political -- of such an eventuality."

13--ECB sees "substantial" effect from cheap money, Reuters

Excerpt: The European Central Bank's flood of cheap three-year money is helping the euro zone's banking system substantially and supporting confidence in the bloc's economy which is showing some signs of stabilization, its president said on Thursday.

The ECB left interest rates on hold, pausing to assess the impact of back-to-back cuts and a slew of other measures it unleashed late last year that are showing signs of helping fight the euro zone debt crisis.

"The extensive recourse to the first three year refinancing operation indicates that our non-standard policy measures are providing a substantial contribution to improving the funding situation of the banks, thereby supporting financing conditions and confidence," ECB President Mario Draghi told a news conference after it held its benchmark rate at 1.0 percent.

To help fight the euro zone debt crisis, the ECB provided banks with nearly half a trillion euros of three-year money in December, called LTRO, and will make a similar offer in February.

French President Nicolas Sarkozy has urged banks to use the cheap three-year loans to buy sovereign bonds of euro zone strugglers and strong debt auctions in Spain and Italy on Thursday suggested some may be doing that, with analysts saying abundant liquidity helped support demand...

Alongside the extraordinary liquidity to banks, the ECB has eased its collateral rules and kept buying Italian and Spanish government bonds although it continues to baulk at doing so to the more dramatic extent which some policymakers have urged....

"It's too early to say whether this is linked directly to the LTROs but the yield movements should suggest that some of the sovereign debt crisis is abating," Sondergaard said.

14--Banks face brutal liquidity squeeze: Portugal's BES, Reuters

Excerpt: Portuguese and other European banks face a "brutal" liquidity crunch even after the European Central Bank's unprecedented 489-billion liquidity operation last month, Banco Espirito Santo's (BES.LS) (BES) chief executive said on Thursday.

"We face a brutal liquidity squeeze in Europe, not because the ECB is not providing it (liquidity) but because there is a lack of trust," Ricardo Salgado told a conference.

Portuguese banks lost access to wholesale financing markets as the sovereign debt crisis deepened in Europe's periphery and its banks have become dependent on ECB funds for liquidity.

Salgado, head of Portugal's largest bank by market capitalisation, said that December's ECB operation, which provided European banks with an unlimited quantity of three-year funds, did not work, as more than 90 percent of the cash was deposited back to the ECB instead of being used for lending.

"This shows that the European banking system is not working, it is not lending and it is not just Portuguese banks, its Europe's banks," the CEO said.


1 comment:

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