U.S. government seizes mortgage giants
· TSX +2.28pts last week's abrupt drop-off of more than 950 points speaks to more than just weakening commodities, analysts say. Worries over declining demand for resources, slowing global growth and the tight credit situation have converged to knock the confidence out of the market
· Dow +32.73pts
· Dollar +.55c to $94.06US .
· Oil -$1.86 to $106.23US per barrel
· Gold -$.30 to $797.60US per ounce
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To avert potential financial turmoil, U.S. administration says it's forced to take control of Fannie Mae and Freddie Mac
Alan Zibel and Martin Crutsinger The Associated Press
WASHINGTON
The U.S. administration, acting to avert the potential for major financial turmoil, announced yesterday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
Officials also announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice-chair of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice-chair of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.''
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,'' Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement yesterday that "a limited number of smaller institutions'' have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans.''
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.
"There is a consensus today . . . that they cannot continue in their current form,'' he said.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.
The companies own or guarantee about $5 trillion in home loans, about half the country's total.
Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.
Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.
Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
Monday, September 8, 2008
Friday, September 5, 2008
Financial Update
TSX falls below 13,000 in commodities sell-off-its worst 3 day drop in almost 8 years
· TSX -323.58pts to 12,814.14 as a massive sell-off spearheaded by commodity stocks sent the TSX to a steep triple-digit plunge
· Dow -344.65pts as glum economic and retail data further discouraged investors looking for a rally in the second half of 2008 (CP)
· Dollar -.75c to $93.50US .
· Oil -$1.46 to $107.89US per barrel
· Gold -$4.80 to $797.90US per ounce
Toronto stocks dive for third day on growth woes
Alia McMullen, Financial Post
TORONTO - The TSX slid to its lowest level in almost six months on Thursday after smashing through the 13,000 level to cap its worst three-day point drop in almost eight years.
Strategists said the market was beginning to fear the worst for the global economy ahead of the U.S. payrolls figures due Friday morning, with preliminary data on Thursday pointing to an eighth straight drop in U.S. employment.
"The idea that the rest of the world's growth is going to be slowing is sinking in and that's why we're seeing a more broad-based slowdown as opposed to just the financials versus commodities type trade," said George Vasic, strategist at UBS.
The S&P/TSX composite index dropped 323.58 points, or 2.5%, to close at 12,814.14.
Since traders returned from the Labour Day holiday on Monday, the index has lost about 7% of its value, or 957.11 points, to close below the 13,000 level for the first time since March 20.
It was the biggest three-day percentage drop since Jan. 19 this year and the largest three-day point decline since Oct. 27, 2000.
Mr. Vasic said that the drop in the Toronto market was largely in line with an unwinding of the run-up in oil prices that followed the collapse of investment bank Bear Stearns Cos. Inc. in March.
He said the run-up in oil appeared to have more to do with a flight to safety from financial stocks rather than a reflection of global oil supply and demand conditions.
Light crude fell US$1.46 to close at US$107.89 on the New York Mercantile Exchange yesterday, while gold was also down US$5 to US$799.30. The Canadian dollar also weakened, slipping three-quarters of a cent to US93.5¢. Meanwhile, the S&P 500 composite index fell 38.15 points, or 3%, to 1,236.83 and the Dow Jones Industrial Average dropped 344.65 points, or 3%, to 11,188.23.
Compounding the impact of the pull-back in oil were the expectations of slower U.S. and global economic growth. Weekly U.S. initial unemployment claims yesterday rose more than expected ahead of this morning's official U.S. non-farm payrolls numbers. The market expects the economy to lose a further 75,000 jobs in August.
Mr. Vasic said a better than expected result would likely give only a temporary boost to stocks. However, he expects the longer-term picture for the TSX to improve and likely break above recent highs next year.
Dan Hallett, president of Dan Hallett & Associates said the number of cheap stocks available in the market had risen in recent weeks, providing good long-term buying opportunities. But in the meantime, he said fears of a recession in the U.S. and the possible collapse of another financial institution were plaguing the market.
"The fact is, the worse the U.S. economy gets, the worse it is for Canada, you can't disconnect the two," Mr. Hallett said. He said there also appeared to be a number of hedge funds having to dump stocks to either cover short positions or make redemptions, adding to the large daily stock market declines.
The steep drop in commodities has put pressure on some financial managers, such as Ospraie Management LLC, which was forced to close its biggest hedge fund after it slumped almost 39% this year.
· TSX -323.58pts to 12,814.14 as a massive sell-off spearheaded by commodity stocks sent the TSX to a steep triple-digit plunge
· Dow -344.65pts as glum economic and retail data further discouraged investors looking for a rally in the second half of 2008 (CP)
· Dollar -.75c to $93.50US .
· Oil -$1.46 to $107.89US per barrel
· Gold -$4.80 to $797.90US per ounce
Toronto stocks dive for third day on growth woes
Alia McMullen, Financial Post
TORONTO - The TSX slid to its lowest level in almost six months on Thursday after smashing through the 13,000 level to cap its worst three-day point drop in almost eight years.
Strategists said the market was beginning to fear the worst for the global economy ahead of the U.S. payrolls figures due Friday morning, with preliminary data on Thursday pointing to an eighth straight drop in U.S. employment.
"The idea that the rest of the world's growth is going to be slowing is sinking in and that's why we're seeing a more broad-based slowdown as opposed to just the financials versus commodities type trade," said George Vasic, strategist at UBS.
The S&P/TSX composite index dropped 323.58 points, or 2.5%, to close at 12,814.14.
Since traders returned from the Labour Day holiday on Monday, the index has lost about 7% of its value, or 957.11 points, to close below the 13,000 level for the first time since March 20.
It was the biggest three-day percentage drop since Jan. 19 this year and the largest three-day point decline since Oct. 27, 2000.
Mr. Vasic said that the drop in the Toronto market was largely in line with an unwinding of the run-up in oil prices that followed the collapse of investment bank Bear Stearns Cos. Inc. in March.
He said the run-up in oil appeared to have more to do with a flight to safety from financial stocks rather than a reflection of global oil supply and demand conditions.
Light crude fell US$1.46 to close at US$107.89 on the New York Mercantile Exchange yesterday, while gold was also down US$5 to US$799.30. The Canadian dollar also weakened, slipping three-quarters of a cent to US93.5¢. Meanwhile, the S&P 500 composite index fell 38.15 points, or 3%, to 1,236.83 and the Dow Jones Industrial Average dropped 344.65 points, or 3%, to 11,188.23.
Compounding the impact of the pull-back in oil were the expectations of slower U.S. and global economic growth. Weekly U.S. initial unemployment claims yesterday rose more than expected ahead of this morning's official U.S. non-farm payrolls numbers. The market expects the economy to lose a further 75,000 jobs in August.
Mr. Vasic said a better than expected result would likely give only a temporary boost to stocks. However, he expects the longer-term picture for the TSX to improve and likely break above recent highs next year.
Dan Hallett, president of Dan Hallett & Associates said the number of cheap stocks available in the market had risen in recent weeks, providing good long-term buying opportunities. But in the meantime, he said fears of a recession in the U.S. and the possible collapse of another financial institution were plaguing the market.
"The fact is, the worse the U.S. economy gets, the worse it is for Canada, you can't disconnect the two," Mr. Hallett said. He said there also appeared to be a number of hedge funds having to dump stocks to either cover short positions or make redemptions, adding to the large daily stock market declines.
The steep drop in commodities has put pressure on some financial managers, such as Ospraie Management LLC, which was forced to close its biggest hedge fund after it slumped almost 39% this year.
Thursday, September 4, 2008
Financial Update
· TSX -161.82pts (CP)A move away from commodities sent the Toronto stock market tumbling, pushed down by a retreat from oil and mining stocks and jitters about the health of the global economy. With 47% of the TSX related to commodities like oil and mining, this is a 6% drop in 2 days
· Dow +15.96pts
· Dollar +.67c to $94.25US .
· Oil -$.36 to $109.35US per barrel
· Gold -$2.30 to $802.70US per ounce
By Julian Beltrame, The Canadian Press OTTAWA - The Bank of Canada stuck to its guns on interest rates Wednesday, holding the overnight rate at 3% despite acknowledging that both inflation and the economy are weaker than previously projected. The central bank's decision to stay on the sidelines for the third consecutive announcement date had been widely predicted, but many economists were surprised governor Mark Carney didn't have a more "dovish" tone in his accompanying statement.
"He gave only the barest of scraps to the doves ... given the fact we've had one of the weakest half years for the economy since the (early) 1990s," said Douglas Porter, deputy chief economist with BMO Capital Markets. "There is absolutely no signal here whatsoever they are preparing to cut rates (in the future)."
GMAC to cut 5,000 jobs at mortgage unit
The Globe and Mail
NEW YORK — — GMAC LLC [GOM-N] said Wednesday it plans to cut 5,000 jobs at its Residential Capital LLC mortgage unit, or 60 per cent of that work force, and shut its 200 GMAC Mortgage retail offices to combat persistently weak housing and credit markets.
GMAC also plans to stop offering home loans through its Homecomings broker channel, and is evaluating strategic alternatives for its GMAC Home Services and non-core mortgage servicing businesses. It said it keep offering mortgages “where there is a secondary market to sell the loans.”
The cutbacks suggest deepening problems for GMAC's owners. A group led by private equity firm Cerberus Capital Management LP bought a 51 per cent stake from General Motors Corp [GM-N] in 2006. The automaker owns the remaining 49 per cent.
ResCap was the seventh-largest U.S. mortgage lender from January to June, making $35.7-billion (U.S.) of loans, according to the newsletter Inside Mortgage Finance. It said the latest job cuts will leave it with roughly 3,000 employees, down from a reported 14,000 at the beginning of 2007.
“While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment,” ResCap chief executive Tom Marano said in a statement. “We need to respond aggressively by further reducing both operating costs and business risk.”
GMAC is based in Detroit, and ResCap in Minneapolis.
ResCap has had seven straight unprofitable quarters, losing $7.2-billion over that time. In the April-June period, it lost $1.86-billion, while GMAC overall lost $2.48-billion.
ResCap expects 3,000 of the job cuts to take place this month, and a majority of the remainder by year end. It expects a $90-million to $120-million charge, and an additional charge for the other job cuts.
· Dow +15.96pts
· Dollar +.67c to $94.25US .
· Oil -$.36 to $109.35US per barrel
· Gold -$2.30 to $802.70US per ounce
By Julian Beltrame, The Canadian Press OTTAWA - The Bank of Canada stuck to its guns on interest rates Wednesday, holding the overnight rate at 3% despite acknowledging that both inflation and the economy are weaker than previously projected. The central bank's decision to stay on the sidelines for the third consecutive announcement date had been widely predicted, but many economists were surprised governor Mark Carney didn't have a more "dovish" tone in his accompanying statement.
"He gave only the barest of scraps to the doves ... given the fact we've had one of the weakest half years for the economy since the (early) 1990s," said Douglas Porter, deputy chief economist with BMO Capital Markets. "There is absolutely no signal here whatsoever they are preparing to cut rates (in the future)."
GMAC to cut 5,000 jobs at mortgage unit
The Globe and Mail
NEW YORK — — GMAC LLC [GOM-N] said Wednesday it plans to cut 5,000 jobs at its Residential Capital LLC mortgage unit, or 60 per cent of that work force, and shut its 200 GMAC Mortgage retail offices to combat persistently weak housing and credit markets.
GMAC also plans to stop offering home loans through its Homecomings broker channel, and is evaluating strategic alternatives for its GMAC Home Services and non-core mortgage servicing businesses. It said it keep offering mortgages “where there is a secondary market to sell the loans.”
The cutbacks suggest deepening problems for GMAC's owners. A group led by private equity firm Cerberus Capital Management LP bought a 51 per cent stake from General Motors Corp [GM-N] in 2006. The automaker owns the remaining 49 per cent.
ResCap was the seventh-largest U.S. mortgage lender from January to June, making $35.7-billion (U.S.) of loans, according to the newsletter Inside Mortgage Finance. It said the latest job cuts will leave it with roughly 3,000 employees, down from a reported 14,000 at the beginning of 2007.
“While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment,” ResCap chief executive Tom Marano said in a statement. “We need to respond aggressively by further reducing both operating costs and business risk.”
GMAC is based in Detroit, and ResCap in Minneapolis.
ResCap has had seven straight unprofitable quarters, losing $7.2-billion over that time. In the April-June period, it lost $1.86-billion, while GMAC overall lost $2.48-billion.
ResCap expects 3,000 of the job cuts to take place this month, and a majority of the remainder by year end. It expects a $90-million to $120-million charge, and an additional charge for the other job cuts.
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