From Reuters:
Mayors face test of spreading foreclosures
Mayor Douglas Palmer, meeting with visitors at City Hall, points to a large map peppered with dark dots. Each one represents a home or group of homes on the verge of foreclosure, and there are dozens all over the city.
The dots represent only those properties that the sheriff’s department of surrounding Mercer County has identified as being at risk. Many more they don’t even know about, Palmer said.
“Some people are even afraid to talk about it,” he said of homeowners facing skyrocketing mortgage payments. “Half of them don’t even call their lender when they run into problems, so they try to fly under the radar screen, which is the worst thing you can do.”
…
The latest crisis threatens to derail years of revitalization under Palmer, a four-term incumbent and the first black mayor in a predominantly black city of 85,000 people.Like many U.S. cities, it has seen foreclosures surge as people who bought homes in a real estate frenzy in the last few years face mortgage payments that have reset to higher rates they cannot afford.
More than 600 properties went into foreclosure or came under threat of imminent foreclosure last year, up from 421 in 2006, according to the mayor’s office, collating data from a number of sources. Those numbers are set to grow this year. As of December, the sheriff’s office had identified 260 properties in danger.
…
“This cuts across every area of our economy, of the services we’ll have to provide,” Palmer said. When homes are boarded up, neighbors complain of blight such as piles of trash and overgrown grass, he said. “Who’s going to cut it? The city will have to.”
From Bloomberg:
Wall Street’s $35 Billion Writedown Puts Squeeze on ’08 Profits
Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.
The losses have depleted the banks’ capital, forcing New York-based Citigroup and Merrill to seek more than $13 billion from foreign investors, and hobbled their ability to make new loans. Other sources of fees, including credit cards, are also in jeopardy as the U.S. economy slows, said CreditSights Inc. analyst David Hendler, who estimates Citigroup, Bank of America and Merrill won’t earn more this year than they did in 2006.
“The banks are already operating like they’re in a recession,” by ratcheting back on trading and lending, said Adam Compton, who helps oversee $150 billion at San Francisco- based RCM Capital, which holds shares of Citigroup, Bank of America and Merrill. “Everybody has tightened up tremendously.”
Citigroup may report a fourth-quarter loss tomorrow of $4 billion, the first for the largest U.S. bank since its commercial real estate holdings plummeted in value during the early 1990s, according to a survey of 8 analysts by Bloomberg. The company also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.
Merrill, the world’s biggest brokerage, probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion loss reported in the third quarter, Stan O’Neal’s last as chief executive officer, analysts estimate.
From the WSJ:
Inquiry’s Focus Broadens
To Mortgage-Bond Insurers
By KARA SCANNELL
January 14, 2008; Page A8
Authorities have broadened their probes into high-risk mortgages to include companies that provide insurance on bonds.
Connecticut Attorney General Richard Blumenthal said in an interview yesterday that his office is scrutinizing potential anticompetitive practices involving credit-rating firms, investment banks and bond insurers “not only in mortgage lending but in the valuation of other corporate debt.” He said his office has subpoenaed bond insurers, but he declined to name them.
“There are a lot of issues that have been highlighted by the ongoing crisis in the debt and securities markets,” he said. “It’s like a cancer that has metastasized into different areas.”
Mr. Blumenthal’s office is also looking into the underwriting and packaging of loans by investment banks and credit-rating firms and has sent more than 30 subpoenas. He said his staff has reached “no conclusion” as to whether any laws were violated.
“One of the major areas that we’re investigating concerns whether the investment banks fully and fairly disclosed relevant information relating to the risks of subprime or exception loans that were bundled into securities sold to investors,” Mr. Blumenthal said. Exception loans are those that are looser than a company’s lending standards. Mr. Blumenthal’s inquiry into underwriting was reported Saturday in the New York Times.
A Fund Behind Astronomical Losses
By SERENA NG and CARRICK MOLLENKAMP
January 14, 2008; Page C1
The trading strategy of a little-known hedge fund run by an astronomy buff contributed to billions in losses on Wall Street, even as the fund itself profited from the subprime-mortgage crisis.
Magnetar Capital, founded in 2005 by a former star trader of Citadel Investment Group, left its mark in another way. Many of the mortgage securities that collapsed in recent months were named for stellar constellations. Magnetar, named for a neutron star with a powerful magnetic field that is a remnant of a supernova, was their common link.
The hedge fund, run by Alec Litowitz, 41 years old, facilitated the creation of a few of the worst-performing collateralized debt obligations, or CDOs. These are giant packages of subprime-mortgage securities and derivatives that are bundled together and sold off in slices to investors around the world. The investments came with names like Orion, Aquarius, Scorpius, Carina and Sagittarius and were managed by third-party money managers. In all, roughly $30 billion of these constellation CDOs were issued from mid-2006 to mid-2007, with Magnetar as their lynchpin investor.
Even as it helped to spawn CDOs that would later wrack Wall Street with painful losses, Magnetar, which has around $9 billion in assets, itself made a tidy profit. Its funds returned 25% across a range of stock and debt strategies last year, thanks largely to the way it hedged these trades.
Its trading highlights the important role some hedge funds played in the great debt unwind that is now plaguing financial markets. Many hedge funds realized early on “that the loans and securities that went into CDOs were extremely toxic, and they designed structures to exploit that,” says Janet Tavakoli, a structured-finance consultant.
I believe SAS eluded to this over the weekend.
China is quietly revaluing the yuan
By Richard Spencer in Beijing
Last Updated: 1:27am GMT 10/01/2008
The People’s Bank of China may at last be substantially revaluing its currency – even if officially it has told no-one.
# Richard Spencer: What China is doing with its trillion dollars
# Ambrose Evans-Pritchard on the international economy
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Dramatic changes in recent months and especially the last week in the crawling dollar peg the central bank sets for the renminbi (RMB) are leading to big cumulative shifts in its rate.
The changes this month alone would see a 15pc-16pc hike on an annualised basis, and markets are starting to estimate that the gain may be as much as 9pc over the year.
That would bring the total change since the government abandoned the fixed peg in July 2005 to nearly 20pc.
The move may have striking repercussions for a global economy in which China’s currency policies have often come under fire for creating liquidity imbalances, but which is now also fighting the threat of higher prices.
Most analysts say fear of domestic inflation is the prime reason for a policy change.
The consumer prices index rose 6.9pc in November, up from 6.5pc, despite government hopes that inflation had peaked. It blamed big rises in food prices, but there are also signs that inflation is creeping into the wider economy.
Growth last year hit an estimated 11.5pc, while largely because of its huge and fast-rising trade surplus, China’s foreign exchange reserves rose to just shy of $1,500bn (£760bn).
“Our take was always that the RMB was the last trick in the box in terms of balancing the trade surplus,” said Stephen Green, head of research in China for Standard Chartered, which last week raised its predicted rise for the RMB over the year to 9pc.
It sees the trend continuing into 2009, with the RMB ending next year at a rate of 6.17 to the dollar, compared to 7.27 now and 8.26 when the fixed peg was dropped.
“There were two triggers – domestic inflation and (the threat of) US protectionism,” Mr Green said. “In the last three months inflation has moved to the top.”
The government attempts to sterilise its attempts to buck the exchanges by selling renminbi bills. But with RMB rises to date having seemingly little effect on the surplus, this is a limited solution.
It sold 5bn RMB in short-term bills yesterday, but has more than a trillion RMB’s worth (£69.7bn) due to mature over the course of this month alone.
Some analysts believe the government will be forced to turn to shock therapy, announcing a major one-off revaluation. It is possible the faster rise is having a perverse effect, attracting hot money leading to greater investment, exports and surpluses.
But much will depend on the American and European economies.
Despite revaluation efforts so far, the pace in the fall of the dollar on the international markets has been such that the renminbi has continued to decline against the euro, by 9pc last year.
If the dollar halts or even reverses its slide, the People’s Bank could decide to slow the revaluation, or look at the wider basket of currencies – while still making industrial strength and employment stability its number one priority.
Song Guoqing, professor at the China Centre for Economic Research at Beijing University, said the government regarded a 5pc revaluation against a basket of currencies as “very high” – in other words, that it would have a destabilising effect on exporters.
“Two to three pc appreciation of renminbi basically has little influence on China’s economy,” he said. “If it were more than 10pc, then the effect would be clearly visible.”
From MarketWatch:
Citigroup write-offs could reach $24 billion: report
Citigroup may write off up to $24 billion over subprime- and credit-related losses, putting as many as 20,000 jobs at risk, according to a published report on Monday.
From CNBC:
Citigroup could write down as much as $24 billion due to subprime and credit-related losses, CNBC has learned. In addition, an estimated 20 thousand layoffs will be part of a comprehensive plan to slash costs and raise capital.
The plans will be unveiled Tuesday, when it reports fourth-quarter earnings. At the same time, Citigroup could also announce that it is cutting its dividend payment.
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From the FT (hat tip CR):
This is not merely a subprime crisis
this had been a mere subprime crisis, it would now be over. But it is not, and nor will it be over soon. The reason is that several other pockets of the credit market are also vulnerable. Credit cards are one such segment, similar in size to the subprime market. Another is credit default swaps, relatively modern financial instruments that allow bondholders to insure against default. Those who such sell such protection receive a quarterly premium, based on a percentage of the amount insured.
JB,
Congrats on the Herald News. It should have remained the top post for the day. It’s already buried. Many did not see this, with the Giants yesterday. Back to the top! More to come later. A little busy right now.
Kudos to you.
[8],
One other thing. My 2008 prediction was that cds would be the new buzz word. Anybody worried about counter party risk?
There was a Trenton revitalization going on? I hadn’t noticed.
test
There are many revitalization projects under way in Trenton, Ann, including the completed Broad Street Bank building, The Cracker Factory, and other potential projects. You can read about a couple of them below. Maybe you haven’t noticed because you are afraid to cross the river? The gangbanger perception is bogus.
http://www.bsbbuilding.com/index.htm
http://www.trentonferry.com/