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My collection of financial news for the last 10 days.
It’s been at least 8 months, since all of the media outlets started featuring articles on the demise of residential real estate on their front pages.
The mortgage crisis, foreclosure rate, plummeting of home values, financial institutions loosing funds…the picture is getting bleaker. Every bit of the information in this venue is being picked up and splashed all over the news sections.
On November 20th, Bloomberg reported: “The worst housing slump in 16 years.” Last week, Wells Fargo & Co. Chief Executive Officer, John Stumpf, said the housing market was the worst since the Great Depression. Banks and securities firms worldwide have already reported about $50 billion in losses from sub-prime mortgages, loans given to borrowers with weak credit, that have been defaulting at a record pace. The total damage may reach $400 billion, according to Deutsche Bank analysts.
Merrill Lynch & Co., the world’s largest brokerage, on Oct. 24 reported $8.4 billion of write-downs on mortgage-related investments and corporate loans. Citigroup Inc., the largest U.S. bank by assets, said this month it may have to write down $11 billion more in sub-prime mortgage-linked securities.
Freddie Mac’s $713.1 billion portfolio as of September included $105 billion of securities backed by sub-prime mortgages.”
This article is here: www.bloomberg.com
Then on November 21, Bloomberg reported
“Home prices fell in one third of U.S. cities last quarter as stricter lending standards caused a 14 percent decline in sales nationwide.
Prices dropped in 54 of 150 metropolitan areas in the third quarter and the median sales price tumbled 2 percent nationwide, the National Association of Realtors said today. Home sales, including single-family properties and condominiums, slid to 5.42 million at an annualized pace from 6.29 million a year ago.” You may read this article here:
www.bloomberg.com
So, how does it ricochet to the banks?
On November 19th I found this info concerning Citibank:
“Goldman Sachs estimated the bank will take as much as $15 billion in write-downs over the next two quarters, and recommended selling the stock.”
Here is the article:
money.cnn.com
So, on November 20, we see the following: “Federal Reserve policy makers lowered their growth forecast in October and expressed concern about credit-market losses, even as they described the interest- rate cut as a “close call.”
Here is the article:
www.bloomberg.com
And here comes the big help.
From Bloomberg reports: “The Federal Reserve will provide funds for banks to borrow in an attempt to forestall any cash shortages at the end of the year”
www.bloomberg.com
Nevertheless, banks are still searching for a savior.
“Nov. 26 (Bloomberg) — Citigroup Inc., the largest U.S . bank, is reviewing ways to cut costs as it seeks a new chief executive officer and grapples with mortgage write-downs that may lead to the first quarterly loss since at least 1998.”
www.bloomberg.com
Citibank, suffering the worst losses among financial institutions, finds the way to ease the pain. That’s what they did:
“Nov. 27 (Bloomberg) — Citigroup Inc., the biggest U.S. bank by assets, will receive a $7.5 billion cash infusion from Abu Dhabi to replenish capital after record mortgage losses wiped out almost half its market value…With the purchase of a 4.9 percent stake, Abu Dhabi, the largest emirate in the United Arab Emirates and its capital, would rank as Citigroup’s largest shareholder”.
For additional details read an article in full here:
www.bloomberg.com
What happens to other banks?
As the fall everywhere, including Europe, continues, banks are taking a hit. Some get lucky. Richard Branson came to the rescue here: “Virgin’s offer - which has been backed by the Treasury - includes an immediate repayment of £11bn out of the £25bn the bank owes the Bank of England…If big Rock investors, which include hedge funds RAB Capital and SRM Global, are unhappy with the terms offered by the Virgin consortium and resist the deal, it could be nationalized or be taken into administration.” Many interesting questions are asked in the article here:
news.bbc.co.uk
Meanwhile, some people see the situation, analyze it without hoping for the best, apply the knowledge and the brain, and “A Californian hedge fund has made a return of more than 1,000 per cent this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.
Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil.” On time. As reported on November 26, 2007 by Financial Times.
See it here: www.ft.com
There is one thing I am still trying to find a correlation in this dour situation: what’s going on with the expensive commercial real estate?
On November 14, 2007 this report was delivered by Cushman and Wakefield,
“An average 1,000 sq ft/93 sq m unit on at Fifth Avenue’s most expensive stretch, along the golden corridor between the junctions with 49th and 59th Street, now costs around $1.5 mln a year, up 11 per cent on last year.” Read the report here:
www.cushwake.com
Then, this showed up on November 21, 2007:
“Midtown Manhattan was the most expensive North American market, with rents averaging $100.79 a square foot, the 12th-highest worldwide. Downtown New York ranked 46th globally at $53.47…Eighty-five percent of the 171 cities included in the survey saw rental increases in the year ended Sept. 30, …This bodes well for investment returns…”
Here is the article:
www.bloomberg.com
As I understood from this report, commercial real estate, retail commercial in fact, experiencing a substantial rise.
From what I see, the price on designer’s clothes sold in the upscale stores is skyrocketing, too. And getting sold. According to the November 6th article by “The Independent”, luxury goods rising in price three times faster than their more mundane consumer counterparts.”
news.independent.co.uk
The question arises: “Where is the money?” Does it mean, the affluent among us know how to manage their funds and when to accept or decline zero per cent invitations, and how to evaluate any lucrative, at the first glance offer? Seems, that most of the population managing their money right, too.
Or the financial institutions lost their “sense of smell” and sense of danger, and are following each other on the road to a deep canyon, because they rest in the safety of knowledge that they will be rescued anyway?.. And some even with the golden parashute.
And how it all will affect us, mere mortals?
