Treasuries headed for the worst year in at least three decades as the U.S. stepped up debt sales to help spur growth in an economy recovering from the biggest slump since the Great Depression.

The current seven-year note was little changed after a $32 billion of sale of the debt drew a yield of 3.345 percent, compared with an average forecast of 3.372 percent in a Bloomberg News survey of four of the Federal Reserve’s 18 primary dealers. U.S. government securities have fallen 3.6 percent this year, according to Bank of America Merrill Lynch indexes, the worst performance since 1978.

“Sevens came in well enough given the environment, year- end, lack of liquidity; things could have been much worse,” said Christopher Sullivan, who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York. “Given the fact that short-term rates are exceedingly low, there’s been a grab for yield a little bit farther out the yield curve.”

The yield on the current seven-year note fell one basis point, or 0.01 percentage point, to 3.30 percent at 4:11 p.m. in New York, according to BGCantor Market Data. The 10-year note yield slipped one basis point to 3.79 percent, and the yield on the 30-year bond dropped three basis points to 4.61 percent.

Source/Full Story: Bloomberg.com

Bank of America Corp., UBS AG and JPMorgan Chase & Co. were sued by a California public utility over claims they rigged sales of municipal derivatives and shared illegal profits through kickbacks.

The lawsuit, filed by the Sacramento Municipal Utility District, is based on federal and state antitrust claims. It alleges Charlotte, North Carolina-based Bank of America and more than a dozen other banks conspired to pre-select winners of municipal derivative auctions, coordinated their pricing, and accepted kickbacks disguised as fees from co-conspirators.

The allegations resemble those made by a U.S. grand jury in New York last month, according to the lawsuit filed Nov. 12 in federal court in Sacramento. CDR Financial Products Inc. founder David Rubin and two employees of the Beverly Hills, California- based company were indicted for allegedly accepting kickbacks on investments sold to local governments. CDR is also named as a defendant in the Sacramento case.

The banks engaged in “allocating customers and markets for municipal derivatives, rigging the bidding process by which municipal bond issuers acquire municipal derivatives, and conspiring to manipulate the terms that issuers received,” according to the lawsuit.

The charges against Rubin and the CDR employees were the first to result from a more than three-year investigation into bid-rigging in the municipal bond market. The probe is continuing and has already drawn in some two dozen banks, insurers and local government advisers.

Source/Full Story: Bloomberg.com

The US government is preparing to order bailed-out banks and car companies to slash the cash salaries of their top executives by an average of 90% in an effort to quell outrage over multimillion-dollar boardroom excess.

Kenneth Feinberg, the US treasury’s so-called pay tsar charged with vetting remuneration, intends to tell seven struggling firms still dependant on taxpayer dollars that their 25 highest-paid executives must accept severe year-on-year cuts. The biggest drops will be in salaries. But after taking into account bonuses, stock options and other elements, total pay packages are set to fall by an average of about 50%.

Feinberg’s power only extends to companies that are yet to repay government aid. The firms concerned include the struggling banks Citigroup and Bank of America, plus the insurer AIG.

Also on the list are the Detroit car manufacturers General Motors and Chrysler, and the car companies’ financing arms, Chrysler Financial and GMAC.

A mediation specialist formerly responsible for settling compensation claims for victims of the September 11 terrorist attacks, Feinberg has spent the last two months scrutinising pay proposals submitted by bailed-out businesses. His findings, due to be formally released within the next week, were leaked to US media yesterday.

Several individuals have already acquiesced to Feinberg’s will. Bank of America’s soon to retire chief executive, Ken Lewis, last week announced that he will forgo his $1.5m (£900,000) salary this year, under pressure from Feinberg.

Other ordinances will require any “frills” worth more than $25,000, such as country club membership, limousines or private aircraft, to be subject to government approval. And Feinberg is likely to insist on a division between the roles of chairman and chief executive.

Source/Full Story: guardian.co.uk
Technorati Tags: Kenneth Feinberg

President Barack Obama has “tremendous confidence” in Timothy Geithner, the US Treasury Secretary, even though he has spoken to executives from Citigroup, Goldman Sachs and other banks more than 80 times in his first seven months in office, the President’s spokesman Robert Gibbs said last night

A Freedom of Information request by Associated Press revealed that Mr Geithner had spoken most often to Lloyd Blankfein, having met or spoken to the chief executive of Goldman Sachs more than 15 times between January and July – a revelation likely to fuel conspiracy theorists who believe that the bank has an undue influence on Government policy.

Associated Press speculated that Mr Geithner’s closeness to the banks could be considered inappropriate given that his department oversaw the sector’s bailout with billions of dollars of taxpayers’ funds and plays a role in the banks’ regulation.

Mr Gibbs said: “Secretary Geithner is somebody who has helped steer the financial sector back to stability and has worked on a range of issues and will be heavily involved in regulatory reform as we go forward.”

Citigroup was the bank that had the most communication overall with the Treasury Secretary, usually via chairman Richard Parsons or chief executive Vikram Pandit.

The Government has a 34 per cent stake in Citigroup, which it bailout out with $45 billion, although President Obama has insisted that he does not want to take a hand in running the business.

Jamie Dimon, JPMorgan Chase’s chief executive, talked regularly to Mr Geithner, as did Larry Fink, chief executive of BlackRock, the fund manager that runs one of the Treasury’s public-private funds set up to buy toxic credit assets.

Bank of America, however, did not talk regularly to the Treasury Secretary, despite holding $45 billion in bailout funds. The bank is the subject of numerous investigations into its Government-sponsored takeover of Merrill Lynch last year.

Source/Full Story:  Times Online
Technorati Tags: Timothy Geithner, Lloyd Blankfein, Goldman Sachs

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.

Source/Full Story @: Bloomberg.com
Technorati Tags: Joseph Stiglitz

Citigroup and Merrill Lynch, which lost $55bn in 2008, between them paid 1,400 employees bonuses of $1m or more each, according to a New York state report, released on Thursday, on banks propped up with taxpayer funds.

The study, compiled by Andrew Cuomo, New York attorney-general, showed that JPMorgan Chase and Goldman Sachs, which both finished in the black last year, paid the most million-dollar bonuses – 1,626 and 953, respectively.

However, the totals at a profitable bank such as Goldman were nearly matched by two of the year’s biggest losers on Wall Street. Citi, which suffered a $27.7bn loss, paid million-dollar bonuses to 738 employees. Merrill, which lost $27.6bn, paid 696 bonuses of $1m or more.

…

JPMorgan, which earned $5.6bn in 2008, set aside a total of $8.7bn for bonuses. The report shows that JPMorgan paid out bonuses in excess of $3m to more than 200 employees The bank received $25bn in Tarp funds last year and paid the money back last month.

At Goldman, the bonus pool last year was $4.8bn, more than twice the $2.3bn it earned for the year. Goldman paid $3m or more to 212 employees. The bank paid back $10bn in Tarp funds last month.

Citigroup set aside $5.3bn for its bonus pool, and paid bonuses of $3m or more to 124 employees. Like Bank of America, Citigroup received a total of $45bn in Tarp funds in 2008 and has recently converted some of that funding into common equity.

BofA paid bonuses of $3m to 28 employees and million-dollar bonuses to 172. The Charlotte, North Carolina, bank reported a profit of $4bn in 2008 and set aside $3.3bn for bonuses.

Morgan Stanley earned $1.7bn last year and set aside $4.5bn for bonus payments. The firm paid bonuses of $3m to 101 employees and million-dollar bonuses to 428. Morgan Stanley received $10bn in Tarp funds last year, and paid back the money in June.

Among the other banks in Mr Cuomo’s report, Bank of New York Mellon paid 74 million-dolllar bonuses, Wells Fargo paid 62 and State Street paid 44.

Source/Full Story: FT.com

A group of the biggest U.S. banks said they would stop accepting California’s IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.

The development is the latest twist in California’s struggle to deal with the effects of the recession. After state leaders failed to agree on budget solutions last week, California began issuing IOUs — or “individual registered warrants” — to hundreds of thousands of creditors. State Controller John Chiang said that without IOUs, California would run out of cash by July’s end.

But now, if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. When the IOUs mature, holders will be paid back directly by the state at an annual 3.75% interest rate. Some banks might also work with creditors to come up with an interim solution, such as extending them a line of credit, said Beth Mills, a California Bankers Association spokeswoman.

Meanwhile, on Monday morning, a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce a result. Amid the budget deadlock, Fitch Ratings on Monday dropped California’s bond rating to BBB, down from A minus, the latest in a series of ratings downgrades for the state.

The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July.

Source/Full Story: WSJ.com

The people cried for a “king”, and now they have one…

President Barack Obama proposed the most sweeping overhaul of the U.S. financial regulatory system in 75 years, seeking to correct a “cascade of mistakes” that toppled major securities firms, froze credit markets and destroyed $26.4 trillion in stock market value around the world.

The proposal, much of which will be subject to approval by Congress, sets out the biggest overhaul of market rules in more than seven decades, adding an additional layer of regulation for the biggest firms. It would create an agency for monitoring consumer financial products, make the Federal Reserve the overseer of companies deemed too big to fail, and bring hedge and private equity funds under federal scrutiny.

“This was a failure of the entire system,” Obama said at a White House event that included the leaders of the Treasury, the Fed and other regulatory agencies. “An absence of oversight engendered systematic, and systemic, abuse.”

The announcement marks the beginning of what promises to be a political battle that’s likely to alter the president’s plan, with Republicans criticizing it as an expansion of government power over the economy. Obama, who has called the “sweeping overhaul” of regulations one of his top domestic priorities, said he wants to sign legislation by the end of the year.

The administration’s proposal comes after a year of shocks on Wall Street and a credit crunch that contributed to the worst U.S. recession in half a century. Since September, the government has been forced to spend billions of dollars bailing out such firms as Citigroup Inc., Bank of America Corp., American International Group Inc., General Motors Corp. and housing finance companies Fannie Mae and Freddie Mac.

Source/Full Story: Bloomberg.com

The New York Stock Exchange said on Friday it had restored connectivity that halted trades in about 240 companies, including Dow components General Electric, Exxon Mobil Corp, Bank of America and Merck.

Ray Pellecchia, spokesman for NYSE Euronext , the world’s top exchange operator, said the exchange was not planning on canceling trades in the affected stocks.

“Everything has reopened for trading,” said Pellecchia, adding connectivity was restored around 12:10 p.m. EDT.

Source/Full Story:: Reuters

Ten of America’s largest 19 banks need a combined $74.6bn (£50bn) of extra funds to boost their cash reserves.

That is the main finding of the so-called “stress tests” to see if the banks have sufficient capital to cope should the recession worsen.

Bank of America is the most at risk, needing an additional $33.9bn.

Other banks that need more money include Wells Fargo, which is said to require $13.7bn, and GMAC, the financial arm of General Motors, which needs $11.5bn.

Citigroup requires an additional $5.5bn of funds, and Morgan Stanley has been told to find $1.8bn.

Some of the banks have already indicated how they intend to raise the money they need by private means such as asset sales, rather than having to secure any additional government loans.

BBC NEWS

Uh huh…

The Federal Reserve is postponing the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.

The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as today, they said.

Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.

“Everybody understands they’ve got a tiger by the tail here,” said Mark Tenhundfeld, a senior vice president at the American Bankers’ Association in Washington. “If they don’t let him go gently, there will be a lot of mauling going on.”

The 19 firms include Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc., GMAC LLC, MetLife Inc. and regional lenders including Fifth Third Bancorp and Regions Financial Corp. The banks in the test hold two-thirds of the assets and more than half of the loans in the U.S. banking system, according to a Fed study released April 24.

Regulators are pushing higher minimum capital levels for the banks to determine whether they can survive a worsening recession.

Officials favor tangible common equity equal of about 4 percent of a bank’s assets and Tier 1 capital worth about 6 percent, according to people familiar with the tests of the largest 19 banks. Financial institutions received preliminary results and are being judged on whether they need more capital to ensure they stay above those levels. Earlier in the process, regulators discussed a TCE target of 3 percent, said two people with knowledge of the deliberations.

Source/Full Story::  Bloomberg.com

Asian stockmarkets fell sharply today after Bank of America pummelled hopes that the world economy had moved closer to a recovery.

Traders in Japan and Hong Kong were keen to offload shares, sending the Nikkei index dropping by more than 200 points, or 2.3%, to 8711.33, and the Hang Seng down by almost 600 points, a fall of 3.7%, to 15,168.80. Financial stocks and key exporters suffered badly, with HSBC, Sony and Mitsubishi leading the fallers.

Analysts said the sell-off was sparked by Bank of America, which reported yesterday that it has set aside $13.4bn (£9.2bn) to cover credit losses. The prospect of a surge in unpaid credit card bills, mortgage defaulters and commercial banking losses alarmed the markets, which had hoped that the worst of the crisis was behind them.

Despite BoA reporting first quarter profits of $4.2bn, its shares tumbled 24% yesterday, dragging the Dow Jones index down by 3.5%. With the FTSE 100 falling below 4000 yesterday, analysts believe that the stockmarket rally that began in early March may be over.

“Clearly the concern over the banking sector’s health affected Asia’s stance towards equities,” said David Buik of BGC Partners, who warned that the banking sector was still “far from out of the woods” despite BoA making a $4.2bn profit in the first quarter of 2008.

Source/Full Story::  guardian.co.uk

Source: Reuters

Credit card write-downs soared to record levels in February, representing an all-time high in the 20-year history of the Moody’s Credit Card Index, as job losses mounted, the rating agency said on Wednesday.

Credit card charge-offs, the write-down of uncollectable debt, advanced decisively to 8.82 percent in February, marking the sixth consecutive month of increases. The level, is more than 300 basis points higher than a year ago.

Sharp increases were experienced across several large issuers and have closely followed the surges in unemployment occurring over recent months, the rating agency said.

“We expect that the charge-off index will threaten double digits by the end of the year, in light of our expectation that the economy will worsen throughout the remainder of the year,” Moody’s said.

It predicts the charge-off rate index will peak at about 10.5 percent in the first half of 2010, assuming a coincident unemployment rate peak at 10 percent.

As deal performance continues to erode, the potential for additional rating actions increases, especially for the lower-rated subordinate tranches.

Despite the marked deterioration in collateral performance, Moody’s said it has placed under review relatively few of the card-backed notes from the industry’s largest credit card issuers. That’s due, in part, to the explicit support through additional credit enhancement that some issuers have provided to their related ABS programs.

HSBC, Bank of America, GE and Citibank have, or announced intentions to, come to the aid of their ABS transactions. Still, it said, collateral performance, especially the charge-off rate, is expected to continue to deteriorate.

Full Story

Source: Bloomberg.com

Stocks fell worldwide, sending the Dow Jones Industrial Average below 7,000 for the first time since 1997, and Treasuries rose after Warren Buffett said the economy is in “shambles” and American International Group Inc. reported a $61.7 billion loss.

Berkshire Hathaway Inc. retreated 5.9 percent after reporting the worst annual drop in book value since Buffett took control in 1965. HSBC Holdings Plc sank 19 percent after announcing a rights offering, driving down lenders such as Bank of America Corp. Exxon Mobil Corp. declined for a fourth day as oil tumbled 9.4 percent.

“The bear market has only begun,” Robert Prechter, the founder of Gainesville, Georgia-based Elliott Wave International Inc. who predicted the 1987 stock market crash, said on Bloomberg Radio. “I don’t see the clear weather yet.”

The Dow average decreased 214.65 points, or 3 percent, to 6,848.28 at 11:48 a.m. in New York. The Standard & Poor’s 500 Index dropped 3.4 percent to 710.21. Europe’s Dow Jones Stoxx 600 Index tumbled 4.8 percent, its steepest loss of the year. Treasuries rose as investors sought a haven, driving the yield on 10-year notes down to 2.92 percent from 3.01 percent.

The MSCI World Index of stocks in 23 developed nations fell 4.2 percent and dropped as low as 719.42, the lowest intraday level since the Iraq War began in March 2003. The MSCI Emerging Markets Index slid 4.5 percent, while Hungary’s forint dropped after European Union banks

Full Story

Source: Bloomberg.com

Bank of America Corp., the largest U.S. bank by assets, posted its first loss since 1991 and cut the dividend after receiving emergency funds from the government to support the acquisition of Merrill Lynch & Co.

The fourth-quarter loss of $1.79 billion, or 48 cents a share, compared with net income of $268 million, or 5 cents, a year earlier, the Charlotte, North Carolina-based company said in a statement today. Citigroup Inc. analyst Keith Horowitz estimated on Jan. 11 that Bank of America would post a $3.6 billion loss.

The loss, coupled with the government lifeline of $138 billion, raises doubts about the future of Chief Executive Officer Kenneth D. Lewis, who engineered the takeovers of unprofitable New York-based brokerage Merrill and ailing mortgage lender Countrywide Financial Corp. during the worst market slump since the Great Depression. Bank of America has plummeted 75 percent in New York trading since the Merrill acquisition was announced in September, falling to the lowest level in almost two decades.

“This thing is unraveling so fast Lewis may know his job is lost,” said Paul Miller, an analyst at Friedman Billings Ramsey Group Inc. in Arlington, Virginia, who has an “underperform” rating on Bank of America. The management team has “lost credibility,” he said.

The government said earlier today it will invest $20 billion in Bank of America and guarantee $118 billion of assets to help the company absorb Merrill and prevent the financial crisis from deepening. The agreement is part of a commitment to “support financial-market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement shortly after midnight in Washington.

Full Story

Technorati Tags: Bank of America