Despite the unorthodox moves by the Federal Reserves to open the federal lending window higher and make it available for more cash starved financial companies, not just banks, news comes today that Citicorp offered stock which raised 4.5 billion. "The sale [of stock today] represents about 3 percent of Citigroup's shares outstanding as of March 31. The world's biggest banks, grappling with more than $300 billion of losses on mortgages, bonds and loans, have sought new capital to stave off credit rating downgrades that might jeopardize client relationships and access to financing. Companies usually try to avoid forced stock sales because they dilute the earnings power of current shareholders.

"They need the additional capital," said Ben Wallace, an analyst at Grimes & Co. in Westborough, Massachusetts, which manages $800 million including Citigroup shares. "The dilution factor is a secondary concern these days." …

In total, the bank's capital raising has diluted current shareholders by about 20 percent, Wallace estimated."

Here is a link to the whole article: http://www.bloomberg.com/apps/news?pid=20601087&sid=aEdkikTTTWwA&refer=home

Michael

According to the S&P index, “the home price of 20 cities fell by 12.7 percent in February versus last year, the largest decline since its inception in 2001.” David Blitzer, chairman of the index committee at S&P said, “There is no sign of a bottom in the number” “noting that all 20 metro areas have declined for six straight months.”

The hardest hit states were Nevada, Florida and California facing foreclosure according to the 1Q results from RealtyTrac. “What would normally alleviate the foreclosure situation in a normal market is people starting to buy properties again," said Rick Sharga, RealtyTrac's vice president of marketing.”

“However, the unavailability of loans for people without perfect credit and a significant down payment is slowing the process, he said.

It's a cycle that's going to be difficult to break, and we're certainly not at the breaking point just yet," Sharga added.

The surge in foreclosure filings also suggests that much-touted campaigns by lawmakers and the mortgage lending industry aimed at helping at-risk homeowners aren't paying off.”

You can read the full articles regarding home prices and the growing foreclosures at:
http://biz.yahoo.com/ap/080429/home_prices.html?.v=4
http://biz.yahoo.com/ap/080429/foreclosure_rates.html?printer=1

Michelle

“U.S. bank failures could be on the rise as a weakening economy puts pressure on badly underwritten loans.” John Dugan, who is the comptroller of the currency for about 1700 national banks, said “the growing problems for lenders follows a period of almost four years in which no institution regulated by its agency had failed.” Dugan said “it is a natural consequence of the economy going from historically exceptionally benign credit conditions to something that is more normal to something you would get in a downturn.”

Mr. Dugan’s comments come at a time when U.S. banks report big spikes in expected losses on consumer and small business loans. “The largest U.S. banks, including Citigroup and Bank of America, have seen loan losses increase as more consumers fall behind on home equity, credit card, automotive and other consumer loans.” However, Mr. Dugan said he did not “expect failures to rise as high as during the late 1980’s when 534 banks failed in 1989 alone”. He said that “banks are now better capitalized, have better underwriting standards and did less speculative lending than during the late 1980’s and early 1990’s.”

Here is the link to the full article:
http://www.ft.com/cms/s/0/c4e0c530-10b1-11dd-b8d6-0000779fd2ac.html?nclick_check=1

Yameena

Rep. Barney Frank and Sen. Chris Dodd “calls for up to $300 billion in loan guarantees from the Federal Housing Administration to refinance loans that homeowners can't afford as long as the original lender reduces the principal on the loan to 85% of the home's current market value.”

“Backers say borrowers would get out from under unworkable debt and original lenders would get back more than they would foreclosing. It would also prevent 1.5 million foreclosures and halt home-price declines since it would keep more houses from flooding an already battered market.”

A Yale economist, Robert Shiller “thinks the plan will do little to stop the slide in housing prices.”

“Shiller notes that prices shot up 85% when adjusted for inflation from 1997 through mid-2006 and have fallen only about 15% since then.

Shiller adds that when compared to measures such as rents and household income, housing prices are still out of equilibrium.”

In addition, the FHA would be left with a large portfolio of loans backed by houses worth less than the mortgage. In other words, instead of banks facing foreclosure risk, the government (and hence taxpayers) would be on the hook for billions of dollars in bad loans.”

Here is a link to the full article:
http://money.cnn.com/2008/04/22/news/economy/housing_rescue/index.htm

Michelle

Now that foreign governments (through their funds usually called sovereign wealth funds) have come to the financial rescue of the big banks and brokerage firms, like Citigroup, Merrill Lynch and Morgan Stanley, it has become necessary to also recapitalize the smaller US banks as the credit crisis widens. Today, a privet equity form is investing 7 billion in the 10th largest US bank, National City Corp..

Quote:
"Like many regional lenders, National City, which is based in Cleveland, Ohio, has been hard hit by mortgage losses. The bank lost $333m in the fourth quarter.

The National City deal comes weeks after TPG led a $7bn recapitalisation for  Washington Mutual, the largest US savings and loan association, and only days after Wachovia announced plans to raise $7bn from shareholders.

Bankers and investors described the National City transaction as emblematic of the second wave of rescue finance deals that have followed the collapse of the US subprime mortgage market and the ensuing turmoil in global finance."

Here is a link to the entire article:
http://www.ft.com/cms/s/0/f0f7ba6e-0f28-11dd-9646-0000779fd2ac.html?nclick_check=1

Michael