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bkkandrew

Another bailout for Bank of America:

Bank of America (BoA) could receive an additional bailout of billions of dollars to stave off the impact of Merrill Lynch’s fourth-quarter losses, after the closure of a deal between the two banks.

The bank said in September that it would pay $50 billion in shares for Merrill Lynch, the Wall Street bank that was struggling with huge credit-related losses. The deal saved Merrill from the same fate as Lehman Brothers, which went bust on the day the takeover was announced.

However, BoA is thought to have warned the US Treasury in December that it would not close the deal because of the danger from Merrill’s larger-than-expected fourth-quarter losses. Desperate for the transaction to go through, the Treasury is believed to have agreed to protect BoA from Merrill’s losses, possibly via a cap on the amount of red ink that the bank would have to absorb because the Government stepped in to take responsibility for the remainder. BoA took ownership of Merrill on January 1.

BoA has already received $25 billion from the Government’s $700 billion Troubled Assets Relief Programme (Tarp), including $10 billion that Merrill would have received had their deal not gone through.

The details of the rescue plan have not been finalised but are expected to be announced when the bank reveals its fourth-quarter figures on January 20. It is not clear how large Merrill’s losses for the last three months of the year will be, while analysts are divided over whether BoA will report a loss or a smaller-than-expected profit. BoA yesterday declined to comment on the possibility of a further bailout.

The Treasury has used the first half of the Tarp and the President-elect, Barack Obama, has asked Congress for access to the remaining $350 billion. But lawmakers are reluctant to release the cash without guarantees that it will be used to help homeowners and give a boost to the economy.

Taxpayers have been angered by the paucity of strings attached to the handout of the first $350 billion, while the banking sector has refused to account for how it spent the cash.

Bank of America may get extra aid for Merrill Lynch losses - Times Online

Its only money anyway...

bkkandrew

I will post a fuller article re. Irish banks, but I would urge anyone with deposits to remove them ASAP. The rationale is that, without their Government support, they would be bust. However, just like Iceland, the deposits they are guarenteeing are in Sterling and Euros, neither of which it can print to make good on the guarentee. Add to that the fact that they are seeking an IMF bailout (see yesterday's FT) and there is a very real chance that you will lose your funds. A silent run on Irish banks is already happening, so time is of the essence...

Spin

^ All these "big" US banks have had to move their earnings release dates forward so they dont cloud Obamaday with depressive news. JPM are out today, they were scheduled for next tuesday.

bkkandrew

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Cold facts of how we could be 'Iceland inside the euro'


Wednesday January 14 2009


Could the unthinkable come to pass here? Could Ireland default on its sovereign debt? The answer is yes. Such a disaster is now quite possible. In the same way as a family can end up losing the house, the car, everything, a country, too, can fail to make its repayments. At the moment, such thoughts are heresy; but so, too, was questioning the property boom a mere four or five years ago.

Back in 2003 or 2004 when people questioned the property boom and its driver, the debt splurge by the bankers, we were ridiculed and dismissed. We were labelled mavericks. We were told that it was "dangerous" to even suggest such things because we might "talk down the economy".

I remember being labelled "unpatriotic" by a politician in 2004 following an appearance on 'Prime Time' when I described the property market as a "scam" operated by "an unholy alliance of bankers and property developers".
We now know that this is exactly what it was, it was a scam perpetrated by a small minority who made fortunes, aided and abetted by a frenzied population caught in a mania and presided over by Fianna Fail. It is extraordinary that the party which lays claim to the Rising, could end up advocating property purchases in Bulgaria using borrowed money as the highest form of national patriotism, but that's where we got to!

So the moral of that tawdry story is that "thinking the unthinkable" while not popular, is necessary. If we are forewarned, we are forearmed. Make no mistake about it; it is entirely possible that Ireland will default on its sovereign debts. We are hurtling in that direction. Foreign investors are on notice and last week, they demanded a huge interest rate premium from Ireland before they gave us cash. We paid 4.7pc to borrow money on Thursday last. In contrast, Germany paid 3.2pc. This implies an Irish interest rate premium of over 40pc for two states that are in the same currency union. So lenders are worried that Ireland will not be able to pay its way.

More here, including a very funny cartoon:

Cold facts of how we could be 'Iceland inside the euro' - Analysis - Independent.ie

bkkandrew

And from the same article:

Now, Anglo Irish is just one of the big three banks in trouble. Ireland's GDP was just €190bn in 2007 and in 2009 it will be far less (Dell pulling out last week reduces GDP by 6% alone).

I saw a joke somewhere:

What's the difference betwen Iceland and Ireland?

One letter and 12-months.

Spin

Carnage in the US right now for bank shares Citigroup at record low of 3.36$ per share. Bank of America at 7.70$.
Loads of rumours abound, the bailouts need bailouts again.

Citygroup, too big to fail, too big to save.

bkkandrew

^Yep, we are on course for the rout that I have been talking about. Citi is the key, but BoA alone will bring the whole system down. Not long now. I do hope people protected themselves...

Spin

^Yep Hedged up to my eyeballs these days.

britmaveric

Great time to invest in Citi and BOA!!!

bkkandrew

^Oh yes, the US taxpayers will be doing lots of that. Don't think they will get a say in the matter though.

bkkandrew

^The frightening thing is that all the banks are bust way before we have got anywhere near bottom:

http://www.usatoday.com/money/econom...-filings_N.htm

bkkandrew

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BoA gobbles up another $20BN + $120BN guarantees. Oh - and those guarantees will be called on, that's for sure.

Full article:

Senate frees $350bn of bailout fund as shares slide - Times Online

Spin

^ Interesting that BAC get the 130bn on the day they report earnings, coincidence of course

bkkandrew

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£200bn to save banks from bad debt


The taxpayer will be forced to underwrite up to £200 billion of bad banking debt under a government plan to take control of assets belonging to Britain's major high street lenders, The Daily Telegraph can disclose.

By Katherine Griffiths and Andrew Porter
Last Updated: 11:30PM GMT 16 Jan 2009

In an attempt to restore confidence within the financial sector, the Treasury will tell the banks of its plan on Saturday. It aims to announce details of the rescue package publicly early next week.

The bad bank plan has climbed the political agenda in the past couple of weeks as the Government has become aware of the extent of the lenders' bad debts.

Sources said that a bad bank would have to take on about £200 billion of toxic assets. That would take the Government's total commitment to solving the banking crisis to almost £1 trillion in taxpayers' money that has either been spent or pledged.

That equates to about £33,000 per taxpayer. The total sum is equivalent to more than two-thirds of Britain's annual GDP of £1.4 trillion.

Full article here:

£200bn to save banks from bad debt - Telegraph

Second bailout in UK, only on the second half of the first one Stateside. Their lagging behind them Merkins are!

bkkandrew

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Jan. 17 (Bloomberg) -- Banks in Illinois and Washington state with $769 million in deposits were closed by regulators, the first failures this year as a deepening recession and record foreclosures extend the housing slump into a third year.

National Bank of Commerce in Berkeley, Illinois, with $430.9 million in assets and $402.1 million in deposits, was shut yesterday by the Office of the Comptroller of the Currency, and Bank of Clark County in Vancouver, Washington, with $446.5 million in assets and $366.5 million in deposits, was closed by state regulators. The Federal Deposit Insurance Corp. was named receiver for both.

More here:

Bloomberg.com: Worldwide

Interestingly, some interesting numbers from the latter part of the article:

Note - Sept 30 was before all the BIG bank failures that cost the FDIC dear - IndyMac et al...

Then:

Hmmm, a few billion left out of the 34.6 into 13.6TRILLION doesn't really, er, go..

And then we have their own (wildly optomistic) forcast:

All in all, complete Alice-in-Wonderland figures. Anyone who thinks that they have funds to cover deposits in Citi or BoA is a moron.

bkkandrew

Arnie on the verge of Termination:

California controller to suspend tax refunds, welfare checks




John Chiang announces that his office will suspend $3.7 billion in payments owed to Californians starting Feb. 1, as a result of the state's cash crisis. Student grants are also affected.

Reporting from Sacramento -- State Controller John Chiang announced today that his office would suspend tax refunds, welfare checks, student grants and other payments owed to Californians starting Feb. 1, as a result of the state's cash crisis.

Chiang said he had no choice but to stop making some $3.7 billion in payments in the absence of action by the governor and lawmakers to close the state's nearly $42-billion budget deficit. More than half of those payments are tax refunds.

The controller said the suspended payments could be rolled into IOUs if California still lacked sufficient cash to pay its bills come March or April.

"I take this action with great reluctance," Chiang said at a news conference in his office. But he said that without action to close the deficit, "there is no way to make it through February unscathed."

The payments to be frozen include nearly $2 billion in tax refunds; $300 million in cash grants for needy families and the aged, blind and disabled; and $13 million in grants for college students.

California controller to suspend tax refunds, welfare checks, student grants - Los Angeles Times

bkkandrew

Another hedge fund bust, boss does a bunk (at least his name wasn't Made-off or fund called Grabit & Scarper...)

Sarasota Fund Manager, Possibly $350 Million, Gone

Panda

California rates among the tenth biggest economies in the world and its broke,-- bankrupt. So far in debt it is unable to pay its citizens even basic entitlements like welfare benefits and tax refunds. Pity they dont have their own currency or else they could print money and borrow their way out of debt.

bkkandrew

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Trichet Vision Unravels as Italy, Spain Debt Shunned (Update1)



By Emma Ross-Thomas


Jan. 16 (Bloomberg) -- European Central Bank President Jean-Claude Trichet’s vision of economies converging behind the shield of a shared currency may be unraveling.

The gap between the interest rates Spain, Italy, Greece and Portugal must pay investors to borrow for 10 years and the rate charged to Germany has ballooned to the widest since before they joined the euro. The difference may grow further as Europe’s worst recession since World War II hurts budgets and credit ratings across the region.

Diverging bond yields hurt Trichet’s argument that the ECB’s inflation-fighting mandate ushered in an era of stability for nations that once suffered rampant price growth. They also make it tougher for the ECB, which cut its key rate to a record yesterday, to set one benchmark for all 16 euro nations. That may delay recovery as governments try to fund stimulus plans.

“It will act as an additional braking mechanism on these economies,” said Julian Callow, chief European economist at Barclays Capital in London. “For the ECB it makes it harder to determine the future evolution of the economy.”

Trichet has asserted that the ECB, which was modeled on the Bundesbank, and the prospect of euro membership helped some nations import the credibility built up by Germany in the decades after World War II. In May, Trichet said the euro prompted a “convergence of market interest rates” to the level set by “the most credible national currencies” before monetary union.

Bond Yields

The yield on Spain’s 10-year bond averaged 8.5 percent in the six years before it joined the euro and the gap with the equivalent German bond was 246 basis points. In the next eight years, the average yield fell to 4.5 percent and the spread to 13 basis points.

That convergence is now being thrown into reverse. In the past week, Standard & Poor’s has downgraded Greece’s credit rating, and those of Portugal and Spain are also under threat.

The difference between the Spanish and German 10-year bonds rose to 115 basis points today, the highest since 1997. The spread on Italy’s bond was also the most in 12 years and the Greek spread was the most since 1999.
Investors are becoming more discerning about who they lend to as shrinking economies force governments to increase budget deficits. Greece’s shortfall may widen to 3 percent of gross domestic product next year, Ireland’s to 7.2 percent and Portugal’s to 3.3 percent, the European Commission said in November. Standard & Poor’s said Jan. 12 that Spain’s deficit could top 6 percent this year.

Toll on Currency

The worsening economic outlook is pushing the euro lower. The currency has lost 6 percent against the Swiss franc, 4 percent versus the yen and 4 percent compared with the dollar in the past month. It has declined 8 percent versus the pound since Dec. 30, when it reached an all-time high of 98 pence.

As well as spoiling Trichet’s dream of a more-united European economy, the differing borrowing costs mean rate cuts will have a more uneven impact across the region and restrain recoveries in some countries.

Trichet said yesterday officials were “observing the market spreads,” which were related in part to the broader financial market turmoil. The widening spreads underlined the importance of governments keeping within European budget rules, he said.

The ECB cut its main rate by a half point to 2 percent yesterday, which matches the record low set between 2003 and 2005. Trichet told Japanese broadcaster NHK in an interview broadcast today that while the bank is likely to cut interest rates further, it will not reduce the benchmark to zero.

‘Question Mark’

“There is a question mark about a much more patchy upswing,” said Ken Wattret, senior economist at BNP Paribas SA in London. “The divergence of economies will continue to raise questions about whether monetary union is functioning.”

That last debate has received a fresh airing among those who question whether the single currency is ultimately sustainable without a common fiscal policy. Harvard University economist Martin Feldstein, who was skeptical of the euro from the start, said in November that diverging bond yields suggest investors “regard a breakup as a real possibility.”

While part of the recent trading may amount to a bet the bloc will splinter, the probability remains “very, very small, given the political will and the perceived complications of someone leaving,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London.

‘Inconceivable’

Spanish Finance Minister Pedro Solbes said Jan. 13 the idea of a country leaving the euro zone was “inconceivable.” Italian Finance Minister Giulio Tremonti said yesterday the euro project was “totally sustainable.”

Continued here:

Bloomberg.com: Exclusive

I earlier said that there was a 25% risk of Euro break up. I believe it to be nearing 50:50 now. When any politician/banker says something is "Inconceivable", it usually means it is, in fact, inevitable...

bkkandrew

A cartoonist's view of action to prevent the bankruptcy in the UK: