Thread: A note of caution for those with deposits in US Banks

"Ten Wall Street banks have also agreed to set up a collateralized borrowing facility, and committed to fund for $7 billion each.

The banks are Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS. These banks have said they are committed to fund $7 billion each for a $70 billion collateralized borrowing facility.

The banks add that they are working together to assist in maximizing market liquidity through ongoing trading relationships, dealer credit terms and capital committed to markets. This will also facilitate the orderly resolution of OTC derivatives exposures between Lehman and its counterparties.

All ten banks say they all intend to use expanded federal reserve primary dealers credit facility this week. The banks say their actions reflect "extraordinary market environment"."

From:

Bloody Sunday: Wall Street Shaken by Lehman, Merrill, AIG - Financials * US * News * Story - CNBC.com

Ahh, the Sunday evening whip-round.

Originally Posted by bkkandrew

Also, Schedule 2 TSLF auctions will be conducted each week; previously, Schedule 2 auctions had been conducted every two weeks. In addition, the amounts offered under Schedule 2 auctions will be increased to a total of $150 billion, from a total of $125 billion. Amounts offered in Schedule 1 auctions will remain at a total of $50 billion. Thus, the total amount offered in the TSLF program will rise to $200 billion from $175 billion.

The Board also adopted an interim final rule that provides a temporary exception to the limitations in section 23A of the Federal Reserve Act. It allows all insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repo market. This exception expires on January 30, 2009, unless extended by the Board, and is subject to various conditions to promote safety and soundness.
Also, Schedule 2 TSLF auctions will be conducted each week; previously, Schedule 2 auctions had been conducted every two weeks. In addition, the amounts offered under Schedule 2 auctions will be increased to a total of $150 billion, from a total of $125 billion. Amounts offered in Schedule 1 auctions will remain at a total of $50 billion. Thus, the total amount offered in the TSLF program will rise to $200 billion from $175 billion.

The Board also adopted an interim final rule that provides a temporary exception to the limitations in section 23A of the Federal Reserve Act. It allows all insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repo market. This exception expires on January 30, 2009, unless extended by the Board, and is subject to various conditions to promote safety and soundness.

FRB: Press Release--Federal Reserve Board announces several initiatives to provide additional support to financial markets, including enhancements to its existing liquidity facilities--September 14, 2008

More liquidity - Paulson's hand hard down on the inflation pump.

Also, not good. Not good at all. Section 23A is what prevents the money held by a retail (i.e. high street) bank on behalf of its customers from being pissed away by an investment bank that is part of the same group. Normally an exemption has to be applied for and is subject to strict controls and limits. Now EVERY U.S. bank automatically gets one until January 2009.

This means that Bank of America can happily spend its depositors cash on propping up Merrills. Nice for you to know if you have a deposit account with BoA...

Also from the announcement:

"The collateral for the Term Securities Lending Facility (TSLF) also has been expanded; eligible collateral for Schedule 2 auctions will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged."

So, they can now exchange pure shite for the Term Securities Lending Facility. Nice. Wish I could empty the bins around Sukhumvit and present them to the FED in exchange for bags of cash too!

World Business Report on BBC TV now reporting that AIG needs $40BN from the FED to keep going. This was the largest insurance company in the world a week ago. They sponser Man Utd, remember................

No word from the FED yet.

And in the same program, presenter has just confirmed Lehman now formally in Chapter 11. Does anyone have any funds with them?

^^And, would you believe who the sponser was of the 'fill' segment was after World Business Report - AIG!!!

The link for the AIG $40BN

AIG Seeks $40 Billion Fed Bridge Loan, Times Says (Update1)

By Hugh Son
Sept. 14 (Bloomberg) -- American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion bridge loan from the Federal Reserve as it tries to sell assets, the New York Times reported.

Bloomberg.com: Worldwide

Originally Posted by bkkandrew

Ten Wall Street banks have also agreed to set up a collateralized borrowing facility, and committed to fund for $7 billion each.
The banks are Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS. These banks have said they are committed to fund $7 billion each for a $70 billion collateralized borrowing facility.

So the "collateral" they are using is what?

Toxic mortgate stuff?

^Correct.

I bet the markets will go up now

Anyway, Chapter 11 is reorg, and it's only the parent company if I am not mistaken, that is the Holdings company,

and some affiliate companies will not default on their obligations apparently and will go on as usual, they will be sold piece by piece however,

Originally Posted by Butterfly

I bet the markets will go up now

Wrong FTSE down 154 at time of posting. DOW futures at around -300 most of the day thus far.

Originally Posted by Butterfly

Anyway, Chapter 11 is reorg, and it's only the parent company if I am not mistaken, that is the Holdings company,

and some affiliate companies will not default on their obligations apparently and will go on as usual, they will be sold piece by piece however,

Try again. Have you read anything on the subject?

Originally Posted by Spin

Originally Posted by bkkandrew

Ten Wall Street banks have also agreed to set up a collateralized borrowing facility, and committed to fund for $7 billion each.
The banks are Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS. These banks have said they are committed to fund $7 billion each for a $70 billion collateralized borrowing facility.

So the "collateral" they are using is what?

Toxic mortgate stuff?

Equities as well. Nice summary from the WSJ:

Fed Expands Lending Facilities in Bid for Stability - WSJ.com

Fed Plans Expanded Lending Facilities

By JON HILSENRATH and SUDEEP REDDY
September 15, 2008


The Federal Reserve will expand its lending facilities in the wake of the likely demise of Lehman Brothers, taking a wider array of securities, including equities, as collateral for its loans, the central bank said late Sunday.

The move, another landmark step in the Fed's efforts to address the deepening credit crisis, are meant to calm markets as they head into one of the most perilous trading environments in decades with Lehman's massive market positions on the verge of being unwound. They also capped a dramatic weekend of brinksmanship with Wall Street. (Read the statement from the Fed.)

After the rescues of Bear Stearns, Fannie Mae and Freddie Mac, Fed and Treasury officials were determined to avoid bailing out another struggling financial firm. They drew the line at Lehman and stood their ground through a high-strung weekend of negotiations, insisting they wouldn't put public funds at risk to finance the rescue of another financial institution. The expansion of short-term lending facilities showed that while they were unwilling to back another bailout, they are still struggling to find ways to ensure broader market stability and are prepared to take new steps to do that.

After the collapse of Bear Stearns in March, the Fed said it would make short-term emergency loans to investment banks under a lending facility called the Primary Dealer Credit Facility. Late Sunday, the Fed said it would take a broader array of collateral from firms for the facility, including equities. Another facility, in which firms can swap risky securities for safe treasury bonds, was also expanded.

As of Wednesday, no firms had used the primary facility since July. But amidst the uncertainty created by the likely demise of Lehman Brothers and the possible takeover of Merrill Lynch by Bank of America, there could be a rush to borrow from the Fed as trading resumes Monday. Bankers say the unwinding of Lehman Brothers' many trading positions could create a large need for short-term funds.
Fed officials have been concerned for months about the resilience of a short-term secured lending market known as "repo" loans. It is the lifeblood of the brokerage industry, through which firms fund their day-to-day operations.

Repo lending is used by banks, brokers and hedge funds. Typically, a borrower hands over securities as temporary collateral for a loan. In normal times, the cheap funding is widely available.

"The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets," Fed chairman Ben Bernanke said in a prepared statement.

All along, U.S. officials have been caught in a bind. If they go too far to support markets, bankers could become conditioned to expect a rescue whenever they wobble. If they don't go far enough, the financial crisis could get even worse. "If I were at the Fed, I would be hoping for an opportunity to show the world that the Fed will not rescue every ailing institution but will let some go," said Douglas Elmendorf, a senior fellow at the Brookings Institution.

Lehman's collapse will send deep and painful ripple effects across the markets. The firm sat on $33 billion of commercial real-estate assets and $13 billion in residential mortgages at the end of August; a liquidation could mean forced sales of those and other assets, which could knock down the value of other firms' holdings.

Lehman is also deeply intertwined in many other markets -- most notably the vast market for credit-default swaps, in which it is a top-10 player. Even as they were holding the line about being involved in funding a rescue, Fed staff over the weekend were working with Wall Street credit traders to help sort through their positions with Lehman in this market. Officials also were involved in discussions about the sale of Merrill Lynch to Bank of America, which took place during the weekend of brinksmanship.

Fed officials have some confidence that they are better prepared to deal with the fallout from a failure than they were when Bear Stearns failed and the Fed arranged a shotgun wedding to J.P. Morgan Chase. The emergency lending facilities it set up after Bear could help cushion the blow to the market if Lehman now fails. But some areas, like swap trading, are still a huge source of uncertainty.

Market conditions until Friday had been mixed. The broader stock market so far has been relatively stable through this latest round of turmoil. But short-term lending rates such as the London Interbank Offered Rate, or Libor, are elevated relative to expectations for the Fed's benchmark federal-funds rate, but have been stable in recent weeks. Risk premiums on junk bonds also are back to levels they hit in March.

But trading Monday could change all of that, particularly in the credit-default-swap, or CDS, market, in which firms trade contracts tied to corporate default risks. It's an immense market that trades against $62 trillion worth of debt.

Officials worry that the collapse of an investment bank could send problems cascading through the financial system by way of through this market. The Fed has been pushing Wall Street to create a new clearinghouse to diminish that risk, but it isn't in place yet.

Sorting out Lehman's CDS positions promises to be difficult and time-consuming, because many of the contracts have different terms and maturity dates. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied.

Originally Posted by bkkandrew

Try again. Have you read anything on the subject?

yes, straight from the WSJ

Originally Posted by bkkandrew

Wrong FTSE down 154 at time of posting. DOW futures at around -300 most of the day thus far.

US Markets not open yet, there are the ones that make the pace, futures is only an indication, could reverse very quickly

we will have to wait and see, will probably open lower and might recover during the day

Originally Posted by Butterfly

Originally Posted by bkkandrew

Try again. Have you read anything on the subject?

yes, straight from the WSJ

The one I posted right above your post? Funny, thought you said that I never posted any articles of worth, now you are avidly reading them.

Anyway, from the article:

Lehman's collapse will send deep and painful ripple effects across the markets. The firm sat on $33 billion of commercial real-estate assets and $13 billion in residential mortgages at the end of August; a liquidation could mean forced sales of those and other assets, which could knock down the value of other firms' holdings.

and

Officials worry that the collapse of an investment bank could send problems cascading through the financial system by way of through this market. The Fed has been pushing Wall Street to create a new clearinghouse to diminish that risk, but it isn't in place yet.

Sorting out Lehman's CDS positions promises to be difficult and time-consuming, because many of the contracts have different terms and maturity dates. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied.

And you think that this means it is business as usual?

The BBC have TV pictures of all the Lehman staff at head office packing up their personal belongings and leaving 'for the last time'.

If you think that this is business as usual, then I would hate to work where you work!

Originally Posted by Butterfly

Originally Posted by bkkandrew

Wrong FTSE down 154 at time of posting. DOW futures at around -300 most of the day thus far.

US Markets not open yet, there are the ones that make the pace, futures is only an indication, could reverse very quickly

we will have to wait and see, will probably open lower and might recover during the day

And in the same vein, we could have the second coming to MC the party...

Shares fall as Lehman Brothers collapses

Posted 35 minutes ago
Lehman Brothers ... bankruptcy bid (Reuters: Brendan McDermid)

• Related Story: Lehman Brothers to file for bankruptcy
• Related Story: RBA injects $1.3b to ease market nerves

Investors on the Australian share market have been left stunned by the events in the US financial sector.
After falling as much as 2.7 per cent at one stage, the ASX 200 recovered slightly after investment bank Lehman Brothers announced their intention to file for Chapter 11 bankruptcy.
The index closed 1.8 per cent lower at 4,818.
The All Ordinaries index dropped 82 points to 4,875.
At about 5pm AEST, the Australian dollar was worth 82.04 US cents.
Earlier, Lehman's Australian arm was suspended from trading on the Australian share market because its brokers have backed out of their arrangements with it.
Gavin White, from broking firm City Index, says there are concerns about how Lehman's collapse will flow through the system.
"I think shock is probably understating it - the extent of what's happened overnight with Lehman Brothers," he said.
The ANZ's chief economist, Saul Eslake, says the collapse of the 158-year-old firm will result in an unwinding of the global credit crunch.
He says it sends a message to other firms hit by the sub-prime mortgage crisis that they will not receive a Bear Stearns-style handout from the US government.
"It may well be that the collapse of Lehman or AIG is something that has to occur in order to make it clear that Bear Stearns was a special case and it's not going to apply to everybody," he said.
"The US Treasury and the Federal Reserve simply don't have the balance sheet to provide $10 billion to everyone who thinks it might be helpful to avoiding corporate oblivion."
Another distressed Wall Street bank, Merrill Lynch, has been sold in a fire sale to Bank of America, as fears spread of a systemic meltdown of the global financial system.
Bank of America said it had agreed to buy Merrill Lynch in an all-stock deal worth $50 billion.
Meanwhile, the US Federal Reserve has convened emergency meetings with the heads of the world's major investment banks to try to find ways to minimise the fallout of Lehman's collapse.
Ten giant banks have set up a $US70 billion fund to try to stabilise the markets, while the US central bank is taking unprecedented steps to maintain liquidity.
But some experts still fear the collapse of Lehman could spark a run on other banks, potentially causing a catastrophic financial failure.

The MSM is talking about a "Market Meltdown" possibility.

Street scrambles as Lehman falls - U.S. business - MSNBC.com

In this link above there is info on and American Insurance company being...."restructered."

A forced restructuring of the world's largest insurance company, American International Group Inc., also weighed heavily on global markets as the effects of the 14-month-old credit crisis intensified.

AIG planning big spinoff

Nation's largest insurer will unveil restructuring effort on Monday as company races to raise cash and avoid credit downgrades.


By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 14, 2008
Market turmoil





NEW YORK (CNNMoney.com) -- American International Group, the nation's largest insurer, plans to unveil a restructuring plan as soon as Monday morning that will include selling off part of its business to raise desperately needed cash and boost investors' confidence, according to published reports.

AIG has been rocked by the subprime mortgage crisis, losing more than $18 billion in the past nine months, and faces the possibility of having its credit ratings cut if it does not raise capital soon.

And of course....the next logical step is too..........

The company, which is a component of the benchmark Dow Jones Industrial Average, is also said to have turned to the Federal Reserve for an emergency loan.

Entire:Reports say AIG planning big spinoff to raise capital - Sep. 14, 2008

Originally Posted by bkkandrew

If you think that this is business as usual, then I would hate to work where you work!

ok another example of you not reading or understanding the articles you are posting

Originally Posted by WSJ

Lehman said none of the broker-dealer subsidiaries or other subsidiaries of LBHI will be included in the Chapter 11 filing and all of the broker-dealers will continue to operate. Customers of Lehman Brothers, including customers of its wholly owned subsidiary, Neuberger Berman Holdings LLC, may continue to trade or take other actions with respect to their accounts, Lehman said.

and

Originally Posted by WSJ

The Lehman board authorized the filing of the Chapter 11 petition in order to protect its assets and maximize value, the firm said. In conjunction with the filing, Lehman intends to file a variety of first-day motions that will allow it to continue to manage operations in the ordinary course. Those motions include requests to make wage and salary payments and continue other benefits to its employees.

and

Originally Posted by WSJ

Lehman said it is exploring the sale of its broker-dealer operations and, as previously announced, is in advanced discussions with a number of potential purchasers to sell its Investment Management Division. Lehman said it intends to pursue those discussions as well as a number of other strategic alternatives. Neuberger Berman LLC and Lehman Brothers Asset Management will continue to conduct business as usual and will not be subject to the bankruptcy case of the parent company, and its portfolio management, research and operating functions remain intact. In addition, fully paid securities of customers of Neuberger Berman are segregated from the assets of Lehman Brothers and aren't subject to the claims of Lehman Brothers Holdings' creditors, Lehman said.

It would seem that LBH failure is also coming from its OTC operations, that is Swaps, Forwards, Customized Options and other derivatives that were engaged to protect and edge against different assets, notably MBS, CMOs and other asset backed securities.

Breaking up the company seems to be the only option at this stage, that will cleanup the books and it will make the recovery of those assets easier. Might not be as bad as it is reported.

Anyway, Chapter 11 is there to protect the corporation during restructuring.

^ Nice to see you two getting along nicley for a change

Anyways, Lehman and Merril are old news now and next up for slaughter is Washington Mutual who are rumoured to be in the same boat as Lehman and Merril in that they are not just illiquid but indeed, totally insolvent.

Are we headed into economic meltdown or is all this just an adjustment in the monetary system?

Originally Posted by raycarey

oh yeah...with this crowd, losses are socialized.

Indeed.

Profits are privatized; losses are socialized.


Only in America....if....you are.....rich.

dow futures at -392 before the bell

Originally Posted by Milkman

AIG planning big spinoff

Nation's largest insurer will unveil restructuring effort on Monday as company races to raise cash and avoid credit downgrades.


By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 14, 2008
Market turmoil





NEW YORK (CNNMoney.com) -- American International Group, the nation's largest insurer, plans to unveil a restructuring plan as soon as Monday morning that will include selling off part of its business to raise desperately needed cash and boost investors' confidence, according to published reports.

AIG has been rocked by the subprime mortgage crisis, losing more than $18 billion in the past nine months, and faces the possibility of having its credit ratings cut if it does not raise capital soon.

And of course....the next logical step is too..........

The company, which is a component of the benchmark Dow Jones Industrial Average, is also said to have turned to the Federal Reserve for an emergency loan.

Entire:Reports say AIG planning big spinoff to raise capital - Sep. 14, 2008

How does a spinoff raise capital ?