Chillin' out till it needs to be funded
The dull period of growth ahead, warned by many but never a clear expanse with optimistic silos making almost complete stories of recovery even as new formations like the Gang of Six quickfixes and Private investor participation in the Euro peripherals participating to 20% could not stop the inevitable as global funds flows dried up over the weekend, everyone prefering cash as the US gets to explain its $1tln deficit with a downgrade done and more coming in the next 2 years. Also of note is that despite extended outperformance by bellwethers in the recently on results season, esp in International markets, the recovery was shocked by a delayed political process and a downgrade “whose time had come”
The coming two years of reassessment and rebuilding mean that the 2008 crisis has now become a double humped camel with a new global recession at a time when even Emerging Markets like Brazil, India and China and Developed markets like US and UK battle with a bankruptcy of thought, ideas and fiscal prudence
The latest news of litigation has also upped the ante for Global CEOs and dealmakers esp for BofA as AIG enter the fray over the weekend demanding $10 bln from the bank
Firstly, the New York and Delaware Attorney Generals Schendierman and Beau Biden are definitely not convinced that the $8.5 bln on the table from BofA’s other settlement represents the right amount The $20 bln provisioned by BofA for that and other litigation thus is going to sound like a facetious travesty when the deed is finally done. The naked capitalism blog in Washington has already put BofA on “Deathwatch”
(From last week)Schendierman and Biden, both Democrats, have ongoing investigations into the mortgage
system. Earlier this year, Schneiderman requested information from at least seven banks related to their mortgage practices. He has also sought information from bond insurers and banks that served as trustees in mortgage securitization deals.
Schneiderman has also emerged as a key figure in settlement negotiations between a coalition of federal and state regulators and banks over their allegedly shoddy foreclosure practices. He has said that any settlement should not give the banks a broad release from future liability.
Meanwhile, Biden is investigating the Mortgage Electronic Registration Systems, an electronic-lien registry created by the mortgage banking industry, which has been accused of sloppy record keeping. MERS has said it’s cooperating with the investigation.
Secondly, AIG will be claiming $10 bln in a portfolio of $28.5 bln from Countrywide from BofA in litigation and that will also be more than the large bill of $20 bln BofA showed us it was willing to pay with a $1 EPS loss in Q2
Thirdly, early last week itself the GSEs, Freddie and Fannie, themselves a dying breed, said they would be increasing expected amounts in damages to claim from BofA which will continue to pay for its Countrywide purchase well into 2012
The settlement with PIMCO and Blackrock over a $242 bln portfolio at $8.5 bln seemed both large to the bank’s retail investors and analyst and “cheaply let off” to the bank’s management and detractors alike, the bank thinking it doing well by providing another $11.5 bln for other suits. However it is likely that the settlements may actually cost in the range of $30-40 bln for BofA alone and getting JP Morgan, Goldman Sachs and Deutsche Bank and other respondents down as well as the extended crisis steels the resolve of politicians and officers representing the people to actually explore the magnitude of the travesty and thus the compensation that must be claimed by bloodletting the bank and others
Wells Fargo, making profits after having seemingly written off the bad first from the Wachovia purchase, is also under fire
There’s a Greek bond in the soup
Or Italian, or a Spanish bank bond this week as the European liquidity situation stays a high flood watermark for money market investors sunk by the weekend downgrade. As the embattled money market funds stayed afloat through the Gre
ek crisis, more and more withdrawals after the downgrade threaten the vast amounts of Spanish, Italian and Greek overnight paper even as confidence returns to Europe as the large sums involved keep Italian and Spanish CDS’ close to 500 bp and 300 bp too much over the stable benchmarks. Each tranche of Italian, Spanish and Greek rollover / undefaulted/restructured debt will thus swim through the chock a block money markets for 3-4 weeks even as American auctions get smaller in value and longer on term
The S&P ratings watch
With US rating out of the way, sooner than later focus will shift to 2 out of the other 3 AAA borrowers, with UK and FRance due on their deficit cutting spree bravely entered into in a game of political chicanery and playing with regulatory mirrors..With European growth restricted to Germany and UK and France performing dismally their own overnight trysts with fiscal prudence which seemingly saved them off default watch ( David Beers, S&P Ratings on Reuters insider) Italian and Spanish spreads are hoilding in the Global markets reaction today even as markets in Turkey and Russia fell by 7% and 5% China itself waiting with a AA-/AA3 long term rating would be looking to make the ratings game more even with the Emerging / Developed Markets definition clouding the current charts despite inverted signals by growth survivors from the fourth running year of the crisis
S&P's Beers: Fate of U.S. rating hinges on Congress action, Thomson Reuters: Reuters Insider http://insider.thomsonreuters.com/link.html?cn=uid32884&cid=248890&shareToken=Mzo4MTg3OTcxOS1jM2QwLTQ5MmEtYjM0Ni01MDUxODQ0ZjI4ZTA%3D&start=422&end=822