Sub prime fallout-Bear Stearns and the greater credit crunch

[LANDER]

What it do Nomads,

We bare witness to history I thought some of you may want to read up on some of these stories. If you think your just an avg Farax and this won't affect you, you've got another thing coming. Some folks have mortgages, some have lines of credit etc...Christmas time I went to visit Minneapolis I noticed alot of somali folk out there are living nicely but alot of their assets are bought on credit or some type of leverage. Not to single out the states necessarily, global economies are intertwined these days and the fallout from what's happening here will be far reaching. Read up, enjoy.

 

 

http://www.globeinvestor.com/servlet/story/RTGAM.20080317.wbearmonday0317/GIStory/

 

 

Bear fire sale sparks financial rout

 

Jack Reerink

 

Monday, March 17, 2008

 

NEW YORK — A fire sale of Bear Stearns Cos. Inc. stunned Wall Street and pummelled global financial stocks on Monday on fears that few banks are safe from deepening market turmoil.

 

President George W. Bush assured the world that the United States was “on top of the situation” in financial markets as the U.S. Federal Reserve geared up for a deep cut in interest rates on Tuesday to blow money into the fragile financial system.

 

Staff turning up for work at Bear Stearns' Manhattan headquarters were welcomed by a two-dollar bill stuck to the revolving doors – a spoof on the bargain-basement price of $2 (U.S.) per share that JPMorgan Chase is offering for the Wall Street firm. A hopeful Coldwell Banker realtor was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.

 

The combination of the speedy sale of Bear Stearns at a rock-bottom price and the Fed's offer to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.

 

And it scared market players worldwide.

 

“If you get a crisis of confidence in the wholesale banking space and something the size of Bear Stearns could go under, then people start to panic. You get a real fear factor,” said Simon Maughan, analyst at MF Global in London.

 

The grim mood spread beyond Bear, Wall Street's fifth-biggest bank, as investors bailed from rival Lehman Bros for fear it would be next to face a cash crunch. Lehman shares plummeted 20 per cent and briefly touched a 6-1/2 year low. Hedge funds told Reuters on Friday they were still doing business with Lehman and a spokesman said the firm was in good shape.

 

The financial world is more interconnected than ever and the merest whiff of trouble can result in a run on a bank: trading partners and funds pulling money and calling in loans. Indeed, Bear's fall shows how fast things can change on Wall Street.

 

Shares of European banks — including UBS in Switzerland, HBOS in Britain and SocGen in France — fell more than 10 per cent as concern swept markets that the value of risky assets needs to be marked down even further.

 

In Asia some of Japan's biggest banks also fell, with Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group down 3 per cent or more.

 

Bankers around the world were already fretting about job losses as the prospect of recession in the United States grips financial institutions.

 

Bear Stearns, roughly 30 per cent owned by its staff and proud of its above-average level of inside ownership, employs 14,000.

 

“The valuation is virtually nothing,” said a Singapore-based Bear Stearns employee. “It is indeed rock bottom. We have tanked. It's very, very sad. Everyone is in mourning.”

 

The mood among U.S. staff was solemn. “My job's been eliminated,” said one male employee arriving for work in New York. The employee, who declined to be identified, said he had been given 90 days' notice.

 

Bear Stearns was caught in a tailspin after speculation swirled last week that it faced problems and its cash reserves were drained by fleeing customers.

 

JPMorgan picked it up for just $236-million — 1.2 per cent of Bear's market value a little more than a year ago — although the bank estimated the total price tag at $6-billion to account for litigation and severance costs.

 

A lot of people lost a lot of money: Entrepreneur Joseph Lewis, a reclusive Englishman who made a fortune trading currencies, bought a stake of about 10 per cent in Bear and stands to lose around $1-billion.

 

There is a clear crisis of confidence across the financial sector, and other measures by the Fed to aid liquidity, announced on Sunday, are unlikely to reassure investors enough, analysts said.

 

Pressure on banks' capital positions it also likely to intensify and is expected to prompt many to seek further cash injections from sovereign wealth funds.

 

But the jittery mood means even well positioned banks may be reluctant to take advantage of acquisition opportunities, bankers and analysts said.

 

“I think M&A is too difficult now,” a London banker said. “This is about catching a falling chainsaw. It's not just about cutting yourself if you get it wrong, it's about losing a limb.”

 

Bear could have attractive assets for rivals such as Barclays seeking to expand in the United States, but analysts said JPMorgan would be unlikely to sell any prized Bear assets such as its prime brokerage capabilities, clearing services, equities platform and energy operation.

 

© The Globe and Mail

 

 

http://www.independent.co.uk/news/business/news/wall-street-fears-for-next-great-depression-796428.h tml

 

Wall Street fears for next Great Depression

 

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What are these?

 

By Margareta Pagano, Business Editor

Sunday, 16 March 2008

 

Wall Street is bracing itself for another week of roller-coaster trading after more than $300bn (£150bn) was wiped off the US equity markets on Friday following the emergency funding package put together by the Federal Reserve and JPMorgan Chase to rescue Bear Stearns.

 

One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

 

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow."

 

In the UK, Michael Taylor, a senior market strategist at Lombard, the economics consultancy, said on Friday night: "We have all been talking about a 1970s-style crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it's a self-feeding disaster." Mr Taylor, who had been relatively optimistic, has turned bearish: "It really does look as though the UK is now heading for a recession. The credit-crunch means that even if the Bank of England cuts rates again, the banks are in such a bad way they are unlikely to pass cuts on."

 

Mr Taylor added that he expects a sharp downturn in the real UK economy as the public and companies stop borrowing. "We have never seen anything like this before. This is new territory for us. Liquidity is being pumped into the system but the banks are not taking any notice. This is all about confidence. The more the central banks do, the more the banks seem to ignore what's going on."

 

Mr Taylor added that the problems unravelling at Bear Stearns are just the beginning: "There will be more banks and hedge funds heading for collapse."

 

One of the problems facing the markets is that, despite the Fed's move last week to feed them another $200bn, the banks are still not lending to each other.

 

"This crisis is one of faith. We are going to see even more problems in the hedge funds as they face margin calls," said Mark O'Sullivan, director of dealing at Currencies Direct in London. "What we are waiting for now is for the Fed to cut interest rates again this week. But that's already been discounted by the market and is unlikely to help restore confidence."

 

Mr O'Sullivan added that the dollar's free-fall is set to continue and may need cuts in European interest rates to trim the euro's recent strength against the dollar. "But the ECB doesn't like cutting rates," he said.

 

On Europe, Mr Taylor said that while the German economy remains strong, others such as Italy's and Spain's are weakening. "You could see a scenario where the eurozone breaks up if economies continue to be so worried about inflation."

 

European financial markets were relatively unscathed by Wall Street's crisis but traders expect there to be a backlash when stock markets open tomorrow.

 

The Fed's plan will give 28 days of secured funding to Bear Stearns, which saw its value slashed over the week by more than a half to $3.7bn. JP Morgan will provide the funding, but the Fed will bear the risk if the loan is not repaid. Fed chairman, Ben Bernanke, who pumped $200bn of loans to cash-strapped institutions last week, said more would be available to help others in distress.

[Che -Guevara]

Funds that short buy and sell Bear Stearns made good money this last week.

 

P.S. I'm joining JP Morgan soon and I'm begining to wonder if it was just good idea to jump ships at this moment. JP Morgan seem to be on hiring pinch though atleast on their custody side.