Remember President Barack Obama’s pompous “BP-Will-Be-Held-Accountable”-speech? The president’s remarks on the oil spill dragged BP’s share price right to the bottom and pushed the CDS’ straight through the roof. However, when The White House this week announced that US banks will be held accountable for any foreclosure violations, there was hardly any reaction in the financial markets at all.
“Whether investors chalked it up to part of mid-term election campaigning or simply could not discern the market impact is debatable.”
Otis Casey
Earlier this week, market price action seemed to suggest that investors were struggling to properly define the extent and impact of the potential foreclosure violations case. By the end of the week, however, I think they’ve started to see a more clear – not pretty – picture.
Bank of America, who had halted foreclosures in all 50 states, signalled on Tuesday that is was time to resume the foreclosure process. As for their process, CEO Brian Moynihan simply said; “Without question we’re doing it right.”
The day before Citigroup stated that their process was “sound”.
“While no one expected that the uncertainty in litigation risk could just disappear overnight, it at least appeared to be moderating a bit,” credit analyst Otis Casey writes in the weekly credit wrap from Markit Financial Information.
“There seemed to be a perception that the majority of the headlines would be read in the rear-view mirror – at least,” Otis Casey writes, but point out: “That sentiment was short-lived.”
WILL BE HELD ACCOUNTABLE?
Reminiscent of President Barack Obama’s “BP Will Be Held Accountable” speech, the White House announced this week that banks would be held accountable for any foreclosure violations.
This was not surprising, considering that a key part of the President’s communication strategy has been to side with “Main Street” against “Wall Street.”
“Whether investors chalked it up to part of mid-term election campaigning or simply could not discern the market impact is debatable, in any case the announcement did not have anywhere near the same market moving impact on CDS spreads the way that the BP speech did last spring on BP’s CDS spreads,” Casey notes.
YOU BUY – WE PAY
“Then some of the biggest investors in the world decided to react like it was “Wall Street vs Wall Street” (nevermind
that PIMCO headquarters is in Newport Beach),” Casey goes on.
Reports surfaced that indicated PIMCO, BlackRock and the Federal Reserve Bank of New York are looking for a way to force Bank of America to repurchase bad mortgages that is a part of some $47 billion in bonds, packaged by its Countrywide Financial unit.
Other investors are expected to join this group.
“Furthermore, the tactic is expected to be repeated in other cases where investors believe that the quality of mortgages may have been misrepresented,” Casey adds.
CDS spreads on the major mortgage lending banks widened significantly on the news and set a negative tone for the corporate credit markets generally.
However, by the week’s end, the CDS spreads for the major US banks were tighter than where they were a week ago.
Wells Fargo reported record earnings despite lower revenues.
While Bank of America reported a third quarter loss, adjusted results beat analysts’ estimates.
Earnings results in general have given support in the last two sessions, which has helped improve sentiment and again shifted focus away from the foreclosure issues – at least in the news headlines.
MONEY CAN BE VERY EXPENSIVE
On the European side, a bit more clarity emerged on the subordinated debt of Anglo Irish Bank.
The bank announced on Thursday that it was offering to exchange up to approximately 1.6 billion euro principal amount outstanding subordinated debt for new euro-denominated floating rate notes, due 2011, at an effective price of 20% of face value.
A separate offer for 300 million GBP, callable, subordinated notes at 5% of face value was also made.
“The exchange offers are “voluntary” but if holders choose not to participate, they could receive as little as 0.01 euro per 1,000 euro of principal amount,” Otis Casey writes.
The latest quotes are 10 points and 68 points upfront, for senior and subordinated protection, respectively.
- Fitch Place Most US Banks On Negative Rating Watch
- USA Could Be Forced Into Another Trillion Dollar Bank Rescue
- Webster Tarpley: The Financial Reform Is A Failure
- Meredith Whitney: Even More Bearish On Housing And Financials
Related Articles
- Investors and White House press banks over mortgages (reuters.com)
- US banks fight back in ‘foreclosure-gate’ (alternet.org)
- “PIMCO, Blackrock, NY Fed Seek to Force BofA to Repurchase $47 Billion in Soured Mortgages; Viral Nonsense on “Show Me the Note” and “ForeclosureGate”” and related posts (globaleconomicanalysis.blogspot.com)
- Banks Face Two-Front War on Bad Mortgages, Flawed Foreclosures (businessweek.com)
- Banks’ foreclosure hustle… (projectworldawareness.com)
- Bank of America Bondholders Demand Repurchases of Questionable Bonds (dailyfinance.com)
Marc Faber Expects Market Sell Off On QE2 Announcement
With vacuum tubes expecting QE next Wednesday to come anywhere between $500 billion a $10 trillion, it falls upon Marc Faber to naturally take the other side of the bet, who, in this interview with Margaret Brennan, tells the impeccably coiffed Bloomberg anchor that instead of inciting the mother of all flash dashes and hitting the BlackRock 12 month target of Dow 36,000, Mr. Faber instead anticipates that the FED decision “could disappoint investors and may prompt a correction in US stocks.”
In response to Margaret’s question if size does in fact matter, Faber responds that anything under a trillion will “disappoint.”
And with Goldman now throwing out bogeys as high as $2-4 trillion, it is almost inevitable that a sell the news type day will be virtual certainty on mid-term election day.
“The markets are stretched: weak dollar, strong PMs and strong equities – I think a correction is overdue. But I wouldn’t think that a bear market is around the corner.”
In fact the opposite: “Maybe we will have a crack up boom in stocks and commodities like between the end of 1999 and March 2000 when the markets went up very strongly,” Faber says.
Marc “Gloom-And-Doom” Faber is once again mostly bearish on bonds (and cash), due to his long-running expectation that inflation, whether modest or hyper, will make all fixed paper investments lose value very fast.
As for specific equity sectors Faber highlights agricultural commodities and “I continue to recommend the accumulation of precious metals, whereby I think they are overdue for some kind of a correction here and then we’ll get the next move probably next year and then thereafter.”
1 Comment
Filed under National Economic Politics
Tagged as BlackRock, Bloomberg L.P., Business, Dow 36 000, Federal Reserve System, Financial Markets, High Frequency Trading, Law & Regulations, Marc Faber, Margaret Brennan, Market trend, Quantitative easing, Quantitative Finance, United States, Vacuum tube, Views, commentaries and opinions