by Calculated Risk on 10/12/2008 12:27:00 PM

From Bloomberg: European Leaders Seek `One Voice' to Counter Crisis

The 15 euro countries may agree to guarantee interbank loans of as long as five years to break the credit-market freeze, according to a draft statement cited by Agence France- Presse.

From the NY Times: European Leaders Meet as More Measures Extended

Financial and political leaders were holding meetings across the globe Sunday, urgently seeking agreement on measures to restore confidence to the teetering financial system before markets open Monday in Asia.
...
Nicolas Sarkozy, the French president, said after a meeting at the Élysée Palace with Prime Minister Gordon Brown of Britain that he expected European countries to present an “ambitious and coordinated plan” that goes beyond measures announced by the Group of 7 industrialized countries in Washington on Friday.

The UK will announce the details of the capitalization plan at 7 AM Monday London time. But it sounds like there will be an EU announcement even earlier - before the Asian markets open.

by Calculated Risk on 10/12/2008 11:39:00 AM

From the WSJ: Australia to Guarantee All Bank Deposits

Australian Prime Minister Kevin Rudd said Sunday the government will guarantee all bank deposits for a period of three years.

From Sunday, the government will also guarantee all term wholesale funding by Australian banks operating in international credit markets "to make sure they have the best possible access to global capital," Mr. Rudd said.

The New Zealand government followed Mr. Rudd's announcement by introducing a bank deposit guarantee program as both countries sought safeguards against turbulence in global credit markets.

Over in Europe, UK Prime Minister Gordon Brown is in Paris today presenting the UK plan to other European leaders:

Gordon Brown arrived at the Elysee Palace in Paris today for the latest international leg of his campaign to promote a British bank bailout plan among world leaders.

Despite the UK not being part of the euro, the Prime Minister met President Nicolas Sarkozy of France ahead of a summit of the 15 eurozone members and will brief them on the plan in which the Government will inject billions of pounds into struggling banks in return for preferential shares.

The plan is being looked upon favourably by Western leaders – including the Bush Administration – as a way of injecting confidence and liquidity into the financial system whilst retaining a politically favourable stake for the taxpayer. Europe also looks set to follow suit.

by Calculated Risk on 10/12/2008 10:03:00 AM

Here are a couple of articles that suggest a number of recent home buyers are already underwater (owe more than their homes are worth).

Here is a graphic from the South Florida NewsPress.com: ‘Underwater’ borrowers sign of more trouble

Click on graph for larger image in new window.

Worst off are those who bought homes in 2006, just as the housing boom was ending: 78.5 percent of those now have home values less than the original loan amount, according to second-quarter statistics compiled by real estate data provider Zillow.com.

But look at 2007 and even 2008. In Lee County Florida, according to NewsPress.com, 14.5% of homeowners who bought this year owe more than their homes are worth. And almost two-thirds of homebuyers in 2007 are underwater.

And the MercuryNews.com has a sad tale of a neighborhood devasted by foreclosures: Financial crisis: Homeowners in Manteca neighborhood cope with foreclosures.

The math alone is humiliating. The house was worth $770,000 after the Cantrells bought it [in 2006] and upgraded the back yard. They spent $250,000 for the down payment and pool but still owe about $520,000. They've had four offers on the house — the highest was $355,000.

In October 2007 the home builder sold some of the homes at auction.

Representing his neighborhood with a promise to report back, [Dave Cantrell] attended the auction in a Pleasanton hotel ballroom last October. ... While Cantrell had paid a base price of $658,500 for his house, a nearly identical one sold for $391,000.

Even the buyers who paid $391,000 last October have clearly lost money and with a 10% downypayment are close to being underwater.

by Calculated Risk on 10/11/2008 07:13:00 PM

From the WSJ: German Bailout Likely to Be Over $400 Billion

German Chancellor Angela Merkel heads to Paris to present Sunday to her colleagues from the euro zone a financial sector bailout plan for Germany ... A person familiar with the situation told Dow Jones Newswires that the government is considering a total bailout plan of €300 billion to €400 billion ($402 billion to $536 billion), which includes state guarantees and the option to get a direct stake in banks. As part of this, the government is mulling recapitalizing financial institutions by injecting €50 billion to €100 billion in capital ...

Looks like another busy Sunday!

by Calculated Risk on 10/11/2008 06:42:00 PM

The bailout is to be announced Monday at 7 AM London Time (2 AM ET Monday AM).

The London stock market might be closed.

Current London Time:


From the WSJ: U.K. Banks to Announce Bailout Details

Some of the U.K.'s largest banks are expected to detail early Monday their participation in a bailout plan that could force the departure of some of their top executives, according to people familiar with the situation.

The announcement, aimed for about 7 a.m., is expected to include details on how much will be raised from the government and private investors.
...
One plan under consideration is to shutter London stock trading to allow investors to digest the news. That plan hasn't been finalized ...

The Times also mentions the possible market shutdown:

The scale of the fundraising could lead to trading at the London stock market being suspended. This would be to give time for the market to digest the scale of the information and its impact.

by Calculated Risk on 10/11/2008 04:26:00 PM

From The Times: State to save HBOS and RBS

THE government will tomorrow launch the biggest rescue of Britain’s high-street banks when the UK’s four biggest institutions ask for a £35 billion financial lifeline.

The unprecedented move will make the government the biggest shareholder in at least two banks. The Royal Bank of Scot-land (RBS), which has seen its market value fall to under £12 billion, is to ask the government to underwrite a £15 billion cash call. HBOS, which is Britain’s biggest provider of mortgages, is requesting up to £10 billion. Lloyds TSB, which is in the process of acquiring HBOS, and Barclays require £7 billion and £3 billion.
...
The British bank rescue could leave the government owning 70% of HBOS and 50% of RBS. ... Further capital is also available and the Treasury has increased the total amount to £75 billion.

Here is the WSJ article: U.K. Banks to Announce Details of Plan

The Times article also comments on Morgan Stanley:

Separately, the future of Morgan Stanley, the American investment bank, is also in doubt today ... Mitsubishi UFJ Financial Group is reviewing the terms of a $9 billion (£5.3 billion) capital injection into the bank and may launch a takeover.

by Calculated Risk on 10/11/2008 09:03:00 AM

David McCormick, the Treasury undersecretary for international affairs, was on ABC News this morning. The WSJ has a summary of his comments:

Mr. McCormick said the G-7 held "an absolute common view on the urgency of the situation" and on the steps needed to "work on immediately to try to being some stability to the market."

Asked about investor frustration with leaders in Washington and too much talk about action, Mr. McCormick said he agrees with the sentiment that actions are more important than words.

"The good news is the outlines of those actions are beginning to become more clear," he said. "As we take those actions, we hope that they begin to bring confidence back to the market."

On Friday, U.S. Treasury Secretary Henry Paulson announced plans for a standardized government program to buy equity in a wide range of financial companies.

Mr. McCormick said the specifics of the plan will be unveiled in coming days and it will be put into place within weeks.

by Calculated Risk on 10/11/2008 01:59:00 AM

This segment aired Thursday night October 9th (hat tip Jon):

by Calculated Risk on 10/10/2008 10:38:00 PM

The WSJ reports that GM has recently talked with Cerberus about acquiring Chrysler's automotive operations in exchange for GM's remaining 49% stake in GMAC.

Cerberus would keep Chrysler's financing arm - and probably would combine it with GMAC.

According to the WSJ, GM would expect about $10 billion in savings by combining the automotive operations.

This actually might make sense ...

UPDATE: Same story from the NY Times: G.M. and Chrysler Explore Merger

The talks between G.M. and Cerberus Capital Management ... began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were “50-50” as of Friday and would most likely still take weeks to work out.

by Calculated Risk on 10/10/2008 07:21:00 PM

From Bloomberg: Paulson Says Will Buy Bank Equity `Soon as We Can'

U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity ``as soon as we can'' in banks and other financial institutions to restore market stability and revive economic growth.

The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said at a press conference ...

``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''

Paulson was also asked if Morgan Stanley and Goldman Sachs qualified as banks that are too big to fail. Paulson replied that the G-7 didn't discuss specific banks.

As usual, Paulson was short on specifics.

Update: Paulson also seemed to say buying equity provided a bigger bang for the buck than buying troubled mortgage assets. (I'm looking for the transcript of the Q&A for the exact quote). Update: the WaPo quotes Paulson during the Q&A:

"We can use taxpayer money more effectively, more efficiently, it will go farther, they will get more for their dollars and more protection if we develop a standardized program" for buying equity stakes, Paulson said.

So maybe he was just saying a standardized program is better - I thought he was comparing buying equities to buying troubled assets. (Still looking for transcript).