by Calculated Risk on 4/23/2009 06:31:00 PM

A friend called me up early last year and told me that she had just put a significant amount of money in Auction Rate Securities with Wells Fargo. She started to tell me what a great deal it was, and I interrupted her: "Hang up. Call Wells Fargo. Get out now." She called Wells Fargo immediately, and she couldn't sell - and she has been stuck in this "investment" ever since.

From the LA Times: Wells Fargo accused of securities fraud by state lawsuit

California today sued investment subsidiaries of Wells Fargo & Co. for securities fraud, alleging that the San Francisco financial services company misled investors by selling $1.5 billion worth of risky securities that it peddled as being as safe as cash.

The securities "were sold to customers on the basis that they were like cash and people could get their money back in eight days," Atty. Gen. Jerry Brown said in an interview. "Now, it turns out they were not like cash and people can't get their money back even after many, many months, and they're mad as hell."

My friend was also told these securities were "as good as cash" and she could get her money back with eight days notice. It is especially irritating to see a Wells Fargo spokesperson say:

"We fully understand and deeply regret the effects this prolonged liquidity crisis has had on our clients," Charles W. Daggs, chief executive of Wells Fargo Investments, said in a statement.

"Wells Fargo could not have predicted these extraordinary circumstances, and even with the benefit of hindsight is not responsible for them."

Yeah, hoocoodanode?

by Calculated Risk on 4/23/2009 04:40:00 PM

The Federal Reserve released the Factors Affecting Reserve Balances today. Total assets increased to $2.2 trillion.

The Term Asset-Backed Securities Loan Facility (TALF) is off to a slow start, with just under $6.4 billion in assets.


Click on graph for larger image in new window.

After spiking last year to $2.31 trillion the week of Dec 18th, the Federal Reserve assets then declined somewhat. Now the Federal Reserve is starting to expand their balance sheet again.

Three trillion here we come!

Note: the graph shows Total Factors Supplying Federal Reserve Funds and is an available series that is close to assets.

Most of the increase this week in factors supplying reserve funds came from the Fed buying MBS (increased by $75 billion). This is still pushing down mortgage rates: see Freddie Mac: Long-term rates Now Lower than Short-term

Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.80 percent with an average 0.7 point for the week ending April 23, 2009, down from last week when it averaged 4.82 percent. Last year at this time, the 30-year FRM averaged 6.03 percent.

by Calculated Risk on 4/23/2009 03:36:00 PM

From the NY Times: U.S. Is Said to Prepare Filing for Chrysler Bankruptcy

The Treasury Department is preparing a Chapter 11 bankruptcy filing for Chrysler that could come as soon as next week ...

This appears to be a prepackaged bankruptcy with the U.S. government providing DIP (Debtor-In-Possession) financing.

It sounds like Fiat would buy Chrysler's assets out of bankruptcy and the U.S. would be responsible for pensions and retiree health care benefits. According to the article, the only unresolved issue is what happens to Chrysler’s lenders.

by Calculated Risk on 4/23/2009 01:55:00 PM

From HotelNewsNow.com: STR reports U.S. data for week ending 18 April 2009

In year-over-year measurements, the industry’s occupancy fell 10.7 percent to end the week at 57.4 percent. Average daily rate dropped 10.3 percent to finish the week at US$97.25. Revenue per available room [RevPAR] for the week decreased 19.9 percent to finish at US$55.83.
emphasis added

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 11.1% from the same period in 2008.

The average daily rate is down 10.3%, so RevPAR is off 19.9% from the same week last year.

When the Q1 advance GDP report is released on Wednesday (April 29th), I expect to see a sharp in decline in non-residential structure investment. The underlying details will be released a couple of days later, and I expect investment in lodging to be hit especially hard. Why build new hotels when the occupancy rate is 57%?

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 4/23/2009 12:22:00 PM

UPDATE: Here is the letter from Cuomo to Congress (2.0 MB PDF). (Updated - linked to wrong letter initially)

It was widely rumored that there was some sort of backroom deal holding the BofA and Merrill deal together. From CNBC: BofA's Lewis Says He Was Told To Be Quiet on Merrill

Bank of America Chief Executive Kenneth Lewis told the New York attorney general he believed former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke wanted him to keep quiet about the worsening terms of the bank's acquisition of Merrill Lynch, according to testimony reviewed by The Wall Street Journal.

Here are some excerpt of Lewis' testimony before New York's attorney general in February from the WSJ: 'It Wasn't Up to Me': Excerpts From Ken Lewis's Testimony

Mr. Lewis: I remember, for some reason, we wanted to follow up and see if any progress -- as I recall, we actually, had not agreed to call a MAC [material adverse condition] after the conversation that we had, and so I tried to get in touch with Hank, and, as I recall, I got a number that was somebody at the Treasury kind of guard-like thing. He had a number for Hank, and Hank was out, I think, on his bike, and he -- this is vague; I won't get the words exactly right -- and he said, "I'm going to be very blunt, we're very supportive of Bank of America and we want to be of help, but" -- I recall him saying "the government," but that may or may not be the case -- "does not feel it's in your best interest for you to call a MAC, and that we feel strongly," -- I can't recall if he said "we would remove the board and management if you called it" or if he said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me talk to our board." And the board's reaction was one of "That threat, okay, do it. That would be systemic risk."

Q: Did you ask for any agreement from them?

Mr. Lewis: There was a point after that that the board brought up the fact that we're relying on the words that obviously has some very prominent people and honorable people, but, boy, what if they don't come through? So I called Bernanke -- I don't know why I called him versus Hank -- and said, "Would you be willing to put something in writing?" And he said, "Let me think about it." As I recall, he didn't call me back, but Hank called me back. And Hank said two things: He said, "First, it would be so watered down, it wouldn't be as strong as what we were going to say to you verbally, and secondly this would be a disclosable event and we do not want a disclosable event."

This raises serious questions and will probably lead to shareholder lawsuits.