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I bet others are to follow...that's two so far today...
Banco Popolare Becomes First Bank in Italy to Seek State Aid
March 10 (Bloomberg) -- Banco Popolare SC plans to sell 1.45 billion euros ($1.84 billion) of convertible bonds to the Italian government, making it the nation’s first bank to seek state aid to strengthen capital as the global financial crisis worsens.
Banco Popolare told the Finance Ministry and the Bank of Italy that it would like to take part in the government’s bank assistance plan, according to two statements released today by the Verona-based company.
The ministry approved a decree on Feb. 25 enabling Italian banks to raise as much as 12 billion euros ($15.3 billion) selling bonds convertible into non-voting shares to the government. UniCredit SpA and Intesa Sanpaolo SpA, Italy’s largest banks, said they may raise capital under the plan, while investment bank Mediobanca SpA said it isn’t interested.
“Banco Popolare is the Italian bank that most needed to increase capital,” said Patrizio Pazzaglia, a money manager at Bank Insinger de Beaufort NV in Rome. “Now that the first step has been taken I expect other banks to follow.”
The Federal Home Loan Bank of Seattle said it has fallen short of one of its capital requirements as a result of write-downs on mortgage-backed securities.
Investments in mortgage securities that were packaged by Wall Street during the housing boom are straining the finances of several of the 12 regional home-loan banks, a major source of funding for thousands of banks across the country.
Regulations prohibit a home-loan bank that has fallen short of any of its capital requirements from paying dividends or repurchasing stock. The Seattle bank said its regulator, the Federal Housing Finance Agency, also could "require additional actions." The bank didn't specify those actions, but they might include asking shareholders to provide more capital.
A spokeswoman for the regulatory agency declined to comment.
WASHINGTON, March 10 (Reuters) - The U.S. Securities and Exchange Commission is not planning to suspend the controversial mark-to-market accounting rule that has forced banks to report billions of dollars in asset write-downs, a source familiar with the matter told Reuters on Tuesday.
Rumors have circulated that the U.S. government was planning a temporary suspension of the accounting rule, which requires financial firms to value assets at current market prices.
Marvelous...great...fantastic...can anyone say "ouch"?
Whitney Sees Credit Cards as the Next Crunch: Report
Prominent banking analyst Meredith Whitney warned that "credit cards are the next credit crunch," as contracting credit lines will lower consumer spending and hurt the U.S. economy.
"Few doubt the importance of consumer spending to the U.S. economy and its multiplier effect on the global economy, but what is under-appreciated is the role of credit-card availability in that spending," Whitney wrote in the Wall Street Journal.
Although credit was extended "too freely over the past 15 years" and rationalization of lending is unavoidable, what needs to be avoided was "taking credit away from people who have the ability to pay their bills," said Whitney, CEO of Meredith Whitney Advisory Group.
There was a newsflash this morning on Reuters that "Mark to Market is NOT going to be suspended", allegedly sourced from someone at the SEC.
MTM was put into place after ENRON due to the amazing abuses on their balance sheet with asset "valuations" in an attempt to prevent re-runs of that debacle. It has been circumvented to a large part by "Level 3" assets, which are in fact marked to model (same thing as non-MTM eh?)
So why the furor?
Let's say you are a bank and have $1 billion of some bond issue that was stuffed to the gills with crap subprime and liar loans. It is, thus far, cash-flowing fine, but everyone knows that these liar loans and subprime garbage is likely a 50 cent recovery deal eventually, if you're lucky.
So long as this paper is cash-flowing if you're intending to hold it to maturity then you can value it at "par" under your model, because well, today, it is making coupon payments. That is, your bucket might be different than other people's bucket.
So you hold this thing in "Level 3" and call it par. All is good, right?
See, the next city over is a Hedge Fund. He bought a bunch of this paper too. But he's getting nervous - his investors are demanding redemptions, and his lockup period is expiring.
So he starts circulating a bid list, and on that list is the same bond issue you're holding. He gets a bid back for 40 cents on that bond; the people looking at it know what's in there, that those liar loans in California are a good 30% underwater and the subprimes are in trouble too. That buyer figures that the bond will eventually default and recovery is likely to be 50 cents at best.
Sir Hedgie knows the buyer's right, of course - that bond, held long enough, is likely to hurt him. Worse, he really needs the money, and the best bid he got is 40 cents. So he sells it, even though if a reasonable estimate of recovery is 50 and its cash-flowing today "fair value" in the market might be closer to 55 than 40.
That event causes the bank holding the same thing to have an immediate problem - they are now required to mark that bond, because the entire claim on Level 3 is that there are "no observable prices." Well, you just got an observed price, and its way the hell off your mark!
The consequence of this is an immediate $600 million accounting charge to the bank. Its not a cash charge, as the bond is (at this point) cash-flowing, but it hits the asset side of the balance sheet.
Suspending MTM would get rid of this, which is why some people want it - badly.
But suspending MTM alone would bring about the potential for the same sort of game-playing that was exploited by ENRON and others during that time - the intentional hiding of losses through the claim that the bonds "will be fine" if held to maturity where the holder has full knowledge that it is rather unlikely this will remain true.
So how do we resolve this problem?
I would propose the following:
* Suspend MTM for six months. Why a short period? Because we've still got a deleveraging problem, and we both want to drive that to completion and give people cover during that time (and only during that time.)
* In six months, the suspension expires and so does Level 3 pricing. That is, the "no observable input" game has to stop.
How do we get a price on something that has no observable input?
Simple - you have to sell 10% of whatever you're holding if you can't get a market price, and that's the price.
This will result in a market being developed over these next six months, if for no other reason than necessity - these instruments will trade by necessity as market participants will have to obtain market prices in order to continue to hold them. By getting rid of the "Level 3" bucket we will solve two problems at once, while at the same time we recognize that we can't throw this at people with an instant implementation and we have a "fire same" problem with these bid lists that has been hitting the asset side of balance sheets, perhaps unfairly so.
Is this a perfect solution? No.
But it's a solution that will work, it can be implemented, and it prevents the game-playing with asset prices that has been so rampant over the last few years going forward, forcing a market to develop for those so-called "illiquid" assets so we can get an actual market price.
March 10 (Bloomberg) -- Inventories at U.S. wholesalers fell a quarter as much as sales in January, indicating businesses will pare orders further in coming months.
The 0.7 percent decrease in the value of stockpiles followed a revised 1.5 percent decrease in the prior month, the Commerce Department said today in Washington. It was the fifth straight monthly drop, the longest such stretch in almost seven years. Sales slumped 2.9 percent to $326.1 billion, the lowest level in more than three years.
At the current sales pace, it would take 1.3 months for distributors to deplete the amount of goods on hand, the most since January 2002. Plummeting demand as the U.S. recession worsens and weakening orders from overseas will keep factories scaling back to draw down stockpiles, hurting economic growth.