Just a few weeks ago Brazil's President came on Fox News and said that he wanted Brazil to get into the World oil market, and now this? Brazil helped push oil prices up $5 to a new record - $147 a barrel on Friday as strike threats and deepening geopolitical tensions raised fears over the safety of supplies.
Having rallied more than $5 overnight, Brent crude rose a further $5.22 to $147.25 a barrel.
A union of employees from Petrobras, the Brazilian state-controlled oil company, in the Campos basin – where 80 per cent of Brazil’s oil is produced – said that they would shut down rigs to press for better pay.
When Petrobras employees refused to work for five days in 2001, oil production fell sharply and Brazil had to import extra oil. However, since then Petrobras and the unions have resolved their disputes without severe stoppages.
Oil also got a boost from news that the main militant group in Nigeria’s oil-rich Niger Delta was abandoning a ceasefire in response to Britain’s offer to help tackle lawlessness in the area.
Militants have helped cut Nigeria’s oil exports by more than 20 per cent since 2006 by attacking pipelines and other installations. It seems that we are colonializing the wrong part of the world, in a feeble attempt to stabalize oil prices and production.
News that Iran test-fired more missiles on Thursday had little impact on the oil market. MF Global said traders were increasingly reluctant to bid up prices on “what if?” headlines. Crude hit a record above $145 a barrel last week on speculation about conflict between the west and Iran over Tehran’s nuclear programme.
Meanwhile, the Organisation of the Petroleum Exporting Countries forecast that world oil demand would rise by 1.3m barrels per day annually to 2012 before easing to 1.2m bpd in the longer term.
In its World Oil Outlook 2008, Opec said that the key to future oil demand growth would be transport, especially in developing countries. The oil cartel said almost $800bn would have to be invested in increasing refinery capacity to meet the additional demand expected by 2030.
The need for oil from Opec countries will soon fall, the International Energy Agency said Thursday, forecasting global oil demand growth would slow next year while production would rise.
The IEA increased its forecast for 2008 oil demand by 80,000 barrels a day, or 0.1 per cent, to 86.85m barrels a day.
Friday, July 11, 2008
Freddie turmoil
Shares in Freddie Mac and Fannie Mae plummeted further in early trading on Friday amid speculation that a bailout of the government-sponsored mortgage financiers was imminent, and that such a bail-out would leave little if any value for current shareholders.
Fannie was down 44.7 per cent early on Friday morning, while Freddie’s shares fell 44.5 per cent. That came after frantic trading on Thursday in New York had already dragged both mortgage giants’ shares down to their lowest levels since 1991.
The US Treasury and Bush administration have discussed “contingency plans” that would co-ordinate a rescue of the two government-sponsored enterprises, but no such rescue would be undertaken unless and until the agencies are deemed undercapitalised, according to people involved in the talks.
In response to the reports of contingency plans for a rescue, Hank Paulson, Treasury secretary, said in a short statement that he was committed to supporting the two mortgage finance companies in “their current form” and gave no hint that the government was about to bail them out.
“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” Mr Paulson said. “We are maintaining a dialogue with regulators and with the companies.’”
Mr Paulson, together with the companies’ regulator and Federal Reserve chairman Ben Bernanke, has given repeated assurances in recent days that Fannie and Freddie remain ”adequately capitalised” under current regulatory standards.
Other participants in the mortgage market, including Lehman Brothers, also suffered steep falls on Thursday, although the overall stock market climbed higher. Lehman fell a further 14 per cent on Friday morning.
Investors were unnerved on Thursday by a warning from Bill Poole, former president of the Federal Reserve Bank of St Louis, that the chances that a bail-out of Fannie and Freddie might be needed were increasing.
Mr Poole said Freddie Mac owed $5.2bn (£2.6bn) more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules.
Freddie Mac argues that such a measure does not reflect the economics of the company, which holds mortgages to maturity but has to account for them at today’s market prices.
Fannie and Freddie account for nearly three-quarters of new US mortgages, and their difficulties add to worries about the US economy. Many investors assume that the US government would have to take action to prevent a collapse of Fannie and Freddie, potentially at a big cost to taxpayers.
Speaking before the House financial services committee on Thursday, Mr Paulson and Mr Bernanke sought to calm the markets.
“Fannie Mae and Freddie Mac are... working through this challenging period,” Mr Paulson said. “They play an important role in our housing markets today and need to continue to play an important role in the future. Their regulator has made clear that they are adequately capitalised.”
Mr Bernanke added: “I believe they are well capitalised in a regulatory sense.” However, he added that, like other financial institutions, Fannie Mae and Freddie Mac should also try to raise more capital.
Mr Bernanke and Mr Paulson were testifying at the first congressional hearing called to examine changes to the US financial regulatory system in the wake of the credit crisis.
The future of Fannie and Freddie was also discussed on the presidential election campaign trail, where John McCain, the Republican candidate, said the two companies “are vital to Americans’ ability to own their own homes... They will not fail; we cannot allow them to fail.”
Fannie was down 44.7 per cent early on Friday morning, while Freddie’s shares fell 44.5 per cent. That came after frantic trading on Thursday in New York had already dragged both mortgage giants’ shares down to their lowest levels since 1991.
The US Treasury and Bush administration have discussed “contingency plans” that would co-ordinate a rescue of the two government-sponsored enterprises, but no such rescue would be undertaken unless and until the agencies are deemed undercapitalised, according to people involved in the talks.
In response to the reports of contingency plans for a rescue, Hank Paulson, Treasury secretary, said in a short statement that he was committed to supporting the two mortgage finance companies in “their current form” and gave no hint that the government was about to bail them out.
“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” Mr Paulson said. “We are maintaining a dialogue with regulators and with the companies.’”
Mr Paulson, together with the companies’ regulator and Federal Reserve chairman Ben Bernanke, has given repeated assurances in recent days that Fannie and Freddie remain ”adequately capitalised” under current regulatory standards.
Other participants in the mortgage market, including Lehman Brothers, also suffered steep falls on Thursday, although the overall stock market climbed higher. Lehman fell a further 14 per cent on Friday morning.
Investors were unnerved on Thursday by a warning from Bill Poole, former president of the Federal Reserve Bank of St Louis, that the chances that a bail-out of Fannie and Freddie might be needed were increasing.
Mr Poole said Freddie Mac owed $5.2bn (£2.6bn) more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules.
Freddie Mac argues that such a measure does not reflect the economics of the company, which holds mortgages to maturity but has to account for them at today’s market prices.
Fannie and Freddie account for nearly three-quarters of new US mortgages, and their difficulties add to worries about the US economy. Many investors assume that the US government would have to take action to prevent a collapse of Fannie and Freddie, potentially at a big cost to taxpayers.
Speaking before the House financial services committee on Thursday, Mr Paulson and Mr Bernanke sought to calm the markets.
“Fannie Mae and Freddie Mac are... working through this challenging period,” Mr Paulson said. “They play an important role in our housing markets today and need to continue to play an important role in the future. Their regulator has made clear that they are adequately capitalised.”
Mr Bernanke added: “I believe they are well capitalised in a regulatory sense.” However, he added that, like other financial institutions, Fannie Mae and Freddie Mac should also try to raise more capital.
Mr Bernanke and Mr Paulson were testifying at the first congressional hearing called to examine changes to the US financial regulatory system in the wake of the credit crisis.
The future of Fannie and Freddie was also discussed on the presidential election campaign trail, where John McCain, the Republican candidate, said the two companies “are vital to Americans’ ability to own their own homes... They will not fail; we cannot allow them to fail.”
Thursday, July 10, 2008
Freddie vs Fannie
July 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the two biggest providers of financing for U.S. home loans, tumbled to the lowest levels in 17 years in New York trading after a former Federal Reserve president said the companies may need a government bailout.
Fannie Mae tumbled as much as 24 percent and Freddie Mac slumped as much as 34 percent in New York Stock Exchange composite trading after UBS AG analysts said in a report today that Freddie Mac's decline creates ``challenges'' for the company's plan to raise $5.5 billion.
Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don't have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.
``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.
Poole roiled markets in 2003 when he said the government should consider severing its implied backing of Fannie Mae and Freddie Mac and the companies lack the capital to weather financial market disruptions. In 2006 and 2007 he called for lawmakers to strip Fannie Mae and Freddie Mac of their charters.
McCain
The companies, created to boost homeownership and promote market stability, own or guarantee about half the $12 trillion in U.S. home loans outstanding. In addition to those obligations, Fannie Mae has $831 billion in company bonds outstanding, while Freddie Mac has $644 billion, according to Bloomberg data.
Senator John McCain, the presumptive Republican presidential nominee, said the federal government can't allow them to fail.
Fannie Mae and Freddie Mac ``are vital to Americans' ability to own their own homes,'' McCain said in response to a reporter's question during a campaign stop at a diner in Livonia, Michigan. ``They will not fail; we cannot allow them to fail.''
Fair value accounting measures a company's net worth if it had to liquidate all of its assets to repay liabilities. Fannie Mae and Freddie Mac, both of which have the implicit backing of the government, make money by borrowing in the bond market and reinvesting the proceeds in higher-yielding mortgages and securities backed by home loans.
Stock Price Target
Fannie Mae slumped $1.64 to $13.67 at 11:15 a.m., extending declines for the year to 66 percent. Freddie Mac tumbled $2.17 to $8.09, taking its 2008 slide to 76 percent. UBS AG analysts led by Eric Wasserstrom in New York increased their estimates for losses at Freddie Mac and cut their price target for the stock to $10 from $28 after meeting with Freddie Mac's chief financial officer Anthony Piszel and controller David Kellerman, according to a report today.
Fannie Mae and Freddie Mac have raised a combined $20 billion since December to cover losses of more than $11 billion generated since the credit crisis began last year. Freddie Mac has yet to raise a planned $5.5 billion, scheduled for mid-year.
Paulson, Bernanke
U.S. Treasury Secretary Henry Paulson told lawmakers in Washington today that he's been assured by the regulator for Fannie Mae and Freddie Mac that the companies have enough capital.
The Office of Federal Housing Enterprise Oversight ``has made clear that they are adequately capitalized,'' Paulson said in testimony to the House Financial Services Committee. Federal Reserve Chairman Ben S. Bernanke also appeared.
The Treasury has been discussing what to do if Fannie Mae and Freddie Mac fail for months as part of its contingency planning, the Wall Street Journal reported today, citing three people familiar with the matter. The government doesn't expect the companies to fail and it doesn't have a rescue plan in place, the Journal said.
``At some point we're going to reach that inflection, where the government is going to have to either guarantee explicitly or Fannie and Freddie are going to have be left to fend for themselves,'' Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York, said in an interview with Bloomberg Television yesterday. ``We're getting to that point where a decision has to be made by Washington.''
`Well-Capitalized'
The government is counting on Fannie Mae and Freddie Mac, which own or guarantee about half the $12 trillion in home loans outstanding, to help revive the housing market. Congress lifted growth restrictions on the companies, eased their capital requirements and allowed them to buy bigger ``jumbo mortgages'' to spur demand for home loans as competitors fled the market.
``We are managing our business and maintaining a capital position that will allow us to fulfill our congressionally chartered mission now and in the future,'' Brian Faith, a spokesman for Fannie Mae, said.
Poole is ``a long-time critic,'' said Sharon McHale, a spokeswoman for McLean, Virginia-based Freddie Mac.
``Freddie Mac is doing exactly what Congress intended when it chartered the company and, more recently, when it passed the Economic Stimulus Act,'' McHale said. ``We are well capitalized and positioned to continue to serve our vital housing mission.''
Government Ties
Congress created Freddie Mac and expanded Fannie Mae in 1970 to promote home buying in the U.S. The companies' charters give the Treasury the authority to buy as much as $2.25 billion in each of their securities in the event of possible default.
The government will likely be forced to take over the companies because of the mortgage meltdown, Poole said.
``We know in a crisis the Federal Reserve tap would be open,'' said Poole, now a senior fellow at the Cato Institute.
The bailout of Bear Stearns Cos. by JPMorgan Chase & Co., arranged by the Fed, demonstrates the government's unwillingness to allow ``large, systemically important'' financial institutions to fail, he said. Bear Stearns collapsed after customers fled amid speculation the company faced a cash shortage.
``I worry about those institutions,'' retired Richmond Fed President Alfred Broaddus said. ``They are huge. They dwarf the Bear Stearns issue. In the very worst case scenario, I don't know how you do it other than extend money and the public takes the loss.''
$20 Billion Raised
The companies have access to the Fed's so-called Fedwire payments system allowing them to access funding if needed, said Vincent Reinhart, the Fed's chief monetary-policy strategist from 2001 until September 2007.
They can withstand the slump in part because most of their investments are mortgages made before 2006 when lending standards were tighter, making them less likely to default, said Eileen Fahey, a Chicago-based analyst at Fitch Ratings.
``We do not believe they are technically insolvent,'' Fahey said. ``People seem to lose sight of the fact that a majority of the mortgages that they are holding and are guaranteeing were originated pre-2006.''
Comments by the companies' regulator this week that they are adequately capitalized also eased concern, said Lawrence Yun, chief economist of the National Association of Realtors in Washington. The companies have about $80 billion of regulatory capital supporting $5.2 trillion of mortgages.
``Just given the size of the two companies, surely the government would not stand aside'' and let them fail, Yun said.
Record Spreads
Fannie Mae sold $3 billion of two-year notes yesterday to yield 74 basis points more than Treasuries. A basis point is 0.01 percentage point. That's the widest spread since Fannie Mae first sold two-year notes in 2000 and triple what it paid in June 2006.
Fannie Mae's spreads relative to two-year interest-rate swap spreads, considered a gauge of investors' perception of credit risk, remain about 12 basis points below a four-year high that was reached in March, Bloomberg data show.
Fannie Mae debt was trading 13 basis points tighter than two-year swap spreads today compared with 2 basis points tighter on March 19, Bloomberg data show. Freddie Mac spreads are about 19 basis points tighter than swap spreads after trading at the same level as swaps on March 17. Swap spreads are the difference between interest-swap rates above Treasury yields.
Credit-Default Swaps
The price of credit-default swaps, contracts used to speculate on the creditworthiness of Fannie Mae and Freddie Mac, doubled in the past two months to more than 80 basis points for the senior debt, according to London-based CMA Datavision.
The median credit-default swap on debt rated Aaa by Moody's was 36 basis points as of yesterday, data from the rating firm's strategy group show. It was 87 basis points for debt rated A3.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Fannie Mae tumbled as much as 24 percent and Freddie Mac slumped as much as 34 percent in New York Stock Exchange composite trading after UBS AG analysts said in a report today that Freddie Mac's decline creates ``challenges'' for the company's plan to raise $5.5 billion.
Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don't have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.
``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.
Poole roiled markets in 2003 when he said the government should consider severing its implied backing of Fannie Mae and Freddie Mac and the companies lack the capital to weather financial market disruptions. In 2006 and 2007 he called for lawmakers to strip Fannie Mae and Freddie Mac of their charters.
McCain
The companies, created to boost homeownership and promote market stability, own or guarantee about half the $12 trillion in U.S. home loans outstanding. In addition to those obligations, Fannie Mae has $831 billion in company bonds outstanding, while Freddie Mac has $644 billion, according to Bloomberg data.
Senator John McCain, the presumptive Republican presidential nominee, said the federal government can't allow them to fail.
Fannie Mae and Freddie Mac ``are vital to Americans' ability to own their own homes,'' McCain said in response to a reporter's question during a campaign stop at a diner in Livonia, Michigan. ``They will not fail; we cannot allow them to fail.''
Fair value accounting measures a company's net worth if it had to liquidate all of its assets to repay liabilities. Fannie Mae and Freddie Mac, both of which have the implicit backing of the government, make money by borrowing in the bond market and reinvesting the proceeds in higher-yielding mortgages and securities backed by home loans.
Stock Price Target
Fannie Mae slumped $1.64 to $13.67 at 11:15 a.m., extending declines for the year to 66 percent. Freddie Mac tumbled $2.17 to $8.09, taking its 2008 slide to 76 percent. UBS AG analysts led by Eric Wasserstrom in New York increased their estimates for losses at Freddie Mac and cut their price target for the stock to $10 from $28 after meeting with Freddie Mac's chief financial officer Anthony Piszel and controller David Kellerman, according to a report today.
Fannie Mae and Freddie Mac have raised a combined $20 billion since December to cover losses of more than $11 billion generated since the credit crisis began last year. Freddie Mac has yet to raise a planned $5.5 billion, scheduled for mid-year.
Paulson, Bernanke
U.S. Treasury Secretary Henry Paulson told lawmakers in Washington today that he's been assured by the regulator for Fannie Mae and Freddie Mac that the companies have enough capital.
The Office of Federal Housing Enterprise Oversight ``has made clear that they are adequately capitalized,'' Paulson said in testimony to the House Financial Services Committee. Federal Reserve Chairman Ben S. Bernanke also appeared.
The Treasury has been discussing what to do if Fannie Mae and Freddie Mac fail for months as part of its contingency planning, the Wall Street Journal reported today, citing three people familiar with the matter. The government doesn't expect the companies to fail and it doesn't have a rescue plan in place, the Journal said.
``At some point we're going to reach that inflection, where the government is going to have to either guarantee explicitly or Fannie and Freddie are going to have be left to fend for themselves,'' Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York, said in an interview with Bloomberg Television yesterday. ``We're getting to that point where a decision has to be made by Washington.''
`Well-Capitalized'
The government is counting on Fannie Mae and Freddie Mac, which own or guarantee about half the $12 trillion in home loans outstanding, to help revive the housing market. Congress lifted growth restrictions on the companies, eased their capital requirements and allowed them to buy bigger ``jumbo mortgages'' to spur demand for home loans as competitors fled the market.
``We are managing our business and maintaining a capital position that will allow us to fulfill our congressionally chartered mission now and in the future,'' Brian Faith, a spokesman for Fannie Mae, said.
Poole is ``a long-time critic,'' said Sharon McHale, a spokeswoman for McLean, Virginia-based Freddie Mac.
``Freddie Mac is doing exactly what Congress intended when it chartered the company and, more recently, when it passed the Economic Stimulus Act,'' McHale said. ``We are well capitalized and positioned to continue to serve our vital housing mission.''
Government Ties
Congress created Freddie Mac and expanded Fannie Mae in 1970 to promote home buying in the U.S. The companies' charters give the Treasury the authority to buy as much as $2.25 billion in each of their securities in the event of possible default.
The government will likely be forced to take over the companies because of the mortgage meltdown, Poole said.
``We know in a crisis the Federal Reserve tap would be open,'' said Poole, now a senior fellow at the Cato Institute.
The bailout of Bear Stearns Cos. by JPMorgan Chase & Co., arranged by the Fed, demonstrates the government's unwillingness to allow ``large, systemically important'' financial institutions to fail, he said. Bear Stearns collapsed after customers fled amid speculation the company faced a cash shortage.
``I worry about those institutions,'' retired Richmond Fed President Alfred Broaddus said. ``They are huge. They dwarf the Bear Stearns issue. In the very worst case scenario, I don't know how you do it other than extend money and the public takes the loss.''
$20 Billion Raised
The companies have access to the Fed's so-called Fedwire payments system allowing them to access funding if needed, said Vincent Reinhart, the Fed's chief monetary-policy strategist from 2001 until September 2007.
They can withstand the slump in part because most of their investments are mortgages made before 2006 when lending standards were tighter, making them less likely to default, said Eileen Fahey, a Chicago-based analyst at Fitch Ratings.
``We do not believe they are technically insolvent,'' Fahey said. ``People seem to lose sight of the fact that a majority of the mortgages that they are holding and are guaranteeing were originated pre-2006.''
Comments by the companies' regulator this week that they are adequately capitalized also eased concern, said Lawrence Yun, chief economist of the National Association of Realtors in Washington. The companies have about $80 billion of regulatory capital supporting $5.2 trillion of mortgages.
``Just given the size of the two companies, surely the government would not stand aside'' and let them fail, Yun said.
Record Spreads
Fannie Mae sold $3 billion of two-year notes yesterday to yield 74 basis points more than Treasuries. A basis point is 0.01 percentage point. That's the widest spread since Fannie Mae first sold two-year notes in 2000 and triple what it paid in June 2006.
Fannie Mae's spreads relative to two-year interest-rate swap spreads, considered a gauge of investors' perception of credit risk, remain about 12 basis points below a four-year high that was reached in March, Bloomberg data show.
Fannie Mae debt was trading 13 basis points tighter than two-year swap spreads today compared with 2 basis points tighter on March 19, Bloomberg data show. Freddie Mac spreads are about 19 basis points tighter than swap spreads after trading at the same level as swaps on March 17. Swap spreads are the difference between interest-swap rates above Treasury yields.
Credit-Default Swaps
The price of credit-default swaps, contracts used to speculate on the creditworthiness of Fannie Mae and Freddie Mac, doubled in the past two months to more than 80 basis points for the senior debt, according to London-based CMA Datavision.
The median credit-default swap on debt rated Aaa by Moody's was 36 basis points as of yesterday, data from the rating firm's strategy group show. It was 87 basis points for debt rated A3.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
American Car Company
The Chrysler building, an Art Deco icon of the New York City skyline, has sold to a fund controlled by Abu Dhabi for $800m.The building, completed in 1930 for the automotive company Chrysler, was briefly the tallest building in the world. The Abu Dhabi Investment Council, a sovereign wealth fund controlled by the oil-rich sheikdom paid $800m for the 77-story building, Bloomberg reported. The seller was a fund managed by Prudential Financial and the sale was finalized yesterday.
The graceful tower overlooks the corner of 42nd Street and Lexington Avenue in Manhattan. It is beloved for the upper stories' ornamental arches and the stylised eagle sculptures that jut out from near the top of the tower, as if keeping watch over the city.
Middle Eastern investors have spent $1.8bn this year on commercial real estate in the US, more than other international buyers, Real Capital Analytics, a New York-based property research firm, told Bloomberg.
Two years ago furore erupted when Dubai Ports World sought to buy a London company that operated six shipping ports on the east coast of the US. The deal died over national security concerns.
Foreign acquisition of New York landmarks isn't a new phenomenon. In May, a consortium of US interests and Kuwait and Qatar the General Motors building and three other midtown towers for $3.95bn.In 1989 Japanese investors bought Rockefeller Centre, a suite of buildings home to NBC, General Electric and other high-profile companie
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