Bloomberg: Michael Price, shorts Citigroup and Wachovia
Price, 57, is selling short both stocks even after Citigroup, the biggest U.S. bank by assets, tumbled 33 percent this year and Wachovia, the fourth-largest, lost 52 percent. In a short sale, investors borrow shares and sell them on the expectation they can be purchased at a lower price before paying back the loan.
Citigroup has reported $55.1 billion in writedowns and credit losses tied to the collapse of U.S. credit markets, while Wachovia had $22 billion in charges. Analysts project U.S. bank profits will fall 35 percent this quarter after $493 billion in losses from subprime lending sent them lower during the last four.
WSJ: Secondary Sources: Global Economy, Oil, Mortgages, Fed Watch
Writing for the Economist’s View blog, Tim Duy says the U.S. economy is hobbled and that is keeping the Fed stuck in neutral. “Lacking an asset bubble to promote growth while still working through the aftermath of the last asset bubble leaves the U.S. economy hobbled. While I think another downward lurch in line with the more apocalyptic outlooks remains unlikely, stabilization at relatively low rates of growth looks like the best we can expect for the foreseeable future. The collapse in energy prices gives the Fed room to avoid a rate hike this year, but the sting of this year’s burst of inflation will keep policymakers from cutting rates as well. Like the US economy, monetary policy is in limbo.”
NY Times: Mortgage Rates…Crimping Affordability
Rates on a 30-year fixed-rate loan, which were as low as 5.89 percent in mid-April, have been climbing and now remain near a one-year high of about 6.7 percent, according to the financial publisher HSH Associates.
The financial troubles at Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies, are one factor behind the increasing rates. The two companies continue to reduce the number of mortgages they buy from lenders and have also imposed new fees on the loans they do buy and guarantee, a cost that ultimately is passed on to borrowers.
At the same time, mortgage bond investors want to be paid more to make up for the risk that borrowers may default on their loans.
The Big Picture: Bank Lending Practices Tighten as Loan Demand Falls
The Federal Reserve’s Loan Officer Opinion Survey on Bank Lending Practices notes the impact the credit crunch is having on lending: After several years of lapse standards, we have now swung to the other extreme. At the same time, credit demand is dropping.
Here are the two key takeaways from the quarterly survey: First, both domestic and foreign respondents “expect their banks to tighten credit standards on all major loan categories in the second half of this year, and smaller, though substantial, net fractions of respondents expected their banks to tighten standards in the first half of 2009.” Gee, that’s an awful lot of tightening.
The second issue: “Demand for loans from both businesses and households at domestic and foreign institutions reportedly weakened, on net, over the past three months.”
About Bill Rice