Economy-Finance

UPDATE 3-US bank industry slams lawmaker-Citi mortgage deal

(Adds Citigroup declining to comment, details on bailout,figures regarding U.S. mortgage market)

By Karey Wutkowski and Dan Wilchins

WASHINGTON/NEW YORK, Jan 9 (Reuters) - A top bank industrygroup said on Friday that it opposes an agreement betweenCitigroup Inc (C.N ) and Democratic senators that would rewriteU.S. bankruptcy law to help troubled mortgage borrowers avoidforeclosure, saying it could make home loans more expensive.

Other industry players questioned the motivations behindCitigroup’s about-face on the topic of so-called cram-downs,speculating that the financial giant has been forced to furtherthe U.S. government’s agenda.

“The big change between now and a couple of months ago isthat the government is backing Citigroup’s balance sheet,” saidGary Townsend, a veteran analyst who now runs hedge fundHill-Townsend Capital. “The government has a lot of leveragethat wasn’t there before.”

Citigroup declined to comment.

Citigroup said on Thursday that it would support a plan putforth by Democratic Senators Charles Schumer and RichardDurbin, among others, that is aimed at preventingforeclosures.

Citigroup had previously opposed changing the law to letbankruptcy court judges, in some circumstances, cut mortgagedebts to help bankrupt homeowners.

The government has injected $45 billion of capital intoCitigroup since October, making the nation’s third-largest banka top recipient of federal bailout funds. Under that bailout,Citigroup absorbs the first $29 billion of losses on a $306billion portfolio of troubled assets, and the government takes90 percent of losses after that.

The American Bankers Association said in a statement onFriday that it did not participate in Citigroup’s agreementwith lawmakers and has consistently opposed giving bankruptcyjudges broad authority to unilaterally modify mortgage terms.

“ABA is opposed to the agreement because it will leave inplace overly broad mortgage cram-down authority and otherprovisions that will harm thousands of banks across the countrythat have made, and continue to make, good loans,” said FloydStoner, ABA’s executive director for public policy.

As part of a government rescue package in November,Citigroup was forced to adopt a systematic loan modificationprogram for distressed mortgages.

“The comments I’ve heard from bankers is that Citigroup isseen as suspect, because they’ve received so much money fromthe government,” said Bert Ely, a longtime banking industryconsultant in Alexandria, Virginia. “If Wells Fargo or Bank ofAmerica got on board, it would be a much more powerfulendorsement.”

In 2008, there were an estimated 1 million personalbankruptcy filings. Of those, about 580,000 had mortgage debt,said Stu Feldstein, president of consumer finance research firmSMR Research Corp.

There are about 50 million residential mortgagesoutstanding in the U.S., totaling more than $10 trillion ofdebt.

This legislation is most likely to affect mortgages thatare packaged into bonds, which make up about half ofoutstanding home loans, according to industry sources.Mortgages that are held on bank balance sheets are more likelyto be renegotiated prior to bankruptcy, they said.  Continued…

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Deutsche Bank credit head quits to start hedge fund

LONDON, Jan 9 (Reuters) - The co-head of global credittrading at Deutsche Bank AG (DBKGn.DE ) is to leave to launch hisown hedge fund, the German bank said on Friday.

Boaz Weinstein, 35, will leave early in the second quarterafter 11 years at the bank, said Michael Golden, spokesman forthe bank. About 15 of Weinstein’s colleagues will join him atthe new fund.

Deutsche said Weinstein will not be replaced. Colin Fan, wholeads global credit trading together with Weinstein, will be thesole head of the business.

Deutsche Bank Chief Executive Josef Ackermann told staff inNovember the bank was shifting strategy and moving costs andassets away from businesses unlikely to recover in the nearterm.

The bank lost 873 million euros ($1.19 billion) in creditproprietary trading in the third quarter, part of a 1.26 billioneuro hit from trading equities and debt on Deutsche’s ownaccount. (Reporting by Olesya Dmitracova; Editing by Sharon Lindores)

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EU executive wants to amend prospectus rules

BRUSSELS, Jan 9 (Reuters) - European Union rules on stockand bond offerings across the 27-nation bloc have helped tocreate a single securities market but amendments would cut costsfurther for users, the EU’s executive body said on Friday.

“The prospectus regime appears to have made it easier tooffer securities and admit them to trading either in one countryor in several countries at the same time,” the EuropeanCommission said in a statement.

The cost of compliance fell once users became familiar withthe new rules but the Commission said it wanted to simplify thelaw to cut expenses further.

The 2003 prospectus directive oversees the often copiousinformation that must be given to a range of investors when anew share or bond offering is made so they are not misled.

EU Internal Market Commissioner Charlie McCreevy is seekingviews on the following changes he wants to make:

— No prospectus is needed for professional investors suchas mutual funds, and McCreevy wants to extend the scope ofprofessional investors to include investors who take part inprivate placements;

— To extend the list of exemptions from issuing aprospectus to include share schemes for EU employees ofcompanies listed on non-EU exchanges or non-listed companies;

— To scrap a requirement that issuers provide a documenteach year with all the information published in the 12 monthspreceding the prospectus. This is seen as duplicating a similarrequirement under separate EU transparency rules;

— When new information is released after a prospectus ispublished, investors across the EU would have at least two daysto withdraw any offer they have made;

— Review how summaries of prospectuses are compiled;

— The 2.5 million euro ($3.4 million) threshold thattriggers the need for a company to issue a prospectus should beraised or the amount of information a small company has topublish should be cut;

— Where the state is a guarantor of the issuance of debt, acompany that wants to make a cross-border offering should nothave to make available additional details about the state’sfinances;

— A rights issue could be exempted from the need to publisha prospectus as long as a document was available with detailsand reasons for the offer. (Reporting by Huw Jones, editing by Dale Hudson)

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UPDATE 1-M.Stanley ups Q4, 2009 loss view for mid-sized US banks

Jan 9 (Reuters) - Morgan Stanley increased itsfourth-quarter and 2009 cumulative loss estimate for U.S.mid-sized banks on higher credit losses and said several bankswill be unprofitable in 2009.

The brokerage estimates provision expense for mid-sizedbanks in its coverage universe to average just more than $2billion per quarter through the end of 2009, as risingconstruction loan losses and weakening commercial creditsprompt further reserve build.

Banks with sizable construction and commercial exposureappear most at risk of an earnings miss in the fourth quarter,said analyst Ken Zerbe, who revised his fourth-quarterestimates on 25 mid-sized banks. [ID:nWNAB8276]

Zerbe said East West (EWBC.O ), First Horizon (FHN.N ),Marshall & Ilsley (MI.N ), South Financial (TSFG.O ), UCBHHoldings (UCBH.O ) and Zions Bancorp (ZION.O ) could see eitherthe largest credit losses or reserve build in the next fewquarters.

Zerbe downgraded East West to “equal-weight” from”overweight” and said, “We are mostly concerned with thenear-term performance of the company’s large Californiaconstruction portfolio.”

The analyst also expects several banks to cut theirdividend in 2009 due to lower earnings power. (Reporting by Sweta Singh in Bangalore; Editing by PratishNarayanan)

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Mexico stocks fall, America Movil weighs

MEXICO CITY, Jan 9 (Reuters) - Mexican stocks fell 1percent on Friday, hit by losses at cell phone operator AmericaMovil (AMXL.MX ), as investors worried about the impact of therecession in the United States, Mexico’s top trading partner.

The benchmark IPC stock index .MXX fell 1.02 percent to21,730. (Reporting Michael O’Boyle; Editing by James Dalgleish)

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UPDATE 3-Britain plans talks with banks to ease lending

(Adds RBS rate cut in paras 7-8)

By Keith Weir

LONDON, Jan 9 (Reuters) - The British government plans talks with banks about boosting lending to business after theBank of England cut interest rates to a record low.

Prime Minister Gordon Brown said that banks would be made tohonour a commitment in a government rescue package to maintainthe supply of loans to mortgage holders and small businesses at2007 levels.

“We will be meeting the banks in the next few days to agreewith them on how we can move this forward,” he told Sky News.

The Bank of England cut interest rates by 50 basis points to1.5 percent on Thursday, the latest in a series of cuts designedto prevent Britain becoming stuck in a deep recession.

However, banks remain reluctant to lend as they try torebuild their capital base following the credit crunch, bluntingthe impact of rate cuts.

Banks are also not always passing on the full base rate cutsto their customers.

Royal Bank of Scotland (RBS.L ), owner of NatWest and one ofthe top lenders to consumers and businesses, said on Friday itwould cut its standard variable rate by only 0.25 percent.

The bank, 58 percent owned by the government after lastyear’s bail-out, said it wants to cushion savers from the fullimpact of the rate cut. RBS said the vast majority of its smallbusiness lending was directly linked to base rates.

Business minister Peter Mandelson also indicated thatfurther measures were being considered to help companies geteasier access to funding.

“Having saved the banks from collapse in the autumn we’vegot to take further action, I suspect, to get the banks back ontheir feet and lending properly,” Mandelson told BBC radio.

Brown will host a meeting on Monday with business leaders todiscuss ways to stem the rise in unemployment. The primeminister has spoken of creating 100,000 jobs through a publicworks programme.

“If you want jobs, you need companies that can pay wages,”said John Cridland, deputy director-general of the Confederationof British Industry.

“That is why we need measures from government to tackle thecredit crunch, and get finance flowing through the economyagain,” he added in a statement ahead of Monday’s meeting.

Opposition economic spokesman George Osborne urged thegovernment to provide loan guarantees, initially worth up to 50billion pounds ($76.2 billion), for new lending to businesses ofall sizes.  Continued…

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Irish bank watchdog under spotlight as report looms

By Jonathan Saul

DUBLIN, Jan 9 (Reuters) - Ireland’s financial regulatorPatrick Neary will face lawmakers next week as he awaits thefindings of an internal probe into a loan scandal at Anglo IrishBank ANGL.I.

The niche commercial lender sent shockwaves through thefinancial industry last month when then chairman SeanFitzPatrick acknowledged he kept shareholders in the dark about87 million euros ($119 million) worth of loans he received fromthe bank.

A probe into the scandal by a committee of the IrishFinancial Services Regulatory Authority is expected to becompleted on Friday.

Irish media speculation has grown that Neary may step downonce the findings are presented to the regulator’s board andFinance Minister Brian Lenihan. A spokesman for the regulator declined to comment.

Last month it was disclosed some regulatory staff becameaware of the loans in January 2008. Neary has not said when hewas informed of the borrowings.

The father of three is set to appear before a parliamentarysub-committee on Tuesday.

Even before the Anglo scandal, the veteran regulator hadcome under fire for failing to rein in Irish banks’ largeexposure to a now plummeting property market.

“There has been a lot of concern about the regulatory laxityof the Irish system,” said Brian Lucey, associate professor offinance at Dublin’s Trinity College. “The perception is one of aregulator asleep at the wheel.”

MANAGEMENT PURGE

The revelations at Anglo Irish triggered a purge of seniormanagement with FitzPatrick and chief executive David Drummresigning within hours of each other last month.

Finance Director and Chief Risk Officer William McAteerresigned on Wednesday and Anglo Irish said it would reconfigureits corporate governance structure to rebuild trust.

Lenihan has said the robustness of Ireland’s regulatorysystem “would have to be confirmed” and this week asked centralbank governor John Hurley, who sits in the same building asNeary, to stay on after his term expires in March to ensureleadership amidst the financial turmoil.

“Ireland seems to be in the eye of the storm,” and said Davyanalyst Scott Rankin. “The events that we saw pre-Christmas withAnglo Irish certainly put the tin hat on it.”

Ireland is an important financial hub in Europe,administering nearly 1.7 trillion euros ($2,325 billion) worthof funds.  Continued…

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CORRECTED - UPDATE 3-KB Home reports worse-than-expected loss

* Q4 shr loss $3.96 per share

* Q4 revenue down 56 pct to $919 mln

* Shares flat (Corrects to show that 25 percent of communities are offeringor preparing to offer new product, not already offering)

NEW YORK, Jan 9 (Reuters) - KB Home posted aworse-than-expected quarterly loss, sending its shares lower,but an upward revision to its cash generation forecast and somepositive commentary helped the stock pare much of its losses.

The No. 5 U.S. homebuilder said its net loss narrowed to$307.3 million, or $3.96 per share, in the fourth quarter endedon Nov. 30, from $772.7 million, or $9.99 per share, a yearearlier.

Wall Street had anticipated a loss of $1.51 per share,according to Reuters Estimates. Total revenue fell 56 percentto $919 million.

But during its conference call, the Los Angeles-basedcompany upgraded its cash flow forecast for 2009 to positivefrom neutral, at which its shares began to reverse course.

The U.S. housing downturn, now entering its fourth year,has left builders doing what they can to survive: cutting jobsand dividends, leaving markets, and selling homes and land evenat a loss to generate cash and manage debt.

KB generated $311.1 million in cash from operations duringthe quarter, which UBS analyst David Goldberg called”impressive” in a note to clients. The company ended the yearwith $1.25 billion of cash and equivalents.

Excluding the impact of losses KB Home must acknowledge asits land declines in value, it achieved positive income fromoperations for the first time in five quarters, Chief ExecutiveJeffrey Mezger said.

“We continue to believe the company has sufficientliquidity to withstand the downturn,” wrote UBS’s Goldberg, whorates KB’s shares “neutral.”

The company carries $1.94 billion in debt, and itsproportion of debt to capital rose to 70 percent at the end offiscal 2008 from 54 percent a year earlier.

Risky lending practices that helped fuel the U.S. housingboom of 2002-2006 also triggered the subsequent bust and creditcrisis that has spread around the world.

While the industry continues to groan under oversupply,foreclosures, plunging prices and stricter lending standards,it is also being affected by broader economic problems.

“Escalating unemployment is now the biggest housingproblem,” analyst Robert Stevenson of Fox-Pitt Kelton recentlywrote.

On Friday, the U.S. Labor Department said the country lost524,000 jobs in December, pushing the national unemploymentrate to 7.2 percent, the highest level in almost 16 years.  Continued…

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Sterling recovers early losses, hits 3-wk high vs euro

LONDON, Jan 7 (Reuters) - Sterling hit a three-week highagainst the euro on Wednesday, recovering from early losses astraders cut short positions in the UK currency, which took abeating at the end of 2008.

The euro <EURGBP=D4> fell 0.2 percent to 90.18 penceaccording to the Reuters Dealing System, its weakest level sincemid-December.

Traders in London said that sterling was getting a boostagainst the euro ahead of bank fixing at 1315 GMT.

Sterling <GBP=D4> climbed as high as $1.5071, its highestsince Dec. 22.

“The market is still cutting out short sterling positionsand there’s fresh corporate-style money from abroad coming intothe UK,” said Neil Jones, head of European hedge fund sales atMizuho Corporate Bank in London.

“There’s been a change in sentiment for sterling.”

(Reporting by Veronica Brown and Naomi Tajitsu)

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PRECIOUS-Gold softens as dollar firms after U.S. jobs data

* Dollar firms a touch versus the euro, pressuring gold

* Key U.S. jobs data shows payrolls down 524,000 in Dec* Investec cuts 2009 platinum forecast by 28 percent(Updates prices, adds comment after U.S. jobs data)

By Jan Harvey

LONDON, Jan 9 (Reuters) - Gold edged lower on Friday as thedollar strengthened against the euro in the wake of U.S.December non-farm payrolls numbers, but reaction to the data wasmuted as it came in broadly in line with expectations.

Spot gold <XAU=> slipped to $850.65/852.65 an ounce at 1415GMT from $856.10 late in New York on Thursday.

U.S. gold futures for February delivery GCG9 on the COMEXdivision of the New York Mercantile Exchange fell $2.80 to$851.70.

A government report showed U.S. employers slashed payrollsby 524,000 in December, driving the unemployment rate to itshighest level in nearly 16 years. [ID:nN08546114]

Analysts polled by Reuters had expected a reduction of550,000 jobs in December.

“The non-farm payrolls were only a few thousand offconsensus, so that took some of the surprise away from themarket,” said BNP Paribas metals analyst Michael Widmer.

Gold is taking its cues predominantly from the currencymarkets. The dollar turned higher against the euro in choppytrading after the data, with the single currency hitting asession low of $1.3588. [ID:nN09280941] A stronger dollar tends to pressure gold, which is oftenbought as an alternative asset to the U.S. currency and tends tomove in the opposite direction to it.

While the data was very poor, Widmer said, recent economicreports from the euro zone economies have also been weak,leaving both the dollar and the euro lacking support.

Oil prices, which also tend to influence gold, slipped morethan $1 a barrel after the data to below $41 a barrel, as therise in unemployment deepened gloom over the demand outlook inthe world’s largest oil consumer. [ID:nSP104411]

In the longer run, concern over the prospects for the globaleconomy continue to support gold as a haven from risk.

However, jewellery buying is relatively lacklustre andstrong demand for investment coins and bars is said by tradersto have slackened since its autumn peak.

In India, the world’s leading market for gold jewellery,buying remains muted with prices at relatively high levels.

“There is hardly any demand at these prices,” said MayankKhemka, managing director of bullion importer KhemkaInternational in Delhi.  Continued…

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