U.S. Home Sales May Have Fallen: U.S. Economy Preview
April 20 (Bloomberg) -- The collapse in U.S. home sales showed no sign of ending in March, while orders from overseas helped manufacturing stabilize, economists said before reports this week.
Combined sales of new and existing homes dropped 2.5 percent last month, according to the median estimate of economists surveyed by Bloomberg News. Orders for durable goods, products meant to last several years, were probably unchanged.
The deterioration in housing that is at the center of the current credit crisis has brought the economy to a standstill and perhaps a recession. Factories, which often feel the brunt of economic contractions, have been able to keep assembly lines moving because of gains in exports.
Housing is ``the weakest part of the economy,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``With the overseas economies doing better than ours, we'll probably see decent growth'' in goods orders.
The National Association of Realtors is scheduled to release the existing-home sales report on April 22. Economists forecast sales would decline to a 4.9 million pace from 5.03 million in February, according to the survey median.
Two days later, the Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 580,000, a 13-year low.
Declining sales are prompting builders to slash construction and cut prices. Work began on 947,000 homes at an annual rate in March, less than forecast and the fewest in 17 years, the Commerce Department reported last week.
Housing's Influence
Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.
As property values tumble and the borrowing costs on adjustable-rate mortgages reset higher, more Americans are walking away from their homes. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of default data, said April 14.
The report on durable goods, also due from the Commerce Department on April 24, is projected to show that orders excluding transportation equipment rose 0.2 percent, according to the Bloomberg survey.
Manufacturing reports so far this month have sent contradictory signals, with companies and regions that export faring better than those that don't.
Overseas Sales
Caterpillar Inc., the world's largest maker of bulldozers and excavators, said on April 18 that first-quarter profit exceeded analysts' forecasts as sales to Asia, the Middle East and emerging markets grew.
Overseas demand helped Peoria, Illinois-based Caterpillar even as North America was in the midst of what Chief Executive Officer Jim Owens called ``a recessionary storm.''
Industrial production improved in March, reflecting increases in output of equipment such as computers, the Federal Reserve reported last week. The gain indicated business investment may not be slowing as much as previously thought.
``No other part of the industrial sector is as hot as technology, which tells you how the tables have turned'' since the 2001 recession when capital spending plunged, David Rosenberg, chief North American economist at Merrill Lynch & Co. said in an April 16 note to clients. ``Anything related to housing and the consumer remains in downsizing mode.''
Fed View
The Fed last week said economic growth slowed in nine of 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.
Policy makers have lowered the benchmark overnight lending rate between banks by 2 percentage points so far this year to keep the economy from falling into a recession.
The two-year Treasury yield rose 39 basis points, or 0.39 percentage point, to 2.14 percent last week, according to bond broker BGCantor Market Data, their biggest weekly increase since 2001, as surging stocks and signs of quickening inflation reduced the appeal of government debt.
Other reports this week are forecast to show that the number of Americans applying for jobless benefits remained elevated last week and consumer sentiment this month sank to a 26-year low.
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Economy | Business | Social | Leaked | Opinions
Sunday, April 20, 2008
Bank of England to Detail Swap Plan for Easing Credit
Bank of England to Detail Swap Plan for Easing Credit
April 20 (Bloomberg) -- The Bank of England tomorrow will release its plan to swap government bonds for mortgage-backed securities in an effort to ease credit costs and help British homeowners, Chancellor of the Exchequer Alistair Darling said.
This will ``unfreeze the situation we've got at the moment,'' Darling said today in a BBC television interview. ``What the Bank of England will do is in effect lend the banks that money. In the meantime, the Bank of England will take a security,'' he said.
Prime Minister Gordon Brown's government is looking for ways to promote lending after a surge in borrowing costs has caused a pullback by banks. Companies including HBOS Plc have curbed lending and raised the cost of mortgage loans even after central bank policy makers cut the benchmark lending rate three times since December to help avert a U.K. recession.
By offering commercial lenders government bonds, the central bank will be adding to their inventory of liquid assets and making it easier for them to both raise cash and lend, especially to consumers seeking mortgages. In return, the government will hold the riskier mortgage-backed assets as security.
The central bank and the Treasury may offer a swap of 50 billion pounds ($100 billion), the British Broadcasting Corp. reported yesterday. Former Bank of England policy maker Willem Buiter said that may not be enough. The authorities may need to provide double that amount to kick-start the mortgage market, he said in an interview.
Stabilizing Markets
``This is an essential initial step in trying to get the financial market stabilized and that in turn will help the mortgage market,'' Darling said today. ``We can re-open the financial markets, because that is an essential pre-condition for the provision of mortgages.''
Darling, who didn't specify the size of the program in the interview, said he wants British banks to be as transparent as possible in declaring losses on bad loans. He also urged them to pass on interest rate cuts to consumers.
A Bank of England spokesman declined to comment on Darling's remarks when contacted today by Bloomberg News.
``It's important the banks begin now to expose the extent of their losses and explain now how they are going to rebuild their capital,'' he said.
Royal Bank of Scotland Group Plc, the U.K.'s second-biggest lender, is considering a share sale to shore up capital depleted by credit-related writedowns and its part in the acquisition of ABN Amro Holding NV last year, according to a person with knowledge of the plan.
``I would like to see banks do more to pass on the interest rate cuts,'' Darling said.
At the same time, the finance minister urged patience, saying the credit crunch partly needs time to work itself out.
``One analogy is someone who has gotten dose of food poisoning and in some aspects that just has to work its way through the system,'' he said. ``We can help the process and the Bank of England's measures tomorrow will help the process, which in turn will help the housing market.''
BLOOMBERG
April 20 (Bloomberg) -- The Bank of England tomorrow will release its plan to swap government bonds for mortgage-backed securities in an effort to ease credit costs and help British homeowners, Chancellor of the Exchequer Alistair Darling said.
This will ``unfreeze the situation we've got at the moment,'' Darling said today in a BBC television interview. ``What the Bank of England will do is in effect lend the banks that money. In the meantime, the Bank of England will take a security,'' he said.
Prime Minister Gordon Brown's government is looking for ways to promote lending after a surge in borrowing costs has caused a pullback by banks. Companies including HBOS Plc have curbed lending and raised the cost of mortgage loans even after central bank policy makers cut the benchmark lending rate three times since December to help avert a U.K. recession.
By offering commercial lenders government bonds, the central bank will be adding to their inventory of liquid assets and making it easier for them to both raise cash and lend, especially to consumers seeking mortgages. In return, the government will hold the riskier mortgage-backed assets as security.
The central bank and the Treasury may offer a swap of 50 billion pounds ($100 billion), the British Broadcasting Corp. reported yesterday. Former Bank of England policy maker Willem Buiter said that may not be enough. The authorities may need to provide double that amount to kick-start the mortgage market, he said in an interview.
Stabilizing Markets
``This is an essential initial step in trying to get the financial market stabilized and that in turn will help the mortgage market,'' Darling said today. ``We can re-open the financial markets, because that is an essential pre-condition for the provision of mortgages.''
Darling, who didn't specify the size of the program in the interview, said he wants British banks to be as transparent as possible in declaring losses on bad loans. He also urged them to pass on interest rate cuts to consumers.
A Bank of England spokesman declined to comment on Darling's remarks when contacted today by Bloomberg News.
``It's important the banks begin now to expose the extent of their losses and explain now how they are going to rebuild their capital,'' he said.
Royal Bank of Scotland Group Plc, the U.K.'s second-biggest lender, is considering a share sale to shore up capital depleted by credit-related writedowns and its part in the acquisition of ABN Amro Holding NV last year, according to a person with knowledge of the plan.
``I would like to see banks do more to pass on the interest rate cuts,'' Darling said.
At the same time, the finance minister urged patience, saying the credit crunch partly needs time to work itself out.
``One analogy is someone who has gotten dose of food poisoning and in some aspects that just has to work its way through the system,'' he said. ``We can help the process and the Bank of England's measures tomorrow will help the process, which in turn will help the housing market.''
BLOOMBERG
RBS Writedowns May Reach 7 Billion Pounds, Times Says
RBS Writedowns May Reach 7 Billion Pounds, Times Says
April 20 (Bloomberg) -- Royal Bank of Scotland Group Plc will announce writedowns of between 5 billion pounds ($10 billion) and 7 billion pounds this week as it prepares a share sale, the Sunday Times reported, without saying where it got the information.
The U.K.'s second-biggest lender, whose board meets today, also plans to announce a stock offering of between 10 billion and 12 billion pounds, and is looking to raise as much as 5 billion pounds by the end of this financial year through asset disposals, the newspaper said.
Led by Chief Executive Officer Fred Goodwin, Edinburgh- based Royal Bank is the most indebted of the biggest U.K. banks after paying about 72 billion euros with Banco Santander SA and Fortis for ABN Amro Holding NV, mostly in cash.
``It probably is worse than what people are expecting,'' Sandy Chen, a London-based analyst at Panmure Gordon, said yesterday, referring to the potential credit-related losses at Royal Bank. He has a ``sell'' recommendation on the stock.
Royal Bank is considering a share sale to shore up capital, according to a person with knowledge of the plan. The bank needs to meet capital-adequacy requirements after about 2.6 billion pounds of markdowns, the person said on April 18, declining to be identified as no decision had been made.
``We will fully update the market next week on both trading and capital,'' Carolyn McAdam, a spokeswoman for Royal Bank, told Bloomberg News today. She declined to comment further.
Capital Ratio
RBS has a so-called equity Tier 1 capital ratio of about 4.5 percent, trailing Barclays Plc, the one-time rival suitor for ABN Amro, at about 5.1 percent and Lloyds TSB Group Plc at 7.4 percent, UBS AG analysts estimated April 16. The ratio is bolstered by some ABN Amro assets it has yet to split off. Its target is 5.25 percent.
Goodwin has held talks with regulators about raising capital, the Sunday Telegraph reported, citing people close to the company. It said the bank was set to announce losses of 6 billion pounds.
Goodwin met Hector Sants of the Financial Services Authority in the last two weeks, the newspaper said. Sants has also held similar talks with other British banks, including Barclays Plc and HBOS Plc, it added.
The Telegraph also reported that Royal Bank's offering would raise between 10 billion and 12 billion pounds, making it the biggest by a British company.
Insurance Assets
American International Group Inc., the world's largest insurer by assets; Allianz SE, Europe's biggest insurer; Axa SA and Assicurazioni Generali SpA are interested in buying RBS's insurance division, the Telegraph added. The Sunday Times also said AIG, as well as Warren Buffett's Berkshire Hathaway Inc. may be looking at the bank's assets, and said it may consider selling a 20 percent stake in its insurance arm.
The Sunday Times added that Royal Bank expects the latest writedown to be the last.
The Financial Times reported yesterday that Royal Bank's fresh losses may total 4 billion pounds, while the stock sale would amount to at least 10 billion pounds. It said the offering would be fully underwritten by banks including Merrill Lynch & Co., Goldman Sachs Group Inc. and UBS AG, citing unidentified people familiar with the matter for the report.
Victoria Garrod for Merrill Lynch in London, declined to comment yesterday when contacted by Bloomberg News, as did Dominik von Arx, a London-based UBS spokesman.
Stock Decline
Royal Bank shares have declined 14 percent since the start of this year, compared with a six percent drop in the FTSE All- Share Banks Index over the same period. They rebounded 18 pence, or 4.9 percent, to 384 pence on April 18 amid reports of the planned fundraising, giving it a market value of 38.5 billion pounds.
The bank may sell Direct Line Insurance Plc and Churchill, its sister insurer, to raise as much as 5 billion pounds as part of an effort to boost capital, the London-based Times reported separately yesterday, citing people close to the company.
The bank may also consider selling other holdings including its stakes in Bank of China, Angel Trains Ltd., which leases passenger railway vehicles to train operators, and Citizens Financial Group Inc., the U.S. regional bank, the Times said yesterday.
The bank may also divest National Insurance Guarantee Corp., a commercial lines insurer, for about 1 billion pounds, the Financial Times said.
The bank, which has lost almost half its market value in the past year, has already sold assets such as its European consumer-finance unit and a stake in Southern Water Capital Ltd.
BLOOMBERG
April 20 (Bloomberg) -- Royal Bank of Scotland Group Plc will announce writedowns of between 5 billion pounds ($10 billion) and 7 billion pounds this week as it prepares a share sale, the Sunday Times reported, without saying where it got the information.
The U.K.'s second-biggest lender, whose board meets today, also plans to announce a stock offering of between 10 billion and 12 billion pounds, and is looking to raise as much as 5 billion pounds by the end of this financial year through asset disposals, the newspaper said.
Led by Chief Executive Officer Fred Goodwin, Edinburgh- based Royal Bank is the most indebted of the biggest U.K. banks after paying about 72 billion euros with Banco Santander SA and Fortis for ABN Amro Holding NV, mostly in cash.
``It probably is worse than what people are expecting,'' Sandy Chen, a London-based analyst at Panmure Gordon, said yesterday, referring to the potential credit-related losses at Royal Bank. He has a ``sell'' recommendation on the stock.
Royal Bank is considering a share sale to shore up capital, according to a person with knowledge of the plan. The bank needs to meet capital-adequacy requirements after about 2.6 billion pounds of markdowns, the person said on April 18, declining to be identified as no decision had been made.
``We will fully update the market next week on both trading and capital,'' Carolyn McAdam, a spokeswoman for Royal Bank, told Bloomberg News today. She declined to comment further.
Capital Ratio
RBS has a so-called equity Tier 1 capital ratio of about 4.5 percent, trailing Barclays Plc, the one-time rival suitor for ABN Amro, at about 5.1 percent and Lloyds TSB Group Plc at 7.4 percent, UBS AG analysts estimated April 16. The ratio is bolstered by some ABN Amro assets it has yet to split off. Its target is 5.25 percent.
Goodwin has held talks with regulators about raising capital, the Sunday Telegraph reported, citing people close to the company. It said the bank was set to announce losses of 6 billion pounds.
Goodwin met Hector Sants of the Financial Services Authority in the last two weeks, the newspaper said. Sants has also held similar talks with other British banks, including Barclays Plc and HBOS Plc, it added.
The Telegraph also reported that Royal Bank's offering would raise between 10 billion and 12 billion pounds, making it the biggest by a British company.
Insurance Assets
American International Group Inc., the world's largest insurer by assets; Allianz SE, Europe's biggest insurer; Axa SA and Assicurazioni Generali SpA are interested in buying RBS's insurance division, the Telegraph added. The Sunday Times also said AIG, as well as Warren Buffett's Berkshire Hathaway Inc. may be looking at the bank's assets, and said it may consider selling a 20 percent stake in its insurance arm.
The Sunday Times added that Royal Bank expects the latest writedown to be the last.
The Financial Times reported yesterday that Royal Bank's fresh losses may total 4 billion pounds, while the stock sale would amount to at least 10 billion pounds. It said the offering would be fully underwritten by banks including Merrill Lynch & Co., Goldman Sachs Group Inc. and UBS AG, citing unidentified people familiar with the matter for the report.
Victoria Garrod for Merrill Lynch in London, declined to comment yesterday when contacted by Bloomberg News, as did Dominik von Arx, a London-based UBS spokesman.
Stock Decline
Royal Bank shares have declined 14 percent since the start of this year, compared with a six percent drop in the FTSE All- Share Banks Index over the same period. They rebounded 18 pence, or 4.9 percent, to 384 pence on April 18 amid reports of the planned fundraising, giving it a market value of 38.5 billion pounds.
The bank may sell Direct Line Insurance Plc and Churchill, its sister insurer, to raise as much as 5 billion pounds as part of an effort to boost capital, the London-based Times reported separately yesterday, citing people close to the company.
The bank may also consider selling other holdings including its stakes in Bank of China, Angel Trains Ltd., which leases passenger railway vehicles to train operators, and Citizens Financial Group Inc., the U.S. regional bank, the Times said yesterday.
The bank may also divest National Insurance Guarantee Corp., a commercial lines insurer, for about 1 billion pounds, the Financial Times said.
The bank, which has lost almost half its market value in the past year, has already sold assets such as its European consumer-finance unit and a stake in Southern Water Capital Ltd.
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