Daily Archives: February 22, 2010

Simone Baribeau

That other real estate market came back into the spotlight today as Chris Dodd, chairman of the Senate Banking Committee sent letters to a number of regulators, including the Federal Reserve, asking them to report on their efforts to stabilise the commercial real estate market.

By any realistic estimate, CRE has yet to finish wreaking havoc on the economy. Nearly half of CRE loans are currently “underwater” and the largest loan losses haven’t yet occurred, according to the Congressional Oversight Panel. 

Simone Baribeau

Today many of the long awaited credit card consumer protections passed by Congress and interpreted by the Federal Reserve take effect. The Fed has launched a new website to help consumers understand their rights.

There’s no news, per se, but it’s worth remembering what banks said would happen if they were prevented from raising interest rates based on a number of now prohibited factors, including changes in consumers’ credit scores, their behaviour with other companies, approaching credit limits, and making minimum payments.

I believe that not using a cardholder’s behaviour on their other debts as part of your predictive model is like taking the batteries out of a smoke detector – Roger C. Hochschild, president Discover Financial Services

I believe if we drop our ability to monitor credit, we could (be compared to)…the subprime mortgage business – Bruce Hammonds, president, Bank of America Card Services

We’ll see what happens. Meantime, the Fed today released another document 

Simone Baribeau

Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, today spoke of an ‘impressive’ turn-around in GDP and said that the tide of dismal economic news ‘appears to have turned.’ But there the upbeat message of the a leading dove ended.

The annual 5.7 per cent growth in fourth quarter GDP was unlikely to be sustained, she argued.

Unfortunately, I’m not at all convinced that a V-shaped recovery is in the cards. That fourth-quarter leap in GDP overstates the underlying momentum of the recovery.

The reason for her scepticism in the sustainability of last quarter’s growth was, of course, the same as everyone else’s: most of it was due to a slowdown 

Dubai World is unlikely to pay off developer Nakheel’s $980m Islamic bond, a source familiar with the matter told Reuters on Monday, and all options are open. The issue is due on May 13. “It is very unlikely that the bond will be paid off,” said the source. “Incredibly unlikely.” Dubai World is currently in talks to restructure about $22bn in debt and is due to present a proposal in March.

The Israeli central bank has chosen to keep its benchmark interest rate on hold at 1.25 per cent. The decision was widely expected, though some predicted a small cut in rates. Inflation in the country is falling faster than expected, with CPI down 0.7 per cent in January, versus expectations of 0.3 – 0.5 per cent. Israeli economic activity has risen, although fixed investment has dropped significantly. Internationally, “there remains the risk of another recession, whose probability may even have increased.”

The Greek finance ministry failed to deliver currency swap information to the European Commission by the deadline, last Friday. When asked, EC spokesman Amadeu Altafaj Tardio told MarketNews: “Eurostat has received some information but not all relevant information from the Greek authorities.” He added: “Athens told us that the reason for the delay was partly to do with the 4-day strike at the finance ministry.”

The Serbian central bank has held the two-week repo rate at 9.5 per cent for the second month. The dinar has recently been falling, restricting policymakers’ options on rate cuts.

The Hungarian central bank governor has cut the base rate from 6 to 5.75 per cent, effective today. The move was expected, and a further cut is seen as likely before easing stops. Rates were last cut 25bp on January 25.

Sweden’s financial regulator needs a bigger budget to cope with its expanding role. The Financial Supervisory Authority is seeking a 10 per cent budget increase per year for three years, on top of its 300m krona ($41m) budget, director-general Martin Andersson told Bloomberg.

Sweden’s banks, which are expected to lose $3.7bn this year from operations in the Baltic countries, might also be facing a housing bubble at home. Record low interest rates have increased mortgage arrangements in spite of rising unemployment. House prices rose 5 per cent in the last quarter, having already passed pre-crisis peaks.