Archive for April, 2009

Fed data shows big losses on Bear Stearns deal (Reuters)

Thursday, April 23rd, 2009 | Finance News

CHICAGO (Reuters) –
The U.S. Federal Reserve lifted the lid on its efforts to shore up the financial system on Thursday, and in the process, showed a $3 billion loss on the books from its deal to rescue investment bank Bear Stearns.

The Fed provided more details of the huge increase in its balance sheet that occurred over the final months of 2008, rounding out data already issued on a weekly basis. Bank officials also said more disclosure could be on the way.

Combined assets in the Fed system hit $2.25 trillion as of December 31, 2008, up a sharp $1.33 trillion from a year ago.

The U.S. central bank has enacted an alphabet soup of new programs to support the credit markets.

Thursday's statements specifically provided a window into the Fed's Commercial Paper Funding Facility, created in October 2008 to provide liquidity to the CP market, and the three "Maiden Lane" limited-liability companies created by the New York Fed as part of broad-ranging rescue efforts.

Much interest was on the original Maiden Lane LLC, which was formed in mid-March 2008 as part of the orchestrated takeover of the failing investment bank Bear Stearns by JPMorgan Chase.

Some $1.7 billion in gains logged by the CPFF were swamped by the $3.1-billion unrealized loss in Maiden Lane, which included $54 million in "professional fees."

Maiden Lane was created to hold an asset portfolio that JPMorgan found too toxic to assume in whole, and analysts said Thursday's report bore out that assessment.

Fed figures showed that some 40 percent of the assets in Maiden Lane were Level 3, or basically illiquid, at year-end. That included $5.5 billion in commercial mortgage loans and $2.4 billion in swap contracts.

All other assets in the fund were dubbed Level 2, with valuations based on prices for similar instruments in active markets.

"Maiden Lane is just a collection of crummy assets so there was always a potential for a loss," said William Fleckenstein, president of Fleckenstein Capital in Seattle.

Maiden Lane II, a holding company whose assets are dominated by subprime mortgages, logged a $302 million loss. Maiden Lane III managed $45 million in net income on its portfolio of asset-based collateralized debt obligations.

Both are holding companies created when insurance giant American International Group (AIG.N) was taken over by the U.S. government in September 2008.

Fed officials said various aspects of the bailout effort also combined to reduce payments made to the Treasury in 2008 to $31.7 billion from $34.6 billion, a decline of 8 percent.

Still, the Fed's holdings of commercial and residential loans were said to be in relatively good shape, with the majority regarded as performing.

Over time that could create substantial upside, the officials said, as real estate markets recover.

Fed officials said they were mulling ways to increase disclosure of the type of information contained in Thursday's reports, including potential quarterly releases.


Fed says didn’t advise BofA’s Lewis on disclosure (Reuters)

Thursday, April 23rd, 2009 | Finance News

WASHINGTON (Reuters) –
No one at the Federal Reserve advised Bank of America (BAC.N) chief Kenneth Lewis on any disclosure issues, Fed spokeswoman Michelle Smith said on Thursday.

"No one at the Federal Reserve advised Ken Lewis or Bank of America on any questions of disclosure," Smith said in an e-mail responding to a question. "It has long been the Federal Reserve's view that questions of this nature are best addressed by individual institutions and their legal counsel, as they are in a position to understand clearly their obligations and responsibilities."

New York Attorney General Andrew Cuomo said on Thursday that Lewis was pressured by senior federal officials Henry Paulson and Ben Bernanke to accept a merger with troubled Merrill Lynch & Co or lose his job.

(Reporting by Mark Felsenthal; Editing by Dan Grebler)


Banks, Apple drive Wall St higher, AmEx up late (Reuters)

Thursday, April 23rd, 2009 | Finance News

NEW YORK (Reuters) –
U.S. stocks rose in volatile trade on Thursday as better-than-expected results from several regional banks lifted financial shares, overshadowing disappointing economic data and anemic outlooks from economic bellwethers like United Parcel Service.

Earnings from big U.S. regional banks, including PNC Financial Services Group Inc (PNC.N) and Fifth Third Bancorp (FITB.O), provided glimmers of hope for a sector damaged by climbing loan losses as the recession lingers.

But investors wrestled with the possibility that the federal government's "stress tests" on 19 major U.S. banks may reveal weaknesses, which created volatility throughout the session. The government is set to unveil results on May 4.

"It's still about the banks. We're all still wondering about the stress tests," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.

Solid results from companies such as Apple Inc (AAPL.O) also appeased investors. Apple shares rose 3.2 percent to $125.40 on strong sales of iPhones and iPods, making it the Nasdaq's top advancer.

The Dow Jones industrial average (.DJI) gained 70.49 points, or 0.89 percent, to 7,957.06. The Standard & Poor's 500 Index (.SPX) rose 8.37 points, or 0.99 percent, to 851.92. The Nasdaq Composite Index (.IXIC) added 6.09 points, or 0.37 percent, to 1,652.21.

In contrast, United Parcel Service Inc (UPS.N) slid 2.6 percent to $53.33 after it said profits were hurt by the economic downturn and forecast second-quarter results below expectations.

U.S. government data showed existing homes sales fell in March to a much lower-than-expected annual rate, while weekly initial jobless claims rose slightly more than expected.

Barring a surprising advance on Friday, Wall Street stocks were on track to snap a six-week streak of gains.

Energy shares also gained as the price of crude rose 1.6

percent, lifting Chevron Corp (CVX.N) shares 2.8 percent to $65.53. Chevron contributed the most to the blue-chip Dow's advance.


Financial shares may get a lift on Friday after American Express (AXP.N) reported its first-quarter earnings after the closing bell, sending its stock up 6.3 percent to $22.30 in extended-hours trading.

Shares of Microsoft (MSFT.O) climbed 4.3 percent to $19.73 after the bell. Microsoft, the world's largest software company, posted a quarterly profit that met Wall Street's expectations after the regular trading session ended.

Online retailer (AMZN.O) added 1.2 percent to $81.60 in extended trading after reporting a rise in revenue of 18 percent and earnings that topped analysts' estimates.


The broader S&P 500 is up nearly 26 percent from its bear-market closing low on March 9. While some profit-taking was not unexpected after the impressive rally, analysts said declines could be countered by investors who missed the rally and who are looking to get back into the market.

Shares of PNC Financial rose 7.5 percent to $40.93 on the New York Stock Exchange, while Fifth Third's stock gained 3.5 percent to $3.82 on the Nasdaq. The Holders Regional Bank Sector ETF (RKH.P) added 5.4 percent.

Internet auction and marketplace giant eBay Inc (EBAY.O) also helped lift the Nasdaq after quarterly earnings topped Wall Street's expectations. Shares of eBay surged 12.3 percent to $16.62.

Trading was moderate on the New York Stock Exchange, with about 1.57 billion shares changing hands, slightly above last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.49 billion shares traded, above last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 3 to 2. In contrast, on the Nasdaq, about eight stocks fell for every five that rose.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)