Archive for May, 2011

Mortgage company urges plan for principal cuts

Friday, May 20th, 2011 | Finance News

NEW YORK (Reuters) – American Home Mortgage Servicing, one of the largest servicers of subprime mortgages, is urging the U.S. Treasury to organize a plan to boost principal reductions for up to one million homeowners by unlocking loans from securities.

The servicer is asking for amendments to contracts that govern treatment of delinquent loans in mortgage securities. Currently, most contracts don't allow sales of loans prior to foreclosure, and in many cases don't permit a servicer to lower principal when a loan is modified.

American Home contends its proposal could provide a boost to the Obama administration's Home Affordable Modification Program, in which many borrowers failed to qualify for lower mortgage payments because a principal reduction would be needed, but not possible if a loan was tied up in a bond.

The plan's authors include James Lockhart, a former top U.S. housing finance regulator and currently vice chairman at WL Ross & Co, the owner of American Home Mortgage.

There are about $1.25 trillion in loans contained in the so-called private-label mortgage securities packaged by Wall Street during the housing boom. The distressed balance is nearly $400 billion, with half of that representing loans that are both in default and underwater, American Home said.

(Reporting by Al Yoon; Editing by Padraic Cassidy)


U.S. crude oil steadies below $99 as dollar rises

Friday, May 20th, 2011 | Finance News

LONDON (Reuters) – Oil steadied on Friday with U.S. light crude below $99 per barrel, as the dollar rose and investors worried about the outlook for global economic growth.

Oil futures have consolidated this week after a very sharp sell-off at the beginning of May and investors have begun to look ahead to a meeting of oil producer group OPEC next month which will reassess supply policy.

The West's energy watchdog, the International Energy Agency (IEA), on Thursday urged OPEC to increase oil production to protect the global economy and appeared to suggest its members could release emergency stockpiles if OPEC failed to act.

But analysts say the Organization of the Petroleum Exporting Countries is extremely unlikely to raise output and its meeting next month will be attended by Iranian President Mahmoud Ahmadinejad, a price hawk who looks set to reinforce opposition to any move toward higher output.

U.S. light crude oil futures for June, which expire later on Friday, were trading around $98.80 per barrel, up 36 cents by 1230 GMT, after hitting an intra-day high of $99.60.

Brent crude for July rose 6 cents to $111.48.

The U.S. crude front contract has traded in a relatively narrow range between $95.02 and $100.99 this week after falling from a peak of $114.83 on May 2. Brent has swung between $108.07 and $114.00 this week.

The consolidation phase comes after both crude grades lost between $15 and $20 in the prior two weeks, a correction some traders and analysts said was overdone.

"Oil has been much steadier and has been driven more by outside factors such as euro/dollar and stock markets than by supply/demand fundamentals," said Carsten Fritsch, commodity analyst at Commerzbank in Frankfurt.

"The market is beginning to look ahead to OPEC now and to see how it will respond to recent events," he added.


National Australia Bank commodities economist Ben Westmore said OPEC was unlikely to change its output targets at its meeting in Vienna on June 8.

"The relative abundance of crude stocks on the international market would be justification enough for (OPEC) to leave production quotas unchanged," he said. "All things considered, no change to OPEC production quotas appears to be the most likely outcome from the upcoming discussions."

Fritsch at Commerzbank agreed: "The presence of the Iranian president at the OPEC meeting makes an output hike less likely."

Governments from the United States to China are concerned the surge in oil prices this year may derail the nascent global economic recovery as high costs accelerate inflation, paring consumers' ability to spend, resulting in a demand slowdown.

Demand for oil in countries such as China has been fed by rapid economic growth. The nation's implied oil demand in April rose 8.8 percent from a year earlier to the third highest on record on a daily basis, according to Reuters calculations.

The country's central bank governor, Zhou Xiaochuan, said on Friday the government was trying to find a balance between controlling inflation and supporting growth.

Oil prices have surged this year in part due to concerns that unrest will spread from Libya and Syria to other countries that are major oil exporters, just at a time when demand from emerging nations such as China and India continues to rise.

"The risk premium... is expected to persist through 2011 with an orderly near-term resolution of the conflict in Libya difficult to envisage," Westmore said.

Investors awaited data from the New York-based Economic Cycle Research Institute (ECRI), which was due to publish its weekly index, a measure of future U.S. growth, at 1430 GMT.

(Additional reporting by Manash Goswami in Singapore; editing by James Jukwey)


Valuation worries drive Glencore below issue price

Friday, May 20th, 2011 | Finance News

LONDON (Reuters) – Shares in commodities trading group Glencore fell below their issue price of 530 pence on Friday, the second day of conditional trading, as investors fretted over its valuation.

At around 1220 GMT, Glencore was trading in unofficial grey market trade at 525 pence, down 0.9 percent. It was underperforming a modest 0.3 percent rise in the FTSE index and in the broad mining sector.

The shares closed on Thursday at 530 pence, exactly flat on a debut price in the middle of its indicated range.

"Basically the valuation looks a little bit rich. They worked very hard to get a favorable price and one could argue the only reason it was up yesterday was support from the sponsoring banks," analyst Nik Stanojevic at Brewin Dolphin said.

"I think the market feels the same way. It wasn't as if they sold this thing really cheaply with the expectation it would go up 50 percent on the first day."

Unconditional trading begins on Tuesday in London, where Glencore's offer of up to $11 billion is set to be the largest listing on record, and Wednesday in Hong Kong.

Glencore, the world's largest diversified commodities trader, has said there was strong demand for its stock and had enough buyers to cover its offering of up to $11 billion within hours of starting the sale process earlier this month.

But many investors have also expressed concern over the outlook for commodities, particularly after this month's sell-off, and fretted over the discounts that should be applied to take account of Glencore's conglomerate structure and of the fact it has operated away from the public eye for 37 years.

"Perhaps the fact that the float has, despite being over four times covered, been met with broad skepticism and sobriety is a sign of underlying health in the metals market?," analysts at Numis said in a morning note.

"The hopes for a 5-10 percent rally remain - not exactly LinkedIn, but the first objective remains stability and garnering faith in this new currency."

Professional social networking site LinkedIn saw its shares more than double in their public trading debut on Thursday, a far cry from Glencore's more muted start.

At the offer price of 530 pence, Glencore has a market value of 36.7 billion pounds ($59.3 billion). It will be the fifth-largest mining-related firm on the London exchange.

(Reporting by Clara Ferreira-Marques; Editing by Alexander Smith)