NEW YORK (Reuters) – The government prepared Wall Street firms on Friday for the possibility it may have to delay or cancel a major round of bond sales if Congress doesn't raise the nation's borrowing limit by August 2.
In a meeting at the Federal Reserve Bank of New York, Treasury officials and representatives from the 20 primary dealers discussed options for the quarterly slate of bond issues if the government runs out of money next week.
Under normal circumstances the government would require around $42 billion in new borrowing through sales of Treasury notes and bonds, but it won't be able to do that without new authority to raise more debt.
Even a delay in the new borrowing, known as the quarterly refunding, could cause fits in the bond market. Investors such as fund managers and short-term traders rely on Treasury securities for activities ranging from securing savings to collateralizing loans.
Indeed, Treasuries accelerated their price gains when news of possible changes to the quarterly refunding became known in the market. The benchmark 10-year note was on track for its largest rally since March 18, 2009, the day the Federal Reserve announced a round of $300 billion in Treasuries purchases, known as QE1.
The options discussed at Friday's meeting included decreasing the amount of the refunding, delaying it, or eliminating it altogether and issuing cash management bills to replace maturing securities, according to sources familiar with the meeting.
There was a general consensus among dealers, the sources said, that it would be better for the Treasury to delay the quarterly refunding rather than cut or cancel it.
The meeting was a higher-profile version of the normal talks Treasury holds with dealers each quarter to discuss debt sales.
Treasury officials confirmed the meeting was originally to be with representatives of around half of the 20 primary dealers -- the 20 large financial institutions that do business directly with the Fed -- but at the last minute it was expanded to include all of the banks and securities firms authorized to deal directly with the Federal Reserve and the Treasury.
Dealers were told not to discuss the details of the meeting, and a readout of the meeting released by the Treasury said only that the dealers agreed swift Congressional action was necessary to lift the debt ceiling.
The Treasury has said if the country's $14.3 trillion debt ceiling is not raised, after Tuesday it will no longer be able to pay all the government's bills and will be at risk of default.
The Treasury is due to announce next week its borrowing needs for the current quarter and its plans for selling debt to meet those needs. But the political debate over whether to raise the debt ceiling has thrown into question how much debt Treasury can sell.
Short-term lending markets have seen the greatest levels of fear, with rates on Treasury debt maturing in August jumping to six-month highs as investors dumped the debt on fears the government may choose not to repay them.
With four days left before the United States hits its debt limit, Republicans pressed ahead with a deficit plan that cannot pass Congress and President Barack Obama told lawmakers to stop wasting time and find a way "out of this mess.
(Additional reporting by Jonathan Spicer in New York and Glenn Somerville in Washington; Editing by Burton Frierson and Leslie Adler)
NEW YORK (Reuters) – Bank of America Corp (BAC.N) was sued by 15 former Countrywide Financial Corp institutional investors who said they lost money after being misled about the mortgage lender's financial condition and lending practices.
BlackRock Inc (BLK.N), the California Public Employees' Retirement System (CalPERS), T Rowe Price Group Inc (TROW.O), TIAA-CREF and the other plaintiffs, including some in Europe, sued in Los Angeles federal court, after deciding not to join a $624 million settlement that won court approval in February.
These plaintiffs believed they could recover more by suing on their own over the "massive and pervasive" fraud at Countrywide, which Bank of America bought on July 1, 2008.
Thursday's lawsuit deepens the legal problems for Bank of America over Countrywide, for which it paid $2.5 billion. Analysts have estimated that its ultimate cost, including legal bills and loan losses, could easily exceed 10 times that sum.
Last month, the Charlotte, North Carolina-based bank entered an $8.5 billion agreement to end most litigation by investors who bought securities backed by risky Countrywide home loans. Some of those investors have complained this agreement too may be unfair.
According to the 425-page complaint by the 15 plaintiffs, Countrywide and officials like former Chief Executive Angelo Mozilo abandoned prudent lending, reserved too little for bad loans and inflated earnings, in a drive to triple market share to 30 percent and enrich themselves.
Top executives "were fully aware of but failed to disclose, and in fact expressly authorized and engaged in, Countrywide's risky lending," the complaint said.
Countrywide shares ultimately sank more than 90 percent from their peak as losses from its subprime, pay-option and other risky mortgages began to pile up.
Bill Halldin, a Bank of America spokesman, said: "It is unfortunate that select investors chose to opt out of a fair and equitable agreement to settle these issues. We intend to vigorously defend these claims."
"UNFORTUNATE," BANK SAYS
The plaintiffs seek unspecified damages and class-action status for the March 12, 2004 to March 7, 2008 period.
They are also seeking a jury trial, and to "maximize the recovery of their damages," their lawyer Blair Nicholas, a partner at Bernstein Litowitz Berger & Grossmann, said.
Other defendants include former Chief Operating Officer David Sambol and former Chief Financial Officer Eric Sieracki, and former auditor KPMG LLP.
Lawyers for the former executives did not return requests for comment. KPMG spokesman Dan Ginsburg declined to comment.
The February 25 settlement approved by U.S. District Judge Mariana Pfaelzer in Los Angeles called for Bank of America to pay $601.5 million to former Countrywide investors, and set aside $22.5 million for claims of investors that opted out.
That money would go to investors in the earlier settlement if it is not used within two years.
Mozilo last October reached a $67.5 million settlement of a U.S. Securities and Exchange Commission civil fraud lawsuit accusing him of misleading investors and generating improper gains from stock sales. He did not admit wrongdoing.
Bank of America shares have fallen close to 60 percent since it bought Countrywide, roughly three times as much as the KBW Bank Index (.BKX). In afternoon trading, the shares were unchanged at $9.79.
(Reporting by Jonathan Stempel; Editing by Phil Berlowitz)
(Reuters) – Mortgage insurer Genworth Financial (GNW.N) is taking steps to possibly split up the company, said its Chief Executive Michael Fraizer on a post-earnings conference call, sending its shares up 6 percent on Friday afternoon.
Fraizer said it would make sense splitting the company into two, but added that its not a "strategy to execute in the near term."
To enable a possible split, Fraizer said they were thinking of realigning some of their businesses, bringing down debt and "transitioning certain business platforms toward more stand-alone capital structures."
Genworth shares were trading up 5 percent at $8.23 on Friday on the New York Stock Exchange.
(Reporting by Rachel Chitra & Brenton Cordeiro in Bangalore; Editing by Roshni Menon)