Housing Market Tracker - Sovereign Wealth Funds Not White Knights

by: Judy Weil

Quote of the Day

"There's no way anybody's going to catch a falling knife. Why come in now?" - Craig Russell, a chief market strategist in Beijing at Saxo Bank, on how foreign sovereign wealth funds were burnt in previous, recent U.S. acquisitions, and so are now absent in the current leg of the financial crisis. (Int'l Herald Tribune, Mar. 17th)

Global Subprime Fallout

Train wreck on Wall Street. "Is it really the central bank's role to make life easy for high-flying financiers? Bernanke and his colleagues decided the risk of allowing the collapse of Bear Stearns was too much for the ailing US economy. If it simply had been a question of incompetence and poor business practice at one company, the Fed may well have stood by and allowed Bear Stearns to collapse... [But] we've seen from the subprime crisis the extent to which the international financial system has become truly globalised. Ratepayers across Australia and pensioners in Norway are only just beginning to discover the extent of the losses they have incurred." (Sydney Morning Herald, Mar. 18th)

Sovereign Wealth Funds Shying Away From Wall Street. "One group conspicuously absent from a last minute deal to scoop up Bear Stearns on the cheap were the sovereign wealth funds that have spent billions of dollars on Wall Street lately... Analysts said Monday that sovereign funds are likely to keep away from U.S. financial assets for now... Shares in the top broker in China, Citic Securities, surged Monday, driven in part by the company distancing itself from a deal reached last year to invest in Bear Stearns... China has also seen its stake in Blackstone Group cut in half since the private equity firm went public in June." (Int'l Herald Tribune, Mar. 17th)

CIBC Could Face $362-Million Writedown Related To FGIC. "Financial Guaranty Insurance Co, the bond insurer known as FGIC [is] in trouble, having reported a net loss of US$1.89-billion in Q4'07. Canadian Imperial Bank of Commerce Shareholders should be interested because FGIC is the counterparty to $566-million of the bank’s exposure to subprime mortgages. CIBC has already written down part of this exposure, but could now be facing a further writedown of $362-million related to FGIC, according to Blackmont Capital analyst Brad Smith. In addition, FGIC is likely a “sizeable” counterparty to CIBC’s more than $20-billion in non-subprime monoline hedges, Mr. Smith said." (Canadian Financial Post Trading Desk, Mar. 17th)

UBS Drops Most in Nine Years on Report of Job Cuts. "UBS AG, Europe's biggest bank by assets, fell the most in more than nine years in Swiss trading after reports that the company may cut as many as 8,000 jobs, propose a new capital increase and sell businesses... Deutsche Bank AG: Credit-default swaps on UBS jumped 25 basis points to 235. SonntagsZeitung, citing unidentified managers present at the company's top executives' meeting last week: UBS plans to cut 5%-10% of jobs across its different units and may also propose a capital increase at its shareholders meeting in April. UBS on March 14 denied... that it may... sell its Paine Webber U.S. brokerage unit to raise money." (Bloomberg, Mar. 17th)

U.S. Mortgage Mess Creeps North. "The effects of the U.S. subprime crisis are showing up on the fringe of the Canadian mortgage business, even though mainstream lending and the housing market are on solid ground. Lenders catering to riskier borrowers... a sector that held about 5% of the Canadian mortgage market before... August, are struggling to fund their operations... Some offices have been closed, employees have been let go, and fewer so-called alternative products are being offered to borrowers who do not qualify for regular loans... Toronto-based Xceed Mortgage Corp. yesterday suspended its line of uninsured mortgage products. Canadian lender MoneyConnect Inc. told brokers last week that it's liquidating a portfolio of mortgages." (The Globe and Mail, Mar. 13th)

Get Seeking Alpha's housing market coverage by email -- it's free and takes only seconds to sign up.