Not Only Homeowners Are Having Refinancing Problems.......

It is really no wonder that investors are demanding a much higher risk premium for bank debt.... It will be interesting to see how the central bank balance sheets will look like in 2009/2010....

Wenig verwunderlich das die Investoren zukünftig eine ansprechende Risikoverzinsung verlangen..... Bin gespannt wie die Bilanzen der Zentralbanken im Jahre 2009/2010 aussehen werden.....

New Credit Hurdle Looms for Banks WSJ
U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.

The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months.

The problem highlights how the pain of the credit crunch, now entering its second year, won't end soon for banks or the broader economy. The Federal Deposit Insurance Corp. said on Tuesday that its list of "problem" banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March. FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

The rates they'll have to pay if they want to issue new debt will be much higher than they were back in 2006. In July 2007, the interest rates on banks' floating-rate notes were only about 0.02 percentage point above the London interbank offered rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another. Today, that "spread" is at least two full percentage points for some banks.

via Bloomberg U.S. Says Banks on `Problem List' Rose 30% in Quarter

The U.S. Federal Deposit Insurance Corp. said its ``problem list'' of banks increased [to] 117 ``problem'' banks as of June 30, up from 90 in the first quarter and the highest since mid 2003 ... FDIC-insured lenders reported net income of $4.96 billion, down from $36.8 billion in the ame quarter a year ago.

> It seems to me that even the spread of 200 basispoints for lots of banks is not quite "rich"...... Especially when you add the lousy quality of their balance sheets..... Just take a look the another main sector besides residential is showing some kind of "stress"...... Hat Tip EconompicData

> Wenn man sich diese Meldung ansieht können einige Banken noch froh sein das die Spreads nur 200 Basispunkte betragen.... Ganz zu schweigen von der ansonsten oft sehr dürftigen Bilanzqualität...... Man muß sich nur einen zweiten Eckpfeiler neben dem privaten Immobiliensektor ansehen um zu erahnen das die Luft "dünner" wird..... Dank an EconompicData

As many banks compete for funds to pay off their borrowings, or sell assets to raise cash, their actions could exacerbate strains in financial markets. Banks that turn to shorter-term loans will have to renew their borrowings more frequently, increasing the risk that they won't be able to get money when they need it.

via Bloomberg Merrill, Wachovia Hit With Record Refinancing Bill

The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data.

Standard & Poor's said last week that it had a ``negative'' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years.

The difficulties with the floating-rate loans can be traced to the onset of the credit crunch last year. At the time, bank-affiliated funds known as structured investment vehicles, or SIVs, were among the first to suffer. Those funds had been buyers of the banks' floating-rate notes. But when SIVs were unable to find investors for their own short-term debt, the SIV market largely collapsed, taking a big chunk out of demand for new bank floating-rate notes.

The crunch comes as problems in the markets on which banks rely to borrow money are showing no sign of abating. In one gauge of jitters about banks' financial health, the three-month dollar Libor remains well above expected central-bank target rates for the same period.

Even at the higher interest rates, banks are having a hard time getting cash. The securitization markets that had allowed banks to repackage loans and sell them to investors remain all but shut. Banks today rarely make loans to one another for periods of more than a week, and even some so-called "repo" loans -- in which the borrower puts up securities as collateral -- are becoming more expensive.

At the same time, the pressures on limited resources of banks and investment banks are growing. Companies have been actively tapping bank credit lines set up before the credit crisis began, forcing banks to increase their lending at a time when they're trying to reduce risk. A number of big financial firms, including Citigroup Inc., Merrill Lynch, UBS AG, Morgan Stanley, J.P. Morgan, and Wachovia, have agreed to buy back some $42 billion of so-called auction-rate securities amid allegations that they misinformed retail investors about the securities' risks.

Central Banks' Role
All the strains have made financial institutions increasingly dependent on central banks in the U.S., the U.K. and Europe for loans to make ends meet. Many banks have been packaging mortgages into securities to use as collateral for financing from the European Central Bank and the U.S. Federal Reserve. Questions are cropping up about how long central bankers should prop up financial markets, and whether banks in Europe are taking undue advantage of the central bank's lending facilities.

On this topic..... Buy Freddie Paper With Fed Leverage via Dealbraker Hat Tip FT Alphaville

We don't know who bought the Freddie notes today. But buyers of Freddie notes who have access to borrowing from the Federal Reserve would have found the ecision to bid relatively easy. That's because the ability to exchange the Freddie debt for Fed cash means banks can buy Freddie debt with a huge amount of leverage, dramatically increasing the return on their capital.

Here's how it works. A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed's Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around).

At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return, or 8.8% over six months, for paper that is thisclose to being explicitly backed by the Treasury Department. Not a bad deal at all.

via Real Time Economics

But there is growing concern banks have become over-reliant on ECB funding, or may be abusing the situation. The ECB says it is monitoring developments and will, if necessary, adjust funding rules. Some financial institutions may have started to treat the ECB’s financing window as a substitute for a well-functioning structured finance market that has been largely shut since last August.

The share of asset-backed securities — or notes backed by repayments on debt such as mortgages or credit card loans — in the total collateral held with the national central banks in the 15-nation euro zone has risen to around 20%, from around 4% in 2004. At the same time, the share of government bonds has fallen sharply.

> Here the Fed´s balance sheet..... Hardly AAA.....

> Hier das grausige Bild der Fed Bilanzkomposition..........Sieht mir nicht mehr nach AAA aus.....

Mish has also something to say and is offering this must see chart Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Scary.....

Mish trifft mit seiner Aussage den Nagel mal wieder auf den Kopf und liefert gleichzeitig einen Blick auf die detaillierte Ansicht der Fed Bilanz. Nicht verpassen! Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Fuchteinflösend.....

"A the current pace, the Fed runs out of treasuries about a year from now. Things are about to get very interesting."

via Telepgraph Bank borrowing from ECB is out of control

One ECB source told The Daily Telegraph that over-reliance on the ECB funds has become an increasingly bitter issue at the bank because the policy amounts to a covert bail-out of lenders in southern Europe.

"Nobody dares pinpoint the country involved because as soon as we do it will cause a market reaction and lead to a meltdown for the banks," said the source.

This "soft bail-out" is largely underwritten by German and North European taxpayers, though it is occurring in a surreptitious way. It has become a neuralgic issue for the increasingly tense politics of EMU.

The latest data from the Bank of Spain shows that the country's banks have increased their ECB borrowing to a record €49.6bn (£39bn). A number have been issuing mortgage securities for the sole purpose of drawing funds from Frankfurt.

Got gold......?

Joke Of The Day....."Libor"

Nice to see that almost $ 90 trillion ( according to the WSJ / FT Deutschland sees 350 billion, but i think the WSJ is correct. Update Bloomberg : .... benchmark rate for $350 trillion in derivatives and corporate bonds and 6 million U.S. mortgages ) are tied to a manipulated and unregulated rate.... It´s even more reassuring that the Britisch Bankers´ Association is still seeing no need to reform their methodology.... Chapeau!

Ist es nicht wunderbar zu sehen das fast 90 Billionen $ ( lt. WSJ / FT Deutschland sieht 350 Mrd., bin mir aber sicher das diesesmal das WSJ recht hat. Update Bloomberg :.... benchmark rate for $350 trillion in derivatives and corporate bonds and 6 million U.S. mortgages ) an verzinslichen Papieren auf einem Zinssatz basieren der erwiesenermaßen manipuliert wird. Und alles ohne das besondere Verrenkungen von Seiten der Banken notwendig sind....... Noch dummdreister wird es dann wenn die British Bankers´Association trotz alledem keinerlei Notwendigkeit einer grundlegenden Reform zu sehen scheint..... Glückwunsch!

Study Casts Doubt on Key Rate WSJ
LONDON -- Major banks are contributing to the erratic behavior of a crucial global lending benchmark, a Wall Street Journal analysis shows.

The Journal analysis indicates that Citigroup Inc., WestLB, HBOS PLC, J.P. Morgan Chase & Co. and UBS AG are among the banks that have been reporting significantly lower borrowing costs for the London interbank offered rate, or Libor, than what another market measure suggests they should be. Those five banks are members of a 16-bank panel that reports rates used to calculate Libor in dollars.

That has led Libor, which is supposed to reflect the average rate at which banks lend to each other, to act as if the banking system was doing better than it was at critical junctures in the financial crisis. The reliability of Libor is crucial to consumers and businesses around the world, because the benchmark is used by lenders to set interest rates on everything from home mortgages to corporate loans.

Faced with suspicions by some bankers that their rivals have been low-balling their borrowing rates to avoid looking desperate for cash, the British Bankers' Association, which oversees Libor, is expected to report Friday on possible adjustments to the system. That report isn't expected to recommend any major changes, according to people familiar with the association's deliberations. Update : The British Bankers' Association decided not to change the way the London interbank offered rate is set, rebuffing investors and strategists who said the measure has become unreliable as a gauge of borrowing costs.

> The first step to make Libor ( to put it mildly) "less important"......... Update : Libor Proxies Gain as Traders Seek Truth With Swaps

> Diese Unverschämtheit ist schon fast wieder bewundersnwert. Ohne Frage wird das mittelfristig zu einem erheblichen Bedeutungsverlust von Libor führen.... Update : Libor Proxies Gain as Traders Seek Truth With Swaps

In order to assess the borrowing rates reported by the 16 banks, the Journal crunched numbers from another market that provides a window into the financial health of banks: the default-insurance market. Until recently, the cost of insuring against banks defaulting on their debts moved largely in tandem with Libor -- both rose when the market thought banks were in trouble.

But beginning in late January, as fears grew about possible bank failures, the two measures began to diverge, with reported Libor rates failing to reflect rising default-insurance costs, the Journal analysis shows. The gap between the two measures was wider for Citigroup, Germany's WestLB, the United Kingdom's HBOS, J.P. Morgan Chase & Co. and Switzerland's UBS than for the other 11 banks. One possible explanation for the gap is that banks understated their borrowing rates.....

Confidence in Libor matters, because the rate system plays a vital role in the global economy. Central bankers follow it closely as a barometer of the banking system's health, and to decide how much to adjust interest rates to keep their economies growing. Payments on nearly $90 trillion in dollar-denominated mortgage loans, corporate debt and financial contracts rise and fall according to Libor's movements.

Impact on Payments
If dollar Libor is understated as much as the Journal's analysis suggests, it would represent a roughly $45 billion break on interest payments for homeowners, companies and investors over the first four months of this year. That's good for them, but a loss for others in the market, such as mutual funds that invest in mortgages and certain hedge funds that use derivative contracts tied to Libor.

At times of market turmoil, banks face a dilemma. If any bank submits a much higher rate than its peers, it risks looking like it's in financial trouble. So banks have an incentive to play it safe by reporting something similar -- which would cause the reported rates to cluster together.

In fact, the Journal analysis shows that during the first four months of this year, the three-month borrowing rates reported by the 16 banks on the Libor panel remained, on average, within a range of only 0.06 percentage point -- tiny in relation to the average dollar Libor of 3.18%.

Those reported rates "are far too similar to be believed," says Darrell Duffie, a Stanford University finance professor. Mr. Duffie was one of three independent academics who reviewed the Journal's methodology and findings at the paper's request. All three said the approach was a reasonable way to analyze Libor.

At times, banks reported similar borrowing rates even when the default-insurance market was drawing big distinctions about their financial health. On the afternoon of March 10, for example, investors in the default-insurance market were betting that WestLB, which was hit especially hard by the credit crisis, was nearly twice as likely to renege on its debts as Credit Suisse Group, a Swiss bank that was perceived to be in better shape. Yet the next morning, for Libor purposes, WestLB reported the same borrowing rate as Credit Suisse. A WestLB spokesman says the bank provides accurate data.

In addition to borrowing from other banks, banks can borrow in the commercial-paper market, where they issue short-term IOUs to investors such as mutual funds. In mid-April, UBS, which has suffered some $38 billion in write-downs on investments gone bad, was offering to pay an annual rate of about 2.85% to borrow dollars for three months in the commercial-paper market, according to a person familiar with the matter. But when it reported for Libor purposes on April 16, UBS said it could borrow for three months from other banks at 2.73% -- in line with all the other panel banks. A UBS spokeswoman declined to comment. ( see Interactive Chart )

Out of Whack
To gauge how much the borrowing rates reported by the 16 banks on the Libor panel might be out of whack, the Journal calculated an alternate "borrowing rate" for each bank using information from the default-insurance market.

In mid-March, the bank borrowing rates calculated using default-insurance data rose sharply amid growing fears about the financial health of banks, which culminated in the collapse of Bear Stearns Cos. But Libor actually declined.

Between late January and April 16, when the Journal first reported concerns about Libor's accuracy, Citigroup's reported rates differed the most from what the default-insurance market suggested. On average, the rates at which Citigroup said it could borrow dollars for three months were about 0.87 percentage point lower than the rate calculated using default-insurance data, the Journal's analysis shows. A Citigroup spokesman says, "We continue to submit our Libor rates at levels that accurately reflect our perception of the market."

The difference was 0.7 percentage point for WestLB, 0.57 point for HBOS, 0.43 for J.P. Morgan, and 0.42 for UBS. Royal Bank of Canada's reported rates came closest to the market-based calculation -- there was no significant difference. A HBOS spokesman says the bank's Libor quotes are a "genuine and realistic" indication of its borrowing costs. J.P. Morgan and UBS declined to comment.

UPDATE: Here are some other opinion from Alea and Felix Salmon that questioning the methodoligy from the WSJ. I think they are making a good point. That doesn´t change my point that the calculation of Libor is still flawed.

Hier ein paar andere Meinungen von Alea und Felix Salmon die die Berechnungsmethodik vom WSJ stark in Frage stellen. Und ich denke Sie liegen damit richtig. Das änderts aber nichts daran das die Berechnung von Libor nach wie vor mehr als fragwürdig ist.

Overall, in the first four months of this year, the three-month and six-month dollar Libor rates were about a quarter percentage point lower than the borrowing rates suggested by the default-insurance market, the analysis shows. After banks adjusted their Libor rates following news of the BBA review in mid-April, the difference shrunk to about 0.15 percentage point. ....

After the Journal reported on April 16 that bankers suspected rivals of intentionally understating their borrowing rates, the BBA said it was speeding up a review of Libor. It said it would kick out any bank found to be reporting inaccurate rates. Over the next two days, banks raised their reported rates, causing dollar-denominated Libor to log its biggest jump since August.

That increase surprised some homeowners, including Bill Petit, a real-estate broker with a $470,000 adjustable-rate mortgage on his Del Mar, Calif., home. "It doesn't seem natural," he says. "If it would have done this over a month or so, I could have understood it." He says the move caused his monthly mortgage payment to jump by $98 more than he was expecting, raising it to $2,056.25...

Ms. Knight, the BBA chief, says there's no need to replace Libor, which has been used widely as a benchmark for more than two decades. "I see no reason suddenly to up sticks and change a process that has actually served the financial community world-wide extremely well for a very considerable number of years," she says.

WestLB, HSH Nordbank Bail Out $15 Billion of SIVs

Bring on the next state owned bailout.... At least West LB is gettig very close to some kind of bailout. HSH is doing much much better. Both HSH and West LB are in different ways owned through several state or municipal entities. Only 26 percent from HSH was sold last years to J.C. Flowers, a private equity firm. It is getting better. Düsseldorf seems to be the capital of incompetence in Germany. Düsseldorf is the headquarter from West LB & IKB which got a $ 7 billion ( and still counting) bailout earlier this year . I´ll bet that at the next carnival they will have something banking related on their trucks......

Der nächste bitte.......Bei der West LB ist wohl in ganz naher Zukunft in irgendeiner Weise "externe" Hilfe notwendig. Die HSH dürfte das locker wegstecken können. Sowohl die HSH Nordbank als auch die West LB haben mit Ausnahme von 26% der HSH in Weise direkte bzw indirekte ( Sparkassen) staatliche Eigentümer. Sieht ganz so aus als wenn Düsseldorf sich zur Hauptstadt der Inkompetenz in Sachen Banken gemausert hat. Neben der West LB hat auch die IKB ( biher $ 7 Mrd Bailout ...) Ihren Sitz in Düsseldorf. Ich tippe mal das beim nächsten Karnevalsumzug zumindest ein Wagen das Thema aufgreifen wird.....


WestLB, HSH Nordbank Bail Out $15 Billion of SIVs Bloomberg
WestLB AG, Germany's third-largest state-owned bank, and Hamburg-based HSH Nordbank AG provided financing to more than $15 billion of troubled investment funds to prevent a fire sale of their assets.

WestLB provided a credit line for its $11 billion structured investment vehicle called Harrier Finance to repay commercial paper, the Dusseldorf-based bank said in an e-mailed statement today. HSH Nordbank said it will provide backup funding to cover all commercial paper issued by its 3.3 billion- euro ($4.8 billion) Carrera Capital SIV, spokesman Reinhard Schmid said in an interview.

NYT
FRANKFURT, Dec. 3 — In an effort to limit fallout from the subprime lending crisis in the United States, the German bank WestLB said on Monday that it would guarantee full liquidity to several of its investment vehicles that had put money into asset-backed securities.

WestLB, based in Düsseldorf and one of the regional German banks, or Landesbanken, has two major programs, known as Harrier Finance Funding and Kestrel Funding, that borrow money by selling short-term commercial paper to investors. They then invest the proceeds in higher-yielding securities, including ones backed by American mortgages.

WestLB also has three other similar investment vehicles, known as conduits. All five will have the option of drawing up to 25 billion euros, or $36.6 billion, as the short-term paper comes due.

> Put this gigantic figure in comparison with the numbers from the balance sheet...... No wonder Libor rates are surging around the globe.....

> Nun setzt diese Wahnsinnssummen ins Verhältnis zur den Bilanzdaten....... Kein Wunder das sich Bänker untereinander nicht traeun und den Libor in die Stratosphäre schiessen lassen.....

“This will ensure that there is no compelled liquidation of the assets in the SIVs,” said Armin Kloss, a WestLB spokesman, referring to structured investment vehicles. “We are also convinced that the assets that Kestrel and Harrier have could be more highly valued, but that the market is not ready for that.”

WestLB said in August that “less than 5 percent” of its investments was subprime-related, Mr. Kloss said. But trading in asset-backed securities has largely stopped, so a forced sale now would cost the bank dearly.

Like other banks and many politicians, WestLB is betting that the market will recover.

I suggest to read this from FT Alphaville related to the NAVRevenge of the SIV: still going down

Ich empfehle zu diesem Thema Revenge of the SIV: still going down vi FT Alphaville zu lesen.

HSH Nordbank, based in Hamburg, is taking a similar step to that of WestLB, covering all of the 3.3 billion euros that its vehicle, called Carrera Capital, has issued. The step has helped secure its stable credit ratings with Moody’s Investor Service and Standard & Poor’s.

“What we’re trying to do is avoid a write-down,” Reinhard Schmid, an HSH Nordbank spokesman, said. “We can do that with liquidity.”

Two German banks, IKB Deutsche Industriebank and Landesbank Sachsen, needed an outside rescue in August when their speculation in subprime-related securities went awry. But those problems far outstripped what much more stable banks like WestLB and HSH Nordbank are facing. IKB Deutsche and SachsenLB set up funds that were triple or quintuple the size of their capital on hand.

> I wouldn´t call West LB "stable".....

> Mir würde das Wort "stabil" im Zusammenhang mit der West LB nicht über die Lippen kommen.....

The British bank HSBC said last week that it would spend $35 billion to bring two vehicles it ran directly onto its books, effectively turning the bank into their guarantor of liquidity.

A similar principle underlies the so-"Superfund"— formally known as the Master Liquidity Enhancement Conduit — proposed by Citigroup, the largest sponsor of such vehicles in the world. Together with Bank of America and JPMorgan Chase, Citigroup is proposing that up to $80 billion be devoted to buying up mortgage-backed securities and holding them until the market relaxes.

Europe Suspends Mortgage Bond Trading Between Banks

WOW! Desperation ? If you don´t like the quotes just shut down the market until things get better...? Credit Crunch at its best.... Mish has more on this topic

But when even the German Pfandbrief market is affected you know that something very serious and maybe irrational is happening. The German Pfandbrief is probably one of the safest bonds out there.

Verband Deutscher Pfandbriefbanken

To guarantee the high standard of safety of Mortgage Pfandbriefe at all times, besides the prudent determination of the mortgage lending value only parts of a loan up to 60% of the mortgage lending value are included in cover. Pfandbrief banks can also provide finance above the 60 % lending limit. However, these parts of the loan must not be funded through Mortgage Pfandbriefe.

And remember we are talking about German real estate that is flat for almost a 10 to 15 years and didn´t have any excess in lending practices etc....... The other states that are issuing covered bonds have a less ( often significantly) "tight" restriction and of course way often very inflated collateral........

Wenn das nicht nach einem leichten Anflug von Verzweiflung klingt Denke die Bezeichnung "Credit Crunch" ist hier keineswegs untertrieben..... Zeitenwende hat mehr zu diesem Thema.

Wenn aber selbst der Deutsche Pfandbriefmarkt betroffen ist dann ist wirklich was teilweise irrationales am laufen. Immerhin handelt es sich bei den Pfandbriefen um die wohl sichersten Papiere die zu bekommen sind. Zudem sind die zugrundeliegenden Sicherheiten im Gegensatz zu anderen Anlageklassen die letzten 10-15 Jahre nicht vom Fleck gekommen. In anderen Ländern sind die Sicherheiten der Covered Bonds nicht so weitreichend wie bei den Pfandbriefen. Zudem müssen diese sich dazu noch mit dem Problemen herumschlagen das die zugrundeliegenden Sicherheiten doch erheblich "infaltioniert" sind....

Verband Deutscher Pfandbriefbanken

Um die hohe Sicherheit der Hypotheken-Pfandbriefe jederzeit zu garantieren, werden zusätzlich zu der vorsichtigen Ermittlung des Beleihungswertes nur Darlehensteile bis zu 60% des Beleihungswertes in Deckung genommen

Europe Suspends Mortgage Bond Trading Between Banks
European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region's main source of financing for home lenders.

The European Covered Bond Council, an industry group that represents securities firms and borrowers, recommended banks withdraw from trades for the first time in its three-year history until Nov. 26. Banks are still obliged to provide prices to investors, according to the statement today.


Banks including Barclays Capital, HSBC Holdings Plc and UniCredit SpA took the step as investors shun bank debt on concern lenders face more mortgage-related losses than the $50 billion disclosed. Abbey National Plc, the U.K. lender owned by Banco Santander SA, became the third financial company to cancel a sale of covered bonds in a week as investors demanded banks pay the highest interest premiums on covered bonds in five years.

``We are in a deteriorating situation,'' Patrick Amat, chairman of the Brussels-based ECBC and chief financial officer of mortgage lender Credit Immobilier de France, said in a telephone interview.

``A single sale can be like a hot potato. If repeated, this can lead to an unacceptable spread widening and you end up with an absurd situation.''

Sales Pulled
Covered bonds are securities backed by mortgages or loans to public sector institutions. The notes offer more protection to bondholders than asset-backed debt because the issuing bank is liable for repayments. They typically have the highest credit ratings.

``There's a crisis of confidence for everything but AAA government bonds,'' Arnd Stricker, a management board member at Corealcredit AG, the German commercial property lender owned by Lone Star Funds, said at a conference in Frankfurt. ``Covered bonds are being thrown in the same basket'' as mortgage securities, even though they are safer, he said.

> No wonder spreads for financials are at historic levels and libor is rocketing.......

> Kein Wunder das die Risikoaufschläge auf historischen Ständen sind und Libor ein extremes Maß an Skepsis signalisiert....

Abbey National in London said today it postponed its sale of covered bonds because of ``poor'' demand. AIB Mortgage Bank, a unit of Dublin-based Allied Irish Banks Plc, pulled a covered bond sale in euros yesterday and Ahorro y Titulizacion, an investment unit controlled by Spanish savings banks, decided against issuing the debt on Nov. 16.

Spreads Widen
``In light of the current market situation and in order to avoid undue over-acceleration in the widening of spreads,'' the committee of banks and borrowers ``recommends that inter-bank market making be suspended,'' the council said in an e-mailed press statement.

The extra yield, or spread, that investors demand to hold covered bonds sold by German banks instead of government debt has climbed to 38 basis points from 23 basis points six weeks ago, according to Merrill Lynch & Co. indexes. The premium is the widest in more than five years.

Some banks agreed to stop providing prices on covered bonds for half a day on Aug. 16 to stem losses from widening spreads, according to Johannes Rudolph, a covered bond analyst at HSBC in Dusseldorf. Today's suspension is the first from the industry association, ECBC's Amat said.

``Conditions have really weakened over recent days,'' said Andreas Denger, a covered bond analyst at Calyon SA in London. ``Most investors are not willing to invest in the current volatile market.''

Pfandbrief `Solidarity'
Trading in Germany's pfandbrief market was also suspended in a sign of ``solidarity,'' said Helga Bender, a spokeswoman for the German Pfandbrief Association VDP's German Market Maker and Issuer Committee. Pfandbrief bonds are a subset of covered bonds with stricter regulations.

Bank of England To Rescue Northern Rock / Stock Tanking / BOE A Paper Tiger ?

No wonder the housing & mortgage market is more and more dominating headlines even in the yellow press...... And you know worse the situation in the UK is when Bekham; Kate Moss etc are not dominating page one in the yellow press...... ;-)

Bei der Marktlage ist es kein Wunder das es der Immobilienmarkt es sogar im Boulevard immer öfter auf die Titelseiten schafft...... Und wenn es weder Beckham, Moss, usw auf Platz 1 der Yellow Press schaffen muß schon ungewöhnliches passieren..... ;-)

Tomorrows headline will be including Northern Rock ( wich had an 18.9% share of UK net mortgage lending ) and the bank run ....... Make sure you read the updates in the comment section. This story has some extra large legs......

Die nächste Überschrift enthält sicher schon Northern Rock (die immerhin knapp 19% Marktanteil innehaben oder sollte ich besser sagen hatten) und den"Bankensturm"..... Bitte lest zum Thema auch die Updates in den Kommentaren.... Diese Geschichte wird uns noch längere Zeit verfolgen...

What happend to the "Virtuous Circle" from Northern Rock...... ? Looks it is now more a "Vicious Cirlce"

Was ist bloß aus dem gerühmten "Virtuous Circle" von Northern Rock geworden.....?

FT The Bank of England will on Friday provide emergeny funding to rescue Northern Rock, a leading UK mortgage lender that has fallen victim to the credit squeeze triggered by the US subprime meltdown.

Northern Rock, which had more than $200bn in assets at the end of June, is the first UK financial institution to be propped up since the BoE in 1998 revised the rules under which it would act as a lender of last resort.

14. In exceptional circumstances, there may be a need for an operation which goes beyond the Bank’s published framework for operations in the money market. Such a support operation is expected to happen very rarely and would normally only be undertaken in the case of a genuine threat to the stability of the financial system to avoid a serious disturbance to the UK economy.”

>Just a few days ago Mervyn King, the governor of the Bank of England said this

>Vor ein paar Tagen hatte Mervyn King, the governor of the Bank of England folgendes zu sagen

In an unusual public display of discord, the British central bank criticized other central banks yesterday for injecting cash into the financial system to help stabilize credit markets, saying that such a policy amounted to a bailout of investors who made bad decisions.

The main thrust of his written testimony to Parliament, however, was a sharp warning about “moral hazard” — a term used to describe the downside of policies that effectively rescue investors when their bets turn out wrong.

“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior,” Mr. King wrote. “That encourages excessive risk-taking and sows the seeds of a future crisis.”

> Look at the next chart and watch what the housing bubble has done since they tapped the "lender of last resort" rule the last time in 1998.... Got gold....?

> Guckt Euch an was der Immobilienmakt seit dem letzten Eingreifen der BOE im Jahr 1998 performed hat...... Got gold...?

The Bank is expected to say on Friday that a similar facility is available to any other institution facing short-term difficulties.

> When i look at this chart they should worry about the longer term problems....

> Wenn ich mir diesen Chart ansehe glaube ich zudem das die wirkliche Problematik eher langfristiger Natur ist......

Bloomberg is reporting this
The Bank of England is confident about the quality of Northern Rock's mortgage book, the FT said. The lender has struggled with refinancing obligations, including mortgage- backed securities, the report said.

> Confidence in a bank that is offering products like this ?

> Vertrauen in die Kreditbücher einer Bank die Produkte wie dieses begeben ?

Say the value of your property is £100,000. You could get a secured mortgage of up to £95,000. And have the facility to borrow up to £30,000 unsecured loan for anything else.

You can draw on this £30,000 as it suits you. So, you might need £10,000 now and hold £20,000 in reserve.

> Too bad that they didn´t include the above 100% financing in the following chart... ;-)

> Schade das Northern im Chart nicht ebenfalls die 100% plus Finanzierung aufführt..... ;-)

> On top of this they seem to very optmisitic about the quality of their books...

> Zudem erscheint mir die Bank doch recht optimistisch was die Qualität Ihres Kreditbuches angeht......

The charge for loan loss impairment amounted to £56.8 million for the first half (2006 first half - £44.5million) representing 0.12% of mean advances to customers (2006 first half - 0.12%).

The combination of high quality lending, low interest rates, low early arrears and continued strong average LTV of the portfolio have continued to contain the levels of loan loss impairment provisions required for residential mortgages. Write offs in the first half amounted to £8 million representing only 0.01% of outstanding residential mortgage balances.

We do not expect to see a higher impairment charge in the second half than in the first half of 2007

> When i look at the growth rate it it clear that have been offering very agressive products.... I´m not sure if they deserve the help......"Moral Hazard" Mr. King?

> Wenn ich mir die Wachstumsraten ansehe ist klar zu erkennen das gerade Northern Rock ganz besonders agressiv im Markt unterwegs gewesen sein muß. Warum gerade dieser Spieler die Hilfe verdient......

The loan will be made at a ``punitive rate of interest,'' the British Broadcasting Corp. said.

``If someone was struggling and had to go to the Bank of England for assistance, Northern Rock would be first in the queue because of the way they fund their mortgages,'' Ian Murrell, a director at Wills & Co. stockbrokers in London, said on Thursday before the BBC report. ``It's all funded in the money markets,'' he said.

> No wonder that there is a good amount of mistrust between UK banks.....

> Wenig verwunderlich das es ein erheblichen Mißtrauen zwischen UK Banken gibt....

Northern Rock shares fell 4.9 percent to 639 pence yesterday, the lowest since March 2003. The stock has dropped by half this year, valuing the lender at 2.69 billion pounds ($5.45 billion) and making it an attractive acquisition target, MF Global Securities Ltd. analysts said Wednesday. The stock is the worst performer of the nine members on the FTSE ASX Banks Index.

You can add another 25% haicut......

Yesterday's action by the U.K. central bank was its first to help credit markets since the subprime market collapsed. Governor Mervyn King yesterday indicated the bank won't go as far as the European Central Bank and the Federal Reserve in helping banks cope with the credit rout because policy makers can't afford to ``encourage excessive risk taking.''

Commercial banks, which agree to hold a specific amount of money at the Bank of England at the end of each month-long maintenance period, can now undershoot that target by 37.5 percent to free up cash if needed. That compares with the usual limit of 1 percent.

> After reading all this i have to admit that my respect for Mr. King and the BOE is deteriorating significantly.......But as long as this comment is true "Northern Rock collateral to be similar to euro-zone banks" he is not worse than Trichet ( but this should be no compliment)....Too bad that nobody knows the exact details. The official BOE release does not provide further information ...... And the BOE should not complain about the fact that after their "U-Turn" the speculations are rampant...

> Alles in allem bleibt festzuhalten das mein Respekt für Herrn King und die BOE erheblich gelitten hat.....Aber solange diese Aussage zutreffend ist "Northern Rock collateral to be similar to euro-zone banks" ist er zumindest nicht schlechter als Trichet ( was aber kaum als Kompliment aufzufassen ist).... Dumm nur das keinerlei weitere Details bekanntgegeben worden sind. Die offizielle BOE Mitteiling hüllt sich dazu in Schweigen. Und nachdem die BOE eine solch dramatische Kehtwende binnen weniger Tage hingelegt hat darf man sich nicht beschweren wenn die Spekulationen ins Kraut schießen......

Disclosure: Short Pound vs €, long Gold, Goldmines/Hui, NAK

Australian Central Bank to Buy Mortgage-Backed Debt

Lots of mistrust out there..... And when you talk about as the Ft calls it "Enron-esque characteristics" with off balance sheet vehicles like SIV / conduits in the ABCP market this should be no surprise....

Jede Menge Misstrauen am Markt vorhanden..... Und das sollte auch vorhanden sein wenn man sich die wie die FT es schön ausdrückt "Enron-esque characteristics" der Zweckgemeinschaften ansieht die ausserhalb der Bilanz geführt werden. Fragt hier in Deutschland bei der IKB und in Sachsen nach.

Sept. 6 (Bloomberg) -- Australia's central bank said it will buy debt backed by home loans to add cash to the financial system, after the U.S. subprime credit rout eroded demand for asset-backed securities and drove up interest rates.

> Looks like Bloomberg is overstating it. If you read the official press release Reserve Bank Of Australia DOMESTIC MARKET DEALING ARRANGEMENTS they are not buying RMBS they are taking it as collateral. But nevertheless they have widened the possible funding options....

> Sieht so aus als wenn Bloomberg hier etwas zu dick aufgetragen hat. Wenn man die offizielle Pressemitteilung Reserve Bank Of Australia DOMESTIC MARKET DEALING ARRANGEMENTS als Maßstab nimmt, werden die Papiere nicht direkt erworben sondern wie auch von der Fed & Co lediglich als Sicherheit herangezogen. Bleibt aber trotzdem festzuhalten das die Notenbank die Möglichkeiten der Geldbeschaffung erheblich ausgeweitet hat....

The rate banks charge each other for three-month loans fell 15 basis points from yesterday's 11-year high of 7.06 percent after the Reserve Bank of Australia said in a statement today it will buy top-rated bonds linked to mortgage payments. Asset- backed commercial paper and bank bills are also eligible for purchase.

The move increases funds available to banks and supports the market for asset-backed debt in Australia, where credit markets have been roiled by losses related to debt backed by loans to U.S. homeowners. National Australia Bank Ltd., the nation's largest lender, yesterday said an affiliate had been unable to refinance A$6 billion ($4.9 billion) of loans.

> The FT has this to say Bad pennies roll back to NAB?

NAB’s chief financial officer Michael Ullmer will tell a UBS investment conference in London that the bank expects to see about A$11bn of these assets migrate to its balance sheet by the end of September

And, quoting directly from the Cheery PR Guide to Complex Financial Crises, a spokesman told the newswire:

So whilst this wasn’t a predicted event, it isn’t an event that causes us any concern.

All the assets are rated AA- or higher and the impact on NAB’s core capital ratios will be minimal, the spokesman added.

We aren’t concerned about the credit quality of the assets coming on board because they are subject to our normal credit processes and of course we have done a lot of work to diversify our funding over the years so we are in a strong funding position.

Good pennies, in other words, rather than bad pennies rolling back. Honest (End FT)

Australia's lenders depend more on capital markets for funds than other banks in the Asia-Pacific, Moody's Investors Service said in a report. Australia & New Zealand Banking Group Ltd., the third-largest lender, said Aug. 30 profit margins on its loans have narrowed as much as 25 basis points.

`Helps the Markets'
The Reserve Bank yesterday left the overnight cash rate unchanged at an 11-year high of 6.5 percent. Central banks typically buy government securities in so-called repurchase agreements, or repos, for a set period to bring money market rates closer to their targets. At maturity, the securities and the cash are returned to the central bank.

The spread for three-month Australian dollar Libor over the RBA's benchmark rate touched 56 basis points yesterday, the widest since February 2000. It has averaged 12 basis points in the past five years. A basis point is 0.01 percentage point.

Refinancing Trouble
National Australia Bank moved funding for A$6 billion of loans onto its balance sheet after the unit holding some assets was unable to refinance in the short-term debt market, the Melbourne-based bank told investors in London yesterday.

The rate banks charge each other to borrow in dollar for three months in Singapore rose for a ninth day to 5.7775 percent, the highest since Jan. 3, 2001. A similar benchmark in Hong Kong rose to 4.972 percent, the highest since April 6, 2001.

``The higher cost of funding in the interbank market reflects the banks' reluctance to lend because nobody knows the extent of the subprime problem out there,'' said Joseph Tan, strategist at Fortis Bank SA in Singapore.

The Bank of Japan refrained from adjusting funds in the financial system today. In Japan, the rate for overnight call loans between commercial banks and other financial institutions in Japan rose to 0.49 percent as of 12:13 p.m. in Tokyo from 0.42 percent yesterday, according to brokerage company Tokyo Tanshi Co. That's still below the BOJ's target of 0.5 percent.

Yields on three-month U.S. asset-backed commercial paper rose on Sept. 4 to 6.16 percent, the highest in more than six years, according to data compiled by Bloomberg. In Australia, margins lenders have to pay on the securities have risen up to 20 times the level of a month ago to as much as 40 basis points.

While the Australian dollar Libor rate rose 54 basis points from the end of July until yesterday, the dollar Libor rate climbed 36 basis points to a seven-year high of 5.72 percent

Bloomberg has some details on the impact on the important core capital

Moving loans onto National Australia's balance sheet will reduce core capital by 0.15 percent

Australia & New Zealand Banking Group Ltd., the nation's third-largest bank, has moved A$2.5 billion of loans back onto its balance sheet, and may shift the remaining A$2.1 billion by the end of this fiscal year, spokesman Paul Edwards said today. That will reduce its core capital ratio by as much as 20 basis points

1 Year ARM Surpasses 30 Fixed Year For The First Time

I´m pretty sure that the majority of mortgage borrowers never heard of LIBOR as the most important rate when it comes to their mortgage.....

Ich bin mir ziemlich sicher das die Mehrzahl der Hypothekenschuldner noch nie in Ihrem Leben vom LIBOR gehört haben. Ärgerlich wird es wenn dieser Zinssatz dann die Anpassung des laufenden Kredites maßgeblich bestimmt......

LIBOR is an abbreviation for "London Interbank Offered Rate," and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments, including Adjustable Rate Mortgages (ARMs) and other loans.

The average rate on a one-year adjustable mortgage surged to 6.51 percent, the highest since January 2001, from 5.84 percent the prior week. The rate also surpassed the cost of a 30-year fixed loan for the first time.