Feb
27
2009
Citigroup Gets Third Bailout as Government Plans to Raise Stake
Author: Randall Goltzman
Citigroup Gets Third Bailout as Government Plans to Raise Stake
2009-02-27 12:07:31.137 GMT
By Bradley Keoun and Rebecca Christie
Feb. 27 (Bloomberg) — The U.S. government will raise its stake in Citigroup Inc. in the third attempt to rescue what was once the world’s biggest financial institution.
The plan will involve the Treasury Department converting as much as $25 billion of preferred shares into common stock, the Treasury Department said in a statement today. The government said it will make the swaps only if private holders agree to the same terms. The U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to the New York- based company last year.
“This gradual step-by-step process doesn’t work, or has not worked so far,” said Marino Valensise, chief investment officer of London-based Baring Asset Management Ltd., who helps oversee about $30 billion for clients.
Citigroup Chief Executive Officer Vikram Pandit is trying to bolster confidence after his bank’s stock sank to $1.95 last week — the lowest price in 18 years. The government is supporting the company, which had 200 million customer accounts in more than 100 countries at the end of last year, because of concern its failure might roil already weak global markets.
Federal Reserve Chairman Ben S. Bernanke said Feb. 25 he wants to avoid nationalizing Citigroup and other large banks in a way that would wipe out shareholders and leave the U.S. in full control. Bernanke said the government might end up owning a “substantial minority” of the bank.
Citigroup rose 3 cents to $2.49 in German trading today before the announcement. The stock plummeted 90 percent during the past 12 months. Only Cincinnati-based Fifth Third Bancorp fell more of 24 companies on the KBW Bank Index.
To contact the reporters on this story:
Bradley Keoun in New York at +1-212-617-2310 or bkeoun@bloomberg.net
Rebecca Christie in Washington at +1-202-654-1273 or Rchristie4@bloomberg.net
To contact the editors responsible for this story:
Alec D.B. McCabe at +1-212-617-4175 or amccabe@bloomberg.net
Chris Anstey at +1-202-624-1972 or canstey@bloomberg.net
Low Mortgage Rates a Mirage as Fees Climb, Eligibility Tightens
2009-02-27 05:00:01.12 GMT
By James Sterngold
Feb. 27 (Bloomberg) — Brian Wickert, a mortgage banker in Butler, Wisconsin, prides himself on screening applicants carefully. That’s why he was stunned when a customer who sailed through four home loans tried to do a refinancing in January, only to be rejected by three national lenders.
The borrower’s credit standing and income were solid, said Wickert, 47, president of Accunet Mortgage. The problem was that, with home sales plummeting along with prices, the appraiser couldn’t find the required three comparable sales in six months within a one-mile radius.
“The business has gotten tougher than I’ve seen it,” Wickert said. “The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded.”
Bankers around the country say one reason the housing market hasn’t stabilized is that while mortgage rates have come down, hurdles have gone up. Rising default rates and bank losses have made lenders more risk-averse, leading to higher fees, increased insurance rates and difficulties refinancing loans.
The average rate on a 30-year fixed mortgage dropped to 5.07 percent for the week ending Feb. 26 from 6.63 percent for the one ending July 24, according to data compiled by McLean, Virginia-based Freddie Mac. Meanwhile, the percent of mortgage applications that led to closings fell nationwide to 59 percent in the first half of 2008 from 66.3 percent in 2006, the most recent period for which data is available, the Mortgage Bankers Association reported.
To contact the reporter on this story:
James Sterngold in Los Angeles at +1-323-782-4254 or jsterngold2@bloomberg.net
To contact the editor responsible for this story:
Alec McCabe at +1-212-617-4175 or amccabe@bloomberg.net
U.S. Economy Shrank 6.2% in Fourth Quarter, Most Since 1982
2009-02-27 13:30:00.513 GMT
By Timothy R. Homan
Feb. 27 (Bloomberg) — The U.S. economy shrank in the fourth quarter at an even faster pace than previously estimated as consumer spending plunged, companies cut inventories and exports sank.
Gross domestic product contracted at a 6.2 percent annual pace from October through December, more than economists anticipated and the most since 1982, according to revised figures from the Commerce Department today in Washington. Consumer spending, which comprises about 70 percent of the economy, declined at the fastest pace in almost three decades.
The recession is forecast to persist at least through the first half of this year as job losses mount and purchases plummet.
The Obama administration’s attempts to break the grip of the worst financial crisis in 70 years are unlikely to bring immediate relief as companies from General Motors Corp. to JPMorgan Chase & Co. cut payrolls.
“The economy really hit the brakes very hard in the fourth quarter,” John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey, said before the report. “We’re in a pretty severe, protracted recession. The economy could continue to struggle into 2010.”
GDP was projected to contract at a 5.4 percent annual pace last quarter, according to the median estimate of 74 economists surveyed by Bloomberg News. Forecasts ranged from declines of 3.8 percent to 6 percent.
The 2.4 percentage-point revision was almost five times as large as the average adjustment, Commerce said.
The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.
To contact the reporter on this story:
Timothy R. Homan in Washington at +1-202-624-1961 or thoman1@bloomberg.net
To contact the editor responsible for this story:
Chris Anstey at +1-202-624-1972 or canstey@bloomberg.net
Low Mortgage Rates a Mirage as Fees Climb, Eligibility Tightens
2009-02-27 05:00:01.12 GMT
By James Sterngold
Feb. 27 (Bloomberg) — Brian Wickert, a mortgage banker in Butler, Wisconsin, prides himself on screening applicants carefully. That’s why he was stunned when a customer who sailed through four home loans tried to do a refinancing in January, only to be rejected by three national lenders.
The borrower’s credit standing and income were solid, said Wickert, 47, president of Accunet Mortgage. The problem was that, with home sales plummeting along with prices, the appraiser couldn’t find the required three comparable sales in six months within a one-mile radius.
“The business has gotten tougher than I’ve seen it,”
Wickert said. “The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded.”
Bankers around the country say one reason the housing market hasn’t stabilized is that while mortgage rates have come down, hurdles have gone up. Rising default rates and bank losses have made lenders more risk-averse, leading to higher fees, increased insurance rates and difficulties refinancing loans.
The average rate on a 30-year fixed mortgage dropped to
5.07 percent for the week ending Feb. 26 from 6.63 percent for the one ending July 24, according to data compiled by McLean, Virginia-based Freddie Mac. Meanwhile, the percent of mortgage applications that led to closings fell nationwide to 59 percent in the first half of 2008 from 66.3 percent in 2006, the most recent period for which data is available, the Mortgage Bankers Association reported.
To contact the reporter on this story:
James Sterngold in Los Angeles at +1-323-782-4254 or jsterngold2@bloomberg.net
To contact the editor responsible for this story:
Alec McCabe at +1-212-617-4175 or amccabe@bloomberg.net
Chicago Purchasers’ February Index Increases to 34.2 From 33.3
2009-02-27 14:45:31.834 GMT
By Bob Willis
Feb. 27 (Bloomberg) — U.S. business activity contracted in February for a fifth consecutive month, a sign manufacturing is weakening as the recession extends into a second year.
The Institute for Supply Management-Chicago Inc. said today its business barometer increased to 34.2 from 33.3 the prior month, when it reached the lowest reading since March 1982.
Readings below 50 signal a contraction.
Companies including Deere & Co. and Ford Motor Co. are reducing investments and cutting staff as the worst credit freeze in seven decades pushes the economy into a deeper recession.
President Barack Obama is orchestrating a surge in federal spending programs while the Federal Reserve is flooding markets with cash to thaw credit.
“Manufacturing is in the midst of a severe downturn,” Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Autos remain at the root of the troubles for Midwest manufacturers.”
A government report today showed the U.S. economy shrank in the fourth quarter at the fastest pace since 1982 as consumer spending plunged, inventories dropped and exports sank. Gross domestic product contracted at a 6.2 percent annual pace from October through December, the Commerce Department said in Washington. Business investment fell at a 21 percent rate.
Economists projected the Chicago purchasers index would drop to 33, based on the median estimate of 53 economists in a Bloomberg News survey. Forecasts ranged from 28.8 to 36.0.
To contact the reporter on this story:
Bob Willis in Washington at +1-202-624-1837 or bwillis@bloomberg.net
To contact the editor responsible for this story:
Citi Gets Third Rescue