Black Friday!

[cube]

News from The Beeb

President George W Bush is expected on Thursday to outline a plan to freeze mortgage rates for five years for homeowners hit by the credit crunch.

Reports said the freeze would apply to sub-prime home loans made between 1 January 2005 and July 31 2007 whose monthly payments are due to rise.

The White House said the president will make a statement on Thursday afternoon.

Hundreds of thousands of sub-prime mortgage holders could default and lose homes as credit tightens in the US.

An estimated 1.8 million US homeowners who took out loans with discount teaser rates face pricey loan resets next year alone, the Federal Reserve has said.

Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson have a news briefing scheduled for 1845 GMT (1345 EST) on Thursday shortly after the president is due to speak.

Bail out?

Officials fear half a million borrowers risk losing their homes.

Many homeowners that signed up to cheap deals are now seeing rates rise.

Many believe these mortgage rates should be temporarily frozen, to make it easier for those caught out by the credit crunch to meet their mortgage payments and keep their homes.

But others say such measures would bail out homeowners who made imprudent decisions and delay the necessary correction that home prices must undergo in order to resolve the fundamental problem.

[Perry]

October Foreclosure Filings Surge
More than 50,000 lost their homes in October;
foreclosure rates expected to rise in 2008 as
adjustable-rate mortgages reset.


Paulson, Banks in Talks to Stem Surge in Foreclosures
Nov. 30 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson is
negotiating an agreement with banks to stem a surge in foreclosures
by fixing interest rates on loans to sub-prime borrowers, according
to people familiar with a meeting he led yesterday.


I wonder how much the PPT has to do with this?

[muppet]

Bush, Paulson Attempt to Prolong Expansion With Subprime Freeze

Bush, Paulson Attempt to Prolong Expansion With Subprime Freeze

By Alison Vekshin

Dec. 6 (Bloomberg) -- President George W. Bush today will announce a freeze on some subprime mortgages in an effort to stop a wave of foreclosures undoing the six-year expansion.

Treasury Secretary Henry Paulson and regulators forged the agreement with lenders that will fix interest rates on some loans for five years, said people familiar with the plan. The deal is focused on borrowers who will fall behind once initially low rates reset to higher levels through July 2010.

The housing slump, now in its third year, is pushing home values down and restraining economic growth, which economists estimate will be less than 1 percent this quarter. The collapse in the market for securities backed by subprime mortgages cost the chief executive officers of Merrill Lynch & Co. and Citigroup Inc. their jobs, roiled markets from Auckland to New York and forced the Federal Reserve to cut interest rates twice.

``The magnitude of the economic impact on housing prices in the absence of this plan under current conditions is large,'' said Susan Wachter, professor of real estate at the University of Pennsylvania's Wharton School in Philadelphia.

Bush is scheduled to make a statement on the housing industry at 1:40 p.m. in Washington and Paulson speaks at a press conference later today.

More than 30 percent of borrowers with subprime adjustable- rate mortgages are behind on their payments before their loans reset higher according to estimates from analysts at Credit Suisse Group. The bank projects 775,000 homes with $143 billion of mortgage debt will go into foreclosure in the next two years.

Neighborhood Threat

``We know when foreclosures hit, it brings down the value of the neighborhood by 20 percent,'' said David Olson, president and co-founder of Wholesale Access Mortgage Research and Consulting Inc. in Columbia, Maryland. ```That's what they are trying to avoid.''

Officials and executives from companies including Citigroup, Wells Fargo & Co. and Washington Mutual Inc. spent much of the past week negotiating over how long to extend starter rates on subprime mortgages, which are usually given to people with poor or incomplete credit histories.

The freeze will apply to mortgages issued between January 2005 and July 2007 that are scheduled to reset between January 2008 and July 2010, said the people familiar with the plan.

To be eligible, borrowers must not be more than 60 days behind in their payments, have less than 3 percent equity in their property and be unable to afford higher interest rates once starter rates increase.

Rough Calculations

The accord may help between 200,000 and 500,000 borrowers, representing as much as a quarter of the 2 million adjustable- rate mortgages due to reset over the next two years, according to Olson. He based his calculations on Paulson's recent public remarks and discussions with contacts involved in the negotiations.

``We have got to do something drastic, and we have to do something quickly,'' said Representative Elton Gallegly, a Republican from California. ``I don't like the government getting involved in the private sector, but we have potential problems we are already seeing come to pass.''

Financial shares in the Standard & Poor's 500 Index climbed yesterday after negotiators reached a consensus on the freeze. Freddie Mac, the second-largest provider of money for U.S. home loans, gained 3.8 percent. Washington Mutual, the largest American savings and loan, advanced 2.5 percent.

Political Response

Democratic Senator Hillary Clinton of New York, a candidate for her party's presidential nomination, reiterated her support for a five-year freeze. Some Republicans expressed skepticism.

``My biggest concern is that there are a lot of Americans who are making their mortgage payments, they are current, and the benefit won't go to them,'' Representative Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, told reporters after a meeting with Paulson yesterday.

One challenge has been to craft a deal minimizing lawsuits from investors in bonds backed by the mortgages being rewritten, analysts said. The longer that lower rates are extended, the more risk posed to the bonds' values. Republican Representative Mike Castle of Delaware has proposed legislation offering a ``safe harbor from legal liability'' to mortgage servicers.

``The things that make the U.S. mortgage market the capital-market success that it is are property rights and the sanctity of contracts, so they have to be careful to not damage either one of those,'' said Scott Simon, head of mortgage- and asset-backed bond investing at Pacific Investment Management Co.

Simon, whose Newport Beach, California-based firm manages the world's largest bond fund, declined to comment on the plan itself until its details are announced.

Foreclosures almost doubled in October from a year earlier as subprime borrowers failed to make higher payments, Irvine, California-based RealtyTrac Inc. said Nov. 29.

Adjustable-rate subprime mortgages usually begin with 7 percent to 9 percent rates that reset to between 11 percent and 13 percent. ``What we are talking about is having these loans modified, so they continue for a longer period of time at the starter rate,'' John Reich, director of the Office of Thrift Supervision, said in an interview Dec. 3.

http://www.bloomberg.com/apps/news?p...ybU&refer=home

[cube]

I wonder how much the PPT has to do with this?

PPT = Plunge Protection Team?

This sounds like an attempt by politicians to buck the market. Guess what? The market will buck right back! Don't These people learn!

[muppet]

Wary of Risk, Bankers Sold Shaky Mortgage Debt

Wary of Risk, Bankers Sold Shaky Mortgage Debt

By JENNY ANDERSON and VIKAS BAJAJ
Published: December 6, 2007

As the subprime loan crisis deepens, Wall Street firms are increasingly coming under scrutiny for their role in selling risky mortgage-related securities to investors.

Many of the home loans tied to these investments quickly defaulted, resulting in billions of dollars of losses for investors. At the same time, many of the companies that sold these securities, concerned about a looming meltdown in the housing market, protected themselves from losses.

One big bank that saw the trouble coming, Goldman Sachs, began reducing its inventory of mortgages and mortgage securities late last year. Even so, Goldman went on to package and sell more than $6 billion of new securities backed by subprime mortgages during the first nine months of this year.

Of the loans backing the Goldman deals for which data is available, nearly 15 percent are already delinquent by more than 60 days, are in foreclosure or have resulted in the repossession of a home, according to data compiled by Bloomberg. The average default rate for subprime loans packaged in 2007 is 11 percent.

“There is a maxim that comes to mind: ‘If you work in the kitchen, you don’t eat the food,’” said Josh Rosner, a managing director of Graham Fisher, an independent consulting firm in New York.

The New York attorney general, Andrew M. Cuomo, has subpoenaed major Wall Street banks, including Deutsche Bank, Merrill Lynch and Morgan Stanley, seeking information about the packaging and selling of subprime mortgages. And the Securities and Exchange Commission is examining how Wall Street companies valued their own holdings of these complex investments.

The Wall Street banks that foresaw problems say they hedged their mortgage positions as part of their fiduciary duty to shareholders. Indeed, some other companies, particularly Citigroup, Merrill Lynch and UBS, apparently did not foresee the housing market collapse and lost billions of dollars, leading to forced resignations of their chief executives.

In any case, the bankers argue, buyers of such securities — institutional investors like pension funds, banks and hedge funds — are sophisticated and understand the risks.

Wall Street officials maintain that the system worked as it was supposed to. Underwriters, they say, did not pressure colleagues on trading desks or in research departments to promote securities blindly.

Nevertheless, the loans that many banks packaged are proving to be increasingly toxic. Almost a quarter of the subprime loans that were transformed into securities by Deutsche Bank, Barclays and Morgan Stanley last year are already in default, according to Bloomberg. About a fifth of the loans backing securities underwritten by Merrill Lynch are in trouble.

Data from another firm that tracks mortgage securities, Lewtan Technologies, shows similar trends. The banks declined to comment on the default rates.

The data raises questions about how closely Wall Street banks scrutinized these loans, many of them made at low teaser rates that will reset next year to higher levels.

The Bush administration is close to a plan to freeze mortgage rates temporarily for some homeowners who are threatened with foreclosure.

In recent years, Wall Street aggressively pushed into the complex, high-margin business of packaging mortgages. At the same time, banks expanded their roles to selling investments to clients while trying to make money on their own holdings. Now, with the collapse of the credit bubble, Wall Street’s risk management, as well as the multiple and often conflicting roles it plays, has been laid bare.

As early as January 2006, Greg Lippmann, Deutsche Bank’s global head of trading for asset-backed securities and collateralized debt obligations, and his team began advising hedge funds and other institutional investors to protect themselves from a coming decline in the housing market.

“He was really pounding the pavement,” said one hedge fund trader, who asked not to be identified because it could jeopardize his relationship with Wall Street banks.

Mr. Lippmann’s trade ideas — documented in a January 2006 presentation obtained by The New York Times — were not always popular inside Deutsche Bank, where the origination desk was busy selling mortgage securities. In the fall of 2006, Mr. Lippmann pitched bearish trades to the bank’s sales force at the same time the origination desk was bringing them mortgage deals to sell to clients.

Last year, Deutsche Bank underwrote $28.6 billion of subprime mortgage securities, according to Inside Mortgage Finance, an industry publication. In the first nine months of this year, the bank underwrote $12 billion.

Goldman Sachs also moved early to insulate itself from potential losses. Almost a year ago, on Dec. 14, 2006, David A. Viniar, Goldman’s chief financial officer, called a “mortgage risk” meeting. The investment bank’s mortgage desk was losing money, and Mr. Viniar, with various officials, reviewed every position in the bank’s portfolio.

The bank decided to reduce its stockpile of mortgages and mortgage-related securities and to buy expensive insurance as protection against further losses, said a person briefed on the meeting who was not authorized to speak about the situation publicly.

Goldman, however, did not stop selling subprime mortgage securities. The bank, like other firms, retains a piece of the securities it sells. A Goldman spokesman said the firm was not betting against the mortgage securities it underwrote in 2007.

Like Goldman, Lehman Brothers also started to hedge its huge inventory of home loans in the second quarter of this year, concerned about poor underwriting standards. But Lehman also continued to sell mortgage securities packed with shaky loans, underwriting $16.5 billion of new securities in the first nine months of 2007. About 15 percent of the loans backing these securities have defaulted.

At the center of the boom in mortgages for borrowers with weak credit was Wall Street’s once-lucrative partnership with subprime lenders. This relationship was a driving force behind the soaring home prices and the spread of exotic loans that are now defaulting in growing numbers. By buying and packaging mortgages, Wall Street enabled the lenders to extend credit even as the dangers grew in the housing market.

“There was fierce competition for these loans,” said Ronald F. Greenspan, a senior managing director at FTI Consulting, which has worked on the bankruptcies of many mortgage lenders. “They were a major source of revenues and perceived profits for both the originators and investment banks.”

The battle over these loans intensified in 2005 and 2006, as home prices approached their zenith. (Home sales peaked in mid-2005.) At the same time, buyers of these securities, which carry relatively high interest rates, were fueling demand. Lehman Brothers, the dominant Wall Street player in this field, underwrote $51.8 billion of subprime mortgage securities in 2006, followed by RBS Greenwich Capital, which arranged $47.6 billion of sales.

Not all banks continued to expand their subprime business. Credit Suisse, which had been a major player in 2005, pulled back aggressively, with its underwriting down 22 percent in 2006, compared with 2004.

But other Wall Street banks, pushing to catch these market leaders, reached out to subprime lenders. Morgan Stanley, which expanded its subprime underwriting business by 25 percent from 2004 to 2006, cultivated a relationship with New Century Financial, one of the largest subprime lenders. The firm agreed to pay above-market prices for loans in return for a steady supply of mortgages, according to a former New Century executive.

“Morgan would be aggressive and say, ‘We want to lock you in for $2 billion a month,’” said the executive, who asked not to be identified because he still works with Wall Street banks.

Loans made by New Century, which filed for bankruptcy protection in March, have some of the highest default rates in the industry — almost twice those of competitors like Wells Fargo and Ameriquest, according to data from Moody’s Investors Service.

Fremont General and ResMae, which also had high default rates, were big suppliers of loans to Deutsche Bank. Merrill Lynch had a close relationship with Ownit Mortgage Solutions, which filed for bankruptcy in December. Merrill also acquired another lender, First Franklin, for $1.7 billion in late 2006.

“The easiest way to grab market share was by paying more than your competitors,” said Jeffrey Kirsch, president of American Residential Equities, which buys home loans.

What is clear is that home loans were highly lucrative to Wall Street and its bankers. The average total compensation for managing directors in the mortgage divisions of investment banks was $2.52 million in 2006, compared with $1.75 million for managing directors in other areas, according to Johnson Associates, a compensation consulting firm. This year, mortgage officials will probably earn $1.01 million, while other managing directors are expected to earn $1.75 million.

http://www.nytimes.com/2007/12/06/bu...6hedge.html?hp

[revdev]

Aussie banks exposed to sub-prime crisis

Source: http://www.stuff.co.nz/4350306a13.html

Aussie banks exposed to sub-prime crisis

Australia's biggest four retail banks, which own New Zealand's top five banks, have a A$850 million (NZ$972 million) direct exposure to the troubled United States sub-prime mortgage market, The Australian newspaper reported today.

The Commonwealth Bank of Australia, National Australia Bank, ANZ Group and Westpac's exposure comes through investments in troubled US mortgage group Countrywide Financial. Commonwealth Bank owns ASB, National Australia owns the Bank of New Zealand, ANZ Group is the parent of both New Zealand's ANZ and National Bank and Westpac the parent of Westpac New Zealand.

The Australian banks were part of a syndicate of 40 international banks that provided Countrywide an $US11.5 billion (NZ$14.8 billion) lifeline last year.

According to The Australian, Commonwealth Bank and National Australia invested A$300 million each, while the ANZ pumped in A$150 million and Westpac $100 million.

Their exposure to the sub-prime crisis through Countrywide was confirmed by the Australian banks yesterday, the newspaper reported.

Shares in Countrywide, the US's largest independent mortgage lender, fell 17 per cent on Tuesday after speculation, which it denied, that the company would seek bankruptcy protection.

The speculation around Countrywide comes against a backdrop of defaults on sub-prime mortgages, or loans to borrowers with poor credit histories, from global banking giants such as Citigroup, UBS and HSBC so far producing about US$80 billion (NZ$104 billion) in losses on securities backed by them.

G

[Gatekeeper]

Therefore NZ interest rates increase

Westpac joins ANZ in hiking mortgage rates

By Bernard Hickey

Westpac has joined ANZ/National in putting up its New Zealand fixed mortgage rates by 20 basis points, boosting profit margins at a time when wholesale interest rates have been flat to slightly softer.






Westpac announced on Thursday all but one of its fixed mortgage rates would rise 20 basis points, matching the rate increases announced by ANZ/National a week ago.

Westpac's new rates are in bold on our mortgage rates page.

The other major mortgage lenders -- ASB, BNZ and Kiwibank -- have yet to raise their rates.

The increase in rates by Westpac and ANZ/National effectively increases their profit margins as wholesale swap rates have been flat or slightly lower in recent weeks.

As shown in the acommpanying chart on the left, the two year rate now offered by ANZ/National and Westpac of 9.60% is now 108 basis points above the two year swap rate of 8.52%.

At the beginning of 2008 that margin was 84 basis points and in mid 2007 that margin was 97 basis points.

The increase in margins follows similar rate hikes by the Australian parents of these banks over the last week.

National Australia Bank, which owns BNZ, raised its variable mortgage rate in Australia by 12 basis points last week, while ANZ increased its Australian floating rate by 20 basis points on Monday.

The Australian banks said the increases were prompted by increasing costs from the wholesale money markets because of the global credit crunch triggered by massive defaults in US home mortgages. Australian Treasurer Wayne Swan criticised the ANZ's move, given it had not followed an increase in official interest rates by the Reserve Bank of Australia.

Commonwealth Bank of Australia, which owns ASB and Sovereign, increased its floating rate in Australia by 10 basis points on Wednesday.

The Australian reported on Thursday that the Australian banks stand to lose A$1 billion if US mortgage provider Countrywide Financial goes bankrupt. The Australian banks participated in an international bailout late last year.

http://www.interest.co.nz/news/Westpac-hikes-rates.asp

[muppet]

NZ market plunges after US fall

New Zealand's stock market has fallen dramatically this morning.

The benchmark NZXS-50 opened down and has continued to fall in early trading. It is currently down 2.17 per cent.

The downturn follows a plunge in the US markets overnight as Citigroup Inc announced a record loss and said it would shed 4200 jobs in an effort to stabilise its balance sheet.

The blue chip Dow Jones Industrial Average index plunged 282.24 points or 2.21 per cent to 12,495.91 to be at its lowest since April.

More than $3 billion has been wiped off New Zealand markets since daily falls began 10 days ago.

* The NZSX-50 index was down 39 points, 1.0 per cent, to 3771 points in the first minutes of trading, setting a new 14-month low. The index is now down 13 per cent since early October.

Brokers said the tone in the local market was being set on Wall Street. Retail and institutional investors were afraid of buying in the current climate, they said.

* The only stock to rise in the top 50 was jewellery retailer Michael Hill, up 2c to 102.

* Top stock Telecom was down 3c to 415, Fletcher Building was off 7c to 1049, and No 3 Contact Energy 5c to 799.

* Sky City continued its southward path after recovering 11c yesterday. It was down 5c to 415 today. Ryman Healthcare was down 8c to 185 and Rakon fell 6c to 345.

* Auckland International Airport lost yesterday's 4c gain to be on 270.

In the US, sentiment was set by Citigroup, which posted a fourth-quarter loss of US$9.83 billion ($12.7b) on losses tied to subprime home loans and other risky debt.

Its shares lost nearly 8 per cent and added to concerns that the worst for financial companies from the global credit crisis may be far from over.

The picture for stocks grew grimmer after the Commerce Department said retail sales unexpectedly fell in December to close out the weakest year at the cash register since 2002.

Costlier energy and falling home prices depressed spending during the holiday shopping season.

The Standard & Poor's 500 Index fell 35.49 points, or 2.51 per cent, to 1380.76 and the Nasdaq Composite Index dropped 60.71 points, or 2.45 per cent, to 2417.59.

- NZPA, NZ HERALD STAFF

http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10487115

[Perry]

April Fool's Day - 6 Months Later

April Fool's Day

Well, it's here: 1st of April. (Beware the ides of April? )
Some 6 months ago, I posted a sort-of April Fool's Day Challenge.

Tales of gloom, disaster and anarchy following the collapse
of the socio-economic infrastructure were all the rage up
to then, have abounded in the last six months, as they do,
now, daily, in the present.

A couple of banks, a few NZ finance companies, price
increases across a range of products, political lies . . . .

But, it's all more-or-less same 'ol same 'ol as I look around
and about me, when I'm travelling here and there. Sure, there
have been valid reports of bad things happening. But the way
the media portrays it, one can be forgiven for thinking that it
might be "the norm." I suspect it's the usual mass-media-style
over-blown exaggeration. I.e. BS.

If someone keeps predicting rain, eventually, the day will come
when the prediction is fulfilled. There could be more bad things
to come, but picking dates is just crazy. E.g. The number of religions
that have nominated dates for Armageddon are now exceeded
only by those number of those failed (date) prophecies.

So maybe there is hope, after all? A few people will find that
they were seduced into over-stretching themselves financially.
There will be bad consequences for them, along with a severe
life crisis, tears and woe.

More than a few others will continue on without having quite
such a contretemps. For them and most others, life will go on.
Some change will surely happen, some good, some bad.

So it has ever been.

Here are some few snippets from an e-mail from a philosophical
fellow-traveller in USA, just received.

Don't worry about us over here in the old U.S. of A., at least
from a real estate perspective. I don't know anyone who is
affected by the foreclosure "crisis." Now, our economy is in
recession and I'm not saying that there aren't tragic, anecdotal
stories, but I think there are just some people for whom
responsible home ownership and credit are too difficult
a concept to understand. I would rather we all had good
health care than a big home!

There is nothing good to say about the Bush administration.
Nothing at all. He is an embarrassment to us all. I cannot
believe that there are still 30% of the people who still approve
of him. Who are those people???!! My family back in Missouri,
I would expect. We do have hope that we have a leader
in Barack Obama who will restore some civility and diplomacy
and intelligence to the White House.

(I had to take a short break to put pigtails in a precious little
girl's hair. The world cannot be all bad when girls still want
piggies in their hair!)

I think that because of our debt, our moral failings, our oil use
and, yes, our secret dealings and conspiracies, that we are
a nation in decline. It is how things are and no one stays on
top, forever. China and Saudi Arabia own us, and they, India
and SE Asia will be the powerhouses soon. Well, not Saudi
Arabia because of Islam & how it stifles growth, but the others.
Africa's a mess. Democracy is not easy or natural. I do think
that those of us who have managed to create democracy
should be commended, but it isn't natural to give another his
due and be tolerant. It requires the good and not the greed
to come out in people.

To be fair, the correspondent is a business woman, (as well
as a later-in-life mother), so will have more 'nous' than many
and may not be a part of the social circles in which foreclosures
may be occurring. Late last year, she had recently enrolled at
University, subject: Developmental Cognitive Neuroscience
and psychopharmacodynamics now. (No, I don't know what
that means, nor how to say it! )

Here's a further situation commentary of hers:

I must say that spending time with 18-20 year olds in college has
given me hope and not despair. They walk through life as if in a daze...
unconscious of how quickly time goes by...but they are basically
good and smart and caring. I have, for years, called myself a cynical
optimist...I don't expect the best in people, but I think it will turn out
alright in the end. And, of course, there is no real "end" as you
pointed out. I am perfectly willing to be swept away (along with
my gene pool) into the miasma of lost civilizations. As I learned in biology,
a species lasts about 10 million years, on average. We are speeding
our time along by affecting the environment, so we probably won't
last that long, but something will adapt and come along in our place
and the universe will trundle along.

[muppet]

Finance companies: the scale of the losses

Finance companies: the scale of the losses
By ROB STOCK - Sunday Star Times | Sunday, 18 May 2008

Investors in the 21 failed finance companies have so far been paid back some $273 million, but that still leaves $1.679 billion of their cash at risk.

The bulk of the returned money has been to investors in used-car lenders Provincial and Western Bay Finance, which were in the first wave of finance firms to run into trouble in 2006.

Of the gigantic sum not yet paid back, a large chunk between $319.8m and $784.5m looks to be lost for good, based on estimates provided by receivers and those companies that received the go-ahead to carry on trading, though the picture could worsen if more receivers downgrade their estimates of returns, as Capital + Merchant receivers will soon do.

No estimates of losses have yet been made available for a further $289.8m of debenture investors' money, the bulk made up by the recent collapses of Lombard and Nathans Finance, the latter of which looks particularly nasty.

The figures also do not take into account millions in lost interest many investors are experiencing while their cash remains tied up.

While some troubled firms, such as Geneva and Beneficial, managed to continue to pay interest to investors, many are in no position to make payments at all.

It's not just the debenture investors in finance companies who have suffered. Those who bought listed bonds issued by finance companies such as Strategic, Spiers, St Laurence and NZ Finance have seen around $37.8m wiped off their face value.

And share investors in the listed Lombard Group (parent to the collapsed Lombard Finance), NZF Group (previously known as NZ Finance), Dominion Finance and Dorchester Finance have seen the value of those firms drop by a collective $259m from their 52-week highs.

Add those three groupings of investment losses together, and the current unrealised losses of finance company investors, excluding lost interest, comes to somewhere between $617m and $1.18b.

For some, the collapse of the finance company market is the unwinding of a bubble of irrational enthusiasm for a sector with the exception of giants UDC, South Canterbury Finance and Marac that has become synonymous with a lack of transparency, management failure, and poor risk/reward prospects for investors.

The whiff of scandal has attached to the sector with regulators and investors asking questions about the ways in which firms like Five Star, National Finance 2000, Capital + Merchant and Clegg & Co were operated.

But despite the magnitude of the losses, which will see incomes permanently reduced in many retired homes, Westpac chief economist Brendan O'Donovan says the overall impact on the economy will be "relatively immaterial".

Where investors' cash has been lost, it didn't simply disappear, but was effectively transferred to others finance company bosses and staff, property developers, used-car dealers, lawyers, receivers, etc.

"The economics of it sounds pretty harsh. It's been a transfer of wealth within the economy," O'Donovan said. "Where the bigger impact comes is for particular sectors not being able to get as easy access to financing like property developers, or lower-end consumer financing."

But it is not just finance company investors who have suffered at the hands of corporates which have left fury in their wake, and in some cases, pending civil law suits, and calls for the authorities to step in.

Share investors in four once-large listed companies Northern Crest (which changed its name from Blue Chip), OPI New Zealand (previously known as MFS New Zealand), Vending Technologies Ltd (VTL), and Feltex have all been left with penny dreadfuls when they thought they were investing in solid, reputable businesses.

From their combined highs, the four firms have been responsible for the destruction of $685.4m of shareholder value.

A civil lawsuit is now being prepared against Feltex directors, while Blue Chip has created a corporate scandal that has even eclipsed finance company collapses, leaving not just shareholders, but mum and dad property investors, who bought high-priced city apartments from Blue Chip, out of pocket. VTL stands accused of holding wildly inflated views of what its assets were worth, and OPI, which as MFS NZ got dragged down when its Australian parent company MFS Ltd (now improbably renamed as Octaviar) imploded as a result of bad loans and huge debts.

The aroma of mismanagement (and sometimes worse) emanating from these finance company and listed company collapses has led to calls for regulatory change.

After a slow start, when it appeared utterly unsympathetic to investors' plight, the government has attempted to look more active.

Its initial response, apart from suggesting investors had been careless with whom they invested, was to point out that it had been steadily building up the laws needed to enforce good practice on listed companies, finance companies and financial planners.

And political pressure on the likes of the Serious Fraud Office and the Securities Commission has been mounting. Commerce Minister Lianne Dalziel has said the regulatory bodies are "sifting through the entrails of finance companies and various investment schemes, along with the directors, associated persons, advisers and professionals who were responsible for providing assurances to unsuspecting investors".

"There are individuals involved in all of these cases who will be held to account by the courts, by the regulators and by the professional bodies they belong to; it takes time, but the fact that they wear suits doesn't make them any less criminal in terms of their activities and, where the evidence stacks up, they will be brought to justice."

Veteran financial planner Jeff Matthews of Spicers says there's little hope of preventing future investment bubbles, or all corporate and financial adviser incompetence and wrong-doing, but tougher regulations, coupled with a less financially naive population, would make it rarer.

He said Australia had both, and was a case in point. "The impact of similar scandals is relatively smaller in Australia".

http://www.stuff.co.nz/4552576a13.html

[Perry]

Abandon Wet Bus Ticket Judgements

Veteran financial planner Jeff Matthews of Spicers says there's little hope of preventing future investment bubbles, or all corporate and financial adviser incompetence and wrong-doing, but tougher regulations, coupled with a less financially naive population, would make it rarer.

Perhaps a return to unlimited liability would be a big
help? That or other legalities that mean those with
stuffed pockets and bank balances and assets can
have them seized in a way similar to what should be
done under the Proceeds of Crime Act 1991?

[Glenn]

"

There are individuals involved in all of these cases who will be held to account by the courts, by the regulators and by the professional bodies they belong to; it takes time, but the fact that they wear suits doesn't make them any less criminal in terms of their activities and, where the evidence stacks up, they will be brought to justice."

Too right. Investors need to warry of any advisor who wears a suit.
If the sods always sit in warm offices and never get a sweat up earning an honest living they do not know the value of money.

It really is no different than many rich sons over the centuries.
How many family fortunes have been lost by sons or grandsons.
Even more so with those people who grab someone elses money and tell them they can look after it better than the poor sods who have slaved away for a lifetime saving it.

[cube]

Further bad news for UBS, from the BBC

Swiss bank UBS has sold loans - with a nominal value of about $22bn - to fund management group Black Rock for $15bn.

UBS said that the move was "risk reduction" which was "a critical part" of its ongoing financial restructuring after its exposure to sub-prime loans.

The deal represents a $7bn loss for UBS on the assets it had accumulated.

BBC business editor Robert Peston said the deal may have implications for the way losses on assets linked to the US housing market were calculated.

UBS is also lending Black Rock $11.25bn to help it finance the deal.

The assets being sold include sub-prime, prime mortgage-backed securities and Alt-A (a grade of US mortgage debt that is just a bit better than sub-prime).

Job cuts

"My brain can't quite come to terms with the extraordinary financial implications of all this, even though the terms of the deal have been known for some time," the BBC's business editor said.

"UBS has suffered a genuine, eye-wateringly large loss on the sale of assets it should never have accumulated, but is remaining exposed to those assets to the tune of $11.25bn," he added.

The cut-price sale of the assets were "not a notional accounting loss, but a real loss of hard cash", he added.

UBS chief executive Marcel Rohner said the sale was "a big step towards further reducing our positions in this asset class".

The Swiss bank, which has suffered huge losses as a result of the US sub-prime mortgage crisis and credit turmoil, said earlier this month that it was cutting up to 5,500 jobs.

The job losses - 7% of the workforce - will go by mid-2009 through redundancy, redeployment or natural wastage.

The bank made losses for the first quarter of 2008 of 11.5bn Swiss francs ($11bn; £5.5bn).

[Perry]

The job losses - 7% of the workforce - will go by mid-2009 through redundancy, redeployment or natural wastage.

". . . through . . . natural wastage?"

Now there's a peculiar turn-of-phrase for job cuts.

[essence]

Another finance company folds

By DAVID HARGREAVES - Fairfax Media | Wednesday, 28 May 2008

Another finance company - the 19th in the past two years - has hit the wall.

The relatively small Auckland-based Belgrave Finance, which principally loaned on residential property and development, called in receivers Grant Graham and Brendan Gibson from KordaMentha chartered accountants today.

Read the rest of the story here.