Actual finance blog

November 7, 2008

South Korea cuts rates again

Filed under: term — Tags: , — Professor Besto @ 8:31 pm

South Korea’s central bank cut interest rates for the third time in a month on Friday to soothe markets and shore up its economy, after a flurry of deep rate cuts across Europe failed to calm panicky investors.

Central bank action could not halt a slide in global stock markets and coincided with a warning by the International Monetary Fund that the developed economies were headed for the first full-year contraction since the World War Two in 2009.

“Increasingly, the signs point to a deep and synchronized global recession that began last quarter and has gathered momentum,” said Bruce Kasman, an economist at JPMorgan Chase in New York.

The IMF cut its 2009 global growth forecast to 2.2 percent from 3 percent, a prediction made only last month, and urged governments to ramp up spending to support the economy.

Asian stocks fell for a third day and commodity prices also tumbled, as layoffs and corporate profit warnings piled up.

Later on Friday, Barack Obama is due to hold his first news conference since winning the U.S. presidency after a meeting with his economic team, as the world awaits signs of how he might tackle the economic crisis.

Markets are particularly keen to learn who will become Obama’s Treasury Secretary, but it was not clear when he might announce his choice.

Among those seen as leading candidates for the job are Timothy Geithner, president of the Federal Reserve Bank of New York; former Treasury Secretary Lawrence Summers; and former Federal Reserve Board Chairman Paul Volcker easy online payday loans.

Investors also looked anxiously ahead to Friday’s U.S. jobs payroll report for October, which is expected to further underscore the weakening economy.

According to the median of a Reuters forecast of 87 economists another 200,000 non-farm jobs were shed last month, which would be the largest monthly cut in jobs since March 2003 and would mark a 10th straight month of losses.

CORPORATE WOES

In Asia, Toyota saw its stock overwhelmed with sell orders and tumbling as much as 12 percent, after it halved its profit forecast because of dwindling demand. The carmaker’s stock had fallen 10 percent on Thursday ahead of the profit warning.

Its woes illustrate how the financial crisis, which started when the housing boom in the United States turned sour 15 months ago, has spread from Wall Street to Main Street.

Hit by economic slowdown, sliding property prices and a sharp fall in its capital markets business, Singapore’s DBS Group, Southeast Asia’s biggest bank, suffered a bigger-than-expected 38 percent drop in profit, as bad debt charges quadrupled. Its shares fell 9 percent.

As investors are bracing themselves for a dismal set of quarterly results from General Motors and Ford on Friday, industry sources said their chief executives sought a $50 billion federal bailout to survive a financial crunch blamed on a worsening economy and the “near collapse” in demand for cars. 

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November 6, 2008

Consumer spending hit by crisis: MasterCard

Filed under: term — Tags: , , — Professor Besto @ 2:47 am

U.S. consumers slashed spending in October, shunning purchases of items over $1,000, as a global financial crisis battered their savings accounts and their psyches, according to figures released on Wednesday by SpendingPulse, the retail data service of MasterCard Advisors.

“The numbers for October are very negative across the board,” said Michael McNamara, vice president at MasterCard Advisors, of sales figures tracked by SpendingPulse.

“Any area that deals with consumer durables, especially areas like furniture, electronics and appliances … that relies heavily on sales purchases that exceed $1,000 in value are under significant pressure,” he said.

SpendingPulse data is derived from aggregate sales in the MasterCard U.S. payment network, coupled with estimates on all other payments including cash and checks.

The data provides an early glimpse into the strength of retailers’ monthly sales, which will be released by chains like Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), Saks Inc (SKS.N: Quote, Profile, Research, Stock Buzz) and American Eagle Outfitters Inc (AEO.N: Quote, Profile, Research, Stock Buzz), later this week.

Wall Street is already bracing for weak sales. Consumers clamped down on spending as the financial crisis that began in September swept into October, roiling stock markets, erasing trillions of dollars in wealth and raising the prospect of a deep global recession.

According to SpendingPulse, October specialty apparel sales fell 12.2 percent from a year earlier. Women’s apparel sales dropped 18 low fee pay day loans.2 percent, while men’s apparel sales fell 8.3 percent. Footwear sales dropped 9.7 percent.

Sales of electronics and appliances tumbled 19.9 percent, compared with a decline of 13.8 percent in September.

“If you take out the purchases above $1,000, the sector is really down about 10 percent,” McNamara said. “Sales above $1,000 just aren’t really moving.”

That trend, along with further weakness in the housing sector, also hurt demand for home-related merchandise. Furniture sales dropped 15.1 percent in October from a year ago, while sales of home furnishings, or decor, fell 20.6 percent.

High-end retailers took a hit, with luxury sales dropping 20.1 percent, compared with a 4.8 percent drop in September.

“The sector has been down five consecutive months, but October was a more significant decline,” he said.

While luxury shoppers continued spending in the face of rising fuel and food prices earlier this year, the group has retrenched as the global financial crisis hits investment portfolios and devalues real estate holdings.

SpendingPulse also found that e-commerce sales declined 3.9 percent. McNamara said purchasing volume rose, but shoppers were buying cheaper items, driving down total sales results.

In a bright spot, restaurant sales rose three-tenths of one percent in October, with sales at fast food restaurants rising 1 percent. 

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October 27, 2008

Crisis rocks Scotland’s dream of independence

Filed under: term — Tags: , , — Professor Besto @ 7:46 pm

EDINBURGH–Fresh from a surprise election victory, Scotland’s leader, Alex Salmond, vowed last year to win independence from the United Kingdom and with it, bring a wave of prosperity.

Salmond, whose separatist Scottish National Party won control of Scotland’s national Parliament last May from Britain’s governing Labour Party, has long aspired to end the 300-year union with England. He wants to take control of lucrative oil and natural gas reserves, slash corporate tax rates and transform this country of five million into an economic powerhouse.

But that was before the global financial meltdown redrew the economic map. Salmond once dreamed of a North Atlantic "arc of prosperity" stretching from Ireland through Iceland and Scotland to Norway. Now, his nation’s similar-sized neighbours are struggling with the ravages of the downturn.

Iceland, held up by Scottish nationalists as an example of how smaller nations can transform their fortunes, is possibly headed toward bankruptcy, while Ireland has slumped into recession.

At home, two of Scotland’s iconic businesses – the Royal Bank of Scotland and the Halifax Bank of Scotland – have found themselves savaged by the economic turmoil.

RBS is now partly owned by British – not just Scottish – taxpayers, who’ll also have a major stake in HBOS if it finalizes a combination with Lloyds TSB after a rescue deal was brokered by Salmond’s nemesis and fellow Scot, British Prime Minister Gordon Brown.

It has left Salmond’s claims that Scotland can cope without leadership from London, and his hopes of winning an independence vote in 2010, in tatters.

A year ago, RBS – Scotland’s largest business – was a proud emblem of economic prowess as it led buyouts of Dutch bank ABN AMRO and the Belgian-Dutch Fortis bank, turning in pre-tax profits in 2007 of £10 billion, or $20 internet pay day loans.3 billion (Canadian). Now it’s partly nationalized and has taken a £20 billion handout from the British government. If the combination of HBOS and Lloyds TSB goes ahead, the new bank will take a similar £16 billion cash injection.

Brown – a robust defender of the United Kingdom – claims that without England, Wales and Northern Ireland, Scotland could never have afforded to bail out its own banks. He suggests an independent Scotland would have an annual GDP of only about £100 billion, in contrast to a British annual total of around £2 trillion.

But Salmond argues that membership in the United Kingdom seems only to be dragging Scotland down.

Unemployment in Scotland rose by 19,000 people in September, economic growth slowed to 0.1 per cent and, according to the Nationwide Building Society, the nation’s once-booming housing sector saw prices drop by 5 per cent.

He said Brown’s "age of irresponsibility" was over. "The new age of responsibility means Scotland taking charge of its own destiny with independence," Salmond wrote.

Though Salmond, a former economist with RBS, has enjoyed an extended honeymoon in the 18 months since his party took power as a minority government at the Scottish Parliament, support for independence remains low. Most polls show that less than a third of Scots currently want to leave the union.

But Salmond’s SNP trounced Brown’s Labour Party in a special election for a British Parliament seat in Glasgow in July and is predicted to win again on Nov. 6 when a second special election takes place.

Source

October 9, 2008

Cash-strapped AMD to spin off factories

Filed under: term — Tags: , , — Professor Besto @ 12:55 am

In a move to dramatically cut costs and better compete with Intel Corp., chip maker Advanced Micro Devices Inc. said Tuesday it will spin off its factories into a new joint venture with investors in the Persian Gulf state of Abu Dhabi.

The deal should shore up AMD’s (AMD, Fortune 500) finances and let it focus on the design and development of computer chips.

The new venture, to be based in the U.S. and for now called Foundry Co., will include AMD’s manufacturing plants, including two in Dresden, Germany.

Doubles investment

In conjunction with the spin off, Abu Dhabi’s investment arm, Mubadala Development Co., will invest $314 million to more than double its current stake in AMD to 19.3% from 8.1%.

Another entity backed by the Persian Gulf state, Advanced Technology Investment Co., will invest $2.1 billion for a stake in Foundry Co., which also will assume about $1.2 billion of AMD’s existing debt.

Advanced Technology Investment then plans to contribute between $3.6 billion and $6 billion to Foundry Co. over the next five years to fund the expansion of the company’s chip-making capacity. That plan includes the construction of a new facility in Saratoga County, New York.

Sunnyvale, Calif.-based AMD, the world’s No. 2 maker of computer microprocessors, has been saddled with debt and hurt by product delays.

Finances in trouble

Hector Ruiz stepped aside as CEO in July as pressure grew for the company to improve its finances and regain its competitive edge against Intel (INTC, Fortune 500). AMD lost $1 (payday loan).19 billion in the second quarter, nearly double its losses from a year earlier.

AMD’s finances have also been hurt by its 2006 acquisition of graphics chip maker ATI Technologies. As part of that buyout, AMD absorbed divisions that make chips for cell phones and digital television sets. Both were underperforming, and AMD wrote down their value by $876 million.

AMD replaced Ruiz with Dirk Meyer, who had been president and chief operating officer, and focused on developing a strategy for cutting its manufacturing expenses, which are large for any semiconductor company but particularly troubling for AMD as it burns through cash and faces fierce competition with Intel.

"With The Foundry Company, AMD has developed an innovative way to focus our efforts on design while maintaining access to the leading-edge manufacturing technologies that our business needs without the required capital-intensive investments of semiconductor manufacturing," Meyer said in a statement.

Foundry’s board

Foundry’s board will be made up of executives from AMD, which will own 44.4% of the company, and Advanced Technology Investment, which will own 55.6%.

An AMD senior vice president, Doug Grose, is to become chief executive of Foundry Co., and Ruiz, who had been AMD chairman, will step down to take on that post at Foundry Co.

The transaction is expected to close at the beginning of 2009, pending regulatory approvals. 

Source

October 5, 2008

Bailout won’t be economic quick fix

Filed under: term — Tags: , — Professor Besto @ 4:04 pm

NEW YORK — Now that the government has decided it will spend $700 billion to get the economy started again, don’t expect immediate results.

It’s a little bit like those ads for protein drinks that show skinny milquetoasts turning into Schwarzeneggers in 60 days — you want it to be true, but you know in your heart it will take months or years of sweating in the gym to pack on that kind of muscle.

The latest readings on the U.S. economy show just how far we have to go. House prices and auto sales are plummeting, manufacturing activity has tumbled and the consumer is feeling increasingly strapped.

The economy seems nearly dead, and things could get worse before they improve — even with Washington’s help.

Much attention has been paid recently to the wrangling over the taxpayer-funded emergency rescue package. As it should. That’s enough money to give every man, woman and child in the United States about $2,325 each.

Lawmakers say the bill is the best hope to save the financial system and revive the economy. It would allow the government to buy bad mortgages and other devalued assets held by troubled financial institutions, thereby inducing them to lend again to businesses and consumers instead of hoarding their cash.

The package, which was signed by President George W. Bush on Friday, also would include tax breaks for companies and the middle class.

History tells us not to expect miracles overnight. After the last big U.S. bailout — the formation of the Resolution Trust Corp. in 1989 to stop the U.S. savings and loan crisis — it took a year for the stock market to hit bottom, two years for the economy and three years for the housing market, according to Merrill Lynch.

And when Japan put a bailout plan in place in the late 1990s, its stock market took another five years to recuperate. By some measures, its economy still hasn’t had a sustainable recovery, according to Merrill’s chief North American economist, David Rosenberg.

Standard & Poor’s global investment policy committee, in notes from its weekly meeting, said that even with a rescue plan, "cascading concerns remain."

"Will it be enough to accomplish the required task of unfreezing credit markets? If so, are we just back to recession 101?" asked the group of the firm’s senior investment advisers.

The bailout doesn’t even attack one of the biggest problems for our economy: the housing sector. Government officials from Treasury Secretary Henry Paulson on down have said the economy won’t recover until housing does.

Falling house prices were behind a wave of foreclosures that pushed many banks to take multibillion-dollar writedowns and some banks to fold or be rescued by the government or rivals. The contagion from that caused a crisis of confidence in the banking system that has led lending to freeze between banks, and to businesses and people (quick payday loan).

House prices tumbled in July by the sharpest annual rate ever, a 16.3 percent year-over-year decline, according to the latest reading from the closely watched Standard & Poor’s/Case-Shiller 20-city housing index. That was the biggest pullback since the index’s inception in 2000, and represents a 20 percent decline in prices since the peak in July 2006.

As weak as this report was, it also didn’t reflect the most recent turmoil in the financial markets at the end of the summer. Since then, credit conditions have tightened significantly.

That showed up in the awful September auto sales. Ford Motor Co., Toyota Motor Corp. and Chrysler LLC all posted steep drops of more than 30 percent.

Americans are turning increasingly cautious about spending and are buckling under the burden of excessive debt. Citigroup Inc. now anticipates surprisingly large credit losses of up to $10 billion — a 30 percent rise from the second quarter — due in part to its credit card holders not paying their bills.

The jobs outlook is dimming by the day. New applications for unemployment benefits are at a seven-year high. Employers slashed payrolls by a bigger-than-expected 159,000 in September, and the unemployment rate held steady at 6.1 percent, according to a Labor Department report on Friday.

Manufacturing activity has fallen off a cliff. After looking resilient for months, the September survey by the Institute for Supply Management showed manufacturing was at the lowest since after the Sept. 11, 2001 terrorist attacks. It was the biggest one-month decline since January 1985.

"Such a big drop would be remarkable under any circumstances, but the element of surprise in this report was especially big because there was no warning of it," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

All this gloomy data is convincing economists that a recession is upon us, with the gross domestic product possibly contracting in the third quarter for the first time in this economic downturn.

They say the Federal Reserve might have to lower its overnight bank lending rate, which has already gone from 5.25 percent to 2 percent in the last year. Fed Chairman Ben Bernanke and his colleagues may even have to make that move before the central bank holds its next regularly scheduled meeting on Oct. 28-29.

Even if they did cut the key rate, many economists believe it won’t have a lasting effect unless lending begins to thaw.

Until then the wait continues, and the economy will suffer more.

RACHEL BECK IS THE NATIONAL BUSINESS COLUMNIST FOR THE ASSOCIATED PRESS.

Sourse

October 1, 2008

Xstrata ditches Lonmin bid due to credit crunch

Filed under: term — Tags: , , — Professor Besto @ 5:54 pm

Miner Xstrata Plc dropped plans for a $10 billion takeover bid for No. 3 platinum producer Lonmin Plc on Wednesday due to financing difficulties linked to the global credit crunch, sending Lonmin’s share price plummeting.

“The current lack of clarity and certainty regarding the future availability of credit introduces significant risks into the financing package available to Xstrata,” Chief Executive Mick Davis said in a statement.

Lonmin’s shares, which had already shed a third since Xstrata made its 33-pound-per-share proposed offer on August 6, tumbled as much as 30 percent and was trading 18.7 percent weaker at 18.00 pounds by 0733 GMT.

Xstrata shares, which had shed 46 percent since it made the approach, surged 10.7 percent to 19.00 pounds, compared to a 4.9 percent increase in the UK mining index.

“This is certainly the outcome that the majority of (Xstrata) shareholders will have wanted in the short term cashadvance. Xstrata had become a natural target for short sellers in the market,” Cazenove said in a note.

Xstrata said loan terms required it to refinance a substantial portion of the debt within 12 months.

“Finalizing the bank debt necessary to implement the offer on those terms would not be in the best interest of Xstrata. As a result, Xstrata has no current intention to make an offer for Lonmin.”

Banking sources told Reuters last month that Xstrata had approached 22 banks to make commitments for a $15 billion loan to both fund the Lonmin takeover and refinance existing debt. 

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September 20, 2008

Swift cuts on AIG signal wave of downgrades ahead

Filed under: management, term — Tags: , , — Professor Besto @ 3:57 pm

Credit rating agencies, criticized for moving too slowly in cutting ratings on Wall Street firms and the complex instruments they devised, are now accused of acting too quickly.

As the credit crisis enters a new phase, the pendulum has swung too far back, critics argue. The agencies are still missing the mark, only now they are too aggressive, adding to market volatility, or changing their views within days or weeks.

Case in point: AIG.

A week ago, Standard & Poor’s warned that if insurance giant American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) didn’t demonstrate adequate access to capital in the short term, the rating company could cut its ratings by as much as three notches.

Late Monday, S&P, Moody’s Investors Service and Fitch Rating struck a triple blow to AIG’s investment-grade rating and warned more downgrades could follow.

Hours later, the U.S. government had rescued AIG with an $85 billion loan, and the rating companies scrambled once again to revise their outlooks.

“AIG was a signal they are being more aggressive in today’s environment,” said Joseph Mason, a finance professor at Louisiana State University payday advance lender. “They’ve had their backs against the wall, and they are being forced to cut.”

Credit market turmoil culminated this week in the government loan for AIG, once the world’s largest insurer based on market value; the bankruptcy filing of Lehman Brothers Holdings Inc(LEH.N: Quote, Profile, Research, Stock Buzz)(LEHMQ.PK: Quote, Profile, Research, Stock Buzz), spelling the demise of a 158-year-old trading company that was the parent of a major U.S. investment bank, and the hasty sale of Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), the largest U.S. retail brokerage whose advertising symbol is the bull, to Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz). 

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September 19, 2008

Brown Faces Mutiny as His Cabinet Members Jostle to Succeed Him

Filed under: term — Tags: , — Professor Besto @ 4:03 am

As U.K. Prime Minister Gordon Brown tries to put down a mutiny, 15,000 Labour Party activists and lawmakers gather in Manchester tomorrow with their eyes on potential successors.

Calls by more than a dozen Labour lawmakers this week for a vote to replace Brown have put Cabinet newcomers David Miliband and Ed Balls on the spot as they jostle with Jack Straw, Alan Johnson and other leadership elders for backing should Brown be forced out.

“These relatively young ministers are well regarded by their colleagues, though the public find it quite hard to pick out any of them from the pack,'' said Andrew Cooper, chief executive officer of pollster Populus Ltd. “They need to start changing that now because time will rapidly catch up with them.''

At the five-day annual conference, the ministers will walk a tightrope. They have to display loyalty to Brown, 57, while signaling readiness to take his job as David Cameron's Conservative Party enjoys its highest popularity ratings since Margaret Thatcher's third term 20 years ago.

Ministers who stray from their assigned policy areas to articulate a wider vision in speeches and back-room wrangling may be seen as challenging Brown.

“There are huge dangers,'' said Andrew Hawkins of pollster ComRes. “We know what happens to the person who wields the knife.''

Heseltine's Lesson

In 1990 after Conservative minister Michael Heseltine orchestrated Thatcher's exit, he was portrayed as a hatchet man in the press, and the Conservatives picked John Major to replace her.

Rising unemployment, collapsing home prices and this month's worldwide market turmoil have complicated things for successor hopefuls. Brown helped broker the takeover of HBOS Plc by Lloyds TSB Plc to avert the collapse of Britain's largest mortgage lender in the wake of Lehman Brothers Holdings Inc.'s bankruptcy.

“The government appears to be imploding just when bold leadership is needed,'' said Ben Read, senior economist at the Centre for Economics and Business Research in London. “Any talk of replacing the prime minister will be taken very badly.''

Cabinet members are under pressure from lawmakers who are concerned that they'll lose their seats in the next election, which must be called by 2010, unless Brown is replaced. Brown this week fired three lawmakers from government posts after they called for a leadership vote.

Miliband's Article

Striking the right tone will be trickiest for Foreign Secretary Miliband, 43, because he wrote in the Guardian newspaper July 30 that the Labour Party must offer “real change.'' The piece, which didn't mention Brown, was interpreted by lawmakers as an attempt to test the waters for a leadership bid same day payday loans.

“Miliband has got to be very careful,'' said Wyn Grant, a professor of politics at Warwick University. “Anyone who wants to be prime minister will have to appear very loyal at the conference and not rock the boat.''

The son of an academic who started his career in a research institute, Miliband obtained his degree at Oxford University. He served as an adviser to Tony Blair when he was prime minister and Miliband joined his Cabinet in 2006. Brown appointed him to his current position last year, making him Britain's youngest foreign secretary since the 1970s.

Miliband has said he doesn't favor a leadership contest, though he didn't rule out running if there is one. A premiership bid by Miliband would expose divisions between Labour's old guard — including the unions that provide most of its funding and are pushing to raise taxes on the wealthy — and its intellectuals, who want to keep Britain attractive for investors.

`Fresh Face'

“Why should we elect a young fresh face when we have already got one in Cameron with policies that are not dissimilar,'' said Derek Simpson, joint general secretary of Unite, Britain's largest union, Sept. 7.

Balls, 41, another potential successor, last year became schools secretary. He also went to Oxford and wrote for the Financial Times' opinion pages before going into politics. On Sept. 1, he said ousting Brown would be “crazy, destructive and divisive.''

A divided party could turn to Health Secretary Johnson, 58, or to Justice Secretary Straw, 62, who has been active in Labour politics since the 1970s.

“Straw is seen as a safe pair of hands,'' said Mark Wichham-Jones, a Bristol University professor and author of a book on the Labour Party. “Johnson is an old union man.''

The potential successors barely register on the public's radar. Among the 2,144 voters surveyed by YouGov Plc this month, Straw was seen as the best next leader, with 14 percent support. Miliband got 12 percent.

“A large minority of people have a vague sense of the name David Miliband,'' Cooper said. “Do they have an informed view of what he's like? No, let alone the more remote figures.''

Source

September 15, 2008

All eyes on Fed ahead of next meeting

Filed under: term — Tags: , , — Professor Besto @ 1:57 pm

A radical shake-up on Wall Street and heavy losses in financial markets have recast the debate for Tuesday’s Federal Open Market Committee meeting to set interest rate policy.

Fed officials will assemble as a storm rages over the global financial system, overshadowing discussion of such bread-and-butter issues as the medium-term growth and inflation outlook.

As recently as Friday, analysts had expected the Fed to keep benchmark interest rates steady on Tuesday as it weighs a sputtering economy and an ebbing of inflation pressure.

On Monday, however, bets that the Fed will be forced into a quarter-point cut to the federal funds rate, to 1.75 percent from 2 percent, were rising paydayloans. Dealers now see more than an even-money chance of a rate cut.

“Fed views have swung dramatically in response to the gut-wrenching developments,” said Marc Chandler, currency strategist at Brown Brothers Harriman in New York.

The FOMC held rates steady when the panel met in June and August, after lowering them in April. That cut bought the fed funds rate down by a cumulative 3.25 percentage points from mid-September 2007.

Following are some factors policy-makers are considering:

FINANCIAL INSTITUTIONS: 

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September 11, 2008

Pulaski

Filed under: term — Tags: , , — Professor Besto @ 10:21 am

Two months ago, Missouri Banking Commissioner Eric McClure wouldn’t have given a second thought to seeing preferred stock in Fannie Mae and Freddie Mac in a bank’s investment portfolio.

Then over the weekend, the federal government placed the two mortgage giants in conservatorship, yanking them from the private sector to government control. Dividends on the already battered preferred shares were suspended, and they lost much of their remaining value this week.

"It’s changed totally now," McClure said. Shares once seen as investment grade have suddenly become junk.

However, McClure said none of the 300 Missouri banks regulated by the state is in jeopardy because of their investments in Freddie and Fannie.

"In no case is a bank going to fail because of that," McClure said. State-chartered banks in Missouri have capital ratios averaging 9 percent, well above the 6 percent of total assets the state requires, he said.

Jorge Solis, director of Illinois’ banking division, said a review of investments by the 480 state-chartered banks in Illinois shows that those that held preferred shares in Fannie and Freddie have enough capital to continue operating safely.

Creve Coeur-based Pulaski Bank was among those dumping the stocks this week. The bank’s parent, Pulaski Financial Corp., Wednesday issued a statement saying that it had sold its 350,000 preferred shares in Fannie, taking a loss of $5.2 million. The company expects to take a charge of 51 cents a share against earnings for its fourth quarter, which ends Sept. 30.

Missouri doesn’t regulate Pulaski, which is a federally chartered savings association.

Ramsey Hamadi, Pulaski’s chief financial officer, said that as recently as July, Fannie Mae preferred shares still were considered solid investments, though their value had declined. The bank noted in a filing that month that its $8.9 million investment in the shares had declined in value to $8 million.

"Now it is a speculative investment," which isn’t suitable for the bank’s portfolio, Hamadi said fast cash online. "We are disappointed. It certainly is not something that you could have forecasted to occur and not as quickly."

Pulaski’s capital is still well above the 6 percent of assets required by regulators to be considered well-capitalized, Hamadi said. It’s core capital stood at 8.29 percent before selling the shares. The sale would take the ratio to 7.93 percent.

Kansas City-based Commerce, the largest Missouri-based bank,; Enterprise Bank & Trust Co. and Centrue Financial Corp., both of Clayton; and First Banks Inc. of Creve Coeur did not hold the shares, they said. None of the other locally based banks has given notice that it has the shares or plans to sell them.

U.S. Bank, the market share leader here, has $97 million in preferred stock of government-sponsored entities, said Lisa Clark, a spokeswoman. The bank considers the amount "very manageable," at less than one percent of its capital, she said.

Frank Sanfilippo, chief financial officer at Enterprise, said the government takeover of Fannie and Freddie has sent a shock wave through the industry. About 8,000 banks held the shares, regulators have said.

A bank that holds the shares has two choices, Sanfilippo said. It can either sell them and take the loss against earnings directly, as Pulaski did. Or it can hold them and write their value down to the current market price. Either way, bank earnings can take a hit.

A loss can affect the bank’s total equity capital, and in some cases, it can change the bank’s rating from "well-capitalized" to "adequately capitalized." Dropping to "adequate" can have a number of effects on a bank’s finances.

For one thing, the rates the Federal Deposit Insurance Corporation charges to insure the bank’s deposits will go up. Insurance rates already were going up because of bank failures that put a strain on the FDIC’s reserves.

Lower capital ratios also could cut off a bank’s access to the wholesale deposit market, Sanfilippo said. Some banks have turned to so-called

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