• Home ::
• Fundamental ::
• Analysis Reports ::
• Asia Market Update

• Send
• Print
• Add To
• Rss

Asia Market Update

76a359d8-737e-4c05-875e-abc710e093ca

0

0

U.S. lawmakers fail to make progress on the eve of the largest bank failure in U.S. history

Fri, Sep 26 2008, 03:59 GMT
by Eben Esterhuizen

TradeTheNews.com

- A Republican counterproposal stalled efforts to put together a bailout package, an unexpected turnaround on a day that had seemed headed for a successful deal. Looking tired and annoyed, Senator Dodd, chairman of the Senate Banking Committee, complained that late complications looked more like "a rescue plan for John McCain" than one for the country's financial system. It does no good, Mr. Dodd said, "to be distracted for two or three hours by political theater". U.S. stock futures traded sharply lower on the news.

- Summary of the House Republicans' alternative financial proposal: Republicans argue that Wall Street needs to fund the recovery, not taxpayers. "Rather than providing taxpayer funded purchases of frozen mortgage assets to solve this problem, we should adopt a plan to insure mortgage back securities through payment of insurance premiums," said a statement. "Currently the federal government insures approximately half of all mortgage backed securities. (MBS) We can insure the rest of current outstanding MBS; however, rather than taxpayers funding insurance, the holders of these assets should pay for it. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance," they suggested. Republicans are opposed to the idea of injecting taxpayer capital into the market to produce liquidity, instead arguing that private capital can be drawn into the market by removing regulatory and tax barriers that are currently blocking private capital formation. "Too much private capital is sitting on the sidelines during this crisis," they said. U.S. House Speaker Pelosi said she will look at the counterproposal, adding that it's up to Paulson if the Republican proposal becomes a part of the solution. Barney Frank said the insurance scheme proposed by the Republicans will not work.

- WaMu fails, sold to JPMorgan Chase, in the largest bank failure in U.S. history: WaMu has been sold to JPMorgan Chase, in a deal brokered by the U.S. government. Regulators said WaMu has suffered outflows of $16.7B in deposits since Sept. 15, leaving the bank "with insufficient liquidity to meet its obligations." As a result, WaMu was in "an unsafe and unsound condition to transact business," said the Office of Thrift Supervision. JPMorgan Chase has paid $1.9B to acquire all deposits, assets and certain liabilities of WaMu's banking operations from the FDIC. Excluded from the transaction are the senior unsecured debt, subordinated debt, and preferred stock of WaMu's banks, and JPMorgan Chase will not be acquiring any assets or liabilities of the banks' parent holding company (WM) or the holding company's non-bank subsidiaries. In other words, WaMu's stockholders, subordinated debt holders and debt holders have been wiped out. JPMorgan Chase said the acquisition of WaMu's banking operations is expected to be immediately accretive to earnings and to add more than $0.50/share in 2009. JPMorgan Chase will be marking down the acquired loan portfolio by approximately $31B. The deal will not result in any hit to the FDIC's bank-insurance fund.

- JPMorgan Chase announced that it will offer $8.0B of its common stock for sale to the public, in an effort to shore up its balance sheet.

- The Fed's Fisher said that a rate hike seems less urgent given the possibility of an "imploding financial system", but he added that a rate cut will not be a cure for the economy. Fisher said credit markets have contracted a STD (Fisher's term: Securitization Transmitted Disease).

- New Zealand in a technical recession: (NZ Q2 GDP QOQ: -0.2% V -0.5% expected, -0.3% prior; YOY: 1.0% V 0.6% expected, 2.2% prior) The last time New Zealand faced successive quarters of negative growth was more than 10 years ago, between September 1997 and March 1998. "The economy has been hit by four shocks simultaneously - drought, energy, debt servicing and the housing correction," said Brendan O'Donovan, Chief economist with Westpac.

- Equities: At 23:41 EDT Japan's Nikkei is -0.87%, the S&P/ASX200 is -0.95%, South Korea's KOSPI is -1.41%, Hong Kong's Hang Seng index is -1.41%, and the Shanghai composite index is -0.65%. The S&P500 futures contract lost -1.58% since the U.S. close, last trading at 1,194.40. Risk aversion gripped Asia, with sidelined investors waiting for clarity on Paulson's bailout plan. The Nikkei was dragged down by chipmakers and banks, while resource stocks and financials pushed down the S&P/ASX200. Construction companies weighed on the KOSPI, while Chinese equities failed to build on recent momentum.

- Commodities: Nymex crude oil lost -1.02% between 18:00 EDT and 23:39 EDT, last trading at $106.92/bbl. Spot gold gained +0.29%, last trading at $884.60/oz.

Published on  Fri, Sep 26 2008, 04:01 GMT