Week of November 10, 2008
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Risk News Archive
Credit Risk
U.S. Weighs Purchasing Stakes in More Firms
Commercial Real Estate 'Faces Worst Year'
Banks Large and Small Lining Up for Government Cash
Fed Buying More Commercial Paper
Crisis Spawns Payables-Receivables Crunch
Banks Tighten the Screws
E.U. Financial Institutions Meet to Finalize Financial Reform Plan
New Terrain for Panel on Bailout
REITs Investors To Come Back To Market in 12 Mts - Report
Finance Directors Should Plan Early
Broken Bonds
REITs to Cut Dividends, Pay Off Debt
Fed Begins Buying Short-Term Debt
Market Risk
Demand for a Say on a Way Out of Crisis
Expect 'Severe' World Economic Downturn Next Year, Fitch Says
Fed Trims Rates; Worries Persist
Wall Street Analysts Lag Badly as Outlook Worsens
Operational Risk
A Quiet Windfall for U.S. Banks
Greater Valuation Disclosure Coming
Undaunted: Global Fair-Value Guidance Evolves
Banks Complain of Confusing Restrictions, Pressure to Join Treasury's Capital Purchase Program
Enterprise Risk
Before ACH Rule Change, a Lot of Decisions for Banks
New Methods to Bust Transaction-Level Fraud
A Tale of Two PCI Security Audits
Securities Lending
Securities-Lending Sector Feels Credit-Crisis Squeeze
Consumer Lending
Bank Survey Shows Credit Is Growing Even Tighter
A Towering To-Do List
Banks Alter Loan Terms to Head Off Foreclosures
U.S. Growth Will Be Hurt More by Homes Than Stocks, Study Says
Assessing the Sticking Points on LoanMods
Credit Risk
U.S. Weighs Purchasing Stakes in More Firms
Wall Street Journal (11/04/08); Solomon, Deborah
The U.S. Treasury Department may decide to use some of the $700 billion rescue fund to purchase stakes in CIT Group, GE Capital, and other financial companies that offer financing to the broad economy. If the Treasury decides to go in this direction, that would be a departure from the original intent of the program, which was to help companies that hold difficult-to-sell assets like mortgage-backed securities. Treasury spokesperson Jennifer Zuccarelli cautions that the department has made no final decisions. "We are looking at many ideas for strengthening the financial system and for restoring lending," Zuccarelli says. The capital-purchase program appears to be working thus far, and Treasury Secretary Henry Paulson is weighing weather the economy could benefit from more capital purchases.
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Commercial Real Estate 'Faces Worst Year'
United Press International (11/05/08)
A number of sources are chiming in with regards to the commercial real estate market. A recent trade report by PricewaterhouseCoopers and the Urban Land Institute shows that corporate downsizing has not only led to layoffs, but to downsizing of office space. This, in turn, has cut into the U.S. commercial real estate business. The report states: "U.S. commercial real estate faces its worst year since the wrenching 1991-1992 industry depression." Approximately 19 million square feet of commercial real estate space will have been vacated this year, according to the Washington Post. The Post further states that more than $14.5 billion in U.S. commercial property deals have been canceled in 2008. In terms of sales, Real Capital Analytics forecasts that the record of $514 billion set in 2007 may be cut in half in 2008. CB Richard Ellis managing director John Germano concludes, "This is a record-setter because it transcends real estate. You've seen companies that real estate depends on like Merrill Lynch, Lehman either be retrenched, sold or go under."
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Banks Large and Small Lining Up for Government Cash
Financial Week (11/06/08); Catts, Tim
Forty-four financial institutions have been cleared by the Treasury Department to receive a collective $170.7 billion under its bailout program, and a recently released analysis from Keefe Bruyette & Woods anticipates that up to 115 more banks could apply for $14.5 billion in capital infusions before the application window ends on Nov. 14. Both Columbia Banking System Inc., with $3.1 billion in assets and about 55 branches, and Heritage Commerce Corp., with $1.5 billion in assets and 10 branches, reported that the Treasury okayed their applications on Nov. 5, and announced that they will respectively receive capital infusions of $79 billion and $40 billion. Nearly 75 percent of the money the Treasury has pledged so far for capital infusions will be distributed to the largest banks, with JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America each receiving $25 billion. Morgan Stanley and Goldman Sachs will each get $10 billion, while State Street Corp. and Bank of New York Mellon respectively received $2 billion and $3 billion. The rest of the funds will be distributed to banks of various size, including Saigon National Bank, which has $55 million in assets and one branch, and U.S. Bancorp, which has $246.5 billion in assets. The former will receive $1.2 million from the Treasury while the latter will get $8.8 billion.
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Fed Buying More Commercial Paper
American Banker (11/07/08) P. 20; Sloan, Steven
The Federal Reserve Board has announced a 67.9 percent increase in its commercial paper buys over the past week to more than $243.1 billion as of Nov. 5, while discount window lending decreased 6.2 percent to $346.5 billion. Several weeks of unprecedented lending to commercial banks ended with a nearly 2 percent slip to $108.6 billion, while lending to investment banks maintained its decline with a 9.8 percent drop to $71.6 billion. Loans to distressed institutions were nonexistent, and the remaining $9 million went to banks in rural or resort areas. The bulk of the loans, totaling $186.1 billion, come due in 15 days, while $90.1 billion will mature in 16 to 90 days and $61.4 billion will be repaid in one to five years.
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Crisis Spawns Payables-Receivables Crunch
CFO (11/08); Johnson, Sarah
Since the credit squeeze began to hit its stride, CFOs at companies large and small have been increasingly watchful of the cash flowing through their businesses and carefully scrutinizing their suppliers' credit terms and their customers' viability. "Trade credit is the largest source of capital for small and medium-size businesses in the U.S. and the world," notes Receivables Exchange co-founder and president Nicolas Perkin, and recent occurrences have prompted CFOs to renegotiate deals with customers in anticipation that some companies could fall if the financial markets show no improvement. Additionally, they are requesting their vendors to extend their deadline to pay. However, balancing accounts payable and accounts receivable is an issue generating concern among finance executives, and this concern is justified by the possibility that customers could withhold payments from companies. A poll of 366 treasurers and CFOs by the Association for Financial Professionals found that 10 percent of companies delayed payments to their vendors in September in response to the credit crisis. REL financial analyst Karlo Bustos advises companies to take a long-term perspective of working capital by evaluating and mitigating risk, watching their customers carefully, and delineating what-if scenarios. Another recommendation is to maintain the openness of communication lines among sales, collections, operations, and treasury departments so that any troubling customer accounts are noticed quickly.
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Banks Tighten the Screws
CFO (11/08); Reason, Tim
Banks are effecting a tightening of their lending standards, prices, and terms for companies of all sizes, as verified by the Federal Reserve's latest poll of bank loan officers. The survey found that roughly 95 percent