US Credit Crunch and Global Financial Crisis…

Hi, Friends, Look at the news sources like Economist, BBC News, The Daily Star, Reuters etc. US Credit Crunch and Global Financial Crisis can be look like:

The Federal Reserve gave America’s last two big investment banks, Goldman Sachs and Morgan Stanley, permission to change their status to bank holding firms. They will be subject to stiffer regulation, but allowed to take deposits. Goldman Sachs raised $5 billion to shore up its capital by selling shares to Berkshire Hathaway, the firm run by Warren Buffett, a celebrated investor. The next day, it raised $5 billion more from a share offering. Mitsubishi-UFJ, Japan’s largest bank, agreed to buy up to 20% of Morgan Stanley for $8.4 billion.

Nomura, a Japanese investment bank, offered to buy bits of the European, Middle Eastern and Asian divisions of Lehman Brothers, an American rival that declared itself bankrupt last week, for an undisclosed sum. Barclays, a British bank, bought Lehman’s main American unit for $250m, and several of its properties for $1.29 billion.

The Federal Bureau of Investigation said it was looking into 26 cases of potential fraud related to the collapse of America’s mortgage industry. The financial institutions under investigation are said to include the now-defunct Lehman Brothers, as well as three failing firms recently taken over by the American government: American International Group, Fannie Mae and Freddie Mac.

Moody’s, a rating agency, lowered its outlook for 12 Russian banks, despite a government rescue package worth$120 billion. The state-owned Development Bank said it would take over Svyaz Bank, a struggling private one. Meanwhile a fund controlled by Mikhail Prokhorov, a former mining magnate, agreed to buy half of Renaissance Capital, a big Russian investment bank, for $500m.

Citigroup to take over Wachovia banking assets: Citigroup agreed to a takeover of Wachovia Bank in a deal backed by regulators and which gives the government a stake in one of the nation's biggest banks.

The takeover marks another shakeup for the troubled US banking sector saddled with heavy losses from the bursting of the real estate bubble.

It came as Wachovia faced a near collapse of its share price and weakening confidence because of its exposure to troubled mortgage assets.

First news of the deal came from the Federal Deposit Insurance Corp. the banking industry regulator, which helped facilitate the takeover.

"Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC," the government agency said.

The engineered bailout came a day after President George W. Bush's administration and Congress struck a deal on a landmark 700-billion-dollar bailout of the banking system in a bid to avert a wider economic crisis.

The government will get a stake in Citigroup in exchange for guaranteeing a large portion of the distressed Wachovia assets linked to housing.

Citi will assume up to 42 billion dollars of losses from a pool of 312 billion dollars of loans held by Wachovia; the FDIC will absorb losses beyond that and take a stake in Citigroup for the guarantee.

Citigroup granted the FDIC 12 billion dollars in preferred stock and warrants to compensate the agency for bearing this risk.

Under the agreement, Citigroup will pay 2.1 billion dollars in stock to Wachovia and assume the senior and subordinated debt of Wachovia Corporation, the companies said.

Crisis slams European banks: Belgian-French bank Dexia is the latest in line after Fortis and Bradford & Bingley.

Several European banks were being rescued or were under stock market attack Monday, with Belgian-French bank Dexia the latest in line after Fortis and Bradford & Bingley.

Suspicion and fear swept onwards despite the revised bailout for US banking stitched together by US lawmakers, despite European government rescues for Fortis and Bradford & Bingley and despite renewed central bank infusions to sustain interbank funding.

And stock markets slumped in a strong vote of skepticism about prospects for the global economy, and uncertainty about Congressional approval for the bailout. But the dollar jumped, and in London the euro was at 1.4362 dollars from 1.4613 here late Friday.

Barclays Capital analyst David Woo said the bailout deal "reduces the risk of a systemic collapse" but "many downside risks remain -- not least those related to a protracted slowdown in the global economy."

In addition "financial market turbulence is seriously affecting the European financial system" and "weakness in equities ... suggests the market is pessimistic about the likely effectiveness of the (US) Treasury's plan."

UniCredit economist Marco Annunziata said in London that Congressional approval could take a few days and although the package "pulls us back from the brink," extreme dislocations in money markets were a source of "serious stress in the financial sector."

UniCredit said that money market interest rates were "symbolic" rather than meaningful, and central banks "are trying their best" to provide emergency funding.

The European central Bank announced a special 38-day loan to eurozone banks, and the Bank of Japan injected 1.9 trillion yen (17.8 billion dollars) in Tokyo.

Financial shares led European stocks downwards. Shares were down 2.49 percent in London, 2.83 percent in Paris and 2.84 percent in Frankfurt, after falls of 4.3 percent in Hong Kong and 1.26 percent in Tokyo.

"In this market, no-one is taking any chances and we must wait until the vote to confirm it (the plan) has passed," said City Index market strategist Joshua Raymond.

"Then we must see if it ticks all boxes for a recovery, and that means the market understanding how it is going to work fundamentally."

President George W. Bush said the rescue "sends a strong signal to markets around the world that the United States is serious about restoring confidence and stability to our financial system."

But some conservative Republicans and liberal Democrats steadfastly opposed the plan, which includes the immediate release of 250 billion dollars to enable the government to buy up troubled assets.

Central banks again pumped funds into money markets because, analysts say, interbank lending is being strangled to an "apocalyptical" extent, with massive potential repercussions on lending to businesses and consumers. Interbank lending rates rose even further Monday, in defiance of the agreement in Washington.

The Belgian government said it would stand by Dexia bank, a leading European lender to municipalities, as its shares plunged by 23.0 percent and it rushed out a statement assuring "our liquidity is very good."

German Bank Hypo Real estate was rescued by other banks as was small Danish bank Bonusbanken.

Shares in Fortis, one of the biggest banks in northern Europe, plunged again despite the weekend nationalization, and stocks in leading Swiss bank UBS also slumped more than seven percent.

Meanwhile French President Nicolas Sarkozy called a meeting of the heads of top French financial groups to "review the situation of financial institutions and the credit level of households and business," his office said.

The US bailout plan is the biggest state intervention since the Great Depression, but the wave of failure and distress in European banking is also assuming unprecedented proportions.

Any relief internationally from the tentative US rescue agreement came too late for Fortis, rescued by Benelux governments for 11.2 billion euros (16 billion dollars) at the weekend. Fortis shares slumped 18.9 percent in Amsterdam after crashing last week.

Fortis's problems are "weighing on European banking stocks," a Zurich-based trader told AFP, adding "UBS is much more exposed than Fortis."

In Paris, shares in Credit Agricole fell 6.84 percent and in BNP Paribas by 6.27 percent.

In London, Royal Bank of Scotland stock shed 13 percent, HBOS dived 8.94 percent, and Barclays dipped 6.55 percent. Bradford & Bingley was rescued at the weekend with a part takeover by Spanish Santander bank and 612 pounds (773 million euros, 1.1 million dollars) by the British government.

Monday, German banks extended a life-saving multi-billion-euro credit line to Hypo Real Estate (HRE), and small Danish bank Bonusbanken was rescued by Vestjysk bank.

Motomi Hiratsuka, a trader at BNP Paribas, said: "We know that we are most likely to avoid a meltdown in the US financial sector, but what matters now is negative news from new regions."

House rejects $700b bailout in stunning defeat: In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day.

"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version.

Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.
All sides agreed the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.

But in a remarkable display on Monday, a majority of House members slapped aside the best version their leaders and the administration had been able to come up with, bucking presidential speeches, pleading visits from Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could nosedive without the legislation.

In the face of thousands of phone calls and e-mails fiercely opposing the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections. The bill went down, 228-205. The House Web site was overwhelmed as millions of people sought information about the measure through the day.

US President George W Bush warns the US economy is at a "critical moment" after his bail-out plan was defeated.

Last of all, as a student from Finance at Dhaka University and Banker as profession, based on above news, facts, figures, we can sum up as:

1.GLOBAL BANK LOSSES: Banks and other financial institutions could lose $1 trillion from the credit crisis as mortgage-backed assets have lost most of their value.

2.COLLAPSING HOUSING MARKETS: Underlying the financial market wobbles is a real decline in US house prices nationwide for the first time since the 1930s.

3.JITTERY STOCK MARKETS: Stock markets around the world - from Shanghai to London - have plunged, while in the US the Dow Jones industrial average has made big losses this year.

Sources: Economist, BBC News, The Daily Star, Reuters

Bangladesh Bank set to make bank services less costly

Customers will be able to take balance confirmation certificates from banks for free twice a year, according to a decision of Bangladesh Bank (BB).

Also, the banks will be allowed to charge only Tk 100 for a certificate to be used to open a beneficiary owner account, down from a rate that ranges between Tk 200 and Tk 500 now.

“The BB has taken the decision in consultation with the Bankers Association of Bangladesh (BAB) and Association of Banks, Bangladesh (ABB),” a senior official with the central bank told The Daily Star yesterday.

A circular is expected to come out today.

The central bank's directives asked all scheduled banks to rationalize its charges, fees and commissions, which businessmen say are too high.

Different banks charge customers for 51 categories of service in transactions, which, according to the BB, increases the prices of both export products and local consumer items.

BB officials said the banks take 25 types of charges and commissions for import-related transactions and 14 types for export transactions. In addition, 12 types of fees are charged for local transactions.

The new BB directives said the banks must issue balance confirmation certificates for free twice a year. "If anyone asks for a statement more than twice a year, they may be charged a maximum of Tk 200," the BB said.

The central bank lifted charges on foreign correspondence (local part) and cancellation of letters of credit (LCs) or expired LCs.

Costs of mailing, courier, telex and SWIFT must be on the basis of actual expenditure for LC transmission, amendment, confirmation, cancellation and foreign correspondence charge, according to the BB instructions.

The central bank also reset the quarterly commission for LC opening at 0.50 percent.

LC advising charges may be a maximum of Tk 1,000 and the charges for LC acceptance will be 0.40 percent on a quarterly basis. The charges for issuing back-to-back LCs, C&F certificates and certificates for realization of export prices have been set at Tk 500.

“Banks will be asked to send in a list of the charges and fees on a half yearly basis -- in July and January,” the draft of the circular said.

In case of any change in charges and fees, banks have to inform the related division about it and post information on banks' websites.

The BB could further rationalize the charges in consultation with banks, it said.

Although the BB cut some charges, it did not take any move on "high charges" for closing a bank account, customers said.

Earlier in a report, the central bank said a government-owned bank did not charge clients for account closure while private commercial banks charge from Tk 300 to Tk 500. Foreign commercial banks took as high as Tk 1,000.Source: The Daily Star, Dhaka, Bangladesh, September 30, 2008