- Fannie Mae (FNMA) reports huge loss for the Q, in contrast to Freddie’s improved results; Fannie seeks $8.5B injection from the Treasury – after the close Fri reported a net loss of $6.5 billion in the first quarter of 2011, compared to net income of $73 million in the fourth quarter of 2010. The change to a net loss in the first quarter of 2011 from net income in the fourth quarter was due to an increase in credit-related expenses, primarily driven by a decline in home prices during the quarter. Upon receipt of those funds, the company’s total obligation to Treasury for its senior preferred stock will be $99.7 billion. FNM
- The Bahrain government said it would be lifting martial law on June 1, 2.5 months after first imposing the order. The action could signal that the government feels it was weakened opposition groups to such an extent that they no longer pose a threat. WSJ
- EU Sentix Investor Confidence declined to 10.9 in May vs 13.8 expected and 14.2 previously
- AU NAB Business Confidence declined to 7 in April from 9 in March.
- S&P cut Greece’s rating to B from BB-, and indicated that it may be cut further. It also said that the rating means an estimated 30-50% recovery upon default
- The Greek Finance Minister has been asked by his European counterparts at the informal meeting in Luxembourg on Friday to increase the target of privatization program to €15b for 2012, in order to initiate any discussion of increasing the country’s loan to €150b from €110b. If the proposal, which seems to be promoted by the four strongest European economies, is approved at the Eurogroup meeting on May 16, then it will be forwarded to the European Summit in June. Meanwhile, Wolfgang Schäuble raised the issue of a partial “voluntary agreement” between Greece and holders of bonds that mature in 2012-2013, but his proposal has not been rejected so far. Capital.gr
- JPM Greece Restructuring Impacts:
- ECB has 200bn notional exposure and is protected for a haircut of up to 30%
- For Greek banks, a haircut of 50% for example, would create losses of around €25bn, leaving only €4bn of equity (or 1% of assets) for the Greek banking system. But Greek banks would see half the above loss if a Greek debt restructuring were to take place in mid 2013 as their bond holdings mature.
- Other European banks hold a manageable €50bn of Greek government bonds, but they look more vulnerable when adding the €115bn of private sector exposure.
- The recent Greece headlines underscores the fact that trade competitiveness within the EU remains unbalanced. German Trade balance in March printed 18.9bn vs 11.8bn expected. This takes the 12m average to 13.1bn, which is even higher than levels prevailing when Greek default headlines first hit the market a year ago:
Looking across EU countries, it appears that while Greek, Portugal, and Spain Current Account deficits have improved over the past year, it has come at the expense of France and Italy. As the latter two countries are much larger, the change in their current account as a percent of GDP is small. Nevertheless, this is not a sustainable way to rebalance EU trade flows:
- Insurance companies are apparently now creating SIVs and hiding negative value assets in them. NYT. Has anyone had a good look at the impact of baby boomer demographics on US Insurance company asset-liability management? Reader responses appreciated.