Economic forecast less than positive
A Gallup poll recently found American consumer optimism to be the lowest ever recorded – just 13 per cent of respondents had a positive view of the economy.
Gloomy consumer sentiments have come as no surprise however with house prices recording another fall in the third quarter – dropping 1.7 per cent from the second quarter and 4.5 per cent from a year ago, according to Standard & Poor’s housing index.
Foreclosures also jumped 94 per cent from October 2006, RealtyTrac reported.
SIV fund approved
Bank of America, Citigroup and JPMorgan Chase reached an agreement on the structure of the safety net “Superfund” in November, with operation of the fund expected as soon as approval is given by the major credit rating agencies.
The fund is intended to prevent mass forced fire sales of structured investment vehicle assets (SIVs), but whether it will be successful remains to be seen.
Meanwhile HSBC Holdings became the first bank to bail out two of its SIVs. Analysts will be waiting to see if other banks will follow suit, which could help reduce the incidence and impact of distressed SIV asset sales.
Freddie’s third quarter shocker
Losses are spreading like viruses between the big banks and lenders. Freddie Mac – the second largest source of mortgage money in the States – is the most recent to reveal a significant loss for the third quarter.
To replenish its depleted capital, the government-chartered lender has announced plans to sell US$6 billion ($6.9 billion) in preferred stock and cut its fourth quarter dividend in half.
Corporate debt next to wobble
Fitch Ratings has predicted a frightening jump in corporate defaults in 2008. Corporate debts are forecast to jump from less than one per cent of debt outstanding in 2007 to more than four per cent. Standard & Poors has also made similar predictions stressing that companies will struggle to refinance. It warns defaults could spike to US$35 billion ($40 billion).