Brokers threatened by run on shadow bank system Regulators eye $10 trillion market that boomed outside traditional banking. A network of lenders, brokers and opaque financing vehicles outside traditional banking that ballooned during the bull market now is under siege as regulators threaten a crackdown on the so-called shadow banking system. Big brokerage firms like Goldman Sachs, Lehman Brothers, Morgan Stanley, and Merrill Lynch, which some say are the biggest players in this non-bank financial network, may have the most to lose from stricter regulation. The shadow banking system grew rapidly during the past decade, accumulating more than $10 trillion in assets by early 2007. That made it roughly the same size as the traditional banking system, according to the Federal Reserve.
MBIA, Ambac fall as AAA ratings downgraded Shares of bond insurers Ambac Inc. and MBIA Inc. fell more than 6% each ahead of the opening bell Friday, retreating after Moody's Investors Service cut their AAA ratings on worries about further mortgage-related write-downs. Late Thursday, Moody's also downgraded Ambac's insurance financial strength rating to Aa3 and lowered MBIA's insurance financial strength rating to A2. The ratings agency said it took the action against MBIA on concerns about the bond insurer's financial flexibility and what it called its "impaired franchise," adding that there remains "substantial risk within its portfolio of insured exposures." Moody's said it remained concerned about both companies' continuing exposure to an embattled housing market, particularly their involvement in collateralized debt obligations, securities related to real estate known as CDOs.
Financial Fears Sweep the Globe After RBS Predicts Worldwide Stock-Market Crash RBS analysts have warned clients to brace for a full-blown crash in the global stock-and-bond markets over the next three months as the conflicting realities of slowing growth and rising inflation paralyze the world’s major central banks - causing "all the chickens [to] come home to roost," Great Britain’s Daily Telegraph newspaper reported.The report, which first surfaced late Wednesday, raced across the Internet yesterday (Thursday), though it appears that European news organizations are giving it much wider play than their U.S. counterparts. The predicted swoon would cause the U.S. Standard & Poor’s 500 Index - already down 15% from its trading high of 1,576.09 reached Oct. 11 - to nosedive all the way down to 1,050 by September. For the closely watched, broad-based U.S. stock index, that would represent an additional decline of 22% from yesterday’s close of 1,342.83 - and a total decline of 33% from its Oct. 11 apex.
Merrill Profit Warning Rumors Are Not True U.S. broker Merrill Lynch is not preparing to issue a profit warning Friday, sources tell CNBC. Speculation spread after wire services quoted traders who said there was chatter in the marketplace that Merrill would announce a writedown tied to so-called Alt-A mortgages. A Merrill Lynch spokeswoman declined to comment on the speculation.It's not that surprising that there would be questions surrounding Merrill Lynch's earnings. In recent days, analysts have been reducing their estimates for Merrill earnings. Over the last 30 days, analysts have cut their second-quarter forecasts by an average of 68 percent. Estimates for this year's earnings have fallen a whopping 105 percent, according to Starmine.
Firms, banks borrow more from Fed Wall Street companies and commercial banks borrowed slightly more from the Federal Reserve's emergency lending program over the past week. A Fed report released Thursday said the investment firms averaged $8.6 billion in daily borrowing for the week ending June 18. That compared with $8.4 billion the previous week. The investment houses were given similar loan privileges as commercial banks in March after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy and raised fears that other Wall Street firms might be in jeopardy. Banks, meanwhile, averaged $13.4 billion in daily borrowing for the week. That compared with $13.1 billion in the previous week. The identities of commercial banks and investment houses are not released.
WaMu cuts 1,200 more jobs Washington Mutual Inc. cut another 1,200 jobs Thursday, including 260 in Seattle, the third such round of layoffs in less than a year.While the number of employees to be cut isn't as large as the two most recent reductions, it's still a reflection of the company's continuing struggles in dealing with the mortgage finance mess and WaMu's losses stemming from rising loan delinquencies and defaults. "We will do what we must to return the company to profitability faster and to restore shareholder value," WaMu Chief Executive Kerry Killinger said in a letter to employees.And Killinger suggested the company might not be done cutting.
U.S. says exercise by Israel seemed directed at Iran Israel carried out a major military exercise earlier this month that American officials say appeared to be a rehearsal for a potential bombing attack on Iran's nuclear facilities.Several American officials said the Israeli exercise appeared to be an effort to develop the military's capacity to carry out long-range strikes and to demonstrate the seriousness with which Israel views Iran's nuclear program. More than 100 Israeli F-16 and F-15 fighters participated in the maneuvers, which were carried out over the eastern Mediterranean and over Greece during the first week of June, American officials said. The exercise also included Israeli helicopters that could be used to rescue downed pilots. The helicopters and refueling tankers flew more than 900 miles, which is about the same distance between Israel and Iran's uranium enrichment plant at Natanz, American officials said.
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