Finance Blog number 1

The nation’s largest brokerage firm, Merrill Lynch & Co., is expected to report losses of $15 billion stemming from soured mortgage investments, according to a published report Friday.
The New York Times, citing people who have been briefed on the broker’s plans, said the losses would come in nearly double its original estimate, prompting the firm to raise additional capital from outside investors. The losses are expected to be disclosed when the brokerage reports earnings next week, those people said. Among estimates on Wall Street, Merrill are expected to get as much as $10 billion from foreign governments, with Merrill Lynch expected to receive $3 billion to receive $3 billion to $4 billion, with much of the cash coming from a Middle Eastern government investment fund, the Wall Street Journal reported Thursday.
Both firms are rushing to finalize the deals before they report earnings next week, which will likely include further losses from exposure to mortgage-related securities, such as collateralized debt obligations.
Citi is also expected to consider slashing its dividend in half in a move that would save it around $2.5 billion a year, the newspaper reported.
Merrill is likely to write down the value of its CDO and subprime mortgage-backed security exposures by $10 billion next week, Bernstein Research estimated 24 hour payday advances. Such hits have increased concern that banks and brokerage firms may not be capitalized well enough and sent many companies in search of fresh cash.
“As long as Merrill’s fourth-quarter write-down comes in under $15 billion, the company would remain well capitalized,” Brad Hintz, an analyst at Bernstein, wrote a note to client on Thursday. “A $20 billion write-down this quarter or above would significantly increase leverage and would threaten the credit ratings of the firm.”

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The Bush administration is working to combat the country’s severe housing crisis but there is no simple solution, Treasury Secretary Henry Paulson said Monday, adding that a correction in the housing market is “inevitable and necessary.”

Paulson said the country was facing an unprecedented wave of 1.8 million subprime mortgages that are scheduled to reset to sharply higher rates over the next two years. He said this raised the threat of a market failure and was the reason the administration brokered a deal with the mortgage industry to freeze certain subprime mortgage rates for five years to allow the housing market to recover.

“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in a speech in New York. “However, let me be clear: There is no single or simple solution that will undo the excesses of the last few years.”

Paulson said that the deal the administration brokered with the industry to freeze certain subprime mortgage rates for five years did not involve the use of any taxpayer money. Conservative critics have complained that the administration’s plan represented government intrusion in the operation of markets that would end up rewarding some people who had taken out risky mortgages.

In his speech, Paulson raised the possibility that some sort of “systematic approach” might need to be developed to help homeowners with other types of adjustable-rate mortgages that are resetting to higher rates http://payday-faxless.com. The current plan only involves subprime mortgages, loans offered to borrowers with weak credit histories.

The steep slump in housing has been a serious drag on the overall economy. There are rising fears that the country could topple into a recession. Those worries were heightened after a report Friday showing that the unemployment rate jumped to a two-year high of 5 percent in December with job growth slowing to a crawl.

Paulson called the current housing correction inevitable after what occurred during the five-year boom in which sales and prices climbed to record levels.

“After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary,” Paulson said.

He said that the correction was taking a toll on the economy that would continue for a period of months.

“It will take additional time for markets to regain confidence,” Paulson said. “The overhang of unsold homes will contribute to a prolonged adjustment and poses by far the biggest downside risk.”
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