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Context of 'March 2, 2009: Survey: Manufacturing in China Remains Down in 2009'

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To assist in the merger of Bear Stearns Companies, Inc. and JP Morgan Chase & Co., the US Federal Reserve authorizes the New York Fed to form Maiden Lane LLC, a Delaware limited liability company. Once established, Maiden Lane is extended credit by the Fed to acquire certain Bear Stearns assets. Maiden Lane funds the purchase of the Bear Stearns asset portfolio of mortgage related securities, residential and commercial mortgage loans, and associated hedges through senior and subordinate loans of approximately $29 billion from the New York Fed, and a much smaller amount, approximately $1.15 billion, from JP Morgan Chase. As of March 14, 2008, the asset portfolio has an estimated fair value of approximately $30 billion. [Federal Reserve Bank of New York, 3/2008]

Entity Tags: US Federal Reserve, Bear Stearns, Federal Reserve Bank of New York, Maiden Lane, JP Morgan Chase

Timeline Tags: Global Economic Crises

The United States Federal Reserve has lent Wall Street’s largest investment bank billions of dollars, as the credit crisis threatens to spiral into a full-blown banking crisis. In developments currently rocking the world’s financial markets, the Fed and rival Wall Street bank, JP Morgan Chase, are funneling emergency loans to Bear Stearns, whose exposure to battered credit markets has led to a crisis of confidence in its ability to continue trading. In accelerating numbers, clients and trading partners are pulling business from Bear Stearns, after rumors of its solvency began circulating. During a last-minute conference call with investors, management at the investment bank warned that its emergency lending facility with the Federal Reserve has failed to staunch the bleeding. “We have been subject to a significant amount of rumor and innuendo in the past week,” says Bear Stearns chief executive Alan Schwartz. “We attempted to provide some facts but, in the market environment, the rumors intensified and a lot of people wanted to act to protect themselves first from the possibility that the rumors were true, and wait till later for the facts.” Bear Stearns appears most fragile of Wall Street’s major investment banks, since the July 2007 collapse of two internal hedge funds, providing initial clues about the scale of the unfolding credit crisis. Shares across the banking sector plunge as analysts fear that the Fed’s willingness to intervene suggests that Bear’s future is pivotal to the banking system, and that its failure precipitates losses that may cascade through its trading partners. Bear Stearns stocks are in freefall, closing down 47 percent. Pierre Ellis at New York’s Decision Economics said, “Clearly the Fed is addressing what they feel is a systemic risk very aggressively.” [Belfast Telegraph, 3/15/2008]

Entity Tags: US Federal Reserve, Alan Schwartz, Bear Stearns, JP Morgan Chase, Pierre Ellis

Timeline Tags: Global Economic Crises

To facilitate AIG’s ability to complete its corporate restructuring, the New York Federal Reserve, as authorized by the US Federal Reserve, creates Maiden Lane II LLC and Maiden Lane III LLC to fund the purchase of certain multi-sector collateralized debt obligations (CDOs) from certain AIG Financial Products Corporation (AIGFP) counterparts. The Asset Portfolio purchase will be made in two stages, with Maiden Lane II LLC lending AIG $26.8 billion on November 25, 2008, and Maiden Lane III LLC lending AIGFP and its counterparties $2.5 billion on December 18, 2008 (see March, 2008). [Federal Reserve Bank of New York, 11/10/2008]

Entity Tags: Federal Reserve Bank of New York, AIG (American International Group, Inc.), US Federal Reserve, Maiden Lane II, Maiden Lane III

Timeline Tags: Global Economic Crises

The financial industry may cut as much as $2 trillion in credit card account lines over the next 18 months, according to Oppenheimer & Co analyst Meredith Whitney. This is in an effort to reduce damage risks from increasing customer delinquencies and defaults. “[W]e expect available consumer liquidity in the form of credit-card lines to decline by 45 percent,” she adds. According to Whitney, all three remaining major banks—Bank of America, Citigroup, and JP Morgan Chase—are planning or considering reducing credit lines across the board. Credit cards are the second source of liquidity available to consumers, behind wages from work. She criticizes the banking industry for offering ever fewer choices at a time when consumers need credit more than ever: “Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view.” [Consumer Affairs.com, 12/1/2008; Reuters, 12/1/2008]

Entity Tags: Meredith Whitney, Oppenheimer & Co.

Timeline Tags: Global Economic Crises

According to a survey of factories released by Credit Lyonnais South Asia (CLSA), a brokerage firm that monitors Asia-Pacific markets, although Chinese manufacturing contracted in January and February, the rate was slower in February than the previous month. The survey is issued as China’s legislature and a top government advisory body meet in Beijing. It is expected that the meeting will yield additional measures to stimulate the economy. In a statement released with the survey, CLSA declares, “The rate of contraction remained marked, reflecting a reduction in global demand and an uncertain economic outlook.” Manufacturing is reportedly 40 percent of China’s economic output. A drop in exports demand has led to thousands of factory closures, prompting protests by laid-off workers. Chinese leaders are concerned that additional job losses may fuel unrest. According to the CLSA survey, production and new orders fell in February, and manufacturers continued to shed jobs in an effort to cut costs. “Manufacturing activity is still contracting, only at a more moderate pace than at the end of 2008,” says Eric Fishwick, the head of CLSA’s economic research. China is one of the few major economies still growing, although growth fell to a seven-year low of 6.8 percent in the final quarter of 2008, compared with the same period a year earlier. Last November, the government announced a $586 billion plan to boost domestic consumption in an attempt to assist in cushioning the impact of the global slowdown. Officials say that the effects of public works spending will be slow. Quoting Premier Wen Jiabao, Xinhua News Agency reports that some indicators, such as recent upturns in power demand and rising steel output, suggest that the economy is stabilizing. However, trends remain dismal in the US and around the globe. “China cannot expect to recover just by spending its way out of the slowdown,” says Jing Ulrich, JP Morgan’s chairwoman of China equities in a report issued today. “While early signs of economic stabilization are encouraging, it remains to be seen if this uptrend is sustainable.” [International Herald Tribune, 3/2/2009]

Entity Tags: JP Morgan Chase, Credit Lyonnais South Asia, Jing Ulrich, Eric Fishwick, Xinhua News Agency, Wen Jiabao

Timeline Tags: Global Economic Crises

Regulatory reports on Bank of America, Citibank, HSBC Bank USA, JP Morgan Chase, and Wells Fargo indicate that, as loan defaults of every kind soar, the institutions face “catastrophic losses” should economic conditions “substantially worsen.” Already suffering as a result of what the banks term “exotic investments,” the reports disclose that, as of December 31, 2008, current net loss risks from derivatives—quasi-insurance bets tied to loans or other underlying assets—have swelled to $587 billion. According to McClatchy journalists Greg Gordon and Kevin G. Hall, obscured in the year-end regulatory reports that they reviewed were figures reflecting a jump of 49 percent net loss in just 90 days.
Bailout Money Shoring Up Reserves - Taxpayer bailout money has already shored up four of the five banks’ reserves, with Citibank receiving $50 billion and Bank of America $45 billion, in addition to a $100 billion loan guarantee. According to their quarterly financial reports as of December 31:
bullet JP Morgan had potential current derivatives losses of $241.2 billion, overrunning its $144 billion in reserves, and future exposure of $299 billion.
bullet Citibank had potential current losses of $140.3 billion, outstripping its $108 billion in reserves, and future losses of $161.2 billion.
bullet Bank of America reported $80.4 billion in current exposure, lower than its $122.4 billion reserve, but $218 billion in total exposure.
bullet HSBC Bank USA had current potential losses of $62 billion, over three times its reserves, and potential total exposure of $95 billion.
bullet San Francisco-based Wells Fargo, which took over Charlotte, N.C.-based Wachovia in October 2008, reported current potential losses totaling almost $64 billion, below the banks’ combined reserves of $104 billion, but total future risks of about $109 billion. [McClatchy Newspapers, 3/9/2009; Idaho Statesman.com, 3/9/2009]

Entity Tags: Kevin G. Hall, Citibank, Greg Gordon, Bank of America, HSBC Bank USA, Wells Fargo Bank, N.A., Wachovia Bank, N.A., JP Morgan Chase

Timeline Tags: Global Economic Crises

The US Treasury Department concludes that financial firms American Express, Bank of New York Mellon, Branch Banking & Trust (BB&T), Capital One Financial, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Northern Trust, State Street, and US Bancorp can return $68.3 billion in emergency bailout funds to government coffers although some of the banks have assets that are still government-controlled, with warrants worth approximately $4.6 billion. Twenty-two smaller banks already returned $1.9 billion. Morgan Stanley receives Treasury permission to return its TARP funding despite bank stress test details released early last May ordering the bank to increase its capital cushion fund by raising $1.8 billion. In a Treasury release, Secretary Timothy Geithner explains, “These repayments are an encouraging sign of financial repair, but we still have work to do.” President Obama comments that the ability of companies to repay the government does not detract from the need for reform. “The return of these funds does not provide forgiveness for past excesses or permission for future misdeeds,” he says. “This is not a sign that our troubles are over. Far from it.” [United Press International, 6/9/2009; New York Times, 6/9/2009]

Entity Tags: Capital One Financial, Bank of New York Mellon, American Express, Branch Banking & Trust (BB&T), US Bancorp, US Department of the Treasury, State Street, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Northern Trust, Barack Obama, Timothy Geithner

Timeline Tags: Global Economic Crises

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