Merrill to shut down subprime lending unit: report

Thu Feb 28, 2008 3:57pm EST

NEW YORK (Reuters) - Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research) plans to wind down most of its First Franklin subprime mortgage lending unit, responding to continued deterioration in U.S. mortgage markets, business news channel CNBC reported Thursday.

The move could result in the elimination of 400 to 500 jobs starting next week, CNBC reported. Merrill would keep First Franklin's loan servicing business, which could perform well in the current mortgage and housing markets, CNBC said.

Merrill spokeswoman Jessica Oppenheim declined to comment.

Merrill, which ceased originating subprime mortgages on December 28, on Monday said it was "evaluating our continued involvement in this market."

The largest U.S. brokerage house bought First Franklin from Cleveland-based bank National City Corp (NCC.N: Quote, Profile, Research) in December 2006 for $1.3 billion, in a bid to expand in a business that had generated big profits for rivals like Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research).

The deal closed just before the subprime mortgage market began to collapse.

Last year the unit, where losses mounted as demand for loans disappeared, contributed to distress stemming from exposure to markets slammed by the worst housing crisis in decades.

On Monday, Merrill Lynch in its 10-K annual report disclosed that last year it "substantially reduced" U.S. subprime home lending, mortgage purchases and securitization activities as well as extending credit facilities to other lenders.

Merrill reported mortgage-related losses and write-downs totaling $24.4 billion in 2007. The setbacks contributed to Chief Executive Stan O'Neal losing his job, and have new CEO John Thain scrambling to turn things around.

The annual report shows that Merrill still has significant exposure to risky home loans and related assets.

Merrill declined to say how many people are still employed at First Franklin, which had 2,500 employees at the end of 2006.

(Reporting by Joseph A. Giannone, editing by Gerald E. McCormick)

Citigroup may face $12 billion in additional write-downs, Goldman says

THE RATINGS GAME

More credit costs seen weighing on banks, brokers

Citigroup may face $12 billion in additional write-downs, Goldman says

By Greg Morcroft, MarketWatch

Last update: 2:03 p.m. EST Feb. 25, 2008

NEW YORK (MarketWatch) -- Analysts at Goldman Sachs cut estimates for the nation's top banks and brokers Monday and said these major institutions would likely report write-downs of between $1 billion and $12 billion for soured real-estate loans and related exposures.

Goldman's estimates of new write-downs ranged from $1.4 billion it expects for Bear Stearns Cos. (BSC) all the way up to a whopping $12 billion projected for Citigroup Inc. (C)

"Although many of the write-downs in the back half of 2007 focused primarily on subprime and CDOs, we expect first-quarter 2008 write-downs to be spread across all aspects of residential mortgage-backed securities including subprime, Alt-A and prime, commercial mortgage-backed securities and leveraged loans. We forecast first quarter write-downs of approximately $1 billion to $12 billion for each of our large-cap companies across all of these categories," the Goldman analysts concluded.

Goldman cut estimates for Morgan Stanley (MS) , Merrill Lynch & Co. (MER) , Lehman Bros. (LEH) and J.P. Morgan Chase & Co. (JPM) , along with Citigroup and Bear Stearns.

Perhaps most notably, Goldman reduced Citigroup's first-quarter profit estimate to 15 cents a share from 40 cents and pared its full-year forecast to $2.50 a share from $2.75 previously.
Also Monday, Citigroup's profit forecast was slashed by Oppenheimer & Co. See related story.

"Our new estimate assumes about $12 billion of additional write-downs across leveraged loans, residential mortgage-backed securities and commercial mortgage-backed securities. We believe write-downs from its asset-backed CDOs will account for the largest percentage of the overall write-down. Citigroup has also been one of the least aggressive in terms of its write-down of these assets, in our view," Goldman's analysts said.

Meanwhile, they cut J.P. Morgan Chase's earnings outlook to 70 cents a share from 96 cents for the quarter and to $3.44 a share from $3.70 for the full year.

"Our new estimate assumes about $3.4 billion of additional write-downs across leveraged loans, residential mortgage-backed securities and commercial mortgage-backed securities as well as our assumption for no private-equity gains in the quarter (previously we assumed about $700 million in gains) based on most recent management guidance," Goldman concluded.

As for Bear Stearns, Goldman cut its projection of earnings for the fiscal first quarter, to 55 cents a share from $2.16, as well as its full-year estimate, down to $7.40 a share from $9 previously.

"Our new estimate assumes about $1.4 billion of additional write-downs across Bear's portfolio (although the primary drivers are likely to be from Alt-A and commercial mortgage-backed securities). Absent these write-downs, our forecast would have still had earnings down 10% year over year, a clear indication the firm is suffering from a global slowdown in mortgages," Goldman said.

And for Lehman, Goldman cut its first-quarter profit estimate to 45 cents a share from $1.68 previously, and its full-year forecast went to $4.85 a share from $6.05.

"Our new estimate assumes about $3.5 billion of additional write-downs across leveraged loans, residential mortgage-backed securities, and commercial mortgage-backed securities. Lehman has the largest absolute commercial mortgage-backed securities exposure of the group at $40 billion, and we expect this asset class to contribute close to half of the write-downs this quarter," the Goldman analysts said.

Not so bad

They also trimmed estimates for Morgan Stanley's earnings for the first quarter to $1.25 a share, down from $1.65 a share, and took down their full-year projection to $6 a share from $6.40.

"Although Morgan Stanley will likely have some meaningful negative valuation adjustments this quarter on leveraged loans and commercial mortgage-backed securities, we do not believe the firm will be as impacted as some peers as it appears that the firm was more aggressive on its subprime write-downs last quarter, it has less Alt-A exposure than some of its peers, and its commercial mortgage-backed securities portfolio is more of an international concentration, which has been less impacted than the U.S., in our view.

"Our new estimate assumes about $3.1 billion of additional write-downs across leveraged loans, residential mortgage-backed securities and commercial mortgage-backed securities," Goldman concluded.

Finally, the analysts revised lower their Merrill Lynch estimates, down to 25 cents a share from 90 cents for the first quarter, and to $3.85 a share from $4.40 for the full year.

"Our new estimate assumes about $4 billion of additional write-downs across leveraged loans, CDOs and commercial mortgage-backed securities. We also assume a smaller write-down on the firm's remaining Alt-A and subprime residential mortgage-backed securities portfolios. Merrill was one of the more aggressive firms in writing down its CDO exposure in the fourth quarter of 2007," Goldman said.

Greg Morcroft is MarketWatch's financial editor in New York.

Citigroup to cut 10% of workforce at Japanese brokerage unit

Citigroup to cut 10% of workforce at Japanese brokerage unit

By Chris Oliver

Last update: 8:07 p.m. EST Feb. 24, 2008

HONG KONG (MarketWatch) -- Citigroup Inc. (JP:8710) plans to lay off 10% of staff at its Japanese wholesale brokerage Nikko Citigroup Ltd., as part of a company-wide downsizing in the wake of losses stemming from investments tied to U.S. mortgages, according to a Japanese media report Tuesday. The workforce cuts should amount to 170 of 1,750 jobs at the Japanese brokerage, the Nikkei business daily reported Monday, without citing its source. Tokyo-listed shares of Citigroup were down 1.3% in early Monday trade.

German bank says it will sue UBS over US sub-prime losses

German bank says it will sue UBS over US sub-prime losses
Posted: 25 February 2008 2247 hrs

FRANKFURT : The German bank HSH Nordbank plans to sue Swiss giant UBS in the United States for alleged mismanagement of funds which were invested in securities connected to the US sub-prime mortgage market, HSH said.

The German bank "expects to file its claim against UBS in the State of New York by the end of February," a statement said.

HSH took exception to investment of 300 million euros (444 million dollars) in collateralised debt bonds which had been structured and managed by UBS.

CDOs are a type of asset-backed security comprising a portfolio of fixed-income assets, and are often backed in part by home loans, which in the case of the US sub-prime market, suffered from widespread defaults last year.

In its statement, HSH Nordbank said it would argue "that UBS's management of the portfolio has been in breach of its contractual obligations and fiduciary duties and that substitutions were made solely for the benefit of UBS."

The German bank, formed from a merger of two northern regional German banks, said it would demand "the recovery of its losses which we regard as the responsibility of UBS."

A UBS spokesman contacted by Thomson Financial News said only: "We do not comment on legal cases."

The Swiss banking giant plunged to its first-ever full-year net loss last year after losing 18 billion dollars in the US sub-prime mortgage crisis.

UBS revealed a net loss of 4.4 billion Swiss francs (4.0 billion dollars, 2.7 billion euros) in 2007, compared to a profit of 12.3 billion Swiss francs in 2006. - AFP/de

Fortis rapidly merging ABN AMRO fund unit - paper

Fortis rapidly merging ABN AMRO fund unit - paper
Sat Feb 23, 2008 6:28am EST

ZURICH (Reuters) - The merger of the asset management divisions of ABN AMRO and Fortis is proceeding faster than planned, a senior Fortis banker was quoted as saying.

The merger of ABN AMRO Asset Management into Fortis Investments would yield annual synergies of around 160 million euros ($237.1 million), Richard Wohanka -- the head of Fortis Investments -- told a Swiss newspaper.

"We're pleased to see that only very few clients have left us," as a result of the merger, Wohanka told the twice-weekly Finanz und Wirtschaft business newspaper.

Some 500 jobs would be cut out of a total of 2,850 in the combined two fund units, Wohanka also said. The combined unit will manage client assets of some 340 billion euros.

Fortis bought the retail and commercial banking operations of ABN, plus its wealth and asset management arm, as part of the 70 billion euro takeover of the Dutch bank by Fortis, Royal Bank of Scotland and Spain's Santander.

(Reporting by Douwe Miedema, editing by Anthony Barker)

Postbank rises on talk of RBS bid interest: traders

Postbank rises on talk of RBS bid interest: traders
Fri Feb 22, 2008 10:03am EST

LONDON/FRANKFURT (Reuters) - Shares in Germany's Deutsche Postbank (DPBGn.DE: Quote, Profile, Research) rose 2 percent in late afternoon trade on Friday on market talk of bid interest from Royal Bank of Scotland (RBS) (RBS.L: Quote, Profile, Research), traders said.

"We're hearing RBS for Deutsche Postbank at the 90 euro per share level," said one trader in London.

Deutsche Postbank was not immediately available for comment.

At 9:53 a.m. EST, Deutsche Postbank shares were 1.6 percent higher at 64.54 euros, the third-biggest gainers on Frankfurt's DAX .GDAXI, which was down 1 percent.

RBS was up 2.5 percent.

(Reporting by Sitaraman Shankar, Patricia Nann, Andrea Lentz and Jonathan Gould)

Lehman Brothers to cut 200 jobs: report

Thu Feb 21, 2008 3:14pm EST

NEW YORK (Reuters) - Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) is cutting 200 jobs, equivalent to 10 percent of its investment banking staff, CNBC television reported on Thursday.

If the report is true, the firings would be the latest sign that Wall Street banks are trimming payrolls amid write-downs on loans as well as a slowdown in mergers.

Lehman spokesman Brian Finnegan declined to comment.

As of November 30, 2007, Lehman Brothers employed approximately 28,600 people.

(Reporting by Christian Plumb)

Goldman Sachs likely to cut about 1,500 jobs: report

Goldman Sachs likely to cut about 1,500 jobs: report

By Wallace Witkowski

Last update: 3:04 p.m. EST Feb. 21, 2008

SAN FRANCISCO (MarketWatch) -- Goldman Sachs Group (GS:175.17, -2.08, -1.2%) will likely cut about 1,500 jobs this year, an unusually high number for the investment firm, The Wall Street Journal reported Thursday on its Web site, citing executives, former partners and executive recruiters. The newspaper reported the cuts, which began a few weeks ago and will continue through early March, are an aggressive response to mounting troubles in the firm's leveraged lending and investing portfolios.

BNP Paribas confirms 42% drop in profit

BNP Paribas confirms 42% drop in profit

By Simon Kennedy

Last update: 3:16 a.m. EST Feb. 20, 2008

LONDON (MarketWatch) -- BNP Paribas (FR:013080) on Wednesday reported a 42% drop in fourth quarter net income to 1.01 billion euros, in line with preliminary results it announced at the end of January. The result includes 589 million euros in depreciation and fair value adjustments and 309 million euros in provisions directly related to the credit crisis.

ING takes Q4 impairment at low end of expectations

Wed Feb 20, 2008 2:17am EST

LONDON (Reuters) - Dutch financial services group ING (ING.AS: Quote, Profile, Research) said on Wednesday it took an impairment charge of 194 million euros ($285.6 million) in the fourth quarter, but gains from an ABN stake sale helped offset the loss, pushing quarterly net profit up 7.6 percent.

Net profit rose to 2.48 billion euros, or 1.18 euros per share, in the fourth quarter, compared with an average forecast of 2.34 billion euros, or 1.12 euros per share, according to seven analysts polled by Reuters. Net profit was 2.31 billion euros in the previous quarter.

ING said it booked a gain of 1.03 billion euros on the sale of its stake in Dutch rival ABN AMRO to a consortium of three banks. The bulk of the gains had been taken in the previous quarter.

Analysts polled by Reuters had expected ING to write down between 200 million and 1 billion euros on its risky investments, including RMBS investments backed by subprime loans and "Alt-A" loans, which are made to borrowers with a slightly better credit profile than those in the subprime category, as well as from collateralized debt obligations (CDOs).

Additionally, ING said it had a negative revaluation of 751 million euros on investments in subprime, Alt-A and CDO in the fourth quarter, although they were not directly booked as a loss.

ING Chief Executive Michel Tilmant said "solid risk management" helped to shield ING from the worst of the credit and liquidity crisis that has forced banks on both sides of the Atlantic to take large impairments on investments backed by mortgage loans to risky borrowers.

"ING's exposure to the riskiest assets is limited, and the RMBS investments we selected have a high level of structural credit protection to absorb significant losses as the U.S. housing crisis deepens."

ING's insurance arm had an underlying profit of 1.82 billion euros, up 41.6 percent, while banking profit rose 4.4 percent to 1.15 billion euros.

(Reporting by Reed Stevenson, editing by Will Waterman)

Citigroup to sell, close some non-U.S. operations: report

Tue Feb 19, 2008 1:48pm EST

NEW YORK (Reuters) - Citigroup Inc (C.N: Quote, Profile, Research) is selling or closing some retail branches and consumer finance operations in Asia, Europe and Latin America to focus on more profitable businesses, the Wall Street Journal reported on Tuesday.

Spokesman Michael Hanretta declined to comment.

The largest U.S. bank is in talks to shed at least part of its Mexican consumer finance unit, which caters to borrowers with imperfect credit, the newspaper said, citing people familiar with the situation. Last month, Chief Financial Officer Gary Crittenden said Mexico was one of a handful markets where the bank was closely monitoring credit exposure.

Citigroup also is trying to sell its CitiFinancial consumer finance unit in Japan, and may in the United Kingdom sell about 50 consumer finance branches, the newspaper said, without naming its sources. The bank cut back both operations last year.

Chief Executive Vikram Pandit is reviewing operations and staffing in an attempt to increase profitability, after suffering more than $30 billion of write-downs, credit and other losses in last year's second half.

(Reporting by Jonathan Stempel)

Barclays ups writedown to $3.1 billion

Tue Feb 19, 2008 5:59am EST

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - Barclays Plc (BARC.L: Quote, Profile, Research), Britain's third-biggest bank, raised its 2007 writedown on the value of risky assets to 1.6 billion pounds ($3.1 billion) but reported profits broadly in line with analysts' expectations.

Barclays is the first big UK bank to report earnings after a turbulent year and analysts said Tuesday's numbers -- including a lower-than-expected 300 million pound increase in writedowns and a 10 percent dividend rise -- were good news for the sector.

"Overall, the numbers came in broadly in line with our expectations and consensus, and that's a relief," said Mamoun Tazi, analyst at MF Global. "BarCap performed in line despite the writedowns, which highlights the fact the underlying business is very strong."

Barclays reported a 2007 pretax profit of 7.08 billion pounds, down from 7.14 billion in 2006 but just above an average forecast of 7.05 billion from Reuters Estimates. Underlying profits, which exclude sales of businesses, rose 3 percent.

The bank said it is confident it knows where its risks are and is comfortable with the current levels of writedowns, but its shares were still hit by a surprise near $3 billion writedown at Credit Suisse (CSGN.VX: Quote, Profile, Research) that showed markets remain tough and exposures can change quickly.

At 5:03 a.m. EST, Barclays was down 1.6 percent at 452.5p, after a 7.6 percent rally on Monday, valuing it at 28 billion pounds.

Profits at Barclays Capital, its investment bank arm, rose 5 percent to a record 2.34 billion pounds, above expectations.

UK banking was in line with expectations and both retail banking and Barclaycard, where profits rose 18 percent, benefited from a drop in bad-debt charges, although there was a jump in impairments on U.S. subprime mortgages.

U.S. SLOWDOWN

Barclays is striving to reassure investors it can grow its domestic and international retail arm and has a clear strategy after losing a bid battle to buy Dutch rival ABN AMRO last year which would have made it a top 10 global bank.

Overseas businesses contributed two-thirds of group profit, compared with just 20 percent in 2003, and the bank added 600 international branches, boosting distribution by a third.

"Our performance in 2007 gives us a lot of confidence," John Varley, chief executive, told reporters on a conference call.

"The market threw pretty much everything it could do at the capital markets businesses and you can see the results that Barclays has generated."

An immediate concern is the impact of the credit crunch. Global banks have lost over $140 billion from their exposure to risky assets, and capital markets business has slowed sharply.

Varley said BarCap had seen "good performance on the income line" in capital markets businesses in the first weeks of 2008.

Bob Diamond, head of BarCap, said "very difficult and challenging market conditions" would continue for the next six months, but said a U.S. economic slowdown could be "shorter and shallower" than the consensus forecast.

He said the threat of further writedowns would largely depend on economic and market conditions, but he was comfortable with the risks facing the bank, including potential losses from trouble in the U.S. bond insurance sector.

BarCap's losses arising from credit-market turbulence were 1.64 billion pounds last year, net of gains of 658 million pounds from widening credit spreads which reduced the carrying value of notes held on its balance sheet.

Barclays had previously announced a 1.3 billion pound net writedown on assets linked to U.S. subprime mortgages, which included 400 million in gains on valuation of notes.

The bank said its exposure to collateralized debt obligations stood at 6 billion pounds before hedging, while its exposure to Alt-A mortgages -- which are of higher quality than subprime loans but also considered risky -- rose to 4.9 billion and its exposure to U.S. monoline insurers totals 1.3 billion.

"I can't predict where the markets are going this year but I'm confident that we know where our risks are," Diamond told Reuters in an interview.

BarCap would use the tough market conditions to build up in the United States, he said.

Barclays lifted its final dividend to 22.5 pence per share, raising its full-year payout to 34 pence, up 10 percent.

(Editing by Quentin Bryar)

Credit Suisse reveals $2.85 billion write-downs

Tue Feb 19, 2008 6:16am EST

By Andrew Hurst, European Banking Correspondent

ZURICH (Reuters) - Credit Suisse has written $2.85 billion off the value of its asset-backed investments and found mismarking and pricing errors on its books, it revealed on Tuesday, sending its shares plummeting.

The bank said the write-downs would wipe $1 billion from its first-quarter net income, after taking into account tax credits and cancelling some staff bonuses, but it still expected to stay in profit in the quarter, despite the charge.

The write-down and mismarking errors are the latest in a string of shock announcements by global banks and follow revelations of huge new subprime-related exposures at rival UBS

and a trading scandal exposed last month at Societe Generale.

"This is a disaster," said Helvea analyst Peter Thorne. "This could be the tip of the iceberg."

Unlike UBS, which has been hit by $18 billion of charges, and some major U.S. banks such as Citigroup and Merrill Lynch, Credit Suisse had until now been relatively unscathed by the credit crisis.

"Those who thought that certain banks such as Credit Suisse were 'out of the woods' should exercise caution," said Bear Stears banking analyst Chris Wheeler in a note.

Credit Suisse said the charges reflected "significant adverse first-quarter 2008 market developments".

A spokesman for Credit Suisse said he was unable to quantify the impact of the errors and mismarkings on the size of the write-downs.

Credit Suisse shares fell over 10 percent in early trading and were down 8.46 percent at 51.95 Swiss francs at 6 a.m. EST.

WRITEDOWNS ON RANGE OF EXPOSURES

The write-downs were across the range of Credit Suisse's exposures to commercial mortgage-backed securities (CMBS), retail mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), the spokesman said.

CDOs are repackaged securities with substantial exposure to subprime mortgages, which have suffered a collapse in their value as borrowers have reneged on loans in record numbers.

Credit Suisse said it would hold a conference call with analysts and reporters at 9 a.m. EST.

"It looks like the decline in market indices is accelerating in the first quarter, and that worries me more than the mistakes," said Simon Maughan, an analyst at MF Global.

"If they reveal on the conference call that things are getting worse in the first quarter, that is bad for them and other like Barclays and Deutsche Bank."

Credit Suisse said last week that its gross exposure to CMBSs was 25.9 billion Swiss francs ($23.48 billion), its exposure to residential mortgages was 8.7 billion francs and to CDOs 2.7 billion francs.

The internal review that identified mismarkings and pricing errors by a small number of traders in its Structured Credit Trading business was continuing, said the bank.

"The spooky bit is the mismarking, and the impression that the company is not on top of things," said another analyst at a U.S. bank in London.

Credit Suisse also said it was assessing whether any portion of the write-downs could affect its 2007 results. Only last week the bank unveiled fourth-quarter net profit of 1.329 billion francs, and trimmed its subprime-linked write-downs for last year to 2 billion Swiss francs.

BOND ISSUE TRIGGERS DISCLOSURE

The latest announcement was triggered by disclosure requirements relating to the listing of a $2 billion bond by Credit Suisse which closes on February 19.

Bear Stearns's Chris Wheeler said in a note that Credit Suisse's auditor, KPMG, discovered the mismarkings and errors during an audit that it was conducting for the bond issue and subsequently refused to sign off on the review.

"In order to close the debt issuance today (Tuesday), Credit Suisse was required to make this disclosure," said the note. "The traders involved in this situation have been suspended by the bank on full pay while the investigation continues."

Credit Suisse declined to comment on the Bear Stearns note but confirmed that KPMG is the bank's auditor.

The bank estimates it remained profitable in the first quarter to date, and the final determination of the reductions will depend on further results from its review and on market conditions.

(Additional reporting by Katie Reid and Sam Cage; Editing by Will Waterman)

Citigroup sells Japan HQ to Morgan Stanley

Tue Feb 19, 2008 3:31am EST

By Edwina Gibbs

TOKYO (Reuters) - Citigroup (C.N: Quote, Profile, Research), which has been raising funds since taking a huge hit from the U.S. subprime mortgage meltdown, has sold its Japan headquarters to rival Morgan Stanley (MS.N: Quote, Profile, Research) in a deal reportedly worth US$445 million.

Citigroup reported last month a record quarterly loss and wrote off $18.1 billion for investments damaged by a downturn in the U.S. housing market and a subsequent credit crunch.

The bank said it planned to raise $14.5 billion, including from the Government of Singapore Investment Corp Pte (GIC) and the Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal, and has also floated the sale of peripheral businesses, such as a Brazilian credit card operation.

Citigroup said in a statement on Tuesday that it had completed the sale-and-lease back deal of the Citigroup Center in Tokyo's Shinagawa district as part of efforts to improve Citibank Japan's balance sheet and cut risk of holding property assets.

Neither Citigroup nor Morgan Stanley disclosed the financial terms of the deal, but the Nikkei business daily said the transaction was worth 48 billion yen ($445 million).

Morgan Stanley, which made the acquisition through a Germany-based real estate fund, has been one of the most active foreign players in Japanese property, where tight office supply and rock-bottom vacancy rates are pushing up rents.

Last year it paid $2.4 billion to buy 13 hotels from All Nippon Airways (9202.T: Quote, Profile, Research). It has also bought a stake in Japan's third-biggest beer maker, Sapporo Holdings Ltd (2501.T: Quote, Profile, Research), to work with it in the real estate business.

This month it sold the land and building of the Westin Tokyo hotel, located in central Tokyo, to Singapore's largest sovereign wealth fund, the Government of Singapore Investment Corp for around 77 billion yen, according to the Nikkei business daily.

($1=108.22 Yen)

(Additional reporting by Dominic Whiting in Hong Kong; Editing by Anne Marie Roantree)