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Freddie Mac-FRE calls active on wide intra-day price swings
09/25 02:48 PM
FRE is recently down 2c to $1.84. FRE traded at a intra-day high of $2.95 with a intra-day low of $1.31. The U.S. Treasury took over FRE on September 8th. FRE October 3 straddle is priced at $1.95, January 3 straddle is priced at $2.65. FRE call option volume of 101,667 contracts compares to put volume of 18,294 contracts according to Track Data.
Fannie, Freddie shares jump as shorts book profits
Thursday September 25, 3:43 pm ET
By Lynn Adler and Doris Frankel
NEW YORK/CHICAGO (Reuters) - Fannie Mae and Freddie Mac shares jumped almost 50 percent on Thursday as Congress neared an agreement on a $700 billion bailout plan that would help the two mortgage finance companies, forcing some investors to reverse bets the stocks would fall.
The shares are trading at nearly 10 times the lows set after the U.S. government took control of the two companies in early September.
Investors faced with a short-selling ban are reversing bearish bets on Fannie (Pacific:FNM - News) and Freddie (Pacific:FRE - News) now that the two companies stand to benefit in the bailout agreement being hammered out in Congress, analysts and investors said.
"It's speculative in the sense that it's impossible to know at this point what the residual value might be for the shareholders, so people are trading on technical indicators. They are trading on what they suppose the shorts might have to do," said Marshall Front of Front Barnett Associates in Chicago. His firm owns 13,000 shares of Fannie Mae.
The shares of both companies were virtually wiped out earlier this month after the government takeover, trading at 35 cents or less. They are now around $2 per share.
The Securities and Exchange Commission had issued an emergency order to temporarily halt short-selling on more than 900 financial stocks, including Fannie Mae and Freddie Mac, in a move to protect investors and markets.
Under the SEC's emergency order, short selling is prohibited in these shares until October 2.
The practice has been blamed for exacerbating the financial crisis that compelled the government to intervene with an impending system wide bailout.
"Passing the (bailout) legislation presumably will relieve some pressure on the financial area and relieve some pressure on Fannie Mae," Front said.
The company's shares "were sold to a point where investors were saying there's no value in this at all, which is probably not true," he added. "Particularly if you take a time horizon of three or four years where many of the mortgages that they hold will come due at par, and right now people are giving them an enormous price haircut."
New York Stock Exchange figures released late Wednesday showed that Fannie and Freddie were among the five companies with the biggest drop in short positions, but sizable positions still exist.
"Six trading days after conservatorship took share values to minimal levels, large short positions were still being carried on the exchange," FTN Financial analyst Jim Vogel wrote in a client note.
"We knew the shorts hadn't all been covered by the recent price action, but both companies remain at ridiculously high short sale levels, just several percentage points lower than the August 29 peaks," he said. He expects much more short covering through the fall unless the share price moves toward $5.00.
In the options market, call activity in both Fannie and Freddie was active, reflecting expectations that the shares will continue moving higher.
An equity call allows an investor to buy the company's shares at a given price and time.
"People were buying Fannie Mae calls. This appears to be in reaction to the government bailout plan, which tentatively looks like it will be approved," said Joe Cusick," senior market analyst at online brokerage optionsXpress Holdings Inc in Chicago.
"The $2.50 and $3 October call strikes were the most active as investors speculate on a potential bullish move in Fannie Mae's stock price," he said.
Frederic Ruffy, options strategist at Web information site WhatsTrading.com, said heavy short-covering and hopes that the two companies could eventually move out of conservatorship were among reasons for the steep share rebound.
Some investors are betting that common shareholder rights will be fully restored, perhaps sooner than expected if the early results from the bailout plan prove to be working as policy-makers hope, he said on his website.
(Editing by Leslie Adler)
Fannie, Freddie shares jump as shorts book profits
Thursday September 25, 3:43 pm ET
By Lynn Adler and Doris Frankel
NEW YORK/CHICAGO (Reuters) - Fannie Mae and Freddie Mac shares jumped almost 50 percent on Thursday as Congress neared an agreement on a $700 billion bailout plan that would help the two mortgage finance companies, forcing some investors to reverse bets the stocks would fall.
The shares are trading at nearly 10 times the lows set after the U.S. government took control of the two companies in early September.
Investors faced with a short-selling ban are reversing bearish bets on Fannie (Pacific:FNM - News) and Freddie (Pacific:FRE - News) now that the two companies stand to benefit in the bailout agreement being hammered out in Congress, analysts and investors said.
"It's speculative in the sense that it's impossible to know at this point what the residual value might be for the shareholders, so people are trading on technical indicators. They are trading on what they suppose the shorts might have to do," said Marshall Front of Front Barnett Associates in Chicago. His firm owns 13,000 shares of Fannie Mae.
The shares of both companies were virtually wiped out earlier this month after the government takeover, trading at 35 cents or less. They are now around $2 per share.
The Securities and Exchange Commission had issued an emergency order to temporarily halt short-selling on more than 900 financial stocks, including Fannie Mae and Freddie Mac, in a move to protect investors and markets.
Under the SEC's emergency order, short selling is prohibited in these shares until October 2.
The practice has been blamed for exacerbating the financial crisis that compelled the government to intervene with an impending system wide bailout.
"Passing the (bailout) legislation presumably will relieve some pressure on the financial area and relieve some pressure on Fannie Mae," Front said.
The company's shares "were sold to a point where investors were saying there's no value in this at all, which is probably not true," he added. "Particularly if you take a time horizon of three or four years where many of the mortgages that they hold will come due at par, and right now people are giving them an enormous price haircut."
New York Stock Exchange figures released late Wednesday showed that Fannie and Freddie were among the five companies with the biggest drop in short positions, but sizable positions still exist.
"Six trading days after conservatorship took share values to minimal levels, large short positions were still being carried on the exchange," FTN Financial analyst Jim Vogel wrote in a client note.
"We knew the shorts hadn't all been covered by the recent price action, but both companies remain at ridiculously high short sale levels, just several percentage points lower than the August 29 peaks," he said. He expects much more short covering through the fall unless the share price moves toward
$5.00.
In the options market, call activity in both Fannie and Freddie was active, reflecting expectations that the shares will continue moving higher.
An equity call allows an investor to buy the company's shares at a given price and time.
"People were buying Fannie Mae calls. This appears to be in reaction to the government bailout plan, which tentatively looks like it will be approved," said Joe Cusick," senior market analyst at online brokerage optionsXpress Holdings Inc in Chicago.
"The $2.50 and $3 October call strikes were the most active as investors speculate on a potential bullish move in Fannie Mae's stock price," he said.
Frederic Ruffy, options strategist at Web information site WhatsTrading.com, said heavy short-covering and hopes that the two companies could eventually move out of conservatorship were among reasons for the steep share rebound.
Some investors are betting that common shareholder rights will be fully restored, perhaps sooner than expected if the early results from the bailout plan prove to be working as policy-makers hope, he said on his website.
(Editing by Leslie Adler)
I could be wrong, but this could be all those call options bombarding the market. They cant short, but with calls, they have shares on the sell side available for just this sort of thing. JMO.
I could be wrong, but this could be all those call options bombarding the market. They cant short, but with calls, they have shares on the sell side available for just this sort of thing. JMO.
Okay, 'Crazy, but bought more'. It is better than '911GT3RS'
Cramer plays by an outdated set of rules, IMO. This is a new world order. The kind where oil spikes 20 bucks because someone got squeezed. Not because of supply and demand... BWTFDIK?
Down from where though?
Fannie Mae-FNM calls active; shares rally 52% 09/25 01:04 PM
FNM is recently up 89c to $2.63. The U.S. Treasury took over FNM on September 8th. FNM October 3 straddle is priced at $1.80, December 3 straddle is priced at $2.65. FNM call option volume of 71,756 contracts compares to put volume of 12,798 contracts according to Track Data.
Freddie Mac-FRE calls active; shares rally 52% 09/25 12:59 PM
FRE is recently up 97c to $2.86. The U.S. Treasury took over FRE on September 8th. FRE October 3 straddle is priced at $1.75, January 3 straddle is priced at $2.70. FRE call option volume of 64,620 contracts compares to put volume of 8,782 contracts according to Track Data.
Well over half a billion in dollar volume and it isn't even one o'clock. Magnificient!
New GSE CEOs Say They Are Nursing Firms Back to Health
09/25 12:29 PM
WASHINGTON (Dow Jones)--The new chief executives installed at Fannie Mae (FNM:$2.62,00$0.88,0050.57%) and Freddie Mac (FRE:$2.8599,$0.9699,51.32%) since the mortgage giants' takeover by the federal government earlier this month assured lawmakers Thursday that they were working to stabilize the firms.
Fannie CEO Herb Allison and Freddie CEO David Moffett told members of the House Financial Services Committee that they were in close communication with federal regulators and the U.S. Treasury to perform the firms' public mission while nursing them back to health.
"We are mindful that we need to operate in a safe and sound manner and we need to move quickly to perform our role as a core stabilizing factor in the markets, " Allison said.
Moffett added that, in addition to pumping liquidity into the mortgage market, Freddie Mac (FRE:$2.8599,$0.9699,51.32%) "remains focused on meeting our affordable housing mission, including the affordable housing goals."
-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=AJZr27%2BhR5N7y%2BByhI1ECg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-25-081229ET
Copyright (c) 2008 Dow Jones & Company, Inc.
New GSE CEOs Say They Are Nursing Firms Back to Health
09/25 12:29 PM
WASHINGTON (Dow Jones)--The new chief executives installed at Fannie Mae (FNM:$2.62,00$0.88,0050.57%) and Freddie Mac (FRE:$2.8599,$0.9699,51.32%) since the mortgage giants' takeover by the federal government earlier this month assured lawmakers Thursday that they were working to stabilize the firms.
Fannie CEO Herb Allison and Freddie CEO David Moffett told members of the House Financial Services Committee that they were in close communication with federal regulators and the U.S. Treasury to perform the firms' public mission while nursing them back to health.
"We are mindful that we need to operate in a safe and sound manner and we need to move quickly to perform our role as a core stabilizing factor in the markets, " Allison said.
Moffett added that, in addition to pumping liquidity into the mortgage market, Freddie Mac (FRE:$2.8599,$0.9699,51.32%) "remains focused on meeting our affordable housing mission, including the affordable housing goals."
-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=AJZr27%2BhR5N7y%2BByhI1ECg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-25-081229ET
Copyright (c) 2008 Dow Jones & Company, Inc.
If I were you, I would use a 10day chart broken down into hours and wait until the RSI gets below 80 again, but that might not happen today. Whatever you do make sure it is bought with settled funds. It is all, IMO.(this advice is only applicable during the run)
She keeps me grounded, but I know what you mean. Balance is good though, I guess...
I just cant bring myself to sell any before the bailout, the higher this goes before then, the better, IMO. I almost wish they would wait till monday, LOL...
My lady dont get excited at all. She says, when I see the money then I will celebrate, LOL.
Regulator: Fannie, Freddie Needed Tsy Help To Raise Capital
09/25 12:18 PM
WASHINGTON (Dow Jones)--The regulator for Fannie Mae (FNM:$2.68,00$0.94,0054.02%) and Freddie Mac (FRE:$2.94,00$1.05,0055.56%) told lawmakers that the federal government decided to seize control of the mortgage giants after they both reported they wouldn't be able to bolster their capital position without help from the U.S. Treasury.
Federal Housing Finance Agency Director James B. Lockhart painted a stark picture of the pressures mounting on the government-sponsored enterprises in the weeks before the government took them over, arguing that by August the only alternative for the firms would have been to start selling off assets as the housing market was tanking.
"That would have been disastrous for the mortgage markets, as mortgage rates would have continued to move higher and, in turn, disastrous for the enterprises as the prices of their securities would have fallen and credit losses increased, " Lockhart told members of the House Financial Services Committee.
He said that the firms' deteriorating financial position, coupled with the worsening housing and capital market conditions, led him to act jointly with Treasury to seize the firms on Sept. 7.
He said that by August, the firms' borrowing costs were climbing and it became clear the firms wouldn't be able to raise capital in any "meaningful size." Meanwhile, central banks stopped buying their securities, while ratings firms notched down their ratings on all but their senior debt.
These factors "convinced us that the time to act was now," Lockhart told members of the committee.
He said that it became clear during the regulator's review of the companies earlier in July that conditions were worsening faster than either firm had anticipated.
During the last part of July and in early August, there were "significant and critical weaknesses across the board" in terms of credit, market and operational risk, Lockhart said.
Lockhart said FHFA did not take its decision lightly, and that the agency consulted with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson beforehand.
The goal of taking control of the two firms is "to help restore confidence in Fannie Mae (FNM:$2.68,00$0.94,0054.02%) and Freddie Mac (FRE:$2.94,00$1.05,0055.56%) , enhance their capacity to fulfill their mission, reduce the systemic risk and make more mortgages available at a lower cost to the American people," he said.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=AJZr27%2BhR5N7y%2BByhI1ECg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-25-081218ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Regulator: Fannie, Freddie Needed Tsy Help To Raise Capital
09/25 12:18 PM
WASHINGTON (Dow Jones)--The regulator for Fannie Mae (FNM:$2.68,00$0.94,0054.02%) and Freddie Mac (FRE:$2.94,00$1.05,0055.56%) told lawmakers that the federal government decided to seize control of the mortgage giants after they both reported they wouldn't be able to bolster their capital position without help from the U.S. Treasury.
Federal Housing Finance Agency Director James B. Lockhart painted a stark picture of the pressures mounting on the government-sponsored enterprises in the weeks before the government took them over, arguing that by August the only alternative for the firms would have been to start selling off assets as the housing market was tanking.
"That would have been disastrous for the mortgage markets, as mortgage rates would have continued to move higher and, in turn, disastrous for the enterprises as the prices of their securities would have fallen and credit losses increased, " Lockhart told members of the House Financial Services Committee.
He said that the firms' deteriorating financial position, coupled with the worsening housing and capital market conditions, led him to act jointly with Treasury to seize the firms on Sept. 7.
He said that by August, the firms' borrowing costs were climbing and it became clear the firms wouldn't be able to raise capital in any "meaningful size." Meanwhile, central banks stopped buying their securities, while ratings firms notched down their ratings on all but their senior debt.
These factors "convinced us that the time to act was now," Lockhart told members of the committee.
He said that it became clear during the regulator's review of the companies earlier in July that conditions were worsening faster than either firm had anticipated.
During the last part of July and in early August, there were "significant and critical weaknesses across the board" in terms of credit, market and operational risk, Lockhart said.
Lockhart said FHFA did not take its decision lightly, and that the agency consulted with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson beforehand.
The goal of taking control of the two firms is "to help restore confidence in Fannie Mae (FNM:$2.68,00$0.94,0054.02%) and Freddie Mac (FRE:$2.94,00$1.05,0055.56%) , enhance their capacity to fulfill their mission, reduce the systemic risk and make more mortgages available at a lower cost to the American people," he said.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=AJZr27%2BhR5N7y%2BByhI1ECg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-25-081218ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Good for you! I wonder how many others did the same?
I am going with the flow, I don't like targets. I have been waiting to see this move multiple dollars intraday before I start to sell. Everybody should trade within their own tolerance threshold, and don't look back, IMO. Obviously my threshold is pretty tolerant. GLTA(except shorts)
That is the latest one, isn't it?
Which is exactly why our stock price needs to be much higher. For America!
My guess is it shoots up, if there still is a short position out there, I am hoping it triggers some margin calls...
No effect except for the stock price, IMO...
Posted by: Phisherman Date: Wednesday, September 24, 2008 4:37:19 PM
In reply to: None Post # of 557
Fannie Mae: Has Requested No Funds Under Treasury Facility
09/24 04:35 PM
(MORE TO FOLLOW) Dow Jones Newswires (201-938-5400)
09-24-081635ET
Copyright (c) 2008 Dow Jones & Company, Inc.
U.S. mortgage rates increased in week
09/25 10:42 AM
Interest rates for 30-year, fixed-rate U.S. mortgages increased in the week ending Sept. 25, the Federal Home Loan Mortgage Corp. said Thursday.
The 30-year, fixed-rate mortgage averaged 6.09 percent with an average 0.7 points in the week, Freddie Mac (FRE:$2.54,00$0.65,0034.39%) said.
A week ago, 30-year, fixed-rate mortgages averaged 5.78 percent with an average 0.6 points. A year ago, the average rate was 6.42 percent.
Interest rates for 15-year, fixed-rate mortgages also increased last the week, climbing from the previous week's average of 5.35 percent to an average 5.77 percent with 0.6 points. A year ago, 15-year fixed-rate mortgages averaged 6.09 percent, the report said.
"Mortgage rates followed Treasury bond yields higher this week amid market uncertainty over the current state of the economy," said Frank Nothaft, Freddie Mac (FRE:$2.54,00$0.65,0034.39%) vice president and chief economist.
"The latest housing information for the third quarter continues to show some softness in prices and sales activity. House prices fell 5.3 percent over the twelve months ending in July - weaker than the market consensus," he said.
RPT-WRAPUP 1-Short interest edges up on US exchanges mid-Sept
09/24 08:18 PM
(Repeats to add WRAPUP 1 tagline)
NEW YORK, Sept 24 (Reuters) - Short interest edged higher on both the Nasdaq and New York Stock Exchange in mid-September, the exchanges said on Wednesday, suggesting that bearish sentiment in the stock markets held steady.
Short interest rose 0.9 percent on Nasdaq from late August to mid-September, while increasing 0.04 percent on the New York Stock Exchange.
"Although there is a modest increase in shares sold short, the confidence of the short sellers is lessening," said Dylan Wetherhill, president and founder of short interest tracking web site ShortSqueeze.com.
"Short sellers have been the traders to follow in this market and they are showing signs that the market may be at a tradable bottom."
Investors who sell securities "short" profit from betting stocks will fall. Short-sellers borrow shares and then sell them, waiting for the price to fall so they can buy them back for less, return them to the lender and pocket the difference.
Overall short-sale activity held steady in mid-September, with financial stocks accounting for the bulk of increases in short positions.
Short interest rose about 40.4 percent for Lehman Brothers (LEHMQ:$0.2250,$0.0875,63.64%) in the period that immediately preceded its bankruptcy filing on Sept 15, and 12.2 percent for Washington Mutual (WM:$2.26,00$-0.94,00-29.38%) , which has been looking for a suitor, as investors feared it could also be felled by mortgage losses.
The benchmark Standard & Poor's 500 <.SPX> fell 2.1 percent from late August to mid-September, as the government takeover of mortgage lenders Freddie Mac (FRE:$1.89,00$0.57,0043.18%) and Fannie Mae (FNM:$1.74,00$0.43,0032.82%) , Lehman Brothers' failure and the mounting problems of insurance giant American International Group (AIG:$3.31,00$-1.69,00-33.80%) spooked investors.
On Tuesday, AIG signed a definitive agreement with the federal government to receive an $85 billion loan in exchange for a 79.9 percent stake.
In response to the market turbulence last week, the U.S. Securities and Exchange started a list of stocks that cannot be shorted. The list now includes 900 companies across a broad spectrum of industries.
As of Sept 15, Nasdaq short interest rose to 10.07 billion shares from 9.98 billion shares on Aug. 29. Over the same period, NYSE short interest increased to 17.695 billion shares from 17.688 billion shares.
The Nasdaq's short ratio, or the average number of days it would take to cover the outstanding short positions, decreased to 5.22 days from 5.4 in late August. (Reporting by Phil Wahba, additional reporting by Emily Chasan, editing by Richard Chang)
RPT-WRAPUP 1-Short interest edges up on US exchanges mid-Sept
09/24 08:18 PM
(Repeats to add WRAPUP 1 tagline)
NEW YORK, Sept 24 (Reuters) - Short interest edged higher on both the Nasdaq and New York Stock Exchange in mid-September, the exchanges said on Wednesday, suggesting that bearish sentiment in the stock markets held steady.
Short interest rose 0.9 percent on Nasdaq from late August to mid-September, while increasing 0.04 percent on the New York Stock Exchange.
"Although there is a modest increase in shares sold short, the confidence of the short sellers is lessening," said Dylan Wetherhill, president and founder of short interest tracking web site ShortSqueeze.com.
"Short sellers have been the traders to follow in this market and they are showing signs that the market may be at a tradable bottom."
Investors who sell securities "short" profit from betting stocks will fall. Short-sellers borrow shares and then sell them, waiting for the price to fall so they can buy them back for less, return them to the lender and pocket the difference.
Overall short-sale activity held steady in mid-September, with financial stocks accounting for the bulk of increases in short positions.
Short interest rose about 40.4 percent for Lehman Brothers (LEHMQ:$0.2250,$0.0875,63.64%) in the period that immediately preceded its bankruptcy filing on Sept 15, and 12.2 percent for Washington Mutual (WM:$2.26,00$-0.94,00-29.38%) , which has been looking for a suitor, as investors feared it could also be felled by mortgage losses.
The benchmark Standard & Poor's 500 <.SPX> fell 2.1 percent from late August to mid-September, as the government takeover of mortgage lenders Freddie Mac (FRE:$1.89,00$0.57,0043.18%) and Fannie Mae (FNM:$1.74,00$0.43,0032.82%) , Lehman Brothers' failure and the mounting problems of insurance giant American International Group (AIG:$3.31,00$-1.69,00-33.80%) spooked investors.
On Tuesday, AIG signed a definitive agreement with the federal government to receive an $85 billion loan in exchange for a 79.9 percent stake.
In response to the market turbulence last week, the U.S. Securities and Exchange started a list of stocks that cannot be shorted. The list now includes 900 companies across a broad spectrum of industries.
As of Sept 15, Nasdaq short interest rose to 10.07 billion shares from 9.98 billion shares on Aug. 29. Over the same period, NYSE short interest increased to 17.695 billion shares from 17.688 billion shares.
The Nasdaq's short ratio, or the average number of days it would take to cover the outstanding short positions, decreased to 5.22 days from 5.4 in late August. (Reporting by Phil Wahba, additional reporting by Emily Chasan, editing by Richard Chang)
After Hours: $ 1.92 0.18 (+10.34%) Volume: 5.12 m 7:59 PM EDT Sep 24, 2008
After Hours: $ 2.04 0.15 (+7.94%) Volume: 2.07 m 7:59 PM EDT Sep 24, 2008
I see volume, so I will have to say it is still trading...
Fannie Mae: Has Requested No Funds Under Treasury Facility
09/24 04:35 PM
(MORE TO FOLLOW) Dow Jones Newswires (201-938-5400)
09-24-081635ET
Copyright (c) 2008 Dow Jones & Company, Inc.
UPDATE:PBGC:Pensions Of 5 Cos In Crisis Underfunded By $400M
09/24 03:48 PM
(Updated to add more information about lawmakers' concerns and the current potential risks in the PBGC's portfolio, in the 12th through 18th paragraphs.)
By Sarah N. Lynch
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The pension plans of five key companies in the ongoing mortgage crisis are underfunded by $400 million, a situation that could put pressure on the bottom line of the already cash-strapped Pension Benefit Guaranty Corp. should it have to intervene in the underfunded plans.
PBGC Director Charles E.F. Millard said it is too soon to say whether it might have to get involved with any of the pension plans. But Millard told lawmakers at a congressional hearing that the plans of Lehman Brothers Holdings Inc. (LEHMQ:$0.2350,$0.0975,70.91%) , Fannie Mae (FNM:$1.7675,$0.4575,34.92%) , Freddie Mac (FRE:$1.7913,$0.4713,35.70%) , Indymac Bancorp Inc. (IDMC:$0.0700,$0.0110,18.64%) and American International Group Inc. (AIG:$3.595,0$-1.405,0-28.10%) are underfunded by $400 million.
If all five of those companies were to terminate their plans, the PBGC would have to pay out about $100 million in pension benefits, Millard added.
"It is not all clear what will actually happen, but that is the magnitude of things," Millard said, although he noted that a takeover of all five plans may not be likely since AIG, Fannie Mae (FNM:$1.7675,$0.4575,34.92%) and Freddie Mac (FRE:$1.7913,$0.4713,35.70%) haven't declared bankruptcy.
Millard said the agency would be able to pay the amount needed without a problem if it had to, but the long-term financial health of the PBGC is already in jeopardy.
It currently faces a $14 billion deficit. To help bolster its budget, the PBGC implemented a new investment policy in February that, once fully implemented, will allow the PBGC to put up to 45% of its investments in equities. The new strategy was enacted to avoid a government bailout.
In a recent report, however, the Government Accountability Office criticized the PBGC, saying the investment policy carried more risk than it acknowledged.
And now, with the stock market in disarray, lawmakers are more concerned than ever about the financial stability of the PBGC and how such a strategy could affect the financial health of the corporation.
"The recent trauma on Wall Street only makes it more important we examine the financial condition of the corporation," said Rep. Jim Ramstad, a Republican from Minnesota, who is the ranking minority member of the oversight subcommittee at the House Ways and Means Committee.
Millard defended the investment strategy Wednesday, saying it is a long-term plan to help the corporation get out of its deficit.
"My number-one concern is people want to change that investment policy," he said.
The agency is slowly transitioning into the new policy, and 70% of its investments are currently still in fixed income. But even before the decision to change the policy occurred, the portfolio had some exposure to more risky investments.
It has a net notional value of $2.8 billion in exposure to credit default swaps, a type of insurance meant to protect lenders against borrowers who don't pay. Those are the derivatives that have gotten companies such as AIG into trouble. If all of the positions the agency is swapping against were wiped out, the PBGC would face a net loss of $70 million.
In addition, 6% of the agency's portfolio is tied to mortgage-backed securities, although Millard assured lawmakers that most of those investments have strong bond ratings.
The PBGC's budget is funded by insurance premiums paid by plan sponsors, assets received from terminated plans and from its own investment income.
As more companies freeze pension plans and offer 401K plans to new employees, however, that source of income continues to dry up, said Barbara D. Bovbjerg, director of education, workforce, and income security at the GAO.
Lawmakers criticized the agency Wednesday for failing to include them in the decision-making process to change the investment policy, saying the PBGC barred congressional aides from even sitting in on meetings.
They also lamented that the agency doesn't have access to more up-to-date information on underfunded pensions. Because of the way federal reporting requirements are timed, there is a lag in the data. The $400 million in underfunded pensions at troubled firms tied to the mortgage crisis, therefore, is based on data submitted at the end of 2007.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=PJeHmS4lRrSS53ZpCwJJZg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-24-081548ET
Copyright (c) 2008 Dow Jones & Company, Inc.
UPDATE:PBGC:Pensions Of 5 Cos In Crisis Underfunded By $400M
09/24 03:48 PM
(Updated to add more information about lawmakers' concerns and the current potential risks in the PBGC's portfolio, in the 12th through 18th paragraphs.)
By Sarah N. Lynch
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The pension plans of five key companies in the ongoing mortgage crisis are underfunded by $400 million, a situation that could put pressure on the bottom line of the already cash-strapped Pension Benefit Guaranty Corp. should it have to intervene in the underfunded plans.
PBGC Director Charles E.F. Millard said it is too soon to say whether it might have to get involved with any of the pension plans. But Millard told lawmakers at a congressional hearing that the plans of Lehman Brothers Holdings Inc. (LEHMQ:$0.2350,$0.0975,70.91%) , Fannie Mae (FNM:$1.7675,$0.4575,34.92%) , Freddie Mac (FRE:$1.7913,$0.4713,35.70%) , Indymac Bancorp Inc. (IDMC:$0.0700,$0.0110,18.64%) and American International Group Inc. (AIG:$3.595,0$-1.405,0-28.10%) are underfunded by $400 million.
If all five of those companies were to terminate their plans, the PBGC would have to pay out about $100 million in pension benefits, Millard added.
"It is not all clear what will actually happen, but that is the magnitude of things," Millard said, although he noted that a takeover of all five plans may not be likely since AIG, Fannie Mae (FNM:$1.7675,$0.4575,34.92%) and Freddie Mac (FRE:$1.7913,$0.4713,35.70%) haven't declared bankruptcy.
Millard said the agency would be able to pay the amount needed without a problem if it had to, but the long-term financial health of the PBGC is already in jeopardy.
It currently faces a $14 billion deficit. To help bolster its budget, the PBGC implemented a new investment policy in February that, once fully implemented, will allow the PBGC to put up to 45% of its investments in equities. The new strategy was enacted to avoid a government bailout.
In a recent report, however, the Government Accountability Office criticized the PBGC, saying the investment policy carried more risk than it acknowledged.
And now, with the stock market in disarray, lawmakers are more concerned than ever about the financial stability of the PBGC and how such a strategy could affect the financial health of the corporation.
"The recent trauma on Wall Street only makes it more important we examine the financial condition of the corporation," said Rep. Jim Ramstad, a Republican from Minnesota, who is the ranking minority member of the oversight subcommittee at the House Ways and Means Committee.
Millard defended the investment strategy Wednesday, saying it is a long-term plan to help the corporation get out of its deficit.
"My number-one concern is people want to change that investment policy," he said.
The agency is slowly transitioning into the new policy, and 70% of its investments are currently still in fixed income. But even before the decision to change the policy occurred, the portfolio had some exposure to more risky investments.
It has a net notional value of $2.8 billion in exposure to credit default swaps, a type of insurance meant to protect lenders against borrowers who don't pay. Those are the derivatives that have gotten companies such as AIG into trouble. If all of the positions the agency is swapping against were wiped out, the PBGC would face a net loss of $70 million.
In addition, 6% of the agency's portfolio is tied to mortgage-backed securities, although Millard assured lawmakers that most of those investments have strong bond ratings.
The PBGC's budget is funded by insurance premiums paid by plan sponsors, assets received from terminated plans and from its own investment income.
As more companies freeze pension plans and offer 401K plans to new employees, however, that source of income continues to dry up, said Barbara D. Bovbjerg, director of education, workforce, and income security at the GAO.
Lawmakers criticized the agency Wednesday for failing to include them in the decision-making process to change the investment policy, saying the PBGC barred congressional aides from even sitting in on meetings.
They also lamented that the agency doesn't have access to more up-to-date information on underfunded pensions. Because of the way federal reporting requirements are timed, there is a lag in the data. The $400 million in underfunded pensions at troubled firms tied to the mortgage crisis, therefore, is based on data submitted at the end of 2007.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=PJeHmS4lRrSS53ZpCwJJZg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-24-081548ET
Copyright (c) 2008 Dow Jones & Company, Inc.
FHLB $3B, 2-Yr Global Sold At 3.394% Yld, +138 BPS Over Tsys
09/24 03:38 PM
NEW YORK (Dow Jones)--The Federal Home Loan Banks system sold $3 billion in two-year global debt securities at 138 basis points over comparable Treasurys on Wednesday and drew nearly normal levels of Asian investors.
FHLB sold its bond at a yield of 3.394%, as the pricing on the note went up to 138 basis points from its initial price talk of 115 basis points over comparative Treasury yields.
The risk premium on the bond increased due to the higher yield of 2.115% paid at the U.S. Treasury's auction of $34 billion in two-year notes Wednesday.
The 3.375% coupon bond, which matures Oct. 20, 2010, sold at a price of 99.960.
The pricing was designed to attract as much real money into the pot as possible, said Jim Vogel of FTN Financial in a research note ahead of the sale.
The previous two-year global bond sold at a yield of 3.442%, and priced at 78.5 basis points over comparative Treasurys yield back on June 28.
A spot of cheer in the issue was the nearly 28% share of Asian investors, which was was just shy of the normal one-third take.
FHLB's last two-year note in July drew only 13% of Asian buyers as the uncertainty about the fate of the government sponsored enterprises made buyers leery.
In contrast, European investors bought 8% this time, much less than the 18% they bought in July.
The distribution of buyers of the Wednesday issue include 30% to central banks, 28% to investment advisors and fund managers, 14% to insurance and pension funds, 10% to financial institutions.
FHLB's current two-year benchmark in the secondary market was trading 125 basis points over comparative Treasury yield, about 10 basis points over that of similar Fannie Mae (FNM:$1.75,00$0.44,0033.59%) notes late Wednesday afternoon.
-By Prabha Natarajan, Dow Jones Newswires, 201-938-5071; prabha.natarajan@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=PJeHmS4lRrSS53ZpCwJJZg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-24-081538ET
Copyright (c) 2008 Dow Jones & Company, Inc.
FHLB $3B, 2-Yr Global Sold At 3.394% Yld, +138 BPS Over Tsys
09/24 03:38 PM
NEW YORK (Dow Jones)--The Federal Home Loan Banks system sold $3 billion in two-year global debt securities at 138 basis points over comparable Treasurys on Wednesday and drew nearly normal levels of Asian investors.
FHLB sold its bond at a yield of 3.394%, as the pricing on the note went up to 138 basis points from its initial price talk of 115 basis points over comparative Treasury yields.
The risk premium on the bond increased due to the higher yield of 2.115% paid at the U.S. Treasury's auction of $34 billion in two-year notes Wednesday.
The 3.375% coupon bond, which matures Oct. 20, 2010, sold at a price of 99.960.
The pricing was designed to attract as much real money into the pot as possible, said Jim Vogel of FTN Financial in a research note ahead of the sale.
The previous two-year global bond sold at a yield of 3.442%, and priced at 78.5 basis points over comparative Treasurys yield back on June 28.
A spot of cheer in the issue was the nearly 28% share of Asian investors, which was was just shy of the normal one-third take.
FHLB's last two-year note in July drew only 13% of Asian buyers as the uncertainty about the fate of the government sponsored enterprises made buyers leery.
In contrast, European investors bought 8% this time, much less than the 18% they bought in July.
The distribution of buyers of the Wednesday issue include 30% to central banks, 28% to investment advisors and fund managers, 14% to insurance and pension funds, 10% to financial institutions.
FHLB's current two-year benchmark in the secondary market was trading 125 basis points over comparative Treasury yield, about 10 basis points over that of similar Fannie Mae (FNM:$1.75,00$0.44,0033.59%) notes late Wednesday afternoon.
-By Prabha Natarajan, Dow Jones Newswires, 201-938-5071; prabha.natarajan@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=PJeHmS4lRrSS53ZpCwJJZg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
09-24-081538ET
Copyright (c) 2008 Dow Jones & Company, Inc.
I haven't watched TV all day, I am just going by what others are saying about what he said today on CNBC. So, file it under rumor until further notice, IMO.
Asian Investors Buy 28% Of FHLB $3B, 2-Yr Global Issue
09/24 03:00 PM
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09-24-081500ET
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Asian Investors Buy 28% Of FHLB $3B, 2-Yr Global Issue
09/24 03:00 PM
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09-24-081500ET
Copyright (c) 2008 Dow Jones & Company, Inc.
FHLB $3B, 2-Yr Global Sold At 3.394% Yld, +138 BPS Over Tsys
09/24 02:59 PM
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09-24-081459ET
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