Conquer The Wallstreet !!!: Tuesday, November 18, 2008

Moody’s downgraded Citic Groups

Moody’s downgraded China International Trust and Investment Corporation (CITIC) groups’ creditworthiness. Moody’s lowered Citic’s rating to Baa2, two levels above junk, and changed its outlook to negative. Moody’s said Citic groups’ creditworthiness could be impaired.

Citic groups agreed to inject $1.5bn into Citic Pacific and assume responsibility for foreign exchange contracts that could have cost the Hong Kong-listed company billions of dollars.

Citic Pacific revealed on October that it faced mark-to-market losses of HK$10.4 billion and HK$5.1 billion ($1.88bn) from hedging contract to Australian dollar exposure. To eliminating any further losses from this exposure, Citic Pacific has struck agreement to sell the majority of the contract to Citic Groups. In return, Citic groups will get $1.5 billion (HK $11.625 billion) convertible bond that will be automatically converted even if it’s run out of money.

Citic Pacific bought AUD forward contracts for October 2010 at $0.87 as a hedge for outlays in connection with its iron ore business in Australia. After that the contracts’ value collapsed to $0.65. But the contracts are being transferred to Citic Group and viewed as real hedges and qualify for hedge accounting. This means the company doesn’t have to mark-to-market and put the gains or losses through its profit and loss account. The potential downside is unlimited as long as the company keeps the contracts until October 2010.

The Total losses of these trades is HK$16.8 billion ($2.2 billion), including the mark-to-market losses of HK$10.4 billion and HK$5.1 billion and an already realized loss of HK$1.3 billion.

Citic Group has $5.2bn in cash and other liquid assets, while total consolidated assets reached $181bn at the end of last year.

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Swedish threatened to force banks to join $188bn guarantee scheme

Sweden banks begin to wary the government’s assistance package to guarantee banks’ deposit. The Wariness is due to some heavy restrictions on paying salaries, bonuses and options in the Swedish scheme. The Scheme to guarantee new borrowing is up to $188 billion (SKr 1,500bn, €150bn).

According to Nordic Exceptionalism, Sweden, Denmark, Norway and Finland are not immune to events in the rest of the world and face dramatic slowdowns of their own. In early November, UBS downgraded Nordic economic forecasts for 2009. Sweden’s economy growth will contract by 0.5% in 2009 while Norway is expected to stagnate at zero percent growth in 2009.

Swedbank is the first Swedish bank which will join guarantee scheme. The Bank confirmed to join the scheme on November 4 while Carnegie bank, the Nordic region’s oldest homegrown investment bank, has been forced to go to the Swedish central bank for funds to stave off bankruptcy and is now up for sale

The Government threatened to force banks to join the guarantee scheme after just Swedbank that has signed up the scheme while others still refused.

ETFs/Stocks :

iShares MSCI Switzerland Index Fund ETF (EWL)

Swiss banking collapse is going to be one biggest domino to fall

Sweden guarantees $200 billion in bank loans, Oil Heads Toward $50, India Lowers Key Rate for the First Time Since 2004

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Swedish threat to wary banks

Nordic region feels economic chill

The Swedish National Debt Office Has Granted Swedbank's Application to Participate in the Swedish State's Guarantee Programme

[Video] TARP - Paulson’s Testimony

TARP is not designed to panacea for all the economic problems

Henry Paulson, US Treasury Secretary, clashed with lawmakers in implementing the rest of TARP to prevent homeowner’s foreclosures as was proposed by FDIC chairman, Sheila Blair. Paulson argued that TARP is designed to stabilize financial market and the credit flow, not to panacea for all the economic problems.

The remaining $410 of the rescue package could be best utilized but he doesn’t plan to tap it unless a further need arises.

Even lawmakers pressured but Paulson still resisted. Paulson was urged to use its authority under the financial rescue package to curb foreclosures. Treasury initially planned to use leverage it would earn from buying residential loans and mortgage backed securities to encourage lenders to help troubled homeowners.

In the hearing, Fed Chairman, Ben Bernanke, told lawmakers that buying bank stakes is critical for restoring confidence and promoting the return of credit markets to more normal functioning.

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Video: Recap: TARP Testimony