Daily Market Commentary for March 6, 2012
The White House announced Tuesday that the Federal Housing Administration will cut fees for homeowners with FHA-backed mortgages seeking to refinance, under a new plan to expand the effectiveness of an existing refinance program.
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According to a European Union statement on Tuesday, six of the world's most powerful nations have agreed to jointly resume talks with Iran over that nation's controversial nuclear development program. Catherine Ashton, EU foreign affairs adviser said that she has accepted Tehran's invitation to resume negotiations, and plans to represent the interests of the United States, the United Kingdom, France, Germany, China and the Russian Federation at the summit. "We hope that Iran will now enter into a sustained process of constructive dialogue which will deliver real progress in resolving the international community's long-standing concerns on its nuclear program," Ashton said in a statement. The time and location of the talks have yet to be determined.
The financial disarray in Greece continues to rattle investor nerves ahead of a Thursday deadline for private investors to voluntarily offer up Greek government bonds in a debt swap that will cut the value of their holdings by more than half. In a recent memo from the Institute for International Finance, the firm who helped negotiate the terms of the bond swap, reportedly warned that a so-called hard default by Greece could cause at least 1 trillion euros ($1.32 trillion) in damage to the euro-zone economy. A failed debt swap would potentially void the second bailout for Greece by the European Union and the International Monetary Fund while reigniting fears of a potentially chaotic default as early as March 20, at which time the country faces a 14.5 billion euro bond redemption. Germany’s Deutsche Bank, French bank BNP Paribas and Commerzbank - including the 12 members of the steering committee of private investors that helped negotiate the Greek deal - stated on Monday that they would participate. Under the swap, investors would exchange existing Greek bonds for new debt worth 46.5% of the face value of the old paper which consists of bonds with maturities of up to two years worth the equivalent of 15% of the face value of the old bonds with the remaining 31.5% to come via new, long-dated Greek bonds. According to the terms of the tender offer circulated by the Greek government, unless at least 75% of bond holdings are tendered for the swap, the deal would likely be canceled. The bond swap is part and parcel of a broader rescue agreement with Greece’s creditors that will see the country receive a 130 billion euro rescue from the EU and the IMF, which must be convinced that the nation can make headway in bringing its public debt down from about 160% of gross domestic product currently to nearly 120% by 2020.
Extending losses to a third day as concerns about the global economy flared up, gold futures ended lower Tuesday with gold for April delivery $31.80 or 1.9%, to settle at $1,672.10 an ounce on the Comex division of the New York Mercantile Exchange. The settlement brought gold to its lowest finish in nearly six weeks. Other metals followed gold lower, with May copper off 3.2% at $3.74 per pound.
Lehman Brothers Holdings Inc. emerges from bankruptcy on Tuesday by beginning to pay creditors - starting April 17th - as stipulated in a plan approved by the bankruptcy court on December 6, 2011. You should not however, think of Lehman Brothers Holdings emergence from Chapter 11 of the U.S. Bankruptcy Code as a turning point. Creditors who are unwilling to wait until April, can sell their claims to others before March 18. Estimates are that Lehman bondholders will initially get $10 billion and $65 billion in all however, Lehman reported $639 billion in assets when it filed Chapter 11 in September 2008; reported $613 in liabilities and nearly $155 billion in bond debt. As indentured trustees who sold the bonds, Citigroup Inc. and Bank of New York Mellon Corp. were the biggest creditors with a combined $138 billion. Japan’s Aozora Bank Ltd. was owed $463 million. Aozora, a company exposed to Bernie Madoff’s Ponzi scheme, held Lehman unsecured debt. The biggest bankruptcy in U.S. history and the biggest Wall Street failure continues its slow-drip distribution of assets to the companies and people it owed. The legal expenses for Lehman bankruptcy as of January 31 2012 stood at nearly $1.6 billion . A majority of the bills have been split between the two mega firms working on the case, Weil Gotshal & Manges and Alvarez & Marsal.
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