Subprime fears dampen Wall Street gains

[Guest guest]

Subprime fears dampen Wall Street gains

Financial Times | Last updated: March 9 2007 22:05

By Alex Barker

 

A weaker yen helped Wall Street claw back some losses this week but

fears about the possible collapse of a big subprime mortgage lender

yet again checked resurgent investor confidence.

 

Although many analysts expected a small recovery – or technical bounce

– after the plunge in global equities last week, the strength of the

rallies took some bears by surprise.

 

Materials, financials and cyclical stocks that had suffered

particularly steep losses during the market turmoil made a neat

about-turn on Tuesday to help stage the biggest one-day rally since

July. The advance was led by Ford, the carmaker, Nucor, the

steelmaker, and Lehman Brothers, the bank.

 

However bouts of alarm about subprime mortgage lenders, triggered by

New Century Financial's apparent slide towards bankruptcy, once again

punctuated the week. Each sell-off in the sector reverberated around

the market and soured the mood.

 

An unexpected fall in the jobless rate helped to give the market an

early lift on Friday. But stocks later sagged as investors reduced

their holdings in anticipation of a testing week ahead.

 

The S & P 500 closed 0.1 per cent higher at 1,402.85, up 1.1 per cent

this week. The bounce recouped about a third of the S & P's losses since

February 23. Yet many analysts remained cautious.

 

" It is hard to believe that the technical damage that was done last

week could be overcome so quickly, " said Alexander Paris, market

strategist at Barrington Research. " The market correction made a lot

of sense and it doesn't make a lot of sense that it will bounce right

back. "

 

The Dow Jones Industrial Average rose 0.1 per cent to 12,276.32 to

stand 1.3 per cent stronger this week. The Nasdaq Composite was flat

at 2,387.55 on Friday.

 

The unwinding of the global carry trade – the practice of borrowing in

currencies with low interest rates such as the yen and reinvesting in

higher yielding currencies – was regarded as one of the most important

factors behind the sell-off.

 

The weaker yen this week, which made the carry trade more attractive

once more, helped to ease concerns.

 

" It is interesting how movements in the yen have presaged movements in

the stock market, " said Jeffrey Kleintop, chief investment strategist

at PNC wealth management. " There is some relationship there that has

perhaps been exaggerated by hedge funds. "

 

Under pressure from its creditors, New Century Financial said it would

no longer make new loans. Its shares fell 78 per cent to $3.21 this week.

 

This put a brake on the mid-week advance of companies active in the

mortgage sector. But shares in Lehman Brothers still rose 6.6 per cent

this week to $75.83 while Morgan Stanley, which lends to New Century,

was 6.1 per cent up at $76.

 

Ford stock was in demand after Credit Suisse analysts raised their

rating on the group from " underperform " to " neutral " , saying the

carmaker's first-quarter loss might be smaller than expected. The

shares made additional gains on Friday on reports that it was close to

selling Aston Martin, the luxury car brand. Ford stock rose 4.5 per

cent to $7.93.

 

Steelmakers returned to form after a gloomy fortnight. Upbeat remarks

from Nucor on expected demand for steel products lifted the entire

sector, with Nucor stock jumping 11 per cent to $64.26 and US Steel

rising 6.1 per cent to $91.24.

 

Goodyear continued to race ahead. Hardly dented by the stock market

sell-off, shares in the tyremaker have climbed a further 4.5 per cent

to $28.51 this week, up 25 per cent on the year. Analysts said the

surge was helped by data that showed Americans were replacing their

tyres more frequently.

 

Retail sales in February were largely weak. Costco stock slid 2.5 per

cent to $54.34 after its underlying sales figures and profit

disappointed analysts.

 

In deal news, the battle to buy Caremark heated up after Express

Scripts and CVS raised their rival bids for the US drug benefits

management group. Shares in Caremark rose 1.4 per cent to $61.90.

 

Shares in slipped 5.2 per cent to $29.12 on Friday after reports

that it was in talks with AT & T that could lead to big changes in their

partnership.

 

Deere & Co stock made big advances on optimism about sales of farming

equipment rising with demand for ethanol. Shares in Deere were up 7.4

per cent at $113.00.

 

Copyright The Financial Times Limited 2007

[Guest guest]

Dear list members,

 

The problems of US mortgage lenders are becoming more worrisome. The

stock market seems to be affected by the steady inflow of bad news

from that sector in recent weeks.

 

As has been explained before these developments are seen clearly in

the SAMVA USA chart.

 

Best wishes,

 

Thor

 

1.

U.S. Stock Futures Drop as New Century Spurs Lending Concern

By Nick Baker

 

March 12 (Bloomberg) -- U.S. stock-index futures dropped on concern

rising mortgage delinquencies among the riskiest borrowers foreshadow

lower profits in the financial industry.

 

New Century Financial Corp., the U.S. home lender whose stock has

plunged more than 90 percent this year, tumbled after saying it lacks

cash to repay creditors. Shares of Countrywide Financial Corp., the

nation's largest mortgage lender, and Fremont General Corp., which is

getting out of the so-called suprime market, declined.

 

Stocks on Feb. 27 suffered the steepest one-day loss in almost four

years, partly on speculation bad loans to borrowers with poor credit

will cut profits among banks and other lenders.

 

Standard & Poor's 500 Index futures expiring in June lost 5, or 0.4

percent, to 1412.40 at 9:17 a.m. in New York. Dow Jones Industrial

Average futures fell 26, or 0.2 percent, to 12,358, while Nasdaq-100

Index futures declined 5, or 0.3 percent, to 1763.25.

 

New Century dropped $1.38, or 57 percent, to $1.38. The company's

lenders claim it's in default and are demanding accelerated payments.

New Century said it lacks cash to meet those demands. The stock

finished last year at $31.59.

 

New Century, the second-biggest U.S. home lender to people with

blemished credit histories, has used up cash as rising default rates

forced it to buy back loans it sold to investors. Loans to subprime

borrowers are going sour at the highest level in at least seven

years.

 

Countrywide lost $1.65 to $34.45. Fremont slumped 90 cents to $7.13.

 

Housing Decline

 

The deepest housing decline in 16 years may get worse. As many as 1.5

million more Americans may lose their homes, another 100,000 people

in housing-related industries could be fired, and an estimated 100

additional subprime mortgage companies that lend money to people with

bad or limited credit may go under, according to realtors,

economists, analysts and a Federal Reserve governor.

 

Stock-index futures advanced earlier today on speculation mergers and

acquisitions will help the market extend its rebound from the biggest

rout in four years. A record $3.68 trillion in takeovers were

announced worldwide last year.

 

Billionaire Sam Zell offered $13 billion for newspaper publisher

Tribune Co., Barron's reported. Dollar General Corp. and Sierra

Health Services Inc. got bids.

 

``People like to see deals like this,'' said Edgar Peters, who

oversees $22 billion as chief investment officer at PanAgora Asset

Management in Boston. ``They like to see the stocks they own may be

undervalued and could be bought out.''

 

Tribune rose $1.16 to $31.71. Sam Zell, whose Equity Office

Properties Trust was purchased in February for $39 billion, bid $13

billion for Tribune, topping other offers. Barron's cited an

unidentified person familiar with the auction.

 

Dollar General surged $4.52 to $21.30. The largest U.S. retailer by

number of stores agreed to be acquired by Kohlberg Kravis Roberts &

Co. for about $6.9 billion in the biggest buyout of a U.S. retail

company. KKR will pay $22 in cash for each share of Dollar General.

 

Sierra Health Services increased $6.10 to $42. UnitedHealth Group

Inc., the largest U.S. health insurance company, agreed to buy the

company for $2.6 billion, adding customers in the rapidly expanding

American Southwest. UnitedHealth Group Inc. will pay $43.50 a share.

 

2.

New Century Gets Default Claims, Says It Lacks Cash (Update2)

By Yalman Onaran

 

March 12 (Bloomberg) -- New Century Financial Corp., the nation's

second-biggest subprime lender, said today it can't meet demands by

its lenders for accelerated payments. The shares, already down 90

percent in 2007, lost half their remaining value.

 

New Century said it doesn't have the cash to give to creditors

including Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc.

The companies sent New Century letters last week alleging default,

the Irvine, California-based home lender said in a filing today with

the U.S. Securities and Exchange Commission. Creditors are demanding

New Century repurchase all outstanding mortgage loans financed by

them.

 

``The company and its subsidiaries do not have sufficient liquidity

to satisfy their outstanding repurchase obligations,'' New Century

said in the filing.

 

Analysts including Merrill Lynch & Co.'s Kenneth Bruce predicted last

week the mortgage company will go bankrupt. New Century, the second-

biggest U.S. home lender to people with bad credit histories, has

used up cash as rising default rates forced it to buy back loans it

sold to investors. The company said last week it's in talks with

lenders and potential partners about refinancing or ``other

alternatives.''

 

Shares of New Century fell on Friday to $3.21, the lowest in more

than eight years. Before the market opened today, the shares were at

$1.37.

 

New Century's financing agreements have so-called cross- default

provisions that trigger accelerated payments. Should all of its

creditors force it to repurchase their loans, the total obligation

would be about $8.4 billion, New Century said.

 

 

SAMVA , " cosmologer " <cosmologer wrote:

>

> Subprime fears dampen Wall Street gains

> Financial Times | Last updated: March 9 2007 22:05

> By Alex Barker

>

> A weaker yen helped Wall Street claw back some losses this week but

> fears about the possible collapse of a big subprime mortgage lender

> yet again checked resurgent investor confidence.

>

> Although many analysts expected a small recovery – or technical

bounce

> – after the plunge in global equities last week, the strength of the

> rallies took some bears by surprise.

>

> Materials, financials and cyclical stocks that had suffered

> particularly steep losses during the market turmoil made a neat

> about-turn on Tuesday to help stage the biggest one-day rally since

> July. The advance was led by Ford, the carmaker, Nucor, the

> steelmaker, and Lehman Brothers, the bank.

>

> However bouts of alarm about subprime mortgage lenders, triggered by

> New Century Financial's apparent slide towards bankruptcy, once

again

> punctuated the week. Each sell-off in the sector reverberated around

> the market and soured the mood.

>

> An unexpected fall in the jobless rate helped to give the market an

> early lift on Friday. But stocks later sagged as investors reduced

> their holdings in anticipation of a testing week ahead.

>

> The S & P 500 closed 0.1 per cent higher at 1,402.85, up 1.1 per cent

> this week. The bounce recouped about a third of the S & P's losses

since

> February 23. Yet many analysts remained cautious.

>

> " It is hard to believe that the technical damage that was done last

> week could be overcome so quickly, " said Alexander Paris, market

> strategist at Barrington Research. " The market correction made a lot

> of sense and it doesn't make a lot of sense that it will bounce

right

> back. "

>

> The Dow Jones Industrial Average rose 0.1 per cent to 12,276.32 to

> stand 1.3 per cent stronger this week. The Nasdaq Composite was flat

> at 2,387.55 on Friday.

>

> The unwinding of the global carry trade – the practice of borrowing

in

> currencies with low interest rates such as the yen and reinvesting

in

> higher yielding currencies – was regarded as one of the most

important

> factors behind the sell-off.

>

> The weaker yen this week, which made the carry trade more attractive

> once more, helped to ease concerns.

>

> " It is interesting how movements in the yen have presaged movements

in

> the stock market, " said Jeffrey Kleintop, chief investment

strategist

> at PNC wealth management. " There is some relationship there that has

> perhaps been exaggerated by hedge funds. "

>

> Under pressure from its creditors, New Century Financial said it

would

> no longer make new loans. Its shares fell 78 per cent to $3.21 this

week.

>

> This put a brake on the mid-week advance of companies active in the

> mortgage sector. But shares in Lehman Brothers still rose 6.6 per

cent

> this week to $75.83 while Morgan Stanley, which lends to New

Century,

> was 6.1 per cent up at $76.

>

> Ford stock was in demand after Credit Suisse analysts raised their

> rating on the group from " underperform " to " neutral " , saying the

> carmaker's first-quarter loss might be smaller than expected. The

> shares made additional gains on Friday on reports that it was close

to

> selling Aston Martin, the luxury car brand. Ford stock rose 4.5 per

> cent to $7.93.

>

> Steelmakers returned to form after a gloomy fortnight. Upbeat

remarks

> from Nucor on expected demand for steel products lifted the entire

> sector, with Nucor stock jumping 11 per cent to $64.26 and US Steel

> rising 6.1 per cent to $91.24.

>

> Goodyear continued to race ahead. Hardly dented by the stock market

> sell-off, shares in the tyremaker have climbed a further 4.5 per

cent

> to $28.51 this week, up 25 per cent on the year. Analysts said the

> surge was helped by data that showed Americans were replacing their

> tyres more frequently.

>

> Retail sales in February were largely weak. Costco stock slid 2.5

per

> cent to $54.34 after its underlying sales figures and profit

> disappointed analysts.

>

> In deal news, the battle to buy Caremark heated up after Express

> Scripts and CVS raised their rival bids for the US drug benefits

> management group. Shares in Caremark rose 1.4 per cent to $61.90.

>

> Shares in slipped 5.2 per cent to $29.12 on Friday after

reports

> that it was in talks with AT & T that could lead to big changes in

their

> partnership.

>

> Deere & Co stock made big advances on optimism about sales of

farming

> equipment rising with demand for ethanol. Shares in Deere were up

7.4

> per cent at $113.00.

>

> Copyright The Financial Times Limited 2007

>