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The week's top news in world financial markets from Maximus Capital

  • 2009-12-17
  • Written using materials from Bloomberg and Reuters

USA Fannie Mae and Freddie Mac’s federal regulator is renegotiating the companies’ financing plan with the U.S. Treasury Department and may seek an increase to their $400 billion federal lifeline before the end of the year. Treasury and Federal Housing Finance Agency officials are also debating whether to lower the cost of the companies’ dividend payments on their borrowings from the Treasury. Fannie Mae and Freddie Mac, the largest sources of mortgage money in the U.S., have used $111.6 billion of their $400 billion in backup financing in less than a year.

The companies say their 10 percent annual dividend payment, which comes to about $5 billion apiece, costs more than either have earned in most years and adds to their draws on the Treasury. The financing plan instituted for Fannie Mae and Freddie Mac requires them to reduce their $1.57 trillion combined mortgage portfolios by 10 percent annually starting next year and caps their debt issuance at 120 percent of their assets. The Treasury and Federal Housing Finance Agency seized control of the mortgage-finance companies almost 16 months ago amid fears the two were at risk of failing. Euro zone German investor confidence declined for a third month in December after the economic recovery in Europe’s largest economy weakened and concern over Greece’s widening deficit roiled markets.

The ZEW Center for European Economic Research index of investor and analyst expectations, which aims to predict developments six months ahead, slipped to 50.4 from 51.1 in November. At the same time, economists expected a drop to 50, according to a Bloomberg survey. Recent data from Germany have painted a mixed economic picture. While factory orders and industrial production fell in October, exports rose more than economists forecast. Manufacturing expanded for a second month in November.

The ECB, which has cut its key rate to a record low of 1 percent and flooded markets with cheap cash to stem the crisis, is scaling back its emergency measures ‘as conditions are now stable enough’ to begin the removal, President Jean-Claude Trichet said on Dec. 10. CIS countries The International Monetary Fund urged Russia to scale back spending and put interest rate cuts on hold to avoid creating wider deficits, a weaker ruble and faster inflation. At the end of a staff visit to Moscow, the IMF said economic and financial conditions have improved and forecast expansion next year of 3.5 percent. Failure to contain the budget deficit and slow inflation would undermine the recovery and leave the country more reliant on commodities.

Deputy Economy Minister Andrei Klepach said on Dec. 10 that Russia’s budget deficit this year may be wider than official estimates show. He expects a 7 percent gap of GDP in 2009, which compares with a cumulative deficit of 4.9 percent in the year through November. Finance Minister Alexei Kudrin thinks that the budget deficit will be 6.9 percent of GDP in 2009, or 7.3 percent taking into account subordinated loans the government provided to bolster lenders’ balance sheets. Alliance Bank, Kazakhstan’s second-biggest lender to default this year, said its creditors approved a plan to restructure 677 billion tenge ($4.5 billion) of debt. Ninety-four percent of the bank’s creditors backed the restructuring plan, which will reduce Alliance’s debt to about 150 billion tenge. Under Kazakh law, a restructuring plan is approved when it’s supported by creditors who hold two-thirds of the debt a bank seeks to restructure, Alliance reported.