bank run blog

Reuters reports that the International Monetary Fund has reasserted its estimate that the total cost from “losses on U.S. assets from the subprime crisis and its wider fallout” will be approximately $1 trillion dollars. Reuters quotes the director of the IMF capital markets division, Jaime Caruana, who said;

“Basically, we think this is a reasonable figure and we are not revising the figure every day.”

Caruana also said that European governments may find it difficult to raise capital for development due to the effects of the “credit crisis” for some time to come.

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Reuters : IMF sticks by $1 trillion U.S. subprime fallout

Starbucks announced today the closure of 600 “under performing” locations, as the accessories of the bubble become less attractive and more difficult to rationalize. Most of the stores being shuttered are part of an ill-advised retail expansion that shadowed dubious residential development. Bloomberg is reporting :

“Starbucks Corp. will close 600 U.S. coffee shops and eliminate as many as 12,000 jobs, the most in its history, as Chief Executive Officer Howard Schultz slows the chain’s expansion after it doubled in size in four years.

Starbucks gained as much as 7.2 percent in late Nasdaq trading after saying the reductions amount to 7 percent of its workforce worldwide. The cuts include full- and part-time employees and will come over the next nine months, the Seattle- based company said today in a regulatory filing.

Seventy percent of the stores to be shut are less than three years old, the company said. Schultz, the 54-year-old former CEO who regained the post in January, is coming to grips with Starbucks’ declining earnings and the ‘overgrowth’ of the past four years, said Matthew DiFrisco, an analyst at Oppenheimer & Co. in New York.”

According to Reuters, the strategy is to write off this year in the hope of future profits :

“’At this point, management has decided that 2008 is a wash and to throw in everything but the kitchen sink to get ready for growth in 2009 and beyond,’ said William Blair analyst Sharon Zackfia.”

Bloomberg : Starbucks to Close 600 Stores, May Cut 12,000 Jobs

Reuters : Starbucks to cut up to 12,000 jobs, close 600 stores

A bullish forecast by market analyst Dick Bove of Punk Ziegel is garnering a lot of attention from an American business media desperate for anything resembling good news. CNBC, which had Bove on this morning, reports :

“After the Federal Reserve’s aggressive moves this week to ease the credit crunch, Wall Street is starting to wonder if the worst is finally over.

Well-known banking analyst Richard Bove even delivered a report on the financial sector Thursday with the bold heading, ‘The Financial Crisis Is Over.’

Bove, of Punk Ziegel, admitted in the note that such a proclamation ‘sounds ridiculous,’ but he genuinely believes the crisis is over.

‘There will be more negative developments, but they will be meaningless,’ Bove wrote.”

CNBC : Is the Financial Crisis Over? The Debate Is Already On

Curiously, negative indicators abound. For a less rosy view, see the following :

Reuters : Commodities bust? Don’t count on it

Minyanville : Five things you need to know: Fitch: “It’s not getting better, it’s getting worse”

MarketWatch : The Great Unwind has begun, Citigroup warns

Associated Press : Reports Suggest Economy Weakening More

In an unusually frank assessment of the economic and financial landscape in the US, Citigroup analysts are warning investors to seek higher ground, according to MarketWatch :

“The Great Unwind has begun, Citigroup Inc. strategists warned on Wednesday.

As markets and economies de-leverage across the globe, investors should avoid companies and countries that have grown to rely too much on borrowed money, they said.

That means favoring public-equity markets over hedge funds, private-equity and real estate, while leaning toward emerging market countries and away from developed nations like the U.S., the bank’s global equity strategy team advised.”

The newly cautious approach advises shunning the over-leveraged financial and banking sectors for the foreseeable future. Citi suggests focusing on emerging markets, as opposed to “mature” markets in Europe and the US :

“Leveraged economies, like the U.S., should also be avoided, in favor of emerging market countries, which have reduced borrowing, the bank advised.

With less capital sloshing around the world, and the dollar falling, the U.S. may have to compete more to finance its deficits.

‘The U.S. shows up as the world’s greatest consumer of external capital,’ Citi noted. So it ‘has the most to lose as this capital becomes less freely available.’”

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Investment bank Bear Stearns, which closed at $30 on Friday, has been sold for $2 a share in an all stock transaction, according to the Associated Press :

“JPMorgan Chase said Sunday it will acquire rival Bear Stearns in a deal valued at $236.2 million, a stunning collapse for one of the world’s largest and most venerable investment banks.”

Many predicted that Bear wouldn’t last the weekend, but the final price and terms of the deal are still astounding :

“A collapse of Bear Stearns could have created a further crisis of confidence in world financial markets amid a deepening credit crunch. JPMorgan’s acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago.

The deal represented a 93.3 percent discount to Bear Stearns’ market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29.”

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Also this evening, the AP is reporting that the Fed Takes New Steps to Ease Crisis :

“The Federal Reserve announced a series of new steps Sunday to help provide relief to a spreading credit crisis that threatens to plunge the economy into recession.”

The story notes the unprecedented nature of the Fed’s activities :

“The Fed’s actions are the latest in a recent string of unconventional steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank’s scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered.”

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