Good day… And a Marvelous Monday to you! A Home Run Derby Monday to boot! I have no Idea what’s going on this morning, as I just woke up, and it’s very late in the morning! I was very careful to set my alarm last night, and I’ve never been one of those people that hit the snooze button when it goes off, but here I am, waking up late… UGH!

So… I’m writing from home, and then I’ll shoot in to work… We’re short handed this week, so, I’m sure everyone will be arriving to the office, not see my car, and be a little ticked… So, I’ve got a surprise for them, something they’ve never seen… Me come in late!

Well… It looks like Risk is under pressure once again… And the only thing I can see that’s causing this Risk Aversion, is the Corporate Earnings Season… For instance we get 4 banks reporting this week, Goldman (yes, remember they’re a bank holding company now… They ex-chief, and ex-Treasury Sec. Paulson, made sure that the change was made so that Goldman would qualify for TARP last year!) We also have JP Morgan, Bank of America, and Citi…

Data wise, there are a few top shelf reports out this week, and the thought of them showing more dandelions instead of green shoots, is probably wearing heavily on the risk assets this morning too.

So… The euro is sitting just below 1.40 this morning at 1.3985, so no real harm being done at this time, but still the bias is to sell the risk assets like currencies and commodities as we start the week.

You know, I’ve harped about this for so long now, that I sound like a broken record, OOOPS! For the younger crowd that would be a scratched CD! What I’m talking about is the fact that the risk assets like currencies and commodities being thrown into the same barrel has stocks… And how I was just wishin’ and hopin’ and thinkin’ and prayin’ that we would return to the fundamentals of these asset classes not having anything in common with the stocks! I just knew… No wait, I can’t say that… I just knew, not that I know anything on the inside, that is… That stocks were going to be under pressure from the Corporate earnings season, and with the “link” still in place… That wouldn’t be good for currencies and commodities… Let’s hope I’m wrong!

The one piece of data we get today is the Budget Statement… Last month, the Budget Statement printed an awful deficit of -$189.7 Billion (May)… Historically, June prints at a surplus… But Historically, so did April, and April was no where near a surplus this year! Year-to-date receipts for the Gov’t are down 18%, and Year-to-date outlays are up 19%… That doesn’t bode well for “history to come into play here”…

Last week, on Thursday, reported Friday in the Pfennig (thanks Chris!) was the Weekly Initial Jobless Claims, which printed the lowest level for this data series in more than 6 months, at less than 600K! But still, the number is still staggering, and one of the reasons that Commercial construction in the U.S. is set to decline 16% this year, followed by a 12% fall in 2010. No jobs… no need to build offices for the “ghost jobs’ that the BLS adds each month, because… THEY DON’T EXIST!

No need to get me started on the BLS (Bureau of Labor Statistics) this morning… I have to be clear and concise to get this out the door and me off to work!

Well… With the risk aversion back on the table… The two main beneficiaries remain to be Japanese yen and the U.S. dollar… Swiss francs are on the “kids table” but still a part of the beneficiary crowd…

The High Yielders like Aussie, kiwi, and South Africa get taken to the woodshed, when Risk Aversion comes to town… The Brazilian real is seeing a bias to sell, but for the most part has hung in there… Of course I remember saying that exact line early last fall, only to watch the real play catch up, until the turn-around in March of this year. So… I guess, what I’m saying is be careful!

So! Did you hear that Russian President Medvedev, showed off the “new world currency coin” at the G-8 meeting last week? He said.. “We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies. So… Here it is! This is a symbol of our unity and our desire to settle such issues jointly.”

He then pulled a new coin out of his pocket and displayed to the attendees… Now… Don’t get all tied up and twisted over this at this point. This was simply a “symbolic” move, there aren’t mints all over the world rushing to get these coins minted and out the door… But, if you get the “symbolic” part, then you understand what Medvedev was attempting to do here… He was simply showing the G-8 attendees that if they really thought about it, they could see the need to move from a dollar reserve system, and to help them visualize it, he had a coin to pass around!

I can’t believe that right now, with the whispering campaign to get an alternative reserve currency, that the dollar isn’t getting sold, as I like to say, like funnel cakes at a State Fair! I guess the whispering will have to get louder, for this to make any real waves….

You know, I’m not for this “global currency”… I just wanted to make that clear! I’m not for removing the dollar as the reserve currency, for I know all of the “perks” that go along with it being the reserve currency! I’m just here to report the facts, and give my opinion / market commentary on how I think it will affect things…

I do believe, however, that given our deficit spending, and every growing to the moon National Debt, that the dollar deserves getting whacked, it’s how things are done! Treasuries will get their comeuppance too one day… You can’t just keep printing and printing and thinking that “buyers” will be there at the auction every time you print more… It’s not going to happen that way… At least in my thoughts it won’t!

OK… Time to go to the Big Finish… I know, I know, little shorter than usual this morning… But Hey! It was still chock-full-o-news!

Currencies today 7/13/09: A$ .7750, kiwi .6225, C$ .8605, euro 1.3980, sterling 1.61, Swiss .9240, rand 8.2930, krone 6.4830, SEK 7.9025, forint 198.10, zloty 3.1475, koruna 18.62, yen 92.10, sing 1.4650, HKD 7.75, INR 49.08, China 6.8328, pesos 13.71, BRL 1.9965, dollar index 80.16, Oil $59.96, 10-yr 3.30%, Silver $12.50, and Gold… $912.70

That’s it for today… Went to the Futures Game yesterday, to sit through a 4-hour rain delay… UGH! Let’s hope the rain stays away for the next two days! Home Run Derby tonight, All-Star Game tomorrow night. The family is all going to the Fan-Fest today, while I’m at work… Hey! Somebody has to work! HAHAHAHAHA! My beloved Cardinals went into the All-Star Game break on a good note, winning 6 of 10 on the road trip to end the 1st half of the season… This will be a very busy week for me, lots of writing to get done, and all the All-Star festivities… I go to my new oncologist this afternoon for the results of my scans on Friday, so all that and doctors stuff on top! UGH! Oh well, next Monday I head to Vancouver for the Agora Financial Wealth Symposium, their 10th year anniversary of the conference! And then I head off to vacation! So… Busy, busy, busy… Time to hit send, Hope your Monday is absolutely Marvelous I tell you!

Source:  Back To Risk Aversion!

Banks that require funding will have 30 days to present a capital-raising strategy to regulators and then six months to implement it.

It is unlikely that any of the banks will require any additional taxpayer money.

J.P. Morgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS), MetLife Inc. (NYSE: MET), American Express Co. (NYSE: AXP), Bank of New York Mellon Corp. (NYSE: BK), BB&T Corp. (NYSE: BBT), Capital One Financial Corp. (NYSE: COF), U.S. Bancorp (NYSE: USB), and State Street Corp. (NYSE: STT) are in the clear in terms of having adequate capital cushioning.

The following banks will be required to raise these assigned amounts of capital:

• Bank of America Corp. (NYSE: BAC): $34 billion.
• Wells Fargo & Co. (NYSE: WFC): $13.7 billion.
• GMAC LLC (NYSE: GMA): $11.5 billion.
• Citigroup Inc. (NYSE: C): $5.5 billion.
• Morgan Stanley (NYSE: MS): $1.8 billion.
• Fifth Third Bancorp (NASDAQ: FITB): $1.1 billion.
• KeyCorp (NYSE: KEY): $1.8 billion.
• PNC Financial Services (NYSE: PNC): $600 million.
• Regions Financial Corp. (NYSE: RF): $2.5 billion.
• SunTrust Banks Inc.( NYSE: STI): $2.2 billion.

The banks will have until June 8 to develop a plan to raise the required capital and until Nov. 9 to implement it. They may choose to raise the money in a variety of ways. They may sell assets, court private investment or convert the government’s existing preferred shares into common stock.

Citigroup has already announced plans to convert a portion of the government’s $45 billion stake into common stock, a move that will give the federal government a 36% stake in the company. Other regional banks – such as Fifth Third Bank or Regions Financial – could be forced to take similar actions, but are loath to do so, as most of the moves would be dilutive to existing shareholders.

Citigroup has agreed to sell Nikko Cordial Securities to Sumitomo Mitsui Financial Group (OTC: SMFJY) for about $5.5 billion. The deal, which is to be completed by Oct. 1, is expected to boost the bank’s Tier-1 capital ratio by approximately 27 basis points.

Morgan Stanley plans to close its capital gap by selling assets or stock to private investors, a person briefed on the plan told The New York Times. And Wells Fargo said late yesterday that it plans to sell $6 billion in new common stock in an effort to raise required capital.

While Bank of America has said it doesn’t agree with the Fed’s conclusions, the bank yesterday outlined its strategy to accommodate the government’s demands. BofA is exploring the sale of such business units as its First Republic private-banking unit and asset manager Columbia Management, The Wall Street Journal reported.

The sale of those businesses could raise a combined $4 billion, David Hendler of CreditSights Inc. told The Journal. BofA could also get about $8 billion for its partial stake in China Construction Bank Corp.

Beyond that BofA would have the options of converting the government’s existing $45 billion investment, or $33 billion in private preferred shares, into common stock.

The Fed wants bank-holding companies to achieve a Tier 1 risk-based ratio of at least 6%, and a Tier 1 Common risk-based ratio of at least 4% by the end of 2010. The goal is to get banks to the point where they are stable enough that they can borrow from private investors without a Federal Deposit Insurance Corp. (FDIC) guarantee, people familiar with the matter told Bloomberg News.

“Going forward, we just need banks to be able to issue debt without the FDIC backing – that’s the next stage for these bank names in terms of evaluating their health,” Mark Bronzo, a money manager at Security Global Investors LLC, which oversees $21 billion in Irvington, N.Y., told Bloomberg.

If the banks fail to meet capital requirements, the government will step in to provide the necessary funds. However, it’s unlikely that any more taxpayer money will be needed, as about $110 billion of the original $700 billion in Troubled Asset Relief Program (TARP) funding remains.

Wall Street’s Reaction

The Dow Jones Industrial Average closed down 102.43 points, or 1.2%, yesterday, with the Dow Jones U.S. Financial Services Index down 3.78%. However, Wall Street’s reaction to the tests won’t be fully realized until the market opens later today (Friday).

“I think this will be a confidence-instilling announcement,” Federal Deposit Insurance Corp. Chairman Sheila Bair told a Senate panel Wednesday. “There will be additional needs for capital buffers for some institutions, but I think there will be mechanisms to do that within the next six months.”

Treasury Secretary Timothy F. Geithner said in an interview with PBS television’s “The Charlie Rose Show” that all of the institutions tested already have “significant cushions” of capital and that Americans have every reason to be confident going forward.

“The results will be, on balance, reassuring,” Geithner said.

But some analysts are skeptical about what the bank stress tests actually achieved, or if their standards of evaluation were even valid in the first place. After all, the tests have occupied resources from both the federal government and the private sector for months, and have increased stock market volatility.

“The banks are healing themselves, and it could have been done a lot faster if government had gotten out of the way instead of parking the emergency equipment in the middle of the road,” Gary B. Townsend, a former banking regulator who now runs his own investment firm, told The New York Times.

Also, many bank employees, and even Elizabeth Warren, who chairs the Congressional Oversight Panel for TARP, have expressed concern that the tests weren’t stringent enough.

Last month, Warren gave rise to speculation that another stress test might be needed by the end of the year, after she called the adverse economic scenario employed by the Fed “disturbingly close” to current economic conditions.

In the Fed’s most pessimistic economic forecast, for example, the government projects the unemployment rate will climb to 10.3% in 2010. But unemployment already hit 8.5% in March and many economists are predicting that it rose to 8.9% in April. If that’s the case, it’s not hard to imagine the national jobless rate reaching double digits by the end of the year.

“The stress tests will make a terrific contribution if they are tough and transparent,” Warren said. “If they are not, they will be useless.”

Still, despite the test’s alleged failings, there is a hope that with more transparency and a greater buffer of equity, investor confidence will be restored.

“This is sending a message that the banks need more capital, but their losses are manageable and the system itself is solvent,” Kevin Fitzsimmons, an analyst at Sandler O’Neill told The Times. “Whether it sticks is something else.”

Source: Bank Stress Tests: The Results Are in; Now What?

Sandy was a man of action. It was almost inevitable that he would hate Moscow. The lines … the waiting … dealing with the slow-moving Russian bureaucrats…

When Sandy wasn’t squirming, he was scowling…

That is, until talk turned to his proudest accomplishment – Citigroup.

He grew it into a global financial powerhouse. And he talked confidently of leaving the world a lasting legacy.

Nobody could foresee at the time that Citigroup would instead turn into one of the world’s biggest busts.

Last week, the government took up to a 36 percent position in Citi. It was either that or letting the banking behemoth fail.

The economy is on a rampage. If tight credit, falling asset values, and weakening demand can bring down big powerful banks, think what it can do to smaller and weaker companies.

The government can’t save everybody. Bankruptcies spiked by 14 percent last year. That was just a taste of what’s going to happen this year. I expect the bankruptcy rate to double.

Source: The Bankruptcy of USA Inc.

This from Money Morning:

It used to be that buying a stock was like buying a house. You’d find a house that looked super from the street – and inspect it carefully, before committing to a deal.

But what if you couldn’t get inside? Or even worse, what if the property changed after you carefully inspected it, so that you ended up buying a house with a trashed interior, or a crumbling foundation that made the house risky to live in, and virtually worthless to sell? Or what if a new regulation made the house you spent so much for – and had saved so long for – obsolete overnight, so that you were left with nothing to show for the years of saving and investing, possibly even forcing you and your spouse to forgo your long-dreamed-of retirement? Instead, you both have to keep working.

That’s a lot like what we’re seeing in the U.S. stock market right now.

If the “house” I referred to is an analogy for the stock market, we’re all having to watch as government regulations, elected lawmakers, credit providers, rating agencies and others all work to change the way business is conducted – in many cases, changing the game after consumers (investors) spend all their hard-earned savings for that house (major stock or mutual fund purchase).

If that’s truly the case, it’s understandable if most U.S. investors are left feeling burned – or even worse, helpless – to the point that they’ve decided it’s better to just sit on the sidelines. After all, why participate in a game in which there’s no way to win?

But what if you knew, ahead of time, what marketplace changes to expect? Then you’d be in the driver’s seat – right? You’d know what to anticipate, could craft a profit strategy to follow, and then could just sit back, watching and waiting for the events you’ve already positioned yourself to profit from.

Investment expertR. Shah Gilani – a retired hedge fund manager who’s been chronicling the credit crisis as a Money Morning contributing editor – thinks it’s possible to peer into the future and see the changes that are looming. Gilani, the editor of a new trading service called the Trigger Event Strategist, is predicting a series of so-called “aftershocks” from the financial crisis that investors need to watch for.

These “trigger events” are seismic occurrences that will cause major aftershocks. And the fallout from those aftershocks will bring about marketplace changes that, properly played, will not only help investors dodge unnecessary additional losses – this fallout can actually be exploited for profit, Gilani says.

“It’s like having a meteor hit the earth,” Gilani says. “Because of the seismic-level events that will result from the aftershocks of this meteor strike, there will be all sorts of other trigger events” that will translate into profit opportunities, if properly played.

Some of these will involve going long – that is, actually buying the stock, option or security that’s likely to benefit the most from the trigger event. But this strategy can also involve short selling – identifying the company, stock, fund or security that’s going to be punished the most, and profiting on that decline.

In this story, we’re going to take a look at five key aftershocks investors can look for. These are by no means the only ones Gilani is predicting: But they are five of the most dramatic, and are among the most important ones investors need to be able to understand and interpret. They are:

• The collapse of the investment banks.
• New government regulations.
• The implosion of the commercial real estate sector.
• The transformation – and consolidation – of the insurance industry.
• And the overseas fallout that will force the International Monetary Fund (IMF) to intercede.

Let’s consider each “aftershock” in a little more detail.

• The collapse of the investment-banking sector: Lehman Brothers Holdings Inc. (LEHMQ) has filed for bankruptcy, Merrill Lynch & Co. Inc. (NYSE:MER) will become part of Bank of American Corp. (NYSE:BAC) – guaranteeing itself a dependable source of capital, via bank deposits, but also putting itself under much closer regulatory scrutiny. As a Money Morning investigative report showed, banks are using bailout money to buy other banks, or investment banks, creating some real behemoths.

Investment banks used short-term borrowings, and a lot of leverage, to operate what was an “extraordinarily profitable business,” whose services were needed, Gilani said. Indeed, the need remains and the model wasn’t completely bad – it was the extraordinary use of leverage, combined with some questionable “financial engineering,” that caused the sector to go off the tracks.

“Even now, if you could go back in time and buy Goldman Sachs (GS) at its IPO, would you do it? Of course you would. It’s an extraordinarily profitable business model,” he said. “Not long after this cycle returns, and the [investment banking] players come back onto the field, [you’ll be able to] invest in Citi (C), or you can invest in Wells Fargo (WFC) … but why don’t you come back and redo the old Goldman Sachs model? After all, you remember how profitable it was for such a long time.”

Gilani’s projection: Scrutiny and oversight will increase in the near term, and for some time to come. Look for private equity firms – and hedge funds – to step in as the new providers of the capital dealmakers need to provide needed investment banking services. And don’t be surprised – eventually – to see banks spin out their investment banking arms into standalone units that are better able to maneuver and capitalize on the available marketplace opportunities.

2. New government regulations: The United States must remake itself to once again become the kind of financial market where there’s the right mix of free-market capitalism and nurturing/limiting government regulation – for that’s what created a strong global confidence in the U.S. financial system. Right now, that confidence has been lost, meaning the all-important process of “capital formation” could go elsewhere – to Shanghai, Dubai or London. That would be devastating to any possible U.S. economic rebound, given that financial services is a crucial piece of the country’s $14 trillion economy, and the fact that the sector employs an estimated 6.6 million people.

Gilani’s projection: As this unfolds, there will be opportunities for profit via something he calls “regulatory arbitrage.” But it’s still very early in the game here. Look for a separate Money Morning report on this “aftershock” within the next week.

3. The implosion of the commercial real estate market: Citigroup is cutting 50,000 jobs, Lehman Brothers is in bankruptcy, and consolidations in the financial-services sector are escalating. The bottom line is that these are all possible trigger events leading into the collapse of the commercial real estate sector. This will be “much more problematic than the implosion of the housing sector, as commercial real estate is much harder to move,” Gilani says. “And some of the most expensive real estate anywhere is in the financial-services sector.” Job losses will translate into still more trouble in the commercial slice of the residential real estate market – as expensive apartment buildings and condominiums remain vacant, and unrented. Consumer confidence is shaky, so consumers aren’t spending. That means that retailing is also suffering badly, some chains are closing locations, and some – such as Circuit City Stores Inc. (CCTYQ) –- are even turning to bankruptcy. That’ll leave open spaces in untold numbers of malls and shopping centers

Gilani’s projection:  “We’ll hear a very loud ‘thump’ when this other [credit crisis] shoe falls,” and it won’t be good for the overall economy’s health, he said. But even a seemingly negative aftershock such as this one provides potential profit opportunities.

4. The consolidation of the insurance sector: The collapse of American International Group Inc. (AIG) was just the start of this story, not the end, as many investors believe. Some companies will be swallowed up by others, and some of those successful suitors may actually thrive, making them enticing profit plays. Indeed, with this aftershock, there will be profits to be made on the way down, and more when the rebound comes.

Gilani’s projection: The government can seize banks, allowing the weak ones to fail so long as it guarantees depositors’ money. But it’s a whole different story with an insurance carrier. “If your bank goes out of business, and your money is safe, all it means is that you might have to go elsewhere for a loan. And with fewer competitors, that loan might cost more,” Gilani says. “But if an insurance company goes under, and you don’t have the health insurance, disability insurance, or annuity that you’ve been paying on and counting on, well, that’s devastating.” So devastating, in fact, that the government can’t allow that to happen.

5. The mobilization of the International Monetary Fund (IMF): If there’s one decision that U.S. Treasury Secretary Henry M. Paulson Jr. wishes he could have back, it is the decision to allow Lehman to fail. It was a “line-in-the-sand, get-tough decision, and it was a huge mistake,” Gilani believes. With the inherent instability in today’s world – and the potential for terrorist regimes to gain power – the IMF won’t risk drawing a line in the sand with an at-risk country, he said. Instead, the IMF will employ a “good neighbor” strategy, and help all those it can. And that help will come in the form of major capital infusions – $100 million or more. This will stop any possible “contagion,” like the one that emanated from Asia in the late 1990s. And it will prevent some alluring profit plays, Gilani says.

Gilani’s projection: Some recipients will resent the get-tough policies that the IMF requires countries to put in place. But those policies are good, and actually make the country strong in the long run. Some of the countries he expects will be receiving this capital will make for excellent investments. Again, stay tuned.

Final thoughts: By watching for these “aftershocks,” Gilani says “the bottom line is that, as these events unfold, you’ll understand the ramifications – and you’ll have the chance to trade them ahead of the curve, often for significant gains.”

Source: The Five Financial Crisis “Aftershocks” Investors Can Play for Profit

Editors Note: The first installment in an ongoing occasional news series that looks at the anticipated “aftershocks” of the global financial crisis, in some cases even exploring possible profit opportunities.

Nickel briefly dropped below $5 during the pre-dawn hours, but pushed higher through most of the day, closing at $5.4817/lb., up nearly 24 cents. Zinc zigged and zagged to little ultimate effect, ending at $0.4876/lb., down less than a half-cent. Aluminum lost ground, shedding more than a penny, to $0.907/lb., while lead was strong, adding almost 2½ cents, to $0.6864/lb.

In a mixed day for the industrial metals, copper finished up its worst month in thirty years, losing 36% in October on concerns about the slowing global economy. No one is giving it much of a chance for a rebound anytime soon, either.

“The outlook for demand doesn’t look good,” said Triland Metals trader Michael Khosrowpour. “China seems to be one of the saviors around but at the same time there are a lot of other economies that are shrinking.”

Donald Selkin, of National Securities Corp. in New York, concurred, saying that, “There are some headwinds in the economy that will continue to pressure copper … It will keep trading around these lower levels.”

Advancing stocks also played their role in copper’s decline. Inventories monitored by the LME shot up 6,775 metric tons yesterday, to 239,650 tons, the highest level since mid-March of 2004.

Unsurprisingly, Citigroup slashed its 2009 copper-price forecast by 45%. Copper will average $2 a pound next year, Citi now says. That’s a steep downward revision from the previous forecast of $3.65/lb.

Meanwhile, LME aluminum stocks also jumped, gaining 1,150 metric tons yesterday, to 1.5 million tons.

Regarding zinc, the Chelyabinsk Zinc Plant, Russia’s largest zinc producer, said yesterday it has abandoned plans to develop a mine near its main production asset and will slash investments after cratering prices led to a first-half loss.

And Brazil’s mining giant, Vale, said yesterday it will cut its iron ore output by 10% percent from November, in response to the deteriorating global economy.

Source: Base metals mixed – Aluminum, copper stocks on the rise

U-turns on rights issues, never-ending writedowns – there’s been plenty of badly handled mishaps to choose from.

But even by the low standards of the banking sector, Bradford & Bingley (LON:BB) has been particularly hapless. In fact, its latest bombshell managed to wipe £2.8bn off the value of the UK’s six biggest banks, even though B&B itself only started the day with a market cap of barely half a million.

So how did such a small bank cause such a big reaction?

The reasons behind Bradford & Bingley’s shocking share price slump

Bradford & Bingley has had a dreadful few months. In the middle of April, rumours arose that the bank was on the verge of launching a rights issue. At the time, B&B denied it strongly. However, within a few days, Royal Bank of Scotland had announced its plans for a rights issue, which was closely followed by HBoS.

With the floodgates open, B&B apparently changed its mind in mid-May, saying it would be raising £300m from shareholders, with new shares placed at 82p a pop, way below the share price at the time.

At the time there was no suggestion of a profit warning, but with the housing market deteriorating, and management under a cloud because of the U-turn, investors were clearly worried. B&B’s share price slumped as investors fretted over the state of the bank’s finances, until on Friday, B&B was trading at just 88.5p a share.

Then, on Sunday, chief executive Steve Crawshaw, whose position was probably already untenable, resigned due to health problems. Then yesterday, the bank finally issued the much-expected profits warning.

And what a warning it was. The group plunged into an £8m loss in the four months to April, compared to a £108m profit for the same period in 2007. Profit margins have dived as funding costs grew, while bad debts have rocketed – more on that in a moment. The group also wrote down a further £89m in sub-prime related assets.

The good news – what little there was – was that US private equity group TPG has picked up a 23% stake in the bank for £179m. But even so, the rights issue had to be entirely revised. Under the original deal, if the share price had fallen below 82p, there would have been no incentive for anyone to buy into the stock and the underwriters (UBS and Citi, the investment banks who undersigned the deal) would likely have been left on the hook for the whole £300m.

Obviously, this wasn’t something either UBS or Citi would have appreciated. Reports in the papers suggest that they might even have found reason to pull out if necessary. So the deal has been changed. Shareholders will now be offered 19 shares for every 25 owned, at the price of 55p a share. Rather than raising £300m, B&B aims to raise £258m.

But why did the other bank shares fall?

The chaos and the grim news on profits sent B&B’s shares diving 24% to 67p, and it’s certainly a messy situation. But why did other banks take such fright? For example, HBoS sank 10%, while Alliance & Leicester fell 5.2%.

Well, the main worries for other banks were in B&B’s trading update. The group – which is Britain’s biggest buy-to-let mortgage lender – saw bad debts on its buy-to-let mortgages jump by a staggering 50% between the start of the year and the end of April. More than 3,000 of B&B’s buy-to-let customers are now at least three months behind in their mortgage payments, from less than 2,000 at the start of 2008. Buy-to-let accounts for nearly 60% of the bank’s mortgage book.

Things will only get worse, said the bank. “The tougher economic environment will continue to push arrears beyond the current level.” As Sandy Chen at Panmure Gordon put it: “This is not the bottom. The UK housing market – not just buy-to-let – is turning south.”

And although the bank has been raising its mortgage costs, it’s not seeing the benefit feed through to its profits, because it can’t write enough of the new mortgages. As Derek Chambers of Standard & Poor’s tells The Telegraph: “I think the hope had been at Bradford & Bingley, probably at HBoS as well, that as they re-priced new mortgages they’d be able to pass on these costs.” But in fact, they are “stuck with more mortgages at low rates which are probably low margin or even negative margin, and they’re not able to free up capital to lend at the new higher rates.”

The trouble is, this is just the beginning of the housing market upheaval. The Bank of England reported yesterday that in April mortgage approvals hit their lowest level since the Bank started recording the data in 1993. Capital Economics reckons the data suggest we could be looking at “house price falls that are well into double digits by the end of the year”.

So all of the banks can expect their bad debts to rise from here on in, for quite some time. Any shareholders in B&B, RBS, or HBoS pondering whether to buy into their rights issues needs to forget their current shareholding and ask themselves: “Given the choice of all the stocks in the stock market, would I put my money in a bank right now?”

And for anyone with anything less than the strongest risk appetite, then in the current economic climate, the answer has to be no.

Source: Why the Buy-to-Let Carnage is Just Beginning

The loss is larger than expected, but a higher-than-expected top-line earnings number has given traders reason to celebrate, apparently. Ticker C rocketed up over 8% in premarket trading. Our best guess: A known loss is better than the great abyss. And there are still plenty of folks willing to time the bottom in any one of these behemoth Wall Street banks.

Au contraire, counters Dan Amoss. “I expect financials to keep trending down. Banks and brokers still have plenty of losses to report in 2008 and 2009, even if they can go to the Fed window and temporarily swap their illiquid, impaired mortgage-backed securities for Treasuries.””

— Here’s a cheery way to start your week: More than two-thirds of American Gen Xers — those aged 27-42 — don’t think they will ever be able to stop working. And don’t think they’ll ever see a dime from Social Security or Medicare.

“The Gen X group is the most anxious about their finances,” Chris Moloney of Scottrade told Reuters last week.

Of the 1,000 people they talked to who were 18 and older, nearly 40% percent said they had saved less than $25,000 for retirement. Conventional wisdom suggests if you want to live for 20 years on about $50,000 per year — whatever that will be worth at that the time — you’ll need to have $1 million stashed away.

“Gen X is in the middle of a ‘retirement perfect storm’ of very high expectations, low retirement savings and massive concern about the future of Social Security,” Moloney says.

Thirty seven percent said they would like to have between $1-5 million saved for retirement — even if their ability to save this money leaves such sums in the realm of wishful thinking.

Not that we want to reignite the debate among readers about which generation is “to blame” for the state of things, but we also note that 64% of baby boomers say they’re ready to retire — and aren’t worried.

Take that.

Worth the paper it’s printed on…

— Retail sales were up in March…but mostly because gasoline keeps costing more.

The Commerce Department says retail sales rose 0.2% in March, a tad more than the flat reading analysts were expecting. But throw gasoline out of the equation, and they were ruler flat, indeed.

If the figures took inflation into account, which they don’t, the outlook for retailers would be even more discouraging. Still, a 0.2% increase in March looks better than, say, the revised 0.4% decline in February…

— U.S. stock markets began the week moving sideways, taking a breather after GE’s earnings disappointment Friday and before Citi and Merrill reveal whatever they’re going to reveal later this week.

But Goldman Sachs isn’t waiting to make its call: Earnings season has had an “awful” start and stocks will head downward this spring.

“Early signs are awful,” says a Goldman report out today. “We expect generally disappointing results and a swath of lowered profit guidance that will drive the Standard & Poor’s 500 Index lower in coming weeks,” perhaps as low as 1,160, before a rebound by year’s end to around 1,380 — which would put the S&P down 6% for the year.

That’s a remarkably gloomy call for David Kostin, Goldman’s new chief forecaster — at least compared to his predecessor, the ever-optimistic Abby Joseph Cohen.

— Wachovia needs cash, and quickly. Ho-hum. The bank plans to float $7 billion in new shares and slash its dividend by 41%. It’s the second time Wachovia’s had to scramble for capital just this year.

Wachovia jumped into the adjustable-rate mortgage pool with both feet at the most frothy stage of the bubble in 2006 by purchasing Golden West — whose business was focused on one of the most airheaded states, California.

— But that’s just the beginning of the financials’ pain this week, as many of the top firms reveal first-quarter earnings… and probably more write-downs, too. Citigroup will likely write down $10 billion in debt this week…which would add up to a first-quarter loss of $3 billion. Merrill Lynch will likely write down another $5 billion, for a loss of $2.7 billion.

That’s still a drop in the bucket given that write-downs industrywide total $250 billion to date…and that everyone from George Soros to the International Monetary Fund is forecasting $1 trillion, give or take, by the time all is said and done.

— Citi’s announcement last week that it will unload about $12 billion in debt onto private equity at 90 cents on the dollar highlights another problem — one that’s “entirely separate from subprime mortgage lending,” writes Strategic Short Report’s Dan Amoss. “It’s another symptom of the credit bubble disease.”

The $12 billion is money Citi hoped to raise in the credit markets to finance leveraged buyouts. But when the credit markets seized up last summer, Citi had to take the deals onto its own books.

“Investment banks are stuck with an estimated $250 billion worth of this buyout debt on their balance sheets,” says Dan, “or in off-balance sheet entities for which they’ve made guarantees. Until they get rid of it, credit will remain fairly tight.

“Financial stock bulls point to this $12 billion sale as evidence that the leveraged loan sector of the credit markets is thawing. But I remain a financial stock bear, because this sale is only a tiny part of the market and only one of the many other credit-related problems plaguing investment banks.” For ways to play Dan’s skepticism, see the Strategic Short Report.

— Asian stock markets tanked overnight, fearing the worst from U.S. financials this week. Shanghai was down 5.6%, Hong Kong 3.5%, the Nikkei 3%.