In today's Financial Post, Reuters Published: Thursday, August 02, 2007 reported "Canadian, U.S. banks face limited subprime shocks"
NEW YORK -- U.S. and Canadian banks face limited exposure to subprime mortgage losses and future rating downgrades, bond rating company DBRS said on Thursday.
Healthy earnings should insulate financial institutions, DBRS analysts said on a conference call.
"We do not expect wholesale downgrades of banks with exposure to subprime."
Brenda Lum, who covers Canadian banks for DBRS, reiterated remarks made in a report on Wednesday that said Canada's five largest banks also face limited losses from their exposure to U.S. subprime loans.
"There are no credit rating implications for the five largest Canadian banks," Lum said.
But, home owners who bought their homes recently will not be so lucky. The reason being these home owners paid a lot more for their homes than those that bought their homes a few years earlier. Many home owners in the U.S are already facing serious problems with deteriorating house values and higher mortgage payments.
In Canada, we will not be immuned to the price correction when the housing market turn south. It's not unreasonable to expect prices to correct 15% to 20% considering house prices have gone up almost 100% over the past 6 years.
In the hot housing markets in Vancouver, Victoria, Calgary and Edmonton. there are not much up-side potential in house prices continuing to increase without a correction. The down-side risk could be devastating for many home buyers who only bought their homes in the recent months.
It's already in the news that there are likely to be another interest rate hike in September, possibly follow by another one before the end of 2007.
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Thursday, August 2, 2007
Wednesday, August 1, 2007
Markets in meltdown
Growing housing crisis fraying consumers' nerves; sales plunge and credit turmoil spark stocks rout
Jacqueline Thorpe, Financial Post
Published: Friday, July 27, 2007
"We have had the most pronounced credit market cycle in U.S. economic history," said David Rosenberg, chief North American economist at Merrill Lynch. "It has powered the bull market in equities and the prosperity in the economy. Sales of new homes plummeted 6.6% in June to an annual rate of 834,000. That followed news on Wednesday that existing-home sales dropped 3.8% to 5.73-million units.
The figures, combined with ongoing turmoil in the credit market, led to a global stock market rout. The Dow Jones industrial average fell 2.3%, or 311.50 points. The United States now has 4.73 million houses on the block, an inventory of a near-record 7.5 months, said Michael Gregory, senior economist at BMO Capital Markets.
The oversupply in the condo market in Miami is now so intense that Mark Zandi, chief economist at Moody's Economy. Consumer confidence is lower now than in the months immediately preceding each of the previous two recessions, Mr. Rosenberg said.
With more than half the mortgage equity withdrawal from the housing boom going toward purchases of big-ticket items, sales activity is bound to slow as prices fall.
"One of the key things that has driven consumer spending all along has been mortgage equity withdrawal," Mr. Gregory said.
Credit conditions for consumers are only likely to get tighter as a whole wave of mortgages are reset at higher rates.
Meanwhile, the credit woes in the subprime market are causing credit conditions to tighten in the corporate world. Mr. Rosenberg notes there has been a 100-basis point widening in the spread between high-yield bonds and government debt and the pain is starting to spread to better quality credit.
Jacqueline Thorpe, Financial Post
Published: Friday, July 27, 2007
"We have had the most pronounced credit market cycle in U.S. economic history," said David Rosenberg, chief North American economist at Merrill Lynch. "It has powered the bull market in equities and the prosperity in the economy. Sales of new homes plummeted 6.6% in June to an annual rate of 834,000. That followed news on Wednesday that existing-home sales dropped 3.8% to 5.73-million units.
The figures, combined with ongoing turmoil in the credit market, led to a global stock market rout. The Dow Jones industrial average fell 2.3%, or 311.50 points. The United States now has 4.73 million houses on the block, an inventory of a near-record 7.5 months, said Michael Gregory, senior economist at BMO Capital Markets.
The oversupply in the condo market in Miami is now so intense that Mark Zandi, chief economist at Moody's Economy. Consumer confidence is lower now than in the months immediately preceding each of the previous two recessions, Mr. Rosenberg said.
With more than half the mortgage equity withdrawal from the housing boom going toward purchases of big-ticket items, sales activity is bound to slow as prices fall.
"One of the key things that has driven consumer spending all along has been mortgage equity withdrawal," Mr. Gregory said.
Credit conditions for consumers are only likely to get tighter as a whole wave of mortgages are reset at higher rates.
Meanwhile, the credit woes in the subprime market are causing credit conditions to tighten in the corporate world. Mr. Rosenberg notes there has been a 100-basis point widening in the spread between high-yield bonds and government debt and the pain is starting to spread to better quality credit.
Financial sector gave early warning
David Berman, Financial Post Published: Friday, July 27, 2007:
The stock market is convulsing this week on a bad diet of defaulting subprime mortgages, postponed debt offerings and a sudden shift in investor sentiment. The collection of mostly Canadian banks and insurance companies has been selling off over the past couple of months, foreshadowing the mess hitting the current market and giving investors their first glimpse of a battered sector within a roaring bull market.
The S&P/TSX financials index hit a peak in mid-May, when the mergers-and-acquisitions boom was in full swing, private-equity buyouts were a snap to finance with high-yield bonds, the Bank of Canada looked as though it had put interest rates on hold and some observers thought the U.S. housing market was near a bottom -- all of which are fine conditions for bank stocks.
Now, investors are growing increasingly concerned about the credit markets and rising interest rates, months after these concerns first affected bank stocks.
After yesterday's stock market bash-up -- its third wallop in the past four days -- the financial index is under water this year with a loss of 0.7% and is 6.5% below its peak. In particular, Canadian Imperial Bank of Commerce shares are down 13.5% from their highs and Royal Bank of Canada shares are down 9.3%. Meanwhile, the rest of the S&P/TSX composite index is up 7.3% this year and is just 5.5% off its record high.
Financial stocks are not far behind over the same period.
Yes, investors are concerned over the extent to which Canadian banks are exposed to the deteriorating U.S. housing market, but early indications point to a rather limited exposure.
The way the market is headed, that buying opportunity may arrive considerably sooner.
The stock market is convulsing this week on a bad diet of defaulting subprime mortgages, postponed debt offerings and a sudden shift in investor sentiment. The collection of mostly Canadian banks and insurance companies has been selling off over the past couple of months, foreshadowing the mess hitting the current market and giving investors their first glimpse of a battered sector within a roaring bull market.
The S&P/TSX financials index hit a peak in mid-May, when the mergers-and-acquisitions boom was in full swing, private-equity buyouts were a snap to finance with high-yield bonds, the Bank of Canada looked as though it had put interest rates on hold and some observers thought the U.S. housing market was near a bottom -- all of which are fine conditions for bank stocks.
Now, investors are growing increasingly concerned about the credit markets and rising interest rates, months after these concerns first affected bank stocks.
After yesterday's stock market bash-up -- its third wallop in the past four days -- the financial index is under water this year with a loss of 0.7% and is 6.5% below its peak. In particular, Canadian Imperial Bank of Commerce shares are down 13.5% from their highs and Royal Bank of Canada shares are down 9.3%. Meanwhile, the rest of the S&P/TSX composite index is up 7.3% this year and is just 5.5% off its record high.
Financial stocks are not far behind over the same period.
Yes, investors are concerned over the extent to which Canadian banks are exposed to the deteriorating U.S. housing market, but early indications point to a rather limited exposure.
The way the market is headed, that buying opportunity may arrive considerably sooner.
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