Tuesday, September 27, 2011

HFT ‘to shake up Europe options market’ - FT.com

High frequency trading is set to shake up the opaque European options trading market in more or less the same way it has transformed cash equities in recent years, a new report has found.

A study by Tabb Group, the US-based consultancy, forecasts that the firms, which use cutting-edge technology to trade in and out of shares in fractions of seconds, will use the new trading platforms created by incoming European regulation to spearhead an aggressive push into European options.

The findings come only a day after a separate Tabb report found that European use of US options for trading had risen between 30 per cent and 73 per cent compared to a similar study conducted in 2005.

The report, commissioned by the Options Industry Council, found that 10 per cent of volume in US-listed options originated from Europe in 2010. Although that number represented a decline from the 15-20 per cent market share Europe held five years ago, Tabb pointed out that total US options market volumes had soared to 3.9bn contracts from 1.5bn in 2005.

Market infrastructure operators have been preparing the ground for a shake-up of European derivatives trading in recent months. Turquoise, the dark pool owned by the London Stock Exchange, has launched equity derivatives in a bid to take on rivals NYSE Euronext and Deutsche Börse, which collectively dominate European derivatives trading. The two companies are also planning to merge to create an overwhelming position in futures and options trading but face an in-depth probe from European antitrust authorities. A decision is due in December.

At the same time, European regulators are pushing through a review of European trading rules contained in the Markets in Financial Instruments Directive (Mifid) which will see large parts of the vast but opaque over-the-counter (OTC) derivatives market traded on exchanges and “organised trading facilities” (OTF) – an as-yet undefined new type of trading platform.

Will Rhode, author of the report, said the changes would provide more transparency over pricing and lead to competition between interdealer brokers, exchanges and broker-dealers to provide the best OTF, the gateway for high frequency liquidity providers.

The growth of high frequency trading on cash equity markets in recent years has been controversial. Its proponents argue that the practice increases trading volumes and tightens spreads on prices. Detractors say their often aggressive tactics amplify market volatility. It has grown to account for around 60 per cent of daily average volume in US markets and around a third of European trading.

There are, however, stark differences between US and European options markets. The former is a highly liquid and regulated market, while Europe is more opaque, with business often conducted by interdealer brokers.

Mr Rhode estimated US listed options volumes had grown at a compound annual growth rate of 20 per cent since 2002 but Europe’s listed options market has grown at a rate of 5 per cent in the same period.

“Without sufficient liquidity found on-exchange, specifically with single-stock options, buyside firms choose to execute block-sized orders over-the-counter, which is why only 26 per cent of notional turnover of European single-stock options traded on exchanges in 2010, compared to 74 per cent in the over-the-counter market,” he said.

However, he said there were some obstacles to further development of the European options market. They included uncertainty over clearing, a lack of product fungibility and monopoly ownership of tradeable products. Ownership of an index allows exchanges to spin off new derivatives contracts based on them, locking out rivals.

by Phillip Stafford Financial Times Sept 7, 2011


HFT ‘to shake up Europe options market’ - FT.com

Tuesday, September 20, 2011

Federal loan guarantees set to shrink

A temporary boost to Federal Housing Administration-guaranteed loan limits passed in 2008 is set to expire Oct. 1 unless Congress acts to extend it.

Homebuilders and real-estate agents in metro Phoenix and elsewhere have been urging federal lawmakers to extend the higher FHA mortgage limits for two more years, arguing that to lower them now would have a further chilling effect on the housing market.

But critics of the inflated FHA limits, implemented as part of the Economic Stimulus Act of 2008, said reducing them to 2008 levels would hurt only a tiny sliver of the housing market and actually would leave the limits higher than they should be.

In February, officials from the U.S. Treasury Department and the U.S. Department of Housing and Urban Development, of which the FHA is a part, advised congressional leaders to let the higher limits expire.

Since then, two separate bills have been introduced in Congress that would extend the higher limits for two more years, but as of Monday they didn't appear to have much political momentum.

Since the major mortgage lenders began phasing out subprime loans in 2007, the market share for FHA-guaranteed loans has skyrocketed from about 4 percent of all loans to more than 15 percent, according to HUD data.

In Maricopa County, the temporary FHA limit currently in effect is $346,250. If Congress does not act to extend it, the FHA limit would drop to $271,050 on Oct. 1, a difference of $75,200.

The decrease would be even more significant in the Flagstaff and Prescott areas, according to FHA documents.

The FHA loan limit in Coconino County, where Flagstaff is located, would drop from the current limit of $450,000 to $333,500, a difference of $116,500.

The FHA loan limit in Yavapai County, where Prescott is located, would drop from the current limit of $390,000 to $271,050, a difference of $118,950.

FHA loan limits are based on median home prices in each county, but they can't fall below the federally mandated minimum of $271,050. That bottom limit would not change even if the 2008 legislation were allowed to expire.

As of August, the median price for a detached, single-family home in Maricopa County was $120,000, according to an Arizona State University report.

FHA-backed loans act like an insurance policy against borrower default.

Borrowers with FHA loans are required to pay a down payment of only 3.5 percent, compared with a 5 percent minimum for most non-FHA loans.

Borrowers with FHA-backed loans usually get a very low interest rate, as long as the loan amount is low enough to qualify for purchase by Fannie Mae and Freddie Mac.

Those two government-sponsored enterprises, currently under U.S. conservatorship, bundle loans they buy into mortgage-backed securities and sell them to investors.

Some analysts said that because the median home price is so much lower than it was in 2008, the FHA has been artificially propping up the market with its government guarantee of repayment on loans as large as $729,750 in some high-priced markets.

They argued that such a high ceiling places undue risk on taxpayers, who essentially foot the bill when a borrower defaults on an FHA loan.

Tony Yezer, a professor of economics at George Washington University in Washington, D.C., said a recent study by the university shows the decrease in loan limits would not affect most borrowers, and that extending them would put the FHA at greater risk of becoming insolvent.

"If you are putting 3.5 percent down on a $300,000 house, maybe you need to buy a little less house," Yezer said.

by J. Craig Anderson The Arizona Republic Sept. 19, 2011 05:04 PM




Federal loan guarantees set to shrink

August home building fell 5 percent

WASHINGTON - Builders broke ground on fewer homes in August, a reminder that the housing market remains depressed.

The Commerce Department said Tuesday that builders began work on a seasonally adjusted 571,000 homes last month, a 5 percent decline from July. That's less than half the 1.2 million that economists say is consistent with healthy housing markets.

Single-family homes, which represent roughly two-thirds of home construction, fell 1.4 percent. Apartment building plunged 12.4 percent. Building permits, a gauge of future construction, rose 3.2 percent.

Hurricane Irene also slowed construction in the Northeast.

Overall, homebuilding fell to its lowest levels in 50 years in 2009, when builders began work on just 554,000 homes. Last year was not much better.

While home construction represents a small portion of the housing market, it has an outsize impact on the economy. Each home built creates an average of three jobs for a year and about $90,000 in taxes, according to the National Association of Home Builders.

After previous recessions, housing accounted for at least 15 percent of economic growth in the United States. Since the recession officially ended in June 2009, it has contributed just 4 percent.

Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales, when lenders allow borrowers to sell homes for less than what is owed on their mortgages. And few homes are selling.

New-home sales fell in July to a seasonally adjusted annual rate of 298,000, the weakest pace in five months. This year is shaping up to be the worst for sales on records dating back a half-century.

Renting has become a preferred option for many Americans who lost their jobs during the recession and were forced to leave their homes. Still, the surge in apartments has not been enough to offset the loss of single-family homebuilding.

Another reason sales have fallen is that previously occupied homes are a better deal than new homes. The median price of a new home is nearly 28 percent higher than the median price for a re-sale. That's almost twice the markup in a healthy housing market.

The trade group said Monday that its survey of industry sentiment fell slightly to 14 in September. The index has been below 20 for all but one month during the past two years. Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.

by Associated Press Sept 20, 2011



August home building fell 5 percent

Part of Glendale Westgate City Center repossessed by lender

Westgate City Center, Glendale, Arizona

David Kadlubowski The Arizona Republic Westgate City Center, a retail-and-entertainment center with opulent fountains and flashy billboards, opened in Glendale in 2006.



The developer who launched Westgate City Center, the landmark sports-and-entertainment complex that helped transform Glendale, has officially lost ownership of the major part of the development.

The core of the Ellman Cos.' project, outside University of Phoenix Stadium and Jobing.com Arena,was repossessed Monday by the lender, iStar Financial, after it failed to sell at a foreclosure auction for a reserve price of $40 million.


History of Westgate City Center in Glendale

The 33-acre property, which features restaurants, shops and an AMC movie theater along with Bellagio-like fountains and Times Square-style billboards, was designed as a suburban sports, entertainment and commercial hub to rival downtown Phoenix.

The remaining land owned by Ellman Cos., 95 acres of mostly parking lots slated for future development, is scheduled for foreclosure auction in November by lender Credit Suisse.

The auction is the latest blow to Glendale's prestigious sports district and another example of how the city has been shaken by the economic downturn.

The Phoenix Coyotes went through bankruptcy two years ago and still have no permanent owner. Now Westgate, at Loop 101 and Glendale Avenue, has been taken away from Steve Ellman, the city's development partner for more than a decade.

Westgate's opening in 2006 was like a launch party for the West Valley, with excitement brimming about the region's future as the flashy complex rose out of farm fields.

The Coyotes played next door, and the Arizona Cardinals had just moved in nearby.

Ellman, the chief executive of the company, called Westgate his favorite project.

At the time, a planning expert had cautioned the project was a gamble that relied on synergy between sports fans and shoppers.

Ellman Cos. initially struggled to secure financing and finished construction later than expected.

Then the recession further challenged the company's ability to keep tenants and expand development.

Ellman failed to pay the balance of $97.5 million in loans from iStar Financial and at least $202 million from Credit Suisse that came due two to three years ago.

By this summer, the lenders declared Ellman in default and began foreclosure proceedings.

Ellman cited the recent two-year struggle to find a Coyotes buyer and the real-estate meltdown as reasons Westgate went into foreclosure but would not elaborate on why he failed to pay the principal balances on the loans.

Hadden Schifman, a real-estate analyst with Phoenix-based Vizzda, said Westgate's massive size and various uses, from office to retail to dining, make it unique and add to the difficulty of finding a buyer.

"There's really not a comparison. And there's a huge amount of complexity in this deal," he said. In other commercial-property foreclosures, it's common for investors to wait until after an auction to negotiate with lenders to buy a foreclosed property, he said. Westgate could be similar, Schifman said.

Schifman's business partner Kris Thompson said investors could be interested in buying Westgate if they see the property as a "rare find," have the money to wait for long-term returns and are looking for an investment at a steep discount.

Westgate "requires Donald Trump vision," Thompson said.

One possibility that has been floated is finding an investor willing to buy both Westgate and the Coyotes. When Ellman began the project, he owned both the shopping complex and the team, which feed business to each other.

Ellman later split the entities and kept Westgate.

Whether the lender will keep Ellman Cos. as property manager remains an open question.

Westgate's "sheer scope" makes it logical for the lender to hire Ellman Cos., Schifman said.

On the other hand, if the lender and Ellman Cos. have a bad relationship, the lender may hire someone else, he said.

Ellman said this summer he believed his company could stay on as manager.

Ellman Cos. on Monday directed requests for comment to iStar Financial. A representative for iStar did not return calls.

Jeff Blake, dean of DeVry University's Westgate campus, said he's "as curious and concerned as anybody" but has no plans to change anything at the school, since tenant leases will remain intact. The school moved into Westgate last year.

Glendale spokeswoman Jennifer Stein said the city continues to consider Westgate "a strong destination point and economic engine."

Westgate generates about $8 million a year in sales-tax revenue for Glendale.

City officials plan on "business as usual" as they promote businesses and events in the sports district, Stein said.

by Rebekah L. Sanders The Arizona Republic Sept 19, 2011




Part of Glendale Westgate City Center repossessed by lender

Phoenix, Scottsdale get grants to cover land for preserves

The Arizona State Parks Board has awarded more than $40 million in grants to help Scottsdale and Phoenix cover the costs of acquiring lands for their respective land preserves.

The cities have targeted more than 5,000 acres of rugged state trust land to acquire at separate auctions this year.

Phoenix is looking to purchase nearly 600 acres in November, while Scottsdale is gearing up to bid on more than 4,400 acres for its McDowell Sonoran Preserve in December.

The cities sought matching funds from the state's Growing Smarter conservation fund.

The Arizona State Parks Board approved the funding on Wednesday.

Scottsdale's grant funds total $36.2 million. The city plans to cover the remaining $50 million using proceeds from its voter-approved sales tax dedicated to preserve costs, said Kroy Ekblaw, Scottsdale preserve director.

The trust land the city has identified is divided into two parcels:

- 1,937 acres along 136th Street on both sides of Rio Verde Drive, appraised at $41 million.

- 2,482 acres northeast of Dixileta Drive and Pima Road, valued at $45 million.

The acquisition would expand the 17,000-acre McDowell Sonoran Preserve in Scottsdale to more than 21,000 acres. The preserve, set amid the McDowell Mountains in northeast Scottsdale, is a major draw for Valley hikers and other recreational users.

Phoenix also is preparing to expand its land preserves with the state assistance.

The city will accept nearly $4.18 million to help pay for land parcels south of Carefree Highway north of Happy Valley Road for the city's Sonoran Preserve. The land, one parcel of 318 acres and another 271 acres, were appraised at $5.8 million and $4.1 million, respectively.

Phoenix voters reauthorized the Parks and Preserve Initiative in 2008, which authorized a sales tax over a 30-year period to purchase state trust land and fund park construction and improvements.

The state grants were made available from the Arizona's land-conservation fund, dedicated to conserving open spaces in growing urban areas.

Voters passed Proposition 303 in 1998, establishing a $20 million annual appropriation from the state's general fund into the land-conservation fund. A total of $80.9 million was available for grants in fiscal 2011. Of that, $40.5 million was available for Maricopa County entities.

by Beth Duckett and Peter Corbett The Arizona Republic Sept. 18, 2011 09:36 PM



Phoenix, Scottsdale get grants to cover land for preserves

Sunday, September 18, 2011

Council OKs 3.74-acre sale

The Scottsdale City Council on Tuesday agreed to sell a 3.74-acre parcel of city-owned land to Mark-Taylor so the developer can build a 24-acre, 536-unit apartment complex east of SkySong, the Arizona State University Innovation Center.

The council voted 6-1 to accept $1.22 million for the property, just south of the closed Los Arcos Crossing shopping center on 74th Street. Vice Mayor Bob Littlefield voted against the sale, saying the city should put the property up for public bid to better ensure it gets a fair market price.

"We always buy high and sell low," he said. "I'm not arguing that it's illegal, but I am arguing that it's foolish."

Dan Worth, public-works executive director, told the council that an appraisal for the city valued the parcel at $1.3 million, while Mark-Taylor's appraisal placed the value at $1.14 million. City staff and Scottsdale-based Mark-Taylor then reached a negotiated price of $1.22 million, Worth said.

"We have a provision in our code that allows us to negotiate a sale directly with an adjacent property owner, and that's the provision we were using for this sale," he said. "We have to do it at a market value, which is the purpose of the appraisal."

A second provision requires a public benefit and city staff believed that uniting the parcel with adjoining parcels serves that purpose, Worth said.

"We felt that allowing that proposed apartment-complex development to go forward would be an asset for the McDowell corridor and aid in the revitalization of that corridor," he said. "It will provide new, attractive housing. It will provide additional residents who will further support the need for retail, which is what the Southern Scottsdale Character Area Plan calls for and what the residents are looking for."

Mark-Taylor holds options to purchase three adjacent properties: a roughly 14.3-acre parcel owned by ML Manager, a nearly 2.8-acre parcel owned by the Los Arcos United Methodist Church and a 4-plus-acre parcel owned by Shubert/ATl. The properties are in separate escrows.

by Edward Gately The Arizona Republic Sept. 17, 2011 12:00 AM




Council OKs 3.74-acre sale

Development fades away

Development is virtually non-existent in the parts of Phoenix where new development was most anticipated, and the slowdown caused barely a ripple in the recent city election.

In Districts 2 and 3 in northeast Phoenix, no rezoning cases have been initiated since early in the year. Rezoning is a basic step in development.

The last cases heard by the Desert View Village Planning Committee had to do with scenic corridors along Loop 101 and Arizona 51, plus granting permission to a developer to split a parcel at 56th Street and Deer Valley Road. Neither matter resulted in new development.

The 56th Street case previously had been rezoned for apartments, and the developer was seeking permission to develop the property in phases.

Paradise Valley also approved the scenic corridors, as well as two planned urban developments - one requiring no development, and the other calling for an upgrade of a retail building at Cave Creek Road and Greenway Parkway, where no work has begun.

The last actual development in the area has been on 40th Street north of Greenway, where AAA-Arizona turned an old emissions station into an auto-repair business.

Village planning committees are not the only groups seeing fewer development-related cases come through. Few significant zoning revisions, typically heard by hearing officers, are being brought forward.

Construction is down, too, on cases that previously had been approved. Those include an approved housing development at 32nd Street and Earll Drive, a doctor's office and residence on Greenway near Arizona 51, and a housing development and retail project at Tatum Boulevard and Greenway.

Now, it appears, the city has shifted into reverse.

Phoenix has begun to take action against property owners who have not fulfilled the stipulations, or requirements, of their zoning cases, but such action is not likely to apply to cases approved recently. City planner Alan Stephenson said his department was looking at 64 cases in which time-limit requirements were not met.

by Michael Clancy The Arizona Republic Sept. 17, 2011 12:00 AM




Development fades away

Office site in Tempe purchased for $137 mil

Fountainhead Office Plaza, a recently built office campus with two high-rise buildings in Tempe, has been sold for $137 million, representatives of the seller said Friday.

It was the first Phoenix-area office property to sell for more than $300 per square foot since the first quarter of 2008, they said, and the second office property to sell for more than $100 million within the past month.

Commercial-real-estate services firm CB Richard Ellis represented the seller, USAA Real Estate Co., based in San Antonio.

The buyer was an affiliate of KBS Realty Advisors, based in Newport Beach, Calif.

Kevin Shannon, vice chairman in CBRE's Torrance, Calif., office, said the Fountainhead sale was further evidence of investors' growing interest in buying Phoenix-area office properties.

Shannon said investors believed the Phoenix area would experience robust job growth in the next four or five years.

"Phoenix is on the upswing, from a capital-markets perspective," he said.

University of Phoenix has a long-term lease on the Fountainhead property, which totals more than 439,000 square feet.

Its two office towers were developed by USAA Real Estate along with Metro Commercial Properties and are at 1601 and 1625 Fountainhead Parkway in Tempe.

It includes a 10-story building, a six-story building and a six-story parking structure. Both buildings are leased to University of Phoenix through 2023.

"Investment activity is increasing in the Phoenix marketplace," said Bob Young, a senior vice president in CBRE's Phoenix office. "Fountainhead Office Plaza is one of two transactions of more than $100 million to occur in the area in the past three weeks."

The previous office purchase in excess of $100 million was the Phoenix corporate headquarters building of retailer PetSmart Inc., which sold in late August to a local real-estate-investment trust for $102.5 million.

Phoenix-based Cole Real Estate Investments, a REIT management company, acquired the 365,000-square-foot PetSmart headquarters at 19601 N. 27th Ave.

CB Richard Ellis represented the sellers, a group of institutional investors advised by Prudential Real Estate Investors, a subsidiary of Newark, N.J.-based Prudential Financial Inc.

Thomas Roberts, executive vice president and head of real-estate investments for Cole, said the ownership change would not have any noticeable impact on PetSmart, which leases the property.

Fountainhead Office Plaza is located within the master-planned Fountainhead Corporate Park. Both of its buildings were designed to achieve LEED Core and Shell Gold certification, which still is pending.

by J. Craig Anderson The Arizona Republic Sept. 17, 2011 12:00 AM




Office site in Tempe purchased for $137 mil

HUD funds fix, sell W. Valley homes

Federal stimulus funding awarded to Maricopa County is helping identify and reward deserving workers and stable families with low-cost homes while at the same time assisting neighborhoods by improving the look of abandoned homes and getting them back on the market, officials say.

The county used the majority of the nearly $10 million it received from the U.S. Department of Housing and Urban Development to improve neighborhoods in the West Valley.

But the federal agency also doled out money to Arizona and several cities throughout the metro Phoenix area. In total, more than $121 million in HUD funding was granted in 2008, the first round of neighborhood-stabilization efforts.

Phoenix received the lion's share of money - $40 million - followed by Mesa at $9.7 million. Glendale, Chandler, Surprise and Avondale also used the funding to refurbish and resell homes.

Housing programs designed to turn foreclosures into affordable, refurbished homes for low- and moderate-income buyers are proving successful even as funding becomes scarcer, officials say.

Neighborhood-stabilization programs administered by the county and cities were instrumental in buying, repairing and reselling about 100 foreclosure homes in the southwest Valley.

About $9.9 million in federal stimulus funding was awarded to the county, with a majority of the funds benefiting the West Valley, one of the areas hit hardest by the real-estate meltdown.

Approximately $6.2 million paid for 43 homes that were rehabilitated and resold, or are under contract, according to the Housing Authority of Maricopa County.

Once neighborhood eyesores, nine homes in Buckeye, 10 in Goodyear and 24 in El Mirage were fixed up and resold to appreciative owners under the Homes to Owners program administered by the county. The homes have been rehabilitated with a focus on energy efficiency.

Approximately $1.7 million of the county's allocation from HUD was used by Exito Inc. to buy an additional 11 homes in Goodyear for seniors who live independently and need rental assistance. Catholic Charities Community Services received nearly $1 million for seven homes that will be used for the formerly homeless and for refugees who resettle in the United States.

"These neighborhoods have been devastated, especially in the West Valley," said Ursula Strephans, project manager for the county's neighborhood-stabilization effort. "It will be years before those 60,000 vacant and foreclosed homes will be occupied and the market corrected.

"In the meantime, this program has sought to identify and reward deserving workers and stable families, help to stabilize neighborhoods by improving the look of abandoned homes and getting them back into the market and into the hands of qualified homeowners."

In Avondale, which runs its own neighborhood-stabilization program, officials used $2.46 million in stimulus funds awarded in 2008 to turn around 46 homes.

That city's efforts focused on giving direct financial assistance to homebuyers, as opposed to the Homes to Owners program, where homes were bought and resold.

"The homebuyer was identified, they were qualified, they went out and found a home, and we helped them with down-payment assistance and rehabilitation after they closed on the house," said Sandy Lopez, who oversees the program. "We only did one home that we acquired and refurbished and resold."

Litchfield Park does not receive any of the county's funding, nor does it have its own program to rehabilitate foreclosure homes.

"A lot of programs we don't qualify for . . . just because of the income of the residents," City Manager Darryl Crossman said.

Although Tolleson falls under the county's program, Strephans said officials were not able to purchase any homes there because most of the ones in the city limits are too old to qualify for the program.

Using the income from resold homes, county officials were able to buy a downtown Phoenix apartment complex that was on the brink of foreclosure. It will now be used to house up to 300 low-income and formerly homeless residents.

The Homes to Owners grant was used not only for purchases and rehabilitation. About $200,500 was used in a partnership with Neighborhood Housing Services of Southwestern Maricopa County to subsidize closing costs for homeowners. Second mortgages placed on the homes are used to lower the principal loan.

In some cases repayment is not required if the owner remains in the home for a certain amount of time.

Federal guidelines say buyers cannot earn an income of more than 120 percent of the region's median income, which is based on household size. Buyers must have good credit and attend eight hours of housing counseling and education.

The program has its critics.

Andy Kunasek, chairman of the Maricopa County Board of Supervisors, said he is concerned that the program is being used to artificially improve the housing market, and he questioned whether government should interfere with home values.

"We're shoehorning people into mortgages with little or no down and giving them down-payment grants. . . . Anybody that bought that house with little or no equity 18 months or two years ago has got to be upside down," he said. "We should've stayed out of it. We just need to let the market find where it wants to be."

Kunasek said he has asked county administrators for information that will show if the value of homes in the program decreased since they were purchased and if the owners are still in the homes.

Since the initial push, follow-up funding has lessened, changing the focus of the programs.

Earlier this year, the county received more than $4 million in HUD funding. It received responses from three potential partners who want to buy and manage multifamily rental housing for those who earn 50 percent or less than the area's median income.

After the initial round, Avondale received an additional $1.2 million in funding. It plans again to assist homebuyers with down payments and repairs on homes in targeted neighborhoods. The goal, Lopez said, is to turn over about 35 homes using fewer funds.

"We're finding a lot of the homes that are out there now don't have as much damage as . . . a few years back so less will be spent on rehab and down-payment assistance," she said.

The county program gives taxpayers a return on investment, Strephans said.

"Obviously, there is more screening and scrutiny of potential homeowners in the Homes to Owners program than was done in the private retail market where there are no requirements for housing counseling/education," she said. "With public money, we have to be more prudent and careful, especially given recent history."

by John Yantis The Arizona Republic Sept. 17, 2011 12:00 AM




HUD funds fix, sell W. Valley homes

Downtowns' revival a good sign

It is recent history that merely seems ancient: Increasingly attractive downtown regions in Phoenix, Tempe and Scottsdale suddenly were becoming hot locations for new and renovated condo construction.

It seemed like the perfect development storm. Countless Baby Boomers with an itch for the arty urban life wanted out of suburbia and into maintenance-free condos by the new light rail. And, commensurately, Valley downtowns began evolving into places that a graying (but hip!) Boomer might like to call home.

It was 2006 and the condo-building boom had arrived. As The Republic's Catherine Reagor reported Wednesday, as many as 8,000 new condo units were on the planning books that year. Some, like 44 Monroe in Phoenix, now converted to apartments, would be built new from the ground up; some, like One Lexington, would see older buildings being converted to exciting new uses. The boom was on. Then, overnight, it went bust.

Now, the revival starts. After four years of utter desolation in virtually every area of the region's real-estate market, a new perfect storm is swirling around urban condos and apartments. Enormously deflated costs have brought buyers and renters back into the developments that have sat vacant and, often, half-completed for years.

As Reagor reported, many of the projects needed to run through the difficult bankruptcies of the original owners before the classic market forces of demand and price could again take effect.

Prior to the developer's bankruptcy, just 14 condo units at One Lexington had been sold. Now, the converted bank building on Central Avenue is nearly 90 percent full, with many units selling for half of the 2006 asking price.

One factor that has remained constant through the years-long real-estate tumult is the desirability of the locations.

In north Phoenix, loft condos around the popular and trendy Kierland Commons never really lost much value throughout the real-estate crash, so attractive was the neighborhood.

Now, downtown Phoenix is reaping the benefit of years of private and public investment. With a growing arts community, appealing local restaurants and clubs, a convenient light-rail transit system and a fast-increasing population of young people attending Arizona State Universitydowntown, the region's "curb appeal" is positive.

There are other factors at play. For decades, development of downtown Phoenix was hamstrung by dice-rolling investors who helped bid up prices, often compromising the viability of projects. Now, it seems people are buying into condos just to, like, live there. What a concept.

Metropolitan Phoenix has a long way to go before it runs through the unprecedented inventory of homes and commercial properties that has piled up during this cruel economic downturn. But recoveries must start somewhere. How ironic that the first signs of real-estate life in a Valley known for its seas of single-family homes would be in urban condos.

The Arizona Republic Sept. 17, 2011 12:00 AM





Downtowns' revival a good sign

Tempe-based T.W. Lewis to wind down operations in 2012

Tempe-based homebuilder T.W. Lewis says it has sold its remaining land assets to a Texas builder and will wind down the company in 2012.

Tom Lewis, T.W. Lewis' founder and CEO, said Wednesday that David Weekley Homes, a privately held builder based in Houston, would assume all the company's existing employees, offices and active subdivisions over the coming year.

Lewis said the deal was not technically a merger or acquisition because Weekley was not acquiring the legal entity known as T.W. Lewis.

Consumers hardly will notice any difference when Weekley takes over operations, Lewis said.

Under an unusual partnership agreement, he said, Weekley will continue building out the company's 12 actively selling subdivisions in the Phoenix area.

"It will be the same product, the same floor plans, the same contractor partners and the same sales associates," Lewis said.

Weekley will begin selling new homes in those communities under the brand "T.W. Lewis Collection by David Weekley Homes," he said.

Lewis said the company had about 80 homes in various stages of completion that would continue to belong to T.W. Lewis until they are sold to homebuyers.

T.W. Lewis, a 20-year-old entity, is known as a high-end builder. Its average sale price during the housing boom was about $800,000 and currently is about $400,000, Lewis said.

Under its new leadership, the company most likely will expand the types of products it builds to include lower-priced homes, he said.

Lewis said that employees, contractors and home-warranty holders already had been informed of the change in ownership and that none should be negatively affected.

Weekley was founded in 1976 and is one of the largest privately held homebuilders in the U.S. With the addition of the Phoenix market, it will have operations in 16 metro areas in eight states, according to the company's website.

As for the 62-year-old T.W. Lewis founder, he will become a part-owner in Weekley and said he plans to remain actively involved in the company's management for five years.

Lewis said he also plans to act as a land banker, developing and optioning additional lots for sale to Weekley, as well as serving as a consultant to the company.

After that, Lewis said, he plans to retire.

"I've been a homebuilder for a long time," he said.

Lewis said the past few years had been challenging for homebuilders at all points on the price spectrum.

"In a word, it has been tough," he said.

by J. Craig Anderson The Arizona Republic Sept. 15, 2011 04:44 PM



Tempe-based T.W. Lewis to wind down operations in 2012

Reality TV taps Phoenix-area foreclosures

Alaska has a reality show about ice truckers trying to survive deadly hauls. New York has Donald Trump's cutthroat competition to be his apprentice. And Georgia has Billy the Exterminator, who battles rodents and alligators.

Soon, Phoenix will be the setting for a new reality show about one of the region's most competitive and heart-racing activities - bidding on foreclosure homes.

Agents who work at Maricopa County's foreclosure auctions are in negotiations to appear on the show, which is planned to start airing on the Discovery Channel next year.

Filming for "Betting the House" is expected to begin in the next few weeks.

New York-based Sharp Entertainment, producer of the show, also created "Punkin Chunkin" for the Discovery Channel, "Man vs. Food" for the Travel Channel and "Extreme Couponing" for TLC.

Now, cameras will be filming outside the county courthouse in downtown Phoenix.

Although the company did not comment on the details of the show it is planning, the daily auction scene is one of colorful characters and sometimes intense bidding on the region's foreclosure homes.

As many as three auctioneers may be taking bids at once, and the agents and buyers who try to land good deals rush from auction to auction, placing offers, talking to their offices by cellphone and trying to make sure they don't miss a deal in the process.

At its heart, the attraction of the auction scene is the promise of a house - to be a home, a rental or just a quick investment - for an amazing deal.

Sharp picked three veteran bidders at Phoenix's foreclosure auctions to follow: Doug Hopkins of Posted Properties; John Ray of Bid AZ Foreclosures and Lou Amoroso of Easy Investments.

"It's a little nerve-wracking to think about seeing yourself do your job on TV, but at least it's not summer and I won't be sweating," said Hopkins, president of Posted Properties. "The foreclosure-auction market is more competitive than it's ever been. It's definitely entertaining to watch."

He said that final contracts with the Discovery Channel are being negotiated this week and that filming is expected to start within four weeks.

Lenders have been selling a record number of Phoenix-area homes at the foreclosure auctions known as trustee sales. In August, 1,500 foreclosure homes sold at auction.

"I have been on the fence about this reality show," Amoroso said. "The producers want drama, and they will get it at foreclosure auctions now. But I don't want this to be one of those crappy shows everyone makes fun of and that draws too many more bidders to an already crazy market."

Sharp confirmed the show is in the works but didn't give any specifics.

The three main characters have worked together to bid on foreclosure homes in the past but now are "friendly competitors" at the auctions.

They work as agents, identifying properties their clients want to buy and bidding in an effort to get their clients the best prices.

Hopkins won't actually be at the courthouse. He works out of his office and has two to three bidders in the field.

At the courthouse, the TV cameras are likely to capture a scene of what has effectively become the trading floor for the region's hottest commodity: foreclosure houses.

There, bidders are ready to jump a fence or run to another table when another auction starts. The regulars act like co-workers, with nicknames for one another.

A decade ago, when there were only about 50 foreclosures a month in metro Phoenix, only a handful of bidders regularly showed up at the trustee-sale auctions. The three men in the reality show made up most of the crowd then.

Since the housing market crashed, the growing number of foreclosures has drawn more bargain hunters and bidding services.

By Arizona law, when a homeowner falls behind on a mortgage, a lender must try to sell the home through a trustee sale. The trustee, usually an attorney, alerts the borrower and sets a date for the auction.

To bid at an Arizona trustee sale, potential buyers must bring a certified check for $10,000 and have a photo ID.

The money is used as a deposit on the house if a bidder is successful. The full amount of the bid must be paid in cash the next day.

Dan Mayes of AZ Bidder launched a real-time foreclosure-auction service for Phoenix in January. He was contacted by Sharp to be part of the show but decided not to pursue the opportunity.

"The characters and stories typically involved in reality shows like these are mostly dramatic, goofy or get-rich-quick in nature," he said. "Our customers are pretty straight-laced folks."

Trustee sales at the courthouse used to start at noon, but there are so many houses that lenders are trying to sell that the auctions have been moved up to 11 a.m. or earlier and still often go to 5 p.m.

But the frenzy can't last much longer.

Already, competition has driven bidding prices up too high for some investors. At the same time, foreclosures have been falling this year.

Notices-of-trustee sales, or pre-foreclosures, are half of what they were a year ago. The number of pending foreclosures in Maricopa County is down to 19,000, half of what it was two years ago.

"I doubt reality TV will shine a positive light on our housing market, although it should be entertaining," said Tom Ruff, real-estate analyst with Information Market.

His firm tracks foreclosures daily. "There are definitely some colorful personalities chasing foreclosure properties. Expect them to further Arizona's image as the Wild West."

by Catherine Reagor The Arizona Republic Sept. 16, 2011 12:00 AM




Reality TV taps Phoenix-area foreclosures

German leader downplays chance of default by Greece

BERLIN - German Chancellor Angela Merkel sought Tuesday to calm market fears that Greece is heading for a chaotic default as Europe struggles to contain a crippling financial crisis.

Merkel rejected the notion that a Greek bankruptcy, a possibility raised a day earlier by her deputy that spooked markets, would provide a quick solution to the eurozone debt crisis.

She argued that, instead, Europe needs to stick to its efforts to cut budget deficits and improve its competitiveness and that resolving the crisis will be "a very long, step-by-step process."

Her comments came ahead of a teleconference today with French President Nicolas Sarkozy and Greek Prime Minister George Papandreou.

Fears of an imminent Greek default pushed interest rates on the country's 10-year government bonds up Tuesday to a record of over 24 percent, although Merkel sounded optimistic regarding Greece's chances of getting the next batch of bailout cash from the so-called troika: the European Commission, the European Central Bank and the International Monetary Fund.

Representatives from the three organizations are due back in Athens soon.

"Everything that I hear from Greece is that the Greek government has hopefully understood the signs of the time and is now doing the things that are on the daily agenda," Merkel told the radio station rbb-Inforadio. "The fact that the troika is returning means that Greece has started doing some things that need to be done."

Meanwhile, President Barack Obama urged European leaders to take a more forceful approach to the continent's debt problems, which could slow an already faltering U.S. economy.

"They have taken some steps to slow the crisis but not solve the crisis," Obama told a group of Spanish-speaking journalists Tuesday. "We will continue to see weaknesses in the world economy so long as this issue does not get resolved."

Merkel also sought to defuse suggestions by Vice Chancellor Philipp Roesler and others that a default by Greece is a possibility.

On Monday, Roesler raised the specter of an "orderly insolvency," a notion the Dutch finance minister indicated was being considered.

Jan Kees de Jager told Dutch financial news show "RTL Z" on Tuesday that his ministry was "prepared or preparing for all conceivable scenarios and even the almost inconceivable scenarios."

Asked if that included a Greek default, he said, "It includes all likely and unlikely scenarios, but I can't tell you specifically which."

Merkel dismissed the idea that the debt crisis "could evaporate with one buzzword - be it 'eurobonds' or 'insolvency' or other words."

Roesler defended his position Tuesday.

"We want Greece to stay in the eurozone," he said.

"For that, we need to restore (Greece's) economic potential. And, from my point of view, there can be no bans on thinking in this restoration."

by Geir Moulson and Nicholas Paphitis Associated Press Sept. 14, 2011 12:00 AM




German leader downplays chance of default by Greece

Some see spike in property-tax bills

Many Maricopa County residents recently were pleased to see a small drop in their property taxes since their home values have plummeted during the past five years.

But not all homeowners were happy.

An Arizona Republic story that ran Aug. 30 reported metro Phoenix homeowners could expect to see their tax bills fall an average of $60 from last year.

Homeowners were asked to respond if they saw their tax bills drop more than expected or climb significantly. Most homeowners we have heard from have seen their property-tax bills shoot up and don't understand why.

Arizona has one of the most convoluted property-tax systems, and shortfalls because of the housing crash and drops in school funding are translating to higher tax bills for many.

Here are some sample comments:

- "My father-in-law just received his county tax bill yesterday, and it went up 31.4 percent. Something just doesn't compute here. It would be nice to know what genius has let this happen here in the county. A large part of the county's residences are on fixed income, and to have the county government this out of control is reprehensible." - Richard Nagel

- "I own property in the Villas Las Palmas townhouse community, Tempe. I understand that the various taxing authorities adjust their tax rates to meet their budgets when property values fall, so I did not naively expect a dramatic decline. I was surprised, however, to see an increase of more than 28 percent in my tax bill this year. Thinking my own tax bill may have been incorrect, I went to the county assessor's website and retrieved information on assessed values and property taxes for other homes in Villas Las Palmas.

"I see that the 28 percent increase was typical for our community. I have looked at tax data for similar townhouses in Tempe, and the others I have checked don't have anything near a 28 percent tax increase." - David Pheanis

- "Our taxes went from $1,322 to $1,754. We live in Mesa." - Robert Mitchell

- "Our total tax bill went up about $50. I was surprised because I had read your article back in August about the rates in Maricopa County decreasing. This is in response to property values decreasing?" - Noelle Stovell

- "Something is very wrong. This is a shocker. My taxes increased to $2,127.78 from $1,582.52. I called the county and talked with six different people, who blamed Phoenix Elementary School tax increases. Of my total tax bill, 73 percent is going to schools and education. So regardless what the county does, the education/school increases wiped out those cuts plus a lot more. I am on Social Security, and it will be a big hardship to pay this." - Frank Kostyun

- "In 2010, our taxes were $1,956.10. Our taxes for 2011 are $2,338.62. This amounts to an increase of $382.52, or almost 20 percent. After speaking to a representative at the County Treasurer Office, we were told this increase was caused by increased funds for the Rio Verde Fire District and increased funds for Maricopa County Community Colleges. After speaking with other residents in our area, their taxes did not increase, which makes no sense to us." - Richard and Janet Dickson

by Catherine Reagor The Arizona Republic Sept. 14, 2011 12:00 AM




Some see spike in property-tax bills

Rebound for luxury condos in Valley

Upscale, condominium projects in coveted metro Phoenix locations were icons of the region's housing boom and then some of the most visible signs of the crash.

Dozens of condo towers and loft projects were planned or under construction just as the housing market started slowing. On prime lots across the Phoenix area, signs promoted the projects, sometimes noting prices well above $500,000.

An Arizona Republic analysis in 2006 found as many as 8,000 new condo units were planned.

Fewer than half of those condos were built, and several projects that started went into foreclosure or bankruptcy as the housing downturn worsened. Those projects, complete or half-built, sat boarded up or fenced off.

But now, five years after the housing crash started, several of the high-rise towers and other luxury-condo projects are filling up with buyers and renters.

- Almost 90 percent of the 146 condominiums at One Lexington, a converted 1974 bank building on Phoenix's Central Avenue, have sold. Only 14 of the condos were sold before the project's previous developer filed for bankruptcy in 2009.

- The 22-story Centerpoint Tower in downtown Tempe welcomed its first renters, mostly Arizona State University students, last month. Now, the tower is full.

- Developers of a high-rise in downtown Phoenix called 44 Monroe opted to turn the building's condos into apartments, which are now drawing tenants. The 34-story tower, Arizona's tallest residential building, is nearly 70 percent full. It has 196 apartments.

- In central Scottsdale, more than 20 condos out of 50 planned have sold at the once-stalled Sage project along the city's waterfront. The Safari development, not far from Sage, is also filling up.

- The brick minimansions known as Chateau on Central in Phoenix, once boarded up and stalled in foreclosure, are now open and selling.

Metro Phoenix urban-housing expert and broker Keith Mishkin estimates more than 120 new high-end condos in newer developments have sold so far this year, almost twice as many as last year.

"I wouldn't say the new-condo market has bounced back, but it has definitely started to stabilize," he said. "And it's not just investors buying now. People who want the urban lifestyle and Baby Boomers are now the biggest groups of high-rise condo buyers."

Of the 8,000 high-end units planned in 2006, real-estate analysts say about 3,000 have been built and bought or leased.

In most cases, the original developers went bankrupt or bailed out of the projects. The resurgence in the market has come as new investors have taken over the sites at a lower cost and offered units for less money.

While some of those units have become apartments, others are selling to the same kinds of residents developers originally targeted. The sales indicate that the Valley does have a market for upscale, urban condos for empty-nesters and move-up buyers - as long as the price is right.

Lower prices

Late last year, Phoenix architect Mike Hauer bought a one-bedroom condo on the 14th floor of One Lexington tower in midtown Phoenix.

"The price was right, and the location is great," said Hauer, who paid about $180,000 for his condo and doesn't have to pay homeowner-association fees for a year as part of the developer's incentives to draw buyers. "I had friends over for Fourth of July, and we could watch the fireworks from my balcony. There aren't a lot of Phoenix homes with views like mine."

The project has attracted notable residents including Phoenix City Council member and real-estate expert Tom Simplot, who bought a condo in the tower last summer.

Formerly known as Century Plaza, the high-rise was converted from offices to condos by Equus Realty in 2008. But it the housing market was crashing, and Equus couldn't sell the condos for a profit.

Hauer paid less than half of what his condo was originally priced at when Equus was developing the project in 2008.

Equus filed for bankruptcy, and its lender took over the project. In February 2010, after scouring the Phoenix market for the best high-rise condo deals, British Columbia-based Macdonald Development Corp. bought the tower from the lender for an undisclosed sum.

So far, Macdonald reports it has sold $30 million in condos at One Lexington. The tower was valued at $19 million in 2009.

"Some people thought we were nuts for buying One Lexington," said Rob Hubbard of Macdonald Development. "But we came into the market at the right time. It cost the last developer $340 a square foot to build it. We obviously didn't pay that much. Now, we are able to sell the condos for $225 a square foot and make a profit. Our buyers are seeing almost instant appreciation."

Crash aftermath

What crashed metro Phoenix's condo market is what took down the rest of the area's housing market: an oversupply of new units and too many buyers who were investors, expecting the homes to gain value, rather than homeowners, expecting them to serve as shelter.

The investors, who bought condos and penthouses when the first wave of high-rises started selling units in 2005-06, paid top dollar and then tried to sell as they saw the market slow in 2007. At the same time, metro Phoenix apartment owners were converting their projects to condominiums in record numbers.

According to Arizona housing analyst RL Brown, as many as 10,000 apartments were converted to condos in 2005-07, further adding to the supply of a kind of housing stock rarely seen in the Valley before the last decade.

One of the first downtown Phoenix luxury condo projects, the Orpheum Lofts on West Adams Street sold out quickly in 2004-05. But in 2006, more than one-third of the condos in the Orpheum Lofts were for sale, and then a year later, foreclosures in the historic tower started to soar.

The 17-story Landmark tower, an older apartment high-rise on Central Avenue in midtown was converted to condos right before the market started to slow. It drew many investors and buyers willing to pay as much as $200,000 for a studio.

The project sold out, but some of the investors and buyers walked away as prices in the tower fell with the housing market. Now, the tower is popular with young, single renters.

The 44 Monroe project downtown had its problems, too. The project's original lender went under and was taken over by the Federal Deposit Insurance Corp.

In 2010, Chicago-based ST Residential bought the property planning to sell its 196 unsold units at prices starting just under $200,000. There still wasn't the market for condos at that price. So, the developer turned the tower into apartments earlier this year.

ST Residential also bought the Scottsdale Safari condo project out of foreclosure. This year, condos at that project near Scottsdale Fashion Square have been selling for $400,000 and higher.

Market outlook

When Summit Properties started building a condo project in central Scottsdale in 2007, the least expensive unit was offered at $695,000 and the penthouse at $1.3 million.

But there were few buyers, and Summit lost the project to its construction lender iStar, which finished building it and lowered prices.

Jan Jumet and his wife, who live in Pennsylvania but have been visiting Scottsdale during the winter for several years, recently purchased a condo in the project now named Sage.

"We have wanted a second home in Scottsdale for a long time, but we were waiting for the bargains," Jumet said.

David Sotolov, senior vice president of iStar, said the company considered selling the project to another developer but the offers weren't attractive enough, so it held on and finished construction. Condos are now selling at Sage for $370,000 to $530,000.

Chateau on Central, the luxury brownstone homes, could be the next comeback project for metro Phoenix's urban housing market. The project, like several other stalled condo projects including Centerpoint, was financed by the now-defunct Mortgages Ltd., which left many private investors with big losses when it abruptly shut down in 2008 after the death of founder Scott Coles.

Construction of Chateau stopped when the lender was forced into bankruptcy. Originally, the five-story minimansions with copper turrets, elevators and rooftop terraces were supposed to sell for $2.8 million to $4.5 million.

But after they sat half-built and empty for more than a year, Wisconsin-based MSI West Investments paid $7 million for the 21 homes. The buyer finished the project and is now marketing the homes for $1.1 million. Phoenix Mayor Phil Gordon is currently leasing a home at Chateau.

Not all the condo projects started during the boom struggled. Optima Camelview in Scottsdale, the lofts at Kierland Commons in north Phoenix and the Scottsdale Waterfront are a few that fared better with buyers, and condos at these projects are new reselling and some buyers are making profits on the deals.

Real-estate analysts say there is a market for high-rise condos and lofts in metro Phoenix. The problem was too many developers and investors jumped into the market at once.

Condo owner Hauer believes he bought at the right time for the right price in a tough housing market.

"I think I could sell in five years for a profit if I wanted to, but I really like it here and don't see myself moving anytime soon," he said.

by Catherine Reagor The Arizona Republic Sept. 14, 2011 12:00 AM



Rebound for luxury condos in Valley

G7 meeting did not introduce substantial measures to smell smoke and then the global currency war

After consultations last weekend, G7 issued after the meeting, a brief communique stressed the need to maintain financial stability, boosting market economy and the strengthening of international coordination. However, G7 finance ministers and central bank governors did not present a detailed economic stimulus measures, or short-term rescue measures, it is still difficult to eliminate market concerns.


Same time, for last week’s strong intervention in currency markets with Switzerland after the turmoil caused by foreign exchange, the communique merely expressed support for market-determined exchange rate, the market is extremely concerned about the joint intervention, G7 meeting has not, as market expectations, as announced measures.


“In these circumstances, the so-called” currency war “is inevitable, and developed competitive devaluation has actually been there.” Bank of Communications Schroder Fund senior policy analyst Shen Nan told ” Daily Economic News “reporter, said. Market is expected, although the G7 is not published on interventions in the foreign exchange, so can not help in the new round of global recession expected of them, to start another “currency war.”


G7 meeting Nan Xiao market worries


Reoccurrence of the uncertain U.S. economic recovery, the escalating debt crisis of the European context, the global economy into recession is expected to become more intense. At this time, the market to focus on the G7 meeting, I hope these seven developed economies to stimulate global economic growth negotiate a substantive measures. However, the Group of Seven has always been difficult to reach, could not come up with effective, unified rescue plan.


“G7 meeting failed to reach a uniform substantive measures to stimulate economic growth, an effective solution to current problems in the global economy, there are two main aspects to consider, first, the recession has not quite that serious, Governments may believe that a recession is expected, but no real economic data into a recession. “Shen Nan analysis.


Secondly, it is the G7 countries will have its own political problems, the policy was not much room to play. Including within the euro area, core and edge of the country against country, while the new leader of the Japanese government took office, and other problems, may attend more. Therefore, the meeting did not see the G7 concerted content.


But in the communique issued after the meeting, G7 said it would take all necessary action to ensure the resilience of the banking system and markets, in order to avoid future economic imbalances, but also boost the economy. German Finance Minister Sch?uble said the deficit is too high, the main problem facing the world, G7 agreed to continue financial rectification.


As the key European countries the debt crisis of the Greek, the Deputy Prime Minister announced 911 Venizelos, Greece will be implemented including raising property taxes, including the complementary economic austerity measures, including the 2011 and 2012 often up to 4 square meters of new levy property taxes euro, the President, the Prime Minister and all other elected officials issued a wage less, requires the owner to get rid of the debt crisis, play a more active role. The purpose of the austerity measures, it is to reduce the fiscal deficit, the debt crisis should get much-needed loans.


European Central Bank Governing Council member, Bank of France (BankofFrance) President Noah (ChristianNoyer) said that Greece’s debt problem is not on any banking system constitutes a very serious risk. G7 meeting, also reached the decisive solution to the debt crisis of the European consensus.


G7, the more concerned about their own economy to the United States, President Barack Obama speech in parliament last week proposed a $ 447 billion program to boost employment, and urged Congress to cut the deficit to support the program.


However, Fed Chairman Ben Bernanke did not quite agree with the practice of asking Congress to reduce the deficit. In his speech, he mentioned the U.S. economic growth in less than half of 1% is difficult to significantly reduce the more than 9 percent unemployment rate. Although Bernanke said the second half of the U.S. economy may be slightly accelerated, but market analysts generally believe that the U.S. may be in the early Ming to introduce new economic stimulus.


From the current public information has been seen, may G7 has made a corresponding effort, but these efforts failed to remove market concerns, risk aversion has not been completely eliminated.


“Currency war” or imminent on Tuesday, the Swiss central bank intervention sudden strong appreciation of the Swiss franc, Swiss franc linked to the appreciation of the euro and set the upper limit, that set the minimum rate level of the euro against the Swiss franc to 1.2000, with the global foreign exchange market to a new shock. Swiss central bank also pledged the future may purchase foreign exchange without restriction.


Shen Nan analysis, G7 did not reach practical advice to boost the economy, will trigger a new round of “currency war.” As of 18:15 yesterday afternoon, the euro against the Swiss franc is still a 0.15% decline, but remained at 1.2 above.


This time the Swiss
move, Moody’s yesterday (912 days) report that the Swiss franc’s appreciation of the country’s banking cost/income ratio had a negative impact, but the Swiss central bank move, if successful, will be to avoid the slowdown in exports in the economy, especially in the case, asset quality problems that may arise, and the benefit of the country’s sovereign credit and bank credit ratings.


Generous in Switzerland after the intervention in currency markets, Japan’s finance minister also raised security to live soon, Japan would take decisive measures to deal with speculative movements in exchange rates, and hope G7 understand Japan’s position in the foreign exchange market. G7 meeting did not reach a consensus on joint intervention on the exchange rate, but for Japan’s unilateral intervention in currency markets has no objection is raised, showing G-7 may also believe that the yen will threaten the continued strength of Japan’s economic recovery.


Market analysis, it did not reach a consensus to support joint intervention in the yen’s strength yesterday, the dollar against the yen yesterday afternoon, below the 77.00 to 76.74,18 once about 15 minutes when hovering in the 77.05, down 61 basis points .


“Appreciation of the yen, exports to Japan resulted in greater pressure on the Bank of Japan intervened in currency markets, including other countries intervened in currency markets are a certain degree of rationality and necessity if the laissez-faire free market volatility, it may will bring the impact of the financial system. “Shen Nan on the” Daily News “reporter analysis, and sharp appreciation of the exchange rate depreciation may lead to the rapid flow of capital, the impact of the financial system stability.


Recently, the Australian trade minister said the country will not follow the example of Japan and the Swiss currency intervention to drive down the Australian dollar. Yesterday, while the Australian dollar would decline, that was almost 100 basis points or so. Shen Nan said that Australia do not need to intervene in the Australian dollar, Australian dollar is also likely to face the future depreciation.


Yesterday, the New Zealand Finance Minister British Gehrig (BillEnglish) also said that the performance of S $ exchange rate is too strong. New Zealand, also known as Federal Reserve Chairman Xibolade day, S $ exchange rate is overvalued, the strong Singapore dollar for the economy.


Shen Nan analysis, as long as the global economic recovery has not yet entered a stable orbit, while developed countries still to loose monetary policy, other countries would intervene in currency markets exist, and foreign exchange volatility will continue, “currency war” also inevitable.


Gains for the dollar in recent days, Shen Nan said, was mainly due to the global economic recession is expected to allow the market to hedge funds returned to the United States, pushing up the dollar. But the U.S. economic recovery is not yet clear itself, the United States would not intervene the exchange rate, but through liberal economic stimulus policies to achieve the desired effect.


Time yesterday afternoon, according to data of reporters, a total of seven U.S. currency rose, while the dollar index rose 8 basis points to 77.25, an increase to 4.63%.


“If the dollar continued to rise again, it will slow down to let the yuan appreciate, if that appreciation is a crunch, slowdown is undoubtedly a big plus, but if it is to adjust the structure, slowing RMB appreciation is less favorable . requires two terms. “Shen Nan told the” Daily News “reporter.

by Finance Online Sept 13, 2011



G7 meeting did not introduce substantial measures to smell smoke and then the global currency war

Bank of America will cut 30,000 jobs

CHARLOTTE, N.C. - Bank of America is slashing 30,000 jobs as part of an effort to reverse a crisis of confidence among investors. It's the largest single job reduction by a U.S. company this year.

What CEO Brian Moynihan is trying to do is nothing less than save the nation's largest bank. Investors have cut the bank's market value by half this year. The bank is facing huge liabilities over soured mortgage investments and concerns over whether it has enough capital to withstand more financial shocks.

The cuts, which affect Bank of America's consumer businesses, represent 10 percent of the Charlotte, N.C., bank's workforce. The bank, which has approximately 13,000 Arizona employees, said it hopes the cuts and other measures will result in $5 billion in annual savings by 2014. The bank has already cut 6,000 jobs this year. The bank also said it will look for cost savings at its other businesses in a six-month review that will begin next month.

"It's as if someone has hit the panic button," said Bert Ely, president of banking consultant Ely & Co.
Moynihan has been taking other steps to shore up the bank's standing. Last week, he shook up the bank's top management ranks and has been selling parts of the company to raise cash. Last month, Warren Buffett's Berkshire Hathaway Inc. invested $5 billion in the company.

Moynihan has struggled to calm investors ever since he took the top job in January 2010. He is reversing the empire-building strategy of his predecessor, Ken Lewis, who stepped down amid controversy over the purchase of Merrill Lynch during the financial crisis. Lewis also engineered the ill-fated acquisition of Countrywide Financial Corp., then the country's largest mortgage lender, which has led to heavy financial losses, lawsuits and regulatory probes.

Moynihan is now taking a knife to Bank of America, hoping to shrink it down to a more manageable size even if it means losing the bragging rights of being the nation's largest bank. "We don't have to be the biggest company out there," said Moynihan.

Bank of America's stock has lost 48 percent this year, largely because of problems related to poorly- written mortgages at Countrywide. Just in the first half of the year, the bank paid out $12.7 billion to settle claims from investors that it sold them securities backed by faulty mortgages.

Some investors and analysts worry that the job cuts will lead to poor customer service and the bank will lose market share to rivals at a time when there are signs that the economy is slowing down. They also wonder whether the job cuts are enough to produce the profits that the bank needs to overcome the spiraling costs from its mortgage business.

"There is a fair amount of skepticism on Wall Street, and Brian is doing as much as he can do in the face of a worsening economy," said Nancy Bush, an analyst and contributing editor at SNL Financial, a research firm.

The bank's stock was down for most of the afternoon but rose along with the overall market to close up 7 cents, or 1 percent, at $7.05.

Bank of America is seen as one of the most bloated banks in the industry. The payroll cuts will bring its workforce in line with some of its key rivals. JPMorgan Chase & Co. had 250,000 workers at the end of the second quarter.

Associated Press Sept. 13, 2011 12:00 AM



Bank of America will cut 30,000 jobs

Sunday, September 11, 2011

Will Europe come tumbling down?

The debt crisis that started in Greece now threatens to topple the whole continent -- and kill the weak recovery in the U.S. Inside the race against the clock to fix the euro economy.

FORTUNE -- At first glance, Yiannis Boutaris would seem to be an unlikely free-market reformer. The 69-year-old mayor of Thessaloniki, Greece's second-largest city, has tattoos decorating his forearms and knuckles, short-cropped white hair, and a face creased like worn leather. As we sit and talk in his drab office on a sweltering summer afternoon, he's chain-smoking unfiltered Camels and wearing jeans, a gold stud earring, and black high-top Keds sneakers with no laces. Boutaris was a businessman before he got into politics, and he still owns one of the country's leading wineries (although, as a recovering alcoholic, he can no longer drink his own vintages). But he's hardly a political conservative. He was originally elected to Thessaloniki's city council as a member of the Communist Party.

Even Boutaris, however, has reached a breaking point with his nation's Homeric economic failures. "The Greeks borrowed and consumed recklessly, and got totally uncompetitive at making things and providing services like tourism," he says angrily, jabbing the air with his cigarette for emphasis. "If you want to start a business, you'll do better going to Bulgaria!"

The frustrated mayor is battling to end policies that block Thessaloniki, the industrial center of northern Greece, from becoming what it should be -- a principal port for the world's cruise lines, a favorite resort for European retirees, and a transit hub for the Balkans. Fed up, Boutaris is taking matters into his own hands. For instance, he's threatening to take the radical (for Greece) step of privatizing the city's dysfunctional waste collection business. "The unions are 'striking' against my reforms by picking up one can out of three," grouses Boutaris. "I'm thinking about hiring contract workers. We could save 50% on every ton of garbage!"

The mess that Boutaris is tackling -- and the overwhelming need to take action now -- epitomizes the problems facing Europe. As you've no doubt heard, the continent is trapped in an escalating debt crisis. It began in Greece in early 2010, but in recent weeks it has spread to Italy and Spain, nations that are simply too big to bail out. Those countries -- as well as Portugal and Ireland -- suffer from either crushing debt loads or gigantic current deficits that are piling on new debt, a legacy of their reckless overspending during the past decade. Today investors worry that these nations are so chronically uncompetitive, they can't grow fast enough to pay the future interest on that debt. As a result, global pension funds, insurers, and banks are dumping Spanish and Italian bonds, threatening to drive rates to ruinous levels.

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The growing fear that those bonds will plummet in value, or even default, is roiling financial markets. Indeed, the recent plunge in U.S. stock prices -- and the manic volatility -- is as much about the contagion in Europe as the S&P downgrade of U.S. sovereign debt. Rumors are rife that French banks, which own tens of billions of euros in Italian and Spanish bonds, may be struggling to maintain the short-term financing that's their lifeblood.

Even if Europe's banks don't face a liquidity crunch, a drop in the value of sovereign bonds would severely deplete their capital, forcing them to halt new lending. The credit crunch would probably throw Europe into a severe recession. That in turn could kill the U.S. recovery, since the European Union accounts for 21% of U.S. exports. Even a truly apocalyptic outcome -- where one or more weak nations abandon the euro, causing gigantic defaults and a Europe-wide banking crash -- can no longer be dismissed.

What's certain is that growth in Europe is already slowing sharply and will probably keep weakening. The reason: Interest rates will be far higher than predicted, and banks, worried over their capital levels, will be increasingly reluctant to lend. "The rates on corporate and consumer loans all depend on what it costs the government to borrow, and that number is rising fast," says Uri Dadush, an economist at the Carnegie Endowment. "All the uncertainty makes companies wary about making new investments and hiring people. Their plans go on hold."

Most of all the debt crisis represents the stunning failure of the European Union, and especially the 17-nation eurozone, to deliver on its promise. Launched in 1999, the euro currency was designed to bind nations into a tighter economic union so that weaker members such as Greece and Italy would draw strength from their prosperous partners and close the gap in growth and productivity.

What was lauded as the EU's crowning achievement -- its bid to remake Europe as an equal of the U.S. and Asia -- didn't succeed. Instead of liberalizing their markets, countries such as Italy, Spain, and Greece left almost all of their worst, anticompetitive practices in place -- from centralized wage bargaining to restrictive licensing that supports cartels in retailing. Now the only thing keeping the eurozone from collapse is the willingness of rich countries such as France and especially Germany to provide big bailouts and of the European Central Bank to roam far from its charter to support the weaklings. In mid-August the ECB agreed to buy Spanish and Italian bondsto ease the pressure on those countries.

It's impossible to know how long the emergency measures will last. Hence the debt crisis has driven Europe to a historic inflection point. After dawdling for years, governments must race to beat the clock. The challenge is twofold. First, the debt-ridden nations need to close their big budget deficits rapidly so that debt won't continue escalating. Second, they need to prove they can grow fast enough to service, then lower, the debt they have now. That will require a rapid and difficult campaign to modernize their economies by ramming through market-opening reforms they should have imposed decades ago.

I recently traveled to the nation that best symbolizes all the poor choices and lost opportunities that are now haunting Europe -- Greece. The Greeks are dazed that years of prosperity turned so rapidly to disaster. "We recognize that Greece is bankrupt, and if we don't change it's over," says Barbara Vernicos, CEO of the department store division of Notos Com, one the nation's largest importers of luxury goods. But Greeks deeply doubt the ability of their politicians to face down the unions and cartels and deliver. And if they can't, the country that invented democracy might plunge a whole continent of governments into chaos.

From a cheap country to a very expensive one

The Athens Metro system was built in the early 2000s, amid the euphoria of joining the eurozone, heralding that Greece was joining the big time. And it's still an object of awe. Even as rioters crowd central Athens and taxi workers strike, Metro passengers race at 48 mph from the Port of Piraeus to the far suburbs. The cars and platforms are immaculate. Entering the station at Syntagma Square downtown, one gets the calm, ordered feel of a cathedral. Unfortunately, the Metro is just about the only thing left in the country that works.

The problems that befell Greece as a eurozone member resemble those of Italy, Spain, and other weaker economies: a consumption boom that masked big flaws in the economy, a substantial loss of competitiveness, and the madcap government borrowing that created today's crisis. When Greece adopted the euro at the start of 2001, it appeared to reap a gigantic windfall as rates on everything from car loans to mortgages dropped from over 15% in the late 1990s to the mid single digits, in line with those in Germany. The cheap credit ignited an explosion in consumer spending. For the next seven years the economy expanded at a strong annual rate of 4.2%.

But the spending did little to increase Greece's capacity for building durable wealth by selling goods and services to the rest of the world. Instead the euros flowed mostly toward imports of everything from German cars to French TVs. Both the government and private sector rapidly increased wages, helping push inflation well above the average in France and Germany. "Our salaries in Greece doubled in seven or eight years," says Tawfic Khoury, EVP of Consolidated Contractors of Athens, the civil-engineering giant. "Greece went from a cheap to an expensive country very quickly." Greek exports of fish, vegetables, and medical equipment lost ground to products from northern Europe and the Balkans. The big tourism sector was hit especially hard because rising prices made its sun-drenched islands far more expensive than resorts in Turkey or Tunisia.

The high growth rates also blunted any effort to reform the thicket of regulations hurting competition in everything from pharmacies to trucking. And low interest rates encouraged big public spending that first matched, then far exceeded, the growth of the economy. From 2001 to 2008 public employment surged 15%. Tax evasion, always a major problem, became absolutely rampant in the mid-2000s when the Conservative government eliminated the aggressive core of tax collectors known as the "Rambo" contingent. By 2008 public debt surged to over 110% of GDP and kept climbing.

When the credit crisis struck in 2008, Greece's sudden descent from a fast-growing to fast-shrinking economy made it impossible to service that Olympian debt. In May 2010, the "troika" of the International Monetary Fund, European Commission, and European Central Bank essentially agreed to loan Greece the money to keep operating by providing a $160 billion bailout package. It wasn't enough: On July 21, 2011, the troika pledged a similarly sized package to support Greece through mid-2013. By then, the plan prescribes, Greece will implement a draconian list of reforms that will enable it to start paying down debt.

The reform plan has two main parts: radically lowering deficits and elimination of barriers to true free trade. On the former, Greece has shown progress under Prime Minister George Papandreou, lowering its budget deficit from 15.5% in 2009 to 10.4% last year, and aiming for less than 8% in 2011. The toughest part, just as it will be for Italy and Spain, is shedding a maze of rules that strangle competition. So far Greece has been erratic in showing either the will or the skill to get it done.

A case in point is cruise lines. For decades it's been virtually impossible for big carriers such as Princess to begin or end journeys in Greece, since the law requires that they employ at least 20% Greek sailors on their vessels, at extremely high wages. As a result the big lines start and finish in places such as Genoa, Haifa, and Istanbul rather than in Greece. Last year the Greek government passed a law that waived the requirement to hire the Greek sailors but instead demanded the cruise lines sign three-year contracts guaranteeing numbers of cruises and destinations, as well as a big tax going to the Greek sailors' health care and unemployment fund.

When the EU strongly objected, the government pledged real reform. The job falls to Maritime Affairs Minister Haris Pamboukis. In an interview with Fortune, Pamboukis pledged to fully open the market. "The big international cruise lines are talking about starting their cruises in Greece. We're going to get rid of the restrictions on that contract and make it happen," he says. Another potential boon is a new law that for the first time effectively allows developers to build planned resort developments and sell villas to European retirees, a change that could make Greece the Florida of Europe.

Given the government's halting, uneven record on reform, it's hard to predict if the new rules will truly work. The problem is that even big steps toward genuine free trade won't produce the revenues Greece needs to service its gigantic debt, slated to reach 172% of GDP by 2012, according to the IMF. "It's impossible for Greece, or almost any country, to carry debt that big," says former IMF executive board member Miranda Xafa. Fortunately Greece can fund itself for two more years on cheap borrowing from the troika before it faces restructuring that debt. But it almost certainly has to happen -- and bondholders will need to take a substantial loss. The hope is that by then the crisis will be over, and Europe's banks can absorb the damage.

Too big to bail out

By contrast, Italy and Spain, which pose a far bigger risk to the eurozone, don't have the luxury of time. The rates on sovereign debt for Italy and Spain have recently jumped, hitting 6.3% for 10-year notes, until the ECB intervened to wrestle them back down. The relentless pressure on rates raises a double danger. First, it could cause a banking crisis by hammering the value of bonds owned by lenders. "The Italian banks have large holdings of Italian government bonds," warns economist Dadush. "If they decline enough, the banks will become even more nervous about lending, and they're already extremely nervous." Second, unlike Greece, Italy and Spain are paying part of their bills by floating new bonds, and if rates stay at over 6%, they can't possibly cover the interest on their debt. The only option would be a catastrophic default.

The challenge for Italy is the sheer size of the public debt, a staggering $2.7 trillion, the third-largest number globally, behind the U.S. and Japan. Italy has a relatively small budget deficit at around 4%. But even if rates return to near-German levels, Italy doesn't grow fast enough to keep that debt from increasing, largely because its economy is shackled by many of the same restrictions that are killing Greece.

In Spain the problem isn't the current debt load but where it's heading: Spain is saddled with a huge, 9.2% budget deficit. A housing collapse following the worst bubble in Europe severely weakened its lenders, raising fears of the need for banking bailouts. Prime Minister José Luis Rodriguez Zapatero has pledged to lower the deficit to 6% this year. He's also promising the same kinds of free-market policies that are moving forward in Italy and Greece, including reforms to the centralized wage-setting system for private companies that raises pay faster than inflation.

The brewing crisis for Italy and Spain exposes a striking weakness in the structure of the European Community. The EU lacks a lender of last resort, an institution with virtually unlimited resources to guarantee the survival of the euro. So far the ECB has been going far beyond its mandate of maintaining price stability, with the grudging assent of the Germans, to buy Italian and Spanish bonds. But the ECB is unlikely to veer from its mission for long. The fund created for the Greek bailout, the European Financial Stability Facility, is being granted new powers to buy sovereign bonds. But the EFSF, even with $620 billion at its disposal, is far too small to counteract a sustained attack on either Italian or Spanish bonds, let alone both.

It's possible that the crisis will become so severe that the EU will be forced to issue euro bonds, guaranteed by all the member nations, to cover the debt. That would place a big burden on the taxpayers of the wealthy countries, especially Germany, that pay most of the EU's costs. It's a solution that Germany dreads but may need to shoulder if the only alternative is financial Armageddon.

By far the best remedy is rapid reforms that restore the confidence of investors, a reversal of the runaway spending of the bumper years, and the long-overdue liberation of markets. That's what the EU was supposed to do at its founding. Then it lost sight of the basics while pursuing supposedly loftier goals.

Today a new breed typified by Mayor Boutaris of Thessaloniki are seizing the moment. "Believe it or not, the crisis is very helpful," says Boutaris, lighting another Camel. "We'd never even be talking about these reforms if we didn't have a near-death experience." In this land of mythic tales, it's time for some new heroes to step forward.

by Shawn Tully Fortune Magazine Aug 19, 2011



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