10/13T11:50 News & Notes

Details from Fed Web site on joint central bank actions to inject unlimited liquidity in short-term funding markets
In order to provide broad access to liquidity and funding to financial institutions, the Bank of England (BoE), the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank (SNB) are jointly announcing further measures to improve liquidity in short-term U.S. dollar funding markets. The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment. Funds will be provided at a fixed interest rate, set in advance of each operation. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded. The Bank of Japan will be considering the introduction of similar measures. Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets. To assist in the expansion of these operations, the Federal Open Market Committee has authorized increases in the sizes of its temporary swap facilities with the BoE, the ECB, and the SNB, so that these central banks can provide U.S. dollar funding in quantities sufficient to meet demand. These arrangements have been authorized through April 30, 2009.

Commercial paper markets is still largely frozen - NY PostNY Post reports the commercial paper market, used by companies to finance payroll and other daily expenses, is still largely frozen despite upbeat comments from General Electric (GE) chief Jeffrey Immelt. Commercial paper traders said yesterday that, while some companies have been able to access very short-term loans in the last two days, most investors remained unwilling to buy anything that matures in more than a month... "The CP market is still for the most part shut down so we're still in a very fragile state," said Deutsche Bank's chief US economist Joseph LaVorgna. "Until we see the details of the Fed program, the market will continue to be frozen and the fear will be present." Money market mutual funds, one of the largest investors in commercial paper, continue to worry that they won't be able to get out of their positions if clients begin redeeming their cash. "There is no secondary market right now for commercial paper, and the Fed should consider buying CP directly from investors to inject some liquidity into this market," said one CP trader at a large bank.
RCM Comment: This story along with the LIBOR stories are the real indicators of whether or not the G7 plans are actually having a positive effect.

Margin calls hitting more executive suites - WSJ
WSJ reports Aubrey McClendon liked to boast that he hadn't sold a single share of Chesapeake Energy (CHK) in years. As the company's founder and chief executive, he was a frequent buyer, borrowing against his holdings to accumulate more as the natural-gas company boomed. The value of his stake soared above $2 billion. Then came the stock market meltdown and, last week, the calls on those loans. After a series of rapid-fire sales, Mr. McClendon now owns less than $32 million in Chesapeake shares. And investors are hoping the company, the nation's largest and most aggressive producer of natural gas, doesn't suffer a similar comedown. "I got caught up in a wildfire that was bigger than I was," Mr. McClendon said Saturday. He declined to discuss his personal finances in detail, but said his personal situation was stable. "I'm fortunate that I have other resources and I'll be fine ," he said. Across the country, a number of executives and other insiders, including Viacom's (VIA.B) Sumner Redstone and a director of Coca-Cola Enterprises (KO), are facing cash demands from their stockbrokers and banks, demands that are requiring them to sell shares to repay borrowings. No one so far has flamed out quite as spectacularly as the 49-year-old Mr. McClendon.RCM Comment: Here is a real life example of margin calls and a major reason for the precipitous decline last week in the markets.

Iceland is poised to become the first Western nation to take IMF loan since 1976 - Daily TelegraphDaily Telegraph reports Iceland's industry minister Saturday became the first government figure to acknowledge that an emergency loan from the IMF was now the country's only hope. Oessur Skarphedinsson said: "I have reached the conclusion that if we call for help from the IMF, other central banks, other countries will want to take part in the aid process." The fund sent emissaries to the troubled country two weeks ago as a number of its banks neared collapse and foreign investors started pulling funds out of the economy at an alarming rate. The IMF experts have spent recent days in the finance ministry in Reykjavik examining the country's books and setting out the loan options to the country. Until now, Iceland's politicians had refused to countenance the likelihood of having to seek help from the fund, instead attempting to negotiate loans with a number of other countries, including Russia and Denmark. However, with its current account deficit gaping ever wider, its biggest banks having collapsed and its currency, the krona, having slumped, the ministers are now likely to accept the fund's help. Washington insiders say they expect a deal will be announced "imminently".