News&Notes: LIBOR update, FASB rules & unintended consequences

Money-market rates in London fall as Central Banks inject cash - Bloomberg.com
Bloomberg.com reports money-market rates in London fell after central banks provided $254 billion of emergency cash to ease the paralysis in the credit markets and UBS got a $59 billion government bailout. The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars declined for a fourth day, sliding 5 basis points to 4.50 percent today, the British Bankers' Association said. The overnight rate fell 20 basis points to 1.94 percent, the lowest level since November 2004. Asian interbank rates also dropped.
RCM Comment: A spot of good news. We will continue to watch this closely

For fast cash, cos tap revolving loans - WSJ
WSJ reports cash-strapped companies aren't waiting for the U.S. banking bailout to free up credit. Instead, dozens are draining billions of dollars from "rainy day" revolving loans arranged previously with banks. The mass drawdowns reflect another weak spot for the ailing banking industry. And they show businesses' mounting anxiety about the broader economy. Some are borrowing out of a sense of caution and prudence, hoping to allay jitters about their access to funding. Others simply appear desperate for cash.

SEC eases ruling to lift banks - Bloomberg.com
Bloomberg.com reports the SEC agreed to back an effort by banks that may let them delay writedowns on a type of security that has declined in value during the collapse of the credit markets. Banks in limited cases may account for so-called perpetual preferred securities as debt, letting them wait to write down their value, the agency informed the Financial Accounting Standards Board. The SEC's interpretation may help resolve a debate over accounting for the securities, part of a broader discussion on valuing hard-to-sell assets. Auditors say the securities should be treated as equity and banks sought to count them as debt. A senior SEC official said the interpretation is an "intermediate step" until FASB can sort out the accounting treatment of perpetual preferred securities.
RCM Comment: Another example of the lack of leadership by Chairman Cox. During this crisis he has consistently chosen the route of deception and manipulation over the hard choice of reality and discipline.

Crisis reverberates in credit, stock markets - WSJ
WSJ reports government efforts to heal the credit markets are having unintended consequences that are roiling different sectors of the market and adding to anxiety among investors, who already are worried about the impact of a possible recession on U.S. companies. Barely two days after the Treasury announced plans to buy stakes in U.S. banks and the FDIC said it would provide guarantees on bank debt for three years, investors are making unexpected shifts. Wednesday, bonds issued by mortgage providers Fannie Mae and Freddie Mac sold off sharply, even though these companies have government backing behind their debt. Traders said hedge funds were forced to sell as they deleverage, and investors were selling some Fannie and Freddie bonds -- known as agency debt -- and shifting money into bonds issued by large U.S. banks. These bank bonds boast higher yields and also would benefit from implied government guarantees, making them appear relatively safe in the eyes of risk-averse investors, for now. The bonds issued by Citigroup (C), Goldman Sachs (GS) and Bank of America (BAC) gained over the last two days.
RCM Comment: 'Unintended consequences', that could be the theme of the current leadership's choices over the last few months. Paulson and Co. continue to come up with wonderful sounding populist ideas in an attempt to manipulate the current crisis but only succeed in squeezing the proverbial balloon.

Citadel dispels rumors but can't mask a bad year - WSJ
WSJ reports Citadel Investment Group has been having a miserable year with returns that have dropped 26% to 30%. But rumors that its performance was far worse were so rife that they helped drag down the stock market on Wednesday, and prompted Citadel to take steps to set the record straight. The rumors swirled for days and gained momentum on Tuesday morning when they were published on a financial Web site. After a complaint from Citadel, the site pulled down the item within an hour. Still, by Wednesday afternoon, the rumors were buzzing all over Wall Street -- and around the globe. On Wednesday, Kenneth Griffin, head of Citadel, sent a letter to investors. September, he wrote, was the "single worst month, by far, in the history of Citadel. Our performance reflected extraordinary market conditions that I did not fully anticipate, combined with regulatory changes driven more by populism than policy." In coming weeks, Mr. Griffin wrote, the firm's earnings will continue to be volatile, "as the world manages the unfolding crisis." Citadel has told clients that, contrary to the rumors, it has not seen its borrowing lines cut or the terms of its borrowings altered.
RCM Comments: Here is one perfect example of why we are witnessing extreme volatility in all asset classes regardless of fundamentals. When a fund the size of Citadel has a year this bad and they need to raise cash to meet redemptions, they sell all asset classes.