Janet M Eaton: Economic Meltdown? 8 items


Richard Moore

From: "Janet M Eaton" <•••@••.•••>
To: a renewed Mai-Not <•••@••.•••>
Date: Sun, 05 Aug 2007 18:55:24 -0300
Subject: Economic meltdown ?   8 items

Economic Meltdown? 8 items

[0] Wall Street awaits Fed rate decision
Yahoo News -Associated Press, Aug 5

 [1]  Investors are nervous. Who can blame them?
Globe and Mail Business Report Aug 4

[2] World Stocks in Meltdown Over US Economy Fears
Yahoo News, Aug 1

[3] Bear Stearns Halts Redemptions on Third Hedge Fund
Boomberg, July 31

[4] German Victim as Credit Turmoil Hits Europe
Business Times Online, July 31

[5] C-Bass Owners May Write Off $1 Billion Stake
baltimoresun.com, Aug 1

[6] Mizuho Leads Japan Bank Stocks Lower on Profit Slump
Boomberg Aug 1

[7] European, Asian Stocks Decline; RBS, Mizuho, Macquarie Fall
Boomberg Aug 1


p.s See also


U.S. Stocks Tumble a Third Week on Lending Crisis; Bear Falls By Nick Baker 
Bloomberg Aug 4th

Aug. 4 (Bloomberg) -- U.S. stocks fell, pushing the Standard & Poor's

500 Index to its steepest three-week skid since 2003, on deepening concern that 
mortgage losses will hurt bank earnings and reduce the pace of takeovers. Bear 
Stearns Cos., the manager of two hedge funds that collapsed last

month because of rising defaults in home loans, tumbled the most since September
2001. Shares of the largest U.S. mortgage lender, Countrywide Financial Corp., 
had the biggest loss in almost three years.

``The market's walking on eggshells,'' said Ryan Larson, senior equity trader at
Voyageur Asset Management in Chicago. ``It doesn't have all the subprime and 
credit news yet. It's the great unknown.''



[0] Wall Street awaits Fed rate decision
Yahoo News -Associated Press Aug 5


By MADLEN READ, AP Business Writer 1 hour, 15 minutes ago

NEW YORK - With two weeks of volatility behind it, Wall Street faces the 
prospect of more turbulence - unless the Federal Reserve comes to the rescue.

Waxing and waning worries about a shrinking availability of credit have sent 
stocks gyrating, with the Dow Jones industrials swinging by triple digits four 
straight days last week.

On Friday, the Dow plunged more than 280 points after Bear Stearns Cos.' chief 
financial officer described the current turmoil in the credit market as being 
the worst he'd seen in 22 years. On other days, news of mortgage lenders' 
problems or disappointing housing data provided the impetus to sell. The Fed's 
Open Market Committee's regularly scheduled August meeting on Tuesday might be 
key in whether the markets can settle down or not. The Fed is widely expected to
keep the benchmark rate steady at 5.25 percent, as it has done since last 
summer, so the focus will as usual be on its economic policy statement.

For months, Fed policy makers have stated they expect the economy to recover, 
and that curbing costs is their primary concern in light of uncomfortably high 
inflation. Given the past two weeks on Wall Street, investors are likely to be 
more interested in whether the central bank addresses credit conditions, and, if
it does, what it has to say ... [ ] ...


[1]  Investors are nervous. Who can blame them?


>From Saturday's Globe and Mail
Business Report
August 4, 2007 at 12:42 AM EDT

The latest troubling U.S. economic signals, spreading housing woes, the 
worsening credit squeeze and more turmoil in the markets were enough to spur 
talk of the dreaded "R" word this week.

"We believe that the S&P 500 is now pricing [in] a U.S. recession starting in 
late 2007 lasting through most of 2008," UBS's chief equity strategist David 
Bianco said in a research note on Wednesday.

Using a calculation based on price-earnings multiples and interest rates, Mr. 
Bianco said the market is expecting the recession to cut S&P 500 earnings per 
share by about 10 per cent. But he hastened to add that he doesn't consider such
an outcome likely, which is understandable. It's not good for business if too 
many clients cash out of the markets and hunker down to wait out coming economic

But as if on cue, the S&P proceeded yesterday to post its worst single-day 
percentage decline since the Shanghai surprise that triggered a global stock 
selloff on Feb. 27.

Most economy watchers remain convinced that the spillover from the U.S. mortgage
crisis and the severe slump in the housing sector will stop short of triggering 
a full-blown downturn, although they are definitely starting to worry as they 
sift through the tea leaves.

Now, when it comes to forecasting recessions, we'll take the markets over most 
economists. The latter have an excellent record of predicting downturns - 
usually only after they have run their course.

But a few weeks of market turbulence after such a long period of calm, sunny 
weather tells us nothing about whether a recession is lurking around the corner.
If we were heading toward a severe downturn in the next few months, punters 
would be stampeding to the exits instead of walking slowly.

What both the equity and bond markets do tell us, though, is that people are 
nervous, and with good reason.

To find out why, we went to Anthony Chan, an economist with a track record as a 
pragmatic prognosticator who has a good handle on Main Street concerns stemming 
from his time with a bank in the U.S. Midwest. He also once toiled for the Fed. 
So if he sees trouble ahead, he's one economist worth paying attention to.

"There is quite a bit of slowdown in the pipeline," said Mr. Chan, chief 
economist with J.P. Morgan Private Client Services in New York.

"The big question is: `Is that enough to push the economy into a recession?' At 
this point, I don't see that."

What he does see is a difficult road ahead for rest of this year as the subprime
mortgage meltdown takes its toll. It claimed another direct victim this week 
with the failure of American Home Mortgage Investment, a company that until 
yesterday employed 7,000 people. Today, about 90 per cent of them are looking 
for other work. The indirect impact of such job losses on the economy is just 
beginning. And it promises to be painful, as all bursting bubbles tend to be.

"We know that the unwinding of the subprime situation is still ahead of us, 
rather than behind us," Mr. Chan said.

Sifting through the latest labour market numbers released yesterday, he noted 
the slower job growth, but warned "that the other shoe" has yet to drop. 
Translation: Expect big housing-related job losses to weigh down the economy. 
And what catches his eye this time is a dip in the average work week of 0.1 
hours to 33.8 hours. Why does such a tiny change matter? It translates into a 
loss of about 200,000 jobs.

As always, the key to keeping the economy moving lies with the resilient 
American consumer, who has been soldiering on bravely in the face of painful 
asset declines, tightened credit conditions and growing job concerns.

When housing tanked, people were told not to worry, because equities were so 
strong and there was still plenty of cheap credit available. Now the markets 
have given up about half of this year's gains, the job market is looking more 
precarious and bank loans are getting more costly and harder to get. All of 
which point to a lot less borrowing and spending.

If the consumer packs it in and the markets keep tumbling, that would leave only
one potential white knight to ride to the rescue - Fed chairman Ben Bernanke.

The central bank's track record over the past few decades does not inspire great
confidence. It was, after all, the Fed's heavy interest- rate cuts of 2001 that 
triggered the housing bubble in the first place.

But we're not going to need Mr. Bernanke to save us yet.

Corporate profits for the second quarter were above expectations, though they're
slowing. The markets are still up on the year and interest rates remain low. "I 
still see enough positive developments out there," Mr. Chan said, "to suggest 
that we'll be able to avoid a recession."


[2]  World stocks in meltdown over US economy fears
Thursday August 2, 1:53 AM
Yahoo News

European and Asian stock markets sank on Wednesday, mirroring losses the 
previous day in New York, on mounting fears that weakness in the US housing 
sector could infect the world economy.

However, the major European stock markets wiped out some of their losses of 
earlier in the day, amid a mixed opening on Wall Street. In London the FTSE 100 
index lost 1.72 percent to close at 6,250.60 points, while in Paris the CAC 40 
lost 1.68 percent to 5,654.30 while in Frankfurt the Dax lost 1.45 percent to 
finish at 7,473.93 points.

The DJ Euro Stoxx 50 index of top eurozone shares lost 1.82 percent to 4,237.05 

The euro stood at 1.3679 dollars.

The yen meanwhile hit a four-month high against the dollar and oil passed an 
all-time peak in New York as investors exited risky investments and turned to 
safe-havens, dealers said.

Across the Atlantic US shares traded mixed in morning deals in a choppy session 
following the prior day's selloff as investors worried about contagion from 
credit problems linked to the ailing US housing sector.

Japanese stocks slumped by more than two percent on Wednesday, with the 
Nikkei-225 index ending below 17,000 points for the first time in more than four

In New York the Dow Jones Industrial Average was up 0.14 percent to 13,230.52 
around 1540 GMT while the Nasdaq composite fell 0.42 percent to 2,535.61.

The broad-market Standard Poor's 500 index edged down 0.08 percent to 1,454.17.

On Tuesday shares nose-dived amid news of spreading troubles in the mortgage 
sector that led investors to shrug off positive economic and earnings reports.

"It doesn't matter that the direct implications of these specific problems are 
not large for the overall economy. They are bringing forth fears of deeper 
problems in the flow of credit throughout the economy," said Dick Green, an 
analyst at Briefing.com.

"These concerns are legitimate but impossible to quantify," he said. "The risks 
of a market downturn on any negative news related to mortgages or credit 
standards remains significant."

Wall Street took a pounding Tuesday, with its three main markets closing down 
more than 1.0 percent as news of spreading troubles in the US mortgage sector 
prompted investors to bank profits.

Economists said there were growing jitters about the potential fallout from 
problems in US subprime lending sector, where mortgages are provided to people 
with questionable credit histories.

Analysts are concerned that growing mortgage defaults will hurt banks and 
finance companies enough to curb the availability of credit on which the economy

That, in turn, could affect private equity groups because their takeover bids 
are often financed by large amounts of bank debt.

"The central issue that concerns the equity market is really the extent to which
this whole subprime fallout will affect a general credit squeeze and reverse the
expansion we have seen in the global economy," said Mike Lenhoff, chief 
strategist at Brewin Dolphin Securities in London.

"There is this worry now that the ease with which lending has taken place and 
the ease with which there has been access to borrowing to finance the global 
economy is being unwound."

No market was immune to plunging equities on Wednesday, as Hong Kong's key Hang 
Seng Index closed down 3.15 percent, China share prices shed 3.81 percent and 
Indian's main equity market plunged 3.96 percent.

Sydney's main stock market meanwhile dived 3.3 percent after market favourite 
Macquarie Bank said two high-yielding funds faced losses of up to 300 million 
dollars (258 million US).

Shares in Macquarie Bank, known for its deal making and massive executive 
pay-checks, shed 10.7 percent as a result, enough to prompt

Australian Treasurer Peter Costello to offer assurances that all was well.

US stocks had powered ahead on Monday as investors shrugged off unease about a 
widening economic crisis that led to last week's bruising for the equity market.

"We're likely to see the volatility persist for a while," Lenhoff said.

"We'll have some good days, we'll have some bad days and eventually we'll see a 
slightly clearer picture of what this subprime fallout really means for the 
banks as well as for the credit markets. "In turn that will hopefully help the 
credit markets to settle down and move ahead," he added.

Losses were widespread in Europe. In Amsterdam the AEX index fell 1.79 percent 
to 524.45 while Milan's SP/Mib dropped by 2.04 percent to 39,401, and in Madrid 
the Ibex-35 lost 1.40 percent to 14,595.7.

In Brussels the Bel-20 closed 1.66 percent lower at 4,311.80 points.





Bear Stearns Halts Redemptions on Third Hedge Fund (Update1)
Boomberg, July 31
By Yalman Onaran

July 31 (Bloomberg) -- Bear Stearns Cos., manager of two hedge funds that 
collapsed last month, halted redemptions from a third fund after a slump in 
credit markets prompted investors to demand their money back.

The Bear Stearns Asset-Backed Securities Fund had about $900 million invested in
asset-backed securities, including mortgage bonds, spokesman Russell Sherman 
said today in a telephone interview. The fund was overwhelmed by redemption 
requests, Sherman said.

The fund's stumble is a setback for New York-based Bear Stearns and illustrates 
how the crisis in the subprime mortgage market has spread. The fund had less 
than 0.5 percent of its assets in securities linked to loans to subprime 
borrowers, Sherman said. The two funds that collapsed invested almost fully in 
subprime bonds. Losses have spread to banks, insurers and hedge funds in France 
and Australia, including one run by Macquarie Bank Ltd.

``This shows you don't necessarily have to be a subprime fund now to be having 
problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at 
Metropolitan West Asset Management, which oversees more than $21 billion in 
fixed-income assets.

Bear Stearns shares have dropped more than 25 percent this year on concern that 
the drop in subprime securities will hurt its income. The firm was the largest 
underwriter of U.S. mortgage bonds in the past two years, ceding the title to 
rival Lehman Brothers Holdings Inc. this year. Lehman shares have dropped 21 

Being `Prudent'

Bear Stearns has no plans to close the fund, which has $50 million in

cash and gets about $13 million in principal and interest monthly, Sherman said.
By suspending redemptions, the fund managers can avoid selling assets at 
depressed prices.

The Wall Street Journal earlier reported that the fund was up 5 percent this 
year through June, before its performance plummeted in July.

The fund's managers can wait until the decline in mortgage securities is over 
because it owes no money, Sherman said.

``We don't believe it's prudent or in the interests of our investors to sell 
assets in this current environment,'' Sherman said. ``The fund portfolio is well
positioned to wait out the market uncertainty.''

The two previous funds, the Bear Stearns High-Grade Structured Credit

Strategies fund and the Bear Stearns High-Grade Structured Credit Strategies 
Enhanced Leverage fund both filed for bankruptcy protection in the Cayman 
Islands today.

`Unprecedented Declines'

The funds collapsed last month when creditors asked for more collateral after 
the value of its securities dropped. Bear Stearns extended $1.6 billion in 
credit to one of the funds before seizing its assets last week.

Bear Stearns told investors two weeks ago that they will get little if any money
back after ``unprecedented declines'' in the value of securities used to bet on 
subprime mortgages. Bear Stearns has said it expects to lose no money on its 

Late payments on subprime home loans nationwide rose in the first quarter to the
highest level since 2002, the Mortgage Bankers Association has reported. At 
least 60 mortgage companies have halted operations, gone bankrupt or sought 
buyers since the start of 2006, according to Bloomberg data.

The ABX index that tracks derivatives linked to subprime mortgage securities 
with the highest investment-grade ratings, created in the second half of 2006, 
has fallen by more than 6 percent last month. An

ABX index tracking subprime debt with the lowest investment-grade ratings has 
declined 30 percent.

A fund run by Macquarie, Australia's largest securities firm, said that 
investors in two of its high-yield funds may lose as much as 25 percent of their
money because of declining asset prices in the U.S. subprime mortgage market.

To contact the reporter on this story: Yalman Onaran in New York at
•••@••.••• .
Last Updated: July 31, 2007 19:58 EDT


[4] German victim as credit turmoil hits Europe
Tom Bawden and Gary Duncan
July 31


The turmoil gripping world credit markets spread to Germany yesterday, claiming 
another victim as one of the country´s leading small business lenders was bailed
out after succumbing to financial strains from the American sub-prime mortgage 

After IKB Deutsche Industriebank issued a surprise profits warning and replaced 
its chief executive, KfW Group, the state-owned bank that is its largest 
shareholder, was forced to step in. KfW, which owns 38 per cent of IKB, said 
that it would cover potential losses in

an effort to shore up the beleaguered lender´s credit rating.

As IKB´s shares tumbled by more than a fifth, the blow to Germany´s financial 
sector also sent shares in other banking groups in Europe´s

biggest economy tumbling.

IKB´s woes added to fears that the credit crunch sweeping America would take a 
firm grip across Europe, as new figures showed that filings by lenders seeking 
to foreclose on bad US home loans leapt by 58 per cent in the first half.

Amid mounting market anxieties, the benchmark gauge of investors´ sentiment 
towards European low-grade corporate debt yesterday hit the worst levels on 

Germany´s first sub-prime casualty emerged as the mortgage meltdown continued to
wreak havoc in the American financial services industry. American Home Mortgage 
Investment shares plunged by 45 per cent yesterday as the market digested the 
news that the "prime" and near- prime home-loan group would delay payment of its
quarterly dividend and make what it called "major" write-downs on its loan book.

A leading consultancy, Oxford Economics, meanwhile sounded a warning that 
Britain´s heavy dependence on the booming financial sector for as much as half 
its recent GDP growth meant that the fall-out from a credit crunch could lead to
wider repercussions for the economy. The consultancy estimated that were market 
turmoil to see the pace of expansion in financial services halve, that could 
knock almost half a

percentage point of the economy´s overall rate of growth.


[5] www.baltimoresun.com/business/bal-

C-Bass owners may write off $1 billion stake

By Laura Smitherman

Sun reporter

August 1, 2007

The company that acquired subprime lender Fieldstone Investment Corp.

of Columbia two weeks ago is now in financial trouble and could be written off 
as worthless by its owners.

MGIC Investment Corp. and Radian Group Inc. announced late Monday that they may 
write off their stakes in Credit-Based Asset Servicing and Securitization LLC.

The New York joint venture, known as C-BASS, invests in subprime mortgages and 
packages the debt for sale. MGIC and Radian had valued their combined 
investments in C-BASS at roughly $1 billion.

C-BASS, where management also owns a small stake, said yesterday that it was in 
"advanced discussions" with a number of investors to alleviate a cash crunch, 
according to a news release.

The company said it remained confident in the overall credit quality of its 

The development illustrates the swift deterioration of the subprime mortgage 
industry and the breadth of those affected. MGIC, the largest U.S. insurer of 
home loans, and competitor Radian were not directly involved in extending the 
subprime loans, which often carry higher or adjustable interest rates and are 
typically reserved for borrowers with weaker credit.

MGIC and Radian had previously agreed to merge.

Also yesterday, American Home Mortgage Investment Corp. said that it doesn't 
have cash to fund new loans and may liquidate its assets.

The company focused on higher-quality loans than subprime but also made 
so-called "low-doc" loans that allow borrowers to produce little documentation 
of income or assets.

It relied on bank financing to help fund home loans, and revealed that it has 
"substantial" unpaid margin calls pending to lenders.

C-BASS reported yesterday an "unprecedented" level of margin calls, which 
typically means a request for additional collateral or cash from lenders, and 
blamed the situation on "the current severe state of disruption in the credit 

C-BASS said it had met $290 million in margin calls in the first six months of 
this year and then an additional $260 million worth in the first 24 days of 

The Fieldstone acquisition by C-BASS for $188 million closed in mid- July. 
Fieldstone, which sold mortgages nationwide, had been hit by a rising number of 
loan defaults and was facing a liquidity crunch of its own.

Fieldstone also is the target of an investigation by the Labor Department into 
allegations from its former general counsel, Cynthia L. Harkness. She claims she
was fired in retaliation for reporting alleged violations of securities and 
other laws by senior management.

She made the complaint under the Sarbanes-Oxley corporate accountability law.

Dozens of subprime mortgage companies have declared bankruptcy, shuttered 
operations or been sold in recent months, and the news has roiled stock markets.
Amid fears about credit conditions last week, the Dow Jones industrial average 
and Standard & Poor's 500 index posted their worst week in five years. The Dow 
and S&P 500 each slipped more than 1 percent yesterday.

"A few very short days is all it takes for liquidity providers to get nervous 
and start to pull credit lines," said Steve Stelmach, an analyst at Friedman 
Billings Ramsey. "There are larger ramifications. If liquidity dries up in the 
mortgage market, it's going to be tougher for everyone to finance home 



[6] Mizuho Leads Japan Bank Stocks Lower on Profit Slump (Update3) 
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTOURZvos7D0&refer =home

By Finbarr Flynn

Aug. 1 (Bloomberg) -- Shares of Mizuho Financial Group Inc., Japan's 
second-largest bank, led the biggest drop in the nation's bank stocks in three 
years after reporting first-quarter profit tumbled because of rising credit 

The 86-member Topix Banks Index slid 4.7 percent, the steepest plunge since May 
2004. Mizuho fell 9 percent, the most since the same month and the fifth-largest
percentage decline on the MSCI World Index. Shares of the Tokyo-based bank 
closed at 766,000 yen.

Lending at Japan's largest banks fell 0.5 percent in June, the biggest drop in 
15 months, as cash-rich companies shunned borrowing. The tumble in earnings 
suggests Mizuho and larger Mitsubishi UFJ Financial Group Inc. failed to 
capitalize on the 65 months of expansion by the world's second-biggest economy.

``Mitsubishi UFJ and Mizuho have come in below street expectations,''

said Scott McGlashan, a London-based fund manager at J O Hambro Capital 
Management Ltd., which manages $8 billion globally. ``They've

given investors zero reasons to buy.''

Mizuho yesterday cited 38.2 billion yen of credit costs as helping cause net 
income to fall by half to 116.5 billion yen ($983 million) in the three months 
ended June 30. A year earlier, it recouped 15.1 billion yen previously set 

`Disappointing' Profits

Mizuho also reported declines in interest income, trading revenue and fees, 
suggesting an economy that grew 3.3 percent in the first quarter didn't 
translate into rising earnings at the bank's different divisions.

The earnings were ``very disappointing,'' said Kristine Li, a Tokyo- based 
analyst at KBC Securities Japan, in an interview this morning. ``Net interest 
income was flat, fee income was down and operating expenses and credit costs 
were up.''

Mitsubishi UFJ's first-quarter profit slid 31 percent as credit costs

swelled sevenfold to 84 billion yen, partly because the bank wrote back fewer 
earlier provisions for bad loans. Sliding profits at small

corporate customers and an increase in risky loans at consumer finance unit 
Mitsubishi Nicos Co. also boosted credit expenses, bank spokesman Yusuke Fukui 

Shares of Tokyo-based Mitsubishi UFJ fell 4.7 percent to 1.21 million yen today.

Total lending at the 10 Japanese banks that operate nationwide contracted in 
each of the past three months, capped by a 0.5 percent tumble in June, the 
biggest drop since March 2006, a central bank report showed last month.

Widening Spreads

Analysts including Brett Hemsley at HSBC Holdings Plc have argued that two rate 
increases by the Bank of Japan in the past 12 months would benefit lenders by 
allowing them to charge more for loans while

delaying increases in deposit rates. Instead, ``the rising cost of market 
funding, on which Mizuho depends more than its peers, more than absorbed the 
benefit of wider spreads,'' Hemsley said today. It's still ``too early to give 
up on the prospect of rising net interest income at Mizuho.''

Mitsubishi UFJ's interest rate margin rose to 1.43 percent in the first quarter 
from 1.32 percent in the six months ended Sept. 30, according to Hemsley.

Analysts including Katsuhito Sasajima at JPMorgan Securities Japan Co. said bank
earnings may rebound as they raise lending rates more than returns on deposits. 
``Although first-quarter results were negative, we see the potential for a 
recovery from the second quarter,'' Sasajima said.

Rates to Rise?

Japan's key interest rate stands at 0.5 percent, the lowest among developed 
economies, and economists expect the BOJ to keep boosting borrowing costs. That 
may help bolster profits at banks because they typically are quicker to raise 
loan charges than deposit rates.

None of Japan's three biggest banks, including Sumitomo Mitsui Financial Group 
Inc., increased lending by more than 1.3 percent in the quarter.

There's still no sign cash-rich Japanese corporations are ready to start 
borrowing from the banks, said KBC's Li, adding that the small increase in total
lending at the banks came from an increase in home loans.

Sumitomo Mitsui was the only one of Japan's three largest banks to increase net 
interest income in the quarter, thanks in part to its ability to charge more for
loans to the smaller businesses and homebuyers that make up 60 percent of its 
borrowers. Mitsubishi UFJ makes about 50 percent of its lending to that market 

To contact the reporter on this story: Finbarr Flynn in Tokyo at
Last Updated: August 1, 2007 03:21 EDT


Stocks Decline Worldwide; Bear Stearns, Mizuho, Macquarie Fall

By Alexis Xydias
Macquarie Bank Ltd.'s logo

Aug. 1 (Bloomberg) -- Stocks dropped worldwide after Bear Stearns Cos. stopped 
investors from pulling money out of a hedge fund and Macquarie Bank Ltd. said 
two of its funds may post losses as the U.S. subprime-market rout spreads.

Bear Stearns shares traded at a 19-month low before the open of U.S. exchanges. 
Royal Bank of Scotland Group Plc and ING Groep NV led shares of financial 
companies lower in Europe, while Mizuho Financial

Group Inc. slid in Japan. Macquarie, Australia's largest securities firm, 
tumbled the most in five years.

The Morgan Stanley Capital International World Index, a global benchmark, fell 
0.8 percent to 1,553.62 as of 8:33 a.m. in New York, with all 10 industry groups
slipping. Futures on the Standard & Poor's 500 Index declined 0.5 percent. The 
dollar also retreated, while the risk of owning European corporate bonds soared.

``No one knows where the ultimate subprime risk resides so investors across the 
globe are ducking for cover,'' said Simon Carter, head of North American 
equities at Aegon Asset Management in Edinburgh, where he helps oversee $3 
billion. ``Incremental news of hedge funds and subprime issuers shutting their 
doors will likely continue.''

Concern that defaults among subprime mortgages may be spilling over to other 
credit markets and hurt earnings and takeovers is forcing investors to 
reappraise the risk of owning equities. The MSCI World has dropped 6.3 percent 
since its 2007 high on July 19.

National benchmarks fell in all 17 western European markets that were

open today. The U.K.'s FTSE 100 retreated 1.4 percent, while France's

CAC 40 slid 1.9 percent. Germany's DAX slipped 1.1 percent. Yen, Treasuries

The yen rose to the highest in 12 weeks against the dollar, climbing to 117.86 
from 118.61. It topped 118 for the first time since April 19. The yield on the 
benchmark U.S. 10-year note was little changed at 4.74 percent, according to 
bond broker Cantor Fitzgerald LP.

All Asian markets dropped except Vietnam. Japan's Topix Index lost 2.2 percent. 
South Korea's Kospi plunged 4 percent. The MSCI Emerging Markets Index, which 
includes Russian, Chinese and Brazilian equities, lost 3.3 percent.

U.S. stocks tumbled yesterday after American Home Mortgage Investment Corp., 
which caters to homeowners with more reliable payment records, said it lacks 
cash to fund new loans.

Bear Stearns, manager of two hedge funds that collapsed last month, said after 
U.S. markets closed that it halted redemptions from a third fund as losses in 
the credit markets expand beyond securities related to subprime mortgages.

Asset-Backed Securities

The Bear Stearns Asset-Backed Securities Fund had less than 0.5 percent of its 
$900 million of assets in securities linked to subprime loans, spokesman Russell
Sherman said in an interview yesterday. Even so, investors concerned about 
losses sought to withdraw their money, he said.

Bear Stearns declined $3.62 to $117.60. Citigroup Inc., the biggest U.S. bank, 
dropped 37 cents to $46.20. Lehman Brothers Holdings Inc.,

the largest U.S. underwriter of mortgage bonds, slipped 99 cents to $61.01.

Macquarie tumbled 11 percent to A$73.70, the biggest drop since Feb. 6, 2002. 
The bank said investors in some of its high- yield funds may lose as much as 25 
percent of their money. Macquarie Fortress Investments Ltd. was forced to sell 
assets and use the proceeds to reduce borrowings.

Funds losses may worsen because banks are forcing borrowers to sell assets as 
the value of collateral declines. ``Issues once specific to America are now 
flowing through to the rest of the world,'' said Hans Kunnen, who helps manage 
$117 billion at Colonial First State Global Asset Management in Sydney. ``People
are nervous because Macquarie looks and smells a lot like the companies that 
have been affected by this in the U.S.''

Bond Risk

Contracts on 10 million euros ($13.8 million) of debt included in the

iTraxx Crossover Series 7 Index of 50 European companies increased 59,000 euros 
to 459,000 euros today, according to JPMorgan Chase & Co.

A rise in the cost of the five-year contracts signals worsening perceptions of 
credit quality.

The Chicago Board Options Exchange Volatility Index, derived from the prices 
paid for options on the Standard & Poor's 500 Index, yesterday finished less 
than 1 point, or 2.7 percent, short of its highest since April 2003, a level 
reached on July 27.

Royal Bank, Britain's second-largest bank, decreased 5.2 percent to 562 pence. 
ING, the biggest Dutch financial-services company, retreated 2.8 percent to 
30.45 euros.

Mizuho, Sumitomo Mitsui

Mizuho, Japan's second-biggest lender by assets, slumped 10 percent to 755,000 
yen. The company said net income plunged by half to 116.5 billion yen ($983 
million) for the three months to June 30 as swelling credit costs eroded 
interest income, and fees and commissions declined.

Sumitomo Mitsui Financial Group Inc. declined 5.6 percent to 1.02 million yen. 
Babcock & Brown Ltd., Australia's second- largest investment bank, slumped 11 
percent to A$25.

Deutsche Bank AG fell 2.7 percent to 98.20 euros even after Germany's biggest 
bank said second-quarter profit rose 31 percent, beating analysts' estimates, on
record trading revenue. HBOS Plc, Britain's biggest mortgage bank, slumped 4.2 
percent to 928.5 pence even as first-half profit climbed 20 percent.

Man Group Plc, the world's largest publicly traded hedge fund company, retreated
5 percent to 539.5 pence. The company said yesterday after U.K. markets closed 
that its AHL Diversified Futures Ltd. fund fell 6.8 percent in the week ended 
July 30.

Cadbury Schweppes Plc declined 7.3 percent to 575 pence. The world's largest 
confectionery maker said first-half net income and sales missed analysts' 
estimates and margins are unlikely to improve this year.

S&P 500 futures expiring in September lost 13.10 to 1,448.80. Dow Jones 
Industrial Average futures fell 102 to 13,173. Nasdaq-100 Index futures 
decreased 12.75 to 1,933.

To contact the reporter on this story: Alexis Xydias in London at 
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