Japan Awaits U.S. Move on Fannie

123jump.com Staff
11 Jul, 2008
New York City

Stocks in Japan continue to decline as investors worry that the growing crisis in the U.S. financial system may dampen exports. The ongoing credit market crisis in the U.S. may require bailout of the two mortgage agencies Fannie Mae and Freddie Mac. The two mortgage lenders collectively hold $5.2 trillion in debt and the U.S. government debt totals $9.3 trillion. Exporters, banks, realtors and retailers closed lower. J Front Retailing fell 5% after it forecasted annual income rise of 19%.

[R]5:00AM New York, 7:00PM – Investors fear that the growing crisis in the U.S. financial system may require U.S. government bailout of two government sponsored mortgage agencies Fannie Mae and Freddie Mac.[/R]

Stocks in Japan fell as increasing crude oil prices adversely impacted on carmakers. The ongoing crisis in the U.S. credit market appears to be deepening and regulators and government are struggling to find solutions.

The two U.S. government sponsored government agencies, Fannie Mae and Freddie Mac that control more than half of mortgage markets in the U.S. are considered by strict financial standards insolvent. Treasury Secretary Paulson and Fed Chairman Bernanke are seeking a legislative solution that may transfer a large part of these debts to the U.S. government. The two lending institutions collectively have $5.2 trillion of liabilities.

Also a report in the New York Times that noted that the Bush administrating was mooting a legislation that offers an explicit guarantee of $5 trillion of debt owned by Freddie Mac and Fannie Mae added to market jitters. Any bailout plan by the U.S. government is likely to wipe out shareholders of two lenders.

Market Sentiment

In Tokyo trading Nikkei 225 fell 0.21% or 27.52 at 13,039.69, dropping 1.5% for the week, and the broader Topix Index 0.4% or 4.85 at 1,285.91.

In the first section of the Tokyo Stock Exchange 23 billion shares worth 2.5 trillion yen was traded and in the second section 374 million shares valued at 6.2 billion yen changed hands.

Of the Nikkei 225 stocks 94 rose, 123 declined, and 8 were unchanged. Advantest Corp. led advancers in the index shares with a rise of 7.60% followed by Tosoh Corp increasing 3.84%.

US Mulls Takeover of Fannie and Freddie

The New York Times reported yesterday that senior Bush administration officials are mulling a plan to have the government to take over mortgage finance companies Freddie Mac and Fannie Mae and place them in a conservatorship if the turmoil in the markets persist.

Lehman Brothers said earlier in the week the two mortgage companies will need to raise $75 billion to avoid further write down if new accounting rules are implement that require greater disclosure of off-balance sheet liabilities.

According to the report, the administration has also considered a legislation that will offer an explicit government guarantee of $5 trillion of debt owned or guaranteed by the companies that will significantly increase the U.S. government debt. U.S. government is approximately $9.3 trillion of debt.

However, the officials said that no action by the administration is imminent, as Fannie and Freddie are not considered to be in a crisis situation.

Fannie and Freddie will require new capital which will significantly dilute current shareholders.

Japan Consumer Sentiment Falls

The Cabinet Office reported today the sentiment index slid from 33.9 in May to 32.6 in June, which is the lowest since 1982. Consumers have widely become pessimistic because of rising oil and raw material prices. About 87.2% of households forecast that prices will rise a year from now.

Gainers & Losers

Advantest Corp. led advancers in the Nikkei 225 index shares with a rise of 7.60% followed by rises in Tosoh Corp of 3.84%, in Tokyo Electron of 3.68%, in Inpex Holdings of 3.33%, and Sanyo Electric of 3%.

Inpex Holdings advanced after crude oil for August delivery edged up 4.1% yesterday after Brazilian oil workers threatened a strike and on rising tensions in both the Middle East and Nigeria.

Commodities also gained as well. Sumitomo Metal Mining spiked 2.35% and Toho Zinc surged 1.99%.

Sumitomo Osaka led decliners in the Nikkei 225 index shares with a fall of 9.91% followed by losses in J Front Retailing of 4.68%, in Kajima Corp of 3.99%, in Nippon Soda Co. of 3.72% and Yahoo Japan Corp of 3.64%.

J Front Retailing shed after the company forecast that full year net income will rise 19%.

Carmakers also fell. Nissan plummeted 2.91%, Suzuki dropped 2.11% and Toyota slid 1.81%.