Central banks’ prompt action keeps crisis at bay, says IMF

Central banks’ prompt action keeps crisis at bay, says IMF
WASHINGTON - SHARP swings in world financial markets have yet to challenge the stability of the system and prompt central bank action ought to ensure an orderly adjustment, the International Monetary Fund (IMF) says.
The multilateral lender, which bailed out several countries during the 1997 Asian financial crisis, said on Friday that global economic growth should not be derailed by the mortgage and credit jitters spreading from the US.

‘While the situation is still evolving, we continue to believe that the systemic consequences of the reassessment of credit risk that is taking place will be manageable,’ said IMF spokesman Masood Ahmed.

‘The fundamentals supporting strong global growth remain in place, and the re-establishment of credit discipline that is occurring is a healthy development.’

While its officials continue to closely track market developments around the globe, the IMF said that ‘prompt action’ by central banks to add cash to the banking system should help avert a crisis in credit markets.

AFP

Source :  Straits Times - 12 Aug 2007

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Fed gives banking system $58 billion booster shot

Fed gives banking system $58 billion booster shot

Aggressive move helps Dow end in positive territory but analysts warn of turbulent week ahead as fears over credit crunch remain
NEW YORK - THE US Federal Reserve has pumped another US$38 billion (S$58 billion) into the financial system to soothe fears of a worldwide credit crunch, with promises of more funds ‘as necessary’.
The move on Friday was the largest single-day infusion since the aftermath of the Sept 11 attacks. It followed a fund injection of US$24 billion on Thursday.

Friday’s move, done over three separate market operations, helped the Dow Jones Industrial Average gain 0.44 per cent for the week to end at 13,239.54. The market barometer reversed a 0.63 per cent decline in the prior week and a drop of more than 4 per cent in the week before that.

The broad-market Standard & Poor’s 500 rose a more substantial 1.44 per cent over the week to 1,453.64.

‘They’ve been very aggressive and they want to make sure there’s sufficient liquidity in the financial market,’ Mr Ward McCarthy, principal at Stone & McCarthy Research in New Jersey, said of the Fed’s move on Friday. ‘It looks like they succeeded.’

Financial markets have been shaken by fears about spreading credit problems that started with home mortgage defaults in the US. That has led to tighter lending standards, making it harder for people and businesses to get credit.

Investors are worried that these problems will infect the larger financial system and possibly hurt the US economy, the global growth engine.

The Fed’s latest fund injection came on the heels of stock market tumbles around the world, some by as much as 5 per cent over two days. Central banks from Europe to Australia have since injected more than US$320 billion into the banking system to protect liquidity and shore up confidence.

‘Central banks are doing the right thing. They’re adding liquidity to a system that needs it and they will continue to do so until it doesn’t need it,’ said Mr Art Hogan, an analyst at Jefferies and Co.

The Fed’s record liquidity booster was US$81.25 billion on Sept 14, 2001. Its most potent weapon, though, would be to lower the federal funds rate, now at 5.25 per cent. That rate is the interest banks charge one another on overnight loans.

However, cutting interest rates could encourage a resurgence of the very risky mortgage lending that has caused the turmoil.

Mr Ed Yardeni, president of Yardeni Research in New York, said Federal Reserve policymakers ‘are trying to do everything they can short of cutting the federal funds rate’.

But he added: ‘I think they probably have to cut rates, and probably before their scheduled September meeting.’

In any case, analysts warn investors to brace themselves for fresh stock turmoil in the coming week as uncertainty about the credit squeeze persists.

Economists also expect a government report on housing starts on Thursday to register fewer new projects last month compared to June as homebuilders cut back on new developments.

‘As we have been saying for the last month, keep your seat belts and shoulder harnesses fastened. The ride will remain rough,’ said Mr Frederic Dickson, an equity analyst at DA Davidson.

AFP, AP
Source :  Straits Times - 12 Aug 2007

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Horizon Towers sale deadline expires

Horizon Towers sale deadline expires

Owners will not extend sale deadline but will appeal against STB’s dismissal of the sale
By Elena Chong
THE legal battle over the Horizon Towers collective sale entered a new stage when majority owners decided not to extend the sale agreement that expired yesterday.
Instead, the sales committee will appeal against the Aug 3 decision of the Strata Titles Board (STB) dismissing the $500 million sale on technical grounds.

If the appeal succeeds, another sale application can be made to the STB, but not under the terms - and price - of the old agreement as that died yesterday.

Yesterday’s decision - after two days of intense legal meetings - could also fend off a threatened lawsuit from the intended owners, Hotel Properties Limited (HPL), Morgan Stanley Real Estate and Qatar Investment Authority.

Committee member Joyce Tan said last night: ‘We heard many views from home owners who are anxious over the prospect of litigation.

‘The feeling was that they did not do anything wrong, but they are faced with potential lawsuits with huge claims against them.’

The intended buyers have threatened to sue the majority owners for lost profits - estimated at between $800 million and $1 billion - from the project that would have been built on the Leonie Hill site.

They also wanted the sale deadline extended by four months and the STB decision appealed. Both moves could have cleared the way for the sale to go ahead - but at the original $500 million price many owners now feel is inadequate.

If the sales committee’s appeal succeeds, it will re-submit its sale application.

It is not clear why the committee decided against an extension, but it hopes that its appeal will show that it cannot be faulted for not getting the paperwork right.

But if it wins the appeal, Horizon Towers cannot be sold to the HPL group under the existing agreement as it lapsed yesterday.

Owners will be back to square one and have to negotiate a new deal, and presumably a higher price.

The Grangeford next door was sold en bloc earlier this month at double the asking price per square foot (psf) achieved by Horizon Towers in February.

Many owners realised earlier this year that they had sold at a bargain price and even those who signed the sales agreement ended up backing the minority owners in their bid to unwind the deal.

If the sale had gone through, the owners of the 199 flats would have pocketed $2.3 million while the 11 penthouse owners would have walked away with $4 million or more each.

Source :  Straits Times - 12 Aug 2007

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Mindy Yong
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mindy@mindyyong.com