Wednesday, February 13, 2008

Global Confidence Weakens for Third Month on Slowdown

(Bloomberg) -- Confidence in the global economy fell for a third month in February as the slowdown in the U.S. spread to Europe and Japan, a survey of Bloomberg users on five continents showed.

The Bloomberg Professional Global Confidence Index fell to 14.3 from 21.0 in January. Users in Asia were the most pessimistic about the global economy, with the index falling to 12.6 from 15.0. A reading below 50 indicates negative sentiment.

Global stocks have lost more than $6 trillion this year as credit dried up for some borrowers and the U.S. expansion stalled. After insisting Europe would weather the slowdown, European Central Bank President Jean-Claude Trichet said last week uncertainty was ``unusually high,'' while Bank of Japan Governor Toshihiko Fukui may see his interest-rate increases reversed by his successor within months.

``First credit markets collapsed and that led to a banking crisis which has affected the real economies of all regions,'' said Jose Carlos Diez, chief economist at Intermoney SA in Madrid and a participant in the survey. ``We have yet to know when the slowdown of the global economy will end and I don't expect a recovery before the summer of 2009.''

The Bloomberg Professional Confidence Survey collated the responses of 6,878 Bloomberg users from Auckland to New York on the economic health of their region and the world. The survey was conducted from Feb. 4 to Feb. 8. The investors, traders and analysts were also asked about the outlook for their currencies, bonds, stocks and rates in the next 6 months. Participants answered questions in cities including Hong Kong, Zurich and London.

Pessimistic Americans

North American users were the most pessimistic about economic growth in their region, with the index falling to 19.3 from 19.6. Home sales in the world's largest economy fell at the fastest pace since at least 1963. While users in Asia were the least pessimistic, the index suffered the sharpest deterioration, falling to 43.5 from 51.1.

``We're already getting signs that things are deteriorating, but there's fear that things are going to get worse,'' said Samra Al-Harthy, an economist at Standard Chartered Plc in London.

In Europe, sentiment toward the world economy dropped to 12.9 from 17.3. Participants there also soured on their own economy, pushing the regional index down to 26.2 from 27.3.

IMF Lowers Forecast

The International Monetary Fund in January lowered its forecast for global economic growth this year to 4.1 percent, the lowest since 2003, from 4.4 percent predicted in October. The IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories is hurting the rest of the economy.

Financial institutions around the world face $400 billion of write-offs as a consequence of the U.S. subprime mortgage slump, according to Group of Seven estimates, German Finance Minister Peer Steinbrueck said on Feb. 9.

UBS AG, Europe's largest bank by assets, last month posted the biggest loss ever by a bank after raising fourth-quarter writedowns to $14 billion. The world's biggest financial companies have booked more than $145 billion of writedowns and losses since the beginning of 2007, partly because of the declining value of securities backed by assets including U.S. subprime mortgages.

``The epicenter of this slowdown is clearly the U.S.,'' said Kathleen Stephansen, chief global economist at Credit Suisse in New York. Still, ``the credit crunch will be exported to Japan and, particularly, Europe.''
 

MGIC Loses $1.47 Billion in Quarter, Seeking Capital

(Bloomberg) -- MGIC Investment Corp., the largest U.S. mortgage insurer, fell the most in a month after posting a record quarterly loss of $1.47 billion and said it hired an adviser to raise capital.

MGIC's fourth-quarter net loss was $18.17 a share, compared with a profit of $122 million, or $1.47, a year earlier, the Milwaukee-based company said in a statement today. Excluding investment losses, the insurer lost $18.09 a share, worse than the $8.13 average loss estimate of seven analysts compiled by Bloomberg.

Claims costs, including additions to reserves, surged sevenfold to $1.35 billion, compared with a Jan. 22 company forecast of as much as $1.3 billion. MGIC set aside money for losses on loans that served as collateral for Wall Street securitizations, whose performance ``deteriorated materially.''

``Higher loss severities and higher delinquencies had a material impact,'' Curt Culver, MGIC's chief executive officer, said in the statement. While the company expects to remain unprofitable this year, Culver said MGIC has adequate capital to meet its claim obligations.

MGIC fell $2.03, or 14 percent, to $12.15 at 10:10 a.m. in New York Stock Exchange composite trading. Earlier in the session the company fell as much as 16 percent.

Foreclosure Rates

U.S. foreclosure rates have risen to their highest since at least World War II, and defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, according to the Mortgage Insurance Companies of America trade group. Foreclosure rates rose 75 percent in 2007, according to Irvine, California-based RealtyTrac Inc. Mortgage insurers reimburse lenders when borrowers don't repay their debts.

Borrowers who couldn't make higher monthly payments after introductory rates expired propelled a jump in third-quarter claims, leading MGIC and smaller rivals PMI Group Inc. and Radian Group Inc. to report their first money-losing quarters as publicly traded companies.

Payments on about $460 billion of adjustable-rate mortgages are scheduled to be repriced this year, with an additional $420 billion expected for 2011, according to New York-based analysts at Citigroup Inc.