[NYTr] Booming Economy: 8 Items on the Economic Meltdown

[All the News That Doesn't Fit]

[sort of a mess, but we cleaned it up as best we could --it's
got some important storie from all over the world putting the
lie to the 'Booming Economy" myth - NY Transfer]

sent by Janet M Eaton (activ-l) - Aug 6, 2007

Economic Meltdown? 8 items

Contents:

[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

fyi-janet

p.s See also
http://www.bloomberg.com/apps/news?pid=20601087&sid=asTKv.qncrXc&refer=home


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
http://news.yahoo.com/s/ap/20070805/ap_on_bi_ge/wall_street_week_ahead_2

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?
http://www.reportonbusiness.com/servlet/story/RTGAM.20070804.r-takingstock03/BNStory/Business/home

BRIAN MILNER

Toronto 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
storms.

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 

http://sg.biz.yahoo.com/070801/1/4a9y7.html

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 points.

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 months.

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 feeds.

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.

<><><><><><><><><>

[3]
http://www.bloomberg.com/apps/news?pid=20601087&sid=aBuz_1cIZ_EQ&refer=home

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 percent.

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 loan.

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
yonaran at bloomberg.net . Last Updated: July 31, 2007 19:58 EDT

<><><><><><><><><>

[4] German victim as credit turmoil hits Europe 

by Tom Bawden and Gary Duncan 

Times of London - July 31
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2169971.ece

The turmoil gripping world credit markets spread to Germany
yesterday, claiming another victim as one of the country4s leading
small business lenders was bailed out after succumbing to financial
strains from the American sub-prime mortgage crisis.

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 lender4s credit rating.

As IKB4s shares tumbled by more than a fifth, the blow to Germany4s
financial sector also sent shares in other banking groups in Europe4s
 biggest economy tumbling.

IKB4s 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 investors4
sentiment towards European low-grade corporate debt yesterday hit the
 worst levels on record.

Germany4s 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 Britain4s 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 economy4s overall rate of growth.

<><><><><><><><><>

[5] 

The Baltimore Sun
www.baltimoresun.com/business/bal-bz.fieldstone01aug01,0,2226076.story baltimoresun.com

C-Bass owners may write off $1 billion stake

By Laura Smitherman
Sun reporter

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 portfolio.

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 markets."

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 July.

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 purchases."

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[6] Mizuho Leads Japan Bank Stocks Lower on Profit Slump (Update3)

Bloomberg - Aug 1, 2007
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 costs.

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 aside.

`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 said.

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 segment.

To contact the reporter on this story: Finbarr Flynn in Tokyo at
fflynn3 at bloomberg.net Last Updated: August 1, 2007 03:21 EDT

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[7] Bloomberg - Aug 1, 2007

Stocks Decline Worldwide; Bear Stearns, Mizuho, Macquarie Fall

By Alexis Xydias Enlarge Image 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.