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Wednesday, February 25, 2009


Home prices slump 18.5% in 20 U.S. cities
The S&P/Case-Shiller index reported the fastest drop in home prices on record. Prices in 20 U.S. cities fell 18.5% in December compared with the same month a year earlier. Bloomberg (24 Feb.)

U.S. reliance on China might complicate crisis resolution
Analysts said resolving the banking crisis might be complicated by U.S. reliance on China to finance its budget and trade deficits. Although the theory cannot be proved using publicly available data, the analysts said the Obama administration might be hesitant to seize banks because of debt holdings of major U.S. banks by Chinese financial institutions. Financial Week (23 Feb.)

Fed increases pressure on banks to cut dividend
U.S. banks are facing even more pressure from the Federal Reserve to cut dividend. In a letter to the 12 regional Fed banks and the bank holding companies they oversee, the central bank said the dividend of banks that received government assistance would be particularly scrutinized. "While many organizations place great importance on maintaining their dividends, a board of directors should reduce or eliminate dividends when the quantity and quality of the bank holding company's earnings have declined or the [firm] is experiencing other financial problems or when the macroeconomic outlook for the [firm's] primary profit centers has deteriorated," according to the letter. Reuters (24 Feb.)

Lehman's insolvency shines spotlight on prime brokerage
The future of the prime-brokerage industry is uncertain, after the collapse of Lehman Brothers highlighted issues and risks of the business. While there is no standard agreement that governs prime brokerage, brokers traditionally strike their own deals that protect them from hedge-fund insolvency. The Lehman situation showed that hedge funds can be painfully exposed to an insolvency by a prime brokerage. Proposed regulatory changes might address the issues, and structural changes to the prime-brokerage model in the U.K. are likely. International Law Office (London) (registration required) (24 Feb.)

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