REal Talk with CPN
November 20, 2008
— While Wall Street rebounded Tuesday in another turbulent session as investors rushed back into the market after the Standard & Poor’s 500 index tested a 2003 low, the market for debt used to finance hotels, offices and shopping malls tumbled Tuesday on worries that the long-feared rise in defaults for commercial mortgage-backed securities had begun, possibly ushering in the next phase of the financial crisis, according to the Wall Street Journal. Analysts at Credit Suisse said two big commercial mortgages that had been packaged into securities in the past year were likely to default. The rapid deterioration of these loans fed worries that the weakening economy and higher unemployment rate would drag down the $800 billion market for commercial-mortgage-backed securities, or CMBS, which so far has withstood the credit crisis with low delinquency rates, the Journal reported. Both loans were made by J.P. Morgan Chase & Co., a $209 million mortgage backed by two Westin hotels in Tucson, Ariz., and Hilton Head, S.C., and a $125 million loan secured by a retail center, called Promenade Shops at Dos Lagos, in Corona, Calif., according to the Journal.
- A d v e r t i s e m e n t
But, while the financial crisis may be growing, Dow Jones reported that Bank of America Corp. bought an additional 8.4 percent stake in China Construction Bank Corp. for $7 billion, so it now holds 19.13 percent of China Construction Bank with an intent to exercise an option to buy more shares in the bank.
On the subject of financing, the Journal also reported that General Electric Co. said Tuesday that it is reorganizing its finance arm, GE Capital, to save $2 billion in 2009. Unspecified layoffs will follow as low-performing assets are scrapped. Recently, the company raised $15 billion, however the company said last week that GE Capital would participate in a federal debt-guarantee program. The company has also accessed a short-term funding facility created by the Federal Reserve, according to the report.