FRANCE;LAGARDE GROW FORECASTS REVIEW

France May Have to Revise Down Growth Forecasts, Lagarde Says
By Francine Lacqua and Lorenzo Totaro

Sept. 6 (Bloomberg) -- France may have to cut its growth forecasts after the economy shrank in the second quarter and because of ``current economic circumstances,'' Finance Minister Christine Lagarde said.

``It is possible that we will have to do it in the light of the various numbers that we have landing on our desk,'' Lagarde said today in an interview in Cernobbio, Italy. ``A lot of numbers are not good. Whether we look at industrial production or surveys and polls of purchasers and heads of companies, it is pretty much downwards.''

The French economy contracted for the first time in more than five years in the second quarter as exports declined and companies cut spending. Gross domestic product of the euro- region's second-largest economy fell 0.3 percent from the first quarter, when it rose 0.4 percent, the Paris-based national statistics office Insee said Aug. 14.

Any revision to the official forecast of 1.7 percent to 2 percent growth for this year would come during preparation of the 2009 budget, Lagarde told the LCI TV channel on Sept. 1.

Europeans' confidence fell more than forecast last month as the economy teetered on the brink of a recession. An index of executive and consumer sentiment in the economic outlook dropped to 88.8 from 89.5 in July, the European Commission in Brussels said on Aug. 29.

``The price of oil has gone down tremendously in the last six weeks and that is going to help the economy'' to pick up, Lagarde said today. ``It is a mixed picture where we have a few gray and dark clouds over the horizon, but there is a lining in every cloud. I think there is a little bit of that sort of lining here and there.''

A 27 percent drop in oil prices from a July 11 record of $147.27 a barrel leaves companies with more money to spend just as a weaker euro underpins exports. The dollar this week rose to the highest this year against the euro.

``The fact that the dollar is strengthening against the euro is not bad either,'' the minister said. ``Clearly, it will help those European enterprises that export outside the euro zone to be more competitive.''

USA:FANNIE&FREDDIE UNDER GVT. CONTROL

Paulson Plans to Take Control of Fannie, Freddie (Update1)
By Alison Vekshin and Dawn Kopecki

Sept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to tell them of the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.

Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, Bill Gross, co-chief investment officer at Newport Beach, California-based Pimco, said yesterday in a Bloomberg Television interview.

``They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital. About 61 percent of Gross's holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or government agency Ginnie Mae, according to data on Pimco's Web site.

Briefing Campaigns

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, FHFA director James Lockhart, Syron and Mudd in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team today and has contacted Republican contender John McCain's staff about its intentions.

The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.

Shareholder Fate

Washington-based Fannie and Freddie dropped in after-hours trading. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70. Fannie is down about 66 percent since the end of June as concerns about the companies' capital grew. Freddie has fallen about 69 percent.

Fannie's market capitalization is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.

The Washington Post reported that the government would make quarterly injections of funds as the companies' losses warranted, avoiding a large up-front taxpayer cost, citing sources it didn't name. Debt and preferred shares would be protected, and common stock would be diluted while not wiped out, the Post said.

The New York Times said most or all of both the common and preferred shares would be worth little or nothing.

`Making Progress'

``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said yesterday in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.

Bernanke participated in yesterday's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.

The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.

FHFA Assessment

The FHFA was scheduled to release its assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.

Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.

Standard & Poor's and Moody's Investors Service cut the preferred stock ratings of both companies to the lowest investment-grade quality on concern a bailout may not extend to the securities. S&P reduced the rating to the lowest investment grade, citing ``uncertainty'' about whether any government bailout would extend to the securities. The senior debt, implicitly backed by the government, carries the top ratings.

Expanding Ownership

``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.

Congress created Fannie and Freddie to expand homeownership and provide market stability. They make money by buying mortgages from banks, funding their purchases with low-cost debt, and by guaranteeing home-loan securities.

The government has been leaning on the companies to help pull the economy out of a housing slump as other buyers retreat from the market, burned by more than $500 billion of losses since the collapse of the subprime-mortgage market last year.

Fannie and Freddie need to sell billions of dollars of bonds each month to pay off maturing debt. As of mid-August the companies had $223 billion of debt to refinance by the end of the quarter.

Record Spreads

While they have continued to issue securities, Fannie and Freddie have paid record yields over U.S. Treasuries to attract investors reluctant to take on the debt even with its implicit backing from the government.

Freddie Mac sold $3 billion of two-year reference notes this week at 3.229 percent, or 97.5 basis points more than Treasuries of similar maturity, the highest since at least 1998, based on company and market data compiled by Bloomberg.

Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

Mudd was accompanied in his meetings at FHFA yesterday by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley. Last week, he shook up the company's management in an effort to restore investor confidence, replacing three top deputies.

Fannie Mae was created in 1938 as part of President Franklin D. Roosevelt's New Deal. With the Vietnam War pressuring the federal budget, Fannie Mae was split from the government in 1968, and shares in the company were sold to the public. Freddie Mac was created in 1970 to provide competition for Fannie Mae.

To contact the reporter on this story: John Brinsley in Washington at jbrinsley@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: September 6, 2008 12:18 EDT

ECUADOR; PIB 4.5% EN 2008?, REUTERS

B. Central Ecuador revisa al alza PIB 2007
viernes 5 de septiembre de 2008 20:06 GYT Imprimir [-] Texto [+]
Por Alonso Soto

QUITO (Reuters) - El jefe del Banco Central de Ecuador dijo el viernes que su institución revisó al alza su dato de crecimiento económico para el 2007 y mejoró su pronóstico de expansión económica este año a más del 4 por ciento.

"El primer trimeste de este año es un crecimiento de 1,3 por ciento; si ese crecimiento se sostiene, el crecimiento de este año va a ser sobre el 4 por ciento," dijo Carlos Vallejo a Reuters.

El banco había estimado en junio un crecimiento del PIB de 3,1 por ciento para este año.

La información de Vallejo sobre el crecimiento económico en el primer trimestre del 2008 fue la primera divulgada públicamente por un funcionario del Gobierno.

El funcionario hizo otro anuncio por primera vez sobre las revisiones del crecimiento económico del 2007. Vallejo dijo que el banco revisó al alza la tasa de crecimiento del país productor de petróleo a 2,49 por ciento, desde una cifra previa de 1,9 por ciento.

Vallejo no ofreció un pronóstico específico sobre el crecimiento para el 2009, pero dijo que la perspectiva del Ministerio de Finanzas era "conservadora."

El miércoles, la ministra de Finanzas, Wilma Salgado, dijo a Reuters que su ministerio había subido su pronóstico de crecimiento en el 2008 a 4,5 por ciento y lo desaceleró a 3,5 por ciento para el próximo añor, tras citar la propuesta de presupuesto del Gobierno.

Vallejo asumió como presidente del directorio de cinco miembros del banco central en julio, el mismo mes en que Salgado se hizo cargo de su puesto ministerial.

Vallejo dijo que el banco está revisando su metodología para calcular el Producto Interno Bruto (PIB) del país, una medida criticada por algunos economistas que dijeron que el Gobierno está alterando sus cifras para favorecer la imagen de la administración del presidente Rafael Correa, quien subió al poder en enero del 2007.

El presidente Correa, que en un tiempo fue ministro de Economía, ha acusado a algunos funcionarios bancarios de carrera de manejar mal los indicadores para socavar a su Gobierno de izquierda.

Vallejo, un aliado cercano de Correa, desestimó las acusaciones de alteración de cifras y dijo que el banco central ha usado información actualizada para caluclar sus cifras del PIB. Agregó que expertos de Argentina y Naciones Unidas están ayudando a mejorar su metodologúía.

Argentina ha enfrentado una serie de críticas de economistas y analistas que dicen que manipula sus cifras de inflación.

"Vamos a hacer un cambio radical en el censo para tener una estructura moderna y definitiva," dijo Vallejo, un agrónomo que se desempeñó como ministro de Agricultura de Correa hasta enero.

(Editado en español por Rodolfo Saavedra)

USA; FANNIE%FREDDIE INTERVENTION

Government may soon back troubled mortgage giants

By ALAN ZIBEL, AP Business Writer 2 hours, 33 minutes ago

WASHINGTON - The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.



Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn't expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation's total.

Representatives of Fannie and Freddie declined to comment on the government assistance plan.

Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.

He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange and was president of the Federal Reserve Bank of Boston in the early 1990s.

Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.

A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.

But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.

___

AP Business Writers Martin Crutsinger and Jeannine Aversa contributed to this report.