CHRONOLOGY: The credit crunch of 2007
LONDON (Reuters) - The severe financial market credit squeeze that emerged in early August had been brewing all year and policymakers warn of long-term consequences for the world economy. Following is a timeline of events in the crisis so far:
* Q4, 2006 - U.S. housing market slows after 2 years of steady increases in official interest rates. Delinquency rates on subprime loans rise to 13 percent from 10 percent seen in 2004 and 2005, leading to a wave of bankruptcies at subprime lenders. Interest rate spreads on Collateralized Debt Obligations, repackaged bonds and loans which included subprime mortgage debt, widen sharply in December and January of 2007
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* Feb 8, 2007 - HSBC says more funds will have to be set aside to cover bad debts in U.S. subprime lending portfolios. California's New Century Financial Corp -- the U.S.'s third-largest subprime lender -- said it expected Q4 2006 loss. Spreads on non-investment tranches of home equity CDOs widen more than 200 basis points in the two days that follow
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* Feb 27 - Global equities plunge as jitters about U.S. housing combine with 10 percent drop in China's main stock index
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* June 20 - Two Bear Stearns-managed hedge funds BSC.N announce double-digit losses through April after making bad bets on securities backed by subprime loans. They sell $4 billion of assets to cover investor redemptions and expected margin calls. Merrill Lynch sells off assets seized from the funds.
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* July 10 - Credit ratings firm Standard & Poor's said it may cut ratings on some $12 billion of subprime debt. U.S. firms Home Depot Inc (HD.N) and D.R. Horton Inc (DHI.N) issue warnings about the housing market. Credit spreads measured by the iTraxx Crossover index, a widely-watched barometer of credit sentiment, jumps 20 basis points to 270 -- up almost a percentage point from record lows under 188 basis points on June 1
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* July 17 - Bear Stearns says two hedge funds with subprime exposure have "very little value"; credit spreads soar
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* July 19 - S&P slashes ratings on some top-rated mortgage bonds by eight notches.
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* July 26 - Credit spreads leap above 380 bp as loan deals for some key leveraged buyouts such as Alliance Boots are put on ice. Japan's yen surges as risky high-yield currency plays start to unwind amid generalised market stress
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* July 30 - German industrial bank IKB IKB.DE cuts earnings targets for 2007/08, citing losses related to U.S. subprime mortgages. iTraxx balloons to record highs above 500 basis points. After four days of heavy losses, world stock market indices hit their lowest level in almost three months
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* July 31/Aug 1 - American Home Mortgage Investment AHM.N said it may have to liquidate assets, fueling concerns about a spillover of subprime losses into other areas. Australia's Macquarie Bank warned that retail investors face losses of up to a quarter in two of its high-yielding bond funds
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* Aug 7 - U.S. Federal Reserve leaves interest rates steady at 5.25 percent, saying economic growth remains moderate despite tighter credit and inflation risks remain its main concern
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* Aug 9 - European Central Bank adds 94.8 billions euros of one-day funds to money markets as interbank lending dries up amid concern about banks' subprime exposure and after overnight borrowing rates surge to 4.6 percent. The move followed news from French bank BNP Paribas (BNPP.PA) that it froze $2.2 billion worth of funds, citing subprime problems. The Fed and Bank of Canada also add liquidity to their banking systems. Germany's Bundesbank organizes a meeting to rescue IKB. German bank regulator Bafin said it was looking into the $17.5 billion special funding vehicle of German state bank SachsenLB, raising concerns about structured investment vehicles and bank-sponsored conduits heavily dependent on short-term finance
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* Aug 17 - U.S. Fed surprises markets by cutting its discount rate for direct loans to banks by half a percentage point to 5.75 percent, saying downside risks to growth from tightening credit markets had increased appreciably. World stock markets surge from 5-month lows. SachsenLB said German savings banks had provided a credit facility of 17.3 billion euros to secure the liquidity of its Ormond Quay conduit
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* Aug 21 - Britain's Barclays Bank (BARC.L) borrows 314 million pounds from the Bank of England's standing lending facility, the first use of the penalty rate facility since the credit crisis began. Barclays taps the central bank for emergency funds of some 1.6 billion pounds for a second time on August 30, citing a technical hitch in the UK clearing system
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* Sept 6 - ECB leaves interest rates on hold at 4 percent, seen as at least a postponement of the interest rate rise it had appeared to signal in early August
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* Sept 13 - British mortgage lender Northern Rock NRK.L sought emergency financial support from the BoE, according to news reports. The report and its confirmation spark a run on the bank's deposits by worried savers in the days that follow
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* Sept 17 - British finance minister Alistair Darling says the government will guarantee all deposits at Northern Rock
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* Sept 18 - U.S. Fed cuts its key Federal funds target rate and discount rate by half a percentage point to 4.75 percent and 5.25 percent respectively, saying the cuts were a pre-emptive move to neutralize the impact of the financial market turmoil on the broader U.S. economy. World equity and credit markets rally
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* Sept 19 - Bank of England offers to inject 10 billion pounds of emergency three-month funds into money markets at penalty rates and accepting a wider pool of assets as collateral
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* Sept 18-20 - U.S. investment banks start reporting third-quarter earnings, with mixed overall results. Goldman Sachs (GS.N) recorded $1.71 billion in losses in leveraged loans earmarked for buyout. Bear Stearns BSC.N recorded losses of $200 million related to its hedge fund problems
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* Sept 24 - Germany's Deutsche Bank (DBKGn.DE) could record Q3 losses on its loan book of up to 1.7 billion euros, sources tell Reuters, as it estimates a 4-6 percent cut in loan values
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* Sept 24/25 - The International Monetary Fund's Global Financial Stability report says problems in the credit and money markets will recur and the tightening of credit will slow the global economy. The Group of Seven's Financial Stability Forum says a "period of adjustment" may take some time
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* Sept 26 - European money markets remain tight as ECB allots 50 billion euros of three-month refinancing at 4.63 percent -- its highest since March 2001. Recent easing of sterling interbank rates meant the Bank of England received no bids for three-month funds at a penal 6.75 percent. The move eases residual concern another UK bank may need the facility.
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* Sept 27 - ECB announces it lent out 3.9 billion euros ($5.5 billion) at its penalty rate of 5 percent on Sept 26 but it declined to say which bank or banks needed the extra funds. Germany's Dresdner Bank DRSDgd.F denied a market rumor that it had been forced to borrow ECB funds at the top rate.
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* Oct 1 - Two of the world's biggest investment banks detail heavy losses during the third quarter. Swiss bank UBS AG (UBSN.VX) said it would write down $3.4 billion in its fixed-income portfolio and elsewhere, and record its first quarterly loss in nine years. Citigroup (C.N) said it was expecting a fall of about 60 pct in third-quarter net income. Separately, Credit Suisse (CSGN.VX) also said its third-quarter results would be "adversely affected".
