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Goldman Sachs stands to receive a payment of US$1B, while US taxpayers would lose US$2.3B, if the embattled commercial lender CIT files for Chapter 11 bankruptcy protection, LTN learned today. The payment is based on the structure of a US$3B rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought US$2.3B in CIT preferred shares to prop it up at the height of the US financial crisis. The potential loss for taxpayers would be the biggest so far from the government’s capital injection plan for banks. The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a “make whole” amount that totals US$1B, people familiar with the transaction said. While Goldman is entitled to demand the full amount, it is likely to agree to postpone payment on a part the amount. Read more

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The US$ hit a 5 month low against a basket of major currencies on Friday and the euro rose above US$1.41 for the first time this year as investors bought higher-yielding currencies and assets on hopes of a global economic recovery. Sterling approached US$1.62, almost an 8 month high, and capped its best month since 1985, while data showing the US economy shrank less than expected in the first quarter lifted global stocks and dulled the dollar’s safe-haven allure. Concern about the expanding amount of debt needed to fund a record US$1.8T US budget deficit added to dollar woes this week and put the benchmark 10-year Treasury yield en route to its biggest 2 month spike since 2004. Those worries amplified a report that South Korea’s National Pension Service intends to reduce exposure to US government bonds and equities in its 5 year portfolio. “There’s a visceral concern about the debasement of the US currency because the United States has a lot of debt to finance” and may have to print more money to do it, said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut

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U.S. consumer confidence slipped to a record low in January, and governments around the world offered further help to banks and industries battered by the global financial crisis. U.S. industry group Conference Board said its sentiment index fell to 37.7 from a revised 38.6 in December, confounding forecasts for a small uptick after Europe’s biggest economy, Germany, showed a surprise rise in business sentiment.

Japan and Britain widened their efforts to help industries hurt by slowing economies, with the UK offering loan guarantees for automakers, while sources said Russia was preparing more support for banks. Japan enacted a US$53B extra budget and said it would offer a lifeline to the small- and medium-sized companies at the heart of the world’s second-largest economy with a US$16.7B fund to buy stakes. Britain announced it would guarantee up to 2.3B pounds (US$3.25B) of loans to the car industry, much of which is foreign-owned, including Ford Motor Co, Honda Motor Co and Nissan Motor Co..France and Italy are also planning aid while Germany and the United States have already announced plans to support automakers. In Russia, sources told Reuters that the government was set to help top bank Sberbank and other lenders with a second bailout package worth more than $27 billion.

One government source said Russia planned to offer Sberbank a 500B roubles subordinated loan. Last week, US Secretary of the Treasury, Timothy Geithner set to work overhauling a US$700B program to rescue the world’s largest economy from the worst financial crisis since the Great Depression. He is expected to propose new steps to unclog credit markets in the next two weeks. Canada’s budget and stimulus package will include incentives for home renovations and a promise of relief for credit card borrowers as well as tax breaks for middle- and lower-income Canadians, the Globe and Mail newspaper reporter.

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The rally in U.S. Treasuries that pushed yields on T bills below 0% this week is adding to concerns that the US$5.3 T market for government debt is a bubble waiting for a pin.

Investors seeking safety from losses in equity and credit markets charged the Treasury 0% interest when the government sold US$30 billion of four-week bills on Dec. 9, the same day three-month T bill rates turned negative for the first time since the US began selling the debt in 1929. Yields on two- 10- and 30-year securities also touched record lows this month.

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