House Prices Head Southwest

Phoenix, take a bow. You are the new poster child of the U.S. housing market decline according to the latest data, the New York Times reports. Home prices in the 12th-largest metropolitan area in the United States fell 4.5 percent in February, according to the Standard & Poor’s Case-Shiller Home Price Index. That's a drop of 50.8 percent since the market peaked in June 2006. "Even during the Depression, I’m not sure prices fell this quickly," one real estate academic at Arizona State University tells the NYT. Phoenix is the lowliest character in a national house-market portrait that shows things continuing to get worse but more slowly. "In February, the price of single-family homes in 20 major metropolitan areas fell 18.6 percent from the year earlier, compared with a record drop of 19 percent in January," notes the NYT. On the back of these latest figures, the Obama administration announced it will expand its foreclosure-prevention program to cover second mortgages and will connect more at-risk households to its Hope for Homeowners program, CNN Money reports. The move comes as the administration tries to jump-start the ambitious but so far bureaucratically entangled $75 billion homeowners assistance program and as it acknowledges the burden second home mortgages are placing on the system. "During the housing frenzy, many borrowers obtained second mortgages to allow them to put little or nothing down when buying a home. Up to half of at-risk borrowers have second liens, according to the administration," CNN Money reports.

Citigroup (C) is asking the Treasury for permission to pay special bonuses to keep a number of key employees in its legendary Phibro energy-trading unit, the Wall Street Journal reports this morning. Phibro has generated hundreds of millions of dollars in profits for the bank, but executives at the unit are "threatening to leave because of pay caps tied to the U.S. bailout of Citigroup," writes the WSJ. Citigroup is said to be exploring ways to free Phibro from the federal restrictions, including a spinoff of the unit. This potential payout is being muted at the same time as the bank tries to convince federal regulators that it can meet the government's "stress test" by "selling large businesses, asking more investors to convert their preferred shares into common stock and reducing its balance sheet" rather than having to raise more capital, the Financial Times writes. Bank of America (BAC) also faces the sobering prospect of being forced to raise billions more in capital (perhaps as much as $70 billion, reckons the FT) to meet the government's safety benchmarks, but that's not the only problem facing BofA CEO and Chairman Kenneth Lewis. He is fighting off a shareholder revolt that could strip him of the latter title and make his "iron grip [on the bank] more tenuous than ever," the WSJ writes.

Meanwhile, troubled insurer AIG won an important internal battle that could, the FT reports, "stave off the risk" of it defaulting on its massive $234 billion pile of toxic derivatives. According to the FT, AIG (AIG) is expected to announce as early as today that James Shephard, the deputy chief executive of its Paris-based Banque AIG, will not be leaving the company after all but instead will be staying on to unwind the thicket of complicated trades that got AIG into so much trouble. Good thing, too. Shephard's return "is likely to deter several European banks that bought the derivatives from taking legal action to force AIG to repay them," the FT writes, citing people familiar with the situation.

Are Fiat and Chrysler back on track? If so, you can thank the White House. BusinessWeek reports the White House auto task force brokered a deal with Chrysler's debt holders. They agreed on Tuesday to waive some $4.9 billion in Chrysler debt they were owed in exchange for a 5 percent equity stake in the stricken automaker, a move that just may be enough to allow Fiat and Chrysler to merge "and likely keep Chrysler out of bankruptcy court," the magazine writes. The restructuring under way at Chrysler could still have massive ripple effects on the auto industry. One scenario would be a move by Chrysler to fold its former finance arm into GMAC, the WSJ reports, citing "people familiar with the matter."

The book is still not shut on Google (GOOG) and its long-running struggle to win favor with publishers and authors on its controversial book-search tool. Last October, Google announced a $125 million deal with publishers that appeared to clear all the legal obstacles standing in the way of the widespread acceptance of its Google Book Search service. But, the WSJ reports, the Department of Justice has now stepped in. The DoJ is investigating the Google Book Search deal to determine whether it violates antitrust laws, the newspaper reports, citing people in the know. 

And finally, does Microsoft have an iPhone killer up its sleeve? The WSJ reports Microsoft (MSFT) and Verizon "are in talks to launch a touch-screen multimedia cellphone on the carrier's network early next year." Microsoft has long been a player on the software side of the cell phone battles but is losing out to Apple (AAPL) and Google's Android these days. Its answer? It's code-named "Pink," WSJ sources say, and it would run on Windows Mobile and include a type of app store.