The U.S. banking sector is headed for a credit downturn that will be “the worst in generations,” featuring widespread defaults on a range of debts and a national house price slide not seen since the Great Depression, says one of the most influential analysts on Wall Street.
The banks face massive loan losses -- “far more dramatic” than most bank executives and ratings agencies have forecast -- as the next chapter in financial sector turmoil unfolds, said Meredith Whitney, an analyst with Oppenheimer & Co. Inc.
“We believe loss rates will exceed the highest levels since 1990 by a significant margin,” she said in a note Monday. “Bank losses will be the highest in the past 20 plus years as a result of greater numbers of individual defaulting on mortgages and/or other loans and from [loan balances that] are far higher than they were in the last housing cycle.”
Ms. Whitney -- who is also a panellist for Fox News and the number two ranked analyst on a Forbes list of top stock pickers for 2007 -- shot to global infamy last year after her gloomy, but accurate, predictions about the scale of subprime problems facing Citigroup Inc. led to a worldwide sell-off of banking stocks.
In Monday’s note, the Oppenheimer analyst slashed her already-depressed forecasts of what large U.S. banks will earn in 2008 by 29% and by 13% for 2009, citing concerns about mortgages, credit card balances and other loans.
In contrast to Ms. Whitney’s pessimistic view, there was some good news Monday for big U.S. banks reeling from US$92-billion in collective writedowns tied to investments in the subprime mortgage market.
The U.S. financial sector was buoyed Monday by an announcement from rating agency Standard & Poor’s that it is unlikely to downgrade bond insurer MBIA Inc. any time soon. S&P and other ratings agencies have been reviewing MBIA and its peers after U.S. monolines posted record losses on collateralized debt obligations they guaranteed (CDOs). Banks stood to lose as much as US$70-billion if the CDOs they owned no longer carried an automatic AAA rating because of the insurance.
Financial shares in the S&P 500 gained 1.2% Monday after earlier falling as much as 1.8%. In Canada, financial stocks were down 0.3% on the Toronto Stock Exchange.
Canadian banks have been praised for avoiding the worst lending excesses of their U.S.
counterparts. But their first quarter profit reports -- released over the next two weeks, starting with Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and National Bank, all due out on Thursday -- will be scrutinized for signs of a serious spill over from deteriorating U.S. markets.
The Canadian banks have tens of billions of dollars in indirect exposure to a wide-variety of U.S. loans through various complex investments, such as CDOs and structured investment vehicles.
Also, Toronto-Dominion Bank, Royal Bank of Canada, and Bank of Montreal all have extensive retail banking operations in the United States.
According to Oppenheimer’s Ms. Whitney, consumer loans are now the main area of concern for the U.S banking sector.
“As far as consumer credit is concerned, we are in unchartered territory,” said the outspoken analyst. “Housing prices, now down 6% across the U.S., have begun to decline on a national level, a phenomenon not seen since the Great Depression. We are of the belief that over the next 24 months, national home prices will decline by a factor of three times such levels.”
The “sand” really hits the fan because liquidity is drying up as banks stay away from the sort of securitized structured investments that have burned them in recent months, Ms. Whitney noted. Highly-leveraged loan commitments are another source of earnings pressure in early 2008, she said.
Ms. Whitney said the stock prices of big U.S. bank could fall by another 40%.
In a separate note, she also predicted more woes for Citigroup. The world’s largest bank must sell US$100-billion of assets to shore up its balance sheet, but in doing so risks losing profitable operations, she said.
“Under duress, Citigroup will likely be forced to sell what it can and not what it should,” she said. The Oppenheimer analyst slashed her forecast for Citigroup’s earnings from US$2.70 to US$0.75 -- the revised estimate “could still prove optimistic,” she said -- and predicted the bank’s stock price could fall as low as US$16.00 (compared to a 52-week high of $55.55.)
Don't hate the players, hate the game; the next big bail out... *_*
February 26, 2008
Consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year. And it's become a habit for them to spend more than they have. The overall credit card debt grew by 315 percent from 1989 to 2006, according to public policy research firm Demos.
To compound the problem, fewer people are paying their credit cards bills on time. The percentage of people delinquent on their credit cards is the highest it's been in three years, according to CardTrack.com.
With banks tightening their standards and the drumbeat of recession getting louder, there's no better time to grab control of your debt than now.
*********************************************
Dec Debt
By Julia Spencer Feb 11, 2008
Consumer revolving credit slowed somewhat in December as Americans tacked on $2.1 billion in net new debt, mostly credit card debt, compared to the prior month. In November consumers added $10.7 billion and in October revolving credit expanded by $8.6 billion. Revolving consumer credit has now reached a record $943.5 billion and is growing by 2.7% per annum. Based on revised figures, revolving debt rose 13.7% in November and 11.1% in October. According to data released by the Federal Reserve, total revolving credit has expanded by $68 billion since the start of the year. Bank credit card debt (excluding store and gas credit cards) at the end of the fourth quarter was about $800 billion or roughly 85% of total revolving credit, according to CardData (www.carddata.com). Store and gas credit cards had about $109 billion in outstandings at year-end 2007. At the end of December, Americans were $2519 billion in debt, excluding home mortgages.
AFG hit low of A$0.755 today, dated 26 Feb'08, and closed @A$0.94 (-0.17 ↓15.32%)...
Rubicon stuck Allco with more debt
By Danny John February 25, 2008
THE debt pressure on Allco Finance Group and its myriad of wholly-owned subsidiaries has blown out to almost $1.35 billion, all of which needs to be repaid or refinanced, with the agreement of its banks, between now and the end of January next year, according to its latest accounts.
While the most immediate concerns are two loans - the $250 million bridging facility due to be paid back by May 1 and the $900 million facility with a September 22 expiry date - the troublesome acquisition of the Rubicon real estate operation two months ago has only made matters worse.
Rubicon's existing borrowing needs added an additional $157 million of debt to the total, of which $110 million had been drawn down by December 31 when AFG closed its books on its most recent half-year.
AFG took control of Rubicon in late December after buying out the shareholdings held by its executive chairman, David Coe, and former non-executive director, Gordon Fell, who now runs the group's combined real estate division.
Coupled with a $44 million facility owed by a separate Allco subsidiary in Singapore, three Rubicon companies need to replace their expensive short-term loans in three tranches between the first deadline of this Thursday and the last in seven weeks' time on May 11.
In the case of two of those loans, Rubicon is paying up to 250 basis points over cash rates in a sign of the jump in financing costs the entire group has faced since the global credit crunch swept through financial markets wreaking havoc on highly-geared companies like Allco.
All in all, AFG has outstanding debt facilities of $1.354 billion after buying Rubicon, of which just under $1.2 billion had been drawn down by December 31. Its direct debts were previously thought to have totalled $1.1 billion.
The accounts show that the financing and repayment pressures remain intense despite the breathing space it hopes to gain from its syndicate of 10 leading banks, through what Allco describes as "constructive" negotiations now taking place.
Both the $250 million loan and the $900 million of additional debt are costing the group in interest repayments of between 0.7 and 0.95 percentage points above cash and Allco desperately needs to reduce this bill.
According to sources, Allco is hoping to reach agreement on all of its debt problems in "one hit" so that it does not face recurring trigger points - and therefore more trouble - before reaching financial safety by June 2009.
It was hopeful yesterday of reaching that point, saying that it had been given no indication it would not be able to "achieve a successful outcome" in the talks.
Nonetheless, given its precarious position, the group felt necessary to warn that it was still at the mercy of the "serious dislocation" on global credit markets, especially if the banks decided to call in their loans early.
"This would have implications for the ability of the group to continue as a going concern and therefore upon the carrying amounts of some of the group's assets," investors were warned in accountants' notes attached to the accounts detailing Allco Finance Group's precarious financing position.
Singapore's MMP REIT on review for possible downgrade - Moody's
Tuesday, February 26, 2008
Moody's Investors Service placed its 'Baa1' corporate family and 'Baa2' senior unsecured debt ratings on Macquarie MEAG Prime REIT (MMP) under review for possible downgrade.
The rating action follows the Singapore-listed shopping mall and office landlord's announcement that it will conduct a strategic review of its operations after its controlling shareholder, Macquarie Real Estate, received offers from unidentified parties seeking to buy its 26 pct stake in the REIT.
'The strategic review raises considerable uncertainty around the asset profile and ownership structure of the REIT and has jeopardized MMP's progress to raise medium-term financing to take out short term loans totaling 235 mln sgd that fall due over the next 7 months, of which nearly 80 pct matures in May 2008,' Moody's (nyse: MCO - news - people ) said.
Moody's notes that MMP should be well placed to arrange extension of such loans given the good stable of quality assets held and managed by the REIT and its relative low leverage. However, the concern is that the time to do so is relatively short.
The trust's ratings will come under further pressure if rollovers on the bridge loans that fall due in end-May are not obtained by mid-March 2008, the ratings agency added.
*********************************** ************
Macquarie may exit MMP Reit under strategic review
Wednesday, February 20, 2008
MACQUARIE MEAG Prime (MMP) Reit will undergo a strategic review that may see the Macquarie Group sell its stake in the fund.
In a statement, the Reit's manager - Macquarie Pacific Star Prime Reit Management - said that the exercise aims to enhance the value for all unitholders. It may consider options like merger & acquisitions, full-privatisation or sale of assets, chief executive officer Franklin Heng told BT.
The announcement confirms an earlier BT report that the Macquarie Group, which owns 26 per cent of the Reit, is prepared to exit from the fund under a proposed strategic review.
Indeed, Macquarie Pacific Star said that the move came after the 'receipt of a number of unsolicited approaches' made to Macquarie Real Estate, part of the Macquarie Group.
Macquarie Real Estate also has an associated entity that owns a 50 per cent stake in the Reit's manager.
The key shareholder said it will cooperate with the directors of Macquarie Pacific Star in order to maximise value for all unitholders. The strategic review will be undertaken in the context of strong underlying property fundamentals in the Singapore market.
'The quality of MMP Reit's portfolio of real estate assets is supported by MMP Reit's recent announcement of an increase in its net asset value to $1.61 per unit as at December 31, 2007.'
MMP Reit last traded at $1.08 - a 32.9 per cent discount to its NTA (net tangible asset) and the strategic review will explore options to 'close this value gap'.
Macquarie Pacific Star intends to appoint Macquarie Securities (Asia) Pte Limited of Singapore to advise it on the strategic review. The entire exercise is expected to be completed by June this year.
Yesterday, the Reit's manager also cautioned that there is no assurance that the strategic review will result in any specific transaction.
MMP Reit reported a 15.7 per cent year-on-year rise in distributable income to $16.2 million for the fourth quarter ended Dec 31, 2007. The Q4 distribution brought 2007 full year's distributable income to $59 million, up 7.5 per cent.
歌手：Enya[恩雅] Music: Eithne N赤 Bhraon芍in - Lyrics: Roma Ryan
Ever close your eyes Ever stop and listen Ever feel alive And you''ve nothing missing You don''t need a reason Let the day go on and on
Let the rain fall down Everywhere around you Give into it now Let the day surround you You don''t need a reason Let the rain go on and on
What a day, what a day to take to What a way, what a way to make it through What a day, what a day to take to a wild child
Only take the time From the helter skelter Every day you find Everything''s in kilter You don''t need a reason Let the day go on and on
Every summer sun Every winter evening Every spring to come Every autumn leaving You don''t need a reason Let it all go on and on
What a day, what a day to take to What a way, what a way to make it through What a day, what a day to take to a wild child
What a day, what a day to take to What a way, what a way to make it through What a day, what a day to take to a wild child
What a day, what a day to take to What a way, what a way to make it through What a day, what a day to take to Da-da-da Da-da-da-da-da-da What a way, what a way to make it through Da-da-da Da-da-da-da-da-da Da-da-da Da-da-da-da-da-da What a way, what a way to make it through What a day, what a day to take to a wild child What a day, what a day to take to a wild child
China's brokers are expected to offer margin trading soon, the 21st Century Business Herald reported, citing sources close to the matter.
The report said Nie Qingping, a commissioner with the China Securities Regulatory Commission (CSRC), recently visited four securities companies in Shanghai, including Orient Securities and Guotai Junan Securities, and reviewed their preparations for margin trading.
The visit indicates that margin trading will be launched soon after further checks and improvements to the system, the report said.
In December 2006, the CSRC announced that selected domestic brokerages will be allowed to offer margin trading in a trial program.
The scope of the trial includes margin trades and the lending of securities for clients to sell.
Following the 2006 announcement, CITIC Securities, Everbright Securities and Merchants Securities reportedly filed applications to offer margin trading.
The report added that some central government agencies have agreed in principle to set up a new company - China Securities Financial Co.
The new company will represent securities companies in obtaining loans from commercial banks. The loans will finance brokers' margin trading operations, the report said.
Nie and Wu Qing, another vice director at the CSRC, will be appointed general manager and chairman of the new company, the report added.
Feb. 26 (Bloomberg) -- Even Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. may find they haven't dodged the credit crisis.
The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments.
The potential for a fire-sale of the assets that would bring another round of charges has ``always been our greatest fear,'' said Gregory Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest securities firm behind Goldman in terms of market value.
VIEs, known as special purpose vehicles before Enron Corp.'s collapse in 2001, finance themselves by selling short- term debt backed by securities, some of which are insured against default.
Now that Ambac Financial Group Inc. and other guarantors have started to lose their AAA financial-strength ratings, Wall Street firms may be forced to return those assets to their books, recording the declining value as losses. MBIA Inc., the biggest insurer, said yesterday it plans to separate its municipal and asset-backed businesses, a move Peters said would likely result in a lower credit rating for the types of assets owned by VIEs.
`Significant Consequences'
Wall Street's writedowns stem from a surge in mortgage delinquencies among homeowners with the riskiest subprime-credit histories. The industry's VIEs, also known as conduits, had $784 billion in commercial paper outstanding as of last week, according to Moody's Investors Service and the Federal Reserve.
``There's a big number at work here and it will have significant consequences,'' said J. Paul Forrester, the Chicago- based head of the CDO practice at law firm Mayer Brown. ``The great fear is that a combination of subprime CDOs, SIVs and conduits result in a flood of assets into an already-stressed market and there's a price collapse.''
CreditSights has one of the highest projections for additional losses. Moody's says the fallout from VIEs, collateralized debt obligations, and other deteriorating assets may run to $30 billion. CDOS are packages of debt sliced into pieces with varying ratings.
`Lightning Rod'
One type of VIE that's already been forced to unwind or seek bank financing is the structured investment vehicle, or SIV. Like SIVs, VIEs often issue commercial paper to finance themselves and may have multiple outside owners that share in the profits and losses. Because banks agree to back VIEs with lines of credit, they have to buy commercial paper or notes when no one else will.
Ambac, the world's second-biggest bond insurer, and two smaller competitors lost a AAA rating from at least one of the three major ratings companies in recent months. Standard & Poor's yesterday affirmed the AAA ranking of MBIA, the largest ``monoline,'' though it said the outlook is ``negative.'' MBIA yesterday eliminated its quarterly dividend and said it won't write new guarantees on asset-backed securities for six months.
The more widespread the downgrades, the more likely the assets in the VIEs will be cut. Some buyers of the debt demand the highest ratings, giving banks a vested interest in helping the insurers salvage their ratings.
Ambac Financing
New York-based Ambac may get $3 billion in new capital with the help of Citigroup Inc. and Dresdner Bank AG as early as this week, the Wall Street Journal reported yesterday. MBIA raised money by selling common shares and warrants to private-equity firm Warburg Pincus LLC and issuing $1 billion of surplus notes.
``The lightning rod of the monoline fix is so important to so many banks,'' said Thomas Priore, chief executive officer of New York-based Institutional Credit Partners LLC, which manages $12 billion in CDOs.
Accounting rules allow financial firms to keep VIEs off their balance sheets as long as they're not the ones that stand to gain or lose the most from the entity's activities. A bank would also have to account for its portion of a VIE if prices for the debt owned by the fund fall too far or if the bank is forced to provide financing.
Goldman, Lehman
Goldman, the most profitable Wall Street firm, and Lehman, the biggest commercial-paper dealer, have avoided much of the pain so far.
Goldman, which earned a record $11.6 billion in the year ended in November 2007, said it avoided writedowns by setting up trades that would profit from a weaker housing market. Now the threat is $18.9 billion of CDOs in VIEs, the firm said in a regulatory filing on Jan. 29. Goldman spokesman Michael DuVally declined to comment.
Merrill Lynch & Co. analyst Guy Moszkowski today cut his estimate for Goldman's first-quarter earnings for the second time this month, citing growing losses from assets outside residential mortgages.
Lehman, which wrote down the net value of subprime securities by $1.5 billion, guaranteed $7.5 billion of VIE assets as of Nov. 30, according to a filing also made on Jan. 29.
``We believe our actual risk to be limited because our obligations are collateralized by the VIE's assets and contain significant constraints,'' Lehman said in the filing. Spokeswoman Kerrie Cohen wouldn't elaborate.
Citigroup Losses
Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in ``significant unconsolidated VIEs,'' according to a Feb. 22 filing by the New York-based bank. New York-based Merrill Lynch, which recorded $24.5 billion in subprime writedowns, has $22.6 billion in VIEs, according to CreditSights.
Merrill spokeswoman Jessica Oppenheim declined to comment, as did Citigroup's Danielle Romero-Apsilos.
The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights. Hendler based his estimate on the recent sale of $800 million of bonds by E*Trade Financial Corp.
Predictions for losses vary widely because banks aren't required to specify the type of assets being held in the VIEs or how much they are worth, said Tanya Azarchs, managing director for financial institutions at S&P.
``The disclosure on VIEs is hopeless,'' Azarchs said. ``You have no idea of the structure or how that structure works. Until you know that you don't know anything. It's like every day you come into the office and another alphabet soup has run off the rails.''
NEW YORK (Reuters) - Major banks, including UBS AG and Citigroup, are making it harder for clients to sell what was considered one of the safest alternatives to cash -- so-called variable-rate demand notes -- sources familiar with industry practices say.
"I heard everybody's doing it," one of the sources said on Monday.
Previously, investors who wanted to sell these floating-rate notes just had to contact the banks, which would either resell the debt or salt it away in their inventory.
But now, because banks are afraid of taking on any more risk, they are taking advantage of the slower and more cumbersome procedures spelled out in the debt's legal papers, which oblige would-be sellers to go through the tender agents.
As a result, this $400 billion market is starting to freeze up -- much like the market for auction-rate paper -- as the banks put their need to save cash ahead of the investors' desire for them to buy their debt to keep the market liquid.
One of the main culprits causing the market for variable-rate demand notes to seize up is the troubled bond insurers that guarantee them. This is the same factor that has caused the $330 billion auction-rate note market to get hit with billions of dollars of failed auctions every day since late January.
A TALE OF TWO MARKETS
Fears that that more downgrades lie ahead for these bond insurers -- a list that includes MBIA Inc, Ambac Financial Group and Financial Guaranty Insurance Co -- have led investors to unload variable-rate demand notes by the boatload.
As a result, the market for variable-rate demand notes has split in two, with credit-worthy paper at times fetching yields that are lower than the approximately 2.5 percent rate that previously prevailed for most of this debt. Less desirable notes now trade at yields of 6 percent and even higher.
This phenomenon has shocked investors because variable-rate demand notes have safeguards -- letters of credit and standby purchase agreements.
Issuers of variable-rate demand notes -- including states, cities and towns -- paid extra fees to give investors those protections, which oblige the sellers of those guarantees to buy the debt back.
In contrast, auction-rate notes have none of those safeguards, and billions of dollars of auction-rate notes have failed since late January -- which means issuers have had to pay penalty rates as high as 20 percent. Such auctions fail when there are not enough buyers.
Since early last week, the banks, which first stopped supporting auction-rate debt, have now turned away from variable-rate demand notes.
A Citi spokeswoman noted the bank had not formally resigned as the remarketing agent.
A UBS spokesman had no immediate comment.
Spokesmen for other major banks, including JPMorgan Chase & Co and Goldman Sachs, had no information immediately available. Spokesmen for Merrill Lynch and Lehman were not immediately available.
"I had heard there was tremendous stress in the variable- rate demand notes because money market (funds) and mutual investors have been putting back a lot of their variable-rate demand notes and dealers were getting overwhelmed on their balance sheets," said Matt Fabian, managing director of Municipal Market Advisors, in Concord, Massachusetts.
This is one of the main reasons a key gauge, the SIFMA Swap Index, just leaped to 2.37 percent from 1.24 percent in the previous week, he noted.
The variable-rate demand note market is starting to break down just as issuers are fleeing the auction-rate market because they never want to have to pay penalty interest rates again. Many issuers are transforming their auction-rate debt into variable-rate demand notes -- though the fees they are paying for letters of credit and standby purchase agreements are double or triple what they were just a few months ago.
Three categories of variable-rate demand notes are outperforming, trading at yields from 1 percent to 3 percent, one market source said.
This paper is either backed by strong insurers, has no insurance or is backed by a letter of credit from a "very good" bank," he said.
In contrast, some variable-rate demand notes are trading at 6 percent or even higher -- if they are insured by a struggling bond insurer, he said.
Feb. 26 (Bloomberg) -- Even Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. may find they haven't dodged the credit crisis.
The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments.
The potential for a fire-sale of the assets that would bring another round of charges has ``always been our greatest fear,'' said Gregory Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest securities firm behind Goldman in terms of market value.
VIEs, known as special purpose vehicles before Enron Corp.'s collapse in 2001, finance themselves by selling short- term debt backed by securities, some of which are insured against default.
Now that Ambac Financial Group Inc. and other guarantors have started to lose their AAA financial-strength ratings, Wall Street firms may be forced to return those assets to their books, recording the declining value as losses. MBIA Inc., the biggest insurer, said yesterday it plans to separate its municipal and asset-backed businesses, a move Peters said would likely result in a lower credit rating for the types of assets owned by VIEs.
`Significant Consequences'
Wall Street's writedowns stem from a surge in mortgage delinquencies among homeowners with the riskiest subprime-credit histories. The industry's VIEs, also known as conduits, had $784 billion in commercial paper outstanding as of last week, according to Moody's Investors Service and the Federal Reserve.
``There's a big number at work here and it will have significant consequences,'' said J. Paul Forrester, the Chicago- based head of the CDO practice at law firm Mayer Brown. ``The great fear is that a combination of subprime CDOs, SIVs and conduits result in a flood of assets into an already-stressed market and there's a price collapse.''
CreditSights has one of the highest projections for additional losses. Moody's says the fallout from VIEs, collateralized debt obligations, and other deteriorating assets may run to $30 billion. CDOS are packages of debt sliced into pieces with varying ratings.
`Lightning Rod'
One type of VIE that's already been forced to unwind or seek bank financing is the structured investment vehicle, or SIV. Like SIVs, VIEs often issue commercial paper to finance themselves and may have multiple outside owners that share in the profits and losses. Because banks agree to back VIEs with lines of credit, they have to buy commercial paper or notes when no one else will.
Ambac, the world's second-biggest bond insurer, and two smaller competitors lost a AAA rating from at least one of the three major ratings companies in recent months. Standard & Poor's yesterday affirmed the AAA ranking of MBIA, the largest ``monoline,'' though it said the outlook is ``negative.'' MBIA yesterday eliminated its quarterly dividend and said it won't write new guarantees on asset-backed securities for six months.
The more widespread the downgrades, the more likely the assets in the VIEs will be cut. Some buyers of the debt demand the highest ratings, giving banks a vested interest in helping the insurers salvage their ratings.
Ambac Financing
New York-based Ambac may get $3 billion in new capital with the help of Citigroup Inc. and Dresdner Bank AG as early as this week, the Wall Street Journal reported yesterday. MBIA raised money by selling common shares and warrants to private-equity firm Warburg Pincus LLC and issuing $1 billion of surplus notes.
``The lightning rod of the monoline fix is so important to so many banks,'' said Thomas Priore, chief executive officer of New York-based Institutional Credit Partners LLC, which manages $12 billion in CDOs.
Accounting rules allow financial firms to keep VIEs off their balance sheets as long as they're not the ones that stand to gain or lose the most from the entity's activities. A bank would also have to account for its portion of a VIE if prices for the debt owned by the fund fall too far or if the bank is forced to provide financing.
Goldman, Lehman
Goldman, the most profitable Wall Street firm, and Lehman, the biggest commercial-paper dealer, have avoided much of the pain so far.
Goldman, which earned a record $11.6 billion in the year ended in November 2007, said it avoided writedowns by setting up trades that would profit from a weaker housing market. Now the threat is $18.9 billion of CDOs in VIEs, the firm said in a regulatory filing on Jan. 29. Goldman spokesman Michael DuVally declined to comment.
Merrill Lynch & Co. analyst Guy Moszkowski today cut his estimate for Goldman's first-quarter earnings for the second time this month, citing growing losses from assets outside residential mortgages.
Lehman, which wrote down the net value of subprime securities by $1.5 billion, guaranteed $7.5 billion of VIE assets as of Nov. 30, according to a filing also made on Jan. 29.
``We believe our actual risk to be limited because our obligations are collateralized by the VIE's assets and contain significant constraints,'' Lehman said in the filing. Spokeswoman Kerrie Cohen wouldn't elaborate.
Citigroup Losses
Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in ``significant unconsolidated VIEs,'' according to a Feb. 22 filing by the New York-based bank. New York-based Merrill Lynch, which recorded $24.5 billion in subprime writedowns, has $22.6 billion in VIEs, according to CreditSights.
Merrill spokeswoman Jessica Oppenheim declined to comment, as did Citigroup's Danielle Romero-Apsilos.
The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights. Hendler based his estimate on the recent sale of $800 million of bonds by E*Trade Financial Corp.
Predictions for losses vary widely because banks aren't required to specify the type of assets being held in the VIEs or how much they are worth, said Tanya Azarchs, managing director for financial institutions at S&P.
``The disclosure on VIEs is hopeless,'' Azarchs said. ``You have no idea of the structure or how that structure works. Until you know that you don't know anything. It's like every day you come into the office and another alphabet soup has run off the rails.''
11 comments:
Excellent Edison video!
Outlook for U.S. banks just got gloomier
Duncan Mavin, Financial Post
February 25, 2008
The U.S. banking sector is headed for a credit downturn that will be “the worst in generations,” featuring widespread defaults on a range of debts and a national house price slide not seen since the Great Depression, says one of the most influential analysts on Wall Street.
The banks face massive loan losses -- “far more dramatic” than most bank executives and ratings agencies have forecast -- as the next chapter in financial sector turmoil unfolds, said Meredith Whitney, an analyst with Oppenheimer & Co. Inc.
“We believe loss rates will exceed the highest levels since 1990 by a significant margin,” she said in a note Monday. “Bank losses will be the highest in the past 20 plus years as a result of greater numbers of individual defaulting on mortgages and/or other loans and from [loan balances that] are far higher than they were in the last housing cycle.”
Ms. Whitney -- who is also a panellist for Fox News and the number two ranked analyst on a Forbes list of top stock pickers for 2007 -- shot to global infamy last year after her gloomy, but accurate, predictions about the scale of subprime problems facing Citigroup Inc. led to a worldwide sell-off of banking stocks.
In Monday’s note, the Oppenheimer analyst slashed her already-depressed forecasts of what large U.S. banks will earn in 2008 by 29% and by 13% for 2009, citing concerns about mortgages, credit card balances and other loans.
In contrast to Ms. Whitney’s pessimistic view, there was some good news Monday for big U.S. banks reeling from US$92-billion in collective writedowns tied to investments in the subprime mortgage market.
The U.S. financial sector was buoyed Monday by an announcement from rating agency Standard & Poor’s that it is unlikely to downgrade bond insurer MBIA Inc. any time soon. S&P and other ratings agencies have been reviewing MBIA and its peers after U.S. monolines posted record losses on collateralized debt obligations they guaranteed (CDOs). Banks stood to lose as much as US$70-billion if the CDOs they owned no longer carried an automatic AAA rating because of the insurance.
Financial shares in the S&P 500 gained 1.2% Monday after earlier falling as much as 1.8%. In Canada, financial stocks were down 0.3% on the Toronto Stock Exchange.
Canadian banks have been praised for avoiding the worst lending excesses of their U.S.
counterparts. But their first quarter profit reports -- released over the next two weeks, starting with Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and National Bank, all due out on Thursday -- will be scrutinized for signs of a serious spill over from deteriorating U.S. markets.
The Canadian banks have tens of billions of dollars in indirect exposure to a wide-variety of U.S. loans through various complex investments, such as CDOs and structured investment vehicles.
Also, Toronto-Dominion Bank, Royal Bank of Canada, and Bank of Montreal all have extensive retail banking operations in the United States.
According to Oppenheimer’s Ms. Whitney, consumer loans are now the main area of concern for the U.S banking sector.
“As far as consumer credit is concerned, we are in unchartered territory,” said the outspoken analyst. “Housing prices, now down 6% across the U.S., have begun to decline on a national level, a phenomenon not seen since the Great Depression. We are of the belief that over the next 24 months, national home prices will decline by a factor of three times such levels.”
The “sand” really hits the fan because liquidity is drying up as banks stay away from the sort of securitized structured investments that have burned them in recent months, Ms. Whitney noted. Highly-leveraged loan commitments are another source of earnings pressure in early 2008, she said.
Ms. Whitney said the stock prices of big U.S. bank could fall by another 40%.
In a separate note, she also predicted more woes for Citigroup. The world’s largest bank must sell US$100-billion of assets to shore up its balance sheet, but in doing so risks losing profitable operations, she said.
“Under duress, Citigroup will likely be forced to sell what it can and not what it should,” she said. The Oppenheimer analyst slashed her forecast for Citigroup’s earnings from US$2.70 to US$0.75 -- the revised estimate “could still prove optimistic,” she said -- and predicted the bank’s stock price could fall as low as US$16.00 (compared to a 52-week high of $55.55.)
Don't hate the players, hate the game; the next big bail out... *_*
February 26, 2008
Consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year. And it's become a habit for them to spend more than they have. The overall credit card debt grew by 315 percent from 1989 to 2006, according to public policy research firm Demos.
To compound the problem, fewer people are paying their credit cards bills on time. The percentage of people delinquent on their credit cards is the highest it's been in three years, according to CardTrack.com.
With banks tightening their standards and the drumbeat of recession getting louder, there's no better time to grab control of your debt than now.
*********************************************
Dec Debt
By Julia Spencer
Feb 11, 2008
Consumer revolving credit slowed somewhat in December as Americans tacked on $2.1 billion in net new debt, mostly credit card debt, compared to the prior month. In November consumers added $10.7 billion and in October revolving credit expanded by $8.6 billion. Revolving consumer credit has now reached a record $943.5 billion and is growing by 2.7% per annum. Based on revised figures, revolving debt rose 13.7% in November and 11.1% in October. According to data released by the Federal Reserve, total revolving credit has expanded by $68 billion since the start of the year. Bank credit card debt (excluding store and gas credit cards) at the end of the fourth quarter was about $800 billion or roughly 85% of total revolving credit, according to CardData (www.carddata.com). Store and gas credit cards had about $109 billion in outstandings at year-end 2007. At the end of December, Americans were $2519 billion in debt, excluding home mortgages.
AFG hit low of A$0.755 today, dated 26 Feb'08, and closed @A$0.94 (-0.17 ↓15.32%)...
Rubicon stuck Allco with more debt
By Danny John
February 25, 2008
THE debt pressure on Allco Finance Group and its myriad of wholly-owned subsidiaries has blown out to almost $1.35 billion, all of which needs to be repaid or refinanced, with the agreement of its banks, between now and the end of January next year, according to its latest accounts.
While the most immediate concerns are two loans - the $250 million bridging facility due to be paid back by May 1 and the $900 million facility with a September 22 expiry date - the troublesome acquisition of the Rubicon real estate operation two months ago has only made matters worse.
Rubicon's existing borrowing needs added an additional $157 million of debt to the total, of which $110 million had been drawn down by December 31 when AFG closed its books on its most recent half-year.
AFG took control of Rubicon in late December after buying out the shareholdings held by its executive chairman, David Coe, and former non-executive director, Gordon Fell, who now runs the group's combined real estate division.
Coupled with a $44 million facility owed by a separate Allco subsidiary in Singapore, three Rubicon companies need to replace their expensive short-term loans in three tranches between the first deadline of this Thursday and the last in seven weeks' time on May 11.
In the case of two of those loans, Rubicon is paying up to 250 basis points over cash rates in a sign of the jump in financing costs the entire group has faced since the global credit crunch swept through financial markets wreaking havoc on highly-geared companies like Allco.
All in all, AFG has outstanding debt facilities of $1.354 billion after buying Rubicon, of which just under $1.2 billion had been drawn down by December 31. Its direct debts were previously thought to have totalled $1.1 billion.
The accounts show that the financing and repayment pressures remain intense despite the breathing space it hopes to gain from its syndicate of 10 leading banks, through what Allco describes as "constructive" negotiations now taking place.
Both the $250 million loan and the $900 million of additional debt are costing the group in interest repayments of between 0.7 and 0.95 percentage points above cash and Allco desperately needs to reduce this bill.
According to sources, Allco is hoping to reach agreement on all of its debt problems in "one hit" so that it does not face recurring trigger points - and therefore more trouble - before reaching financial safety by June 2009.
It was hopeful yesterday of reaching that point, saying that it had been given no indication it would not be able to "achieve a successful outcome" in the talks.
Nonetheless, given its precarious position, the group felt necessary to warn that it was still at the mercy of the "serious dislocation" on global credit markets, especially if the banks decided to call in their loans early.
"This would have implications for the ability of the group to continue as a going concern and therefore upon the carrying amounts of some of the group's assets," investors were warned in accountants' notes attached to the accounts detailing Allco Finance Group's precarious financing position.
Singapore's MMP REIT on review for possible downgrade - Moody's
Tuesday, February 26, 2008
Moody's Investors Service placed its 'Baa1' corporate family and 'Baa2' senior unsecured debt ratings on Macquarie MEAG Prime REIT (MMP) under review for possible downgrade.
The rating action follows the Singapore-listed shopping mall and office landlord's announcement that it will conduct a strategic review of its operations after its controlling shareholder, Macquarie Real Estate, received offers from unidentified parties seeking to buy its 26 pct stake in the REIT.
'The strategic review raises considerable uncertainty around the asset profile and ownership structure of the REIT and has jeopardized MMP's progress to raise medium-term financing to take out short term loans totaling 235 mln sgd that fall due over the next 7 months, of which nearly 80 pct matures in May 2008,' Moody's (nyse: MCO - news - people ) said.
Moody's notes that MMP should be well placed to arrange extension of such loans given the good stable of quality assets held and managed by the REIT and its relative low leverage. However, the concern is that the time to do so is relatively short.
The trust's ratings will come under further pressure if rollovers on the bridge loans that fall due in end-May are not obtained by mid-March 2008, the ratings agency added.
***********************************
************
Macquarie may exit MMP Reit under strategic review
Wednesday, February 20, 2008
MACQUARIE MEAG Prime (MMP) Reit will undergo a strategic review that may see the Macquarie Group sell its stake in the fund.
In a statement, the Reit's manager - Macquarie Pacific Star Prime Reit Management - said that the exercise aims to enhance the value for all unitholders. It may consider options like merger & acquisitions, full-privatisation or sale of assets, chief executive officer Franklin Heng told BT.
The announcement confirms an earlier BT report that the Macquarie Group, which owns 26 per cent of the Reit, is prepared to exit from the fund under a proposed strategic review.
Indeed, Macquarie Pacific Star said that the move came after the 'receipt of a number of unsolicited approaches' made to Macquarie Real Estate, part of the Macquarie Group.
Macquarie Real Estate also has an associated entity that owns a 50 per cent stake in the Reit's manager.
The key shareholder said it will cooperate with the directors of Macquarie Pacific Star in order to maximise value for all unitholders. The strategic review will be undertaken in the context of strong underlying property fundamentals in the Singapore market.
'The quality of MMP Reit's portfolio of real estate assets is supported by MMP Reit's recent announcement of an increase in its net asset value to $1.61 per unit as at December 31, 2007.'
MMP Reit last traded at $1.08 - a 32.9 per cent discount to its NTA (net tangible asset) and the strategic review will explore options to 'close this value gap'.
Macquarie Pacific Star intends to appoint Macquarie Securities (Asia) Pte Limited of Singapore to advise it on the strategic review. The entire exercise is expected to be completed by June this year.
Yesterday, the Reit's manager also cautioned that there is no assurance that the strategic review will result in any specific transaction.
MMP Reit reported a 15.7 per cent year-on-year rise in distributable income to $16.2 million for the fourth quarter ended Dec 31, 2007. The Q4 distribution brought 2007 full year's distributable income to $59 million, up 7.5 per cent.
A Day Without Rain -- 无雨的一天
歌手：Enya[恩雅]
Music: Eithne N赤 Bhraon芍in - Lyrics: Roma Ryan
Ever close your eyes
Ever stop and listen
Ever feel alive
And you''ve nothing missing
You don''t need a reason
Let the day go on and on
Let the rain fall down
Everywhere around you
Give into it now
Let the day surround you
You don''t need a reason
Let the rain go on and on
What a day, what a day to take to
What a way, what a way to make it through
What a day, what a day to take to a wild child
Only take the time
From the helter skelter
Every day you find
Everything''s in kilter
You don''t need a reason
Let the day go on and on
Every summer sun
Every winter evening
Every spring to come
Every autumn leaving
You don''t need a reason
Let it all go on and on
What a day, what a day to take to
What a way, what a way to make it through
What a day, what a day to take to a wild child
What a day, what a day to take to
What a way, what a way to make it through
What a day, what a day to take to a wild child
What a day, what a day to take to
What a way, what a way to make it through
What a day, what a day to take to
Da-da-da
Da-da-da-da-da-da
What a way, what a way to make it through
Da-da-da
Da-da-da-da-da-da
Da-da-da
Da-da-da-da-da-da
What a way, what a way to make it through
What a day, what a day to take to a wild child
What a day, what a day to take to a wild child
Brokers likely to offer margin trading soon
(Agencies)
Updated: 2008-02-26 14:46
China's brokers are expected to offer margin trading soon, the 21st Century Business Herald reported, citing sources close to the matter.
The report said Nie Qingping, a commissioner with the China Securities Regulatory Commission (CSRC), recently visited four securities companies in Shanghai, including Orient Securities and Guotai Junan Securities, and reviewed their preparations for margin trading.
The visit indicates that margin trading will be launched soon after further checks and improvements to the system, the report said.
In December 2006, the CSRC announced that selected domestic brokerages will be allowed to offer margin trading in a trial program.
The scope of the trial includes margin trades and the lending of securities for clients to sell.
Following the 2006 announcement, CITIC Securities, Everbright Securities and Merchants Securities reportedly filed applications to offer margin trading.
The report added that some central government agencies have agreed in principle to set up a new company - China Securities Financial Co.
The new company will represent securities companies in obtaining loans from commercial banks. The loans will finance brokers' margin trading operations, the report said.
Nie and Wu Qing, another vice director at the CSRC, will be appointed general manager and chairman of the new company, the report added.
Feb. 26 (Bloomberg) -- Even Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. may find they haven't dodged the credit crisis.
The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments.
The potential for a fire-sale of the assets that would bring another round of charges has ``always been our greatest fear,'' said Gregory Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest securities firm behind Goldman in terms of market value.
VIEs, known as special purpose vehicles before Enron Corp.'s collapse in 2001, finance themselves by selling short- term debt backed by securities, some of which are insured against default.
Now that Ambac Financial Group Inc. and other guarantors have started to lose their AAA financial-strength ratings, Wall Street firms may be forced to return those assets to their books, recording the declining value as losses. MBIA Inc., the biggest insurer, said yesterday it plans to separate its municipal and asset-backed businesses, a move Peters said would likely result in a lower credit rating for the types of assets owned by VIEs.
`Significant Consequences'
Wall Street's writedowns stem from a surge in mortgage delinquencies among homeowners with the riskiest subprime-credit histories. The industry's VIEs, also known as conduits, had $784 billion in commercial paper outstanding as of last week, according to Moody's Investors Service and the Federal Reserve.
``There's a big number at work here and it will have significant consequences,'' said J. Paul Forrester, the Chicago- based head of the CDO practice at law firm Mayer Brown. ``The great fear is that a combination of subprime CDOs, SIVs and conduits result in a flood of assets into an already-stressed market and there's a price collapse.''
CreditSights has one of the highest projections for additional losses. Moody's says the fallout from VIEs, collateralized debt obligations, and other deteriorating assets may run to $30 billion. CDOS are packages of debt sliced into pieces with varying ratings.
`Lightning Rod'
One type of VIE that's already been forced to unwind or seek bank financing is the structured investment vehicle, or SIV. Like SIVs, VIEs often issue commercial paper to finance themselves and may have multiple outside owners that share in the profits and losses. Because banks agree to back VIEs with lines of credit, they have to buy commercial paper or notes when no one else will.
Ambac, the world's second-biggest bond insurer, and two smaller competitors lost a AAA rating from at least one of the three major ratings companies in recent months. Standard & Poor's yesterday affirmed the AAA ranking of MBIA, the largest ``monoline,'' though it said the outlook is ``negative.'' MBIA yesterday eliminated its quarterly dividend and said it won't write new guarantees on asset-backed securities for six months.
The more widespread the downgrades, the more likely the assets in the VIEs will be cut. Some buyers of the debt demand the highest ratings, giving banks a vested interest in helping the insurers salvage their ratings.
Ambac Financing
New York-based Ambac may get $3 billion in new capital with the help of Citigroup Inc. and Dresdner Bank AG as early as this week, the Wall Street Journal reported yesterday. MBIA raised money by selling common shares and warrants to private-equity firm Warburg Pincus LLC and issuing $1 billion of surplus notes.
``The lightning rod of the monoline fix is so important to so many banks,'' said Thomas Priore, chief executive officer of New York-based Institutional Credit Partners LLC, which manages $12 billion in CDOs.
Accounting rules allow financial firms to keep VIEs off their balance sheets as long as they're not the ones that stand to gain or lose the most from the entity's activities. A bank would also have to account for its portion of a VIE if prices for the debt owned by the fund fall too far or if the bank is forced to provide financing.
Goldman, Lehman
Goldman, the most profitable Wall Street firm, and Lehman, the biggest commercial-paper dealer, have avoided much of the pain so far.
Goldman, which earned a record $11.6 billion in the year ended in November 2007, said it avoided writedowns by setting up trades that would profit from a weaker housing market. Now the threat is $18.9 billion of CDOs in VIEs, the firm said in a regulatory filing on Jan. 29. Goldman spokesman Michael DuVally declined to comment.
Merrill Lynch & Co. analyst Guy Moszkowski today cut his estimate for Goldman's first-quarter earnings for the second time this month, citing growing losses from assets outside residential mortgages.
Lehman, which wrote down the net value of subprime securities by $1.5 billion, guaranteed $7.5 billion of VIE assets as of Nov. 30, according to a filing also made on Jan. 29.
``We believe our actual risk to be limited because our obligations are collateralized by the VIE's assets and contain significant constraints,'' Lehman said in the filing. Spokeswoman Kerrie Cohen wouldn't elaborate.
Citigroup Losses
Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in ``significant unconsolidated VIEs,'' according to a Feb. 22 filing by the New York-based bank. New York-based Merrill Lynch, which recorded $24.5 billion in subprime writedowns, has $22.6 billion in VIEs, according to CreditSights.
Merrill spokeswoman Jessica Oppenheim declined to comment, as did Citigroup's Danielle Romero-Apsilos.
The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights. Hendler based his estimate on the recent sale of $800 million of bonds by E*Trade Financial Corp.
Predictions for losses vary widely because banks aren't required to specify the type of assets being held in the VIEs or how much they are worth, said Tanya Azarchs, managing director for financial institutions at S&P.
``The disclosure on VIEs is hopeless,'' Azarchs said. ``You have no idea of the structure or how that structure works. Until you know that you don't know anything. It's like every day you come into the office and another alphabet soup has run off the rails.''
Variable-Rate Note Market Now Freezing-Sources
By Joan Gralla
Feb 26, 2008
NEW YORK (Reuters) - Major banks, including UBS AG and Citigroup, are making it harder for clients to sell what was considered one of the safest alternatives to cash -- so-called variable-rate demand notes -- sources familiar with industry practices say.
"I heard everybody's doing it," one of the sources said on Monday.
Previously, investors who wanted to sell these floating-rate notes just had to contact the banks, which would either resell the debt or salt it away in their inventory.
But now, because banks are afraid of taking on any more risk, they are taking advantage of the slower and more cumbersome procedures spelled out in the debt's legal papers, which oblige would-be sellers to go through the tender agents.
As a result, this $400 billion market is starting to freeze up -- much like the market for auction-rate paper -- as the banks put their need to save cash ahead of the investors' desire for them to buy their debt to keep the market liquid.
One of the main culprits causing the market for variable-rate demand notes to seize up is the troubled bond insurers that guarantee them. This is the same factor that has caused the $330 billion auction-rate note market to get hit with billions of dollars of failed auctions every day since late January.
A TALE OF TWO MARKETS
Fears that that more downgrades lie ahead for these bond insurers -- a list that includes MBIA Inc, Ambac Financial Group and Financial Guaranty Insurance Co -- have led investors to unload variable-rate demand notes by the boatload.
As a result, the market for variable-rate demand notes has split in two, with credit-worthy paper at times fetching yields that are lower than the approximately 2.5 percent rate that previously prevailed for most of this debt. Less desirable notes now trade at yields of 6 percent and even higher.
This phenomenon has shocked investors because variable-rate demand notes have safeguards -- letters of credit and standby purchase agreements.
Issuers of variable-rate demand notes -- including states, cities and towns -- paid extra fees to give investors those protections, which oblige the sellers of those guarantees to buy the debt back.
In contrast, auction-rate notes have none of those safeguards, and billions of dollars of auction-rate notes have failed since late January -- which means issuers have had to pay penalty rates as high as 20 percent. Such auctions fail when there are not enough buyers.
Since early last week, the banks, which first stopped supporting auction-rate debt, have now turned away from variable-rate demand notes.
A Citi spokeswoman noted the bank had not formally resigned as the remarketing agent.
A UBS spokesman had no immediate comment.
Spokesmen for other major banks, including JPMorgan Chase & Co and Goldman Sachs, had no information immediately available. Spokesmen for Merrill Lynch and Lehman were not immediately available.
"I had heard there was tremendous stress in the variable- rate demand notes because money market (funds) and mutual investors have been putting back a lot of their variable-rate demand notes and dealers were getting overwhelmed on their balance sheets," said Matt Fabian, managing director of Municipal Market Advisors, in Concord, Massachusetts.
This is one of the main reasons a key gauge, the SIFMA Swap Index, just leaped to 2.37 percent from 1.24 percent in the previous week, he noted.
The variable-rate demand note market is starting to break down just as issuers are fleeing the auction-rate market because they never want to have to pay penalty interest rates again. Many issuers are transforming their auction-rate debt into variable-rate demand notes -- though the fees they are paying for letters of credit and standby purchase agreements are double or triple what they were just a few months ago.
Three categories of variable-rate demand notes are outperforming, trading at yields from 1 percent to 3 percent, one market source said.
This paper is either backed by strong insurers, has no insurance or is backed by a letter of credit from a "very good" bank," he said.
In contrast, some variable-rate demand notes are trading at 6 percent or even higher -- if they are insured by a struggling bond insurer, he said.
Goldman, Lehman May Not Have Dodged Credit Crisis
By Mark Pittman
Feb. 26 (Bloomberg) -- Even Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. may find they haven't dodged the credit crisis.
The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments.
The potential for a fire-sale of the assets that would bring another round of charges has ``always been our greatest fear,'' said Gregory Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest securities firm behind Goldman in terms of market value.
VIEs, known as special purpose vehicles before Enron Corp.'s collapse in 2001, finance themselves by selling short- term debt backed by securities, some of which are insured against default.
Now that Ambac Financial Group Inc. and other guarantors have started to lose their AAA financial-strength ratings, Wall Street firms may be forced to return those assets to their books, recording the declining value as losses. MBIA Inc., the biggest insurer, said yesterday it plans to separate its municipal and asset-backed businesses, a move Peters said would likely result in a lower credit rating for the types of assets owned by VIEs.
`Significant Consequences'
Wall Street's writedowns stem from a surge in mortgage delinquencies among homeowners with the riskiest subprime-credit histories. The industry's VIEs, also known as conduits, had $784 billion in commercial paper outstanding as of last week, according to Moody's Investors Service and the Federal Reserve.
``There's a big number at work here and it will have significant consequences,'' said J. Paul Forrester, the Chicago- based head of the CDO practice at law firm Mayer Brown. ``The great fear is that a combination of subprime CDOs, SIVs and conduits result in a flood of assets into an already-stressed market and there's a price collapse.''
CreditSights has one of the highest projections for additional losses. Moody's says the fallout from VIEs, collateralized debt obligations, and other deteriorating assets may run to $30 billion. CDOS are packages of debt sliced into pieces with varying ratings.
`Lightning Rod'
One type of VIE that's already been forced to unwind or seek bank financing is the structured investment vehicle, or SIV. Like SIVs, VIEs often issue commercial paper to finance themselves and may have multiple outside owners that share in the profits and losses. Because banks agree to back VIEs with lines of credit, they have to buy commercial paper or notes when no one else will.
Ambac, the world's second-biggest bond insurer, and two smaller competitors lost a AAA rating from at least one of the three major ratings companies in recent months. Standard & Poor's yesterday affirmed the AAA ranking of MBIA, the largest ``monoline,'' though it said the outlook is ``negative.'' MBIA yesterday eliminated its quarterly dividend and said it won't write new guarantees on asset-backed securities for six months.
The more widespread the downgrades, the more likely the assets in the VIEs will be cut. Some buyers of the debt demand the highest ratings, giving banks a vested interest in helping the insurers salvage their ratings.
Ambac Financing
New York-based Ambac may get $3 billion in new capital with the help of Citigroup Inc. and Dresdner Bank AG as early as this week, the Wall Street Journal reported yesterday. MBIA raised money by selling common shares and warrants to private-equity firm Warburg Pincus LLC and issuing $1 billion of surplus notes.
``The lightning rod of the monoline fix is so important to so many banks,'' said Thomas Priore, chief executive officer of New York-based Institutional Credit Partners LLC, which manages $12 billion in CDOs.
Accounting rules allow financial firms to keep VIEs off their balance sheets as long as they're not the ones that stand to gain or lose the most from the entity's activities. A bank would also have to account for its portion of a VIE if prices for the debt owned by the fund fall too far or if the bank is forced to provide financing.
Goldman, Lehman
Goldman, the most profitable Wall Street firm, and Lehman, the biggest commercial-paper dealer, have avoided much of the pain so far.
Goldman, which earned a record $11.6 billion in the year ended in November 2007, said it avoided writedowns by setting up trades that would profit from a weaker housing market. Now the threat is $18.9 billion of CDOs in VIEs, the firm said in a regulatory filing on Jan. 29. Goldman spokesman Michael DuVally declined to comment.
Merrill Lynch & Co. analyst Guy Moszkowski today cut his estimate for Goldman's first-quarter earnings for the second time this month, citing growing losses from assets outside residential mortgages.
Lehman, which wrote down the net value of subprime securities by $1.5 billion, guaranteed $7.5 billion of VIE assets as of Nov. 30, according to a filing also made on Jan. 29.
``We believe our actual risk to be limited because our obligations are collateralized by the VIE's assets and contain significant constraints,'' Lehman said in the filing. Spokeswoman Kerrie Cohen wouldn't elaborate.
Citigroup Losses
Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in ``significant unconsolidated VIEs,'' according to a Feb. 22 filing by the New York-based bank. New York-based Merrill Lynch, which recorded $24.5 billion in subprime writedowns, has $22.6 billion in VIEs, according to CreditSights.
Merrill spokeswoman Jessica Oppenheim declined to comment, as did Citigroup's Danielle Romero-Apsilos.
The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights. Hendler based his estimate on the recent sale of $800 million of bonds by E*Trade Financial Corp.
Predictions for losses vary widely because banks aren't required to specify the type of assets being held in the VIEs or how much they are worth, said Tanya Azarchs, managing director for financial institutions at S&P.
``The disclosure on VIEs is hopeless,'' Azarchs said. ``You have no idea of the structure or how that structure works. Until you know that you don't know anything. It's like every day you come into the office and another alphabet soup has run off the rails.''
王冠一： 「 風 」 繼 續 吹 美 股 無 衰
26-2-2008
為 防 止 市 況 崩 圍 ， 決 策 者 很 多 時 會 利 用 其 他 喉 舌 放 風 ， 之 後 有 無 搵 人 企 出 來 做 場 戲 ， 看 情 況 而 定 ， 如 果 個 市 反 應 不 佳 ， 大 老 倌 肯 定 會 出 場 ， 君 不 見 那 個 甚 麼 「 大 水 喉 基 金 」 ， 傳 說 組 800 億 美 元 救 銀 行 ， 最 終 捧 了 保 哥 仔 出 來 ， 在 畫 面 上 閃 一 閃 ， 又 無 提 數 目 ， 更 無 提 時 間 。
泥 菩 薩 救 債 保 商
另 外 那 個 凍 結 利 率 方 案 （ 幫 浮 息 按 揭 到 期 無 能 力 續 期 的 苦 業 主 ） ， 居 然 破 天 荒 由 喬 治 布 殊 帶 同 「 啍 哈 二 將 」 ─ ─ 保 爾 森 和 伯 南 克 同 時 現 身 螢 光 幕 前 ， 如 此 大 陣 仗 ， 又 何 不 是 雷 聲 大 、 雨 點 小 的 造 勢 伎 倆 ？ 他 們 有 公 佈 救 活 了 多 少 家 庭 嗎 ？
還 有 約 3 星 期 前 ， 又 傳 來 有 齣 「 八 仙 過 海 救 債 保 商 」 之 好 戲 ， 豈 料 八 仙 中 有 七 個 是 泥 菩 薩 ─ ─ 自 身 難 保 ， 最 後 得 番 個 呂 洞 賓 在 「 吹 」 （ 簫 ） ， 連 影 都 冇 。 上 周 五 又 舊 事 重 提 ， 八 仙 又 再 現 身 組 30 億 美 元 救 債 保 商 Ambac ， 當 中 以 撇 到 阿 媽 都 唔 認 得 的 花 旗 和 瑞 銀 為 首 ， 你 信 唔 信 ？
不 利 數 據 續 公 佈
姑 勿 論 如 何 ， 信 不 信 由 你 是 一 件 事 ， 至 低 限 度 將 個 股 市 托 番 上 正 數 先 講 ！ 上 周 五 美 股 甫 開 市 後 不 久 便 遭 力 壓 ， 道 指 去 到 尾 段 ， 差 10 分 鐘 便 收 市 ， 箭 嘴 還 是 向 下 跌 緊 過 百 點 ， 豈 料 CNBC 突 然 傳 出 上 述 傳 言 ， 更 話 明 會 在 這 個 星 期 一 或 二 拍 板 ， 美 股 3 大 指 數 立 即 勁 彈 ， 短 短 時 間 道 指 倒 升 百 多 點 ， 終 以 升 96 點 收 市 ， 汝 道 如 果 筆 者 或 有 投 資 者 誠 心 到 ， 睇 個 市 至 香 港 時 間 周 六 凌 晨 4 時 45 分 後 抱 頭 大 睡 ， 一 覺 醒 來 ， 不 以 為 自 己 還 在 發 夢 才 怪 ？
假 若 救 債 保 商 之 方 案 又 是 吹 水 ， 你 估 個 市 會 往 那 走 ？ 何 況 這 個 星 期 還 有 連 串 或 不 利 的 房 屋 數 字 公 佈 ─ ─ 昨 日 的 二 手 樓 銷 售 ， 今 日 的 標 普 / Case-Schiller 樓 價 、 明 日 的 新 屋 銷 售 等 。 看 看 又 有 何 招 數 托 市 ？
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