October 29, 2007, 1:42pm
ftalphaville.ft.com/blog/2007/10 … et-deeper/
As reported by the FT on Friday, analysts are still uncomfortable with Merrill’s CDO and subprime assets. Despite having halved its CDO holdings - from $32.1bn at the end of the second quarter, down to $15.2bn currently - and significantly reduced its $8.8bn of Q2 subprime securities to $5.7bn, Merrill still faces big problems.
Firstly, it is likely to have sold it’s most highly rated assets already - meaning what remains will be much harder to shift. Secondly, given the current conditions in the markets, Merrill are going to have big problems finding institutions to hedge their exposures with. And, thirdly, it looks like CDO and subprime assets still have a way to fall.
And then there is everyone else with this crap on their books.
Thats good news ! Lets hope the corporate parasite that is Merrill Lynch goes out of business completely. They can be replaced with computers. Welcome to capitalism losers !
November 1, 2007, 3:35pm
One fat lady has cleared her throat, The rating agencies are rerating a scad of this mush at present. More FT Alpha
ftalphaville.ft.com/blog/2007/11 … ritedowns/
So why is the AAA taking a battering? CDOs are opaque and generic. Investors bought CDO paper purely on the back of its ratings. What’s spooking people are some of the shock downgrades - Moody’s, for example, cut the Aaa rated trance of a CDO issue called Vertical 07-01, issued by the absurd-sounding Vertical Capital, by fourteen notches to B2. In one go.
Some are sanguine. The Fed rate cut on Wednesday provoked a small return in confidence - evident in the graphs above. And Pimco has announced it’s going to invest heavily in CDOs. The fund said it bought $5bn of CDOs over the past few weeks, and intends to buy another $2bn in the next couple.
But on the other hand, evidence from the US housing market would suggest there’s plenty of pain yet to work itself out of the system. Given the way subprime delinquencies are set to carry on rising into 2008, there could yet be a lot of subprime, Alt-A and even prime securities to be downgraded.
And some CDOs themselves are beginning to crack. Moody’s said seven have experience “events of default” on Wednesday. And true to their word, they’ve downgraded tranche after tranche of CDO debt since then.
What’s more, since the CDO markets have crashed in the last few weeks, writedowns in banks’ Q3s - only just reported - are likely to be much worse. Citi, for example, reported writedowns totalling $1.3bn on subprime MBS it had warehoused for use in CDOs. That was on October 1. The graphs above give a pretty good indication of where the market has moved since then.
AND Q4 figures for the likes of Citi and Merrill look very very ugly , just like q3 .
WHOOPS , the market
noticed already .
BOSTON (MarketWatch) – Citigroup in the near term may be required to raise more than $30 billion by either selling off assets, slashing its dividend, raising capital or resorting to a mix of these measures, analysts at CIBC World Markets said.
Citigroup’s shares, part of the Dow Jones Industrial Average, traded off more than 7% in morning action Thursday.
And each downgrade in an index or by a rating agencies begets another round of downgrades . Its a quarterly cycle at this stage , March, August , November, Next year the same
If I understand what the ABX index is telling me, there will have to be large writedowns in the coming months particularly as we enter audit season. There will be skin and hair flying with the auditors this year.
And what happens when the bonds of the bond insurance companies gets downgraded?
Ambac Financial Group Inc. (ABK US) tumbled the most since
its July 1991 initial public offering, falling $7.11, or 19
percent, to $29.72. Gimme Credit Publications Inc. downgraded the
company’s bonds to
deteriorating'' from stable, citing the
world’s second-largest bond insurer’s risk from collateralized
Bigger rival MBIA Inc. (MBI US) declined 8.5 percent to
and the mortgage insurance companies report huge losses
Radian Group Inc. (RDN US) dropped the most since Oct. 25,
sliding $1.91, or 15 percent, to $10.68. The third-biggest U.S.
mortgage insurer reported a third-quarter loss of $703.9 million,
the largest yet in an industry roiled by claims from failed home
Other mortgage insurers also tumbled. MGIC Investment Corp.
(MTG US) slipped 12 percent to $16.98. PMI Group Inc. (PMI US)
fell 14 percent to $13.76.
this is one almighty circle-jerk gone wrong.
November 1, 2007, 4:53pm
Classic negative feedback stuff.
The ABX is segmented like ABX-AA and ABX-BBB according to the crud it tracks.
The first real falls were in Feb 07 which was followed by the originating banks crashing in march/april time , then it went lower in May and Bear Stearns hedge fund followed the originating banks in June .
Each dip is followed by grief the following month .
This month will be the next round of it.
At the risk of sounding stoopid (well, more than normal), concerning all these billions of dollars worth of write-downs and write-offs…so what?
So a few banks make a billion less this year than they did last year. Big deal. In fact, if it wasn’t for this board, I’d never have known that there was (apparently) a financial crises going on, it has so little effect on normal people’s lives.
Or am I missing something?
I guess you’re missing the higher mortgage rates that people are having to sign up to?
November 1, 2007, 9:01pm
Each downgrade cycle leads to less appetite for lending to the mortgage market …worldwide.
Each downgrade cycle reduces LTV and Income multiples available and each leads to a wider spread between base rate and mortgage rate .
In other words each leads to dramatically less liquidity in the Irish property market.
Simple cause and effect. Its a global economy.
top story on
Western banks suffer big losses * ( Subscribe to read | Financial Times)
Global investors succumbed to a new bout of jitters on Thursday amid concerns that a host of big western financial institutions are nursing additional, serious problems related to America’s troubled mortgage markets.
Equity markets tumbled and bond prices rose in the US and Europe. There were particularly sharp falls in the share prices of big banks and other financial groups, such as those that insure mainstream debt instruments – the so-called monoline insurance companies.
These signs of rising tension came as the Federal Reserve redoubled its efforts to ease conditions in the money markets. In its regular operations, the Fed added $41bn in temporary reserves to the banking system, the biggest one-day cash infusion since September 2001.
Another focus of concern is the main US monoline companies such as MBIA, Ambac and Radian such as municipal or mortgage bonds, which are then sold to a host of mainstream investors.
Radian, a specialist mortgage insurer, saw its shares tumble by 19 per cent, after its first ever quarterly loss, due to mortgage-related problems. MBIA and Ambac, the two biggest monoline insurers, have also experienced dramatic share price declines, amid fears they too could be nursing unseen subprime-linked problems.
MBIA and Ambac vehemently deny that they face any pressures and stress their exposure to subprime assets is very small. But analysts fear that any rising subprime pressure could prompt these institutions to lose their top-notch credit rating, this could spark a new “domino effect”.
In particular, any downgrade of the monolines could cut the value of the bonds they have insured, which are held by a range of investors such as banks. “Investors in monolines will be waiting for the coming month’s housing data with trepidation,” said Gavan Nolan, analyst at Markit Group.
These concerns triggered a sharp rise in the cost of insuring monoline debt against default. This, in turn, raised the broader cost of buying protection against default of a basket of European and US bonds. “Fear is back,” said Marcus Schueler, credit analyst at Deutsche Bank.
The rate of delinquencies among subprime borrowers has accelerated sharply, according to data from RealtyTrac. The main ratings agencies slashed to junk the ratings on more than $100bn in subprime mortgage backed bonds.
NEW YORK (MarketWatch) – Citigroup shares tumbled nearly 7% to reach a multiyear low Thursday amid new concerns that the financial services conglomerate may not be able to support its hefty dividend payout.
In the near term, Citi may have to raise more than $30 billion by either selling off assets, slashing its dividend, raising capital or resorting to a mix of these measures, analysts at CIBC World Markets said. >>>>
Citigroup shares drop as dividend is put in doubt
Will be interesting to see how the banking/construction-weighted ISEQ performs today. CitiGroup in trouble will have serious knock-on effects all over the world.