US - Subprime

Re: Subprime Issues

Postby kennynah » Tue Jun 03, 2008 1:53 am

dead cat bouncing here...

********
02 Jun 2008 17:08 GMT

MARKET SNAPSHOT: U.S. Stocks Slide Further As S&P Downgrades Brokers


U.S. stocks on Monday extended their first decline in five sessions as Standard & Poor's cut its debt ratings on three large brokerages, adding to earlier losses stemming from upheavals at Wachovia Corp. and Washington Mutual Inc.


The ratings agency disclosed its downgrades involving Lehman Brothers Inc., Merrill Lynch & Co. Inc. and Morgan Stanley in a release, citing "the potential for more write-offs."


"Concerns in the financial sector have been in the spotlight, following trouble at the U.K. lender Bradford & Bingley, while management shake-ups at Wachovia and Washington Mutual have unsettled the markets as well," said analysts at Action Economics.


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Re: Subprime

Postby kennynah » Mon Jun 16, 2008 4:16 am

15 Jun 2008 20:06 GMT

Deja vu: Summer credit worries on Wall Street

NEW YORK (AP) - The summer heat has hit Wall Street, and everyone's nervous about investment banks' financial results. Sound familiar?

At this point last year, reports were surfacing about investors bailing out of a Bear Stearns Cos. fund that bet heavily on risky mortgages. A few days later, Bear Stearns committed more than $3 billion worth of loans to keep the fund from sinking -- a move that revealed to investors how much spiking mortgage defaults could cost the banks exposed to them.

Wall Street at the time called the ensuing turmoil in the debt markets the "summer credit crunch."

Well, the summer of 2008 is at hand. And the crunch is still here.

Certainly, a lot has happened between then and now. The Federal Reserve has slashed rates and boosted lending, which has helped the debt markets recover a bit. Several banks have kicked CEOs and other high-level executives out of the corner offices. And JPMorgan Chase & Co. bought the toppling Bear Stearns.

But credit remains tight, and investors remain anxious. Lehman Brothers Holdings Inc. is under scrutiny for making missteps similar to those made by Bear Stearns. After revealing a nearly $3 billion loss for the March-to-May period last week and then replacing its chief financial and chief operating officers, Lehman is scheduled to release its official quarterly results Monday.

Goldman Sachs & Co. and Morgan Stanley also report their earnings this week. Analysts predict the two investment banks will post profits for the fiscal second quarter that are much lower than last year's. Even more telling, perhaps, will be the details within the reports. Investors are less concerned with the actual profit decline than they are with how much value the investment banks' assets lost during the quarter.

"Everyone -- even those of us who don't really specialize in following them -- we're going to be looking for those write-downs. The headline number won't be sufficient," said Kim Caughey, equity research analyst at Fort Pitt Capital Group. "And if they have to do write-downs, the second half of that equation is: Will investors come in to recapitalize them?"

Since last year, financial services companies around the world have written down the value of their various debt-related holdings by more than $240 billion. As a result, many banks -- including Citigroup Inc. and Merrill Lynch & Co. -- have sold stakes to outside investors to raise extra cash.

The stock market is not as volatile now as it got to be last summer. Instead of plunging, the Dow Jones industrial average has been wavering back and forth, with investors unsure about the direction of the economy.

Last week, the Dow finished up 0.80 percent, but the Standard & Poor's 500 index ended down 0.81 percent and the Nasdaq composite index closed 0.05 percent lower.

One big, complicating factor that was not an issue last year is oil. A year ago, crude oil was at around $68 a barrel; now, it's trading near $135. It's true that oil has been climbing for several years, but this year's jump has been particularly steep and worrisome.

The problem with soaring oil is that it both raises prices and dampens spending -- in a sense, it is both inflationary and deflationary. This paradox makes it hard for the Fed to figure out how to adjust interest rates.

So in addition to investment bank earnings this week, investors will be watching oil prices and economic data for direction this week.

The National Association of Home Builders releases its index of June activity; the Labor Department reports on producer prices; the Commerce Department reports on new home construction; the Conference Board reports on May's leading indicators and the Philadelphia Fed releases its regional index of manufacturing activity.
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Re: Subprime

Postby kennynah » Mon Jun 16, 2008 12:18 pm

16 Jun 2008 04:15 GMT

UK PRESS: Investors are bracing themselves for a bloody week on Wall Street
, with three of America's biggest investment banks, Goldman Sachs, Lehman Brothers and Morgan Stanley, expected to unveil further writedowns totalling as much as $9bn, the Independent on Sunday reported.
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Re: Subprime

Postby iam802 » Thu Jun 19, 2008 12:01 pm

Thinking of whether it belongs to Bonds, CDO, or US...

just putting it here..... 'revival of the subprime, enough of oil'

http://www.bloomberg.com/apps/news?pid= ... efer=home#
===========
Bill Ackman Was Right: MBIA, Ambac on `Ratings Cliff' (Update1)

By Christine Richard

June 18 (Bloomberg) -- Bill Ackman was right: the world's largest bond insurers aren't worthy of a AAA credit rating and may be headed for the bottom of the scale.

Ackman, the 42-year-old hedge fund manager who says he stands to make hundreds of millions of dollars betting against MBIA Inc. and Ambac Financial Group Inc. if they go bankrupt, will tell investors at a conference in New York today that losses posted by bond insurers may threaten to breach the capital limits allowed by regulators, making them insolvent.

That once-unthinkable scenario would trigger clauses in $400 billion of derivative contracts written to insure collateralized debt obligations and other securities, allowing policyholders to demand immediate payment for market losses, which have reached $20 billion, according to company filings. Downgrades of the insurers would cause a drop in rankings for the $2 trillion of debt that the companies guarantee, wiping out the value of the CDO insurance held by Wall Street firms, analysts at Oppenheimer & Co. said.

``Given the volume of credit-default swap contracts the industry has written, there is a real element of a ratings cliff across the bond insurance sector,'' said Fitch managing director Thomas Abruzzo, the first analyst to strip MBIA and Ambac of their top ratings.

Ambac said today it asked Fitch to remove ratings on all of the company's subsidiaries. MBIA asked Fitch to stop assigning a financial strength rating in March.

17 Levels

CIFG North America may fall first. The company's credit rating has been cut by 17 levels to CCC from AAA by Fitch since March because of concern it won't be able to make payments on $57 billion of the contracts.

Ackman said CIFG ``provides a road map for what happens to a bond insurer when its capital is depleted.'' Ackman, whose $6 billion Pershing Square Capital Management hedge fund in New York returned 22 percent last year, began betting against bond insurers in 2002. In his report ``Is MBIA Triple-A?,'' Ackman was the first to say the insurer's use of derivatives to guarantee debt threatened to drain capital.

MBIA, of Armonk, New York, Ambac, Security Capital's XL Capital Assurance and FGIC Corp. also have guarantees with similar clauses to CIFG that may allow policyholders to demand billions of dollars if the companies became insolvent, according to company filings.

CIFG, XL Capital Assurance, and FGIC's insurance unit may all fall short of regulatory capital requirements by June 30, according to Robert Haines, an analyst with CreditSights Inc. in New York.

`Highly Theoretical'

Downgrades may cause Citigroup Inc., Merrill Lynch & Co. and UBS AG to write down the value of insured-debt holdings by at least $10 billion, according to Meredith Whitney, an analyst at Oppenheimer in New York. Banks and insurance companies would also be required by regulators to hold more capital to protect against losses on lower-rated debt, according to analysts at Charlotte, North Carolina-based Wachovia Corp.

CIFG is working on a plan to bolster capital, spokesman Michael Ballinger said. Because MBIA has a surplus of $3.9 billion, insolvency is ``both highly theoretical and extremely unlikely,'' Kevin Brown, a spokesman for MBIA said in an e-mailed statement. Vandana Sharma, a spokeswoman for Ambac, with a $3.6 billion surplus, declined to comment, as did Security Capital spokesman Michael Gormley and New York-based FGIC's chief risk officer, John Dubel.

Insurers, including MBIA and Ambac, expanded beyond municipal debt into insuring CDOs, which package pools of securities and slice them into pieces of varying risk. The move was criticized by Ackman, who said it may ultimately bankrupt the companies.

Pershing Square

In January, Ackman, who started a hedge fund after working at his family's commercial mortgage brokerage, estimated MBIA and New York-based Ambac faced losses on home-loan securities of almost $12 billion each, a claim the companies disputed as recently as February.

Ackman said he took an interest in MBIA after asking a credit-market trader which companies didn't deserve AAA ratings. That led to his report and his decision to take a short position in MBIA and Ambac stock, selling borrowed stock, expecting to repurchase it later at a lower price. Ackman also bought credit- default swaps on MBIA and Ambac debt. The swaps would rise in value if doubts about the companies grew.

Pershing Square profited as MBIA tumbled 91 percent in the past 12 months and Ambac plunged 98 percent in New York Stock Exchange composite trading. Security Capital is down 99 percent.

Investor Bets

Instead of writing standard insurance policies for the CDOs, the companies provided guarantees in the form of credit-default swap contracts, financial instruments that allow one party to assume the risk of a security defaulting in exchange for a fee from another.

The contracts were designed to mirror insurance policies, said Bob Mackin, the Albany, New York-based executive director of the Association of Financial Guaranty Insurers.

Unlike insurance, the swaps include so-called termination clauses that can be triggered if a company becomes insolvent, Mackin said. The feature requires insurers to compensate CDO holders for any drop in value, or mark-to-market loss, on the securities.

Moody's wrote in 2006 that the companies were ``well insulated from liquidity risk,'' because credit-default swaps ``protect the guarantor from ever having to pay claims on an accelerated basis.'' Moody's spokesman Abbas Qasim declined to make analysts available for this story.

`Serious Consequences'

The credit ratings of some CDOs have tumbled so far that the insurers have recorded combined unrealized losses of at least $20 billion.

Some companies' termination payments would eat up all their claims-paying resources, according to filings and rating company reports.

``It doesn't make sense for companies and regulators to have gone knowingly into this, given the very serious consequences,'' said Lawrence Hamilton, an insurance attorney with Mayer Brown LLP in Chicago. ``At the time, the possibility of a bond insurer becoming insolvent seemed so remote.''

If a company's surplus to policyholders -- or assets over liabilities -- falls below zero, it's considered insolvent under New York State Insurance Department rules and would be taken over by Superintendent Eric Dinallo, unless it comes up with a plan to correct the impairment, Deputy Superintendent Michael Moriarty said in an e-mailed statement.

Moriarty wouldn't comment on the likelihood of the department taking over the companies under that scenario.

`Extremely Alarming'

In a June 8 report, CreditSights' Haines wrote that ``statutory surplus levels at some of the monoline financial guarantors are extremely alarming.''

Companies may avoid making the termination payments by raising capital or reducing loss reserves. CIFG and FGIC are seeking ways to raise capital, they said. MBIA and Ambac have said they don't anticipate losses will be large enough to erode their surpluses.

Even in an insolvency, regulators may step in to halt the payments or banks may decide not to demand compensation, Abruzzo said. ACA Financial Guaranty Corp. has reached five agreements with banks since December, allowing it to avoid posting collateral on CDOs it guaranteed using swaps. ACA has been cut to CCC by S&P.

Fitch is assuming in its ratings that regulators will allow the payments, Abruzzo said.

CIFG, FGIC

CIFG, based in Hamilton, Bermuda, had a surplus of $80 million at the end of the first quarter, down from $103 million, according to filings. It set aside more than $100 million for losses in the first three months of the year.

Security Capital's XL Capital Assurance booked about $200 million of losses in the first quarter, shrinking its surplus to $167 million, according to company filings. SCA, based in Hamilton, Bermuda, wouldn't be able to cover termination payments on swaps if they were triggered, according to regulatory filings. XL is rated BB by Fitch, A3 by Moody's and BBB- at S&P.

FGIC had a cushion of $366 million at the end of March, compared with loss reserves of about $1.8 billion taken in the past year, according to company filings. FGIC is rated BBB by Fitch, Baa3 at Moody's and BB by S&P.

MBIA and Ambac may need to raise capital to avoid becoming insolvent if loss reserves continue at the recent pace, Haines said. The companies were both cut to AA from AAA by Fitch and S&P. Moody's said on June 4 that it probably will also reduce its ratings.

S&P spokeswoman Mimi Barker declined to make analysts available for this story.

`Nightmare Scenario'

In the past two quarters, MBIA's insurance unit set aside reserves of $2 billion to cover losses on $51 billion of guarantees on home-equity securities and CDOs backed by subprime mortgages.

Ambac booked about $2 billion of loss reserves, leaving it with a statutory surplus of $3.6 billion. It guaranteed around $47 billion of CDOs and home-equity debt.

While both companies are above the regulatory capital requirements, S&P said in a February report that in a ``stress case scenario,'' MBIA may be forced to pay a total $7.9 billion in claims on a present-value basis and Ambac may be forced to pay $6.2 billion.

``That's what puts these companies into the nightmare scenario,'' CreditSights' Haines said.
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2. The trend will END but I don't know WHEN.

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Re: Subprime

Postby LenaHuat » Fri Jun 20, 2008 9:08 am

It's still not end-of-the-road for subprime. :evil:
The CFO of Citigroup last nite warned of more write-downs in the second half of 2008.
NEW YORK (AP) -- Citigroup Inc.'s chief financial officer on Thursday warned that the nation's largest bank by assets would suffer more "substantial" writedowns on debt investments in the second quarter.
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Re: Subprime

Postby millionairemind » Fri Jun 20, 2008 9:22 am

Lena,

Some major shorts going on.... NYSE short interest ratio at 15.35.... all time 5 year high... At the start of the January bloodletting, it was only around 10....

Somebody or some groups with massive financial muscles knows something I don't and shorting the hell out of NYSE... and that scares a small fry like me :o :o

Cheers,
mm
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Re: Subprime

Postby iam802 » Fri Jun 20, 2008 10:10 am

A follow up news to previous post (2-3 post up).

====
1. Ackman Foresaw MBIA Drop, Is Short Financial Security (Update3)

June 19 (Bloomberg) -- Hedge fund manager Bill Ackman, who correctly predicted shares of MBIA Inc. and Ambac Financial Group Inc. would tumble, said he now is betting against Financial Security Assurance Holdings Ltd.

Financial Security may be insolvent because it sold investment contracts backed by mortgage securities that have tumbled in value, Ackman, 42, told a conference hosted by law firm Jones Day yesterday in New York. Financial Security, a New York unit of Brussels and Paris-based Dexia SA, is one of two bond insurers to retain their AAA credit ratings after rivals were roiled by losses from collateralized debt obligations.

``The market has not woken up to FSA,'' said Ackman, who runs the $6 billion Pershing Square Capital Management hedge fund. Ackman says he will make hundreds of millions of dollars if MBIA and Ambac go bankrupt. ``FSA is AAA stable, just don't look too close.''

........

http://www.bloomberg.com/apps/news?pid= ... refer=home

===

2. Moody's Cuts MBIA, Ambac, Taking Last Aaa Ratings (Update2)

June 19 (Bloomberg) -- Moody's Investors Service stripped MBIA Inc. and Ambac Financial Corp. of their Aaa, following Fitch Ratings and Standard & Poor's, ending the bond insurers' run of at least two decades at the top of the ratings scale.

MBIA's MBIA Insurance Corp. unit was reduced five levels to A2 from Aaa, New York-based Moody's said today in a statement. Ambac Assurance Corp. was lowered three steps to Aa3, Moody's said in a separate release. The outlook on both is negative.

The downgrades end more than seven months of speculation about whether the bond insurers would keep their top ratings at all three firms. Five of seven companies lost their top ratings as projections for losses on securities backed by home loans surged and confidence in the companies collapsed, causing municipalities to shun their insurance. The downgrades span more than $2 trillion of debt sold by issuers ranging from school districts and sewer authorities to Wall Street firms.

......

http://www.bloomberg.com/apps/news?pid= ... mNiq0gUyiU
Last edited by iam802 on Fri Jun 20, 2008 11:25 am, edited 1 time in total.
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Re: Subprime

Postby winston » Fri Jun 20, 2008 10:14 am

millionairemind wrote:Somebody or some groups with massive financial muscles knows something I don't and shorting the hell out of NYSE... and that scares a small fry like me :o :o


Would not be surprised if they engineer a crash later, possibly during witching hour or after window dressing. However, they need a catalyst that is unquantifiable and have a big effect on things. The line of least resistance is still downwards..

Did u all remember how everyone reacted to the news that Israel was going to attack Iran ?
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
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Re: Subprime

Postby Chiron » Fri Jun 20, 2008 11:16 am

millionairemind wrote:Lena,

Some major shorts going on.... NYSE short interest ratio at 15.35.... all time 5 year high... At the start of the January bloodletting, it was only around 10....

Somebody or some groups with massive financial muscles knows something I don't and shorting the hell out of NYSE... and that scares a small fry like me :o :o

Cheers,
mm


Hi MM, based on historical data of the short interest to NYSE movement, does it means that there is a high probability that NYSE will drop significantly in the coming days, weeks?

Thanxs :roll:
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Re: Subprime

Postby LenaHuat » Fri Jun 20, 2008 12:34 pm

millionairemind wrote:Lena,

Some major shorts going on.... NYSE short interest ratio at 15.35.... all time 5 year high... At the start of the January bloodletting, it was only around 10....

Somebody or some groups with massive financial muscles knows something I don't and shorting the hell out of NYSE... and that scares a small fry like me :o :o

Cheers,
mm


Hi MM and Other Forumers
The short ratio can tell 2 contrarian stories depending on where one is positioned. Personally, I am not stepping into this market. Me, also a small fry and so am waiting this mid-day for delivery of my Sony full HD LCD TV so as to watch more TV. Do not under-estimate those Goldman Sachs fellows' might............they know alot of stuff and don't, like us sit prettily around twiddling our fingers on the keyboard. They act BIG and I smell a kettle of rotting flesh and blood.

Sorry, I'm sounding alarmist but I think they've cornered several markets - equities and commodities.
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