Thursday, March 08, 2007

hedge funds and new century / subprime

schadenfreude! i´m stunned (not really) that the "smart" money was buying subprime lenders at the top and a big bank like citigroup bought just days before the implosion of new a stake in the lender. it is also weird that new financed and funded a hedge funds where new is the biggest supplier of loans/new businesses.

but after hearing almost every conference call from new shouldn´t be surprised........

schadenfreude pur! ist es nicht erstaunlich das die angeblich so "cleveren" hedge-fonds-manager zu spitzenpreisen in den subprimemarkt eingestiegen sind. zudemm hat citigroup nur tage vor der vollständigen implosion von new einen anteil erworben. ebenso merkwürdig ist es das new einen hedge fonds mitbegründet und finanziert hat der zugleich ein abnehmer von verbrieften krediten von new ist.

nachdem ich diverse cc der letzen jahre von new gehört habe sollte mich das aber eigentlich nicht mehr überraschen.

The Mortgage Mess Spreads
The subprime lending industry is getting hammered, and hedge funds and investment banks are feeling the pain

The canaries in the coal mine are keeling over fast. After years of easy profits, the $1.3 trillion subprime mortgage industry has taken a violent turn.....

Now there's evidence that the pain is spreading to a broad swath of hedge funds, commercial banks, and investment banks that buy, sell, repackage, and invest in risky subprime loans. .... "This is going to be a meltdown of unparalleled proportions. Billions will be lost."

Hedge funds, those freewheeling, lightly regulated investment pools, seem particularly vulnerable.
BusinessWeek has learned that $700 million Carrington Capital and $3 billion Greenlight Capital may have gotten badly burned because of their intricate dealings with New Century Financial, a major subprime lender whose stock has plunged 84% in four weeks amid a Justice Dept. investigations into its accounting. Magnetar Capital, a $4 billion fund formed two years ago, may be on shaky ground, too. The question is, how many others may be suffering? "This is a very opaque industry, so no one really knows,"....

"you should relax less!".... time to panic... :-)

Bigger Losses
Not that big commercial and investment banks will go unscathed. Citigroup
, HSBC , and Countrywide Financial have boosted their estimates of losses and warned of credit troubles. Sanford C. Bernstein analyst Brad Hintz predicts that the subprime meltdown will result in earnings reductions for Bear Stearns , Lehman Brothers , Goldman Sachs , Merrill Lynch , and Morgan Stanley .

Among hedge funds, Greenwich (Conn.)'s Carrington seems particularly vulnerable. Managed by ex-Citigroup banker Bruce M. Rose, the fund was launched in 2003 with $25 million in seed money from New Century, which owns about a 35% equity stake. Such an intimate tie between a lender and a hedge fund is highly unusual, say analysts. Carrington specializes in turning subprime mortgages into sophisticated bonds called collateralized debt obligations (CDOs) and selling them to other investors. Not surprisingly, New Century is one of Carrington's biggest suppliers, providing 17% of the loans in a recent deal. Another major supplier is Fremont General ..

With Carrington on the verge of losing loans from two major providers, the fund, which counts Citigroup as an investor, seems to be in a bind. Rose says he expects the market for subprime loans to pick up again and is in talks with several lenders to buy mortgages. "We have no exposure to New Century as a corporate entity," he says. "Our deals have outperformed just about everything out there." (relatively speaking..../relativ gesehen....)

"Stress Scenario"
One clear loser is David Einhorn, manager of hedge fund Greenlight Capital, who made a big, ill-timed gamble on the subprime sector when he fought his way onto New Century's board last March. Greenlight, which regularly posts double-digit annual gains, is down about 2.5% on the year ( i doubt that this figure is after the implosion ..../ ich bezweifle das die zahl die implosion berücksichtigt...); its stake in New Century, valued at $109 million at the start of the year, has shrunk to $21 million. Einhorn's seat on New Century's board prohibited him from selling even as the lender warned that it would restate most of its 2006 earnings results and said federal prosecutors are investigating its accounting. ( what a genius. he bought right at the top! / genial, zum top gekauft!)
UPDATE: thanks to rodger rafter here is the
official press release which brought einhorn on the board (hahahaha...)
and today the news that
"Greenlight's president reportedly just resigned from the New Century board"

Some on Wall Street point out that Magnetar showed bad timing, too, by entering the subprime arena last year just as the underwriting quality of subprime loans began to deteriorate rapidly.... (the underwriting was as poor as the last few years. the only difference was that homes didn´t aprreaciate to cover the mess...../die kreditprüfung war genauso schlecht wie die jahre vorher. voher hat der steigende immopreis diese debakel verschleiert.....)

Other hedge funds that have feasted on mortgage-backed securities will be hit hard if rating agencies start downgrading them, as is widely expected. That would be likely to send their values plummeting. "This is indeed a stress scenario," ( the agencies are way behind the curve. / die ratingagenturen sind viel zu spät dran. read "rating agencies fallen asleep"

But those downgrades likely won't come right away. Observers say ratings agencies may rely on some models that don't fully account for the recent explosion in exotic mortgages, Standard & Poor's, .. "Our models are continually adjusted and enhanced." Adds Fitch's Costello: "There's a clear trend that we've expected higher and higher losses."

Commercial and investment banks have many tendrils in the mortgage business, too. They earned fat fees during the housing boom by packaging loans into pools and selling them to investors. That market is shrinking as subprime lenders and investors pull in their horns, leaving banks holding risky loans.

Up the Food Chain
There's also growing talk that many firms, in particular Goldman Sachs, incurred steep losses in trades based on the ABX subprime index. As market makers, the big banks were forced to take the other side of clients' short trades, or bets that the index would fall. When the index plunged 34% in the first 10 weeks of the year, the banks lost. ....

In another case of dreadful timing, Citigroup disclosed on Feb. 28 that it recently upped its stake in New Century to over 5%, adding some 1 million shares just weeks before New Century revealed the investigation by federal prosecutors.
The biggest fear is that the trouble will move up the food chain. The same questionable lending practices that were used for subprime mortgages during the boom were also used for regular, or "prime," mortgages—among them low or zero downpayments, loose loan-to-value ratios, and exotic mortgages with low up-front payments that balloon later.

While subprime loans accounted for 20% of mortgages originated last year, David Liu of UBS estimates that fully 40% of last year's loans are "showing a lot of signs of stress." ......
here the story from roubini "Is the Sub-Prime “Garbage” 6% or Rather 50% of the Mortgage Market? And the Worst Housing Recession in Decades... "
but not everybody is as dump ......./ aber nicht jeder is ähnlich unclever
disclosure: short new , cfc

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Anonymous Anonymous said...

Interessanter Inhalt, aber die Schrift ist viel zu klein. Man kann das ja kaum lesen

7:40 AM  
Blogger jmf said...

besten dank.

schön das sich auch mal ein paar deutsche "verirrt" haben :-)

kleiner hinweis in sachen schrift. der jeweilige originalbericht versteckt sich jeweils hinter überschrift. einfach anklicken und du gelangst zum original.

dann mußt du allerdings auf meine "geistreichen" kommentare verzichten :-)

8:19 AM  

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