SachsenLB Has EU3 Billion in Subprime Investments

More details are coming out of the troubled Landesbank Sachsen and their off balance sheet vehicle "Ormond Quay". It´s a mess.... $ 4 billion in subprime is just unbelievable. As i said yesterday here in Germany the co-owners of the Landesbank ( Sparkassen ) are only making mortgages that have a LTV ranging from 60-80 percent , fixed rates, full documentation etc. And now they are on the hook for the crappiest loans that were invented in the last century.......

So langsam kommen mehr Details zu dem Debakel der Landesbank Sachsen und Ihrer irischen Tochter die sich passenderweise ausserhalb der Bilanz befindet. Skandal beschreibt die Situation nur unzureichend ( besonders dann wenn man sich fragt wo die Aufsichtsbehörden während der letzten Jahre gewesen sind). Wie ich bereits gestern gesagt habe ist es schon fast wieder komisch das die Miteigner der Sachsen LB (Sparkassen) selber konservativ in Ihren Beleihungswerten (60-80%) sind, zudem einen Eigenanteil verlangen, Festzinsvereinbarungen die Regel sind, so nebensächliche Sachen wie Verdienstbescheinigungen vorgelegt werden müssen usw. Und nun sind Sie über die Landesbank direkt in die wohl schlimmste Kreditinnovation des letzten Jahrhunderts investiert die so ziemlich genau das Gegenteil von dem eigenen Hypothekenkreditbuch ist......

Aug. 21 (Bloomberg) -- Landesbank Sachsen Girozentrale, the German state-owned bank getting emergency funding, has about 3 billion euros ($4 billion) in investments linked to U.S. subprime mortgages, according to a person with knowledge of the matter.

The bank's Ormond Quay finance unit holds the securities among its AAA rated asset-backed bonds, according to the person, who declined to be identified because the holding has not been made public. Ormond Quay invests in securities backed by residential mortgages, commercial property and credit cards.

FAZ
Moody´s is estimating that the conduits are responsible for almost 50% of the 104,7 mio € profit in 2006.

Rund die Hälfte des gesamten Konzerngewinns vor Steuern stammen laut Ratingagentur Moody's aus den Einnahmen der Dubliner Tochtergesellschaft SachsenLB Europe, die auch Ormond Quay verwaltete. Für 2006 wies die SachsenLB ein Ergebnis der normalen Geschäftstätigkeit von 104,7 Millionen Euro und eine Eigenkapitalrendite von 11,5 Prozent aus.

> Nice risk reward....... Nettes Chancen/Risiko Verhältnis.......

The Leipzig-based lender is the second German bank after IKB Deutsche Industriebank AG to get funding after a credit crunch prevented finance units from selling commercial paper, debt due in 270 days or less. SachsenLB obtained 17.3 billion euros in credit on Aug. 17 from German state-owned banks to repay debt from Ormond Quay.

EU Regulators
European Union regulators will examine whether the credit line included state aid. EU Competition Commissioner Neelie Kroes's department asked the German government for information to determine ``whether there are elements of state aid or not,'' European Commission spokeswoman Amelia Torres told reporters in Brussels yesterday.

The commission, which vets whether government grants harm competition, could force Germany to recover any illegal subsidies. The EU probe follows at least five years of investigations into German grants to state-owned savings banks, which make up half the country's banking market.

Profit Impact
SachsenLB said Aug. 17 the rescue package will ``negatively impact'' profit. A week earlier, it said it had ``sufficient liquidity'' and didn't expect a default by units such as Ormond Quay that invested in AAA rated asset-backed securities.

> Even from this kind of mortgage innovation the "Street" has created tranches of AAA mortgages....

> Dumm nur das selbst von dieser Art der Hypotheken Wall Street in der Lage gewesen ist AAA Tranchen zu "gestalten"

Thanks to Randy Glasbergen

Standard & Poor's yesterday cut its assessment of SachsenLB's debt to BBB+, the eighth-highest of 10 possible investment-grade credit ratings. SachsenLB ``needs to restore investor confidence,'' the rating company said.

``Investors' appetite for SachsenLB's complex structured products is likely to remain subdued, which could reduce the group's medium-term growth prospects,'' the rating company said. It may cut the rating again if more problems emerge, S&P said.

Moody's Investors Service and Fitch Ratings had placed the SachsenLB's debt on review for a possible downgrade, in part because of obligations to Ormond Quay, which sold asset-backed commercial paper to finance investments.

> Could be the research department from Moody´s & Co.....Is anybody listening and taking the rating agencies seriously. Take a look at Dumb, Blind Or Just A Conflict Of Interest & Fitch Discloses Its Fatally Flawed Rating Model

> Dort könnte genauso gut das Research Headquarter von Moody´s & Co liegen......Hört denen überhaupt noch jemand zu ? Ernstzunehmen sind die Rating Agneturen schon lange nicht mehr. Beispiel gefällig... siehe Dumb, Blind Or Just A Conflict Of Interest & Fitch Discloses Its Fatally Flawed Rating Model

> Here is another clear indicator that the rating agencies have acted almost intentional. But in the end the buyers if this junk deserve all the losses. That´s the price you have to pay if you don´t do any due dilligence and buy stuff you don´t understand .... :-)

> Hier ein weiteres Beispiel wie weit die Ratingagenturen von der Realität entfernt waren und man dieses fast als vorsätzlich ansehen muß. Das spricht aber selbstverständlich die Käufer dieses Giftmülls nicht von der Schuld frei. Die haben jeden € an Verlusten verdient. Das ist halt die Kehrseite der Medaille wenn man keinerlei "Due Dilligence" macht und die Materie nicht versteht..... :-)

Subprime conspiracy unearthed. Maybe… via the FT
Suntans are peeling fast as most bankers furiously search their floppies for that memo from the summer of ‘03 that came on cold for the US mortgage market.

Most, but not all.

Indeed, you will be forgiven for not knowing that the current credit crisis could be the work of an evil cabal. Or so it seems from an article in Barron’s, which sources an anonymous (now identified as Kyle Bass) “bearish hedge-fund operator” who, in turn, has been talking to an equally anonymous “senior Wall Street marketing director.”

Barron’s has obtained a letter sent by the ‘bhfo’ to his/her investors revealing:

This will go down as one of the biggest financial illusions the world has EVER seen.

FT Alphaville notes that the master plan involves the “alchemy of CDOs” in a ritual overseen by the ratings agencies. Combine the two and…

POOF…you magically have 80% of the structure rated ‘AAA’… despite the underlying collateral being a collection of BBB and BBB- rated assets.

But here’s the real scandal:

‘Real money’ [U.S. insurance companies, pension funds, etc.] accounts had stopped purchasing mezzanine tranches of U.S. Subprime debt in late 2003 and [Wall Street] needed a mechanism that could enable them to ‘mark up’ these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!!

He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of subprime debt.

Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the ‘excess’ pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt

…until now. Mystery solved, then.

Nach Diktat im Krisenfall verreist

> On top of this there is an outrage that the head of the Bafin (banking oversight ) who said called the IKB debacle "could lead to the greatest banking crisis since 1931. The entire German banking stability is at risk!" is on vacation in Canada and the head of the Bundesbank Axel Weber has said almost nothing during the last weeks to calm fears.

> Hinzu gesellt sich wie ich finde zurecht Aufregung darüber das der Chef der Bafin (Sanio) obwohl er kurz zuvor noch von der größten Bankenkrise seit 1931 gesprochen hat sich momentan im Kanadaurlaub befindet und der oberste Bundesbänker Axel Weber während der letzten Wochen so gut wie nicht wahrgenommen worden ist

Hat tip to Pancho Villa