Monday, August 20, 2007

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

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13 Comments:

Blogger jmf said...


Commercial Paper Roils Borrowers With $550 Billion Coming Due

12:39 AM  
Blogger jmf said...


WestLB CEO warns of crisis in German banking


The chief executive of German state-owned bank WestLB AG warned of a crisis in Germany's banking sector, as it becomes increasingly difficult to secure foreign credit. "We sense a reluctance on the part of foreign partners to extend credit to German banks," Alexander Stuhlmann told journalists on the sidelines of a bank event Monday evening. "If we have a banking crisis in Germany with other countries cutting us off, then other banks will also face difficulties

The West LB has also several big conduits located in Ireland......

12:59 AM  
Blogger jmf said...


Deutsche Bank uses “discount window”

Deutsche Bank has ... according to people close to the situation ... borrowed funds from the “discount window”.

The move came on Friday ... Deutsche Bank declined to comment, but people close to the situation said its decision to tap the window was taken to show support for the Fed’s move to combat the credit squeeze.

It is unclear how much Deutsche has borrowed from the discount window

1:07 AM  
Blogger jmf said...


European shares lower as credit concerns mount
WestLB CEO points to crisis in German banking sector



Financial stocks were under some pressure after the chief executive of German state-owned bank WestLB warned of a crisis in Germany's banking sector, as it becomes increasingly difficult to secure foreign credit.

"We sense a reluctance on the part of foreign partners to extend credit to German banks," Alexander Stuhlmann told journalists on the sidelines of a bank event Monday evening.

Two German banks, IKB and SachsenLB, were forced to get bailouts to cover risks from subprime exposure.

1:16 AM  
Blogger jmf said...


Bank of England facility tapped for first time since July 17


The Bank of England's facility for lending to banks, similar to the U.S. Federal Reserve's discount window, was tapped for the first time since July 17. A total of 314 million pounds ($621 million) was used, borrowed at a rate of 6.75%, which is one percentage point over the base rate of 5.75%.

A spokeswoman declined to say which or how many banks used the facility

got Gold...?

2:54 AM  
Blogger Edgar said...

Yeah, Moody's won't stop flapping their gums now. Too bad they weren't squawking when it would've done some good. Now they are just a running joke trying to cover their azzes. Investors won't listen to anything they say anymore, they are ruined. Too bad, they had a sweet racket going, until now. Pretty hard to collect your fraud money when no-one is buying. Maybe the fed could buy a couple hundred billion? The fed is nice and stupid, they will believe Moody's. (rolls eyes)

I don't care if Buffet buys them out or what. Why wasn't the oracle of Omaha making noises while the profits were rolling in? Never mind.

So, the grifters down on Wall Street are the EU's bestest buddies, huh? If you want to throw your money away, send it to me, at least you will get a "thank you" card when you send your billions to edgar. Just wait until the UK property crash, hoo boy! That will be a doozy too.

5:45 AM  
Blogger Edgar said...

BTW, the ECB has like a hundred bazillion dollars in reserve. The German losses on the American mortgage market were all in dollars. Why is the ECB allowing the powerhouse Germany banks to go down over some bad American pizza they ate when they have all those dollars laying around? What gives?

5:53 AM  
Blogger jmf said...

New York Fed lowers fee for securities-lending program

The New York Federal Reserve Bank lowered the fee it charges banks for borrowing Treasury securities overnight from 1% to 0.5%, the bank announced Tuesday. The securities lending program is designed to increase liquidity in the Treasury market. Primary dealers who borrow Treasurys from the Fed are required to post collateral of other Treasurys.

7:58 AM  
Anonymous Anonymous said...

Who says the U.S. doesn't have a vibrant export sector? Wall Street has proven itself very adept at exporting toxic financial waste. :)

Thanks for keeping us updated on events in Europe.

Yogi out.

9:55 AM  
Blogger jmf said...

"Who says the U.S. doesn't have a vibrant export sector? Wall Street has proven itself very adept at exporting toxic financial waste. :)"

Good one!

But you can´t blame them ....

If they find such naive buyers like the Sachsen LB..... :-)

10:08 AM  
Anonymous Anonymous said...

I'm glad you share my sense of "gallows-humor" about this jmf :)

Hellasious at Sudden Debt http://suddendebt.blogspot.com/ seems to think there may have at least some corruption (in addition to incompetence and naivete) at some of these European institutions.

Yogi.

12:11 PM  
Anonymous JJ said...

RBS's research call suggested to investors that they should SHORT the whole German banking sector

1:53 PM  
Blogger jmf said...

Moin Yogi,

wouldn´t surprise me.

But i think the main reason is that they ( board, Bafin, conduit), Management) were just to naive.

Moin JJ,

it is so sad that no Landesbank is listed.

We could have made a fortune going short sine the firts rumors broke 10-14 days ago.... :-)

9:26 PM  

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