KBC "Total Mark-Downs On The CDO Portfolio In The Third Quarter Will Come To € 1.6 billion"

If KBC is any guide the next quarter for all banks will be uglier than already feared...... Just take a look at the CDO revaluation ( second column from the bottom of the chart ) over the past few quarters and it probably needs an massive accounting change to avoid massive write downs all over the banking sector..... So far the part of "mark-to market" derivative accounting hasn´t changed ( UPDATE: Surprise , surprise..... The EU has just changed/relaxed the accounting rules for derivatives EU lockert Bilanzregeln (German Link....).......Time to step up the lobbying efforts.....What is probably the most "shocking" is the fact that this write down is not related to real estate...Quote KBC "....and primarily corporate collateral" . And i doubt that other institutions are strong enough to take the same conservative approach like KBC ...... I recommend to read the KBC Details / Presentation

Sollte KBC die Richtung für den Bankensektor vorgeben sieht es noch übler als bereits eh erwartet aus...... Guckt Euch nur mal an wie sich die Abschreibungen auf das CDO Portfolio ( zweite Spalte von unten ) über die letzten Quartale entwickelt haben... Es wird wohl nur eine Änderung der Abschreibungsbilanzierungsrichtlinien eine Welle von mrdschweren Abschreibungen verhindern können.... Bisher sind Derivate wie CDO´s noch nicht von einer Aufweichung der Mark-To-Market Regel betroffen... Bin mir aber sicher das die Lobbyarbeit Wirkung zeigen wird ( ÜBERRASCHUNG.....UPDATE: EU lockert Bilanzregeln )...... Das wird aber sicher den Bankenbilanzen kein neues Vertrauen einhauchen können..... Der eigentliche Hammer ist in diesem Fall aber das nach Aussagen von KBC das CDO Portfolio fast nichts mit Immobilien zu tun hat sondern fast ausschließlich durch diverse Formen von Unternehmensanleihen gedeckt ist....Und ich bezweifle ganz stark das alle Institute in der Lage sind ähnlich wie bei KBC jetzt geschehen einen konservativen Wertansatz zu wählen...... Empfehle für mehr Informationen die KBC Präsentation

KBC Press Release André Bergen, KBC Group CEO summarised the results as follows: ‘Despite the difficult climate, the underlying commercial results are satisfactory. However, as has been repeatedly pointed out, the quarterly results are negatively affected by accounting mark-downs on investment portfolios. Given that KBC has a strong capital position, we have also decided to follow up the Moody’s downgrades by marking down additional amounts. This is a kind of provision to absorb the volatility of future earnings, which should reduce customers’ and shareholders’ uncertainty regarding future results." Total mark-downs on the CDO portfolio in the third quarter will come to 1.6 billion euros, resulting in the provisional net result for the third quarter falling to between -880 and -930 million euros. KBC’s own capital buffer is more than adequate to absorb this and every aspect of KBC's financial position remains very strong. For instance, the Tier-1 ratio for banking activities after this action has been taken will still be well above 8.5%.

Market valuation of the structured credit portfolio
As announced a year ago, KBC has an outstanding portfolio of collateralized debt obligations (CDOs) for an (unchanged) nominal amount of 9 billion euros. In accordance with IFRS accounting rules, this portfolio is marked to market. Falls in value are recorded in full in the income statement (in contrast to some other banks who mark down the value against equity in the balance sheet because the CDOs are classified differently for accounting purposes). On 30 September, the mark-down on the CDO portfolio for the third quarter stood at 386 million euros (104 million for the counterparty exposure to monoline insurers and 282 million for changes in credit market prices and other factors). By comparison, the mark-down through the income statement in the second quarter of 2008 came to 315 million euros.

Anticipating future losses
On 14 October 2008, the rating agency, Moody’s Investors Service, announced that it had downgraded the credit rating of a number of CDO securities. This decision was based on loss assumptions that are far more stringent than any others before them. KBC is sticking to its conservative policy of bringing the value of all securities with a credit rating below Ba3 to zero and is applying this retrospectively to its third-quarter results.

Moreover, KBC has decided to apply the new rating hypotheses to its entire CDO portfolio and to record this mark-down in full in the third quarter. In so doing, KBC is largely preventing its future results being affected by additional rating downgrade. The combined impact of these decisions on the results will amount to around -1.25 billion euros (± -850 million euros after tax).

CDO Watch: Ratings Shopping

Oh boy, unfortunately no late "Fools Day Joke"....... "Dead CDO´s Walking"......Got Gold ?

Selbstverständlich kein verspäteter Arpilscherz, sondern nur der ganz normale Wahnsinn......Warum nicht gleich so.... Einfach das nicht genehme Rating kurz vorm Downgrade eliminieren und die Welt ist wieder in Ordnung..... Bin mir sicher das dieser Trend an Fahrt gewinnen wird......


CDO watch: ratings shopping FT Alphaville !!

Several CDOs are going into liquidation on Tuesday - a sign, perhaps, that senior noteholders are losing their nerve amid more signs of deterioration in MBS fundamentals, as reported by the rating agencies this week.
But something slightly more interesting is happening with a CDO called Palladium II. As filed today with the Irish Stock Exchange:

REQUEST FOR NOTEHOLDER CONSENT26 May 2008 Omega Capital Investments II p.l.c.…Notice is hereby given that it is proposed to request that Fitch Ratings Limited withdraws the rating which it has assigned to each class of the Notes so that the Notes will be rated solely by Standard & Poor’s Ratings Services, a division of McGraw-Hill Companies, Inc.

The reason? Surely something to do with this announcement, issued on Friday:

Fitch Ratings-London-23 May 2008: Fitch Ratings has today placed Omega Capital Investment II Plc’s Palladium CDO II (Palladium II) secured floating- and fixed-rate notes due in December 2014 on Rating Watch Negative (RWN), as listed below. The RWN actions reflect Fitch’s view on the credit risk of the rated notes following the release of its new Corporate CDO rating criteria.

Fitch goes on to detail the likely downgrades to the various tranches of Palladium, with the triple-A seniors looking to be cut five notches to single A, and the subordinate tranches moving to BBB.

The reason then, that Palladium’s managers, Omega Capital Investments (BNP Paribas), are so keen to get the Fitch ratings removed before the downgrades occur, is because downgrades would trigger a default.

As FT Alphaville reported on Friday (from Total Securitisation), rating downgrades have been the primary cause of CDO defaults in almost all cases so far.

Palladium II, it appears, isn’t the only CDO withdrawing Fitch ratings. There’s also Taberna (Fitch ratings withdrawn Friday).

Ratings shopping in action? Certainly a clear sign that the market incentivises looser rating standards. Unwelcome downgrades mean you lose your business.

Securitisation "Fear and loathing, and a hint of hope" Economist

Nice summary from the Economist. I´m pretty sure that lots of this financial alchemy will never return to the markets. At least for a few years........ ;-) . Here is an excellent take via Naked Capitalism Securitization Reform: Don't Hold Your Breath

Nette Zusammenfassung vom Economist. Bin mir sicher das wir einen Großteil dieser Finanzakrobatik demnächst nicht mehr ertragen müssen. Zumindest für einige Jahre..... ;-) . Hier ein extrem lesenswerter Artikel von Naked Capitalism Securitization Reform: Don't Hold Your Breath


Economist Not all is lost for the structured-finance business. But it faces further discomfort before it can start to recover some of its past sheen

The limits of gonzo finance
Securitisation has greatly enhanced the secondary market for loans, giving originators, mainly banks, more balance-sheet flexibility and investors of all sorts greater access to credit risk. Both have embraced it. By 2006 the volume of outstanding securitised loans had reached $28 trillion (see chart 1). Last year three-fifths of America's mortgages and one-quarter of consumer debt were bundled up and sold on.

Along the way, banks cooked up a simmering alphabet soup. The ingredients included collateralised-debt obligations (CDOs), which repackage asset-backed securities, and collateralised-loan obligations (CLOs), which do the same for corporate loans, as well as structured investment vehicles (SIVs) and conduits, which banks used to keep some of their exposure off their balance sheets.

The breakneck growth of this business went into reverse last summer, when it became clear that defaults would undermine the structures built around America's mortgage markets. So tarnished has the subprime-mortgage market become, because of shoddy loan underwriting and fraud, that investors are likely to shun securities linked to it for months if not years. Securitisation of better-quality “jumbo” mortgages—too big to be bought by government agencies—is also at a near-halt. “Mortgages were traditionally seen as very safe assets. Now all but the very best are stamped with a skull and crossbones,” says Guy Cecala, of Inside Mortgage Finance, a newsletter.

CDOs are unlikely to regain a following in a hurry (see chart 2). Still less popular are CDO-squareds (resliced and repackaged CDOs) and higher powers. CLOs have also been battered as the leveraged loans they are linked to have tumbled in value. However, their collateral is sounder than that backing subprime CDOs, being based on company financials rather than the blandishments of mortgage brokers.

The prospects for SIVs are bleaker still. SIVs borrow short-term to invest in long-dated assets; and investors will no longer tolerate such mismatches in vehicles shielded from standard banking regulation. With the disappearance of the SIVs' funding sources, notably asset-backed commercial paper, banks had to bring over $136 billion-worth onto their books. That comes on top of over $160 billion, so far, of subprime-related write-downs, over a third of which has come at three banks: Citigroup, Merrill Lynch and UBS.

Though few bankers worked in structured finance, it was a huge earner, accounting for 20-30% of big investment banks' profits before the crisis, according to CreditSights, a financial-research firm. Banks such as Bear Stearns, Lehman Brothers and Morgan Stanley, which bought or built mortgage-origination businesses to fuel the securitisation machine, have rushed to close or pare them. Merrill, whose fees from CDOs alone peaked at $700m in 2006, said recently that it would stop packaging mortgages altogether.

Alongside the banks, the “gatekeepers” who were supposed to lend stability and credibility to the new originate-and-distribute model of finance have also been found wanting. Rating agencies' models underplayed the risk that loans from different lenders and regions could turn sour at the same time. Bond insurers, too, misjudged the risks lurking in CDOs. That failing has undermined the worth of their guarantees and strained their own credit ratings—and hence financial markets.

George Miller, the ASF's executive director, accepts that this crisis of confidence will lead to a degree of “re-intermediation” for a time, as some banks go back to balance-sheet lending. But he insists that it highlights the dangers of lax lending standards in a particular market rather than fundamental faults in securitisation itself.

A study by NERA, an economic consultancy, commissioned by the ASF before the crunch, offers some support for this view. Preliminary results, based on data from 1990 to 2006, suggest that increased securitisation leads to lower spreads in consumer credit and softens interest-rate shocks for banks, especially smaller ones. On the other hand, in a recent paper two economists at the University of Chicago's business school conclude that securitisation encouraged mortgage originators to lend to dodgy borrowers.

Stresses and strains
What is not in doubt is that the subprime crisis has exposed four deep flaws in the practice of securitisation. The first is that by severing the link between those who scrutinise borrowers and those who take the hit when they default, securitisation has fostered a lack of accountability.

A debate has been rumbling over how to ensure that lenders have more “skin in the game”. Some think they should set aside a sliver of capital even for loans they sell on. Andrew Davidson, a structured-finance consultant, suggests an “origination certificate”, guaranteeing the quality of the underwriting, issued by the lender and broker, which stays with the loan. Alex Pollock of the American Enterprise Institute thinks that securitisers should be required to guarantee the quality of their loan pools, as are America's government-sponsored mortgage giants, Fannie Mae and Freddie Mac. Others counter that most such exposures can be neutralised these days through derivatives markets.

The second flaw is the sheer lack of understanding of some instruments. Not long ago investors took too much on trust. They are now clamouring for more “transparency”. Some want a central trade-quoting facility for lumpy asset-backed products: regulators have approached the New York Stock Exchange. CME Group, which runs the world's largest futures exchange, is also looking to expand its clearing of over-the-counter securities.

Yet reams of information already accompany mortgage-backed securities sold in public markets. Even SIVs provide a steadier stream of data to investors than most of the banks backing them. So some interpret calls for greater disclosure as whimpering by investors who did not do their homework.

However, more information about the performance of loans after origination would help, particularly those in leveraged structures such as CDOs. This opens up opportunities: fewer banks were at the ASF conference this year, but more data-analytics firms turned up. Clayton, the largest mortgage-surveillance company, unveiled a partnership with Experian, an information-services firm, that will help mortgage-servicers to package subprime loans for modification under a plan backed by the ASF and America's Treasury. Later, it hopes to offer a swathe of data to buyers of structured products.

Understanding the underlying assets is, or should be, at the core of securitisation. Securitisation is really an arbitrage: with surplus collateral, assets can be bundled into an entity with a supercharged credit rating. But if investors fail to spot the jiggery-pokery with credit scores and the outright fraud that permeated the subprime market, that cushion of safety quickly disappears. Witness the speed with which losses have spread into supposedly safe, “super senior” tranches of CDOs.

This points to the third flaw: that some securities were poorly structured, often because their risks were not fully understood. The upper layers of a well-designed securitisation vehicle should be all but impervious to loss. But poorly structured deals, like those stuffed with subprime and marginally less iffy “Alt-A” loans in 2006 and early 2007, have crumbled as the weakness of the collateral becomes clear.

The fourth flaw was the market's over-reliance on ratings as a short cut to assessing risk. In the go-go years, people wrongly assumed that an AAA-rated mortgage bond—even one with a high yield—would never lose value. But the rating agencies, paid for their appraisals by the seller not the buyer, were compromised from the start. Moreover, their quantitative models appear to have ignored “fat-tail” risks—the possibility that large losses are likelier than standard statistical models predict.

Though the agencies do not have to suffer giant write-downs, they have paid a high price. Before the market imploded, almost half the revenue of Moody's, a leading agency, came from structured finance. Now the agencies are revising their rating criteria in a bid to head off tougher regulation. “Either deals get less complex or we have to find a better shorthand for measuring risk,” says Ron Borod of Brown Rudnick, a law firm. The rating agencies say they were never supposed to substitute for investors' own due diligence. That is disingenuous, given their past self-assuredness. Still, wise investors will take future ratings with a pinch of salt, as most hedge funds have long done.

As the market grapples with change, some is likely to be imposed from above. Separately, international regulators and the President's Working Group (comprising America's Treasury, the Federal Reserve and others) are looking into securitisation's part in the crisis. By co-operating over loan modifications, the ASF may have gained favour with the working group.

The industry is more worried about two bills in America's Congress. Securitisers can live with much of the one that has been passed by the House of Representatives. What alarms them is an “assignee liability” provision that would hold them partly responsible for lax lending by originators. This, they say, would send a chill through secondary markets, cutting credit to thousands of worthy borrowers. Precedent is on their side. Georgia introduced assignee liability, only to back-pedal after the state's subprime market started to seize up. Not all bankers are against it: in Las Vegas, Bianca Russo of JPMorgan Chase argued that some form of it was needed to counter the perception, if not the reality, that securitisation was harmful.

The other bill would allow bankruptcy judges to alter the terms of struggling borrowers' mortgages. The industry argues that this would be an intolerable violation of the sanctity of loan-pooling contracts. In addition, securitisers face probes by several state attorneys-general, the Internal Revenue Service, the Federal Bureau of Investigation, the Securities and Exchange Commission and the Justice Department, as well as lawsuits from investors and a rising number of stricken municipalities.

Bankers will tell you that the subprime meltdown was just that: the product of irresponsible lending to, and borrowing by, flaky consumers, not a broader crisis of securitisation. Maybe, but the severity of the credit crunch points to broader pain ahead. More will come from housing: much of the 30-40% of American home-equity loans that have been securitised looks wobbly, as does a growing chunk of the $800 billion of Alt-A paper outstanding. Loans for offices are an even bigger worry. The spread on the AAA tranche of an index tracking bonds backed by commercial mortgages has tripled since the turn of the year. New issuance is frozen.

Trouble is also brewing for securities tied to non-mortgage consumer assets, such as credit-card debt, car loans and student loans, which make up a good slice of the asset-backed market (see chart 3). Credit-card delinquencies are creeping up as the economy turns down. The sharp slowdown in card borrowing, reported recently by the Fed, will mean less raw material for securitisation. Standards for car loans dropped in 2006-07, though not as dramatically as they did for mortgages.

One ominous sign is that structured instruments tied to student loans are coming unstuck, although the loans typically carry a federal guarantee. Recent auctions of such securities by Citigroup, Goldman Sachs and others have failed. Normally the banks would have bought in whatever did not sell. But they have declined, because they dare not cram even more assets onto their already strained balance sheets.

Yet securities of these types should be more resilient than those tied to subprime loans. Their structures are tried and tested, having evolved, along with performance data in their markets, over many years. In contrast, subprime mortgages with only a short record were shoved into many-layered structures that depended on house prices holding up. “They started from the other end entirely, asking how can we create CDOs, backed by mortgage-backed securities, themselves backed by collateral with barely any history, and their stress tests assumed house prices would be stable and the loans in the pools uncorrelated,” says Mr Borod.

Encouragingly, credit-card receivables are still being bundled and sold. There are even shoots of hope in the mortgage market, thanks to a refinancing mini-boom in the wake of interest-rate cuts—though most new deals are backed by the giant agencies, Fannie Mae and Freddie Mac, not Wall Street (see chart 4).

> A reader points correctly out that this comment from the Economist could easily come from "the Socialist"

> Ein Leser weist mich zurecht darauf hin, das dieser Passus eher dem"Sozialisten" und nicht dem "Economist" gut zu gesicht stehen würde.

"Also, I don't see it as "encouraging" that debt risk is being concentrated in the GSEs, with their implied taxpayer guarantees. Especially now that they've upped the conforming limit. This is just another variation of socialized costs."

Thanks/Danke !
Saunter down the strip
It is also worth remembering that securitisation has not been confined to consumer and corporate loans. In the past decade financial engineers have found ways to package and sell tobacco-settlement and mutual-fund fees, sports and fast-food franchise rights, life-insurance premiums, intellectual property, music royalties and much more. Hollywood studios use securitisation to help finance film-making. With intangible assets accounting for an ever-growing share of corporate value, this trend looks likely to continue.

That may be scant consolation to the banks whose bets have gone so spectacularly wrong. Their fingers are still being singed by mortgage-backed securities and CDOs that continue to burn. Those hoping for a recovery face a long wait, maybe 18 months or more for out-of-favour collateral such as non-agency mortgages. Some once-enthusiastic cheerleaders are turning gloomy: Bear Stearns said recently that its net short position on subprime loans and bonds had risen to $1 billion. Others are redeploying staff and capital to fee businesses that don't put a strain on the balance sheet, such as merger advice.

But it would be a mistake to write the obituary of structured finance. Even its sternest critics accept that securitisation has brought real economic benefits, and that it would be wrong to throw away the whole barrel because of a few subprime apples. Some students of financial innovation think the market will come back even more inventive after scorching its less attractive pastures. “As with past forest fires in the markets, we're likely to see incredible flora and fauna springing up in its wake,” says Andrew Lo, director of the Massachusetts Institute of Technology's Laboratory for Financial Engineering.

So it may just be a matter of hanging on. As any punter in Las Vegas will tell you, every losing streak ends eventually, if you can only stay solvent for long enough.

IKB Bailout Now Topping € 8 Billion

Another day, another frustrating event in the German banking sector. One day after the € 5 billion West LB fiasco the IKB is hitting the news once again with another € 2 billion risk that needs to be stuffed mainly through the state owned KfW ( already on the hook for € 5 billion and with close to 40 percent the major shareholder ). There are talks to get more money from commercial German banks ( so far € 500 Mio ) but i doubt that they will step in and provide this kind of incompetence any further. The situation has gotten so worse that the KfW / Pdf is in danger to run out of money to provide the German Mittelstand with financing...... Here is more on the IKB saga....

Ein neuer Tag und natürlich eine neue Hiobsbotschaft aus dem Reich der Inkompetenz. Ein paar Tahe nach dem 5 € Mrd West LB fiasco schickt sich die IKB an erneut 2 Mrd. € an Steuergeldern zu vereinnahmen um den längst fälligen Niedergang aufzuhalten. Wie bei den bereits bisher zugesagten Summen ist auch hier die KfW / Pdf und damit der Steuerzahler wohl für fast die gesamte Summe verantwortlich. Inzwischen ist die Lage aber selbst bei der KfW so angespannt das hier Finanzierungslücken im ursprünglichen Geschäft der KfW drohen. Bleibt zu hoffen das zumindest der deutsche Mittelstand nicht noch mehr darunter zu leiden hat das ein paar unfähige Herren bei IKB ( im Zusammenhang mit Aufsichtsrat und Aufsichtsbehörden ) im großen Stile wahnwitzige US Hypothekenfinanzierungen ermöglicht haben.......Hier ein paar ältere Posts zur IKB.

Dank an Hartgeld

Handelsblatt FRANKFURT. Die angeschlagene Mittelstandsbank IKB braucht erneut eine milliardenschwere Kapitalspritze, um das Überleben der Bank zu sichern und die Kapitalbasis zu stärken. „Die Situation ist kritisch“, sagte ein Insider. Es gehe um ein drittes Rettungspaket in Höhe von bis zu 1,75 Mrd. Euro.

Noch gebe es aber keine Einigung der Beteiligten: "Alles ist im Fluss." Am Mittwoch tagt Finanzkreisen zufolge der 37-köpfige Verwaltungsrat der KfW, die mit rund 38 Prozent der größte Anteilseigner der IKB ist.

Das neue Rettungspaket ist Finanzkreisen zufolge aktuell Gegenstand von Verhandlungen zwischen KfW, der mit knapp zwölf Prozent beteiligten Stiftung Industrieforschung sowie den privaten Banken, die im Bundesverband deutscher Banken (BdB) organisiert sind. Unklar sei aber, ob nicht auch der Bund einspringen müsse. So spreche die KfW auch mit der Regierung über eine mögliche Unterstützung. Grundsätzlich reiche das Eigenkapital der KfW zwar aus, um entsprechend ihrem Anteil die IKB erneut zu retten, hieß es. Seit der letzten Unterstützungsaktion nähere sich der Kapitalbedarf aber der Grenze, ab der es nicht mehr hundertprozentig auszuschließen sei, dass die IKB -Krise den Eigenkapitalanteil, mit dem die ERP-Mittelstandsprogramme abgesichert sind, berühren könnte. Der Bund solle sicherstellen, dass dies nicht passieren könne.

Vorsitzender des Verwaltungsrats der KfW ist seit Jahresbeginn Bundeswirtschaftsminister Michael Glos (CSU). Das Wirtschaftsministerium wollte sich auf Anfrage nicht zur neuerlichen IKB -Krise äußern. Auch IKB, BdB und KfW lehnten eine Stellungnahme ab.

Die IKB war wegen milliardenschwerer Engagements im US-Subprime-Markt in die Krise geraten und konnte im Juli vergangenen Jahres nur durch das Eingreifen der deutschen Kreditwirtschaft vor dem Zusammenbruch gerettet werden. Seither wurden der Düsseldorfer Bank Garantien über sechs Mrd. Euro gewährt, rund fünf davon trägt die staatliche KfW. Der BdB kommt auf etwa eine halbe Mrd. Euro, auch Sparkassen und Genossenschaftsbanken sind beteiligt. Diese hatte aber bereits nach der letzten Rettungsaktion klar gemacht, für weitere Hilfen nicht zur Verfügung zu stehen. Als privates Institut wäre bei einem Zusammenbruch der BdB rein formal - neben den Eigentümern - ohnehin in der Hauptverantwortung.

Finanzkreisen zufloge wäre eine Pleite der IKB mittlerweile günstiger, als die langwierige und aufwändige Rettung des Institut. Aus politischen Gründen sei dies jedoch nicht akzeptabel. "Es wäre ein sehr schlechtes Zeichen für die Märkte, wenn eine deutsche Bank pleite geht", sagte ein Insider.

Chapeau! Deutsche Bank Has Manage To Avoid The Torpedoes

It is not often that i write something positive about banks. But you gotta give Deutsche credit for navigating through this tough environment. And reporting "only" write downs from $ 2.3 billion in 2007 is quite an achievement..... Especially when you look how their Peer Group have done so far......Lets hope that they are not "too good to be true"...... That their guidance is probably way too optimistic and the credit books is still loaded with tons of problems is subject to another post

Es geschieht wirklich nicht oft das ich etwas positives in Sachen Banken zu bloggen habe. Aber ich denke im Falle der Deutschen Bank ist das durchaus angebracht. Wenn man als eine der Top Investmentbanken für das gesamte Jahr 2007 lediglich 2,3 Mrd $ als Abschreibung zu verbuchen hat und das mit den Summen der Peer Group vergleicht erkennt man recht schnell wie gut Ackermann´s Bänker sich geschlagen haben..... Bleibt zu hoffen das die Zahlen nicht "Too Good To Be True" sind.......Das der Ausblick immer noch viel zu optimistisch und das Kreditbuch trotz allem mit Problemen beladen ist soll uns heute nicht weiter beschäftigen....Diese Thematik kommt sicher noch früh genug.....

Deutsche Bank reports net income of EUR 6.5 billion, up 7%, for the year 2007

“In the fourth quarter, we again demonstrated the quality of our risk management. We had no net write-downs related to sub-prime, CDO or RMBS exposures. Those trading businesses in which we reported losses in the third quarter produced a positive result in the fourth quarter. In leveraged finance, where we had significant write-downs in the third quarter, net write-downs in the fourth quarter were less than EUR 50 million.”

Unfortuantely both presentations from the analysts call fail to provide much further details on how they have to manage to avoid the losses.

Leider vermögen es auch die beiden Präsentationen von der Analystenkonferenz nicht mehr Lcht ins dunkel zu bringen wie genau die Deutsche Bank es geschafft hat so gut abzuschneiden.

Presentation CEO

Presentation CFO

$ 146 Billion - And Counting.......

Nice graph from the NYT. Í think the real number is much higher. Allianz / Dresdner has announced write offs over $ 1.5 billion during the past few weeks and hasn´t made it to the list. On top of this IKB & Sachsen LB would each have topped Bear Sterns in the ranking ...But with all the news hitting the wires on every hour it is almost impossible to catch every buck.

Die reale Nummer an Abschreibungen liegt sicher deutlich höher. Man bedenke nur das alleine die Allianz dank der Dresdner Bank Abschreibungen von einer knappen Mrd € avisiert hat und es nicht auf diese Liste geschafft hat. Man betrachte nur die besonders aus deutscher Sicht unsäglichen Vorfälle der IKB & Sachsen LB, die jeder für sich ausgereicht hätten um den Sprung vor z.B. Bear Stearns zu schaffen......Bei den ganzen Einschlägen die fast stündlich irgendwo vermeldet werden ist es aber auch unmöglich alle $ miteinzubeziehen.



Link

S&P Lowers or May Cut $534 Billion of Subprime Debt

Looks like the rating agencies have finally updated their model for subprime.... Next stop Monolines ( see MBIA: Another morning, another monoline crisis… or Open Letter On Bond Insurer Transparency From A Short Seller. )....

Es sieht so aus als wenn zumindest im Bereich Subprime die Schadensmodelle der Ratingagneturen endlich in der Realität angekommen sind.... Nächster Halt dürften dann wohl die Kreditversicherer sein ( siehe MBIA: Another morning, another monoline crisis… oder Open Letter On Bond Insurer Transparency From A Short Seller. )......

This comment from Calculated Risk sums it up

Dieser Kommentar von Calculated Risk faßt das Ausmaß wunderbar zusammen

According to the Fed Flow of Funds report, household have $10.4 rillion in mortgage debt. S&P's announcement today alone is for about 5% of that debt.

Jan. 30 (Bloomberg ) -- Standard & Poor's said it cut or may reduce ratings of $534 billion of subprime-mortgage securities and collateralized debt obligations, as home loan defaults rise.

The downgrades may extend losses at the world's banks to more than $265 billion and have a ``ripple impact'' on the broader financial markets, S&P said.

The securities represent $270.1 billion, or 47 percent, of subprime mortgage bonds rated between January 2006 and June 2007, S&P said today in a statement. The New York-based ratings company also said it may cut 572 CDOs valued at $263.9 billion.

The downgrades may increase losses at European, Asian and U.S. regional banks, credit unions and the 12 Federal Home Loan Banks, S&P said. Many of those institutions haven't written down their subprime holdings to reflect their market values and these downgrades may force their hands, S&P said.

``It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks,'' S&P said. The ratings company will start reviewing its rankings for some banks, especially those that ``are thinly capitalized.''

S&P downgraded $50.1 billion of subprime-mortgage securities, none rated higher than A+. More than 69 percent of the AAA rated subprime securities from 2006 and 46 percent from the first half of 2007 were placed on review.

Didn't See It
``This one, I didn't see coming,'' said Mark Adelson a consultant at Adelson & Jacob Consulting LLC in New York, and a former asset-backed bond analyst at Nomura Securities.

Some of the largest global banks have already taken ``significant'' losses and they aren't likely to have more writedowns, S&P said.

Under accounting rules, many smaller banks haven't been required to write down their holdings until the credit ratings fell, enabling them to avoid the losses that have crippled Citigroup Inc., Merrill Lynch & Co. and UBS AG. The world's largest banks have reported losses exceeding $133 billion related to mortgages, CDOs and leveraged loans.

``If you're holding a AAA piece and it's now downgraded to AA, you might have to write it down, even if you're holding it for an investment,'' Gary Gordon, a bank stock analyst at Portales Partners LLC in New York, said. ``The longer it goes on and the higher the credit rating of the instrument downgraded, the wider the pain.''

UBS: $14 Billion in Mortgage Write Downs

What a mess. Seems their 8 week old forecast was $ 4 billion too low. Lets hope the $ 12 billion capital injection from Singapour & the Middle East at fire sale prices will be still enough after the next forecast is hitting the tape..... I think the image as a rock solid Swiss banking giant is now gone and it will take a very long time to bring the once almost perfect reputation back. I assume that this debacle will also infect the much more important wealth management division. A break up is more than likely....

Was für ein Debakel. Sieht so aus als wenn die 8 Wochen alte Prognose mal eben um satte 40% oder $ 4 Mrd verfehlt worden ist. Bleibt die vage Hoffnung das die 12 Mrd $ Kapitalspritzen aus Singapur und dem mittleren Osten auch noch nach der nächsten Prognose immer noch ausreichend sind....... Der Ruf als solide schweizer Bankenadresse dürfte auf Jahre hinaus vernichtet worden sein. Ich kann mir kaum vorstellen das dieses Disaster ohne Auswirkungen auf die Vermögensverwaltung ( die mit abstand wichtigste Sparte ) bleiben wird. UBS wird wohl in der jetzigen Form die nächsten Jahre kaum überstehen.

FT Alphaville UBS, Europe’s largest bank by assets, reported a record loss after about $14bn of writedowns on assets infected by subprime mortgages in the US, reports Bloomberg on Wednesday.The fourth-quarter net loss of 12.5bn Swiss francs ($11.4bn) will result in a full-year loss of about CHF4.4bn, the Zurich-based bank said in a statement on Wednesday.

UBS posted its first annual loss since the company was created through a merger a decade ago, and the Q4 loss was bigger than the record declines reported earlier this month by Citigroup and Merrill Lynch. The collapse of the US subprime mortgage market has led to more than $130bn of losses and markdowns at securities firms and banks since June, notes Bloomberg.

UBS reported about $12bn of losses directly linked to the subprime market and an additional $2bn for positions related to the US residential market. The company said its Tier 1 capital ratio, a measure of financial strength, was 8.8 per cent as of December 31, reported Bloomberg.

Societe Generale reports $7.1 bln trading loss from "fraud"

ice internal risk management...... In the end this is probably good news. ( You know that times are really bad when an € 5.5 billion capital infusion at fire sale prices is been widely seen as good news.....) There were rumors crashing the stock and the entire sector that they would have a big write down. But this write down seems (at least that´s what i hope) to be company specific. And some still wonder why banks don´t trust each other.......Probably the most important part is that SocGen is starting to write down some insurance from monolines and from a total of € 550 mio and only € 50 mio is coming from ACA! ( watch page 10 on the presentation )

Nette Risikokontrolle..... Unterm Strich dürfte das aber trotzdem für eine große Erleichterung sorgen ( Der Umstand das eine massive Kaitalspritze von üver 5,5 Mrd € zu Ausverkaufspreisen als gute Nachricht angesehen wird sagt eigentlch schon alles aus...). Speziell in den letzten beiden Tagen hat das Gerücht um eine riesige Abschreibung den ganzen Sektor zerlegt. Das die Abschreibung jetzt größtenteils nur auf einen "Betrug" und damit hoffentlich nur isoliert zu betrachten ist sollte beruhigen. Relativ gesehen natürlich....Kein Wunder das die Banken sich gegenseitig nicht über den Weg trauen..... Ein interessanterter Aspekt ist das auch SocGen damit angefangen ist wertlose Versicherung der Monolines abzuschreiben ( von den 550 Mio stammen lediglich 50 Mio von ACA / Details auf Seite 10 der Präsentation) . Passend zum Thema hier ein Ranking vom Spiegel über die größten Fehlspekulanten Börsenschwindler, Seiltänzer, Hochstapler

You cannot make this up. FT Alphaville is reporting that Societe General has won the award for the " Best Equity Derivatives House" .....

Das ist wirklich kaum zu toppen. FT Alphaville berichtet das ausgerechnet Societe General den Preis fpr das "Beste Derivatehaus für Aktien" gewonnen hat.

“We managed the existing book very well because we decided some time before the crisis to be long volatility and be less sensitive to correlation, so the losses were minimal. We suffered on our statistical arbitrage trading activity, but that was just for one month, and minimal compared to some hedge funds or other banks. Overall, our trading activities will be approximately flat compared to last year, which is a good performance,”

Qutote: Christophe Mianne, SG CIB’s head of market activities, covering equity, derivatives, fixed income, currency and commodities in Paris

Make sure you read the Societe General Presentation for some more interesting details !

Empfehle die Societe General Präsentation für die mehr als interessanten Details zu lesen !

Live blogging the SocGen conference call via FT Alphaville

Marketwatch
French bank Societe Generale loss after an "exceptional fraud" committed by someone who usually trades plain-vanilla and European stock index futures.

It also said it was taking a 2.05 billion euro write-down, with 1.1 billion euros coming from U.S. residential property, 550 million euros coming from the U.S. bond insurers and 400 million euros in additional subprime-related risks. It will earn between 600 million and 800 million euros for the year.

The board rejected the resignation of CEO Daniel Bouton. It's going to issue 5.5 billion euros in preferred securities to J.P. Morgan and Morgan Stanley to boost its capital

The story is reminding of Nick Leeson & Barings

Erinnert mich irgendwie stark an Nick Leeson & Barings

Here is a good take from Barry Ritholtz Fed's Folly: Fooled by Flawed Futures? suggesting ( i think correctly ) that this poor trader has lead to the emergency cut

Hier eine wie ich finde zutrefende Einschätzung von Barry Ritholtz Fed's Folly: Fooled by Flawed Futures? der unterstellt das dieser durchgeknallte Trader es geschafft hat Bernanke zum größten Notzinsschritt seit Jahrzehnten zu bewegengrößten Notzinsschritt

Merrill Lynch & Financial Guarantors & Counterparty Risk....

Besides the $ 14.6 billion write down i want to highlight this topic in the release..... When watching MBIA, AMBAC & Co ( see Downgrades ahead: monolines still don’t have enough cash &MBIA, Ambac Tumble, Default Risk Soars After Losses ) i assume the next wave of massive write downs in almost every other bank balance sheet should be coming very soon.... This is to my knowledge the first release from a major institution that views lots of the insurance as "worthless". Unfortunatley they don´t say from wich company thy bought the guarantee ( maybe ACA ? / Update : It´s ACA) . I think we can thank the new CEO for coming clean on this issue. Other will have to follow ....

Neben den 14,6 Mrd Abschreibungen verbirgt sich u.a. auch die nachfolgende Passage in der Veröffentlichung von Merrill . Und das ist eine mit erheblichen Sprenpotential........ Wenn man sich den freien Fall von MBIA, AMBAC & Co ( siehe Downgrades ahead: monolines still don’t have enough cash & MBIA, Ambac Tumble, Default Risk Soars After Losses ) ansieht dürfte hier die nächste gigantische Abschreibungswelle in Stein gemeißelt sein. Der hierfür verantwortliche Versicherer ist ACA ... Das ist meinem Kennnisstand die erste große Bank die klipp und klar sagt das eiin Großteil der abgeschlosenen Absicherung im Prinzip wertlos ist. Ohne neuen CEO wäre das so deutlich sicher nicht gesagt worden. Denke das die anderen nun kaum glaubhaft einen anderen Standpunkt vetreten können.

Merrill Lynch Eranings Report Financial Guarantors:
During the fourth quarter, credit valuation adjustments related to the firm’s hedges with financial guarantors were negative $3.1 billion, including negative $2.6 billion related to U.S. super senior ABS CDOs.

These amounts reflect the write down of the firm’s current exposure to a non-investment grade counterparty from which the firm had purchased hedges covering a range of asset classes including U.S. super senior ABS CDOs. Please see attachment VIII for details of related exposures.

Live-Blogging the Merrill Earnings Call via the WSJ

Adding up Merrill’s $16.7bn writedowns FT Alphaville

Cramer on Monolines Is this really Cramer? This is one of the very rare times he makes sense....MUST SEE!

WSJ on Counterparty Risk

S&P: Bond Insurance Losses Likely Much Higher Calculated Risk

SIVs don’t rollover, they die

Bring on the fire sales ...This should be very bad news for banks that have sponsored these off balance sheet vehicles with funding guarantees...... If they want to avoid the fire sales they need strong balance sheets to shoulder the reintegration..... Ask Citigroup ,IKB , Sachsen LB & Co ....... Once again a big hat tip to FT Alpahville ( see Blogroll )

Notverkäufe ohne Ende..... Das sollte besonders für die Banken unangenehm werden die gr´ßzügig Finanzierungsgarantien für diese Vehikel ausserhalb der Bilanz gegeben haben. Um einen Notverkauf zu verhindern hilft nur noch diese Papiere in die eigenen Bilanzen zu nehmen...... Fraglich ob alle Bilanzen stark genug siind um das zu schultern.....Fragt mal bei der Citigroup, IKB , Sachsen LB usw nach .....Einmal mehr ein dickes Lob an FT Alphaville ( siehe Blogroll)

SIVs don’t rollover, they die FT Alphaville

A quick update on the troubled SIV sector.

The average NAV (net asset value - a ratio of asset-worth to notes after leverage) for SIVs is now hovering just above the 50 per cent mark. According to Moody’s:

A vehicle’s net asset value of capital (NAV) is computed as the difference between the market value of its asset portfolio and the notional outstanding of its senior liabilities, expressed as a percentage of paid-in capital. NAV evolution since 2002 is shown in Chart 2. Sector NAV was above par for most of this period, falling below par in early August 2007 and then declining precipitously to 53% on November 30.

An average NAV that low is very worrying - since in generic SIV structuring terms, a fall below 50 per cent triggers a mandatory and immediate liquidation of the portfolio. Most SIVs are already in defeasance - having broken their “early warning” triggers (NAV at 75 per cent, for example). Moody’s again:

NAVs vary from SIV to SIV primarily as a function of portfolio composition. While SIVs and SIV-lites with relatively large concentrations of Non-Prime US RMBS and ABS CDOs show NAVs below 50%, vehicles with no subprime or ABS CDO exposures have NAVs that are closer to 77% as shown in Table 3. The ongoing liquidity crisis has however demonstrated that NAVs can be affected by spread widening in sectors that are not directly related to US subprime mortgages; thus, vehicles with currently high NAVs may also see sharp declines as contagion spreads across different segments of the credit markets.

(It’s disturbing to note that Moody’s are expecting contagion to spread with some certainty.)

> :-)!

For some SIVs, even a NAV at 53 per cent looks attractive (again via Moody’s):

Today’s rating action is prompted by the decline of Duke Funding’s capital net asset value from 21% on November 23rd 2007 to below zero on January 11th 2008.

This followed the declaration of an Event of Default by Duke Funding on December 6th, 2007. As a consequence of both the NAV decline and the occurrence of an Event of Default, one of the counterparties to the repurchase agreements, holding 8% of the portfolio, has exercised its right to liquidate assets. The remaining four counterparties, holding 92% of the portfolio, have agreed to forebear such liquidation rights on a temporary basis.

We’re now looking at a swift - and potentially market wide - liquidation of SIV portfolios. Possibly along Duke Funding lines. Low NAVs coupled with a spike in maturing SIV debt this January will likely make SIV sponsors - mostly banks - cave into the inevitable and call time. Banks simply can’t afford to keep on rolling-over SIV debt.

Brace yourselves: S&P adjusts risk models

This is big big news! It was about time..... Big hat tip to FT Alphaville for bringing this up!

Wurde auch höchste Zeit..... Großen Dank mal wieder an FT Alphaville für das hervorkramen dieser wirklich weitreichenden News!


Brace yourselves: S&P adjusts risk models
Late last night, rating agency Standard & Poor’s did some quiet housekeeping.

In a late press release, S&P announced it was adjusting its cumulative loss measure on 2006 subprime collateral to 19 per cent - up from 14 per cent:

We revised our expected losses for the 2006 vintage subprime collateral to 19% from 14%, as delinquencies continue to rise, and we will recalculate lifetime loss expectations for all vintages of U.S. RMBS. Additional losses are projected to result directly for the additional delinquencies and defaults.

The press release is somewhat anodyne, but the implications of that tweak are disturbing:

It will mean huge new downgrades on CDO tranches from the 2005 vintage through to 2007 - the majority of the market, in other words.

We suspect this will push hundreds more CDOs through “events of default” and a significant number into liquidation - a likely repeat of the disastrous events in November and December, when CDOs went into meltdown and banks were forced to admit further humiliating writedowns.

S&P are also altering their metrics; RMBS rating models will now apply the adjusted cumulative loss measure over the lifetime of the structures they rate - not just (as has hitherto been the case) over a 36-month period. That will likely make senior CDO investors more keen to liquidate deals: super senior swap holders, or AAA note holders in many CDOs have thus far been keen to accelerate but not liquidate the transactions on the basis that things will inevitably improve. The new model suggests they wont: controlling note holders now have every incentive to exit fast.

The crisis won’t just be restricted to CDOs. Any structure containing RMBS will suffer; SIVs, ABCP conduits, even plain old securitisations.

And it might be the final nail in the coffin for the monolines - MBIA and Ambac. Both have maintained their crucial AAA issuer ratings by the skin of their teeth, having raised $2bn each in emergency capital to act as collateral. S&P’s metric readjustment means that the monoline stress-test they performed is now outmoded and over-optimistic.

What remains to be seen now is when those calculations will feed through into a cataract of rating actions.

> Speaking of AMBAC.......

Ambac Will Cut Dividend, Raise $1 Billion to Preserve Rating

Jan. 16 (Bloomberg) -- Ambac Financial Group Inc., the second-largest bond insurer, will slash its dividend 67 percent and raise more than $1 billion in new capital to preserve its AAA credit rating.

Chief Executive Officer Robert Genader will leave the company, New York-based Ambac said today in a statement distributed by Business Wire. Ambac will reduce the value of securities it guarantees by as much as $3.5 billion. The quarterly dividend will be cut to 7 cents a share from 21 cents.

Hypo Real Estate Crashing 35%...CEO "We Did A Fantastic Job"......

It does not often happen that a member of the main German index DAX is crashing 35 percent within minutes. Well, yesterday Hypo Real Estate which concentrates on commercial real estate did just that..... One reason was the "surprising" write down on cdo´s..... Surprising indeed! On top of this i´m pretty sure the desasterous conference call with an incompetent management team didn´t help either.... When the CEO is praising his team and is telling the listeners that they have done a ( Quote) "fantastic job" they deserve every percent of the slump...

Es passiert nicht oft das ein DAX Titel mal eben 35% innerhalb weniger Minuten verliert. Hypo Real Estate ist dies in grandioser Weise gelungen....Einer der Gründe war die "überraschende" Abschreibung auf den 1,5 Mrd hohen CDO Bestand..... Wenig hilfreich war sicher auch der blamable Auftritt des gesamten Managementteams während der Telefonkonferenz ... Man ist fassungslos wenn der Boss sich und sein Managementteam damit lobt das Sie einen ( ZITAT!) "Super Job gemacht haben".... Finde Sie sind mit nur 35 % noch glimpflich davon gekommen....

They are lucky that they have historically a strong business base ( 40 % ) in Germany. But as you might expect they have broadened their base and have now a exposure of roughly 25% in the riskiest markets ( 9% US, 12% UK, 4% Spain). And they are already talking about new opportunuties in the US. They would love to finance what they describe as "bargains" on 5th avenue from sellers that are under pressure to refinance like Macklowe or 666 Fifth Avenue . Lets hope that todays bargains won´t look like trophy buildings in hindsight

Also nice to see that they are highlighting their very strong business in 2007.... It remains to be seen if this won´t backfire very very soon......

Die können von Glück reden das die historisch bedingt noch immer einen großen Anteil (40%) in Deutschland machen. Wie nicht anders zu erwarten hat aber auch die HRE Ihr Glück im Ausland gesucht und bestreitet jetzt ca 25% in den riskantesten Märkten ( 9% US, 12% UK, 4% Spanien). Nettes timing.... Zudem sieht das Management weiter große Möglichkietn gerade in den USA und ist in konkreten Gesprächen vermeintliche Schnäppchen zum Beispiel an der 5th Avenue von in Problemen geratenen Verkäufern wie Macklowe oder 666 Fifth Avenue zu finanzieren. Bleibt zu hoffen das die vermeintlcihen Schnäppchen sich rückblickend auch als solche erweisen.....

Ich denke das der als besonders positiv hervorgehobene Geschäftsverlauf in Sachen Neugeschäft von 2007 sich sehr bald als Bumerang erweisen wird...


HRE Presentation

Looking at the low impairments taken i´ll bet that the next write down is almost guaranteed.... But management has treid to insure that the 400 mio writedown were conservative and the future risks to the downside is limited..... But this was the same in November when they took only a 4 mio charge......

Wenn man sich die meiner Meinung nach viel zu niedrigen Abschreibungen ansieht gehe ich jede Wette ein das die nächste Abschreibung schon sehr bald kommen wird. Das Management hat versucht die 400 Mio Abschreibung als Konservativ darzustellen die weiteres Abwärtpotential vorwegnehmen. Leider haben die ähnliches bei der letzten Abschreibung von leduglich 4 Mio Ende 2007 auch gesagt......

I´m pretty sure it doesn´t take long and the rating agencies will slash the rating....

Dürfte nicht lange dauern und die Ratingagenturen werden den Daumen sicher senken...

Citigroup Still With $ 37.3 Subprime Exposure.....

I think it is interesting to read the Citigroup Results in detail. Make sure you see this Excellent Presentation. Lots of data. I have put the focus on subprime exposure and credit costs. Lets hope their internal models for valuing these securities has improved during the past 2 quarters ( UPDATE & hat tip via Calculated Risk"Citi is basing their CDO loss forecasts on house price decline of about 7% each for each of the next two years")...... But i think with the new CEO in charge there is hope that they are now more realistic. He normally has no incentive to underestimate. But after all i have seen from this company ...... Here are my earlier takes on Citigroup and here the details to the $14.5 billion of capital infusion. Nice to see that they are still paying a dividend ...... What a farce!

Ich denke es lohnt sich die Citigroup Results im Detail durchzulesen. Kann jedem diese excellente Präsentation ans Herz legen. Haufenweise Infos die ein Bild geben was in den einzelnen Märkten so vor sich geht. Ich habe hier setllvertretend mal die Zahlen zu Subprime und den explosierenden Kreditkosten herausgepickt. Bleibt zu hoffen das die internen Modelle auf denen die Wertermittlungen basieren in den letzten 6 Monaten besser geworden sind ( Update & Dank an Calculated Risk "Citi is basing their CDO loss forecasts on house price decline of about 7% each for each of the next two years )...... Mit dem neuen CEO an Bord bestehet aber zumindest die Hoffnung das man jetzt näher an der Realität ist. Üblicherweise neigt der neue CEO dazu bei der ersetn Ergebnisveröffentlichung unter eigener Verantwortung klar Tisch zu machen. Aber nach allem was ich bisher von diesem Unternehmen gesehen habe....... Hier meine früheren "Gedanken" in Sachen Citigroup. Zusätzlich hier die Details zur $ 14.5 Mrd Kapitalspritze. Lächerlich das im gleichen Atemzug noch immer eine Dividende gezahlt wird.....

Sildes taken from the Excellent Presentation

Credit costs increased $5.41 billion, primarily driven by an increase in net credit losses of $1.56 billion and a net charge of $3.85 billion to increase loan loss reserves.

-- U.S. consumer credit costs increased $4.1 billion, comprised of $689 million in higher net credit losses and a net charge of $3.31 billion to increase loan loss reserves. The $3.31 billion net charge compares to a net reserve release of $127 million in the prior-year period.

The increase in credit costs primarily reflected a weakening of leading credit indicators, including increased delinquencies on 1st and 2nd mortgages, unsecured personal loans, credit cards, and auto loans. Credit costs increased also due to trends in the U.S. macroeconomic environment, including the housing market downturn, and portfolio growth.

UPDATE: Here are some more links with very good insights / Hier einige andere gute Link mit meiner Meinung nach guten Meinungen

Citi Dividend, Future Prospects and Credit Cards Calculated Risk

Live-Blogging the Citigroup Earnings Call WSJ

Cost of Capital "Ratchets Up" at Citigroup and Merrill Mish

Citi confirms $18bn Q4 writedown; signs of consumer stress FT Alphaville

Multiple Fire Sales At UBS After $ 10 Billion Write Down

Looks like the UBS comment from just a few weeks ago in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... that the write down´won´t be big was quite an understatement..... Will be fun to watch how long the term "maximum clarity" will be up to date this time ;-) . I´m pretty sure that the same survey about bonuses for the UBS will bring less "euphoric" results..... It´s about time to learn the new version of the Investment banking lexicon: The post-credit squeeze edition. HILARIOUS!

Sieht ganz so aus als wenn der Kommentar der UBS in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... das die Abschreibungen nicht "wesentlich" sein werden ein wenig untertrieben gewesen ist. Welch Überraschung..... Wird spannend zu sehen sein wie lange die Haltwertzeit der "maximum clarity" in diesem Falle vorhalten wird ;-) . Ich bin mir ziemlich sicher das die gleiche Umfrage zu Bonuszahlungen" für die UBS weniger "euphorische" Vorhersagen hergeben würde..... Höchste Zeit die für die neueste Version des Investment Banking Lexicon: The post-credit squeeze edition. Köstlich!

UBS to Sell Stakes After $10 Billion in Subprime Writedowns
UBS AG, Europe's largest bank by assets, said it will write down U.S. subprime investments by $10 billion and raise 13 billion francs ($11.5 billion) by selling stakes to investors in Singapore and the Middle East.

UBS expects a loss in the fourth quarter, and may have a loss for 2007, the Zurich-based company said in an e-mailed statement today.

Securities firms and banks had announced about $66 billion of losses and markdowns linked to the collapse of the U.S. subprime mortgage market this year. UBS reported its first loss in almost five years in the third quarter after the subprime contagion led to about $4.66 billion in markdowns on fixed-income securities and leveraged loans.

Besten Dank an Zeitenwende

UBS Press Release & Deutsche Version
UBS strengthens capital base and adjusts valuations
UBS has introduced measures to substantially strengthen its capital position, adding CHF 19.4 billion of BIS Tier 1 capital. These include an issue of CHF 13 billion of new capital. This has been placed with two strategic investors: Government of Singapore Investment Corporation Pte. Ltd. (GIC) ( see GIC Website) with CHF 11 billion, and an undisclosed strategic investor in the Middle East with CHF 2 billion.


> To be honest i´m surprised that Singapore has two vehicles and that GIC has assets over $ 300 billion. I´ve heard so for only from Temasek HoldingsUnocal) in relation with Singapore. It´s very impressive that such a small country with an estimated GDP of $ 140 billion, a population under 5 million and especially without a resource base has managed to accumulate close to $ 500 billion in Assets Singapore/Wikipedia. Chapeau!

> Ich bin ehrlich erstaunt das Singapur zwei staatlich kontrollierte Fonds zur Verfügung hat und das GIC mit über 300 Mrd $ so groß ist. Ich habe bisher im Zusammenhang mit Singapur immer nur den Namen Temasek Holdings gehört. Es ist beeindruckend wie es ein kleines Land mit unter 5 Mio Einwohnern, einen BSP von knappen 140 Mrd $ und vor allem ohne Rohstoffbasis schafft fast 500 Mrd $ in Staatsfonds zu pumpen Singapur/Wikipedia . Chapeau!

At the same time, UBS has revised key input parameters of the models that are used to estimate lifetime default and resulting losses for sub-prime mortgage pools. As a result of these revisions, UBS will write down its US sub-prime holdings by approximately a further USD 10 billion.

After these actions, UBS projects a strong BIS Tier 1 ratio of above 12%. ...

In response to continued deterioration in the US sub-prime mortgage securities market, partly driven by increased homeowner delinquencies but mainly fuelled by worsening market expectations of future developments, UBS has revised the assumptions and inputs used to value US sub-prime mortgage related positions. This will result in further writedowns of around USD 10 billion, primarily on CDO and "super senior"1 holdings. In light of continued deterioration in the sub-prime market, valuations of UBS's remaining sub-prime positions reflect the extreme loss projections implied by the prices achieved in the very limited number of observable market transactions in US sub-prime related securities and indices up to the end of November.

As the basis for its wealth and asset management business, UBS wishes to maintain a very strong capital base under all circumstances. Growth in net new money continues, with inflows in Global Wealth Management & Business Banking totalling about CHF 30 billion in October and November. It will therefore strengthen its capital position by issuing new capital in transactions with strategic investors, by selling treasury shares, and by replacing its 2007 cash dividend with a stock dividend.

> Must hurt to sell shares at fire sale prices that they have bought back for a better use of their capital. In Q2 the stock price was in a range of 70-80 Swiss Francs, today close to 50 Swiss Francs. And in total they are selling 36.4 million shares......... Well done!

> Muß sehr schmerzen die teuer zurückgekauften Aktien jetzt zu Schleuderpreisen zu verscherbeln. Ironischerweise sollten die Rückkäufe seinerzeit ja die effektivere Nutzung des Kapitals ermöglichen. Im 2. Quartal lag der Preis zwischen 70 und 80 Schweizer Franken, heute nahe 50...... Und insgesamt werden knapp über 36 Mio zuvor erworbene Aktien nahe Tiefstkursen vertickert...... Gut gemacht!

Strategic investors subscribe to issue of CHF 13 billion of new capital
UBS has reached agreements with two strategic investors – GIC and one other – to subscribe to an issue of CHF 13 billion of mandatory convertible notes. This is subject to the approval of UBS shareholders at an extraordinary general meeting (EGM) which will take place in mid-February 2008. GIC has committed to subscribe to CHF 11 billion and the other investor to CHF 2 billion. The notes will pay a coupon of 9% until conversion into ordinary shares, which must take place on or before a date approximately two years after issuance. The proceeds of the issue will count as Tier 1 capital for BIS capital adequacy purposes after EGM approval.

Sale of treasury shares
The Board of Directors of UBS has further approved the re-sale of 36.4 million treasury shares previously intended to be cancelled. UBS has received indications of interest in a share issue, is considering these and will place these shares over time. This will increase BIS Tier 1 capital by approximately CHF 2 billion.

Proposed replacement of 2007 cash dividend by stock dividend
The Board of Directors proposes to replace the 2007 cash dividend with a stock dividend, i.e. a bonus issue of new shares. This will boost Tier 1 capital by CHF 4.4 billion, of which approximately CHF 3.3 billion is a reversal of accrued dividend for the first nine months of the year and the balance is dividend that will now not accrue. This is subject to EGM approval.

In total, these three actions, when completed and approved, will strengthen UBS's regulatory Tier 1 capital by approximately CHF 19.4 billion. After completion, and taking into account the expected fourth quarter loss, the firm's BIS Tier 1 capital ratio will improve to above 12% from 10.6% at 30 September 2007.

Marcel Rohner, Group Chief Executive Officer, UBS, said: "Conditions in the US mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities. In the last several months, continued speculation about the ultimate value of our sub-prime holdings – which remains unknowable – has been distracting. In our judgement these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation. Together with the strengthening of our capital base this will allow us to concentrate on sustaining and developing our client businesses.

Information on GIC
GIC is a global investment management company established in 1981 to manage Singapore's foreign reserves. With a network of eight offices in key financial capitals around the world, GIC manages a broad diversified portfolio across countries and asset classes that includes equities, fixed income, foreign exchange, commodities, money markets, alternative investments, private equity, real estate and infrastructure investments.

More insights via FT Alphaville UBS boggles - $10bn of writedowns, $17bn in emergency capital

What's a C.D.O.?

I second what FT Alphaville has to say. Maybe they should send the link to all the "smart money" guys that are holding all this stuff so that they finally understand what they are holding.....

Ich kann mich nur FT Alphaville anschließen. Man sollte diesen Link all denen schicken die Besitzer dieser Papiere sind damit Sie endlich begreifen was für eine halsbrecherische Konstruktion den Weg in die Bücher gefunden haben und warum es täglich vorkommen kann das aus AAA über Nacht Junk werden kann. Ich denke da ganz besonders an ein paar deutsche Landesbänker......

Far and away one of the best graphics we’ve seen. Kudos to Felix Salmon and the people at Portfolio

Make sure you click here to start the interactive beauty!

Laßt euch dieses Schmuckstück nicht entgehen und klickt hier um die interaktive Schönheit zu betrachten.

It remains to be seen if the write down from Royal Bank Of Scotland is enough.... Maybe the age of the CDO portfolio is an explanation why they still value the mezzanine tranche with 70 percent..... The same CDO in 07 would be definitley close to zero....

Bin gespannt ob die Abschreibung der Royal Bank Of Scotland genug sein wird.....Evtl. ist ads bereits fortgeschrittenen Alter des CDO Portfolios ja die Erklärung dafür das die Mezzanine Tranche immer noch mit 70% bewertet wird. Ein CDO mit Baujahr 2007 würde wohl eher bei null notieren......

At 30 November, GBM's exposure to these super senior tranches, net of hedges and write-downs, totalled £1.1 billion to high grade CDOs which include commercial loan collateral as well as prime and sub-prime mortgage collateral, and £1.3billion to mezzanine CDOs based predominantly on residential mortgage collateral. The CDOs are largely based on ABS issued between 2004 and the firsthalf of 2006

And with news like this Surge in Auto-Loan DelinquenciesIs Latest Trouble for the Economy via the WSJ it should be clear that the problem is spreading to all parts of securitisations.

Und mit Meldungen wie diesen Surge in Auto-Loan DelinquenciesIs Latest Trouble for the Economy dürfte auch bald der nächste Pfeiler der Verbriefungskredite mehr als nur leichte Schlgseite bekommen....

First came housing loans and the subprime-mortgage crisis.

Now, signs of stress are creeping into another key consumer area: auto loans.

Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.

About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month,according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.