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

This is not merely a subprime crisis / Münchau on Credit Default Swaps

I´m back from my 3 week vacation and it looks like i missed a lot of fun..... Thanks for all the mails during the past weeks. I´ll answer them this week.

It looks like more and more dominoes are falling at an accelerating pace. No wonder more and more people are waking up an are finally discovering Gold ..... Wolfgang Münchau from the FT has some good thoughts on one of the next shoes to drop

Melde mich nach einem dreiwöchigen Urlaub zurück und muß feststellen das ich wohl eine Menge Spaß verpaßt habe...... Dank an alle die gemailt haben. Ich werde diese im Laufe der Woche beantworten.

Es sieht so aus als wenn unübersehbar immer mehr Dominosteine kippen. So verwundert es wenig das endlich immer mehr Leute Gold für sich entdecken.....Wolfgang Münchau from The FT hat sich Gedanken zum nächsten drohenden "Unheil" gemacht.

This is not merely a subprime crisis

If this had been a mere subprime crisis, it would now be over. But it is not, and nor will it be over soon. The reason is that several other pockets of the credit market are also vulnerable. Credit cards are one such segment, similar in size to the subprime market. Another is credit default swaps, relatively modern financial instruments that allow bondholders to insure against default. Those who such sell such protection receive a quarterly premium, based on a percentage of the amount insured.

The CDS market is worth about $45,000bn (€30,500bn, £23,000bn). This is not an easy figure to imagine. It is more than three times the annual gross domestic product of the US. Economically, credit default swaps are insurance. But legally, they are not, which is why this market is largely unregulated.

Technically, they are swaps: two parties swap payments streams – one pays a regular premium for protection, the other pays up in case of default. At a time of low insolvency rates, many investors used to consider the selling of protection as a fairly risk-free way of generating a steady stream of income. But as insolvency rates go up, so will be the payment obligations under the CDS contracts. If insolvencies reach a certain level, one would expect some protection sellers to default on their obligations.

So the general health of this market crucially depends on the rate of insolvencies. This in turn depends on the economy. The US and Europe are the two largest CDS markets in the world. It is now widely recognised, including by the Federal Reserve, that the US economy is heading for a sharp downturn, possibly a recession. The eurozone, too, is heading for a downturn, but possibly not quite as sharp. ....

Today, the really important question is not whether the US can avoid a sharp downturn. It probably cannot. Far more important is the question of how long such a downturn or recession will last. An optimistic scenario would be a short and shallow downturn. A second-best scenario would be for a sharp, but still short, recession. .....

So what then would be the effects of these scenarios on the CDS market? Bill Gross of Pimco*, who runs the world’s largest bond fund, last week produced an interesting back-of-the-envelope calculation that received widespread publicity. He projected ( see his latest Investment Outlook ) that the losses from credit default swaps caused by a rise in bankruptcies could be $250bn or more – which would be similar to the expected total loss as a result of subprime.

This is how he arrived at this estimate. His calculation assumes that the corporate insolvency rate would return to a normal level of 1.25 per cent (measured as the default rate of all investment grade and junk debt outstanding). As the entire CDS market is worth about $45,000bn, $500bn in CDS insurance would be triggered under this assumption. The protection sellers would probably be able to recover some of this, so the net loss would come to about half of that. This estimate is very rough, of course. Most important, it is based on the assumption that the hypothetical US recession would not turn into a prolonged slump. In that case, one would expect corporate default rates not merely to return to trend, but to overshoot in the other direction.

So one could take that calculation as a starting point. A downturn lasting two years could easily trigger payments streams of a multiple of $250bn.

At this point we might be tempted to conclude that this all is irrelevant, since this is only insurance, which is a zero-sum financial game. The money is still there, only somebody else has got it. But in the light of the current liquidity conditions in financial markets, that would be a complacent view to take.

If protection sellers were to default en masse, so too could some protection buyers who erroneously assume that they are protected. Given that the CDS market is largely unregulated there is no guarantee of sufficient liquidity behind each contract.

It is not difficult at all to see how the CDS market has the potential to cause serious financial contagion. The subprime crisis came fairly close to destabilising the global financial system. A CDS crisis, under a pessimistic scenario, could produce a global financial meltdown.

This is not a prediction of what will happen, merely a contingent scenario. But it is contingent on an event – a nasty and long recession – that is not entirely improbable.

Where is Debt Being Stuffed? Minyanville

Thanks Mr. Practical. On top of this i suggest to read the latest from Hussman An Irrelevant Fed: Thimbles of Water in a Forest Fire .

Besten Dank Mr. Practical. Ergänzend empfiehlt sich das letzte "Werk" von Hussman An Irrelevant Fed: Thimbles of Water in a Forest Fire

Thanks to Jim Borgman

Where is Debt Being Stuffed? Mr. Practical / Minyanville

As the markets seem to want to be relieved that global central banks have the “liquidity” problem under control, let us Minyans remind ourselves of the magnitude of the problem.

I have described just how central banks inject “liquidity” into the markets when they need it. Essentially central banks encourage debt creation, for people to borrow money, so that they buy things (consumption) to spur the economy. But due to too much debt, financial engineering has had to create new and better places to stuff more and more debt.

You may have seen this chart before. It shows the results of that financial engineering. Central banks can only affect the bottom two parts of the chart, high powered money and M3. M3 the Federal Reserve is growing as fast as it can in order to indirectly support the much larger problem of securitized debt and derivatives.

These two phenomenal pockets of debt are supported by asset prices: when asset prices (which act as collateral) decline, liquidity gets sucked out of the system. So the purpose of pumping new debt into the system is to keep nominal asset prices up to protect collateral values of the real problem of leverage in the system that the Fed cannot directly control. It takes more and more debt to do this because people are having huge problems servicing the debt they already have.

So we have two huge forces fighting each other right now: central banks desperately attempting to re-flate (create more debt) and the market grudgingly but purposefully attempting to deflate by paying back (which the bureaucrats are trying to help with) or more likely destroying (write-offs) that debt. We have extremely high volatility as these two forces fight it out.

Looking at the chart, which do you think will win?

>If you are still not convinced i urge you to read Straight Talk on the Mortgage Mess from an Insider via Herb Greenberg. One of the best i´ve seen in months. It looks like the "Hope Now Alliance" will become a running gag during the coming years.....

>Solltet Ihr immer noch Hoffnung haben das alles gut werden wird empfehle ich dringend Straight Talk on the Mortgage Mess from an Insider via Herb Greenberg zu lesen. Mit das Beste was ich in den letzten Monaten zu lesen bekommen habe. Es sieht so aus als wenn die "Hope Now Alliance" zum Running Gag in den nächsten Jahren werden dürfte......

UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case....

They should have floated rumors/estimates of $ 20 billion and then surprise with a lower number like Barclays, Bear Stearns etc...... Sarcasm off..... :-) . UBS has just denied that they expect a big write down . I assume it depends on what is "big" . This comment doesn´t fit well with the comments from UBS at the beginning of the month.UBS: Further Writedowns Possible and this comment from the Wall Street Journal . The example Swiss Re doesn´t give much comfort either......

UBS hätte besser schon vorher Gerüchte über 20 Mrd $ streuen sollen um dann positiv zu überraschen ( siehe Barclays, Bear Stearns usw....... ;-). Gerade hat UBS einen größeren Abschreibungsbedarf dementiert. Ich denke es ist alles eine Frage was "groß" bedeutet. Was solche Dementies selbst aus der Schweiz heutzutage wert sind zeigt "eindrucksvoll" das Beispiel der Swiss Re ........ Auf jeden Fall harmoniert das Dementi nicht sonderlich mit dem Kommentar von Anfang November UBS: Further Writedowns Possible und diesem Kommentar aus dem Wall Street Journal .

Mr. Peace ( Lehman Brotehrs) said UBS may have to record an additional loss, because he compared UBS's and Merrill's exposure to a risky CDO slice known as the mezzanine piece. His analysis shows that UBS has triple the exposure to mezzanine CDO slices as Merrill Lynch yet so far has taken a quarter of the percentage write-down that Merrill took. UBS's holding does include some added protection against losses, Mr. Peace said.

Citi do a Whitney on UBS - “A major reversal of fortune” / FT
According to a note sent out to clients by Citi analysts today, we can “realistically” expect a further $12bn writedown from UBS in the next quarter.

UBS shareholders should also expect to see the dividend slashed, and the value of their equity diluted by a rights issue of up to $7bn. UBS, Citi’s Jeremy Sigee say dryly, will almost certainly need to recapitalise.

In other words, Citi are giving UBS the Meredith Whitney treatment. Is it true what they say - every bully was once bullied?

The difference, of course, is that Citi cut to the chase in disclosing its subprime losses - releasing details of its exposure and a breakdown of the figures. Not that it did Chuck Prince any good.

UBS, however, have been far more circumspect. Consider this table of banks’ disclosed exposure and writedowns on ABS CDOs:



While UBS have the second highest ABS CDO exposure, they have taken one of the lowest writedowns.

Clearly, UBS are not marking their assets at current market prices, and are still heavily relying on marked to model prices. Consider also the fact that many of the CDOs UBS arranged and sponsored have been some of the worst hit - like the appropriately named Vertical Capital, a CDO whose AAA debt was slashed 14 notches to junk in one fell swoop.

Consider this table from Citi, which neatly summarises the price declines on MBS and CDOs (measured respectively by declines in the ABX and TABX indices from Markit) It’s pretty clear that UBS’s average writedown so far is paltry

Citi outline three possible scenarios for UBS:
First we assume markdowns similar to Merrill Lynch. Under that scenario, UBS would need to take markdowns of SFr 6.7bn in 4Q07. Translating this revenue shortfall one-to-one to PBT (thereby assuming no clawback on the cost side), the group’s PBT would be -SFr 3.2bn for a net loss of SFr2.3bn. The Tier 1 ratio would be 9.5% under Basel I and 9% under Basel II. This is below the group’s target. However, cancelling the dividend (SFr4.2bn) would bring back the ratio to 10% under Basel II.

The second scenario takes conclusions from our Fixed Income credit strategists, assuming 30% writedowns on HG ABS CDOs and 60% on mezzanine ABS CDOs. UBS would report a loss of SFr 7.9bn in 4Q07, its Tier 1 ratio would drop to 8.1% (Basel I) and 7.6% under Basel II. The Tier 1 would remain below target even if the dividend were cut, raising the possibility of a capital shortfall.

The third scenario is a worst-case scenario. Under this scenario (50% writedowns on HG ABS CDOs and 100% on mezz ABS CDOs), UBS would end up with a substantial SFr22bn writedown. The group’s Tier 1 ratio would drop to 5.8% (Basel II). Even after cutting the dividend and accounting for a lower group Tier 1 ratio of 9% (Basel II), a capital shortfall of SFr 8.5bn would remain, raising the prospects of a large capital increase/rights issue.

Investors Should Spank Banks for Betraying Trust: Mark Gilbert

Mark Gilbert from Bloomberg rocks!

Thanks to Randy Glasbergen

Investors Should Spank Banks for Betraying Trust: Mark Gilbert Nov. 15 (Bloomberg) -- Exactly a year ago, I was summoned to ABN Amro Holding NV's London headquarters for a dressing-down. I had sinned by comparing the bank's glossy new derivatives, dubbed constant proportion debt obligations, to a Nigerian banking scam.

The newfangled securities made bets on credit-default swaps, which are themselves a gamble on company creditworthiness. Steve Lobb, ABN's global head of structured credit, tried to convince me of the error of my skeptical ways with the help of a whiteboard and one of those wonderful diagrams of boxes and arrows showing money flowing from here to there.

This week, Moody's Investors Service said it may cut the Aaa ratings on two of ABN's CPDOs, along with five CPDOs and one swap contract initiated by UBS AG and rated between Aaa and Aa3. Moody's cited ``the continued spread widening and spread volatility on the financial names underlying these CPDOs.''

One of the ABN CPDOs, called Chess III, went on sale in July priced at 100 percent of face value with that golden Aaa rating. This week, it was worth about 41.5 percent of face value, according to ABN prices.

Put another way, the investors who bought the 100 million euros ($147 million) of notes lost 58.5 million euros in just four months. That beats any Nigerian scam.

It turns out that anyone who trusted the CPDO creators -- and even the most sophisticated derivatives buyer has to place some faith in what the stress-testing models of the seller suggest about future valuations -- misplaced their faith.

Expecting A Recession / Hussman

This is only a smal snippet from Hussman´s latest work Expecting A Recession . Havn´t heard the word "contained" for a long long time.....

Dieses ist nur ein kleiner Ausschnitt von Hussman´s letzten Werk Expecting A Recession . Nebenbei bemerkt habe ich das wort "contained" schon lange nicht mehr gehört.......

Industry groups: rotating disappointments
It's interesting that investors have not yet put the rotating disappointments among various industry groups into a “gestalt.” Rather, investors seem to be looking at various industries as if their problems are each somehow unique and unrelated. Investors recognized early that the housing sector is profoundly vulnerable. More recently, they have recognized that financials face growing loan loss risk. With Caterpillar's disappointing guidance, they suddenly realized that cyclicals and machinery face significant challenges. With Exxon's refining difficulties, they realize that profit growth in the oil sector is unlikely to produce major upside surprises. And last week, technology stocks were clipped when Cisco produced strong earnings but didn't raise guidance. Yet somehow, investors haven't put all of these together to see the larger picture, which is that the market has lost leadership from every important group. This isn't a stock-selection or an industry-selection issue. It is a pervasive indication of oncoming economic risk.

With regard to financials in particular, investors continue to look for a bottom. Aside from periodic short squeezes and spectacular but short-lived rebounds, I don't think it is coming anytime soon. The recent concern about higher loan losses is no surprise (see The Problem with Financials), and this is likely to continue. This is not simply a problem that will go away if various financial companies “come clean” with what their CDOs and so forth are worth. The real problem is that the companies don't know what they're worth because the foreclosures that will determine their value haven't happened yet. The defaults are just starting. The heaviest round of mortgage resets only started in October, so it will probably be months before we observe mass delinquencies, and several more months until we observe significant foreclosures, loan losses, and writeoffs. This is a multi-year problem, not a multi-week problem that can be resolved by “just coming clean” with what's on the balance sheet

According to the latest FDIC banking profile, FDIC insured institutions currently hold a notional value of $153.8 trillion in credit derivatives. That's not a typo – though GDP itself is only about $13 trillion, the high notional value emerges because for each derivative that connects two true “end users” (one long, one short), there is a whole chain of intermediaries who are long with one intermediary and short with another, hoping to earn a tiny profit on the spread. For example, I buy a derivative from Andy, who goes short to me, so he buys one from Barry who is short to Andy, hopefully for a tiny spread, and covers the risk by buying a derivative from Charlene, and so on, until someone finds a true “end user” who actually wants to carry a pure short position in that derivative. Unfortunately, this also exposes banks to as-yet-unknown “counterparty” risk. If one link in the chain snaps, the links surrounding that chain have to bridge the gap. This is not a material risk in exchange traded derivatives, but can be a problem in “over-the-counter” derivatives traded between banks, where “know thy counterparty” currently ought to be chiseled into every marble surface.

Not So Smart "In an era of easy money, the pros forgot that the party can't last forever "

What a difference 6 month made..... It was in early February when Business Week ran this cover story It's A Low, Low, Low, Low-Rate World .

Looks like the "Cover Story Indicator" has worked once more.....

Was doch 6 Monate für einen Unterschied ausmachen.....Anfang Februar hat Business Week noch die folgende Titelgeschichte It's A Low, Low, Low, Low-Rate World gebracht.

Es sieht so aus als wenn der "Cover Story Indicator" mal wieder ganze Arbeit geleistet hat.
Not So Smart / In an era of easy money, the pros forgot that the party can't last forever

The boasting and bluster that marked the just-ended era of easy money varied depending on the speaker and his stake in the boom. But the underlying message was consistent: This time it's different. When it came to the hazards associated with borrowing, the old rules no longer applied.

The titans of home loans announced they had perfected software that could spit out interest rates and fee structures for even the least reliable of borrowers. The algorithms, they claimed, couldn't fail. With similar bravado, buyout firms bid up private equity deals, arguing that investors had an insatiable appetite for the increasingly risky and mammoth loans used to fund them. "I don't think it's a bubble," David M. Rubenstein of Carlyle Group told the Financial Times in an interview last December. "I think really what's happening now is that people are beginning to use a different investment technique, and this investment technique, private equity, adds real value."

> This chart from Bespoke shows how well timed the "Low, Low......Rate World" cover was.....

> Dieser Chart von Bespoke zeigt wie gut die Titelgeschichte "Low, Low, ..Rate World" abgepaßt war.

Hedge funds were all too happy to enable the leverage arms race. They, too, borrowed to the max so they could gorge on the debt that financed the housing and buyout booms. "The consumer has to be an idiot to take on those loans," John Devaney, chief executive of United Capital Asset Management, said in May, referring to dicey adjustable-rate mortgages. But since there were plenty of "idiots" out there, and legions of lenders eager to serve them, Devaney and other hedge fund managers eagerly devoured the securities confected by investment banks from batches of dubious home loans. This securitization, the argument went, would spread the risk far beyond banks and mortgage companies. In March, Devaney bragged that mortgage-backed securities were one of his "best-performing investments.

"It didn't work out that way. In June, Devaney's Horizon funds booked a loss of more than 30%, according to Hedge Fund Alert. Shortly after, United Capital suspended redemption requests by investors trying to pull out. Devaney did not return calls for comment.

> maybe he is the guy on the cover.......:-)

> ist wahrscheinlich der Typ auf dem Cover :-)

Making sense of this mess is daunting. One good place to start: the ways various financial players indulged in layer upon layer of leverage, much of it far from transparent. Mortgage lenders threw out common sense underwriting standards. Wall Street sliced and diced the loans, creating the illusion that risk somehow disappeared in the process. Hedge funds then multiplied the leverage by borrowing copiously to buy securities based on the rearranged mortgages. In their version of the game, private equity firms used loads of debt to launch unprecedented buyouts.

bigger / größer

> Looks "contained"´to me....

> Sieht für mich ziemlich "contained" aus......

What some of the smartest guys in each of these fields seemed to forget is that new paradigms can crumble suddenly. Many miscalculated how long the period of easy credit would persist.

Mortgage companies argued their algorithms provided near-perfect precision. "We have a wealth of information we didn't have before," Joe Anderson, then a senior Countrywide executive, said in a 2005 interview with BusinessWeek. "We understand the data and can price that risk."

PRIVATE EQUITY: `A GOLDEN AGE'
As recently as April, buyout legend Henry Kravis proclaimed a "golden age" of private equity. Perhaps he should have called it a golden age of CLOs—collataralized loan obligations.

Like mortgage lenders, the giants of private equity have relied on complicated investment pools to fund their binge. CLOs are cousins of collateralized debt obligations. Managers of the investment pools buy groups of risky, junk-rated loans from banks that have financed buyouts by Kravis and his competitors. The CLOs package the loans, then divide them into risk levels. While the individual loans carry low credit ratings, three-fourths of the securities marketed by CLOs magically boast AAA marks. (That's because some investors give up extra yield in exchange for better protection against losses.)

The financial alchemy has allowed private equity firms to attract a whole new base of investors, including pension funds and insurance companies that never would have bought those risky loans outright. U.S. CLOs raised $100 billion in 2006, quadruple the amount two years earlier.

Buyout firms have generally fronted 30% of the equity in recent deals, vs. just 15% two decades ago. But that doesn't mean firms have been more cautious. Steeled by the seemingly insatiable demand for CLOs, they became bolder and bolder in the deals they pursued. After Kohlberg Kravis Roberts & Co. and Texas Pacific Group's $44 billion bid for Texas energy giantTXU in February, analysts began putting odds on imagined future megabillion-dollar targets like Home Depot Inc. (HD )

As private equity firms bid up the prices for ever-larger LBOs, the transactions began getting riskier. A key measure of leverage, a company's total debt divided by operating earnings, skyrocketed from 4.7 in 2004 to 7.0 in the second quarter of 2007, according to Standard & Poor's (MHP ) LCD. Meanwhile, the ability of companies to cover the interest payments of that debt dropped sharply; the ratio of profits to interest fell from 3.4 to 1.8 in that period.

> It is getting worse if you consider that profit margins are close to record highs and the economy is now tanking.... So there is almost no room for error.....

> Das ganze wird noch dramtischer wenn man berücksichtigt das die Firmen momentan noch Gewinnmargen nahe der historischen Hochs haben und die Wirtscahft sich gleichzeitig abschwächt bzw. wie in den USA sogar abschmiert.... Nicht viel Raum für Fehler......

At the same time, loan terms got looser. For example, in the buyouts of Freescale Semiconductor and retailer Claire's Stores (CLE ), LBO firms peddled bonds that allowed the companies to postpone interest payments until the bonds matured—a previously unheard of feature. Such stipulations applied to 10% of all junk bonds sold in 2007, vs. virtually none 18 months earlier, according to Lehman.

The red-hot demand for even the junkiest of loans allowed many firms to delude themselves into thinking they could endlessly pursue deals. In the three months through July 31, firms announced $254 billion in buyouts, as much as in 2004 and 2005 combined, according to Thomson Financial (TOC ). One credit crunch later, the market for LBO financing has evaporated. Investors won't buy the loans at current prices, leaving banks on the hook for $300 billion in loans to buyout artists.

So far, no big deals have collapsed. The hope is that the credit environment will improve in the fall, and stalled deals will move through the LBO pipeline. But there may be more pain ahead.

HEDGE FUNDS: STEALTH DEBT
Hedge funds helped power the mortgage and buyout booms by hungrily consuming securitized subprime debt and loans used to fund buyouts. By borrowing much of the money they invest, in some transactions up to 90%, hedge funds add another potentially dangerous layer of indebtedness to already highly leveraged markets. Because hedge fund disclosure is limited, huge pockets of leverage are barely visible. This stealth debt helped cause the problems in the subprime market to spread far beyond the housing sector.

One example: the hundreds of billions of dollars in so-called repurchase lines of credit, or repo loans, that Wall Street banks have lent to hedge funds. Disclosure of these esoteric agreements is murky at best, so their precise value can't be quantified. Another tool that pumps up leverage by untold billions is the total return swap. These arrangements allow a hedge fund to capture the gains of a security without having to buy it outright and with only limited collateral.

For some funds, extreme leverage became an acute problem when the mortgage crunch caused banks to doubt the value of the subprime bonds and CDOs the funds held. Banks pulled their lines of credit, forcing funds to come up with the full value of those assets. That caused dire consequences because, in some instances, the funds paid as little as 10 cents on the dollar and now had to come up with the remaining 90 cents. Many funds, including ones from Goldman, Sachs & Co. (GS ) and Renaissance Technologies, were forced to sell better-performing bonds, stocks, and commodities to pay back nervous bankers. ....

Related links from Business Week to the cover story

Main Street Is Fed Up

Bruce Wasserstein: "Expect Lots More Embarrassment"

It's Out Of Bernanke's Reach

About "Conduits" And "Off Balance Sheet" Vehicles.....

Whenever i hear the phrase "off balance sheet" vehicles "Enron" and other accounting scandals are coming to my mind. It is often only a matter of time until the ticking time bomb is taking its toll. In the case of the German IKB and probably the Sachsen LB i think the board that has the oversight is just too incompetent to realize what is and was going on. On top of this it is clear that the Bafin ( banking oversight ) has done a lousy job and didn´t know anything about the immense risk that small German banks were taking. Maybe they should order this excellent artwork from the NYT to understand what kind of junk they have often as AAA in their books..... ( hat tip to Pancho Villa and Calculated Risk

Immer wenn ich den Begriff "Off Balance Sheet" höre ziehen vor meinem geistigen Auge immer wieder "Enron" und andere Skandale vorbei. Es ist fast immer nur eine Frage der Zeit bevor diese Konstruktionen große Probleme bereiten. Im Fall der IKB und wahrscheinlich auch der Landesbank Sachsen wird zudem deutlich das der Aufsichtsrat vollkommen inkompetent gewesen ist. Zudem sollte ernsthaft mal hinterfragt werden was die Bafin eigentlich so den ganzen Tag macht....... Evtl. sollten sie die Verantwortlichen mal diese diese gelungene Übersicht ansehen um zu versthen was die überhaupt als AAA in Ihren Büchern haben

Big hat tip to the reader who sent me this link!

Structured investment vehicles’ role in crisis

Policymakers and investors have been obsessed in recent years about the potential for a hedge fund collapse to spread financial panic. But it seems one of the biggest threats to stability is coming from the age-old risk of short-term borrowing to fund investments in illiquid long-term products.

In a corner of the market few people knew existed, regulators are scrambling to understand what is happening in structured investment vehicles (SIVs), a breed of often huge, mainly bank-run, programmes de­signed to profit from the difference between short-term borrowing rates and longer-term returns from structured product investments.

These have proliferated in recent years and control assets worth hundreds of billions of dollars. Depending on whether they are fully rated by credit rating agencies and on how strictly they have to conform to certain rules, they are known as SIVs, SIV-lites, or conduits.

> Here the German conduits / Übersicht der deutschen Conduits

They are typically quite opaque, invest in complex securities and often do not need to be displayed on a bank’s balance sheet.

It seems they have played a key role in last week’s liquidity crunch.

“We are in the middle of a mini-crisis in the commercial paper market, at least half of which is related to the SIV conduits,” says Robert McAdie, global head of credit strategy at Barclays.

These programmes typically invest in credit market instruments, such as US subprime mortgage-backed bonds and collateralised debt obligations. These assets tend to be the highly rated, supposedly safe versions of such debt, but in the recent fear-driven turmoil have shown just how illiquid and hard to value theycan be.

The profit for those who run such programmes comes from the fact that the assets pay fairly high yields, while the conduits and SIVs fund their purchases with short-term borrowings in which interest and principal payments are backed by financial assets that are deemed to have stable cash flow. Collectively this so-called “asset-backed commercial paper” – or ABCP – lasts for anything between a few days and a few months before needing to be refunded.

The problem could be thrown into relief when billions of dollars of ABCP mature today and on Wednesday, with great un­certainty as to whether this can be refinanced.

Everything in this market depends on investors in the ABCP market maintaining their faith in the programmes and the assets they hold. With the current rush for the exits in many structured credit markets, this faith has been evaporating wholesale. No investors are sure exactly what assets SIVs and conduits are holding, or how damaged those holdings might be.

Thanks to the fantastic Randy Glasbergen

While many non-SIV funds – such as those run by BNP, Axa and others that have hit trouble recently – were able to stop investors pulling their cash out, SIVs and conduits who see their funding expire on a regular basis have no such luxury.

In the case of a blip in the market, SIVs and conduits are supported by liquidity facilities from highly rated, mainstream banks. This means banks must step in to provide finance if the SIV cannot raise commercial paper in the normal way, unless the SIVs’ assets suffer significant ratings downgrades. Typically, the credit line provided by the sponsoring bank and a group of others in a syndicate must cover 100 per cent of outstanding commercial paper.

These funding lines have rarely been drawn in recent years, because liquidity has been abundant in the ABCP market as almost everywhere else in the financial world. As recently as mid-June, the European commercial paper market was seeing records levels of issuance.

However, what sparked last week’s turmoil – and the dramatic intervention by central banks – was a pernicious chain of events. As it became apparent this summer that the US subprime problems were worsening and infecting a broader range of structured products, some investors in the ABCP market started to worry about whether SIVs were also sitting on losses.

The rush to sell structured products by hedge funds facing redemptions and other investors meant those market values that could be ascertained were being marked down heavily. As a result, by mid-July some investors decided to stop buying ABCP paper from SIVs suspected of subprime exposure.

The German bank IKB was an early victim. Another victim could be the Landesbank Sachsen. Like many local peers, it had a conduit – called Rhineland Funding – which had ex­panded rapidly and had almost €20bn ($27.3bn, £13.5bn) worth of outstanding commercial paper in the markets in July. In mid-July, ABCP investors refused to roll over some of these notes.

Rhineland asked IKB to provide a credit line, as the rules of SIVs require. But it appears the German bank did not have enough cash to meet this request and was unable to liquidate enough assets to plug the gap. This threatened to trigger IKB’s collapse, until KFW, the state-owned German bank, stepped in and offeredan €8bn credit facility.

German officials hoped this action would stop growing panic in the sector. But it may have had the reverse effect: investors started to shun almost all commercial paper issued by SIVs.

“This is an environment where there has been a big loss in confidence and nobody is distinguishing between apples and oranges,” notes Mr McAdie.

By early August, the problems in the ABCP market had become so serious that some European banks were preparing for additional calls on credit lines to SIVs. But the banks are also grappling with a backlog of unsold leveraged loans, which is placing additional pressure on their balance sheets.

So early this month some European banks – and a few US institutions as well – quietly started trying to raise new credit lines themselves. That, however, triggered additional alarm, as rumours spread about the potential losses at SIVs – on top of problems in other corners of the financial world.

Consequently, by the middle of last week, some banks started shutting credit lines to a sweeping list of institutions. “Commercial paper is now being funded on an overnight basis. The banks will not roll paper for three months,” says Dominic Konstam, head of interest rate strategy for Credit Suisse. ....

Policymakers hope that some of this panic will dissipate this week following the massive emergency injections of liquidity by the ECB and US Federal Reserve. And indeed, by the end of last week, borrowing rates were stabilising. There were signs vulture funds were circling, ready to pick up ABCP paper at bargain prices.

“What some people are hoping is that the bottom fishers will appear and help the market self-correct,” says one big ABCP issuer.

However, nobody close to this sector expects to see a quick solution soon. Commercial paper interest rates have not yet fallen, irrespective of central banks’ actions. In New York on Friday, they closed at their highest level for six years.

There is deep uncertain­ty about what the central banks will do next – making ABCP players even more reluc­tant to start issuing and trading again. “Nobody is going to handle commercial paper if they think the Fed could be about to cut rates or do some­thing else completely unexpected overnight,” explains one. 

However, the third, most pernicious problem is that it is becoming clear central banks cannot resolve the biggest problem – a lack of clarity about valuations in structured credit markets and the almost complete loss of confidence that is infecting even the biggest and most diversified of conduit-type programmes.

Monty Python - Always Look on the Bright Side of Life

Dedicated to all the "smart" people that are stuck with their investment grade rated ABS or derivatives ..... especially the Landesbank Sachsen :-)

Dieses Lied ist allen gewidmet die momentan auf ihren von den Ratingagenturen mit Investmentgrade bewerteten ABS und Derivaten sitzen ..... ganz besonders der Landesbank Sachsen :-)


Have a nice weekend / Wünsche allen ein schönes Wochenende

MBIA, Ambac Risk Trades at Junk Levels on Subprime Defaults

Isn´t it nice to see when companies like MBIA are insuring over $600 billion with under $7 billion in capital.....This at the same time when the spreads are indicating that they have some "problems".....It gives me not much comfort when they put out a report where they try to downplay there subprime exposure and are saying that their "models" have factored in the worst case ....Have heard this from the rating agencies just a few days ago....until their model went bust!

Make sure you read Fitch Discloses Its Fatally Flawed Rating Model from Mish.

Also it is not convincing when they say they only have the smartest CDO managers that are out there....I think that Bear Stearns told their hedge fund clients the same....

Beschleicht Euch nicht auch ein mulmiges Gefühl wenn Firmen wie MBIA mit unter 7 mrd$ Kapitalbasis mal eben über 600 Mrd$ an Krediten garantieren.... Das zur selben Zeit deren Risikoprofil vom Markt als sagen wir mal vornehm ausgedrückt "problematisch" eingestuft wird macht die Sache nicht gerade angenehmer.

Da hilft es auch nichts wenn Sie in einem Report den Anteil Ihres Subprimeportfolios herunterzuspielen versuchen und darauf hinweisen das Ihre "Modelle" selbst den schlimmsten Fall berücksichtigt haben....Dumm nur das wir genau das auch von den Ratingagenturen bis vor einer Woche gehört haben....bis Ihr Modell implodiert ist. Selbstverständlich behaupten zur Zeit alle die cleversten CDO Manager angeheuert zu haben um Ihr Portfolio zu managen....Dasselbe hat wohl auch Bear Stearns noch vor kurzem über Ihren Hedge Fonds Manager gesagt....

Hat tip to Mike Larson

July 18 (Bloomberg) -- The perceived risk of holding the bonds of MBIA Inc. and AMBAC Financial Group Inc., owners of the two largest AAA rated bond insurance companies, has jumped to speculative grade on worries about subprime-mortgage defaults.

Credit-default swaps based on $10 million of MBIA's bonds more than doubled in the past month to $114,000, while Ambac contracts tripled to $91,000, according to CMA Datavision in London. Those levels imply a credit rating of Ba2 for MBIA and Ba1 for Ambac, the two highest junk ratings, according to the credit-strategy group at Moody's Investors Service.

> Thanks to Mish . Here comes an eyeopening pdf report titled Who´s holding the bag ? from Pershing Square Capital Management, L.P. It should be pointed out that Pershing is short the stock.

> Ihr solltet Euch damit man die Dimension dieser offensichtlichen Schieflage vor Augen führt unbedingt den o.g. report zu MBIA von Pershing Suare Capital Management ansehen. Der Fairnesshalber sollte erwähnt sein das Pershing eine short MBIA ist

Armonk, New York-based MBIA and Ambac guarantee the repayment of bonds issued by cities and states to finance the building of schools and roads. They also insure bonds backed by consumer loans and other financial assets, including collateralized debt obligations or CDOs.

``MBIA does not expect its insured CDO portfolio to pose a risk to its ratings nor does it expect that it will represent a material risk to the company's financial condition,'' MBIA said in the report.

> From the report MBIA’s CDO Strategy, Portfolio Analysis and Subprime Exposure

> Compare this with the Pershing report. The stock and credit market has voted so far in favour of pershing....Surprise, surprise!

> Vergleicht das mit dem Pershing Report. Der Aktien und Kreditmarkt hat sein Urteil anscheinend zugunsten von Pershing bereits gefällt.....Was Wunder!

MBIA undertakes extensive cash flow and quantitative modeling for each CDO transaction using internal models and the Moody's and S&P models to confirm the rating analysis and proposed attachment points

MBIA evaluates the quality of the collateral manager through extensive on-site due diligence. MBIA considers the quality of the collateral manager as essential to the successful performance of a managed CDO

As of March 31, 2007, the Company’s total direct portfolio consists of $5.5 billion of par exposure in subprime mortgage securitizations of which $1.6 billion of that exposure was originated in 2006. All 2006 originations were guaranteed at the Triple-A level

MBIA’s $108.8 billion CDO portfolio comprised 17% of MBIA’s total insured net par of $635.2 billion at 3/31/07

In February, MBIA's 5-year credit default swaps traded at $19,000 while Ambac Financial traded at $11,000. Moody's rates MBIA and Ambac at Aa2, both two notches below their insurance companies. That's because claims against MBIA's insurance company have priority over claims against the holding company.

``In less than one percent of our observations, we find companies with CDS gaps of five or greater,'' said Michael Love, an analyst in the credit-strategy group at Moody's. ``This is highly unusual.''

> Mabye this guy from Moddy´s should ask himslef if their model is way behind the curve and needs an imminant major makeover....... I have heard that this is common these days...... ;-)

> Das mag unter Umständen daran liegen das Moody´s in Ihrer Einschätzung mal wieder meilenweit daneben liegt...... Mir ist zu Ohren gekommen das so etwas in letzter Zeit häufiger vorkommen soll... ;-)

MBIA had insured $957 billion of debt payments as of the end of the first quarter while Ambac reported $803 billion of insured debt service as of the end of 2006, according to Securities and Exchange Commission filings. Credit-default swaps were created to protect bondholders against default and pay the buyer face value in exchange for the underlying securities or the cash equivalent should the company fail to adhere to its debt agreements.

ACA Drops
Shares of ACA Capital Holdings Inc., which owns a single-A rated bond insurance company, have fallen more than 20 percent since July 12 after the company, which also sells credit derivatives, updated information on its Web site about its subprime exposure.

>Looks my take on ACA wasn´t far off the mark....

> Sieht ganz so als wenn meine Einschätzung zu ACA doch nicht so weit hergeholt war....

A $1.5 billion private-equity fund run by New York-based Bear Stearns owned 27 percent of ACA as of November, according to Bloomberg data.

got Gold....?

Bear credit hedge funds almost wiped out: sources

What a surprise.....Too bad that leverage works both ways......The earnings call should be fun. I´ll give Bear a 50% chance that they are impertinent enough to report an earnings number excluding the implosion ... :-)

Get ready for the takeover spin to pump up the stock (heavy rotation).....To put things into perspective....Bear just pumped money into a worthless asset. Not insignificant with a marketcap of $20 billion ( 1.57 book value).....

Here te letter to clients

Zu blöd das der Hebel in beide Richtungen wirkt......Die Tefefonkonferenz dürfte Slapstick pur werden. Zudem gebe ich Bear eine 50% Chance das die sich die Blöße geben in Ihrem Quartalsbericht eine Ergebniszahl auszuweisen die das aktuelle Debakel herausrechnet ... :-)

Spätestens heute ab 14.30 Uhr wird die Maschinerie in Sachen Übernahmekandidat auf heavy rotation laufen. Wenn man bedenkt das die Marktapitalisierung bei lediglich 20 mrd $ (1,57 x Buchwert) liegt ist es umso erstaunlicher das Bear Stearns dem schelchten noch gutes Geld hinterhergeschmissen hat ..... Weiter oben gibt es den Link zum Brief an die Klienten des Hedgefonds

Leveraged fund worth nothing; larger fund reportedly loses 91% of its value

SAN FRANCISCO (MarketWatch) -- A Bear Stearns Cos. hedge fund that made leveraged bets in the subprime mortgage market is worth nearly nothing, according to two people briefed by the investment bank.

Investors have been waiting for Bear to update them on the High-Grade Structured Credit Enhanced Leveraged Fund and a larger, less leveraged fund called the High-Grade Structured Credit Fund. The Wall Street Journal reported on Tuesday that the larger High-Grade Structured Credit Fund is worth roughly 9% of its value at the end of April.

Bear said last month that it would pump as much as $3.2 billion into the larger High-Grade Structured Credit fund but didn't touch the more leveraged one.

>Here the link to the totally useless bailout.....

>Klickt auf den Link um den sinnlosen Rettungsversuch zu bestaunen....

Bear shares fell $4.11, or 2.9%, to $135.80 during after-hours trading on Tuesday. The stock has dropped 14% so far this year.

The problems have also roiled the subprime mortgage market and may have triggered big losses and big gains at other hedge funds, depending on which side of the trade managers were on.

Bear's hedge fund problems, combined with rising subprime mortgage delinquencies, have already triggered margin calls in mortgage-backed securities and CDO markets.

One cent bid
The reported 91% loss suffered by Bear's larger High-Grade Structured Credit Fund may be bigger than some investors were expecting, judging by recent activity on Hedgebay, a secondary market for hedge fund stakes.

A few weeks ago, activity on the Hedgebay market suggested investors were willing to sell their stakes in the High-Grade Structured Credit Fund for roughly 50 cents on the dollar, according to a person familiar with the market.

That dropped to 20 cents on the dollar more recently.

Late Tuesday, one investor was bidding one cent on the dollar to exit their position in the High-Grade Structured Credit Fund, the person said

via Marketwatch

Number of the Day....."Derivatives"

Serhan Cevik / Morgan Stanley has put up some scary derivatives numbers. As seen in the rmbs related derivatives there is potential for major trouble. Just ask Bear Stearns :-)

Serhan Cevik von Morgan Stanley hat hier einige furchteinflößende Zahlen zu Derivaten zusammengetragen. Wie gerade zu bei den an die US-Hypotheken angelehnten Papieren zu sehen verbirgt sich gewaltiges Gefahrenpotential. Fragt mal bei Bear Stearns nach :-)

The volume of derivative contracts on a variety of assets increased from US$5.7 trillion in 1990 to US$415.2 trillion last year. Put differently, the total amount of exchange-traded and over-the-counter derivatives snowballed from 26% of global GDP to an astonishing 789%

As a result, the proliferation of these complex instruments — with abbreviated names like CDO, CDS, CLO, CPDO, CDS of CDOs, CPPI and LCDS — has become a major source of credit expansion and has decoupled market liquidity from monetary tightening. Indeed, derivatives and securitized debt instruments account for almost 90% of global liquidity, while ‘traditional’ monetary aggregates represent a mere 10%.

This explosive expansion is not just a result of financial innovation, in our view, but reflects the emergence of new players with greater appetite for leverage and ‘positive feedback’ from the moderation of volatility in recent years.

For example, the number of hedge funds increased from 300 in 1990 to more than 10,000 today, with an unlevered asset pool of about US$2 trillion under management and accounting for 60% of the trades in derivatives.

>Whenever i read numbers like this this video comes to mind

>Ich kann mir nicht helfen, aber immer wenn ich Zahlen wie diese lese muß ich an dieses Video denken

Dank an Zeitenwende

Australian hedge fund warns about withdrawals

Looks like some are getting nervous ..... Maybe the times when the Jessica Simpson model of investing was en vogue are coming to an end.....

Die Nervosität nimmt zu.......Es sieht ganz so aus als wenn das von Jeff Saut getaufte "Jessica Simpson model of investing " kommt langsam aber sicher aus der Mode........

Hat tip to Crimson Ghost !

An Australian hedge fund manager with $1bn in structured credits and junk-rated loans warned investors yesterday it could restrict withdrawals to ensure its survival as it reported losses of 14 per cent in one fund in June.

Basis Capital, based in Sydney, said in a letter to investors it had been hit by “indiscriminate” repricing of “otherwise fundamentally sound collateral” amid the crisis in US home loans to less creditworthy investors. It said it had deliberately avoided the worst-hit 2006 subprime loans.

The warning that redemptions can be restricted comes as a series of hedge funds in the US and UK have run into trouble from the collapse in price of illiquid, or hard-to-trade, securities linked to subprime loans.

Restrictions on redemptions are closely monitored by hedge fund investors as an indication of trouble.

Any limit tends to prompt a rush for the exit by other shareholders, forcing a fire-sale of assets to raise cash to meet the pay-outs.

Basis Capital, run by Steve Howell and Stuart Fowler, said the quarterly limits it imposed on redemptions – known as gates – were “designed at inception to ensure the [fund’s] survival through periods of extreme dislocation such as this”.

Rick Bernie, a director, said he expected the gates to be used, although redemption requests had not yet come through. “We’ve always said when the world blows up, if you don’t have a tight enough gate it is like saying, ‘Pick us first’ [to redeem],” he said.

Mr Bernie said structured credits were cheap but Basis was not buying because it had to keep enough liquidity to anticipate redemptions.

> Mmhhhh, when they call the current market cheap it is no wonder that they feel like there is "“indiscriminate” repricing of “otherwise fundamentally sound collateral"....... With this view i think they will face a run for the money from Investors....

> Wenn Sie den aktuellen Kreditmarkt als billig einstufen sollte es kein Wunder sein das Sie vollkommen falsch positioniert sind. Verständlich das alle Investoren Ihre Kohle zurückhaben wollen.....

Basis Yield Alpha fund was down 13.93 per cent in June, only its second monthly loss since it was set up in 2003. Basis Pac-Rim Opportunity fund, with less structured credit exposure, was down 9.2 per cent.

Both funds demand 90 days’ notice for redemptions, which are allowed each quarter, with an extra fee to redeem between those dates.

UPDATE:

Make sure you read the first comment "Alpha fund April news...." !!

Ihr solltet dazu unbedingt noch den ersten Kommentar "Alpha fund April news...." lesen !!

Banca Intalease Derivate Debacle Update

Mark-to-market seems to be a spreading problem these days.........What started out a month ago with an estimated loss of 400 mio € is now already close 730 mio € ..........

Die "Mark-to-market" Problematik scheint sich schneller auszubreiten als vielen lieb ist.....Was vor einem Monat mit schon damals atemberaubenden 400 mio € anfing hat sich binnen 30 Tagen mal eben auf 730 Mio € "verbessert".....

Here is the history of posts / Hier die vorherigen Posts zu Banca Intalease

Italease Slumps as Clients May Lose EU400 Million

Banca Italease Derivate Slump Continues

Banca Italease Derivatives Fallout / Shares Suspended

Banca Italease Plunges Another 25%

29/06: Specifications regarding derivatives contracts

For a better comprehension of today’s press release, Banca Italease specifies that the closing out of more than four-fifth of the mark-to-market positions that were in effect with regard to derivatives executed with bank counterparties, led to a disbursement of around EUR 610 Million.



As of today the remaining contracts, still open with bank counterparties with a negative mark to market for Banca Italease, represent a total amount of around EUR 120 Million.

> Shares down over 10% with huge volume to a new low at 17.89.

> Aktien heute unter extrem hohen Volumen weiter im freien Fall minus 10% auf 17,89

S&P, Moody's, Fitch ...Dumb, Blind Or Just A Conflict Of Interest ?

Oh boy! These Rating agencies are making it hard to give them some credibility. I´m pretty sure after all the damage is done there will be an investigation. If they don´t take action in the face of the obvious they should shut down their business. On the other hand it is too easy that investors blame the rating agencies when they havn´t done any due diligence. I don´t know what is better...That they are acting so slowly because there is a conflict of interest (bad for business) or they really believe in their models and are obviously blind to reality...... Maybe more competition will help to "update" their model.

Unfassbar. Spätestens mit diesem Debakel habe ich jeglichen Respekt vor den Ratingagenturen verloren. Ich denke das die Glaubwürdigkeit hier insgesamt nachhaltig schaden nehmen wird. Ich bin mir ziemlich sicher das wenn alles Scherben aufgekehrt sind es eine Untersuchung auch in diesem Punkt geben wird. Wenn diese angeblich so cleveren Agenturen nin einem so offensichtlichen Fall nicht erkennen können oder wollen das ihre Modelle null mit der Wirklichkeit zu tun haben dann fällt mir wirklich nichts mehr dazu ein. Ich weiß nur noch nicht was ich schlimmer finden würde....Das die notwendigen Herunterstufungen wegen eines möglichen Interessenkonfliktes (schlecht für das Geschäft) oder weil die wirklich sich stur an Ihren Modellen festhalten (selbst dann wenn rund herum die Immobilienwelt einstürzt...). Auf der anderen Seite ist echt von Investorenseite viel zu einfach die Schuld S&P und co in die Schuhe zu schieben wenn man selber offensichtlich keine genaue Prüfung vorgenommen hat. Mehr Konkurrenz würde denen sicher gut zu Gesicht stehen.....


June 29 (Bloomberg) -- Standard & Poor's, Moody's Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans.

The highest default rates on home loans in a decade have reduced prices of some bonds backed by mortgages to people with poor or limited credit by more than 50 cents on the dollar and forced New York-based Bear Stearns Cos. to offer $3.2 billion to bail out a money-losing hedge fund. Almost 65 percent of the bonds in indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold, according to data compiled by Bloomberg.

That may just be the beginning. Downgrades by S&P, Moody's and Fitch would force hundreds of investors to sell holdings, roiling the $800 billion market for securities backed by subprime mortgages and $1 trillion of collateralized debt obligations, the fastest growing part of the financial markets. ......

Loss Estimates
....Losses may rival the savings and loan crisis of the 1980s and 1990s. The Resolution Trust Corp., formed by the U.S. government to resolve the thrift crisis, sold $452 billion of assets at a cost to taxpayers of about $140 billion.

The current debacle threatens the growth of asset-backed bonds, securities that use consumer, commercial and other loans and receivables as collateral. That market, which includes mortgage securities, has doubled to about $10 trillion since 2000, according to the Securities Industry Financial Markets Association, a New York-based trade group.

Executives at New York-based S&P, Moody's and Fitch say they are waiting until foreclosure sales show that the collateral backing the bonds has declined enough to create losses before lowering ratings on some of the $6.65 trillion in outstanding mortgage-backed debt.

`Knee-Jerk Responses'
Homeowners may be delinquent on mortgage payments for at least three months before foreclosure proceedings begin, and the process can be delayed if a borrower files for bankruptcy or fights eviction. Even when lenders repossess a home, the value of the mortgage isn't written down until the house is sold. Bondholders only s