MBIA´s Fairytale Continues.....

And they still have an AAA rating...... If you want to have a good laugh click through the presentation MBIA´s Fairytale..... . There are so much low-lights that it is almost impossible to pick the best ones..... Warburg Pincus with their January investment at $ 31 must be proud of their due diligence...... :-). The counterparty risk is increasing.......

Schon sensationell das MBIA immer noch ein AAA Rating mit sich herumschleppt..... Kann jedem der ein bisschen ablachen möchte die nachfolgende Präsentation empfehlen. MBIA´s Märchenstunde........ . Dort sind etliche Tiefpunkte enthalten so das es unmöglich ist einzelne Punkte hervorzuheben..... Besonders glücklich muß wohl Warburg Pincus sein die groß zu $ 31 Ende Januer eingestiegen sind........ Das Risiko das eine Gegenpartei demnächst nicht in der Lage sein wird abgegebene Versprechen einzulösen dürfte demnächst explodieren........

MBIA Posts Loss of $2.4 Billion as CDO Slump Deepens Bloomberg

MBIA had insured bonds backed by home equity lines of credit and closed-end second loans totaling $21 billion at the end of 2007, according to the company.

MBIA: "Forensic experts reviewing loans" Calculated Risk

> Visit the presentation at page 38 for more details..... Funny to see that they were surprised that the " historical cumulative loss levels of 1-2%" is no longer in play......Clearly a sign that their own loss assumptions are superior to the fair value accounting....... Here comes a quote from MBIA from October 2007 MBIA / Denial "The Company believes that the “mark-to-market” loss does not reflect material credit impairment.".... A few billion in real losses later the confidence outside the rating agencies should be fading at light speed.......

> Mehr nette Details gibt es auf Seite 38 der Präsentation...... Besonders herzerfrischend ist das MBIA sich überrascht zeigt das die historisch niedrige Ausfallrate plötzlich nicht mehr zu gelten scheint..... Ein klares Anzeichen dafpür das man auch weiterhin locker auf die angeblich konservativen Modelle von MBIA vertrauen kann.....The Company believes that the “mark-to-market” loss does not reflect material credit impairment. Ich erinnere noch gerne an das MBIA Zitat aus dem Obktober 2007 MBIA / Denial "The Company believes that the “mark-to-market” loss does not reflect material credit impairment."..... Nach ein paar Mrd. realen Verlusten dürfte die Glaubwürdikeit ausserhalb der Ratingagenturen wohl ein wenig gelitten haben......

UPDATE via Calculated Risk / Bloomberg Moody's: Concerned about MBIA and Ambac

MBIA Inc. and Ambac Financial Group Inc. had ``meaningfully'' higher losses on home-equity loans and collateralized debt obligations than anticipated, raising concern about their Aaa status, Moody's Investors Service said. The first-quarter losses reported by the companies in the past two weeks elevate ``existing concerns about capitalization levels relative to the Aaa benchmark,'' Moody's, unit of Moody's Corp., said in a statement today.

Yves from Naked Capitalism sums it up nicely!

Moody's issued the weakest warning it could about the two big monolines. Most observers did not expect the bond insurers' last round of fundraising to carry them very far, and that view appears to be playing out on schedule. We may be moving towards a repeat the January-February drama, with the rating agencies saber rattling until the bond guarantors raise enough money to tide them over for another bit.

> I think we can call this an improvement...This time it took the agencies not years to react to the obvious (sarcasm off).....

> Ich denke man kann das als Verbesserung einstufen....Immerhin dazuert es jetzt nicht mehr Jahre um das Offensichtliche zu erkennen....Ich hoffe meine ironischenhen Bemerkungen werden nicht als echte Würdigung der Ratingagneturen verstanden.... :-)

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

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.

France Bails Out Monoline Insurer.......

Here we go..... After Germany balied out IKB & Landesbank Sachsen, UK Northern Rock now France is joining the parade..... To be continued.......... Too bad that ACA isn´t a French company...... ;-)

Der nächste bitte.....Nachdem Deutschland die IKB & Landesbank Sachsen, UK Northern Rock rausgehauen hat beglückt uns nun Frankreich mit einem Bailout erster Klasse...... Eines ist sicher.....Frankreich wird nicht das letzte Land sein das in das Marktgeschehen eingreifen wird.... Zu dumm das ACA keine französischen Wurzeln hat..... ;-)

Natixis's Bond Insurer to Get $1.5 Billion in Capital
Nov. 22 (Bloomberg) -- Natixis SA's bond-insurance unit, CIFG Guaranty, will be taken over by the French bank's controlling shareholders in a $1.5 billion rescue to preserve its top credit rating.

> It will be interesting what the private owners will do with FGIC.....

> Es wird spannend zu sehen sein was die privaten Eigner bei FBIC machen werden....

Marketwatch

Privately held FGIC has been in discussions to raise new capitals from its existing investors, which include Blackstone Group , Cypress Group, PMI Group , General Electric and CIVC Partners, the newspaper reported, citing people familiar with the matter

Naked Capitalism / WSJ

Private-equity firms Blackstone Group and Cypress Group each bought 23% stakes in FGIC in 2003, while mortgage insurer PMI Group Inc. owns a 42% stake. General Electric, FGIC's former owner, retained a 5% stake while CIVC Partners, a Chicago private-equity firm, owned 7%.

Natixis rose as much as 19 percent in Paris trading after Groupe Banque Populaire and Groupe Caisse d'Epargne, French mutual banks that jointly control Natixis, said today they will provide the capital and assume full ownership of CIFG. They said the purchase will be completed ``as quickly as possible.''

CIFG was named by Fitch Ratings and Moody's Investors Service as among the likeliest bond insurers to face ratings downgrades after turmoil in the fixed-income market hurt the value of the debt they insure. Bond insurance allows municipalities and companies to gain top credit ratings on their debt, and to pay lower interest rates. Fitch affirmed its AAA rating on CIFG after the announcement today.

Under Review
Fitch on Nov. 5 said it would start a six-week review of bond insurers to ensure they had enough capital to warrant their top ratings. CIFG was insuring $85 billion of bonds as of June 30, according to figures on its Web site. The entire bond insurance industry has guaranteed more than $1 trillion of debt, allowing borrowers to use the insurers' AAA ratings.

``Natixis has been hurt by subprime,'' Franck Hennin, a fund manager who helps oversee about $5 billion in assets with Richelieu Finance in Paris, said yesterday. ``Its CIFG subsidiary in the U.S. is suffering enormously as a result of credit defaults.''

Moody's and Fitch are also examining AAA-rated insurers including MBIA Inc., Ambac Financial Group Inc. and FGIC Corp. to see if they have enough capital.

Blue Pill Accounting At ACA Hits The Wall......

I suggest to read this post from July first ACA Capitals "Preferred Measurements Of Income" or "Blue Pill Accounting" & this from just a few days ago ACA "Hypothetical Speaking....." . In hindsight lots of comments from management, rating agencies & analysts are looking like they really live in the Matrix....... Amazing! Maxedoutmama has also a very good summary on ACA Hell's Bells Ringing On Wall Street

Ich empfehle im Vorwege dieses Post vom Juli ACA Capitals "Preferred Measurements Of Income" or "Blue Pill Accounting" und dieses von vor einigen Tagen ACA "Hypothetical Speaking....." zu lesen um deutlich zu machen wie planlos sowohl das Management, die Ratingagenturen und selbstredend auch die Analysten durch die Welt laufen...... Maxedoutmama hat eine weitere erstklassige Umschreibung zu diesem Thema Hell's Bells Ringing On Wall Street

ACA hits trouble - squared FT
More bad news from the world of structured finance. Lancer Funding II - a $1bn CDO squared - has entered an “event of default”, making it the first CDO squared to hit the wall.

CDO squared are, like the name suggests, CDOs of CDOs. A CDO squared defaulting then, is perhaps significant, since it acts as a litmus test for the broader CDO universe.

And Lancer is also part of a bigger grim picture at ACA Capital, its management company. They reported their Q3s on Monday and joined the banking big-league with a $1.7bn writedown. ACA are a big manager of CDOs and also a leading provider of CDO default insurance policies - which strikes us a pretty shortsighted combination.

Considering that ACA’s prime line of business is in structured finance, a $1.6bn writedown is hardly surprising, but it’s still worthy of note for several reasons:

Firstly, relative to ACA’s size, it’s a very big hit.

Secondly, the writedown ACA has taken may yet be a lot worse. The main cause for concern here is the fact that ACA’s Q3 results only cover the period up to September 30. And the very worst month for CDOs was October. Testament to that the fact that Lancer has now entered an event of default.


And thirdly, as a monoline insurer, ACA’s problems are not just ACA’s problems. The security of their insurance - on billions of dollars of CDO paper - is dependent on the safety of ACA’s own rating. And in the light of such a big writedown and the prospect of more trouble ahead, S&P has put the group on review.

ACA has been used as a “dumping ground” by subprime securitizers says Barrons, and that might now come back to haunt them. Wall Street does indeed seem keen to prop ACA up. According to filings with the SEC, a consortium of banks has provided liquidity facilities to the company. In spite of disastrous performance, banks have also continued to take out ACA insurance, unwilling perhaps, to pull the rug from under ACA’s feet.

Barrons

ACA has long been a convenient dumping ground in which major subprime securitizers like Bear Stearns (BSC), Citigroup (C), Merrill Lynch (MER) and some 25 other prominent dealers could pitch billions of dollars of risky obligations for modest premiums.

That let them gussy up their balance sheets and shift any potential mark-to-market hits to ACA.If ACA Capital were to founder, more than $69 billion worth of CDOs, including the $25 billion in subprime paper, would come rumbling back to the Wall Street banks, and likely with heavy attendant losses.That's why Wall Street has continued to do a brisk business with the beleaguered firm.

In the third quarter, ACA insured some $7 billion of subprime collateralized-debt obligations. Even if the company survives for only another couple of quarters, that would stave off the recognition of billions of dollars of losses.

All of this, of course, is immaterial, because October has happened and its presumably now just a question of time before ACA ‘fesses up to the damage already done. Little wonder that the company’s share price has just gone down and down and down. It stopped just short of collapsing through the dollar mark on Tuesday at $1.09.

ACA "Hypothetical Speaking....."

Four Month after this post the chart doesn´t look good....... What a surprise!

Vier Monate nach diesem Post hat sich die Lage offensichtlich nicht gerade verbessert...... Was für eine Überraschung!

ACA Capital Reports Financial and Economic Results

ACA Capital Holdings, Inc. (NYSE: ACA) today announced a third quarter 2007 net loss of ($1.0) billion, or ($29.42) per diluted share. The net loss was primarily a result of ($1.7) billion, or ($1.1) billion after tax, of net unrealized mark-to-market losses on the Company's portfolio of Structured Credit transactions.

Nice to see that they have still money to buy back shares.....

Schön zu sehen das immer noch genügend Geld vorhanden ist um Aktien zurückzukaufen.....

During the quarter, ACA Capital Holdings purchased 2.1 million shares or $14.9 million of its outstanding shares of common stock in open market transactions. The stock repurchase program began on July 27, 2007 and may be suspended or discontinued at any time without prior notice.

The quote from ACA and this Q+A “Understanding correlation is critical to everything we do” from a few month ago is just brilliant comedy if you are not a shareholder or even worse have bought billions of insurance from this company.....

Dieses Zitat und dieses Q+A File “Understanding correlation is critical to everything we do” von vor einigen Monaten ist nahe an guter Comedy wenn man nicht gerade Aktionär oder noch schlimmer einer derjenigen ist die Mrd an Absicherung von ACA erworben haben

ACA Capital’s Structured Credit business provides credit protection, using credit default swaps, on tranches of credit portfolios. We are primarily a seller of credit protection on tranches where the risk of loss is greater than that of the “AAA” rated level. We will sell credit protection below the “AAA” rated level but only when we see unusually strong value. The credits that underlie the portfolios on which we sell credit protection include corporate bonds and loans and mortgage and asset-backed securities

What was only a hypothetical question on the Nov. 7 th in the conference call what will happen after a downgrade from the single A rating the management said that ACA would face (hypothetical speaking....) an immediate liquidity call of $ 1.7 billion...... Now after S&P has finally eliminated the "hypothetical" just 2 days later and put ACA on the list for a possible downgrade from A this scenario described from Michael Panzner So Much For Being Hedged could lead to big trouble on balance sheets from banks and insurers.... And with actions like this Fitch Downgrades $37.2B Of CDOs, Slashing AAAs to Junk the pain is spreading fast......

Nachden noch am 07. November in der Telefonkonferenz die vollkommen abwegige Frage diskutiert wurde was denn passieren würde wenn ACA sein A Rating verlieren sollte und das Management daraufhin geantwortet hat das dann sofort eine zusätzliche Geldspritze von 1,7 Mrd $ notwendig wäre kann man nachdem S&P nur 2 tage später AVA auf die WL für ein downgrade gesetzt haben schon mal auf Betteltour gehen. Wahrscheinlich ist das dieses Szenario das Michael Panzner beschreibt So Much For Being Hedged einigen Banken und Versicherungen üble Löcher in die Bilanzen reissen wird. Und mit Meldungen wie diesen Fitch Downgrades $37.2 Billion of CDOs dürfte sich das Problem rapide weiter verschlimmern......

Here is one example from the German insurance giant Allianz. The have hedged one part and bought insurance from monolines for another ( I assume not ACA, they have bought from one the least weaker players like MBIA, I hesitate to rate anyone strong....)

Hier ist ein anschauliches Beispiel der Allianz. Die haben einen ganz gewichtigen Teil Ihrer Engagements entweder durch Shortpositionen und den Kauf einer Garantie abgesichert. Ich bin mir sicher das die Allianz niemals von ACA gekauft hätte. Sie haben sicher von einen der wenigen schwachen Spieler wie MBIA gekauft. Richtig stark auf der Brust ist aber keiner......


The WSJ has a related story Buffett Gets OpeningAs Bond Insurers TurnTo Berkshire for Succor

Das WSJ hat passend dazu heute Buffett Gets OpeningAs Bond Insurers TurnTo Berkshire for Succor eine passende Geschichte

Fundamentals, not liquidity conditions, are behind MBS crash

Good luck to all the banks and especially the monoline insurers that still think that the ABX Indices ( see also The AAA Trap via Sudden Debt ) are not reflecting the market price....... But as long as they can convince the auditors.......

Viel Glück all denen die die immer noch glauben das die ABX Indizes ( siehe auch The AAA Trap von Sudden Debt ) nicht den wahren Wert wiederspiegeln..... Aber solange die Buchprüfer diese Zahlen abnehemen......


Fundamentals, not liquidity conditions, are behind MBS crash / FT
Many banks, if not financial institutions in general, would have you believe that the current rout in mortgage-backed debt is largely being driven by irrational fear. A few bad subprime debts buried around the structured universe are scaring buyers out of markets.

But, said CreditSights, in a note to clients on Wednesday, current pricing levels reflect fundamentals, even for the most highly-rated debt. Mortgage securities across the board are overrated and overvalued:

The harsh truth about the outlook for the AAA tranches - necessary downgrades, if not defaults - should put the lie to the argument that current low prices in AAA RMBS tranches - let alone AAA tranches of mezzanine RMBS CDOs - are somehow the victim of poor liquidity conditions, and do not reflect the true fundamentals of the situation.

CreditSights publish the results of a survey they have conducted on “188 individual relatively large RMBS deals”. The outlook, by all accounts, is grim.

Hat tip to Barry Ritholtz who has also more on this topic Financials: Worse than they look?

Dank an Barry Ritholtz der zum Thema ebenfalls treffendes zu sagen hat Financials: Worse than they look?

At root, CreditSights calculate a severity loss ratio for lenders on individual defaulting subprime mortgages based on mortgage market data collected over the past few weeks. The survey results indicate that such loss severity rates on mortgages are “painfully high”. They range from 24 per cent to 55 per cent - with a weighted average at 35 per cent. And they’re expected to rise. For second-lien mortgages - that is, second mortgages on a property, the loss severity rates average 94 per cent.

> By the way MBIA is on the hook if the losses for their RMBS CDO´s are greater than 22-28 percent.........

> Ganz nebenbei bemerkt ist MBIA ab Verlusten von 22-28 % bei Ihren RMBS CDO´s in der Haftung.....

So how do those figures translate into the capital structure of structured mortgage-backed debt? Foreclosure rates are rising higher and higher - which means the number of occasions when the above loss severity ratios have to be applied are increasing.

And it doesn’t look like the blame can be pinned on any particular vintages of MBS. Here’s a graph of foreclosures on vintages since 2004:

According to CreditSights, that should “up-end the idea that the 2004 vintage was perhaps sufficiently seasoned and composed of loans that had enjoyed enough home price appreciation since 2000, to avoid any further erosion.”

As it is, foreclosure rates are hovering at around 13 per cent on 2005 and 2006 mortgage debt. But CreditSights say there is “no end in sight” when it comes to that figure rising.

Consider then the outlook for delinquancy rates - a measure of mortgage loans not yet in foreclosure, but in trouble:

Add the 7 per cent delinquency rate for the 2006 vintage to the 2006 foreclosure rate at 12.6 and it’s already close to 20 per cent.

How then does that translate into the world of structured finance, and those RMBS tranches?

To trigger a default on the most secure subprime RMBS debt - rated AAA, and structured with a typical 18 per cent attachment rate - foreclosure rates would have to reach the 30 per cent.

As can be seen from the results of CreditSights’ survey, that scenario is indeed becoming “less and less unthinkable”. Adding the foreclosure and delinquancy rates takes us close to 20 per cent. Both are set to increase. Then there’s those painfully low severity loss ratios. Add it all together and that AAA debt is far, far, far from safe.

And we haven’t even mentioned prime tranches lower down the structure.

Far from mispricing RMBS, CreditSights even go so far as to suggest that actually, the ABX indices (which list AAA RMBS debt at around 80 cents in the dollar) are throwing up some pretty appropriate figures.

As clear as alphabet soup: banks’ CDO exposures

I think the term "Black Box" is not an understatement....... Maybe some still think their exposue is hedged via MBIA & Co. Good luck...... I also suggest to read From level three to cloud nine from Roubini via the FT & the take from Mish. Keep this in mind when some "experts" are still hyping the high dividend yield and the strong balance sheets.......

Ich denke hier trifft der Begriff der Black Box ziemlich genau ins Schwarze....... Evtl. haben ja einige Ihre Bestände auch durch MBIA & Co abgesichert und sind daher der Meinung nicht tätig werden zu müssen. Viel Glück........ Zudem solltet Ihr Euch From level three to cloud nine von Roubini via der FT und die Beurteilung von Mish nicht entgehen lassen. Behaltet diese Zahlen im Hinterkopf und schaltet am besten die Glotze ab und überspringt den Artikel in denen immer noch auf die starken Bilanzen und die hohen Dividenden hingewiesen wird.....

As clear as alphabet soup: banks’ CDO exposures / FT

Forget the banks’ Q3s. By any account, they’re billions of dollars out of date. For banks holding CDOs - and that’s most of Wall Street - writedowns will have greatly increased in the past three weeks.

The trouble is, no one, not even the SEC, knows exactly what banks’ exposures are. But the losses are beginning to come out of the woodwork: for Citi, in the news Monday, a $8bn-$10bn loss on the value of some assets. For Merrill Lynch, last week, it worked out at $8bn. For UBS, reporting their Q3s last week, $3.4bn.

Citi have painted the most comprehensive picture to date. But rather than making things clearer, it simply casts doubt on the other banks’ disclosures. Citi, for example, are reporting $8-10bn writedowns on a portfolio containing $10bn of high-grade CDO paper - which has been the principal faller in the past two weeks. But UBS only report writedowns of $3.4bn. And they hold $20bn of high-grade CDO paper.

There are very few proxies which can be used to judge banks’ CDO holdings. Even a league table of CDO deals arranged is a pretty poor indicator:

An added complication is the fact that banks are using wildly different estimates on the pricing of CDO assets. Although indices such as the ABX and TABX are valuable proxies for the market’s prices as a whole, they don’t necessarily reflect where banks individually are pricing their debt.

As reported in today’s FT, for example, Merrill Lynch, has written down mid-quality ABX debt to 63 cents in the dollar, even though the bank’s own analysts say its worth only 40. UBS, meanwhile, assumes the same debt to be worth 90 cents in the dollar. “Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct,” Merrill themselves had the cheek to point out in a report on their rival.
Here’s a breakdown of the main CDO exposures:

Citi
$10bn senior rated CDO debt
$8bn mezzanine CDO debt
$2.7bn “warehoused” CDOs
£200m CDO squared


Merrill Lynch
$8.3bn senior rated CDO debt
$5.3bn mezzanine CDO debt
$1bn “warehoused” CDO debt
$600m CDO squared


UBS
$20.2bn senior rated CDO debt
$1.8bn warehoused CDO debt

Total exposure undisclosed:

Bank of America
Undisclosed

Barclays
Q3s due November 27

Deutsche
$1.6bn on “trading activities in relative value trading in both debt and equity, CDO correlation trading and residential mortgage-backed securities.”

JPMorgan
$339m (net of hedges) “on collateralized debt obligation (CDO) warehouses and unsold positions.”

Lehman Brothers
Undisclosed

Morgan Stanley
Undisclosed

Wachovia
$534m writedown on CDOs

Citi Has Found Another $11 Billion....But Has No Plans To Reduce its Dividend level....LOL!

Thank god they don´t cut the dividend.... What a farce.... Maybe they will pimp this at CNBC and try to dance around the $ 11 billion overnight "adjustment" like the former deaf & ingorant CEO Prince. Maybe someone should tell MBIA & Co that their view on billions of CDO´s with only a low single percentage haircut is looking more and more like David Lereah during the years 2003-2006 . Maybe this guy is running their internal "models".......

Gottseidank wrd die Dividende nicht gekürzt......Da kann man natürlich leicht über die 11 Mrd $ an zusätzlichen Abschreibungen hinwegsehen. Es würde mich nicht wundern wenn es die Crew bei CNBC schafft die Dividenstory als Headline zu promoten. Besonders freut mich zudem das der ehemalig taube und ignorante CEO Prince inzwischen Geschichte ist. Evtl. sollte mal einer die letzten Abschreibungen von Citigroup mit denen von MBIA & Co ins Verhältnis setzen. Deren Sicht der Dinge mit Abschreibungen in niedrigen einstelligen Bereich sieht immer mehr wie ein verspäteter Aprilscherz aus . Evtl. ist ja dieser Typen für die Berechnung der Schadenmodelle zuständig.....

Slicing and dicing Citi’s subprime exposure / FT

Citi announced on Sunday night it was currently facing writedowns of between $8bn and $11bn, on top of the dismal numbers already reported in its Q3 statement.

What is truly shocking, however, is the speed at which these losses have been realised. Barely a month ago, Citi’s pre-Q3 trading statement, warned that it expected to realise $1.3bn on subprime-related writedowns. Which means that figure has now increased at least sixfold. To put it another way, on average Citi’s subprime-linked assets lost more that $2bn in value each week.

Citi has now disclosed it’s estimated total subprime exposure. Of the $55bn total, some $11.7bn is in its lending and structuring business and a staggering $43bn lies in exposures to collateralized debt obligations (CDOs) - huge baskets of mortgage securities.

CDOs have seen prices crash in the past two weeks, as rating agencies have slashed ratings on hundreds of mortgage backed securities. As FT Alphaville reported last week, banks could be expected to reveal more writedowns as the market tanked.

Of the $11.7bn subprime exposure Citi estimates it has in its lending and structuring business, $2.7bn lies in a “warehouse inventory” of unsold CDOs, $4.2bn in actively managed subprime loans intended for securitization and $4.8bn in financing transactions which have subprime collateral.

Of the remaining $43bn exposure, Citi estimates it has $18bn in CDOs: $10bn of which is in high grade tranches, almost $8bn in mezzanine tranches and some $200m in CDO squared structures. The remaining $25bn, says Citi, is in exposure to subprime CDOs through commercial paper. But Citi does not say what issues that CP: whether it is through off balance sheet vehicles, such as SIVs, is unclear.

MBIA, AMBAC & ACA Update

I suggest to read MBIA / Denial ? from the day MBIA released its earnings before you continue. Since then the stock has lost over 25 percent.

I find some numbers & comments from the MBIA earnings release quite interesting. MBIA has rushed into the RMBS/Commercial Real Estate market. All deals are including 2006 and 2007 commercial loans. Can´t help but i´ve heard some scary things about Commercial Real Estate and looking at CMBS Markit isn´t giving me much comfort either.......

The multi sector CDO´s are also including subprime. The spiking business comes in large part from banks that want to hedge their CMBS and CDO exposure on their balance sheets (after they failed to unload it.....). MBIA believes that their underwriting and their premiums earned are overcompensating their risk (based on their models....) .......They assumed that their worst case for their RMBS ( largely subrime) exposure with a buffer of 22-28 percent was enough when they signed the exposure in the recent years!!!!!!...... Mhhhh........

What will happen to the balance sheets from these banks if MBIA & Co won´t be able to pay the claims..... Just from looking at the chart it feels like at least some have some doubts...... It looks like the report from the short seller Pershing Square Capital Management, L.P. and the post about comon sense wasn´t so far of the mark....
Ich empfehle dringend sich zuvor MBIA / Denial ? durchzulesen. Seitdem hat die Aktie deutlich über 25% nachgegeben.

Ich finde diese Zahl aus der Ergebnisveröffentlichung von MBIA interessant. MBIA ist mit Schaum vorm Mund in den Bereich des gewerblichen Immobilienmarktes gerannt. Alle Papiere basieren Kredite aus den Jahren 2006/2007. Nachdem was ich gehört hat genau dieser Zeitraum den Peak markiert.

Die Multi Sektor CDO´s beinhalten zudem noch Subprimebestandteile. Das explodierende Geschäfft kommt fast ausschließlich von den großen Banken die verzweifelt versuchen die Papiere die sich in Ihren Bilanzen befinden abzusichern ( Nachdem Sie das in den Vorjahren nicht nötig hatten, dort wurden diese Papiere schnell weitergereicht ohne die Bilanzen zu belasten).

MBIA behauptet das die Risikoprämien mehr als ausreichend für die garantierten Risiken sind. Das war bis zu diesem Quartal allerdings auch das Argument für den Rest des Portfolios..... Immerhin haben diese Modelle vorhergesagt das Ihr Puffer von 22-28 % bei den gegebenen Garantien im Immobiliensektor (davon Großteil Subprime) mehr als ausreicht um nicht zur Zahlung herangezogen zu werden....... So kann man sich irren...... Im Nachhinnein sieht der Report vom Shortseller Pershing Square Capital Management, L.P. und über den gesunden Menschenverstand doch nicht so aus der Luft gegriffen aus...... :-)

Unschwer auszurechnen was in den Bilanzen der Banken los ist wenn MBIA sich erneut "verrechnet" hat . Und wenn man sich die Charts ansieht scheinen das zumindest einige zu glauben......

In the third quarter, U.S. structured finance ADP increased 294 percent compared with 2006 ( makes over 50 percent of earned premiums!) Several sectors contributed to the increase in global structured finance production, with particularly strong increases from CMBS pools (over 50 percent!), Collateralized Debt Obligations (CDOs) of investment grade corporate credits, commercial mortgage-backed securities pools and multi-sector (including subprime) CDOs ( 35 percent!) , as well as a whole business securitization, which generated the largest ADP for the quarter

Adjusted Direct Premiums (dollars in millions)
		Three Months Ended September 30									Nine Months Ended September 30
			2007			2006		% Change				2007		2006		% Change
Global Public Finance
United States		$	109.6		$	67.5		62	%		$	259.1		$189.2		37	%
Non-United States			66.9			31.6		112	%			187.7		133.8		40	%
Total			176.5			99.1		78	%			446.8		323.0		38	%
Global Structured Finance
United States			291.0			73.8		294	%			612.5		163.4		275	%
Non-United States			46.7			37.2		26	%			175.2		123.2		42	%
Total			337.7			111.0		204	%			787.7		286.6		175	%
Total		$	514.2		$	210.1		145	%		$	1,234.5		$609.6		103	%

If you have enough time i think it is well worth listening to the call. Scary! At least a large part from the anaylst are asking the right questions. Remembering that they are on the hook for over $ 600 billion it makes me want to buy more gold......

Wenn Ihr genügend Zeit habt kann ich empfehlen sich den Call anzuhören. Immerhin stellen einige Analysten die richtigen Fragen. Wenn man aber bedenkt das diese Firma über 600 Mrd $ an Garantien ausstehen hat möchte man doch am liebsten gleich seien Goldpsoition aufstocken.....

Replay
of MBIA Inc. Third Quarter 2007 Earnings Conference Call

This is one of the rare things were i am with Cramer Cramer: MBIA Is Toxic

Und das dürfte eine der wenigen Umstände sein das ich mit Carmer übereinstimme Cramer: MBIA Is Toxic

via Mish Downward Spiral of Deep Junk

At Thursday's close, Ambac's swaps implied a rating of "Caa1," seven levels below investment grade and 14 notches below its actual rating.

MBIA Inc's default swap spreads, meanwhile, are trading as though they carry a rating of "B2," five levels below investment grade, and 12 notches below the company's "Aa2" rating, according to Moody's data.Ambac was down another 20% on Friday.

MBIA was down another 6.7%. Clearly the market is beginning to wonder just how much those "guarantees" are worth.

> Looks like the rating agenciues are as usual way behind the curve......

> Sieht mal wieder so aus als wenn die Ratingagenturen mal wieder hoffnungslos der Musik hinterherrennen....

MBIA / Denial ?

I´m no expert on this kind of financial alchemy. But the common sense tells me that with over $115 billion in CDO & $ 49 billion in RMBS exposure ( see pfd Subprime RMBS Conference Call Presentation ) and after some of the news we have heard on a daily basis from all over the world for months now the view from MBIA doesn´t sound "conservative"..... The fact that MBIA insures well over $ 600 billion in total with just $ 7 billion in capital and their bonds are traded as junk doesn´t give me much comfort either....

Ich bin definitiv kein Experte in Sachen Finanzakrobatik. Ader der gesunde Menschenverstand sagt mir das mit Engagements von 115 Mrd $ in CDO´s und 49 Mrd $ im Hypothekenmarkt ( siehe PDF Subprime RMBS Conference Call Presentation ) und unter dem Eindruck der ganzen Horrormeldungen die uns jetzt seit Monaten heimsuchen die Auslegung von MBIA nicht sonderlich konservativ anmuten.....Das MBIA insgesamt für über 600 Mrd $ and Krediten mit knapp 7 Mrd$ an Kernkapital gerade steht & die deren eigene Anleihen mit junk gehandelt werden ist auch nicht gerade vertrauenserweckend....

MBIA Inc. Reports
The decline was due to a pre-tax net loss of $352.4 million, or $1.80 per share, that the Company recorded in the third quarter on financial instruments at fair value (“marked-to-market”) and foreign exchange.

The loss was a consequence of wider spreads affecting the valuation of the Company’s structured credit derivatives portfolio. Compared with the previous quarter, spreads widened significantly on Commercial Mortgage-Backed Securities (CMBS) collateral and on other asset-backed collateral in the Company’s structured credit derivatives portfolio.

The Company believes that the “mark-to-market” loss does not reflect material credit impairment.

> Lets hope the rating agencies are on top of this......

> Bleibt zu hoffen das die Ratingagenturen diesesmal auf der Höhe sind......

Got gold.....?

UPDATE:

I have just listened to the 120 minues conference call. Maybe it is not bad to have common sense.......

Ich habe mir gerade knappe 2 Stunden den Conference Call angetan. Nach dieser Erfahrung muß ich sagen das ich doch lieber beim gesunden Menschenverstand bleibe.....

MBIA Plunges After Stock Buyback Halted, First Loss

``I'm still trying to understand how the guarantors can take such low levels of mark-to-market losses relative to what the rest of the Street is taking on securities,'' said Ken Zerbe, an analyst with Morgan Stanley in New York said during the call.

Naked Capitalsim Worries About Monoline Insurers Grow

> It looks i´m not the only one wondering........

> Sieht ganz so aus als wenn ich nicht der einzige bin der sich verwundert die Augen reibt.....

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....?