Real Estate Lender Implosion

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Just plain UGLY - how can this play out without a depression

Global Credit Market Dislocation Watch:

January 31 - Bloomberg (Jody Shenn and David Mildenberg): "Losses from securities linked to subprime mortgages may exceed $265 billion as regional U.S. banks, credit unions and overseas financial institutions write down the value of their holdings, according to Standard & Poor's."

January 30 - Bloomberg (Jody Shenn): "Standard & Poor's said it cut or may reduce ratings of $534 billion of subprime-mortgage securities and collateralized debt obligations as default rates rise. The downgrades may extend losses at the world's banks to more than $265 billion, S&P said. The securities represent $270.1 billion, or 47%, of mortgage bonds rated between January 2006 and June 2007... The...company also said it may cut 572 CDOs valued at $263.9 billion."

January 31 - Bloomberg (Christine Richard): "MBIA Inc....posted its biggest-ever quarterly loss and may raise more capital after a slump in the value of subprime-mortgage securities. The fourth-quarter net loss was $2.3 billion, or $18.61 a share, raising concern that the...company will lose its top credit rating."

February 1 - Bloomberg (Mark Pittman): "Moody's... may downgrade some bond insurers in the next few weeks as it reassesses the extent of losses from subprime mortgage securities. The industry review will be completed by late February and ratings may be cut on some companies earlier if they can't raise capital... 'Our estimate of capital needed to support the mortgage-related risk of some guarantors has risen significantly,' Moody's analysts led by Stanislas Rouyer said..."

January 29 - Bloomberg (Jody Shenn): "The market for U.S. collateralized debt obligations remained shut for a fourth week, according to JPMorgan Chase & Co., on concern that ratings companies haven't adequately assessed the securities. Demand for debt created by slicing pools of assets into securities stalled as some top-rated classes of mortgage-linked CDOs lost all their value amid surging U.S. foreclosures and as bondholders faced unprecedented downgrades on home-loan bonds."

January 31 - Financial Times (Michael Mackenzie): "The US high-yield debt market remains effectively closed for business, with the amount of money borrowed by companies in January the lowest for that month since 1990... The moribund high-yield activity comes at a time when Wall Street has still not placed some $250bn in bank loans and high-yield bonds. An inability to borrow fresh money can lead to liquidity problems for highly indebted companies, and ultimately to higher levels of corporate defaults."

February 1 - Bloomberg (Jeremy R. Cooke): "U.S. state and local governments sold about $17 billion of tax-exempt bonds in January, the least since September 2001, as bond insurers' weakening credit and rising debt costs damped municipal borrowing."

January 30 - Bloomberg (Yalman Onaran and Bradley Keoun): "Merrill Lynch & Co., the world's largest brokerage, plans to exit the business of underwriting collateralized debt obligations and other structured credit products after the securities led to a record loss. 'We are not going to be in the CDO and structured-credit types of businesses,' new Chief Executive Officer John Thain said... The market for CDOs, which repackage assets into new securities with varying degrees of risk, has been frozen since last July when two Bear Stearns Cos. funds that invested in them collapsed."

January 30 - Bloomberg (Christine Richard): "Financial Guaranty Insurance Co., the world's fourth-largest bond insurer, lost its AAA credit rating at Fitch Ratings after missing a deadline to raise capital... The loss of the AAA stamp jeopardizes ratings on bonds Financial Guaranty insured and limits the company's ability to generate new business."

January 28 - Bloomberg (John Glover): "A default by bond insurers such as ACA Capital Holdings Inc. may trigger a 'disaster' in the credit-default swaps market, according to Bank of America... ACA Capital, which guarantees more than $75 billion of debt, may face delinquency proceedings from Maryland Insurance Administration because it can't pay $60 billion of credit-default swaps. The contracts, based on bonds and loans, are used to speculate on a company's ability to repay debt and the buyergets face value in exchange for the underlying securities or the cash equivalent should a borrower default. 'We see huge potential problems for settling CDS contracts,' ...analyst Glen Taksler wrote...

January 30 - Bloomberg (Adam Haigh and Eric Martin): "Citigroup Inc., Merrill Lynch Co., UBS AG and other banks may be forced to post up to $70 billion in writedowns should bond insurers lose their top credit ratings, according to Oppenheimer & Co. analyst Meredith Whitney... 'The fate of the monoline insurers is of paramount importance to financial stocks,' said New York-based Whitney. 'When it becomes clear, as we expect it will, that more charges are on the horizon, we believe the market will take another turn for the worse.'"

January 30 - Bloomberg (Warren Giles): "UBS AG, Europe's largest bank by assets, reported a record loss after about $14 billion of writedowns on assets infected by subprime mortgages in the U.S."

January 30 - Bloomberg (Neil Unmack): "Morgan Stanley, the second-biggest U.S. securities firm, wrote down $169 million after helping its money funds by taking on bonds issued by structured investment vehicles. Morgan Stanley bought $1.06 billion of SIV bonds... Banks and money managers bailed out money funds that bought debt from SIVs after losses caused by the collapse of the U.S. subprime mortgage market threatened to push their value below 100 cents on the dollar, known as 'breaking the buck.'"

January 29 - Bloomberg (Mark Pittman): "A collateralized debt obligation backed by subprime mortgages collapsed after a forced sale of assets didn't yield enough to pay back $282 million in notes. Standard & Poor's lowered the rating of Visage CDO II Ltd. notes to D, its lowest rating and signifying a default. Two of the issues totaling $160 million were given an AAA rating a year ago."

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see also....

http://www.investopedia.com/features/crashes/crashes2.asp

http://news.google.com/archivesearch?q=depression&btnG=Search+Archives&scoring=t