Thursday, 08 May 2008 01:00

Patience is a virtue

Many have asked me if I was sure my bearish stance on the IB's wasn't overblown and yesteryear. I maintain, and still do, that these guys still have quite a bit to fall. Well, yesterday, the SEC decided to make public there requirement that the IB's open up their books, and voila - instant bear trade. The run on Bear Stearns frightened everybody in the business, and like the monolines, if the IBs had nothing to hide they would have voluntarily opened up thier books in lieu of facing the risk of a BSC style run - ex. LEH and MS, two banks who issued smoke and mirrors as a quartery earnings report last quarter.

In addition, it is being said that BSC my have to file bankruptcy if the shareholders don't go along with the vote to approve the JPM sale. This is not as big an issue since the Fed has made it clear they will support BSC by any means necessary. The Fed may allow bondholders and equity investors to get shafted, though.

From Bloomberg:

SEC to Make Banks Reveal Capital, Liquidity Levels (Update2)

May 7 (Bloomberg) -- The U.S. Securities and Exchange Commission will require investment banks to disclose their capital and liquidity levels after the agency was criticized for regulatory failings in the wake of the Bear Stearns Cos. collapse. Wall Street firms declined on the news.

``One of the lessons learned from the Bear Stearns experience is that in a crisis of confidence, there is great need for reliable, current information about capital and liquidity,'' SEC Chairman Christopher Cox told reporters in Washington today. ``Making that information public can certainly help.''...

Data on capital and liquidity will be required this year ``in terms that the market can readily understand and digest,'' Cox said in a speech today before the Securities Traders Association in Washington. (Uh OH!!!) The SEC already collects much of this information without giving it to the public, he said.

The five biggest Wall Street firms had their largest share- price declines in at least a month. Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, led the way, losing $2.67, or 5.8 percent, to $43.64 as of $:31 p.m. in New York Stock Exchange trading.

Merrill Lynch & Co., the third-largest U.S. securities firm, fell $2.87, or 5.6 percent, to $48.48. Bear Stearns slipped 57 cents, or 5.3 percent, to $10.27. Among larger rivals, Morgan Stanley declined $1.84 to $47.21, and Goldman Sachs Group Inc. lost $7.85 to $189.76.

Senate Scrutiny

The SEC's supervision of securities firms and the adequacy of its resources for monitoring them drew scrutiny today from the U.S. Senate at two hearings. Senator Charles Schumer, a New York Democrat, said the SEC oversight approach is ``weak by nature.''

``There should have been some regulator that came in sooner and said, `You've got to raise capital, you've got to reduce your exposure to mortgages,''' Schumer said, referring to Bear Stearns.

The SEC is pushing for more disclosure, urging investment banks to raise capital and asking firms to extend the terms of their borrowing agreements. The regulator plans to ``phase in additional disclosure related to concentration of exposures,'' Cox told reporters.

... Senator Jack Reed, the Rhode Island Democrat who heads the Senate subcommittee on securities, insurance and investment, said the SEC's monitoring didn't ``adequately measure the risk of new products'' such as securitized loans that investments banks held and were sold to investors.

The SEC wants to ``step up capital and liquidity requirements for these firms,'' Erik Sirri, who heads the agency's division of trading and markets, said in Senate testimony today. Congress would improve the agency's oversight by making it mandatory through legislation, he said.

Last modified on Thursday, 08 May 2008 01:00

4 comments

  • Comment Link M M Friday, 09 May 2008 07:23 posted by M M

    U.K. Offers Help for Homeowners as Foreclosure Claims Rise

    By Gonzalo Vina

    May 9 (Bloomberg) -- The U.K. government pledged help for people struggling to keep up with mortgage payments as the number of households at risk of losing their homes reached the highest in more than a decade.

    Housing Minister Caroline Flint said the government will offer free legal advice to homeowners and improve training for people working in housing and debt support agencies such as the National Housing Advice Service. The government will also ask lenders to improve the advice it offers customers seeking to refinance debts.

    ``Most lenders are now passing on interest-rate cuts, and we want to see the rest follow as soon as possible,'' Flint said in a statement issued by her office in London today. ``But for the minority of owners who may need support and advice now, we want to ensure it is there for them in the right place and at the right time.''

    The Ministry of Justice said today the number of mortgage possession claims, the first stage of the foreclosure process, rose in the first quarter to the highest since the first half of the 1990s. While the Bank of England has cut interest rates three times since December in an effort to avert a recession, banks and mortgage lenders have pulled their best offers and tightened terms because of an increase in their funding costs.

    The government is seeking to prevent a repeat of the early 1990s housing crisis when over-leveraged homeowners were forced to sell their homes for less than the mortgages used to buy them. Chancellor of the Exchequer Alistair Darling yesterday met mortgage lenders to discuss lending conditions.

    Repossessions

    Repossession claims by mortgage lenders increased 16 percent to 38,688 in the first quarter compared with a year earlier, while repossession orders issued by courts increased 17 percent to 27,530, today's figures showed.

    Prime Minister Gordon Brown is battling to contain the political fallout from the collapse of the subprime mortgage market in the U.S., which lifted the cost of credit around the globe and led to a run on Northern Rock Plc last year. In April, U.K. house prices fell from a year earlier for the first time since 1996, HBOS Plc, the country's biggest mortgage lender, said May 2.

    The government has already pledged 560 million pounds ($1.1 billion) for debt advice such as a national telephone helpline, money to prevent homelessness and financial aid to low-income households who can't pay their mortgages.

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  • Comment Link curious george Thursday, 08 May 2008 20:41 posted by curious george

    Could be the firestorm no one wants to admit is raging outside the room with the elephants.

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  • Comment Link Reggie Middleton Thursday, 08 May 2008 18:59 posted by Reggie Middleton

    You forgot to ask, "Where were they when all of these banks, brokers and builders and developers were stuffing assets off balance sheet yet claiming profits on them?"

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  • Comment Link curious george Thursday, 08 May 2008 17:15 posted by curious george

    Schumer's remarks underscore just how confused our policymakers are about the regulatory structure and the role of the component parts. I dont see the SEC needing to regulate systemic credit exposure. Last I checked the role of a securities regulator ought to be making sure that material risks get disclosed to shareholders, and markets are efficient and transparent so that investors are equally able to lose money if they choose to do so.

    The regulatory failure is that of the Fed's lack of monitoring as the macro regulator - and for that matter the government for never setting out a public policy framework that makes clear what all of the regulators at the party are actually responsible for!

    Presumably, when the Fed intervened on BSC, it was trying to mitigate systemic fallout. It wasn't acting on a binge of altruism. Where the heck were they when these risks were taking shape, when housing prices and mortgage volumes were going through the roof amidst modest if stagnant changes in income. What were they doing spending all of their time tinkering at the interest rate workbench with all of those elephants in the room? The greatest risks to the system left the deposit-insured banking system years ago. Perhaps some of Schumer's smart colleagues know the answers to those questions...

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