Welcome to Reggie Middleton's BoomBustBlog Newsletter. Although we recommend you join the site, it is not mandatory to receive our newsletter.
Please enjoy, and remember you can unsubscribe at anytime by clicking the unsubscribe link at the bottom of any newsletter.
| 1 |  | Reggie Middleton's Boom Bust Blog Newsletter Wednesday, 10 March 2010 06:00 . Newsletter from Wednesday, 10 March 2010 in Text-format. Sent to 8 users. News from Reggie Middleton's Boom Bust Blog
Newsletter
News from Reggie Middleton's Boom Bust Blog
Reality Check for Bank Investors, Mortgage Investors and Home Buyers (by Reggie Middleton, published Wednesday, 10 March 2010 00:00)
Last week I posted a Bloomberg news article
http://www.bloomberg.com/apps/news?pid=20601087&sid=ad._QCyroAdI&pos=5 supporting my
suspicions that investors are putting bad loans back to the banks at an increasing rate. I
used JP Morgan as a specific example -Banks Swallow Another $30 billion or So in More
Losses as Their Share Prices Surge (Again).
http://boombustblog.com/Reggie-Middleton/1335-Reality-is-Hitting-the-Banks-in-a-Multi-billion-Dollar-Negative-Way-Again-as-Their-Share-Prices-Sur.html
A few commenters on syndicated sites appeared to have really underestimated the
significance of this development. In the article, it is alleged that Freddie and Fannie
are forcing banks to eat up to $30 billion in soured mortgages under the warranties and
representations clauses of the sales contract. To highlight the significance of this
development, let me remind all that Fannie and Freddie are benchmarks for mortgage lending
in the US.
_(Bloomberg http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2Z5GnTAPcuo) --
Taxpayer losses from supporting Fannie Mae
http://www.bloomberg.com/apps/quote?ticker=FNM%3AUS and Freddie Mac
http://www.bloomberg.com/apps/quote?ticker=FRE%3AUS will top $400 billion, according to
Peter Wallison
http://search.bloomberg.com/search?q=Peter+Wallison&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1,
a former general counsel at the Treasury who is now a fellow at the American Enterprise
Institute. _
_"The situation is they are losing gobs of money, up to $400 billion in mortgages,"
Wallison said in a Bloomberg Television interview. The Treasury Department recognized last
week that losses will be more than $400 billion when it raised its limit on federal
support for the two government-sponsored enterprises, he said. _
_ The U.S. seized the two mortgage financiers in 2008 as the government struggled to
prevent a meltdown of the financial system. The debt of Fannie Mae, Freddie Mac and the
Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008,
helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006,
according to the S&P/Case- Shiller home-price index. _
_The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the
companies as needed for the next three years to alleviate market concern that the
government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S.
home loans, could lapse or be exhausted. _
_Lax regulation of Fannie Mae and Freddie Mac led to the mortgage companies taking on
too many risky loans, Wallison said. _
_"It turns out it was impossible to regulate them," he said. "They were too powerful."
He said no one knows how much will be needed to keep the companies solvent. _
With this in mind, I want to parse the logic behind my posting the Fanie/Freddie issue
in the first place. This is not about Fannie and Freddie, t...
Read more...
http://boombustblog.com/201003031332/The-Latest-Alt-A-and-Subprime-Mortgage-Performance-Numbers.html
_______________________________________________________________
Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of
the Latter? (by Reggie Middleton, published Tuesday, 09 March 2010 00:00)
I am in the process of finishing up the Sovereign Debt Crisis series with a massive
global model of the interconnected relationships between sovereign nations. In the
building of this model the team and I came to the conclusion that many pundits are truly
underestimating the lose-lose situation that the Eurozone, CEE and the UK are in. I have
went to lengths to demonstrate the interconnectedness of banks and the risk of global
financial contagion that they pose. See this excerpt from "The Coming Pan-European
Sovereign Debt Crisis
http://boombustblog.com/Reggie-Middleton/Reggie-Middleton/1310-The-Coming-Pan-European-Debt-Crisis.html"
Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns
http://boombustblog.com/images/stories/macro/sovereign_collapse_stu...
Read more...
http://boombustblog.com/201003081338/Financial-Contagion-vs.-Economic-Contagion-Does-the-Market-Underestimate-the-Effects-of-the-Latter.html
_______________________________________________________________
Unsubscribe from our newsletter by clicking here
http://boombustblog.com/component/option,com_vemod_news_mailer/Itemid,134/unsubscribeall,1/userid,userid9999987/
This is an autogenerated news mail, please do not respond |
| 2 | | Reggie Middleton's Boom Bust Blog Newsletter Wednesday, 10 March 2010 06:00 . Newsletter from Wednesday, 10 March 2010 in HTML-format. Sent to 3845 users. Reggie Middleton's Boom Bust Blog Newsletter Wednesday, 10 March 2010 06:00
News from Reggie Middleton's Boom Bust Blog
Newsletter
News from Reggie Middleton\'s Boom Bust Blog
Reality Check for Bank Investors, Mortgage Investors and Home Buyers (by Reggie Middleton, published Wednesday, 10 March 2010 00:00)
Last week I posted a Bloomberg news article supporting my suspicions that investors are putting bad loans back to the banks at an increasing rate. I used JP Morgan as a specific example -Banks
Swallow Another $30 billion or So in More Losses as Their Share Prices
Surge (Again).
A few commenters on syndicated sites appeared to have really underestimated the significance of this development. In the article, it is alleged that Freddie and Fannie are forcing banks to eat up to $30 billion in soured mortgages under the warranties and representations clauses of the sales contract. To highlight the significance of this development, let me remind all that Fannie and Freddie are benchmarks for mortgage lending in the US.
(Bloomberg) -- Taxpayer losses from supporting
Fannie
Mae and Freddie
Mac will top $400 billion, according to
Peter Wallison,
a former general counsel at the Treasury who is
now a fellow at the American Enterprise Institute.
“The situation is they are losing gobs of money, up to
$400 billion in mortgages,” Wallison said in a Bloomberg
Television interview. The Treasury Department recognized last
week that losses will be more than $400 billion when it raised
its limit on federal support for the two government-sponsored
enterprises, he said.
The U.S. seized the two mortgage financiers in 2008 as the
government struggled to prevent a meltdown of the financial
system. The debt of Fannie Mae, Freddie Mac and the Federal Home
Loan Banks grew an average of $184 billion annually from 1998 to
2008, helping fuel a bubble that drove home prices up by 107
percent between 2000 and mid-2006, according to the S&P/Case-
Shiller home-price index.
The Treasury said on Dec. 24 it would provide an unlimited
amount of assistance to the companies as needed for the next
three years to alleviate market concern that the government
lifeline for Fannie Mae and Freddie Mac, the largest source of
money for U.S. home loans, could lapse or be exhausted.
Lax regulation of Fannie Mae and Freddie Mac led to the
mortgage companies taking on too many risky loans, Wallison
said.
“It turns out it was impossible to regulate them,” he
said. “They were too powerful.” He said no one knows how much
will be needed to keep the companies solvent.
With this in mind, I want to parse the logic behind my posting the
Fanie/Freddie issue in the first place. This is not
about Fannie and...
Read more...
|
Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter? (by Reggie Middleton, published Tuesday, 09 March 2010 00:00)
I am in the process of finishing up the Sovereign Debt Crisis series with a massive global model of the interconnected relationships between sovereign nations. In the building of this model the team and I came to the conclusion that many pundits are truly underestimating the lose-lose situation that the Eurozone, CEE and the UK are in. I have went to lengths to demonstrate the interconnectedness of banks and the risk of global financial contagion that they pose. See this excerpt from "The Coming Pan-European Sovereign Debt Crisis"
Sovereign
Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns
This is just a sampling of
individual banks...
Read more...
|
Copyright © 2006 Reggie Middleton, LLC. All Rights Reserved.
|
| 3 | | Reggie Middleton's Boom Bust Blog Newsletter Tuesday, 09 March 2010 06:00 . Newsletter from Tuesday, 09 March 2010 in Text-format. Sent to 8 users. News from Reggie Middleton's Boom Bust Blog
Newsletter
News from Reggie Middleton's Boom Bust Blog
Signs of a China Credit and Real Asset Bubble Are Now Unmistakable! (by Reggie Middleton, published Tuesday, 09 March 2010 00:00)
Home grown credit risks look to come back home to roost. I am actually shocked the
following development didn't get more traction in the mains stream media. The recent
announcement by the Chinese finance ministry to nullify all guarantees for local
governments for loans taken by their financing vehicles, and its plan to issue rules
banning all future guarantees by local governments (see Bloomberg article
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIcTfdm5rWdY&pos=2), fuels (even
further) our concerns about credit risks on such loans.
The primary concern is that MOST OF THESE WERE NON-RECOURSE LOANS to provinces,
municipalities and counties through shell companies, known as Urban Development Investment
Corporations (UDIC). Some went to fund projects backed by assets, such as commercial real
estate, others to projects with future cash flows such as subways and toll roads. Still
others are social in nature and backed only by an implicit guarantee of the
City/Provincial Investment Holding Corporation (CIHC).
This post should be taken in context of the discussion had regarding regarding the
prospects of the highly levered Russian energy company. Subscribers please see Mechel
(MTLR) 2010-02-26 18:32:58 366.23 Kb
http://boombustblog.com/index.php?option=com_docman&task=doc_download&gid=291and
Mechel (MTLR) Overview, pt2 2010-02-28 06:09:51 532.89 Kb
http://boombustblog.com/index.php?option=com_docman&task=doc_download&gid=292
The China Macro Discussion 2-4-10 is also quite relevant.
http://boombustblog.com/index.php?option=com_docman&task=doc_details&Itemid=103&gid=286
And the most concerning part of these loans primarily includes the estimated 3,000
billion Yuan ($450billion) of local infrastructure loans extended in 2009, WHICH
REPRESENTS 30% OF THE RECORD NEW BANK LENDING LAST YEAR.
* Most UDIC loans have sparse local equity and limited cash flow prospects for
repayment. For 2009, local governments and CIHCs have been able to meet interest payment
gaps with healthy land sales, which totaled 1,600 billion Yuan in 2009, as well as central
government transfers.
* However, at the end of 2009, the UDIC liability is estimated at close to 6,000
billion Yuan or 14% of the outstanding loan base. And A 30% DEFAULT RATE COULD IN EFFECT
WIPE OUT THE PAID-IN CAPITAL OF TOP BANKS SUCH AS CHINA CONSTRUCTION BANK AND BANK OF
CHINA.
According to Central bank governor Zhou Xiaochuan, during the National People's
Congress, "WHILE 'MANY\' LOCAL FINANCING VEHICLES HAVE THE ABILITY TO REPAY, TWO TYPES
CAUSE CONCERN. ONE USES LAND AS COLLATERAL, WHILE THE OTHER CAN\'T FULLY REPAY BORROWING",
WHICH MEANS THAT FOR SUCH LOANS THE LOCAL GOVERNMENTS MAY BECOME LIABLE, LEADING TO
'FISCAL RISKS\' for the government.
SIMILAR CONCERNS HAVE BEEN PREVIOUSLY RAISED BY NORTHWESTERN UNIVERSITY\'S PROFESSOR
VICTOR SHIH, WHO ESTIMATES CHINA\'S LOCAL- GOVERNMENT OUTSTANDI...
Read more...
http://boombustblog.com/201003081337/Signs-of-a-China-Credit-and-Real-Asset-Bubble-Are-Now-Unmistakable.html
_______________________________________________________________
The Financial Times' Banker on Bonuses (by Reggie Middleton, published Tuesday, 09 March 2010 00:00)
The Financial Time
http://www.thebanker.com/news/fullstory.php/aid/7109/The_uncosted_rewards_of_bankers__bonuses.htmls
has published an Op-Ed piece I penned on bonuses in the banking industry. Enjoy!
A BANK EMPLOYEE RECENTLY ASKED ME: "AS A TRADER, MY BONUS IS DERIVED DIRECTLY FROM MY
PROFIT AND LOSS, WHICH IS ACCRUED OVER THE QUARTER AND KEPT IN A SEPARATE ACCOUNT. IT DOES
NOT GO INTO THE FIRM\'S BOTTOM LINE AND THEN BACK OUT TO ME. ALSO, LIKE MOST TRADERS, I
ACCRUE 2% OF MY GAINS IN A LOSS PROVISION ACCOUNT IN CASE I HAVE A MAJOR WRITE-DOWN IN THE
YEAR. MY BONUS IS 10% OF MY PROFIT FOR THE YEAR. IF I MAKE $50M FOR THE YEAR MY BONUS IS
$5M. WHAT DOES MY BONUS HAVE TO DO WITH THE MORTGAGE-BACKED SECURITIES [MBS] TRADER WHO IS
SITTING ON LOSSES? DID I OR DID I NOT SHOW A PROFIT OF $40M TO THE FIRM\'S BOTTOM LINE?"
MAIN STREET IS ABSOLUTELY FLABBERGASTED THAT BANKERS DO NOT UNDERSTAND THE CORE ISSUES
OF THIS BONUS QUESTION. ALLOW ME TO CLEARLY OUTLINE THE PROBLEM AND PROPOSE A SOLUTION.
ASSUMING THIS TRADER WORKS FOR A PROMINENT US BANK THAT RECEIVED A BAILOUT, HE IS NOT
ENTITLED TO A $5M BONUS IF HE MADE $50M FOR THE YEAR. WHY NOT? BECAUSE HE GENERATED THAT
10% RETURN FROM TAXPAYER CAPITAL, NOT FIRM CAPITAL. FOR EXAMPLE, GOLDMAN SACHS WOULD HAVE
HAD THE DRAWDOWN FROM PURGATORY HAD IT NOT BEEN RESCUED FROM A $30BN CREDIT DEFAULT SWAP
DEAL WITH AIG.
Let's assume AIG would have negotiated a 40% payout to Goldman Sachs, which is
realistic given that litigation with an insolvent company that had many more contingent
and direct claims would probably have resulted in a lower net receipt to Goldman. This
alone would have resulted in a hole of about $7.8bn for the bank.
TAXPAYER ASSISTANCE
Combined with the Troubled Asset Relief Program, Federal Deposit Insurance Corporation
bond guarantees, Public-Private I...
Read more...
http://boombustblog.com/201003081336/The-Financial-Times-Banker-on-Bonuses.html
_______________________________________________________________
Unsubscribe from our newsletter by clicking here
http://boombustblog.com/component/option,com_vemod_news_mailer/Itemid,134/unsubscribeall,1/userid,userid9999987/
This is an autogenerated news mail, please do not respond |
| 4 | | Reggie Middleton's Boom Bust Blog Newsletter Tuesday, 09 March 2010 06:00 . Newsletter from Tuesday, 09 March 2010 in HTML-format. Sent to 3829 users. Reggie Middleton's Boom Bust Blog Newsletter Tuesday, 09 March 2010 06:00
News from Reggie Middleton's Boom Bust Blog
Newsletter
News from Reggie Middleton\'s Boom Bust Blog
Signs of a China Credit and Real Asset Bubble Are Now Unmistakable! (by Reggie Middleton, published Tuesday, 09 March 2010 00:00)
Home grown credit risks look to come back home to roost. I am actually shocked the following development didn't get more traction in the mains stream media. The recent announcement by the Chinese finance ministry to nullify all guarantees for local governments for loans taken by their financing vehicles, and its plan to issue rules banning all future guarantees by local governments (see Bloomberg article), fuels (even further) our concerns about credit risks on such loans.
The primary concern is that most of these were non-recourse loans to provinces, municipalities and counties through shell companies, known as Urban Development Investment Corporations (UDIC). Some went to fund projects backed by assets, such as commercial real estate, others to projects with future cash flows such as subways and toll roads. Still others are social in nature and backed only by an implicit guarantee of the City/Provincial Investment Holding Corporation (CIHC).
And the most concerning part of these loans primarily includes the estimated 3,000 billion Yuan ($450billion) of local infrastructure loans extended in 2009, which represents 30% of the record new bank lending last year.
- Most UDIC loans have sparse local equity and limited cash flow prospects for repayment. For 2009, local governments and CIHCs have been able to meet interest payment gaps with healthy land sales, which totaled 1,600 billion Yuan in 2009, as well as central government transfers.
- However, at the end of 2009, the UDIC liability is estimated at close to 6,000 billion Yuan or 14% of the outstanding loan base. And a 30% default rate could in effect wipe out the paid-in capital of top banks such as China Construction Bank and Bank of China.
According to Central bank governor Zhou Xiaochuan, during the National People's Congress, "while ‘many' local financing vehicles have the ability to repay, two types cause concern. One uses land as collateral, while the other can't fully repay borrowing", which means that for such loans the local governments may become liable, leading to ‘fiscal risks' for the government.
Similar concerns have been previously raised
by Northwestern University's Professor Victor Shih, who estimates
China's local- government...
Read more...
|
The Financial Times' Banker on Bonuses (by Reggie Middleton, published Tuesday, 09 March 2010 00:00)
The Financial Times has published an Op-Ed piece I penned on bonuses in the banking industry. Enjoy!
A bank employee recently asked me: "As a trader, my bonus is derived directly from my profit and loss, which is accrued over the quarter and kept in a separate account. It does not go into the firm's bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account in case I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50m for the year my bonus is $5m. What does my bonus have to do with the mortgage-backed securities [MBS] trader who is sitting on losses? Did I or did I not show a profit of $40m to the firm's bottom line?"
Main Street is absolutely flabbergasted that bankers do not understand the core issues of this bonus question. Allow me to clearly outline the problem and propose a solution. Assuming this trader works for a prominent US bank that received a bailout, he is not entitled to a $5m bonus if he made $50m for the year. Why not? Because he generated that 10% return from taxpayer capital, not firm capital. For example, Goldman Sachs would have had the drawdown from purgatory had it not been rescued from a $30bn credit default swap deal with AIG.
Let's assume AIG would have negotiated a 40% payout to Goldman Sachs, which is realistic given that litigation with an insolvent company that had many more contingent and direct claims would probably have resulted in a lower net receipt to Goldman. This alone would have resulted in a hole of about $7.8bn for the bank.
Taxpayer assistance
Combined with the Troubled Asset Relief
Program, Federal Deposit Insurance Corporation bond guarantees,...
Read more...
|
Copyright © 2006 Reggie Middleton, LLC. All Rights Reserved.
|
| 5 | | Reggie Middleton's Boom Bust Blog Newsletter Sunday, 07 March 2010 06:00 . Newsletter from Sunday, 07 March 2010 in Text-format. Sent to 8 users. News from Reggie Middleton's Boom Bust Blog
Newsletter
News from Reggie Middleton's Boom Bust Blog
Banks Swallow Another $30 billion or So in More Losses as Their Share Prices Surge (Again) (by Reggie Middleton, published Friday, 05 March 2010 00:00)
Two months ago I pointed out an anomaly in JP Morgan's "blowout" quarterly earnings
release - Reggie Middleton on JP Morgan\'s "Blowout" Q4-09 Results
http://boombustblog.com/201001151280/A-Cursory-Look-at-JP-Morgan-s-Blowout-Q4-09-Results.html.
Let's reminisce...
WARRANTIES OF REPRESENTATION, AND FORCED REPURCHASE OF LOANS
JP Morgan has increased its reserves with regards to repurchase of sold securities but
the information surround these actions are very limited as the company does not separately
report the repurchase reserves created to meet contingencies. However, the Company's
income from mortgage servicing was severely impacted by increase in repurchase reserves.
Mortgage production revenue was negative $192 million against negative $70 million in 3Q09
and positive $62 million in 4Q08.
Counterparties who are accruing losses from bad loans, (ex. monoline insurers such as
Ambac and MBIA, see A Super Scary Halloween Tale of 104 Basis Points Pt I FONT-WEIGHT:
NORMAL">AS I SAID, LOSSES SHOULD BE RAMPING UP ON THE MORTGAGE SECTOR. NOTICE THE TREND OF
HOUSING PRICES AFTER THE ONSET OF GOVERNMENT BUBBLE BLOWING: IF ANYBODY BOTHERED TO TAKE A
CLOSE LOOK AT THE LATEST HOUSING NUMBERS...
http://boombustblog.com/REGGIE-MIDDLETON/1259-IF-ANYBODY-BOTHERED-TO-TAKE-A-CLOSE-LOOK-AT-THE-LATEST-HOUSING-NUMBERS.HTML
PNC Bank and Wells Fargo are in very similar situations regarding acquiring stinky loan
portfolios. I suggest subscribers review the latest forensic reports on each company to
refresh as the companies report Q4 2009 earnings. Unlike JPM, these banks do not have the
investment banking and trading fees of significance (albeit decreasing significance) to
fall back on as a cushion to consumer and mortgage credit losses. Well, it looks as if
I was onto something. From Bloomberg
http://www.bloomberg.com/apps/news?pid=20601087&sid=ad._QCyroAdI border-style: none;
padding: 0px">
March 5 (Bloomberg) -- Fannie Mae http://www.bloomberg.com/apps/quote?ticker=FNM%3AUS
andFreddie Mac http://www.bloomberg.com/apps/quote?ticker=FRE%3AUS may force lenders
includingBank of America Corp. http://www.bloomberg.com/apps/quote?ticker=BAC%3AUS,
JPMorgan Chase & Co. http://www.bloomberg.com/apps/quote?ticker=JPM%3AUS, Wells Fargo &
Co. http://www.bloomberg.com/apps/quote?ticker=WFC%3AUS and Citigroup Inc.
http://www.bloomberg.com/apps/quote?ticker=C%3AUS to buy back $21 billion of home loans
this year as part of a crackdown on faulty mortgages.
That's the estimate of Oppenheimer & Co. analyst Chris Kotowski
http://search.bloomberg.com/search?q=Chris%0AKotowski&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis
line-height: 16px; font-family: Verdana,sans-serif" class="Apple-style-span">
The surge shows lenders are still paying the price for lax standards three years after
mortgage markets collapsed under record defaults
http://www.bloomberg.com/apps/quote?ticker=DLQTSUBP%3AIND. Fannie Mae and Freddie Mac are
looking for more faulty loans to return after suffering $202 billion of losses since 2007,
and banks may have to go along, since the two U.S.- owned firms now buy at least 70
percent of new mortgages.
...
Freddie Mac forced lenders to buy back $4.1 billion of mortgages last year, almost
triple the amount in 2008, according to a Feb. 26 filing
http://www.sec.gov/Archives/edgar/data/1026214/000102621410000010/f71261e10vk.htm. As of
Dec. 31, Freddie Mac had another $4 billion outstanding loan-purchase demands that lenders
hadn't met, according to the filing. Fannie Mae didn't disclose the amount of its
loan-repurchase demands. Both firms were seized by the government in 2008 to stave off
their collapse.
....
The government's efforts might be counterproductive, since the Treasury and Federal
Reserve are trying to help banks heal, FBR's Miller said. The banks have to buy back the
loans at par, and then take an impairment, because borrowers usually have stopped paying
and the price of the underlying home
http://www.bloomberg.com/apps/quote?ticker=SPCS20%3AINDhas plunged._ JPMORGAN SAID IN A
PRESENTATION LAST MONTH THAT IT LOSES ABOUT 50 CENTS ON THE DOLLAR FOR EVERY LOAN IT HAS
TO BUY BACK._
Striking a Balance
"It's a fine line you're walking, because the government's trying to recapitalize the
banks, not put them in bankruptcy, and then here's Fannie and Freddie putting more
pressure on the banks through these buybacks," FBR's Miller said. "If it becomes too big
of an issue, the banks are going to complain to Congress, and they're going to stop it."
_[OF, COURSE! LET THE TAXPAYER EAT THE LOSSES BORNE FROM OUR PURPOSEFULLY SLOPPY
UNDERWRITING]_
BANK OF AMERICA RECORDED A $1.9 BILLION "WARRANTIES EXPENSE" FOR PAST AND FUTURE
BUYBACKS OF LOANS THAT WEREN'T PROPERLY WRITTEN, SEVEN TIMES THE 2008 AMOUNT, THE BANK
SAID IN A FEB. 26 FILING
http://www.sec.gov/Archives/edgar/data/70858/000119312510041666/d10k.htm. A spokesman for
Charlotte, North Carolina- based Bank of America, Scott Silvestri
http://search.bloomberg.com/search?q=Scott+Silvestri&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis
line-height: 16px; font-family: Verdana,sans-serif" class="Apple-style-span">
JPMORGAN, BASED IN NEW YORK, RECORDED $1.6 BILLION OF COSTS IN 2009 FROM REPURCHASES,
INCLUDING $500 MILLION OF LOSSES ON REPURCHASED LOANS AND $1 BILLION TO INCREASE RESERVES
FOR FUTURE LOSSES, ACCORDING TO A FEB. 24 FILING
http://www.sec.gov/Archives/edgar/data/19617/000095012310016029/e82150e10vk.htm.
"IT'S BECOME A VERY MEANINGFUL ISSUE, AND IT WILL CONTINUE TO BE A MEANINGFUL ISSUE FOR
THE NEXT COUPLE OF YEARS," CHARLIE SCHARF
http://search.bloomberg.com/search?q=Charlie%0AScharf&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis
line-height: 16px; font-family: Verdana,sans-serif" class="Apple-style-span">
...
"I can't forecast the rates at which they're going to continue," she said. HER DIVISION
LOST $3.84 BILLION LAST YEAR, AS THE BANK OVERALL POSTED A $6.28 BILLION PROFIT. "THE
VOLUME IS INCREASING."
WELLS FARGO, RANKED NO. 1 AMONG U.S. HOME LENDERS LAST YEAR, BOUGHT BACK $1.3 BILLION
OF LOANS IN 2009, TRIPLE THE YEAR-EARLIER AMOUNT, ACCORDING TO A FEB. 26 FILING
http://www.sec.gov/Archives/edgar/data/72971/000095012310017877/f54129exv13.htm. THE SAN
FRANCISCO-BASED BANK RECORDED $927 MILLION OF COSTS LAST YEAR ASSOCIATED WITH REPURCHASES
AND ESTIMATED FUTURE LOSSES.
...
CITIGROUP INCREASED ITS REPURCHASE RESERVE SIXFOLD TO $482 MILLION, BECAUSE OF
INCREASED "TRENDS IN REQUESTS BY INVESTORS FOR LOAN-DOCUMENTATION PACKAGES TO BE
REVIEWED," ACCORDING TO A FEB. 26 FILING
http://www.sec.gov/Archives/edgar/data/831001/000120677410000406/citi_10k.htm.
"The request for loan documentation packages is an early indicator of a potential
claim," New York-based Citigroup said.
...
Banks that sell mortgages to Fannie Mae and Freddie Mac have to provide
"representations and warranties" assuring that the loans conformed to the agencies'
standards. With more loans going bad, the agencies are demanding that banks turn over loan
files, so they can scour the records for missing documentation, inaccurate data and fraud.
...
The most common include inflated appraisals or falsely stated incomes in the loan
applications, said Larry Platt
http://search.bloomberg.com/search?q=Larry+Platt&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1,
a Washington-based partner at law firm K line-height: 16px; font-family:
Verdana,sans-serif" class="Apple-style-span">
"They may do a drive-by for a visual inspection," he said.
Wells Fargo said three-fourths of its repurchase requests came from Freddie Mac and
Fannie Mae. While investors may demand repurchase at any time, most demands occur within
three years of the loan date, Wells Fargo said.
The mortgage firms http://www.bloomberg.com/apps/quote?ticker=DOUTMORT%3AIND are
looking at every loan more than 90 days past due and "asking us basically to give them all
the documentation to show that it was properly underwritten," JPMorgan's Scharf said. "We
then go through a process with them that takes a period of time, and literally it's every
loan, loan-by-loan, and have the discussion on whether or not we actually should buy the
loan back."
...
Mortgage repurchases may crimp bank earnings through 2011, Oppenheimer's Kotowski said.
That's because the worst mortgages -- those underwritten in 2007 -- are just now coming
under the heaviest scrutiny, he said.
...
"The worst of the stress is the 2007 vintages, though 2006 and 2005 weren't a whole lot
better and 2008 wasn't much better," Kotowski said. Next week, the Mortgage Bankers
Association is holding a workshop in the Dallas area that promises to help banks "survive
the buyback deluge" and "build up your repertoire of lender defenses." According to the
MBA's Web site, the workshop is sold out.
That's the estimate of Oppenheimer & Co. analyst Chris Kotowski
http://search.bloomberg.com/search?q=Chris%0AKotowski&site=wnews&client=wnews&pr...
Read more...
http://boombustblog.com/201003041335/Reality-is-Hitting-the-Banks-in-a-Multi-billion-Dollar-Negative-Way-Again-as-Their-Share-Prices-Sur.html
_______________________________________________________________
Unsubscribe from our newsletter by clicking here
http://boombustblog.com/component/option,com_vemod_news_mailer/Itemid,134/unsubscribeall,1/userid,userid9999987/
This is an autogenerated news mail, please do not respond |
Mechel (MTLR) 2010-02-26 18:32:58 366.23 Kb 
