Thursday, 20 December 2007 00:00

As was warned in this blog, the S&P downgrade of a monoline insurer reverbrated losses through c

I just warned about this early this morning.

CIBC Provides Update to Previous Disclosure on U.S. Subprime Real Estate CDO / RMBS including Likely Large Write-down in First Quarter 2008 Financial Results
Canada NewsWire via COMTEX - Wednesday, December 19, 2007; Posted: 11:40 AM

"Following Standard and Poor's announcement today that it had reduced the credit rating of ACA Financial Guaranty Corp. from "A" to "CCC", CIBC confirmed that ACA is a hedge counterparty to CIBC in respect of approximately U.S. $3.5 billion of its U.S. subprime real estate exposure."

ACA is a small player. Those guys insured by Ambac are in for a RUDE awakening. This includes several of the I banks in this article that I am commenting on. Just go through the pdf file in the Ambac analysis follow up to see who's gettin' who.

"It is not known whether ACA will continue as a viable counterparty to CIBC. Although CIBC believes it is premature to predict the outcome, CIBC believes there is a reasonably high probability that it will incur a large charge in its financial results for the First Quarter ending January 31, 2008."

The additional writedowns of the I banks and their excessive leverage puts them at risk to suspect counterparties. This was illustrated using hedgefunds (Banks, Brokers, & Bullsh1+ part 2) and monolines (A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton ). I actually used the list of Ambac clients to (succesfully) look for short candidates.

"As CIBC disclosed on page 52 of its Investor Presentation dated December 6, 2007, the mark of the hedge protection from the "A-rated" counterparty (ACA) as at October 31, 2007 was U.S. $1.71 billion. As at November 30, 2007, this mark was US$2.0 billion. If the charge in the First Quarter were to be U.S. $2.0 billion (US$1.3 billion after tax) CIBC currently projects its Tier 1 capital ratio to remain in excess of 9% as at January 31, 2008."

Expect to see a lot more of this. Moody's should be ashamed of themselves for even considering AAA status for MBIA and Ambac. Institutions who are fragile, like Morgan Stanley threaten a daisy chain effect, and it may be ignited by one of the monolines.

Last modified on Thursday, 20 December 2007 00:00

5 comments

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  • Comment Link Reggie Middleton Friday, 21 December 2007 12:27 posted by Reggie Middleton

    That is like asking how much will it cost to save a man with terminal cancer. You can spend a lot of money prolonging the inevitable, but sooner or later, the inevitable arrives. Many products and business practices from the real property and credit bubble are simply unsustainable. They were/are destined to fail and you will not have a market at equilibrium until they do fail.

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  • Comment Link MARK RASMUSSEN Friday, 21 December 2007 11:23 posted by MARK RASMUSSEN

    HOW MUCH MONEY DOES IT TAKE TO RESCUE SUBPRIME, HELOC'S, ALT A, AUTO, CREDIT CARD AND COMMERCIAL REAL ESTATE LOANS, ABCP, SIV'S, PRIVATE EQUITY/M & A LOANS, CDO'S (SQUARED AND CUBED), CLO'S AND THE TRILLIONS IN DERIVATIVES?

    MARK

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  • Comment Link Reggie Middleton Friday, 21 December 2007 00:28 posted by Reggie Middleton

    but it does seem like they have some real problems.

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  • Comment Link Anonymous Thursday, 20 December 2007 20:23 posted by Anonymous

    Hi Boombastic, Love you site. Cant wait to see you analysis on HR Block aswell with 26 billion subprime mess but with 6B market cap !! Do you think day of reckoning is looming for this baby. I see huge potential to short with stock trading only 25% down from 52-week high at present.

    Thanks,

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