Subprime Squeezes Banks, Execs Some More [Housing Tracker]

Subprime Banking Woes Continue

The Outsider. “[Despite] using hedges to ease risk… Lehman (LEH) was the biggest underwriter of subprime debt in 2006, and the nation's fourth-biggest investment bank refrained from shedding the junk or writing it off fast enough… Lehman received a temporary reprieve from the Federal Reserve's decision to lend to brokerages… [But] hedge fund manager David Einhorn [is] shorting the stock [and] he has the numbers to back him up… Einhorn points out that the number that may ultimately do in Lehman is $65 billion. That's the amount of hard-to-sell assets still on its balance sheet.” (MarketWatch, June 10th)

Bad Loans Turn Into Game Of Hot Potato. "Wells Fargo Bank (WFC) and the Quicken Loans division of Rock Financial are [fighting over] more than $4 million in home equity loans. Quicken originated the loans and sold them to Wells Fargo. The bank now says the loans aren't up to standards spelled out in the deal and wants the court to force Quicken to buy them back. Quicken says the whole idea for these particular loans came from Wells, and that they were made with guidelines established by the bank. Now that defaults are increasing, Quicken says, the bank is trying to shift its own risk on to Quicken Loans.” (Detroit News, June 10th)

More Pain Ahead for UBS? “Investors are bracing for more write-downs on mortgage securities from Switzerland's UBS AG after prices for such holdings have worsened dramatically in recent weeks… Write-downs announced Monday by Lehman Brothers are "clearly indicative of further write-downs for UBS, as is the deterioration in AAA-rated securities and the U.K. mortgage market," said Peter Thorne of independent brokerage Helvea in London… UBS is completing a 15.97 billion Swiss franc ($15.67 billion) capital-raising by selling shares at a discount to existing holders in a so-called rights issue. It is expected to announce results of the issue Friday and, so far, the bank appears on track to succeed.” (Wall St. Journal, June 10th)

Wachovia Unit Bluepoint Re's Financial Strength Rating Cut To 'A' - S&P. “Standard & Poor’s Ratings Services said it has cut financial strength and financial enhancement ratings on BluePoint Re Ltd., a wholly owned unit of Wachovia Corp. (WB), to ‘A’ from ‘AA’ and removed the ratings from negative watch. The downgrade reflects BluePoint’s weakened capital adequacy position, which is the result of a significant amount of projected losses relating to reinsured subprime and second-lien RMBS and ABS CDOs. S&P said the outlook is negative, reflecting its view that it remains circumspect about assigning stable outlooks to insurers even if they have sufficient capital.” (Hemscott, June 10th)

Schwab Signals Subprime Claims Will Sacrifice 50% Quarterly Net. “Charles Schwab Corp. (SCHW), the largest U.S. online brokerage, may pay the equivalent of half a quarter's profit, or about $260 million, to win public-relations points by settling investors' claims over losses in a bond fund with subprime holdings. The San Francisco-based company is accused in eight proposed class-action suits of misleading investors by describing its YieldPlus mutual fund in prospectuses as only “marginally'' riskier than cash. From last July 1 through April 30, investors lost about $1.3 billion, said Boston-based Financial Research Corp., which tracks investment flows for 35,000 funds.” (Bloomberg, June 10th)

Lehman's Bad Real Estate Investments. “WSJ: Lehman joined with Tishman Speyer Properties last year to pay $22 billion for REIT Archstone-Smith ... And ... it teamed up with land developer SunCal Cos. to develop… house lots across Southern California… The Archstone-Smith acquisition was a negative cash flow deal from the start. To cover the interest on the $16B in debt financing, there was a $500 million interest reserve created. WSJ: As of the end of 2007… Archstone had already tapped $72M of the reserve. [CR notes:] Fannie Mae (FNM) and Freddie Mac (FRE) acquired a total of $9B of the $16B in debt. Something to remember if this deal really goes south.” (Calculated Risk, June 9th)

AIG Chief Under Pressure As Investor Dissent Grows. “Investors in American International Group Inc (AIG), angry about the billions of dollars lost by the world's largest insurer over the last two quarters, are increasingly pinning the blame on CEO Martin Sullivan. While AIG and its board have so far expressed support for Sullivan, investors and analysts question why more was not done to cut the company's holding of assets linked to subprime mortgage investments, and many ultimately hold Sullivan responsible.” (Reuters, June 9th)

Washington Mutual Falls on $22 Billion Loss Estimate. “Washington Mutual Inc. (WM) tumbled as much as 14% Monday after UBS analyst Eric Wasserstrom said…WaMu, will lose about $21.7 billion from mortgages through 2011, more than the $12B-$19B the company forecasted. Wasserstrom cut his 12-month share price target to $8.50 from $11… WaMu, the biggest U.S. savings and loan by assets, had ranked among the largest U.S. lenders to home buyers with the weakest credit. Washington Mutual ``will not demonstrate meaningful profitability until late 2010 or later,'' and total losses may be about $27B, Wasserstrom wrote.” (Bloomberg, June 9th)

Bear Investment Banking Exec Joins Bofa: Report. “NY Times: David Glaser, a confidant former Bear Stearns CEO Alan Schwartz, has joined Bank of America, the latest executive to turn away from JPMorgan as it tries to keep top Bear talent from bailing on the merged bank. Glaser was co-head of investment banking at Bear Stearns & Co. He will become chairman of Bank of America's (BAC) global mergers and acquisitions practice, the Times reported. Glaser spent 23 years at Bear, the Times said, adding that the number of Bear bankers at Bank of America shows it is beefing up its own investment banking franchise.” (Reuters, June 9th)

Accredited Hires Ex-Bear Stearns Unit President. “Subprime mortgage company Accredited Home Lenders (AHHAP.PK) has named Jeff Walton, previously head of Bear Stearns & Co Inc's mortgage origination lending business, as its chief executive. Accredited Home's parent, private equity firm Lone Star Funds, last month bought "certain operating assets" of the business Walton used to head up, Bear Stearns Residential Mortgage Corp. Walton replaces Jim Moran, interim CEO since February. This week, Accredited Home consolidated operations centers to its San Diego headquarters, closing other offices and firing workers, according to sources on Thursday. The company was bought by private equity firm Lone Star Funds in October.” (Reuters, June 6th)

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