Subprime Crisis Drags On [Housing Tracker]

Banking Subprime Fallout 

“We think the Reserve Bank needs to consider something in the line of a 50 basis point cut. Then we may expect 30 to 35 basis points of that to be passed through and 15 put back into the banks' margins.'' - Malcolm Watkins, executive director of Australian Finance Group Ltd., Australia’s largest mortgage broker. Watkins was responding to the Australian government’s increasing calls to banks to pass on any interest rate cut benefits to customers. (Bloomberg, Aug. 10) 

Wachovia Revises Loss Downward On Possible Settlement. “Wachovia Corp. (WB) adjusted its Q2 results downward to account for a possible legal settlement, disclosed plans to eliminate 600 more jobs and reported headaches relating to its 2006 purchase of mortgage lender Golden West Financial Corp. and a municipal securities bid-rigging investigation. The revelation that the nation's fourth-largest bank by assets is in "active discussions" with state and federal investigators on a settlement of auction-rate-securities claims coincided with a regulatory filing detailing a $500 million pretax increase to legal reserves. Wachovia said that will push its second-quarter net loss, originally disclosed on July 22, to $9.11 billion from $8.86B.” (WSJ, Aug. 12) 

Morgan Stanley Cut To 'A1' From 'Aa3' - Moody's. “Moody's Investors Service downgraded Morgan Stanley (MS), saying the size of trading losses in the past year has reduced its confidence in the New York-based global investment banking and wealth management firm's risk controls. The long-term ratings of Morgan Stanley (MS) and its major subsidiaries were lowered to 'A1' from 'Aa3'. All 'Prime-1' short-term ratings were affirmed. The outlook on all ratings is stable. Over the past year, excluding recent gains from asset sales and credit spread widening on its own obligations, MS has reported a pretax loss of about $3.0 billion.” (Forbes, Aug. 12)

Fed Study: Banks Tighten Credit on Households, Businesses. “Fed’s quarterly Senior Loan Officer Opinion Survey: U.S. banks continued to tighten their standards on loans to households and businesses in Q2… Demand for bank loans over the past three months continued to fall off… About 60% of the domestic banks surveyed reported having tightened lending standards to large and middle-market businesses. That’s up slightly from what was reported in the last Fed survey conducted in April and released in May. About 65% of the institutions, a percentage that is also up from the previous survey, also said they had tightened their lending standards on commercial and industrial loans, to small firms over the same period.”  (WSJ, Aug. 11)

FDIC Fund Strained by Bank Failures May Have to Raise Premiums. “The failure of IndyMac Bancorp Inc. and seven other banks this year may erase as much as 17% of a government insurance fund and raise premiums for all banks… The closing of IndyMac in July, the third-biggest U.S. bank failure, may cost the fund $4B-$8B, in addition to an estimated $1.16B for seven closures through Aug. 1. FDIC Chairman Sheila Bair: Premiums for deposit insurance will likely rise. A decision on the increase is due by Q4… The FDIC estimated its shutdown of California-based mortgage lender IndyMac might drain as much as 15% from the fund. Seven other banks will take about $1.16B, or about 2%.” (Bloomberg, Aug. 11)

SEC Asks National City For Subprime Mortgage Docs. “The SEC has requested documents from National City Corp. (NCC) relating to the sale of its former subprime mortgage unit and other matters as part of an informal probe. According to the bank's quarterly financial report filed with the SEC, the commission has requested certain documents concerning the bank's loan underwriting experience, dividends, bank regulatory matters and the sale of First Franklin Financial Corp. The Cleveland-based bank said it was notified of the investigation by the Chicago Regional Office of the SEC on June 30.” (AP via Courier Journal, Aug. 11)

Mortgage-Market Trouble Reaches Big Credit Unions. “Five of the nation's largest credit unions are reporting big paper losses on mortgage-related securities... The federal regulator overseeing credit unions says the losses are likely to be reversed when mortgage markets stabilize, and that the institutions are sound and adequately capitalized... [But] Gerald Hanweck, a finance professor at George Mason University… worries that perceptions of added risk could lead to a run on one or more of them. Credit unions are not-for-profit, member-owned cooperatives that take deposits and lend money like banks. The mortgage problems are focused on so-called corporate credit unions, which are key players in the industry.” (WSJ, Aug. 11)

Deutsche Bank's Institutional Asset Management Business Launches Initiative to Enhance Transparency of Money Market Funds Reporting. “Deutsche Bank's (DB) global institutional asset management business, DB Advisors, today announced an initiative to enhance transparency of its money market fund reporting. Partnering with Clearwater Analytics, a provider of web-based investment portfolio reporting, DB Advisors has introduced an industry-leading standard for reporting fund holdings and risk analytics for its DWS Money Market fund complex.” (Press Release, Aug. 11)

Radian Reports $392.5 Million Quarterly Loss. “Radian Group (RDN) reported a $392.5 million net loss on Monday, but shares of the mortgage insurer climbed after CEO S.A. Ibrahim said there's no immediate need to raise capital.  Radian's Q2 net loss was $392.5 million, or $4.91/share, versus net income of $21.1M, or $0.26/share, in Q2’07. The company set aside $421.8M in reserves to cover future defaults on first-lien mortgages it has insured.” (MarketWatch, Aug. 11)

Fannie Mae’s Alt-A Pain May Extend to BofA. “Fannie Mae (FNM) said it would be “ramping up defaulted loan reviews to pursue recoveries from lenders, focusing especially on our Alt-A book.” Fannie’s new, stern tack on limiting Alt-A losses in an effort to protect capital should give pause as to just who Fannie Mae expects to force repurchases from…  After [buying] Countrywide Financial Corp. Bank of America now services roughly 28% of Fannie Mae’s single-family mortgage credit book of business… The GSE new-found commitment to due diligence and loan-level forensics may end up pushing a good number of defaulted Alt-A loans into BofA’s proverbial lap.” (Housing Wire, Aug. 8)

The Curse Of The ABN Amro Acquisition. “Royal Bank of Scotland, Fortis and Banco Santander won control of the Dutch bank ABN Amro last year in a $100 billion deal… Since then, two of the trio have had to raise massive amounts of new capital. Bank of America, which snapped up LaSalle Bank from ABN ahead of the deal, is facing a tough challenge to integrate the business alongside Countrywide Financial. [On Friday,] Royal Bank of Scotland… said it swung to a loss of nearly $1.6 billion as write-downs surged in H1’08… Acquisition of ABN's investment banking business lifted RBS' exposure to risky assets just as the credit crisis was accelerating, adding to the bank's need for £12B of new capital.” (MarketWatch, Aug. 8)

 

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