Another Leg Down for Financials Is Coming

I think there will be at least one more big leg down. I see numerous potential catalysts; here are two:

• CFC (or the creditors) file a BK petition
• bank failures, e.g. VNBC, BKUNA, and DSL

Check out the deterioration in the (enormous) CFC option-ARM portfolio.  (Calculated Risk did a post on this recently.) Also read the comments on that post. Institutional Risk Analytics has the best coverage of CFC right now.

I suspect that Friday 8/8 was an FDIC vacation; not the end of the bank failure trend.

Comments

[venividivici:]

I have seen many very intelligent financial people describe the problems bedeviling the financial markets as the worst since the great depression.
People in this industry invariably try to put a silver lining on everything that happens because confidence is such an important element. The fact is these problems are enormous and the ramifications are mind boggling. Does any thinking person truly believe that the share market reflects this?

2008 Aug 14 10:49 AM

[chtrplyr:]

Author forgets some crucial facts...


BoFA/CFC Option Arms Prime Loan exposure

$25B total Option ARM prime loans
$17B covered by supplemental mortgage insurance

Borrowers credit scores still good -> Prime Loans
----------------------...
Average original FICO score 715
Average refreshed FICO score 680

88% current in payments and in good standing.

Reset schedule:
2009 $0.2B
2010 $3.8B
2011 $6.9B
Thereafter $2.4B
Loans assumed to repay before recast $9.6B

Current refreshed LTV with provisioning = 70

30% down (positive equity)

Housing bill to aid $300 billion in mortgages...
----------------------...
Loss severity will be minimal to BofA related to Option Arm's exposure given the current provisioning.


"CLTV computed off remaining balances. If computed from values after purchase accounting adjustments the average CLTV percentage for the portfolio would be in the low 70's."

2008 Aug 14 11:54 AM

[buyitcheap:]

I agree that there is another leg down. But I don't think CFC is the "unexpected" BK. WAMU is a likely candidate, imho. It won't be a bailout and it's portfolio is probably so toxic that it would sink anyone that tried to do a Bear-Stearns last minute deal with it. If WAMU goes, holding the SKF will be a BIG winner.

2008 Aug 14 12:03 PM

[Financial C...:]

I absolutely agree with buyitcheap. WaMu is probably already insolvent and need capital desperately to continue its banking operation. Why else would they offer a significantly higher interest rate than all the other banks? This is exactly the same stunt Countrywide pulled when they were spiraling down. Beware.

2008 Aug 14 12:58 PM

[1worldcurrency:]

BoA 17 billion "supplemental mortgage insurance". LOL. They will collect that from whom, exactly?

2008 Aug 14 08:53 PM

[sumosama:]

Sorry, I do not agree...

signed,

Happily buying WM and BAC and C at low, low prices!

2008 Aug 15 11:05 AM

[1worldcurrency:]

Still buying? The prices are even better now.

2008 Aug 19 10:54 AM

[peterparker:]

I agree that there is another leg down. But I don't think CFC is
the "unexpected" BK. WAMU is a likely candidate, imho. It won't
be a bailout and it's portfolio is probably so toxic that it would
sink anyone that tried to do a Bear-Stearns last minute deal with
it. If WAMU goes, holding the SKF will be a BIG winner.
New York Drug Addiction

2008 Aug 24 03:17 PM

[peterparker:]

I agree that there is another leg down.but still buying? I think The prices are ever better now .
======================...
peter
New York Drug Addiction

2008 Aug 24 03:20 PM

[peterparker:]

On Aug 24 03:20 PM peterparker wrote:

> I agree that there is another leg down.but still buying? I think
> The prices are ever better now .
> ======================...
> peter
> [url="www.drugaddiction.net/..."]New York Drug Addiction[/url]

2008 Aug 24 03:21 PM