Housing Market Tracker - Subprime Review

Includes: AMBC, MBI
by: Judy Weil

Here's our summary of articles and data points on the housing market and the subprime crisis. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. Like all other topics and stock coverage from Seeking Alpha, you can have this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.

Quote of the Day

"If any major monoline were to have a rating change it would have a real impact on all of the business of the monolines,'' MBIA Chief Financial Officer Chuck Chaplin. Ratings companies are examining insurers, known as monolines, to see if they have enough capital to merit their high credit ratings after so many of the securities they guarantee have been downgraded. (Bloomberg, Nov. 27th)

Subprime Fallout

  • MBIA, Ambac Bear Ackman to Donate Profit to Charity (Bloomberg, Nov. 28th): "William Ackman, president of Pershing Square Capital Management [says] MBIA Inc. (NYSE:MBI) and Ambac Financial Group Inc. (ABK), the holding companies of the two largest bond insurers, may fail, yielding him a windfall profit that will be donated to the Pershing Square Foundation. Ackman said the insurance subsidiaries could be saved if they were taken over by regulators. Ackman: "We're short the holding companies because we think they'll run out of cash and go bankrupt." The mark-to-market values the companies place on their guarantees of securities backed by subprime mortgages are "arbitrary'' and understate "reality." Ackman said MBIA and Ambac could take losses of $5B-$6 billion on collateralized debt obligations."

  • Freddie Mac to Sell $6B in Preferred Stock, Slashes Dividend (Eli Hoffmann in Seeking Alpha, Nov. 28th): "Government-sponsored mortgage lender Freddie Mac (FRE) said Tuesday it will issue $6 billion in preferred shares and cut its quarterly dividend to $0.25/share from $0.50 in an effort to shore up its books in anticipation of mortgage-related losses. The number-two U.S. mortgage provider [also] said it may have to further trim its $700B mortgage portfolio... Sources say the preferred issue was being marketed by Lehman (LEH) and Goldman (NYSE:GS) at a fixed five-year 8.25% coupon; Reuters says investors were expecting an 8.5-8.75% yield. Fitch Ratings said it would lower Freddie preferred stock one level (presently AA-minus) if the $6B sale is completed."

  • UBS Up On Fading Subprime Fear (Reuters, Nov. 28th): "Shares in Swiss-based bank UBS AG jumped on hopes that profitability will improve after its third-quarter loss and that Asian, Gulf and Russian investors are targeting European banks hit by the subprime crisis... "UBS shares have been massively oversold," said one Zurich trader. "Another thing is the speculation over stake taking from the Chinese, Arabs or Russians." Many investors also seem increasingly inclined to lend credence to UBS's repeated guidance to analysts that it does not anticipate massive writedowns on subprime-related exposures in Q4."

  • Is Subprime Near a Bottom? (Paul Kedrosky in Seeking Alpha, Nov. 28th): "Interesting that Markit's ABX index of the value of BBB-rated subprime has slowed its descent in recent week. Are we near a bottom? Unless you think it's all going to zero, at 20-ish cents on the dollar you have to imagine it's close."

  • MBIA, Ambac Defend Ratings, Consider Capital Raising (Bloomberg, Nov. 27th): "MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, are considering raising capital through reinsurance or sales of debt or stock to maintain their AAA ratings, executives said. "We're going to defend the AAA credit rating,'' Ambac CFO Sean Leonard said... MBIA, Ambac and Security Capital Assurance Ltd. are among at least eight bond insurers seeking to ward off potential credit- rating downgrades by Moody's Investors Service, Fitch Ratings and Standard & Poor's. Lower ratings would cast doubt over the rankings of the $2.4 trillion of debt that the companies guarantee, potentially causing losses of as much as $200 billion, according to Bloomberg data.

  • Natixis CEO Says Cannot Rule Out Further Subprime Costs (Forbes, Nov. 26th): "Natixis CEO Dominique Ferrero: French investment bank Natixis cannot rule out further costs as a result of the subprime crisis. 'Everything depends on the evolution of the markets in the coming weeks. If the situation were to deteriorate further we could, like the others, run up further costs,' Ferrero said. The bank's subsidiary CIFG will have 'no impact' on its accounts from Jan 1 2008 onwards, Ferrero said. Natixis' controlling shareholders last week announced a $1.5 billion bailout of CIFG, a specialist insurance group hard-hit by the subprime mortgage-led credit crisis. The bailout will [help] the business keep its 'AAA' rating, which had been threatened by the worsening outlook for subprime debt losses."

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