Lenders Facing The Next Credit Crisis Wave [Housing Tracker]

by: Judy Weil

Quote of the Day 

"Indymac has always been among the banks who pay good rates on their CDs, but unlike a lot of those banks, we actually have branches in which we provide other services like checking, savings accounts, and so on. So we've viewed our CD strategy as one of attracting more customers to our bank, not just more deposits." – IndyMac spokesman Evan Wagner, responding to criticism that IndyMac Bank was offering some of the highest certificate of deposit rates in the industry, even as the bank is laying off half its work force and its very viability is in question. (San Gabriel Valley Tribune, July 10th)

Subprime Banking Fallout


IndyMac’s Fate Could Test U.S. Banking Regulators.  “Lender IndyMac’s survival remains in question, creating a major test for banking regulators. In particular the significant size of IndyMac's deposits that are insured by the Federal Deposit Insurance Corp might present a challenge. If the deposits, which total more than $17 billion, had to be guaranteed, that could temporarily dent the FDIC's war chest of around $53B.”  (Reuters UK, July 9th)

 

Feds Were Focused on House of Dimon and BoNY in Bear's Buyout.   “Financial Times: The federally-midwifed buyout of Bear Stearns was meant specifically to save JP Morgan and The Bank of New York [and] the repo system. The two banks, the main custodians in the tri-party repo market, would have been left holding most of the bag were Bear unable to fulfill its counterparty obligations. FT: "The central focus of [regulators] fears” were about threats to the two firms' dominant role on the clearing side of tri-party repo; any confidence shocks could have crippled that market for short-term credit. It cites Bernanke and Fed watchers alike in their current vigilance against "vulnerability" in either of BoNY or JPM.”  (Dealbreaker, July 9th)

BofA's Fate Hangs On Housing.  Marshall Front, chairman of Front Barnett Associates, an invesment couseling firm: "If [house prices] keep falling, so will the value of the mortgages Bank of America holds in its portfolio. They have to mark to market, and as that flows through, they may have to raise additional capital." If the deterioration is modest, the company may be able to get by without having to raise capital… CEO Kenneth Lewis said business for its recently acquired mortgage lender Countrywide Financial is "very good," and that it will "work out" $40.0 billion in questionable loans over the coming two years.”  (Forbes, July 9th)

Credit Suisse Helps With U.S. Probe of Former Brokers.  “WSJ: Credit Suisse Group, Switzerland's second-biggest bank, said it is helping U.S. prosecutors probing two former brokers who resigned after engaging in “prohibited activity” related to selling auction-rate debt. Prosecutors are examining whether the brokers misled clients about their investments in short-term securities. The investigation, which doesn't target the Swiss bank, is the first criminal probe stemming from the collapse of the auction-rate market. Credit Suisse said it found out about the two employees' actions almost a year ago and notified regulators. The brokers were immediately suspended and resigned in September.”  (Bloomberg, July 9th)

School Districts Misled On Risks Of Collateralized Debt Obligations, Lawyer Says.  Wisconsin school districts that put millions of borrowed dollars into complex investments to help pay employee retirement benefits were misled about the risks of the undertaking, an attorney hired by the districts says… In 2006, the five districts - Kenosha Unified, Kimberly Area, Waukesha, West Allis-West Milwaukee and Whitefish Bay - purchased complex financial vehicles called collateralized debt obligations through district-run trusts. The value of the CDOs has plummeted over the last year, triggering calls for the districts to contribute millions more dollars in collateral to avoid a drop in income from quarterly dividends.”  (Journal Sentinel, July 9th)

Wednesday, July 9 Is 'Stop the Greed Virus' Day of Action.  “On the heels of a high-profile capital injection into Washington Mutual [WaMu] led by private equity giant Texas Pacific Group (TPG), workers and consumers in major cities nationwide are participating in a series of actions today focused on the thrift's harmful banking practices -- including high bank fees and credit card rates, deceptive credit card practices, and a record of subprime lending that has resulted in foreclosures for thousands of homeowners. Protesters… calling on WaMu to stop spreading the "greed virus" are holding actions outside WaMu and TPG locations in Ft. Worth, Houston, Los Angeles, Miami, New York City and San Francisco.”  (MarketWatch, July 9th)

 

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