Category: sub prime

sub prime, subprime

“If the chain of title of the note is broken, then the borrower no longer owes any money on the loan” | Subprime redux

Colin Henderson

I have been reading John Mauldins weekly emails for a while and I gain tons of insight through it.  Tonights note including quotes from David Kotok at (www.cumber.com) almost made me fall off my chair.  Like everyone I have heard that US banks are pressing pause on foreclosures and there was some talk of fraudulent foreclosure notices with what I thought I heard about shortcuts.  The issue is much deeper. The Subprime Debacle: Act 2 | John Mauldin "Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper…only the … Continue reading “If the chain of title of the note is broken, then the borrower no longer owes any money on the loan” | Subprime redux

Canada, sub prime, UK, US

Canada banking sector is avoiding the troubles in US and UK

Colin Henderson

The press is all doom and gloom at the moment.  Not without reason, but the causes and implications are getting blurred.  So I did a simple analysis comparing three stock markets, their fall since mid 2007, and the relative importance of the banking sector in that fall.  The results suggest that it does depend where you live.  There is an all out banking crisis in the US and UK, based on market sentiment.     Somehow Canadian banks are not regarded with such fear as the others.  This no doubt partly due to the early work of Purdy Crawford and … Continue reading Canada banking sector is avoiding the troubles in US and UK

sub prime, US7 Comments

America in hock | who is responsible?

Colin Henderson

A particularly telling graph of US consumer debt / GDP.  The rise from 1995 is almost exponential!  ‘ America in hock A cut in overall lending would be a complete reversal of trend. Morgan Stanley reckons that total American debt (ie, the gross debt of households, companies and the government) has risen inexorably since 1980 to more than 300% of GDP (see chart), higher than it was in the Depression. Consumers, in particular, were encouraged to borrow by low unemployment and interest rates and (until last year) rising asset prices. Their debt jumped from 71% of GDP in 2000 to … Continue reading America in hock | who is responsible?

sub prime2 Comments

What should Banks be required to do to bring confidence back

Colin Henderson

Smithers raises an interesting concept here.  He offers that Banks should value their loans on the balance sheet at market value.  Today loans are shown at face value on Banks balance sheets.  The reduction based on market value would have a dramatic effect on Bank capital, and take many from being highly levered to being hyper levered, or bankrupt.  However he misses the point that Banks already do this in effect by taking allowances for bad debts, and there are substantial reserves in place in most conservative Banks.  However its clear that those reserves are not adequate, and there are … Continue reading What should Banks be required to do to bring confidence back

sub prime, US

Resolution Trust FAQ | street.com

Colin Henderson

Here is a nice crisp synopsis of Resolution Trust that will be responsible for managing the $700 million in bad loans.  RTC was set up to unwind $394 Bn of bad loans following the Savings and Loan failures in the 1980’s.  There were 747 S&L failures in that period.  America has a history of Bank failures.  Here is the synopsis at Street.com The RTC provided two functions. It shuttered many of the failing institutions, which wound up totaling 747. The total amount of assets equalled $394 billion. It then liquidated those assets over a period of time until it was … Continue reading Resolution Trust FAQ | street.com

sub prime

Lessons from Japan that are not being heeded

Colin Henderson

No need to get extreme just yet, but its interesting to reflect on previous bubble situations, and Japan is a good example.   During the period 1986 – 1990 Japan experienced an extreme bubble based on stock and property values.  Chatting with my wife, who lived through that bubble, there are distinct parallels.  In other words they experienced North America 2000 plus 2007 yet simultaneously.  http://en.wikipedia.org/wiki/Japanese_asset_price_bubble Prices were highest in Tokyo’s Ginza district in 1989, with choice properties fetching over US$1.5 million per square meter ($139,000 per square foot). Prices were only slightly less in other areas of Tokyo. By 2004, … Continue reading Lessons from Japan that are not being heeded

sub prime

Citi, Merrill, UBS involved in buy back of $20 Bn in ‘misrepresented’ securities

Colin Henderson

In a truly remarkable turn of events Citi is essentially guilty of mis-representing the value in $7.5Bn in securities sold to investors. Merrill Lynch and UBS are also involved. The amounts ($20 Bn) and the names involved are simply staggering. Clearly additional information is needed to better understand but the SEC has clearly taken a tough enforcement stance here. The fast and loose days are over for Banks. FT.com / Companies / Financial services – Citigroup and Merrill in $20bn ARS agreements In a key settlement with state and federal regulators, Citi agreed to buy back within three months $7.5bn … Continue reading Citi, Merrill, UBS involved in buy back of $20 Bn in ‘misrepresented’ securities

sub prime

Credit crisis | opportunities for boutique advisors

Colin Henderson

Colourful quote from a top Banker on the current mood in investment banking circles, but also the point that distraction creates opportunities for others. FT.com / Lex / Best of Lex As one legendary investment banker, now the head of his own advisory boutique, told me over breakfast on Thursday morning, ”we’re in the middle of the biggest s***storm since the great  depression and the last people who can be relied upon to provide an unbiased opinion about it are the chief executives of the US investment banks sitting on Level Three assets greater than their book value”. …. The … Continue reading Credit crisis | opportunities for boutique advisors

Business Models, sub prime

LIBOR and why it matters | risk that any bank could face a run on its deposits

Colin Henderson

There is a fascinating, though apparently esoteric debate going on in Banking circles. It is worth understanding the high level points though because it actually matters to bank employees, vendors, and bank customers. Libor (London Interbank Offerred Rate) is set daily, and represents the rate that banks will lend money to each other on the money market. It is one means of managing liquidity for Banks. Lately this rate has been much higher than expected and than historic rates. The going assumption was that Banks were afraid to lend to each other since the credit crisis due to inadequate risk … Continue reading LIBOR and why it matters | risk that any bank could face a run on its deposits

sub prime2 Comments

Rating Agencies do not want additional responsibility for their ratings

Colin Henderson

In a set of remarkable admissions, the rating agencies [eg, Fitch Ratings, Moody’s Investors Service and Standard & Poor’s] acknowledge the degree of problem with ABCP (Asset Based Commercial Paper). FT.com / Home UK / UK – Ratings agencies critical of guarantees Ratings agencies have countered that, in many cases, mortgage lenders provided unreliable information and initial ratings assumptions were inaccurate as a result. Many borrowers inflated their income to qualify for loans, while others claimed investment properties were primary residences. Lets be clear here: rating agencies evaluate paper and assess the degree of risk the information they were being … Continue reading Rating Agencies do not want additional responsibility for their ratings