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HenryTo
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 Posted: Wed Jun 13, 2007 2:35 pm Post subject: Bear Stearns' Subprime Bath |
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Not sure if all of you have caught this. What's scary is that most of the losses occured in April - and not during the general subprime meltdown in late February to March. There must be something else we don't know about here. Suggestions?
http://www.businessweek.com/bwdaily/dnflash/content/jun2007/db20070612_748264.htm?chan=top+news_top+news+index_businessweek+exclusives
| Quote: | The hedge fund got off to a good start, posting a cumulative 4.44% return over its first four months, according to a Bear Stearns investor letter. But early this year the fund's performance began to suffer as the market for subprime mortgages began to implode. Coming into April, the fund was down 4% for the year.
Then things really fell apart. In April, the hedge fund posted an 18.97% decline, according to the June 7 letter obtained by BusinessWeek. But even more shocking than that big loss: only weeks earlier, the company had said it lost just 6.5% for April, according to a May 15 letter the firm sent fund investors. It's not clear what happened in those intervening weeks to force Bear Stearns to significantly revise upward its estimated April losses. |
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rffrydr
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diesel
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| Posted: Wed Jun 13, 2007 10:10 pm Post subject: |
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| I wonder whether this has anything to do with the planned subprime IPO of Everquest Financial? |
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HenryTo
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rffrydr
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| Posted: Sat Jun 23, 2007 7:31 am Post subject: |
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From the Broker:
| Quote: | | The ABX BBB-, the riskiest tranche of the benchmark CDS index, fell to 58.74, the lowest level of since the beginning of the year. Additionally the CDX and iTraxx widened. The CDX rose to a 9 month high of $179,000 while the iTraxx increased by 16,000 euros to 216,000 euros, the largest one-day rise in three months. Chiefly inspiring this risk is the concern over the Bear Stearns fund and the partitioning of its assets. Merrill Lynch announced yesterday that they would be only selling $100M of the $850M they had in CDOs. Furthermore J.P. Morgan decided to halt an auction of the collateral if held with Bear. The hesitation and reserve exhibited by these two bulge bracket investment banks suggests their concern over the price that the loans would have received on the market. Going forward, as banks are forced to liquidate these CDOs, they run into the risk of the continually downward re-pricing of these assets. The implications for the bond market are mixed. Debt saturation is bond negative, while the possibility of a subprime crisis finally manifesting itself in the balance sheet of the major investment banks is bond favorable. |
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rffrydr
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| Posted: Sat Jun 23, 2007 9:09 am Post subject: |
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Here's a guy who knew what ball to keep his eye on:
http://financialsense.com/Market/pretti/2007/0622.html
We like to think markets adjust in hours--which they are very good at doing. Events occuring over weeks or even quarters can be anticipated and "discounted." The Real Estate Market is a different creature in terms of time--as is it's ability to sustain itself. The "comment period" in these Comptroller hearings is testament to those ends. And the Feb sell-off trigger (which is only beginning to haunt us) is prefigured exactly here. Politics anyone?
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rffrydr
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rffrydr
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| Posted: Tue Jun 26, 2007 2:41 pm Post subject: |
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From the broker:
| Quote: | Since the story hit the wires, two other firms have claimed enormous losses from subprime risky
mortgage tranches. Furthermore, it was reported yesterday that Bear may have to bailout the second of its two tottering hedge funds. This struggling fund owes an estimated $7B to its lenders, more than the bailouts of LTCM and Bear’s first fund combined. Going forward, as these large funds begin to fail, the risk extends into the billions of dollars in smaller funds with CDO subprime vulnerability that face extensive re-pricing. The downgrades have already begun in the other major bulge-brackets as Goldman Sachs’ subprime MBSs are being downgraded quicker than any other issuer. Sales of CDOs were in the neighborhood of $500B in 2006. The downward price adjustments will make debt difficult to package, tightening liquidity.
The potential financial institution implosion is only one variable that supports a long-term bid in the debt market. The housing figures continue to be depreciative. The drop in the headline exiting home sales number demonstrates the adjustment still occurring in the housing market, while the inventory and median price figures reveal the dire state of the situation. Inventory levels reached all time highs in May and the median home price, though it fell on a y/y basis, increased sequentially 1.6%. Rising prices and inventories alongside mortgage rests create an unfavorable environment for a housing market correction. Besides the housing debacle, the consumer sector has begun to exhibit weakness. Retail cash cows such as Abercrombie and Starbucks have recently guided down on their earnings while Best Buy and Darden Restaurants posted depressing quarterly figures. Furthermore unit auto sales have fallen 5 months in a row, despite the surge in incentive pricing. These factors combine to create a sturdy case for economic risk and weakness. However, it must be considered that the Fed is hesitant to cut rates and this is not the first time that have waited for the worst to make monetary policy adjustments. After LTCM, the Fed held off until the markets made dramatic moves before easing. The XBD dropped 33%, the BKX fell 32% and the yield on the 10-yr note declined 15% before the Fed cut the overnight rate 25bps. |
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rffrydr
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| Posted: Wed Jun 27, 2007 11:58 pm Post subject: |
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Longer term perspective on yield widening using Bloomberg B index:
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HenryTo
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| Posted: Thu Jun 28, 2007 4:06 am Post subject: |
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Cambridge Place's Caliber Fund Shuts on Subprime Loss
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a9m4T7FOAwio
| Quote: | Caliber Global Investment Ltd., a $908 million fund managed by Cambridge Place Investment Management LLP, will close after losses on U.S. subprime- mortgage debt.
``The board has concluded that the company should pursue an orderly return of all of its capital to investors over the next 12 months in order to maximize value for shareholders,'' the Caliber statement said. ``There is insufficient demand currently for investment through listed investment companies exposed to this asset class.'' |
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HenryTo
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| Posted: Sat Jun 30, 2007 1:34 am Post subject: |
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What's getting scarier is that the 2005 vintage is now also showing signs of stress:
http://online.wsj.com/article/SB118308397498652526.html?mod=loomia&loomia_si=1
| Quote: | | The London fund, Caliber Global Investment Ltd., announced it was shutting down because of souring investments in bonds backed by mortgages to American homeowners with sketchy credit. So far, most of the pain in the mortgage market was caused by loans made in 2006, when lending standards reached a low. Caliber, a unit of hedge-fund operator Cambridge Place Investment Management LLP, was hurt by loans made in 2005. Delinquencies in these older loans are also building, and investors have been selling off bonds backed by these mortgages in anticipation of problems. |
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rffrydr
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rffrydr
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| Posted: Sun Jul 01, 2007 8:23 am Post subject: |
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This article calls it "bizarre" but pre-payment penalties are the secret ingredient to subslime attraction--and mortgages as bonds in general. It kept even PIMCO in too. Then things take a turn:
| Quote: | Most of the damage from the mortgage-backed securities crisis has occurred behind closed doors. An exception is Queen's Walk Investment, a London-listed vehicle, now the subject of an excruciating public post-mortem. The entrails look scary but also suggest that other funds, without the constraints imposed by being quoted, may be worse off.
Queen's, managed by Cheyne Capital and floated in late 2005, invested in the riskier tranches of securitised US, UK and European mortgages. In early 2006, the shares traded at a premium of more than 25 per cent to net asset value of about Euros 500m, reflecting the superficially attractive 13 per cent gross yield of the vehicle's assets. By this week, losses in the UK and US had cut NAV by 27 per cent from December's level.
What went wrong? Leverage was embedded both in the securities and at the vehicle level. That meant, roughly, a 1 per cent move in a mortgage portfolio's value would cause a 30-40 per cent hit to equity. Asset quality was poor and bizarre: in the UK, perhaps a fifth of NAV derived from expected charges on people who paid off mortgages early.
Yet the picture could have been worse. US subprime was only about a fifth of assets at the peak. Nor was Queen's much exposed to the riskiest mortgages originated in 2006. As a quoted entity, its NAV calculations, largely based on models rather than observed prices, faced some external scrutiny - although the discount the shares now trade at relative to NAV suggests market scepticism.
Being publicly listed also gave Queen's "permanent capital". There was no vicious circle of declining values, leading to client redemptions, leading to forced asset sales. And gearing at the vehicle level, at one-third of assets at its peak, was low. Incredibly, Queen's Walk has almost certainly been more cautious than many unquoted peers.
Source Citation: "Cheyne/subprime LEX COLUMN.(LEX COLUMN)(Column)." The Financial Times (June 27, 2007): |
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rffrydr
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rffrydr
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