Some insightful updates on The Motley Fool from posters who work at the coal face -
"Like many firms, over the last 2 weeks we have let the market know what sort of write down we are taking in Q3 for our holdings of low quality assets. It was not a particularly large number and the bank still will have a very good year for overall profitability (maybe a new record). However, what is still troubling the markets (and me) is the inability to work out the exact losses that will unfold going forward. This stems from the fact that as each time some more bad news comes out about other banks and counterparties we deal with so they become worse credit risks, therefore, I have to potentially write down more on existing deals I have in place with them. It's very much like a catch 22 situation!"
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800276 "Two other interesting things that are happening by the way is that the Chinese have also basically told Chinese banks to stop lending in light of global events and their sharp increases in lending. Then ABAC and MBIA are looking like they'll get downgraded - they basically guarantee other issues allowing them to get a Aaa/AAA rating. If they get downgraded then a whole swath of AAA issues will as well. A lot of these SIV's own these issues as the higher quality part of their portfolio's. So it's going to probably trigger a whole new ball game of downgrades across the whole financial sector. "
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798472 and as Martin Holmes predicted -
"Freddie Mac Loses $2B, Seeks New Capital
Freddie Mac, like Fannie Mae, has traditionally funded the mortgage market when other banks pull back because of risk, in keeping with its charter. The two companies charge lenders fees to compensate them for the risk.
An inability by Freddie Mac to fill that role could hinder a return to equilibrium in the mortgage market and possibly intensify the housing downturn."
Yes, I saw something about this. A very intruiging move. I'm on record from three years back here as saying the shit will really hit the fan when the Chinese go into Japan mode and their stock and housing markets crash. I recall that someone here guffawed and asked how markets in China could possibly affect house prices in Britain. It looks like he's soon to see that lesson...
That would be "Michael", but to be honest, you'll find damn near all of my stuff under the moniker "FoFP" as I've been using that since 1987.
Fitch Ratings-New York-20 November 2007: Fitch Ratings has placed Freddie Mac's (FRE) 'AA-' rated preferred stock on Rating Watch Negative following this morning's announcement that the company is considering a number of options to manage regulatory capital requirements. Fitch has also affirmed Freddie Mac's Long-term Issuer Default Rating (IDR) and other outstanding debt ratings. A complete list of ratings is provided at the end of this release. Fitch's rating action reflects FRE's recent and potential future challenges in meeting the 30% mandatory target capital surplus as required by the Office of Federal Housing Enterprise Oversight (OFHEO), the company's regulator. Recent financial performance has been adversely impacted by mark to market losses on investments, its guaranteed asset and derivatives, while provisions also increased due to expected higher credit related costs. In addition to a GAAP net loss of $2 billion in third quarter-2007 (3Q'07), FRE indicated that a number of factors have the potential to impact future financial performance and pressure regulatory capital going forward. As a result, FRE is exploring potential capital issues.
Fitch may downgrade FRE's preferred stock rating by one notch depending on the terms, conditions and amount of additional hybrid instruments raised relative to total capital. The growing component of preferred stock to total capital, currently at 23.4% of regulatory core capital, results in a higher expectation of loss absorption by preferred stock. Fitch would affirm the preferred stock rating if capital raising plans do not materially impact capital composition. The Rating Watch is expected to be resolved in the short term once capital plans are finalized.
Fitch has placed the following rating on Rating Watch Negative:
Freddie Mac Inc.
--Preferred stock 'AA-'.
Fitch has also affirmed the following ratings:
Freddie Mac Inc.
--Long-term IDR 'AAA';
--Senior unsecured 'AAA';
--Short-term IDR 'F1+';
--Short-term debt 'F1+'."
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It's apparently a worst case scenario, but interesting to see the early prediction that ABCP up to A grade would be wiped out proving correct. Also seeing AAA being re-rated to BBB is frankly hilarious.
The UK still has rules that allow hard to value assets not to be reported -
"Pressure on UK financial sector to detail its exposure to crisis By David Prosser, Deputy Business Editor Published: 06 November 2007
City analysts have called for British banks to give public statements about their precise exposure to the global credit crisis, following increasing speculation that a UK institution could be forced into Citigroup-style write-offs. The demands reflect increasing frustration that, while leading Wall Street investment banks have made painful public disclosures of their potential liabilities, the British banking industry has remained largely silent. . . A spokesman for the Financial Services Authority said listed banks would be bound by the Stock Exchange listing rules in the same way as other companies. "There is a general onus on firms to make a disclosure of any price-sensitive information," he said. However, the rules allow companies to keep such information private if they are unable to quantify the size of the problem reasonably precisely. . . Analysts at Merrill Lynch calculate their own investment banking colleagues are assuming its sub-prime exposure is now worth only 63c in the dollar, while UBS is working on assumptions of 90c."
Well, they seemed to think that a plasma TV and a 4WD made it all worthwhile. Birthright, mess of pottage and all that.
"a Friend of Fernando Poo"
Ouch. Possibly more immediately, their hopes of riding in as shining knights to save the US mortgage markets now look rather tarnished.
We're in the wrong career eh? Amazing what you can be paid tens of millions per year to do.
I'd always assumed it was related, but I haven't followed banking regulation very closely.
This could be expected after Northern Rock. I'm guessing that most bank execs now figure that if they admit weakness, they'll se a bank run the same day.
What the RBoS guy called "mark to make-believe".
And this is before there are any real price falls in the US. Imagine the position once we're even at 15% down...
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