Bad Paper

Crédit Agricole Profits Drop 94 Percent

badnote — Thu, 28 Aug 2008 10:22:14 +0000

French bank Crédit Agricole saw its profits drop 94%, largely due to massive losses at its investment banking unit Caylon. The Caylon unit reported a loss of €855 million as the bank suffered €1.1billion in write-downs related to the current mortgage problems.

Mortgage Fraud Still a Problem

badnote — Tue, 26 Aug 2008 10:19:39 +0000

Mortgage fraud, extremely prevalent in loan originations in 2007 and earlier, continues to be a huge problem for mortgages originated in the first quarter of 2008. This despite a severe ratcheting up of underwriting standards.

According to the Mortgage Asset Research Institute, commonly known as MARI, mortgage fraud jumped 42% in the first quarter of 2008 compared with the same quarter in 2007 (when loan underwriting was still largely the “Wild West”). Interestingly, Florida ranked first in reported fraud cases with California at number two. The largest number of reported fraud consists of misrepresentations such as income, employment, and financial condition.

“Tightening credit standards by itself doesn’t eliminate fraud,” said Merle Sharick,Vice president and national manager of business development for the MARI, especially in markets that typically attract a lot of speculators such as Florida and California.

AIG Hit By Bad Mortgages

badnote — Thu, 07 Aug 2008 09:53:59 +0000

American International Group lost $5.36 billion in the second quarter as the impact of the mortgage meltdown continues to take its toll on financial companies. The results included a $5.57 billion write-down on the company’s portfolio of credit default swaps. The insurance giant also took substantial write-downs on its portfolio of mortgage securities tied to subprime and Alt-A loans.

More Write-downs for Citi?

badnote — Thu, 26 Jun 2008 10:08:13 +0000

Additional write-downs of $8.9 billion are in the future for CitiGroup, Inc according to Goldman Sachs. As reported in an article by Cathy Chan in Bloomberg, the banking and financial giant may need to take another $7.1 billion loss on collateralized debt obligations and another $1.2 billion for other assets.

According to the Goldman Sachs report, the Citi dividend may be the next to go, “Given the firm’s current level of earnings power, we do not believe the dividend is safe. We believe any additional capital raises will be in the form of common equity, dividend cuts and or additional asset sales.”

Goldman also reported that “The turnaround in business trends that we had been expecting in the second half of 2008 may not occur as quickly as we should have thought. We see multiple headwinds for Citigroup, such as risks of further writedowns, higher consumer provisions, and the potential need for additional capital raisings, dividend cuts or asset sales.”

Monolines Want Out of Contracts

badnote — Mon, 23 Jun 2008 10:04:15 +0000

There is a short blurb by Aline van Duyn in the Financial Times reporting that Ambac, MBIA, and FGIC are in talks with Wall Street banks about voiding their obligations under $125 billion of credit default swaps. According to the article, the strategy may “the only way to limit the financial damage surrounding the bond insurers”.

FBI Headed to Switzerland and UBS

badnote — Sun, 22 Jun 2008 19:48:19 +0000

The FBI has made a formal request to travel to Switzerland as part of an investigation into UBS AG, according to the Swiss newspaper Sontag and reported in the U.S. by Bloomberg. The FBI investigation appears to be related to charges that the Swiss bank help U.S. citiziens evade income taxes. According to the article, a prerequisite for providing Swiss legal assistance to a foreign country is that alledge actions be considered a crime in both countries.

Morgan Stanley Rogue Trader

badnote — Thu, 19 Jun 2008 22:38:49 +0000

Morgan Stanley is the latest investment firm to book significant losses due to the activities of a rogue trader. The firm revealed that its London office had suspended a trader that attempted to hide losses of $120 million.

According to a story by Tom Bawden in the online edition of The Times, the employee, identified in the article as Matt Piper, was under investigation for what Morgan Stanley referred to as a “$120 million negative adjustment to marks previously taken in a trader’s book that did not comply with the firm’s policies”. The trade reportedly involved credit derivatives.

HBOS Sees Falling U.K. Home Prices

badnote — Thu, 19 Jun 2008 09:44:23 +0000

HBOS, the biggest mortgage lender in the U.K. predicted home prices would fall 9 percent this year. The lender also reported that problem residential loans at the bank increased 17 percent. In response, the company took new write-downs of nearly 200 pounds, much of it related to home builders.

The bank is seeking to raise an addition $7.8 billion (US) in new capital.

SoCal Home Prices Plunge 27%

badnote — Tue, 17 Jun 2008 22:00:30 +0000

The residential real estate market in Southern California remains in critical condition. According to an article by Roger Vincent in the Los Angeles Times, home prices in SoCal plunged 27% from May of last year. In addition, the rising price of gasoline is compounding the problem for most of the more outlying areas.

Christopher Leinberger of the Brookings Institution is quoted in the article, “Under the old model we have lived with for the past 50 years, you could drive away from major employment concentrations until you could qualify for a house because cheap energy costs made it possible. Now as energy prices go up, the housing prices out there on the fringe take a major hit.”

A survey by DataQuick Information Services reported that the median home sale price in six Southern California counties sank to $370,000 in May, down from $505,000 the previous May.

Bear Stearns Hedge Funds May Bring Criminal Charges

badnote — Mon, 16 Jun 2008 21:55:04 +0000

Federal criminal and civil charges may be forthcoming as Federal prosecutors and the SEC investigate hedge funds sponsored by Bear Stearns. According to Bloomberg and the Wall Street Journal, Fed officials may bring criminal charges against former hedge fund managers Ralph Cioffi, and Matthew Tannin.

Cioffi managed two Bear Stearns hedge funds that collapsed under the weight of heavy investments in subprime related assets. Tannin assisted Cioffi in managing the two funds.

Cioffi, Tannin and Bear Stearns are named as defendants a seperate lawsuit filed by Barclays PLC. The suit accuses Cioffi of withdrawing a personal investment in the fund in March 2007 at the same time Bear Stearns was persuading Barclays to increase its investment.