liquidity

Tricky terrain: Distressed mortgage assets

Jim Kim — Wed, 12 Nov 2008 13:42:05 -0500

So is now the time to jump into distressed mortgage securities? A lot of funds thinks so, but some may have jumped a bit early. Fortress Investment Group has been lumped into the "a bit early" category. But for Bryan Caisse, an 18-year veteran of the mortgage markets, the time is now. He is launching Huxley Capital Management with backing from a United Arab Emirates-based investor, reports Fortune. Distressed mortgage asset-oriented hedge funds have been one of the few growth areas in a middling industry this year. No fund seems to have hit a home run going long on mortgage bonds. But at some point, a nadir has to be reached. Caisse tells the magazine that others have stumbled on overly aggressive use of leverage, improper hedging and failing to reckon with liquidity issues. Hopefully, he'll fare better.

For more:
- here's the article

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Mortgage Assets news from FierceFinance

Why the bailout has not lifted confidence

Jim Kim — Thu, 09 Oct 2008 14:27:14 -0400

We've seen some amazing government moves in the last few days: the bailout plan; the decision to directly buy short-term commercial paper from companies; the decision to provide yet more liquidity to prop up AIG's securities lending business. And yet, where is the shot of confidence that regulators and others were hoping for? William Isaac, former FDIC chairman, weighs in with a column in TheDeal.com. He argues that the FDIC has the authority to declare an emergency if the Treasury requests it. "If an emergency is declared, the FDIC could announce that until the crisis abates, all depositors and other general creditors will be protected if an FDIC-insured bank fails." Europe has moved in this direction. He would also suspend fair-value accounting and aid homeowners struggling mortgages. Would any of this help?

For more:
- here's the column

Did JPMorgan bring down Lehman Brothers?

Jim Kim — Tue, 07 Oct 2008 13:27:19 -0400

A filing in bankruptcy court in New York contains an explosive charge by Lehman's biggest creditors: JPMorgan froze $17 billion in cash and securities on the Friday night before its failure. The creditors also say that "as a result of JPMC's actions, [Lehman Brothers] suffered an immediate liquidity crisis, that could have been averted by any number of events, none of which transpired." According to The Times Online, JPMorgan was apparently holding on to the assets in case as a "potential offset" to future claims the bank might have against Lehman. We're likely going to hear a lot of things in the near future. What we desperately need is a 9-11 commission-like reconstruction of events. The fact is that it remains unclear how it all went down. Hopefully, the many investigations will shed light on these issues.

For more:
- here's the article

Does Meredith Whitney have a new target?

Jim Kim — Sun, 05 Oct 2008 09:42:05 -0400

The powerful analyst at Oppenheimer, who is hardly shy about voicing her criticisms of such bank as Citigroup and Lehman Brothers, may have a new target. In Fortune interview, she says, "The Paulson plan doesn't make a lot of sense to me..." She says the real issue isn't junky assets, it's confidence. Of course, one could argue that that is what the bailout plan is intended to do, create confidence. She expects that we'll see some "loosened" accounting and capital standards, as a way to help banks out. The SEC has indeed released some guidance that some interpreted as a slight weakening of fair value accounting. In her view, that's not ideal, but better than a blank-check kind of rescue plan. She seems to favor a plan that would focus on the big companies able to add liquidity quickly rather than propping up weak banks. Incidentally, Whitney ranks No. 35 on Fortune's list of most powerful women.

For more:
- here's the interview

So how bad is the IPO market?

Jim Kim — Thu, 28 Aug 2008 13:37:51 -0400

KBW says the IPO market held up well in June, but then fell off a cliff; August was the worst month since 1992, according to a Financial News Online article. On an annual basis, we're on track for the weakest market since 2003. (We should note the merger activity has fallen as well.) KBW reports that 292 IPOs have been pulled or postponed globally, which doesn't seem all that bad really, considering the state of the economy and the credit crunch. A lot of people will blame Sarbanes-Oxley, but that message is getting a bit tired. Right now, the liquidity and growth prospects just aren't there for a lot of companies. Long term, this may be healthy, as it sets IPO expectations at a more reasonable level.

For more:
- here's the article

Covered bond market to become a reality

Jim Kim — Tue, 29 Jul 2008 08:13:12 -0400

The Treasury, after talking to 50 or 60 institutions, is pushing for the creation of a "covered bond market" as a way to provide liquidity to banks while assuring investors their money is safe. Basically, such bonds are underwritten by banks and are linked to mortgages kept on bank balance sheets (they will not be sold into a secondary market). One twist is that if a mortgage runs into trouble, it would be replaced in the mortgage pool, something that should entice bond holders. The bond payments would be only indirectly tied to mortgage payments: The bank will set the terms as it sees fit. Bank of America will likely be the first to issue a covered bond; it has experience in Europe and issued such a bond back in June 2007, according to media reports. JPMorgan Chase, Citigroup and Wells Fargo will follow. Top investment banks have apparently agreed to make markets in these securities.

For more:
- here's a Washington Post article

Tough situation getting worse for Lehman Brothers

Jim Kim — Tue, 15 Jul 2008 13:34:49 -0400

The conventional wisdom is that Lehman Brothers will not implode the way Bear Stearns did, thanks mainly to its access to the Fed credit facility. But as one Lehman short seller puts it via Seeking Alpha, "the expectations seem to anticipate that there will be an orderly, gradual unwinding of Lehman Brothers supported by the Fed promise [or actual supply] of liquidity, where shareholders likely get wiped out [or close to it], and senior lenders are likely to recover most of their money." Not a pretty picture. Given that there doesn't appear to be any real buyers out there, and that capital raising will be hard, some are suggesting that a management-led buyout may be the answer. The New York Post reports that CEO Dick Fuld is getting serious about such a move. The firm may be cheap enough, but it certainly cannot handle a whole lot more debt. There are also rumors that Lehman may sell money manager Neuberger Berman, which makes a lot of sense.

For more:
- here's the item on Seeking Alpha
- here's the New York Post item
- here's a CNBC article
- here's a bullish case for Lehman. Item

Fannie and Freddie, the final shoe to drop?

Jim Kim — Thu, 10 Jul 2008 22:13:41 -0400

We tend to take Fannie Mae and Freddie Mac for granted. They have long been securitizing mortgages, and that expanded liquidity greatly, without a doubt. That they were government-sponsored enterprises made their guarantee seem fail-proof. But all noble securitization eventually gave way to casino practices. Now, the idea that both could actually fail has gained steam, pushing their stocks to new lows, notes Fortune. William Poole, former president of the St. Louis Federal Reserve, has been quoted as saying the entities are already insolvent. That may be overstating it, but we really do not know. This fresh worry for the industry is keeping regulators up at night. They were scrambling to reassure the markets yesterday. Plans for possibly placing the agencies in conservatorship were leaked to the New York Times. Wow! If they were to fold, the real estate market as we know it would crumble. We can't have that.

For more:
- here's the Fortune article
- here's the New York Times article

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China SWF to prop up equities market

Jim Kim — Wed, 09 Jul 2008 13:55:54 -0400

The emergence of sovereign wealth funds on the global stage has sparked a lot of fear. Here's one way to view them: a good source of added liquidity at a decent time. I doubt they'll be bailing out the credit markets anytime soon--too bad--but some funds seem poised to make a move in equities. China Investment Corp., which manages $200 billion, will soon start making stock investments, Forbes reports. They have already gotten their feet wet. The fund took big losses on its $3 billion investment in the Blackstone Group and a $5 billion investment in Morgan Stanley. Not surprisingly, CIC is expected to invest via actively managed funds. It may spread up to $90 billion on mainly blue-chip stocks around the world.

For more:
- here's the Forbes article

Can Wall Street firms be believed?

Jim Kim — Fri, 27 Jun 2008 12:25:03 -0400

Forbes magazine notes that there's a lot of flip-flopping occurring on Wall Street right now. The magazine points out that there are many instances of this. For example, after raising $6 billion in January, Merrill Lynch said it was done; then in April, it raised another $9.6 billion. Lehman Brothers also said its capital levels were fine; soon afterward, it raised another $6 billion. CEO Dick Fuld still is sticking to his worst-is-over line. Not too long before Bear Stearns tanked, CEO Alan Schwartz said on TV that his firm was not experiencing a liquidity run. Now, all this may reflect really fast-moving events and markets. But at this point, every time a company says it's looking good, you have to be suspect, whether fair or not.

For more:
- here's the article