loans

Citigroup to offer mortgage aid

Jim Kim — Tue, 11 Nov 2008 08:29:41 -0500

How far are we from the bottom? Well, there are plenty of signs that we're not there yet; Fannie Mae's big loss is one indication. So it certainly can't hurt that more banks--IndyMac seems to have been the precursor--are willing to ease terms of mortgages for their customers. Citigroup has become the latest to join that group. It says about 130,000 mortgage customers will likely qualify for the new terms, covering $20 billion of loans. This will keep loans performing, but it will have limited effects. They only will be extended to loans that Citigroup owns, not the loans that were packaged into mortgage-backed securities, which were used to create all those CDOs, reports the New York Times.

For more:
- here's the article

Will PIK toggle bonds come back to hurt Apollo?

Jim Kim — Thu, 06 Nov 2008 12:20:39 -0500

Recall back in the boom days of private equity, sponsors were calling the shots. One reflection of that was the rise in pay-in-kind toggle interest options on buyout debt. Pay-in-kind notes allow a company to pay interest with more debt rather than cash. TheDeal.com notes that before 2005, PIK loans and notes had been issued mainly as subordinated or convertible debt. During the boom, they were commonly used as senior debt to finance leveraged buyouts or pay sponsors' dividends. After a deal review, Moody's concludes that Apollo has been a big user of such bonds, electing relatively more often to pay in more bonds. Such bonds may buy a portfolio company some breathing room, but in the end they may merely be postponed. The piper will have to be paid at some point. Certainly most people will see the PIK options as a bad sign.

For more:
- here's the article from TheDeal.com

Related Articles:
Apollo news from FierceFinance

Mortgage underwriter tells all about WaMu

Jim Kim — Sun, 02 Nov 2008 09:02:09 -0500

"At WaMu it wasn't about the quality of the loans; it was about the numbers. They didn't care if we were giving loans to people that didn't qualify. Instead, it was 'How many loans did you guys close and fund?'" This according to former WaMu underwriter Keysha Cooper. She could have worked at lots of companies and come to the same conclusion. She shares her story as one of 89 employees whose accounts are contained in a suit against the thrift by an Ontario pension. She says starting about 2006, the company started ramping up the pressure to close loans at all costs. No loan was suspect. "You were like a bad person if you declined a loan," she said. She was sure that a lot of fraudulent activity was taking place. She ended up being put on leave for refusing to sign off on a loan that was plainly just wrong. Brokers sometimes tried to bribe her to approve loans. This is akin to inviting regulation.

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

How will banks use their new capital?

Jim Kim — Wed, 15 Oct 2008 13:57:19 -0400

The banks that received federal money in the first tranche were pretty much told not to sit on it. They have to deploy it somehow. So that raises the question: How? You would have to think all of them are thinking about acquisitions of some type. Even after buying Bear Stearns and Washington Mutual, JPMorgan Chase is not ruling out more acquisition, reports Financial News Online. Jamie Dimon says he will use the funds toward the good of shareholders. Would an acquisition be kosher with the feds, whose goal is to facilitate more lending? That's unclear. As long as we get a meaningful pick up in credit market activity, the government may be fine with such moves. Of course, this may take some time. It would be foolish to start handing out loans or buying commercial paper of questionable quality.

For more:
- here's the Financial News Online article

Citigroup to buy Wachovia

Jim Kim — Mon, 29 Sep 2008 12:06:24 -0400

Another day, another bank "failure." Citigroup will buy Wachovia for $1 a share, in a deal that was brought about by regulators. Citigroup's shareholders may not be applauding, seeing as the bank took an immediate loss of $30 billion. It has agreed to absorb up to $42 billion in losses. The government will absorb additional losses that stem from the $312 billion portfolio of Wachovia's most troubled loans. To shore up its position, Citigroup will sell $10 billion worth of common stock and slash its quarterly dividend to 8 cents from 16 cents. This is essentially a non-failure failure in a sense--yet another. True, bank branches will remain open. Depositors are protected. But let's face it, the bank was tottering. Were it not for deal-making intervention, it would have really ended ugly. Really ugly. So who's next?

For more:
- here's a Washington Post article

The rise of a new Fannie, Freddie?

Jim Kim — Tue, 09 Sep 2008 07:56:10 -0400

For all the mismanagement that plagued the GSEs, they really did what they were supposed to. They expanded homeownership in America. And by moving into subprimes and other non-prime loans, they ended up greasing the wheels of the real estate economy a bit too much. Of course, they were pressured to do this, but shouldn't they still have raised more capital? All of which begs the question: Should they exist at all? Is this sort of "insuring" and "backing" activity something that ought to be purely the domain of a private company? Is the mixed economy, public-private approach still the best? Should a pure government agency take over this function? It's tempting to argue that the GSEs worked well but lacked oversight. Good management is hard to come by. But I'm not sure the fact that they were poorly managed means they should not exist going forward. What do you think?

For more:
- here's a New York Times article
- Treasury Secretary flexes his muscles. Article

Another hedge funds bites the dust

Jim Kim — Tue, 19 Aug 2008 12:52:20 -0400

The gravestone of hedge fund SageCrest Done might read "done in by its creditor." Apparently, Deutsche Bank told its client to sell assets at a discount to pay off a $7 million credit line, reports the Financial Times. That left Chapter 11 as the only option. The Greenwich, CT fund specializes in asset-backed financing for smaller companies. This is just one in a string that SageCrest has suffered. The fund ran into trouble when several big loans soured, including ones to finance art purchases in New York. One question is whether hedge funds are in for more turbulence. SageCrest is something of a special case, but July and August have been bad months. The FT says some funds are under pressure because of long energy positions combined with short financial positions.

For more:
- here's the FT article

Alt-A loans, the coming convulsion?

Jim Kim — Fri, 15 Aug 2008 13:28:58 -0400

There is a subtle undercurrent of fear on Wall Street about Alt-A loans. JPMorgan has about $19.5 billion worth of exposure to Alt-A mortgages, and it likely is not alone. I would be surprised if banks have written off much against these assets. CalculatedRISK notes that "subprime delinquencies appear to have peaked in December of 2007, and subprime foreclosure starts may have peaked in January of 2008," according to research firm Clayton. "Unfortunately, Alt-A seems nowhere near its peak yet." Delinquencies and foreclosures seem to be on an upsloping curve. This may be the start of another wave of writedowns.

For more:
- here's the CalculatedRISK item

A look inside a struggling small bank

Jim Kim — Thu, 14 Aug 2008 22:12:47 -0400

The headlines are dominated by the woes of big banks, the likes of Citigroup and Bank of America. But the most vulnerable banks of course are the small local banks, the ones that hitched themselves to the real estate and construction boom. Fortune offers an interesting look at a small community bank in Arizona that stands as a nice proxy for a lot of small, "entrepreneurial" banks around the country. Towne Bank received a cease-and-desist order in March from the FDIC. Sure, the quality of its loans was poor. Unsatisfactory practices plagued its lending and collection attempts. But you know what? No one cared when times were good. For a lot of these banks, the only way to survive will be to return to banking basics with a vengeance. That will have profound local economic implications. On the flip side, Hudson City Savings Bank of Paramus, NJ is thrift and has fared very well.

For more:
- here's the article

Anatomy of a good deal

Jim Kim — Wed, 30 Jul 2008 07:52:58 -0400

Lone Star Fund's John Grayken is no stranger to troubled assets, notes the New York Times. He made a fortune buying troubled mortgages from the Resolution Trust Corporation in the early 1990s. In many ways, he's the ultimate vulture. He's in the news again because he just bought Merrill Lynch's most toxic collateralized debt obligations for about 22 cents on the dollar (about $6.7 billion). Merrill Lynch of course is financing about 75 percent of the deal. The consensus seems to be that he got a good deal. Lone Star's Hudson Advisors affiliate, with 800 employees, works out individual loans and mortgages. Lone Star's investors have been very happy with Grayken over time, and the company just raised two more funds. The Times suggests that more banks will be seeking out Grayken to offload more CDOs. This could turn out very well for him.

For more:
- here's the article