Items of interest:
A billion here a billion there, pretty soon it adds up to some real money. Here was one way to help the balance of trade and offset some of the decline in the value of the U.S. dollar. Sell European banks rotting U.S. sub-prime mortgages that they eventually have to throw in the trash. The U.S. has become the bad financial green grocer to the world, with a warehouse full of rotting financial fruit. Anyone care for a boat load of RV loans backed by the full faith and credit of slightly strapped American consumers?
The problem is that U.S. banks have been eating our own bad fruit and have developed a serious case of the financial runs. Will the runs turn into life threatening dysentery? They've just started vaccinating with help from the sovereign funds or banks in Asia and the Middle East.
Mark Landler & Julia Werdigier / NY Times:
UBS Records a Big Write-Down and Sells a Stake -- UBS became the latest Western bank to seek a financial lifeline from the cash-rich East on Monday, selling a more than 10 percent stake to investors from Singapore and the Middle East, as it wrote down a further $10 billion in the value of its mortgage-backed assets.
Analysts said UBS, the world’s largest provider of banking services to the wealthy, could end up being just one in a round of such disclosures, as banks look to close their books for the year.
Uncertainty over how widely the bad debt from subprime mortgages has spread — and which institutions hold how much of it — has already led to a severe tightening of credit markets, undermining the broader economy.
Investors and bankers around the world will be looking to the Federal Reserve’s rate-setting meeting on Tuesday to see whether the Fed cuts its key interest rate and by how much in an effort to inject liquidity into credit markets, spurring lending and growth.
In the UBS deal, the Government of Singapore Investment Corporation will invest $9.7 billion and an unnamed Middle Eastern investor will inject $1.8 billion into the bank.
Citigroup recently agreed to sell a $7.5 billion stake to the Abu Dhabi Investment Authority, shoring up its capital base after announcing charges of $8 billion to $11 billion related to bad subprime investments.
UBS’s mammoth write-down comes on top of a $3.7 billion charge in October, making it by far the biggest casualty of the American home-mortgage crisis among banks outside the United States. [...]
UBS writedown foreshadows more pain for banks -- UBS's shock $10 billion writedown on subprime exposure warns of more pain to come for U.S. and European banks but none seems set to follow UBS and call on Asian or Middle East investors to shore up its balance sheet.
After advising for weeks there were no huge charges on the horizon, UBS stunned the market on Monday with the massive writedown, saying it had obtained a 13 billion Swiss franc
($11.52 billion) capital injection from the Singapore government and an unnamed Middle East investor.
"Everyone assumes there is more to come from other banks but UBS was seen by investors as being behind the curve," said a London-based analyst with a major British bank who asked not to be identified.
UBS's move puts pressure on other banks, especially those with large investment banking operations, to clear up any remaining overhang from the meltdown in U.S. subprime mortagages - loans made to borrowers with poor credit histories. [...]
Credit Crunch Reshapes Map of Banking Power -- For cash-rich investors in Asia and the Middle East, the credit crunch is proving to be a defining moment.
The broad pain caused by U.S. subprime mortgages -- as well as demand for capital for day-to-day operations and acquisitions -- is rapidly reshaping the global banking landscape, and these newfound investors are seizing the day. Western banks have taken in capital investments from these sources to the tune of $46 billion this year, with the potential for trillions of dollars more in coming years.
Monday, Swiss bank UBS AG, reeling from increasing subprime losses it identified in the past week, said it would sell a 10.8% stake to an investment arm of the Singapore government as well as a Middle Eastern investor that UBS didn't name. UBS's pact with the two investors was hashed out over a matter of days, as the bank raced to determine the extent of losses that followed its aggressively ramping up the business of underwriting risky debt pools known as collateralized debt obligations.
The deal is the latest in a spate this year in which state funds or banks in Asia and the Middle East have taken stakes in Western financial firms hobbled by exposure to subprime securities as well as for strategic reasons. UBS joins a growing list of Western banks, including Citigroup Inc., Bear Stearns Cos., Barclays PLC, and HSBC Holdings PLC, that have received capital investments this year. [...]
Time / via Paul Kedrosky:
Worst Business Deals of 2007
- The Public Invests in Blackstone Group
- Bear Stearns Cancels Everquest Financial IPO
- DaimlerChrysler Pays to Unload Chrysler
- Microsoft Overpays for Facebook
- Cerberus Abandons United Rentals
- KKR and Goldman Sachs Break Up with Harman
- J.C. Flowers Reneges on Sallie Mae
- Citigroup Sells Cheap to Abu Dhabi
- Bank of America Sinks $2 Billion in Countrywide Financial
- Virgin Money Bids for Northern Rock
AP / Motley Fool:
5 Charged in Alleged Mortgage Fraud -- Authorities announced charges Monday in what they say was a $4.9 million mortgage fraud scheme that led to two dozen homes going into default in north Minneapolis, an area that has been hit hard by the nationwide wave of home foreclosures.
Universal Mortgage Inc., based in Brooklyn Park, was cited along with its president, three employees and another man investigators said were involved in the scheme. Of the 24 homes involved, 23 are now in foreclosure, Hennepin County Attorney Mike Freeman said. [...]
Another WTF? Moment: Pending Home Sales Index Did Not Rise --
"The worst part of the credit crunch" is already reflected in the data, said Lawrence Yun, chief economist for the NAR . . . the data suggested the worst declines are over." — NAR [National Association of Realtors] release, December 10, 2007Um, no.
That is not what their own data suggested. (You can always tell when these folks are lying -- the clue will be their lips are moving). [...]
Realtors: Home Sweet Home Sales? Maybe, Maybe Not -- I’m not saying that the realtors are living in la-la land. They have a job to do. They have to sell houses for a living, and therefore it is in their best interests to put the most positive spin they can on the data they offer. I do, unlike some, believe their data, and I don’t think they futz with the numbers to their advantage.
That said, their analysis today leaves me scratching my head. The NAR’s Chief Economist, Lawrence Yun, claims things are already improving in housing and will continue to now because, “The credit crunch has worked itself through.” Hello?
Mortgage Pain Hits Prudent Borrowers -- Fannie Adds More Fees on Loans -- Even for Home Buyers With Good Credit; 'Jumbo' Rates Resume Upward Trend
Some of the costs of cleaning up the nation's mortgage crisis are beginning to hit innocent bystanders: people who pay their bills on time and avoid excessive debt.
Fannie Mae, the giant government-sponsored mortgage investor, last week raised costs for many borrowers by quietly adding a 0.25% up-front charge on all new mortgages that it buys or guarantees. On a $400,000 mortgage, that would mean an extra $1,000 in fees [...]
Wall Street Journal / via BigPicture:
U.S. Mortgage Crisis Rivals S&L Meltdown -- Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one.
The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments. The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong [...]