Sanguine on ExSanguination Part IV

Today, IKB Deutsche Industriebank AG issued a profit warning and said its CEO had resigned amid what it called the "impact of the crisis" in the U.S. subprime mortgage market.

IKB, a bank that focuses on small and medium-sized companies, said that profit will be "significantly" lower than forecast because of losses on bonds linked to subprime loans.

Sounding much like Fed officials... Ten days ago, the company said it wouldn't be affected. Today, shares plunged 22%...

More Fed like speak heard just a few weeks ago in the "Overpaid Executive Liars Club"...

Merrill Lynch CEO Stanley O'Neal said he saw "no clear signs" that rising delinquencies on subprime U.S. mortgages were hurting the rest of the debt markets.

Lehman Brothers CFO Christopher O'Meara in a June 12 conference "we continue to believe that subprime market challenges are and will continue to be reasonably contained."

Bear Stearns CFO Sam Molinaroon June 14 said that while the declining value of subprime bonds was "a challenge" for the firm, "it hasn't spilled into other areas of the market."

JPMorgan Chase CEO Jamie Dimon told investors on a July 18 conference call that waning demand for loans used in LBO's was just "a little freeze."

Goldman Sachs CFO David Viniar on June 14th: "Subprime continues to be weak" and yet "there's very little effect on other credit markets."

Meanwhile, global markets lost $2.1 trillion last week as credit-default swaps have risen more quickly in the past two months than in any other eight-week span in the past seven years.

105 US mortgage lenders
have imploded, #1 Subprime lender New Century Financial filed BK in May. Delinquency rates on sub prime loans are at a double digit all time high.

Hedge funds and insurers have reported declines in their subprime investments after adjusting their value to reflect the falls, a process known as marking to market.

As investors balked at buying loans and bonds, banks were forced to take on at least $32 billion of debt. In mid-June, Bear Stearns Cos. hedge funds posted losses and later collapsed.

Blackstone Group LP stepped in to advise Sydney-based Basis Capital Fund Management Ltd. and Absolute Capital Group Ltd., partly owned by ABN Amro Holding NV, froze investor accounts.

Last week, a Citigroup report indicated that government sponsored enterprises FNMA & FHLMC may have initial quarterly losses of $4.7 Billion on CDO RMBS derivatives tied to sub prime.

HSBC Holdings Europe's largest bank, said first-half profit rose 25%, despite rising costs from bad mortgage loans in the U.S. Bad loan provisions rising 64% to $6.4 Billion.

Matt Howlett, an analyst at Fox-Pitt Kelton Inc: "It's clear now we're in a liquidity crisis. Any loans that aren't pure prime are falling in value." Speaking of Alt-A or prime loans...

The consumer "revolving credit" end of this is starting to rear its ugly head.

Motor homes, motorcycles, boats, cars and all variety of luxury "toys" are being hocked or repo-ed in an effort to keep the roof over one's head.

The 20th largest ALT-A lender American Home Mortgage said it wrotedown assets, delayed a divident and that Wall Street firms and lenders are demanding more collateral.

Adding concern that bad loans in the U.S. have spread beyond subprime borrowers who have the worst credit records.

On July 24th, Countrywide Financial, the largest U.S. mortgage lender, said delinquencies are spreading to more borrowers with good credit histories.

Countrywide attributed a big drop in profits to a spike in delinquencies among prime borrowers of "second-lien loans," including home equity loans and home equity lines of credit.

The subprime mortgage meltdown has begun to spread to prime-rate loans as even credit-worthy borrowers have started to fall behind on payments.

In the past, mortgage delinquencies were tied to personal problems or basic economic reversals, such as a job loss. Today, many delinquencies can be traced to unaffordably high home prices.

Unable to afford their own homes, [borrowers] turned to increasingly risky mortgage products. Many of them piggybacked on a first mortgage lien.

Some home buyers, caught up in red-hot markets and afraid of getting locked out of homeownership forever, overpaid for houses.

As long as prices escalated, they were able to tap the added equity in their properties to cover debts.

But now as home prices are falling, putting loan to value ratios underwater, lenders are cutting back on second-lien loans.

Unlike the Fed & "Overpaid Executive Liars Club" which are both out to manage expectations.... the Nattering One muses.

Since late May HGX (housing) -23%; XLF (financials) 13.5%, RTH (retailers) -7%, in the last week DJTA (transports) -9.6%; global markets -5 to 6%.

Most disturbing of all and to be found filed under MBS for mortgage bleed and spillover...

the ACBQ
America's Community Bankers Index which tracks exactly what the name implies. Since late May -12%, since late Dec -19%.

Too many low-no down fixed & ARM loans with suspect underwriting, stated income and bogus appraisals will all combine to continue the spill over or bleed of sub prime "slime" into Alt-A and Prime.

And the quality of debt in this market is ALL suspect due to a blatant conflict of interest on the part of the ratings agencies and Wall Street brokers who have collected their fees.

This little party will really get started in earnest when supposed prime and "AAA" debt starts failing.

And that day is not far off as this market has been tiptoeing through "the tulips" and is about to stumble into a very nasty mine field.

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