Of Profits, Writedowns & Defaults
The latest From Jubak's Journal:
We want "our Vig"... the housing industry showed incredible creativity when it came to qualifying people for mortgages they couldn't afford.
According to Moody's, lenders have eased terms on just 1% of the subprime mortgage loans that have reset in January, April and July of this year.
Ship it... Remember when we Nattered about the dry bulk and crude oil shippers and the Baltic Dry Index?
From Jubak: Shares of dry-bulk shippers are hot. How hot?
Thanks to rising U.S. exports, trade volumes in and out of U.S. ports seem to be equalizing. One indicator is the container market...
where a year ago only 32% of containers shipped from the port of Los Angeles were loaded. This August, the percentage loaded with cargo came to 41%.
Beating the number... eBay, Nokia, Pfizer, McGraw-Hill, UnitedHealth, Textron, Parker-Hannifin, Google, AMD, Sandisk, Harley Davidson, McDonald's, 3M & Xerox.
Missing the number... Honeywell missed by a penny on increased revenues & forward guidance.
Caterpillar cut its forecast, with North American revenue declining -12% in Q3 on slumping housing starts.
No immunity...
Schlumberger Ltd., the world's largest oilfield services provider reporting a Q3 35% increase in net income, but a 3% decline in North American revenue.
The bitter pill, the company beat analyst estimates partly because of lower tax rates on its international operations.
You heard right, "LBO writedowns"...
Wachovia, the 4th largest US Bank, missing estimates, posting $1.3 Billion in writedowns and it's 1st loss in 6 years as net income fell 10%.
The provision for credit losses rose to $408 million from $108 million. Corporate and investment bank earnings fell to $105 million from $533 million.
The bank wrote down $488 million of structured products tied to commercial mortgages, $103 million linked to consumer mortgages and $438 million in collateralized debt and loan obligations.
The writedown for leveraged buyout loans totaled $272 million. Thats right folks, as we've Nattered before on LBO paper downgrades & writedowns:
Wait till more of the LBO paper gets downgraded and the participants net income falls more than expected, expect major defaults on the LBO debt payments.
You heard right, "as net income falls"...
The S&P 500 Financials Index has dropped 9.9% this year. More than 33% of the 92 financial companies in the S&P 500 have reported Q3 results as of yesterday.
Financial firms account for about 19% of the S&P 500's value and produced 27% of the index's profits last quarter.
The financial sectors profit drop is the biggest since Bloomberg began tracking quarterly earnings growth in Q3 of 1997.
You heard right, "defaults on debt payments"...
Cheyne Finance Plc, the structured investment vehicle managed by hedge fund Cheyne Capital Management Ltd., will stop paying its debts.
According to Moody's Investors Service, Cheyne issued $8 billion of short-term debt to buy securities linked to home loans.
The receivers declared an "insolvency event," that means the SIV is unable to pay its debts when they are due.
Yesterday, Rhinebridge Plc, the $24 Billion SIV run by Dusseldorf, Germany-based IKB Deutsche Industriebank AG...
also had a "involvency event" and said it will not be able to repay all its debt.
You heard right, "its not a liquidity issue, its a solvency problem"...
Credit default swaps, contracts conceived to protect bondholders against default...
pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
The cost of credit-default swaps, rises when the perception of credit quality worsens. Today, credit default swaps rose the most in three months.
Leaking "like a SIV"...
U.S. ABCP asset backed commercial paper shrank for the 10th straight week, extending the worst slump in seven years.
The short term debt maturing in 270 days or less fell $11 billion in the week ended yesterday to a seasonally adjusted $888 billion.
Asset backed commercial paper outstanding had its largest decline since since Sept 26th, falling $6.8 Billion, and has tumbled 25% since the week ended Aug. 8.
Tony Crescenzi, chief bond market strategist at Miller Tabak & Co:
"The real issue is this might prolong the inevitable which is eventually financial entities will have to mark to market their assets.
Assets that right now have a market value much lower than is being placed on the books."
The Nattering One muses "like T-Mobile, expect more"...
Financial chicanery, bailouts, lower profits, outright losses, writedowns & downgrades on all forms of debt, and failures, both small & large.
Sit down, grab your popcorn and a seat, strap in and start screaming, cuz this horror show trainwreck is just getting started... Hat tip to Bloomberg.
We want "our Vig"... the housing industry showed incredible creativity when it came to qualifying people for mortgages they couldn't afford.
According to Moody's, lenders have eased terms on just 1% of the subprime mortgage loans that have reset in January, April and July of this year.
Ship it... Remember when we Nattered about the dry bulk and crude oil shippers and the Baltic Dry Index?
From Jubak: Shares of dry-bulk shippers are hot. How hot?
Thanks to rising U.S. exports, trade volumes in and out of U.S. ports seem to be equalizing. One indicator is the container market...
where a year ago only 32% of containers shipped from the port of Los Angeles were loaded. This August, the percentage loaded with cargo came to 41%.
Beating the number... eBay, Nokia, Pfizer, McGraw-Hill, UnitedHealth, Textron, Parker-Hannifin, Google, AMD, Sandisk, Harley Davidson, McDonald's, 3M & Xerox.
Missing the number... Honeywell missed by a penny on increased revenues & forward guidance.
Caterpillar cut its forecast, with North American revenue declining -12% in Q3 on slumping housing starts.
No immunity...
Schlumberger Ltd., the world's largest oilfield services provider reporting a Q3 35% increase in net income, but a 3% decline in North American revenue.
The bitter pill, the company beat analyst estimates partly because of lower tax rates on its international operations.
You heard right, "LBO writedowns"...
Wachovia, the 4th largest US Bank, missing estimates, posting $1.3 Billion in writedowns and it's 1st loss in 6 years as net income fell 10%.
The provision for credit losses rose to $408 million from $108 million. Corporate and investment bank earnings fell to $105 million from $533 million.
The bank wrote down $488 million of structured products tied to commercial mortgages, $103 million linked to consumer mortgages and $438 million in collateralized debt and loan obligations.
The writedown for leveraged buyout loans totaled $272 million. Thats right folks, as we've Nattered before on LBO paper downgrades & writedowns:
Wait till more of the LBO paper gets downgraded and the participants net income falls more than expected, expect major defaults on the LBO debt payments.
You heard right, "as net income falls"...
The S&P 500 Financials Index has dropped 9.9% this year. More than 33% of the 92 financial companies in the S&P 500 have reported Q3 results as of yesterday.
Financial firms account for about 19% of the S&P 500's value and produced 27% of the index's profits last quarter.
The financial sectors profit drop is the biggest since Bloomberg began tracking quarterly earnings growth in Q3 of 1997.
You heard right, "defaults on debt payments"...
Cheyne Finance Plc, the structured investment vehicle managed by hedge fund Cheyne Capital Management Ltd., will stop paying its debts.
According to Moody's Investors Service, Cheyne issued $8 billion of short-term debt to buy securities linked to home loans.
The receivers declared an "insolvency event," that means the SIV is unable to pay its debts when they are due.
Yesterday, Rhinebridge Plc, the $24 Billion SIV run by Dusseldorf, Germany-based IKB Deutsche Industriebank AG...
also had a "involvency event" and said it will not be able to repay all its debt.
You heard right, "its not a liquidity issue, its a solvency problem"...
Credit default swaps, contracts conceived to protect bondholders against default...
pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
The cost of credit-default swaps, rises when the perception of credit quality worsens. Today, credit default swaps rose the most in three months.
Leaking "like a SIV"...
U.S. ABCP asset backed commercial paper shrank for the 10th straight week, extending the worst slump in seven years.
The short term debt maturing in 270 days or less fell $11 billion in the week ended yesterday to a seasonally adjusted $888 billion.
Asset backed commercial paper outstanding had its largest decline since since Sept 26th, falling $6.8 Billion, and has tumbled 25% since the week ended Aug. 8.
Tony Crescenzi, chief bond market strategist at Miller Tabak & Co:
"The real issue is this might prolong the inevitable which is eventually financial entities will have to mark to market their assets.
Assets that right now have a market value much lower than is being placed on the books."
The Nattering One muses "like T-Mobile, expect more"...
Financial chicanery, bailouts, lower profits, outright losses, writedowns & downgrades on all forms of debt, and failures, both small & large.
Sit down, grab your popcorn and a seat, strap in and start screaming, cuz this horror show trainwreck is just getting started... Hat tip to Bloomberg.
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