The $2 Trillion Cut & FNMA 10Q Chicanery
The $2 Trillion Cut... In July, waxing optimistic, Bennie & The InkJets gave an estimate for subprime related credit losses of between $50 billion and $100 billion.
Goldman Sachs chief economist Jan Hatzius: "Even at the time, these numbers seemed quite optimistic. It is clear to most observers that they are far too low.
At present, we believe that a reasonable estimate would peg expected credit losses on the currently outstanding stock of mortgages in the $300-$400 billion range."
Hatzius sees the potential for $400 Billion in write downs, which could cause a $2 Trillion cut in lending, triggering the risk of a "substantial recession".
"If leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion.
Even if this occurs gradually, and even if there are some offsets from reduced credit demand and increased lending by other sectors, the drag on economic activity could be substantial."
Fannie's 10Q Chicanery... two days ago Fortune reported on Fannie's Fuzzy 10Q math...
Today, FNMA - Fannie Mae shares plunged 10% to their lowest in more than a decade after the company completed a conference call regarding their 10Q.
The 2 day decline is the worst since 1987 and the stock has lost more than 20% this week. Last week, Fannie reported a doubling in its Q3 loss to $1.39 billion.
The net loss was caused by a $2.24 billion decline in the value of derivative contracts
and $1.2 billion in credit losses among the $2.7 trillion of mortgage assets Fannie Mae owns or guarantees.
A change in two accounting policies affected Fannies recently filed 10-Q and may have understated Fannies YTD loss ratio.
The changes resulted in 4 basis points or $600 Million in as of yet unrealized losses,
rather than 7.5 under the old accounting method which would have caused an additional $550 Million in losses.
Fannie Mae CEO Daniel Mudd warned that the company's loss ratio could rise to eight to 10 basis points in 2008 ($1.5 Billion)
However, based on the old methodology for calculating the loss ratio, in Q3 alone,
the company's annualized loss ratio has already accelerated to 14 basis points ($2.1 Billion).
The Nattering One muses... according to the 10Q, Fannie Mae has exposure to $74 billion of loans with a FICO credit score below 620 (subprime)...
and to $196 billion of Alt-A mortgages, yet Fannie retains only $40 Billion of capital.
Congress wants to temporarily lift the portfolio limits on Fannie and Freddie Mac, so the lenders can buy more subprime mortgages to help stave off foreclosures. Brillant eh?
Cutting again... #2 package delivery company FedEx cut its outlook for a second time in three months...
reducing its quarterly and annual profit forecast for the current quarter, citing higher fuel prices and weaker demand.
CFO: "Since we provided earnings guidance for the second quarter in September, our fuel costs have increased more than 8%, or $85 million."
Perhaps less people are sipping on $6 lattes and frappucchinos?
Stirring up concern at Starbucks.... Joining WalMart, FedEx, UPS, Kohl's, JCPenney, Macy's & Caterpillar...
The worlds largest coffee store chain beat the number, but issued downward forward guidance.
Starbuck's reported its first quarterly decline in traffic at its US stores and announced plans for its first ever television advertising campaign.
Thus, acknowledging that its supposedly “recession proof” sales were feeling the impact of broader slowdown in US consumer spending.
Goldman Sachs chief economist Jan Hatzius: "Even at the time, these numbers seemed quite optimistic. It is clear to most observers that they are far too low.
At present, we believe that a reasonable estimate would peg expected credit losses on the currently outstanding stock of mortgages in the $300-$400 billion range."
Hatzius sees the potential for $400 Billion in write downs, which could cause a $2 Trillion cut in lending, triggering the risk of a "substantial recession".
"If leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion.
Even if this occurs gradually, and even if there are some offsets from reduced credit demand and increased lending by other sectors, the drag on economic activity could be substantial."
Fannie's 10Q Chicanery... two days ago Fortune reported on Fannie's Fuzzy 10Q math...
Today, FNMA - Fannie Mae shares plunged 10% to their lowest in more than a decade after the company completed a conference call regarding their 10Q.
The 2 day decline is the worst since 1987 and the stock has lost more than 20% this week. Last week, Fannie reported a doubling in its Q3 loss to $1.39 billion.
The net loss was caused by a $2.24 billion decline in the value of derivative contracts
and $1.2 billion in credit losses among the $2.7 trillion of mortgage assets Fannie Mae owns or guarantees.
A change in two accounting policies affected Fannies recently filed 10-Q and may have understated Fannies YTD loss ratio.
The changes resulted in 4 basis points or $600 Million in as of yet unrealized losses,
rather than 7.5 under the old accounting method which would have caused an additional $550 Million in losses.
Fannie Mae CEO Daniel Mudd warned that the company's loss ratio could rise to eight to 10 basis points in 2008 ($1.5 Billion)
However, based on the old methodology for calculating the loss ratio, in Q3 alone,
the company's annualized loss ratio has already accelerated to 14 basis points ($2.1 Billion).
The Nattering One muses... according to the 10Q, Fannie Mae has exposure to $74 billion of loans with a FICO credit score below 620 (subprime)...
and to $196 billion of Alt-A mortgages, yet Fannie retains only $40 Billion of capital.
Congress wants to temporarily lift the portfolio limits on Fannie and Freddie Mac, so the lenders can buy more subprime mortgages to help stave off foreclosures. Brillant eh?
Cutting again... #2 package delivery company FedEx cut its outlook for a second time in three months...
reducing its quarterly and annual profit forecast for the current quarter, citing higher fuel prices and weaker demand.
CFO: "Since we provided earnings guidance for the second quarter in September, our fuel costs have increased more than 8%, or $85 million."
Perhaps less people are sipping on $6 lattes and frappucchinos?
Stirring up concern at Starbucks.... Joining WalMart, FedEx, UPS, Kohl's, JCPenney, Macy's & Caterpillar...
The worlds largest coffee store chain beat the number, but issued downward forward guidance.
Starbuck's reported its first quarterly decline in traffic at its US stores and announced plans for its first ever television advertising campaign.
Thus, acknowledging that its supposedly “recession proof” sales were feeling the impact of broader slowdown in US consumer spending.
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