A Harbinger of Things to Come?
Tidbits from Bloomberg (hat tip) with lots of Nattering love, cuz we care... Deja Vu All Over Again... or a harbinger of things to come?
Does anyone remember what happened on March 3rd & April 3rd, 2000? Flashback: March 3rd commenced the Dot.com stock market bubble implosion on the Nasdaq.
The bubble burst 40% through 09/01/00, after which it became broadbased with all major indices & sectors enjoined until 10/10/02 with the NAZ losing 80%.
However, from an investor confidence standpoint, it was April 3rd, 2000 that really kicked things off the ledge. At that point, the SP500 was "only" down 16% & the NAZ 18%.
What happened on that fateful day? After 2 years of legal wrangling, Microsoft was dealt a decisive antitrust defeat by the US Justice Dept.
Flashforward: Today, another decisive antitrust defeat... for Microsoft.
a European Union court upheld a landmark ruling that Microsoft, the world's largest software maker had abused its dominant market position to crush rivals.
The second-highest EU court dismissed the company's appeal on all key points against the 2004 European Commission ruling and upheld a record $689.9 million fine.
The court said Microsoft was unjustified in tying new applications to its Windows operating system in a way that squeezed out rivals and harmed consumer choice.
Will the stock markets history repeat itself as well?
Bear Avoidance.... last quarter according to Bloomberg.
Fixed-income trading, the industry's biggest source of revenue, faltered as sales of mortgage and asset-backed securities dropped 36%.
Banks also stopped financing new leveraged buyouts, which provided $8.4 billion of fees in the first half, as they struggle to clear a backlog of $350 billion in loan commitments.
The value of announced private- equity transactions (LBO's) fell to $19.2 billion last month from $87.4 billion in July and $131.1 billion in June.
One index that tracks the value of mortgage securities, the ABX BBB 07-01 Index, fell 51% from the end of May to the end of August.
Another that reflects speculation on leveraged loans, the LCDX Index, fell about 5% during the period.
Taking stock... Bear Stearns, the 2nd largest underwriter of U.S. mortgage bonds, down 33%.
Lehman, the 4th largest U.S. securities firm, has fallen 24%, which would be the firm's steepest drop since its initial public offering in 1994.
Goldman the world's largest securities firm by market value, has fallen 4.4%, the biggest decline since 2002...
and Morgan Stanley, the 2nd largest securities firm is down 2.2%.
Profit declines... Bear Stearns will probably will report a 41% drop in EPS, Morgan Stanley may post an 11% decline and Lehman Brothers may say profit fell 5.1%.
Goldman Sachs earnings probably jumped 33%, after a gain of as much as $1 billion from the one off sale of Horizon Wind Energy LLC.
Merrill Lynch, the 3rd largest trading firm reports in mid October. Ex Goldman Sachs, last quarter becomes the biggest earnings drop since Q4 of 2001.
More Northern Exposure... Northern Rock customers are still lining up to withdraw their savings, Friday, stock down 30%, today another 36% decline.
Has somebody actually been reading this blog? ... Former Fed Head Alan Greenspan:
"Earlier in the year, I was talking about a one-third probability of a recession. It's come up somewhat, but it's still at this stage somewhat less than 50%.
But if the whole thing festers, it will erode household balance sheets and eventually impact on what the critical support has been in this economy: consumer expenditures.
Disinflation is probably close to its peak now, and obviously as disinflation eases, inflation of necessity is picking up.
I think we're going to have to go through this adjustment, as indeed all the other countries are in the process of going through it.
There are going to be a lot of people who will have very tragic stories."
The Nattering One reminds: disinflation is not deflation, but a decrease in the rate of inflation.
Inflation of necessity is during periods of growth, since we are in contraction... Uncle Al is really saying, stagflation will increase.
Falling down like a stuck pig...
Credit Suisse Group, Citigroup Inc. and JPMorgan Chase & Co. are taking losses on leveraged buyout loans to prevent deals from falling apart and avoid getting stuck with as much as $320 billion in debt.
JPMorgan and Lehman Brothers reneged on some $1.8 billion in lending commitments for PHH, the mortgage lender that agreed to be bought by General Electric and Blackstone Group.
According to a statement by PHH today... Blackstone, which planned to buy PHH's mortgage business, failed to get $750 million in loans and told GE in a letter:
that JPMorgan Chase and Lehman Brothers "revised interpretations" about whether enough debt financing would be available to complete the $1.8 billion purchase.
Stuck pig becomes sour pork... Blackstone shares, the bulk of which were purchased by the Chinese Government in a June IPO at $31, have plunged to $23.92.
Deutsche Bank , Germany's biggest bank, and JPMorgan, the No. 3 U.S. bank, found suckers, er, buyers...
last week for the highest-yielding loans financing KKR's purchase of U.K. pharmacist Alliance Boots. Investors agreed to buy the loans at 95 cents on the dollar.
Credit Suisse cut the price on debt from the $14 Billion First Data buyont to 96 cents on the dollar, the discount alone could cost about $200 million.
Banks led by Citigroup, the biggest U.S. bank, which is down 16% YTD, sold $1 billion of loans for the Allison purchase for 96 cents on the dollar.
Banks lose money when they sell loans at a discount. The sales also reduce the value of the debt that remains on their balance sheets.
This means that banks may have to write down as much as $25 billion of loans and bonds on their books.
Citibank and the next shoe to drop... :
We've Nattering before re: $400 Billion LBO stuck in the pipe, $550 Billion in ABCP rolling in the next 90 days, and Citibanks exposure through off balance sheet SIV's.
More validation as Flecks latest reiterates our concerns re: secretive off balance entities (SIV's, conduits)
"Daylight is the enemy of chicanery, as you can't attempt to understand what you can't see. Investors are being choosier about what they own.
creating the illiquid environment that the short-term money-market funds and the banks currently find themselves in.
For the banks, this comes at an inconvenient time because they're trying to figure out how to deal with the $300 billion plus of leveraged buyouts they've committed to finance.
Conduits tend to roll at the same time. And last week was one of those occasions when a considerable amount -- more than $100 billion -- of asset-backed commercial paper needed to be rolled."
Re: SIV's & conduits, our homegrown Citigroup appears to have plenty of exposure.
Citigroup owns the following SIV's: Beta Finance, Centauri, Dorada, Five Finance, Sedna Finance, Vetra Finance and Zela Finance.
From a portfolio commentary issued by Citigroup: "1st, Citigroup notes that Beta Finance, is leveraged "only 14.24 times."
Thus, Citigroup, a leveraged entity, owns a gaggle of leveraged S&Ls.
It's worth noting that the net asset value of Beta Finance has declined 19% from its high and that Citigroup's other conduits are apparently down a similar amount.
2nd, "We highlight that all U.S. CMBS exposure is supersenior."
implying that there might be a problem with lesser-rated tranches of commercial mortgaged-backed paper."
The Nattering One muses... To, date CMBS has received little ink.... Bullwinkle: OH NO!!! Rocky: Again!, that trick never works.
Does anyone remember what happened on March 3rd & April 3rd, 2000? Flashback: March 3rd commenced the Dot.com stock market bubble implosion on the Nasdaq.
The bubble burst 40% through 09/01/00, after which it became broadbased with all major indices & sectors enjoined until 10/10/02 with the NAZ losing 80%.
However, from an investor confidence standpoint, it was April 3rd, 2000 that really kicked things off the ledge. At that point, the SP500 was "only" down 16% & the NAZ 18%.
What happened on that fateful day? After 2 years of legal wrangling, Microsoft was dealt a decisive antitrust defeat by the US Justice Dept.
Flashforward: Today, another decisive antitrust defeat... for Microsoft.
a European Union court upheld a landmark ruling that Microsoft, the world's largest software maker had abused its dominant market position to crush rivals.
The second-highest EU court dismissed the company's appeal on all key points against the 2004 European Commission ruling and upheld a record $689.9 million fine.
The court said Microsoft was unjustified in tying new applications to its Windows operating system in a way that squeezed out rivals and harmed consumer choice.
Will the stock markets history repeat itself as well?
Bear Avoidance.... last quarter according to Bloomberg.
Fixed-income trading, the industry's biggest source of revenue, faltered as sales of mortgage and asset-backed securities dropped 36%.
Banks also stopped financing new leveraged buyouts, which provided $8.4 billion of fees in the first half, as they struggle to clear a backlog of $350 billion in loan commitments.
The value of announced private- equity transactions (LBO's) fell to $19.2 billion last month from $87.4 billion in July and $131.1 billion in June.
One index that tracks the value of mortgage securities, the ABX BBB 07-01 Index, fell 51% from the end of May to the end of August.
Another that reflects speculation on leveraged loans, the LCDX Index, fell about 5% during the period.
Taking stock... Bear Stearns, the 2nd largest underwriter of U.S. mortgage bonds, down 33%.
Lehman, the 4th largest U.S. securities firm, has fallen 24%, which would be the firm's steepest drop since its initial public offering in 1994.
Goldman the world's largest securities firm by market value, has fallen 4.4%, the biggest decline since 2002...
and Morgan Stanley, the 2nd largest securities firm is down 2.2%.
Profit declines... Bear Stearns will probably will report a 41% drop in EPS, Morgan Stanley may post an 11% decline and Lehman Brothers may say profit fell 5.1%.
Goldman Sachs earnings probably jumped 33%, after a gain of as much as $1 billion from the one off sale of Horizon Wind Energy LLC.
Merrill Lynch, the 3rd largest trading firm reports in mid October. Ex Goldman Sachs, last quarter becomes the biggest earnings drop since Q4 of 2001.
More Northern Exposure... Northern Rock customers are still lining up to withdraw their savings, Friday, stock down 30%, today another 36% decline.
Has somebody actually been reading this blog? ... Former Fed Head Alan Greenspan:
"Earlier in the year, I was talking about a one-third probability of a recession. It's come up somewhat, but it's still at this stage somewhat less than 50%.
But if the whole thing festers, it will erode household balance sheets and eventually impact on what the critical support has been in this economy: consumer expenditures.
Disinflation is probably close to its peak now, and obviously as disinflation eases, inflation of necessity is picking up.
I think we're going to have to go through this adjustment, as indeed all the other countries are in the process of going through it.
There are going to be a lot of people who will have very tragic stories."
The Nattering One reminds: disinflation is not deflation, but a decrease in the rate of inflation.
Inflation of necessity is during periods of growth, since we are in contraction... Uncle Al is really saying, stagflation will increase.
Falling down like a stuck pig...
Credit Suisse Group, Citigroup Inc. and JPMorgan Chase & Co. are taking losses on leveraged buyout loans to prevent deals from falling apart and avoid getting stuck with as much as $320 billion in debt.
JPMorgan and Lehman Brothers reneged on some $1.8 billion in lending commitments for PHH, the mortgage lender that agreed to be bought by General Electric and Blackstone Group.
According to a statement by PHH today... Blackstone, which planned to buy PHH's mortgage business, failed to get $750 million in loans and told GE in a letter:
that JPMorgan Chase and Lehman Brothers "revised interpretations" about whether enough debt financing would be available to complete the $1.8 billion purchase.
Stuck pig becomes sour pork... Blackstone shares, the bulk of which were purchased by the Chinese Government in a June IPO at $31, have plunged to $23.92.
Deutsche Bank , Germany's biggest bank, and JPMorgan, the No. 3 U.S. bank, found suckers, er, buyers...
last week for the highest-yielding loans financing KKR's purchase of U.K. pharmacist Alliance Boots. Investors agreed to buy the loans at 95 cents on the dollar.
Credit Suisse cut the price on debt from the $14 Billion First Data buyont to 96 cents on the dollar, the discount alone could cost about $200 million.
Banks led by Citigroup, the biggest U.S. bank, which is down 16% YTD, sold $1 billion of loans for the Allison purchase for 96 cents on the dollar.
Banks lose money when they sell loans at a discount. The sales also reduce the value of the debt that remains on their balance sheets.
This means that banks may have to write down as much as $25 billion of loans and bonds on their books.
Citibank and the next shoe to drop... :
We've Nattering before re: $400 Billion LBO stuck in the pipe, $550 Billion in ABCP rolling in the next 90 days, and Citibanks exposure through off balance sheet SIV's.
More validation as Flecks latest reiterates our concerns re: secretive off balance entities (SIV's, conduits)
"Daylight is the enemy of chicanery, as you can't attempt to understand what you can't see. Investors are being choosier about what they own.
creating the illiquid environment that the short-term money-market funds and the banks currently find themselves in.
For the banks, this comes at an inconvenient time because they're trying to figure out how to deal with the $300 billion plus of leveraged buyouts they've committed to finance.
Conduits tend to roll at the same time. And last week was one of those occasions when a considerable amount -- more than $100 billion -- of asset-backed commercial paper needed to be rolled."
Re: SIV's & conduits, our homegrown Citigroup appears to have plenty of exposure.
Citigroup owns the following SIV's: Beta Finance, Centauri, Dorada, Five Finance, Sedna Finance, Vetra Finance and Zela Finance.
From a portfolio commentary issued by Citigroup: "1st, Citigroup notes that Beta Finance, is leveraged "only 14.24 times."
Thus, Citigroup, a leveraged entity, owns a gaggle of leveraged S&Ls.
It's worth noting that the net asset value of Beta Finance has declined 19% from its high and that Citigroup's other conduits are apparently down a similar amount.
2nd, "We highlight that all U.S. CMBS exposure is supersenior."
implying that there might be a problem with lesser-rated tranches of commercial mortgaged-backed paper."
The Nattering One muses... To, date CMBS has received little ink.... Bullwinkle: OH NO!!! Rocky: Again!, that trick never works.
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