Leaking SIV's, Downgrades, B of A & Countrywide
Leaking like a SIV or Whats in your money market fund? ... The amount of ABCP asset-backed commercial paper has declined 29% to $845.2 billion from a peak of $1.18 trillion on Aug. 8.
The decline has forced structured funds to sell at least $75 billion of assets to pay off investors, dropping SIV assets to about $320 billion since July.
The most recent disclosures by the 10 largest money market fund managers show that eight of them held a combined $49.8 billion in SIV commercial paper or medium-term notes.
The average net asset value of SIVs has declined 31%, down to 71% at the beginning of November from 102% in June.
At least four companies -- Legg Mason, SunTrust, SEI Investments Co. and Wachovia Corp. -- have stepped in to make sure their funds don't fall below $1 a share NAV net asset value.
SunTrust Banks received approval from regulators last month to protect two money funds that bought debt from Cheyne Finance Plc if the SIV is unable to repay them.
Legg Mason invested $100 million in one of its money funds and arranged $238 million in credit for two others. Further debt rating downgrades may force liquidations.
Manageable Write Down? Bank of America , the second largest U.S. bank,
said on Tuesday it has suffered a $3 billion loss stemming from its exposure to collateralized debt obligations.
CFO Joe Price said Bank of America is setting aside more money for potential losses elsewhere, but considers the losses "manageable."
Price also said the pretax loss would be reflected in Q4 results, and "as market conditions change and possibly worsen, there could be additional diminution in value."
Regarding Level 3 Assets: "There is complexity and difficulty in estimating the value of these positions, especially the collateralized debt obligations squared structures."
No difficulty here... CEO Lloyd Blankfein of Goldman Sachs regarding Level 3 assets:
"We're confident we have a grip on the valuation of these things." Blankfein reiterated that the company will not announce a further write down.
He also said the firm is still betting that mortgage-backed securities and collateralized debt obligations will decline in value.
Sinking Optimism... Countrywide (stock down 69% YTD) said October mortgage loan volume fell 48% from a year earlier, and lost $1.2 billion in Q3.
The largest US mortgage lender expects to be profitable this quarter and in 2008, despite a projected 30% drop next year in U.S. mortgage volume.
Countrywide warned that it would have difficulty accessing the public corporate debt market if its debt rating was cut to junk.
CDO Downgrade... putting new pressure on investment banks to write down the value of their assets.
Credit rating agency Fitch Ratings downgraded the ratings on $37.2 billion in CDO collateralized debt obligations that were part of 84 transactions.
Fitch updated its loss assumptions based on the increasing defaults of underlying collateral like subprime mortgages before reviewing the CDOs performance to determine if it would downgrade the debt.
Financial services firms, having already taken substantial writedowns related to CDOs for Q3, are now starting to warn of similar moves for Q4.
The decline has forced structured funds to sell at least $75 billion of assets to pay off investors, dropping SIV assets to about $320 billion since July.
The most recent disclosures by the 10 largest money market fund managers show that eight of them held a combined $49.8 billion in SIV commercial paper or medium-term notes.
The average net asset value of SIVs has declined 31%, down to 71% at the beginning of November from 102% in June.
At least four companies -- Legg Mason, SunTrust, SEI Investments Co. and Wachovia Corp. -- have stepped in to make sure their funds don't fall below $1 a share NAV net asset value.
SunTrust Banks received approval from regulators last month to protect two money funds that bought debt from Cheyne Finance Plc if the SIV is unable to repay them.
Legg Mason invested $100 million in one of its money funds and arranged $238 million in credit for two others. Further debt rating downgrades may force liquidations.
Manageable Write Down? Bank of America , the second largest U.S. bank,
said on Tuesday it has suffered a $3 billion loss stemming from its exposure to collateralized debt obligations.
CFO Joe Price said Bank of America is setting aside more money for potential losses elsewhere, but considers the losses "manageable."
Price also said the pretax loss would be reflected in Q4 results, and "as market conditions change and possibly worsen, there could be additional diminution in value."
Regarding Level 3 Assets: "There is complexity and difficulty in estimating the value of these positions, especially the collateralized debt obligations squared structures."
No difficulty here... CEO Lloyd Blankfein of Goldman Sachs regarding Level 3 assets:
"We're confident we have a grip on the valuation of these things." Blankfein reiterated that the company will not announce a further write down.
He also said the firm is still betting that mortgage-backed securities and collateralized debt obligations will decline in value.
Sinking Optimism... Countrywide (stock down 69% YTD) said October mortgage loan volume fell 48% from a year earlier, and lost $1.2 billion in Q3.
The largest US mortgage lender expects to be profitable this quarter and in 2008, despite a projected 30% drop next year in U.S. mortgage volume.
Countrywide warned that it would have difficulty accessing the public corporate debt market if its debt rating was cut to junk.
CDO Downgrade... putting new pressure on investment banks to write down the value of their assets.
Credit rating agency Fitch Ratings downgraded the ratings on $37.2 billion in CDO collateralized debt obligations that were part of 84 transactions.
Fitch updated its loss assumptions based on the increasing defaults of underlying collateral like subprime mortgages before reviewing the CDOs performance to determine if it would downgrade the debt.
Financial services firms, having already taken substantial writedowns related to CDOs for Q3, are now starting to warn of similar moves for Q4.
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