Real Estate Wednesday continues with this short list, pulled from New Century’s bankrupcy filing (Why do I have to go across the pond to find stuff like this?)
"Goldman Sachs has emerged as the single biggest creditor of New Century, the American sub-prime mortgage lender, which filed for Chapter 11 bankruptcy last night, after writing $60 billion (£30.4 billion) of American home loans.
Barclays, the British bank, is at No 15 in the list of top 50 creditors. HSBC, which is already directly exposed to turmoil in the sub-prime market through its US sub-prime lending subsidiary, is at No 22."
Here’s the top lenders to New Century, which prior to their Chapter 11 bankruptcy filing, had borrowed over $60 billion to underwrite sub-prime home loans.
Top 15 Creditors (by Size) to New Century
1 Goldman Sachs Mortgage Company
2 Credit Suisse First Boston Mortgage Capital LLC
3 Credit-Based Asset Servicing and Securitization LLC
4 Morgan Stanley Mortgage Capital
5 DB Structured Products
6 Deutsche Bank
7 Bank of America
8 UBS Real Estate Securities
9 Lehman Brothers Bank FSB
11 Citigroup Global Markets Realty
12 Residential Funding Corporation
13 SG Mortgage Finance
14 IXIS Real Estate Capital
15 Barclays Bank
Crazy stuff . . .
New Century collapse sends shockwaves across the biggest lenders on Wall Street
The Times, April 4, 2007
I wonder if Goldman has a ‘clawback’ provision for all those year-end bonuses?
do the math. the article claims barclays lent $1B out of $50…
barclays is only #15 among the banks.
so goldman probably lent anywhere from 3-5 Billion to New Century.
But then there are the other banktupt subprime lenders. And the lenders going bankrupt.
These investment banks may have a rough year.
Is there any data as to how much of it was hedged with credit-default swaps?
If Goldman was fully hedged, who were the greedy hogs on the other side of this trade? (Greed was definitely bad for their brains. In this game, if you cannot spot the hog — well, then you are the hog.)
I guess, we will soon find out…
Single biggest creditor (by size) would be true if GS were owed $1. This is either poorly worded or a slick deception. How much is GS on the hook for?
60 billion is the debt covered in the C11, GS is the biggest (by size). Something important is missing here.
if they’re not hedged, we might see the ‘few bad apples argument’ and then the compulsory castration of a few of the enlisted.
if they’re hedged, my bet is you’ll see numerous lawsuits from parties on the other side claiming they were deceived into the trade.
Andi, no deception or slick wording. Goldman probably lent the most money.
Bank or America, also a creditor is more than twice as big as Goldman when it comes to size of the company (what you are referring to).
GS Puts anyone?
There was also this yesterday from Roddy Boyd of the New York Post: “Indeed, the worry about credit deterioration forced M&T, which has about $57 billion in assets, to acknowledge that recent auctions of newly minted alt-A loans have fetched fewer bids than expected.
Also, the bank transferred $883 million worth of alt-A loans into its investment portfolio from its held-for-sale account, indicating their inability to be sold.”
And Panzner quoted the IMF concern about “liquidity disturbances’ in the dirivatives market in his book: Financial Armageddon: “investors in structured credit products risk not being able to sell or obtain an acceptable price following a market downturn because buyers may shun the fast-growing market.”
Latest Headline: Goldilocks Sold Into White-Slave Trade by Desperate Fund Manager!
but it’s not gonna spread,right? i mean it’s different this time.goldilocks is coming in for a soft landing. the blue bird of happiness is flying through the window of opportunity. we’re shitting in tall cotten,right? get you alittle skf
If these companies are sitting on large losses wouldnt they have to disclose the losses?
A laundry list of disturbing thoughts:
Markets are effiscient (pricing and risks)
Markets are clairvoyant.
Accounting is a passive and true reflection of reality.
Rating agencies are reliable indicators of risk assessments.
Quartely presentation of incomes and profits a useful guide for decision process
Lowered productivity reflected in large year end bonuses (without even mentioning the Global Alpha Fund) seems to make sense now!
“GS Puts anyone?”
Nah, don’t go there, you will lose. Having merged with the US Govt last July, GS is a special case even within the oligarchy and has a net under it woven out of the wallets of John Q Sucker.
Worst case is that they work out a deal where they take over assets that have been stolen from the peasants at foreclosure sales, sit on them for a while, then sell them at a revived market rate which doesn’t have to be especially good to make money or at least break even.
The mystery to me is how Countrywide wound up being a big creditor considering it is just another subprime crap company? Were they lending money to a competitor and was that what their own lenders expected them to do?
Anyway, this whole thing will continue to be presented as no big deal until the layoffs continue to spread- I am guessing that the MSM will go into alarm mode around June or whenever Helicopter Ben cuts rates. But I am not playing options this time, just TLT.
“The mystery to me is how Countrywide wound up being a big creditor considering it is just another subprime crap company? Were they lending money to a competitor and was that what their own lenders expected them to do?”
My guess is that they (Countrywide)were buying loans to repackage under their own securitizations, and may have had a warehouse loan toward that end.
I have no facile understanding of these things, but this is language out of the prospectus for one on NC’s securitizations. Seems to me that the loans could be pulled back into New Century from the real estate trust to satisfy creditors. I cannot make the bond holders feel too secure. It’s worth noting that this language is in most of the securitizations that I’ve read. Perhaps I misread.
Bankruptcy proceedings could delay or reduce payments on the offered notes
The transfer of the mortgage loans from the sponsor to the depositor is intended by the parties to be and has been documented as a sale; however, the sponsor will treat the transfer of the mortgage loans as a secured financing for accounting purposes as long as the limited mortgage loan purchase right and the right of the trust to purchase a derivative contract, each as described in this prospectus supplement, remains in effect. If the sponsor were to become bankrupt, a trustee in bankruptcy could attempt to re-characterize the sale of the mortgage loans as a loan secured by the mortgage loans or to consolidate the mortgage loans with the assets of the sponsor. Any such attempt could result in a delay in or reduction of collections on the mortgage loans available to make payments on the offered notes. The risk of such a re-characterization with respect to the mortgage loans may be increased by the sponsor’s treatment of the transfer of these mortgage loans as a secured financing for accounting purposes. See “Description of the Notes—Limited Mortgage Loan Purchase Right; Derivative Contracts” in this prospectus supplement.
Ever picked cotton?… Your use of that special phrase brings back personal memories for me. I’ve picked cotton in the field for a few cents on the pound, while dragging a cotton bag behind. I know what your phrase really means, although I’m pretty sure you didn’t intend that meaning.
So, I did a quick Google of it just to see if I could find the correct understanding of its origin anywhere on the Internet.
I didn’t find a single one. I’m not talking about the common understanding today by most people of the colloquial phrase; that is: “to live well or richly.” That’s not the correct origin.
Just in case you question my motives with this discussion, I plan to tie in all in very well with the topic (and possibly to why Barringo has to go across the pond to get this news).
From the Gershwin song: “Summertime”
“Summertime and the livin’ is easy
Fish are jumpin’, and the cotton is high…”
Why would the cotton being high have any convenience for the guy singin’ this song when at the same time the fish happen to be jumpin’?…
Well, it wasn’t his cotton and thus wealth was not a factor (except in a very indirect sense) whether it was tall or short, but he could have and enjoy the momentary pleasure of fishing if the cotton didn’t need any more hoeing, as in not having “a long row to hoe” (this phrase too often incorrectly used as “long road” since one does not hoe a road)… and if it was tall, it shaded the ground from the sun and therefore the weeds wouldn’t grow any more and didn’t need any more hoeing. He was free to go catch the jumpin’ fish.
You don’t harvest it until the fall, so the late summer is generally free from having to do any more cotton field work.
But no, that’s not the origin either. It’s true that the condition of being “in high cotton” does convey a sort of likely condition of wealth, since tall cotton may generally yield a larger crop, but your phrase, Randy, doesn’t mean that either.
The real origin of that saying is that when you seek relief in tall cotton, you are afforded the privacy every person requires for common dignity. You can be hidden when in tall cotton. Nobody can see you from nearby or perhaps from inside a passing car on a nearby road. That’s the meaning. And, at that particular moment of need, being hidden is a real plus, I must say.
But everything about this developing situation says that a lot of people will be looking for some high cotton in which to take their relief. There may not be enough high cotton to go around.
And that worry was basically what Dr. Benber N. Anke was talking about in one or more recent epistle he’s written.
Want the supporting logic?
Think “Cool Hand Luke”
Luke (in relief mode, rattling the bushes as a locator): “I’m shakin’ up here Boss!”
We may have to revisit a certain word on TBP for some remedial lexicological study:
Quoting one alternate def. [ “An awareness of a range of time, events, or subjects; a broad mental view.”]:
I think if you’ll go read the run-downs on Circuit City’s quarter, you may find they shortchanged themselves a wee tad from an understanding of that definition.
Too, AA may have a better notion of it for his crosswordin’ self on I think April 26th or so. We’ll see… we’ll see.
Beautiful comment, Eclectic.
But do you mean agriculturally or lexicologically?… or both?
Hasn’t Mozilla of CFC been all over bubblevision latelty swearing up and down that his company has NO exposure to subprime???
Meanwhile dumping his stock like it was a fire sale? Now two board members quit. Something real rotten here. Wish I had bought some puts.
It’s probably all CDOed or MBSed. It’s probably all in mutual funds, insurance cos, pension funds…
It’ll be interesting to see if GS managed to securitize even the riskiest tranches. My bet is that investors’ thirst for yield was so strong, credit spreads got so low, that GS managed to get rid of most of the risk.
Wow. Those secondary markets are amazing, they really spread that risk around! is what we hear but.. in the final analysis, no matter how you manage risk, the middle class pays for the excesses because all this stuff is porbably in mutual funds, seg funds, pension funds, hedge funds…
do you mean agriculturally or lexicologically?… or both?
Both plus financially! From Randy’s phrase usage, you wove the powerful song with a seeming lyric contradiction that I had wondered about (though long ago and not for too long, evidently) into a dignity reminder from our ag past as an insight that might well apply to the current moneychangers.
As I read it with my morning cup, I realized that it was one of those rare items that gives me something to reflect about later in the day and beyond. Much appreciated, Eclectic, and many thanks!
Ahhhh, Wyler, now those were some:
“Eclectic comments, well worth it!”
Thanks a ton.
Try humming the “Summertime” tune to yourself for most of the day if you want a real reminder of old Eclectic.
Oh, my God, could that Gershwin put a b-lue note just where it could touch the soul!
see the sample number 2.
Gershwin had no misconceptions about what it all meant. He’d absorbed himself into the culture, and then just wrote it all in blue.
Now, I’ll leave you with that, and you can try to get the tune out of your head for the rest of the day.
you learn something new everyday. i,m from southside va. tabica cuntry actually.really enjoyed your post. have a good easter
Please add any thoughtful, useful comments:
First, a quick look at the NEWC balance sheet on BBG shows about $25B in assets (Q3/06) and about $2B in net equity.
Personally, my shorthand nets out the $600M in “Other” assets because I dont believe in this. Leaving $1.5B in real equity.
The creditors probably represent the $23B in total liabilities (it is typical for alot of double claim counting to happen in these bankruptcy filings so that explains the $60B number) and this is mainly “warehouse” facility type financing secured with the underlying loans.
The BBB- subprime ABX is trading at around 75. This index represents the 3-7% tranche of “wholeloans”. Thus the “75” represent a current expected loss of 1% on that 4% tranche. And the typical equity (0-3%) is already expected to be wiped out.
Thus the market currently prices the “wholeloan” pool around 96 and the 4% lost represents about $1B of NEWC $25B in assets.
Of course, we figured they only had about $1.5B in equity.
So — Anyone know where the Goldman claims are trading?
““a long row to hoe” (this phrase too often incorrectly used as “long road” since one does not hoe a road)…”
And for more on “row” vs. “road:” the correct expression is Skid _Road_, from the old days in Seattle. It was where logs were skidded down to the waterfront–not the most desirable part of town. Now approximately the location of Yesler Ave., as I recall. The Seattle papers to this day make a point of writing “Skid Road” rather than “Skid Row.”
We now return you to your regularly scheduled blog… :)
I don’t agree with Eclectic’s interpretation of ‘high cotton’ within the context of the song. But that’s the beauty of music, interpretation is in the eye of the beholder.
The Ella and Satchmo rendition of Summertime:
Just when you think all these defaults will come home to roost, the Federal gov’t swoops in and changes the tax laws to protect upcoming earnings for the banks, lenders and financial institutions exposed to the current mortgage debacle. So for all of you thinking about those “puts” don’t wast your dime. This administration rules with an iron fist, and will not allow the stock market to drop, regardless of how awful the state of the real economy is in.
Here is a link to the provisions of the new tax law. Enjoy!!!
Yahoo! seems to believe that #3, #10, and #12 are competitors of each other.
RFC, of course, is one of the reasons GM pensioners are getting raped for the sake of Cerberus. (“Residential Funding Company, part of GMAC Mortgage Group”)
“Right now, there’s enough disagreement about it and enough flux and questions that it’s difficult to know, if you did early adopt, what assets and liabilities to move, what rationales are acceptable or not,” Alec Crawford, head of MBS strategy at RBS Greenwich in Greenwich, Connecticut, said Wednesday in an investor call.
Translation: we’d like to bury this loss but only if we’re sure the right rationale is available.
Someone should sell a version of Monopoly where, for a price, you can buy a change in the rules.
Interesting! I never knew that, and I’ve used that phrase incorrectly all my life. It makes sense because I understand what skidding does.
I’d be very interested to know how you interpret that beautiful song. Please tell me. Thanks.
Oh, my God!… I’d never heard it. I’m drifting in a beautiful and gossamer place.
Thanks for the link. (rks)
Sorry slg, for callin’ you sig… God bless you slg.
God bless you S for givin’ me that link!
God bless you Barringo!
God bless you Gershwin!
God bless you Jack Daniels!
God bless you Randy… I’m a thousand miles away but I know some of your cotton.
God bless you wyler!
God bless you Dr. Benber N. Anke… you’re gonna need it.
If you read the article, rather than jumping to convenient conclusions, you’ll notice that all this credit was collateralised.
Even if the underlying value of the mortgages decreases, the exposure to the creditors will not be the value of the mortgages, but the difference between what they can get for reselling the mortgages and the expected return on the loans to New Century. I mean, who the hell do you think ends up with the assets other than the creditors? It may well be a loss for these banks, but the loss will never be anywhere near the whole value of credit extended.
New Century had 16 credit lines and other financing agreements totaling $17.4 billion.
$3 billion credit line with Morgan Stanley #4, the second-largest securities firm by market value, and an outstanding balance of $1.5 billion.
$2 billion of credit with UBS #8, Europe’s biggest bank and $1.5 billion was outstanding as of Sept. 30.
Don’t worry, be happy. Those CDO’s have been “stress” tested for “real world” market conditions, right?? Sure…
I guess the Big Banks, after being prohibbited by the Fed after the RTC mess, from lending on real estate based on appraisals but on the ability of the borrower to repay, decided to do it on a “wholesale” basis by lending to the lenders of sub-prime loans. Nothing but greed, pure and simple. Can’t these Banks and charlatans make an “honest” buck?
Cerberus is a rather strange name for a company, rather reminiscent of names like “Death Star” or whatever Enron was using for its fake subsidiaries. Only someone very arrogant would choose that name, since it is hard to believe it would inspire confidence in any investors who know what it means.
Why not name the company “Satan Inc.”? It’s about the same, except that everyone recognizes the name Satan, whereas only educated people might recognize that Cerberus is the name of the three-headed hellhound that guards the gates of Hades!
Is that where everything they buy winds up? Do they go public like Enron and after that go to hell also like Enron?