by Calculated Risk on 7/07/2008 07:19:00 PM

Last week I linked to a Fortune story: How Lehman lost its way

Here is a video of Roddy Boyd, one of the Fortune story authors, talking about Lehman's McAllister Ranch investment (2 min 11 sec) "a 21st Century Ghost Town", "a whole new fleet of golf carts" ...

by Calculated Risk on 7/07/2008 05:28:00 PM

Paul Jackson at HousingWire looks at the Lehman analyst report on Fannie and Freddie today: Fannie, Freddie Socked by Investor Paranoia

Some of HW’s sources on Monday accused Lehman of “factless fear stoking” in discussing the analysis in the report.

“Given the scrutiny the markets are under, Fannie and Freddie in particular, it’s irresponsible to put something like this out without having clearly done your homework,” said one source, a bank executive that asked not to be named.
...
HW’s sources, however, took issue with Harting’s characterization of the impact of FAS 140 to the GSEs, and said that the securitization structures used by both Fannie and Freddie largely qualified for so-called “de-recognition” — that is, for off-balance sheet treatment — under the proposed revisions to FAS 140 guidelines.
...
That’s not to say that Fannie and Freddie are in the clear; each faces other, more bona fide ills that clearly contributed to the cliff diving observed on Monday as well.

I don't know enough about the details to comment.

by Calculated Risk on 7/07/2008 04:20:00 PM

From Indymac: Indymac Issues Stakeholder Letter. (hat tip John, others! thanks) Excerpts:

As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel.
...
Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months, which should reduce our operating expenses by roughly 60%.

Added: A few more excerpts from Indymac:

Large losses coming:

Given the continued downward trend in home prices and a resulting increase in our forecasted credit losses and the related downward trend in the pricing of all mortgage related assets in the capital markets, especially mortgage-backed securities where we have experienced significant rating agency downgrades this quarter, we expect our loss for the second quarter to be larger than Q108, but it is difficult at this time to be more precise given the significant uncertainty surrounding accounting estimates, fair value accounting and other accounting matters.

On the value of Indymac assets:

[I]n this environment, where either there are no bids for most of IMB’s mortgage loans and securities or the bid/ask spreads are abnormally wide, “fire-selling” assets would actually deplete capital further.

The entire press release is grim.

by Calculated Risk on 7/07/2008 02:42:00 PM

Schwab is showing trading has halted for Indymac.

Implode-O-Meter is reporting a rumor that Indymac is possibly closing down some wholesale operations.

Indymac employees have been on hold waiting for a company-wide 1:00pm conference call.

This is just a rumor at this point ...

by Calculated Risk on 7/07/2008 01:25:00 PM

From Bloomberg: Freddie Mac, Fannie Mae Plunge on Capital Concerns (hat tip BB)

Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force Fannie Mae to add $46 billion of capital and Freddie Mac to add $29 billion.
...
Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140 rule that would force the companies to bring their off-balance sheet assets back onto their balance sheets ...

And there are concerns about more write downs:

``There's a lot of apprehension about writedowns,'' Tierney, [a credit strategist at Deutsche Bank AG] said. ``If they have writedowns, they have to raise capital. How much do they raise and how easily can they do that? Those are the questions that everybody is asking.''

by Calculated Risk on 7/07/2008 12:38:00 PM

Fannie's (FNM) stock price is off 16%

Freddie (FRE) is off 21%

From CNBC:

Freddie Mac ... dropp[ed] ... on investors concerns over its capital positions amid continued weakness in the housing market. Fannie Mae also dropped sharply over the same issues.

Continued weakness in the housing market is news?

by Calculated Risk on 7/07/2008 11:00:00 AM

From San Francisco Fed President Janet Yellen: Risks and Prospects for the U.S. Economy. Excerpts:

[T]he key questions looking forward are: when will economic activity get back to normal? And when will inflationary pressures moderate? The answers to these questions depend, to a great extent, on how conditions in the housing, financial, and commodity markets evolve.

On housing:

Changes in housing prices are inextricably linked to household wealth, which in turn affects consumer spending, as well as prospects for housing construction. Unfortunately, it appears to me that there are at least three reasons for thinking that housing prices have further to fall. First, the ratio of house prices to rents—a kind of price-dividend ratio for housing—still remains quite high by historical standards, despite having fallen from its historical peak reached in early 2006. That suggests that further price declines may be needed to bring housing markets into balance. Second, inventories of unsold homes remain at elevated levels. This "excess supply" of available homes will put downward pressure on housing prices. Indeed, these inventories are likely to directly depress construction activity, since there is little point in building new homes when there is already a large backlog of unsold homes. Third, the futures market for house prices predicts further declines in a number of metropolitan areas this year. In particular, the Case-Shiller composite index for home prices shows a 15 to 20 percent year-over-year decline in the second half of this year. The bottom line is that construction spending and house prices seem likely to continue to fall well into 2009.
emphasis added

Her outlook for housing remains very negative. See Yellen's speech for comments on the financial markets and commodity prices.

by Calculated Risk on 7/07/2008 09:32:00 AM

From the WaPo: Small firms struggle to pay credit card debt

As credit standards loosened at the beginning of the decade, banks expanded their small-business credit card offerings. ... The result was a boom: Small businesses will charge 2 1/2 times more this year than when they ran up about $140 billion in 2002, according to estimates from TowerGroup, a financial service research and advisory firm.

But as the economy slowed, so did payments. Major small-business credit card issuers reported a sharp increase in late payments and bad debt over the last year.
...
Now credit card issuers are becoming more careful.

"The mantra before was bigger is better in the card business; now [issuers] are becoming much more risk-averse," said Brian Riley, research director for bank cards at TowerGroup. "Standards are getting tightened in line with the economy."

Just another sector were lending standards were too loose and are now being tightened. When a small business goes under - assuming the business was separated from the borrower's personal finances - the loss to the credit card lender is probably 100%.

by Calculated Risk on 7/06/2008 08:16:00 PM

From SonntagZietung: Brisante Studie: Die Bankenkrise wird noch viel schlimmer (hat tip Dwight)

Paul Kedrosky at Infectious Greed has a translation:

The expected losses from the financial crisis will reach $1600 billion. To-date financial institutions have so far announced only $400 billion. The pessimistic forecast comes from a confidential study by Bridgewater Associates ...

It's hard to comment without seeing the study, but I'm sure this includes all losses including corporate debt, CRE and C&D debt, consumer debt, credit cards, etc. in addition to losses on mortgages.

by Calculated Risk on 7/06/2008 02:39:00 PM

From MarketWatch: Swiss banks may need to raise $68 billion more

The newspaper Sonntag quoted a parliamentarian as saying the nation's Federal Banking Commission would require additional capital of about $39 billion for UBS, and $29 billion for Credit Suisse, according to summary by Agence-France Presse.

The banks would likely have to sell equity to raise the capital, thus diluting current shareholders' stake in the companies, the report said.

OK, I'm excerpting from a MarketWatch story quoting a summary by Agence-France Presse of an article in Sonntag quoting a Swiss parliamentarian. I'm sure all the details are correct!