Banks not accepting credit portfolios as collateral: report

[BR_Parkway]

Source: MarketWatch

Last Update: 3:02 AM ET Aug 15, 2007

LONDON (MarketWatch) -- U.S. banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios, the Financial Times reported Wednesday. Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral, the newspaper said. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing, the report added. The report said the banks mentioned were Bank of America (BAC: 47.86, -0.64, -1.3%) and Countrywide (CFC: CFC 24.46, -2.15, -8.1%) , although there were believed to be others. Bank of America declined to comment to the newspaper and Countrywide did not return calls. End of Story

Read more: http://www.marketwatch.com/News/Story/Story.aspx?guid=%7bAB417908-B787-45B4-9FD3-DD35E9D38880%7d&siteid=yhoo&dist=yhoo

[tom_paine]

1. Oh fuck. The dominoes are just starting to fall.

One can only hope they fall SLOWLY, lest they crush us entirely and swiftly with a series of staggering hammer-blows (honestly, this is a less-likely outcome, given the oscillating nature of human endeavors).

[BR_Parkway]

2. When the largest mortgage company and one of the biggest banks

in the US can't borrow on their normal portfolios, I'd say the fall slowly option isn't really going to happen. Especially after that very unusual triple infusion of liquidity over the weekend.

I'm wondering where things will be by Friday personally.

[A HERETIC I AM]

18. If your post represents your understanding of the article, i think you may have misinterpreted it.

Your statement;

When the largest mortgage company and one of the biggest banks in the US can't borrow on their normal portfolios, I'd say the fall slowly option isn't really going to happen.

appears to be a misunderstanding of the article.

What the Marketwatch piece is saying is Bank of America and Countrywide have;

started refusing to lend money against hedge funds' subprime credit portfolios, (because those Hedge Funds) "use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral"(for the loans they seek)

(Parenthesis comments mine)

It isn't the case that the Banks can't borrow on their own portfolios, rather that the banks won't loan against what are now seen as very risky securities put up as collateral.

[BR_Parkway]

23. Countrywide doesn't loan money against other's portfolio's - they

are the largest mortgage company in the US. The short article was pretty poorly written.

If you need further proof, Merrill Lynch listed Countrywide as a SELL this morning after the OP article came out, stating their fears that the mortgage giant was a good candidate for bankruptcy. I forget what the earlier report this evening listed their drop in value on the stock exchange.

[A HERETIC I AM]

24. Almost. They do have a banking arm. They are not just a mortgage company.

In less than 50 years, Countrywide has become one of the largest players in the mortgage industry, with about $216 billion in assets. The firm primarily originates residential home loans and sells them into the secondary market, while maintaining the servicing rights on its originations. Beyond its mortgage operations, the firm has diversified its platform to include nonmortgage but complementary offerings such as banking services, insurance, and capital markets.

http://quicktake.morningstar.com/StockNet/MorningstarAnalysis.aspx?Country=USA&Symbol=CFC&pgid=qtqnlinkanalysis
http://quote.morningstar.com/Quote/Quote.aspx?Ticker=CFC&stocktab=quote
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=cfc&sid=0&o_symb=cfc&freq=1&time=7

I agree, the article is poorly written but it does say "The report said the banks mentioned were Bank of America and Countrywide"

Here is a Reuters story that quotes the Merrill opinion you mentioned;
http://www.reuters.com/article/bankingfinancial-SP/idUSN1525333820070815

[Fovea]

22. I quote the SF author Larry Niven

about a future market crash---

"Executives took to walking out their windows without a lift belt..."

We of course, don't even have the soft landing option...

The ultra rich have been playing with funny money. And now we will all pay the price.

[Joanne98]

3. The Saudis can't get a loan either. Do you believe it?

[greyghost]

4. That's all folks...

It's starting sooner then I thought, but it's going to get A LOT uglier.

[ClintonTyree]

5. But, but.....

the U.S. Treasury is working overtime to print more money. Just last week the Fed put $32 billion into the economy to fight the shortage of money available for credit. Where did that money go? :shrug:

That was a rhetorical question, I think most of us know where that money went.

[PassingFair]

6. Supposedly, the "money" was in the form of"repo" loans that go back to the

issuing banks.

Was this a lie?

[Javaman]

10. This is what happens when the dollar turns into monopoly money. nt

[Joe Bacon]

7. CLAP HARDER, boys and girls, CLAP HARDER

All President Tinkerbelle has to do is spread more fairy dust on the economy and it'll get so much better REAL SOON!

:sarcasm: mode now off....

[InkAddict]

14. Clap as hard as you want--

it won't keep Peter Pan's voice from changing. Course, then what you get is *43. Ah...growing up in Neverland is hard work.

[Penndems]

8. We're headed for hard financial times in this country

Domestic spending has been cut across the board to fund the Iraq War, which will continue until this conflict ends.

Pay off your credit cards and personal loans, and make sure your fiduciary house is in order. We may have to start stuffing money under our respective mattresses, the way our parents, grandparents and great-grandparents did during the Great Depression. Hopefully, we won't be out on the streets selling apples, as was the case after the 1929 stock market crash.

[paparush]

9. Yet another corpse to lay at Bush**'s bloodstained feet...

[dipsydoodle]

15. I'm altogether sure about that.

It's a actually a greed based phenomenon initially based on optimism. Same shit happened here in the UK 18 years ago but that was compounded by a housing shortage.

[GOTV]

11. Can someone explain why this is bad? I'm not disputing that it's trouble....

.... I just don't know that I understand the mechanisms by which this trouble will flow down from these hedge funds to most normal people.

I understand that people with variable rate mortgages are expected to see big increases in housing prices but that's not most people is it?

[Lilsarah]

13. This article helped me to understand how bad this all could get

http://nymag.com/news/businessfinance/bottomline/35813/

[GOTV]

21. Thanks. That looks like just what I wanted!

[A HERETIC I AM]

19. It isn't bad. It is a smart move on the part of Bank of America and Countrywide.

They are simply no longer going to loan against risky securities put up as collateral for loans.

It is a fiscally smart move on their part.

[Penndems]

20. GOTV, read Steve Pearlstein's columns and chat in The Washington Post:

http://www.washingtonpost.com/wp-dyn/content/discussion/2007/08/14/DI2007081400858.html?hpid=topnews

*************************************************************************************************

Steve was one of those voices in the wilderness who predicted the current credit situation months ago. Nobody listened - until now.

[ElboRuum]

12. Why do I get the distinct feeling...

...I've got a front row seat to the worst economic debacle in this country since the Great Depression.

[Javaman]

17. Nothing like living during a historic time huh? LOL nt

[Crowman1979]

16. Thank freakin god I pulled out of the market Friday!

Was spared with a couple hundred dollar profit, better than nothing. Right now it's time to just save in a bank account and go into survival mode rather than worry about an early retirement. Might as well be planning on working for the rest of my life like everybody else will. Won't be surprised if Jim Cramer jumps out of a skyscraper sometime this year.

[NoodleyAppendage]

25. Time to dust off the CCC, TVA, and WPA projects. Might get that infrastructure we need...

Too bad it will be with American labor at pitiful wages provided by the Gov't to stem rampant hunger and extreme poverty.

Lookin' for the tell-tale signs of hyperinflation, now. Come on Central Bank pump up that dollar till its worth next to nothin'.

J

[SoCalDem]

26. Not surprising.. Would YOU loan $1K to a guy who says

his collateral is the $1K owed to him by his meth-addicted sister:)

[Nihil]

27. Classic summary - well done!

> Not surprising.. Would YOU loan $1K to a guy who says
> his collateral is the $1K owed to him by his meth-addicted sister

:toast: