Lenders have seized assets held by London hedge fund Peloton Partners, LLP. Banks are moving quickly to recoup their money from the troubled borrower. Six banks have seized assets while three are giving the hedge fund time to try and find buyers for the securities.
This week Peloton told investors that it had liquidated a fund that specialized in mortgage securities and Peloton is shutting down their ABS Fund and suspending redemptions in their Multi-Strategy Fund.
Peloton has been in talks to sell some of its holdings but at least one rival money manager, Citadel Investment Group, has declined to buy. Selling its holdings would help Peloton raise money to pay off the loans but banks are in no mood to negotiate with borrowers.
In the past six months, banks and brokers have written down more than $100 billion in sub-prime securities while also dealing with the higher expense of funding. Loans that were provided cheaply in recent years are being reeled back in quickly. However, banks too will find it difficult to find buyers for the assets they seize back.
Bond investors have very little interest in securities tied to the U.S. mortgage market especially as ratings companies increase their scrutiny of borrower defaults. On Friday, Standard & Poor’s put on credit watch with negative implications nearly 2,000 mortgage securities backed by Alt-A loans. Alt-A rank between sub-prime and prime. S&P also recently downgraded 3,839 securities backed by sub-prime loans.
Friday, February 29, 2008
Thursday, February 28, 2008
FINRA fines Wall Street $2.4 million, Money to be returned to customers
FINRA announced today that it has settled cases against five firms for mutual fund sales and supervisory violations including improper sales of Class B and Class C mutual fund shares and failure to have supervisory systems designed to provide all eligible investors with the opportunity to purchase Class A mutual fund shares at net asset value (NAV) through NAV transfer programs.
Merrill Lynch, Prudential Securities, Pruco and UBS were fined a total of $2.4 million and Wells Fargo Investments was given credit for remedial steps taken before FINRA’s inquiry. All five firms settled these matters without admitting or denying FINRA’s allegations, but consented to the entry of FINRA's findings.
Prudential Securities was fined $800,000 for share class sales violations while UBS Financial Services Inc was fined $750,000 for improper sales of Class B and Class C mutual fund shares. Pruco Securities was also fined $100,000 fine for improper sales of Class B shares. To resolve the Class B and Class C share matters, these firms also agreed to remediation plans that will address over 27,000 fund transactions in the accounts of 5,300 households.
To resolve the NAV violations, Merrill Lynch, Prudential Securities, UBS and Wells Fargo agreed to remediation plans for eligible customers who qualified for, but did not receive, the benefit of NAV transfer programs. It is estimated that total remediation to customers will exceed $25 million.
In addition, FINRA imposed a $250,000 fine to Prudential Securities, UBS and Merrill Lynch for failure to have reasonable supervisory systems and procedures to identify and provide opportunities for investors to obtain sales charge waivers through NAV transfer programs. From 2001 to 2004, many mutual fund families offered NAV transfer programs that eliminated front-end mutual fund sales charges for certain customers. Customers who redeemed fund shares for which they had paid a sales charge were permitted to use the proceeds to purchase Class A shares of a new mutual fund at NAV without paying another sales charge. As a result of inadequate supervisory systems, certain customers eligible for the NAV programs incurred front-end sales loads that they should not have paid, or purchased other share classes that unnecessarily subjected them to higher fees and the potential of contingent deferred sales charges.
FINRA also found Wells Fargo Investments failed to have reasonable supervisory systems and procedures relating to NAV transfer programs, but FINRA did not impose a fine because of the firm's proactive remedial actions taken upon its discovery of - and before FINRA's inquiry into - the violative conduct. Wells Fargo paid more than $612,000 in restitution to investors in Class A shares.
Merrill Lynch, Prudential Securities, Pruco and UBS were fined a total of $2.4 million and Wells Fargo Investments was given credit for remedial steps taken before FINRA’s inquiry. All five firms settled these matters without admitting or denying FINRA’s allegations, but consented to the entry of FINRA's findings.
Prudential Securities was fined $800,000 for share class sales violations while UBS Financial Services Inc was fined $750,000 for improper sales of Class B and Class C mutual fund shares. Pruco Securities was also fined $100,000 fine for improper sales of Class B shares. To resolve the Class B and Class C share matters, these firms also agreed to remediation plans that will address over 27,000 fund transactions in the accounts of 5,300 households.
To resolve the NAV violations, Merrill Lynch, Prudential Securities, UBS and Wells Fargo agreed to remediation plans for eligible customers who qualified for, but did not receive, the benefit of NAV transfer programs. It is estimated that total remediation to customers will exceed $25 million.
In addition, FINRA imposed a $250,000 fine to Prudential Securities, UBS and Merrill Lynch for failure to have reasonable supervisory systems and procedures to identify and provide opportunities for investors to obtain sales charge waivers through NAV transfer programs. From 2001 to 2004, many mutual fund families offered NAV transfer programs that eliminated front-end mutual fund sales charges for certain customers. Customers who redeemed fund shares for which they had paid a sales charge were permitted to use the proceeds to purchase Class A shares of a new mutual fund at NAV without paying another sales charge. As a result of inadequate supervisory systems, certain customers eligible for the NAV programs incurred front-end sales loads that they should not have paid, or purchased other share classes that unnecessarily subjected them to higher fees and the potential of contingent deferred sales charges.
FINRA also found Wells Fargo Investments failed to have reasonable supervisory systems and procedures relating to NAV transfer programs, but FINRA did not impose a fine because of the firm's proactive remedial actions taken upon its discovery of - and before FINRA's inquiry into - the violative conduct. Wells Fargo paid more than $612,000 in restitution to investors in Class A shares.
Credit Crunch Turn Wall Street Firms and Clients into Adversaries
The recent credit crunch has turned Wall Street into the “law of the jungle.” Street firms and clients who once banded together to finance large transactions are now souring and some are turning into legal adversaries.
Some recent examples include:
Wachovia Corp. is taking a private-equity client to court in an attempt to extract itself from financing the sale of a group of local TV stations by Clear Channel Communications Inc. to Providence Equity Partners Inc. after Clear Channel and Providence lowered their selling price. Wachovia’s position comes as banks across the board are dealing with increasingly strained balanced sheets related to commitments from last year’s buyout booms. Turmoil in credit markets have caused nearly $200 billion of loan debt that the banks have not been able to unload.
Investors of auction-rate securities, once considered low-risk and liquid investments, have had the rug pulled out from under them. Citigroup Inc. and Goldman Sachs surprised debt investors recently when they decided not to backstop auctions of securities that got little demand by bidding for some of the debt themselves.
Complex mortgage securities known as collateralized debt obligations (CDO) are also heading into troubled waters. CDOs combined hundreds of millions of dollars worth of subprime mortgage bonds and issued new securities in “tranches” that had different amounts of risk and return. As subprime mortgage bonds turn bad, disputes are arising between holders and different tranches in some CDOs over who should be paid what. Last year, Deutsche Bank, a trustee for the $985 million CDO called Sagittarius CDO I LLC, sued MBIA, an affiliate, over a dispute about the rights of various classes of investors.
And finally, banks are turning on each other. This January, Credit Suisse Group broke from a group of banks lined up to sell $7.25 billion worth in loans tied to a buyout of Harrah’s Entertainment Inc. by private-equity funds.
During the easy money days, Wall Street firms and clients collaborated freely but now the credit crunch has laid bare the competing interests in this cut-throat profit-driven system. When the dust settles from this fallout and the lawsuits, Wall Street might have to work hard to repair its tarnished reputations and broken trust with its clients.
Some recent examples include:
Wachovia Corp. is taking a private-equity client to court in an attempt to extract itself from financing the sale of a group of local TV stations by Clear Channel Communications Inc. to Providence Equity Partners Inc. after Clear Channel and Providence lowered their selling price. Wachovia’s position comes as banks across the board are dealing with increasingly strained balanced sheets related to commitments from last year’s buyout booms. Turmoil in credit markets have caused nearly $200 billion of loan debt that the banks have not been able to unload.
Investors of auction-rate securities, once considered low-risk and liquid investments, have had the rug pulled out from under them. Citigroup Inc. and Goldman Sachs surprised debt investors recently when they decided not to backstop auctions of securities that got little demand by bidding for some of the debt themselves.
Complex mortgage securities known as collateralized debt obligations (CDO) are also heading into troubled waters. CDOs combined hundreds of millions of dollars worth of subprime mortgage bonds and issued new securities in “tranches” that had different amounts of risk and return. As subprime mortgage bonds turn bad, disputes are arising between holders and different tranches in some CDOs over who should be paid what. Last year, Deutsche Bank, a trustee for the $985 million CDO called Sagittarius CDO I LLC, sued MBIA, an affiliate, over a dispute about the rights of various classes of investors.
And finally, banks are turning on each other. This January, Credit Suisse Group broke from a group of banks lined up to sell $7.25 billion worth in loans tied to a buyout of Harrah’s Entertainment Inc. by private-equity funds.
During the easy money days, Wall Street firms and clients collaborated freely but now the credit crunch has laid bare the competing interests in this cut-throat profit-driven system. When the dust settles from this fallout and the lawsuits, Wall Street might have to work hard to repair its tarnished reputations and broken trust with its clients.
Tuesday, February 26, 2008
Citigroup loses $100 million on 15 different trading days
Citigroup disclosed that it's investment managers took looses of more than $100 million on 15 different trading days in 2007.
The disclosure contained in the bank's annual report prompted speculation that Citigroup's problems including the credit crisis issues to be more significant than previously thought.
In 2007, Citigroup wrote down $20 billion in mortgage related investments and replaced the bank's chief executive officer.
At the end of last year, Citigroup consolidated more than $20 billion in such CDO assets, which were previously kept off its books. In extreme circumstances, Citigroup potentially could be required to bring an additional $38 billion in CDO assets onto its books at a time when it is trying to slim down its balance sheet.
Citigroup's expansion of the information it provided about off-balance-sheet entities followed a December request from the Securities and Exchange Commission that firms with big exposures to these entities give investors more information in their annual reports. Citigroup also disclosed that it is in discussions with the SEC's division of corporate finance regarding these off-balance-sheet vehicles, as well as "hedging activities."
The disclosure contained in the bank's annual report prompted speculation that Citigroup's problems including the credit crisis issues to be more significant than previously thought.
In 2007, Citigroup wrote down $20 billion in mortgage related investments and replaced the bank's chief executive officer.
At the end of last year, Citigroup consolidated more than $20 billion in such CDO assets, which were previously kept off its books. In extreme circumstances, Citigroup potentially could be required to bring an additional $38 billion in CDO assets onto its books at a time when it is trying to slim down its balance sheet.
Citigroup's expansion of the information it provided about off-balance-sheet entities followed a December request from the Securities and Exchange Commission that firms with big exposures to these entities give investors more information in their annual reports. Citigroup also disclosed that it is in discussions with the SEC's division of corporate finance regarding these off-balance-sheet vehicles, as well as "hedging activities."
Friday, February 22, 2008
Securities regulator FINRA fines Oppenheimer
The Financial Industry Regulatory Authority (FINRA) announced today that Oppenheimer & Co. will pay a fine of $250,000 for supervisory and other failures in connection with improper market timing of mutual fund shares from January through September 2003. The firm will also pay $4.25 million in restitution to more than 60 mutual fund companies.
FINRA found that Oppenheimer failed to prevent a group of five traders' improper, short-term trading of mutual funds on behalf of hedge fund customers - activity that yielded about $9 million in gross revenue for the firm. Oppenheimer also failed to establish, maintain or enforce supervisory systems and written procedures to detect and prevent improper market timing activities, or to maintain required books and records of the short-term trading of mutual funds through other firms' trading platforms.
FINRA found that Oppenheimer failed to prevent a group of five traders' improper, short-term trading of mutual funds on behalf of hedge fund customers - activity that yielded about $9 million in gross revenue for the firm. Oppenheimer also failed to establish, maintain or enforce supervisory systems and written procedures to detect and prevent improper market timing activities, or to maintain required books and records of the short-term trading of mutual funds through other firms' trading platforms.
Bear Stearns hedge fund litigation update
A group of disgruntled shareholders have begun legal action in the Cayman Islands to seize control of the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Fund and the Bear Stearns High Grade Structured Credit Strategies fund, both of which collapsed last summer due to the subprime mortgage crisis. The same shareholders successfully waged a campaign to appoint their own directors to the enhanced leverage fund last autumn.
The shareholders want the Cayman court to reverse Bear Stearns’s decision to put the funds into liquidation.
The shareholders want the Cayman court to reverse Bear Stearns’s decision to put the funds into liquidation.
Thursday, February 21, 2008
More on Morgan Keegan
The Morgan Keegan crisis has begun to hit closer to home. While investors have lost millions in the Morgan Keegan bond mutual fund crisis, employees of the firm have seen their retirement accounts plummet in value.
Case filings and investors stories are becoming public. We are hearing similar stories from investors of having put away retirement, life, and savings designated as nest eggs only to find them whittled down to next to nothing over night. This alleged incident has given rise to several alleged litigation cases against the investment firm.
Employees of Morgan Keegan are allegedly experiencing the same dilemma as investors. Much of the employees' investment money was allegedly set aside in Morgan mutual funds in the form of pension plans. Many of the Morgan Keegan employees will allegedly have recourse under ERISA, which came into being during 1974. Employees of the investment firm are allegedly retaining counsel from a myriad of attorneys across the country.
Case filings and investors stories are becoming public. We are hearing similar stories from investors of having put away retirement, life, and savings designated as nest eggs only to find them whittled down to next to nothing over night. This alleged incident has given rise to several alleged litigation cases against the investment firm.
Employees of Morgan Keegan are allegedly experiencing the same dilemma as investors. Much of the employees' investment money was allegedly set aside in Morgan mutual funds in the form of pension plans. Many of the Morgan Keegan employees will allegedly have recourse under ERISA, which came into being during 1974. Employees of the investment firm are allegedly retaining counsel from a myriad of attorneys across the country.
Supreme Court ruling permits employees to sue over 401(k) losses
The United States Supreme Court upheld the right of employees to sue over losses in their 401(k) retirement plan accounts. Employers -- or whoever they appoint in their stead -- have an established obligation to run retirement plans as "prudent experts" on behalf of participants.
At issue in the case before the Supreme Court was whether federal pension law, which allows lawsuits on behalf of a group of employees, also allows an individual to sue over losses in his own account in a 401(k) or similar plan.
Previous case law allowed participants to sue employers over losses on behalf of the retirement plan as a whole. But the prior ruling had arisen in traditional pension plans, in which assets are invested collectively. Employers have argued that participants couldn't file the same kind of suit over losses in 401(k)s and other individual accounts because they didn't represent losses to the plan itself.
In Wednesday's decision, the court disagreed. The majority opinion, by Justice John Paul Stevens, said pension law "does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account." A concurring opinion by Justice Clarence Thomas, joined by Justice Antonin Scalia, said losses to an individual's account were effectively losses for the plan as a whole.
At issue in the case before the Supreme Court was whether federal pension law, which allows lawsuits on behalf of a group of employees, also allows an individual to sue over losses in his own account in a 401(k) or similar plan.
Previous case law allowed participants to sue employers over losses on behalf of the retirement plan as a whole. But the prior ruling had arisen in traditional pension plans, in which assets are invested collectively. Employers have argued that participants couldn't file the same kind of suit over losses in 401(k)s and other individual accounts because they didn't represent losses to the plan itself.
In Wednesday's decision, the court disagreed. The majority opinion, by Justice John Paul Stevens, said pension law "does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account." A concurring opinion by Justice Clarence Thomas, joined by Justice Antonin Scalia, said losses to an individual's account were effectively losses for the plan as a whole.
Wednesday, February 20, 2008
Subprime crisis opens the door to sovereign wealth investments in U.S. based companies
The subprime meltdown has worsened to the extent that U.S. based banks incluidng UBS, Citigroup and Morgan Stanley have been forced to raise over $35 billion in new capital in recent months to offset writedowns in subprime mortgage-backed securities. The bulk of new capital is coming from sovereign wealth funds of foreign governments stretching from Asia to the Middle East. Some recent investments include:
UBS - Singapore's GIC and Mideast investor - December 2007 - $11.2 Billion
Citigroup - Abu Dhabi Investment Authority - November 2007 - $7.5 Billion
Morgan Stanley - Singapore's GIC - December 2007 - $5.5 Billion
Blackstone Group - China Investment - June 2007 - $ 3.0 Billion
UBS - Singapore's GIC and Mideast investor - December 2007 - $11.2 Billion
Citigroup - Abu Dhabi Investment Authority - November 2007 - $7.5 Billion
Morgan Stanley - Singapore's GIC - December 2007 - $5.5 Billion
Blackstone Group - China Investment - June 2007 - $ 3.0 Billion
Saturday, February 16, 2008
Hedge Fund Bars Investors from Making Withdrawals
The actions of megabank Citigroup have left investors reeling after they were barred from withdrawing their money in one of the bank’s hedge funds.
A front-page story in the Wall Street Journal (Feb. 15, 2007, edition) reported that Citigroup suspended redemptions in one of its hedge funds, CSO Partners, which specializes in corporate debt. CSO was closed for withdrawals after investors tried to pull more than 30 percent of the fund’s $500 million of assets. In an effort to stabilize the fund, Citigroup injected it with $100 million last month.
In 2007, CSO reported a year-end loss of 11 percent. John Pickett, the hedge fund’s former manager, resigned from Citigroup in December 2007, following a run-in with senior management and complaints that he committed more than half of the fund’s assets to buy leveraged loans offered by a banking consortium on behalf of a German media company.
The banks provided CSO with loans totaling more than $730 million. Pickett later tried to renege on the deal, contending the consortium had altered the loan terms. At the same time, the markets were responding to the credit crisis, and the value of the loans began to erode. If CSO could not cancel the deal, its performance ultimately would suffer.
The matter was settled in December 2007. Citigroup agreed to a proposal whereby CSO would buy $746 million of the loans at face value, even though the loans were trading at 86 percent to 93 percent of face value. In addition, the banks’ legal fees were paid by Citigroup.
A front-page story in the Wall Street Journal (Feb. 15, 2007, edition) reported that Citigroup suspended redemptions in one of its hedge funds, CSO Partners, which specializes in corporate debt. CSO was closed for withdrawals after investors tried to pull more than 30 percent of the fund’s $500 million of assets. In an effort to stabilize the fund, Citigroup injected it with $100 million last month.
In 2007, CSO reported a year-end loss of 11 percent. John Pickett, the hedge fund’s former manager, resigned from Citigroup in December 2007, following a run-in with senior management and complaints that he committed more than half of the fund’s assets to buy leveraged loans offered by a banking consortium on behalf of a German media company.
The banks provided CSO with loans totaling more than $730 million. Pickett later tried to renege on the deal, contending the consortium had altered the loan terms. At the same time, the markets were responding to the credit crisis, and the value of the loans began to erode. If CSO could not cancel the deal, its performance ultimately would suffer.
The matter was settled in December 2007. Citigroup agreed to a proposal whereby CSO would buy $746 million of the loans at face value, even though the loans were trading at 86 percent to 93 percent of face value. In addition, the banks’ legal fees were paid by Citigroup.
Friday, February 15, 2008
Attention CSO Partners hedge fund investors, attorneys investigating customer claims
Citigroup has stopped investor redemptions in its London based hedge fund, CSO Partners.
"The bank has suspended investor withdrawals on the heels of Citigroup providing $100 million to stabilize the fund last month amid significant losses,'' said attorney Steven Caruso of Maddox, Hargett & Caruso, P.C. "CSO Partners hedge fund investors may have a variety of remedies that they should discuss with qualified counsel.''
Longtime fund manager, John Pickett, has left the fund following a bitter dispute with Citigroup executives and complaints from investors that the manager over concentrated the fund into a single investment that went bad.
"We believe that the outsized position taken by fund managers may have exceeded Citigroup internal trading limits and may demonstrate a failure by Citigroup to closely supervise and monitor Mr. Pickett's trading activities,'' added Ryan Bakhtiari of Aidikoff, Uhl & Bakhtiari.
"The bank has suspended investor withdrawals on the heels of Citigroup providing $100 million to stabilize the fund last month amid significant losses,'' said attorney Steven Caruso of Maddox, Hargett & Caruso, P.C. "CSO Partners hedge fund investors may have a variety of remedies that they should discuss with qualified counsel.''
Longtime fund manager, John Pickett, has left the fund following a bitter dispute with Citigroup executives and complaints from investors that the manager over concentrated the fund into a single investment that went bad.
"We believe that the outsized position taken by fund managers may have exceeded Citigroup internal trading limits and may demonstrate a failure by Citigroup to closely supervise and monitor Mr. Pickett's trading activities,'' added Ryan Bakhtiari of Aidikoff, Uhl & Bakhtiari.
Bear Stearns hedge fund investigation centers on investor conference call
An investor conference call held on April 25, 2007 is forefront in the investigation of Bear Stearns collapse of two failed subprime related hedge funds. During the call, Bear Stearns fund manager Ralph Cioffi told participants he was "cautiously optomistic" about Bear's ability to hedge it's subprime holdings.
At the same time, Cioffi had move $2 million of his own money out of one of the troubled Bear Stearns hedge funds.
The Wall Street Journal reported today that prosecutors in the U.S. Attorney's office are investigaitng the disparity between the public and prive comments of Mr. Cioffi and whether they constitute fraud.
At the same time, Cioffi had move $2 million of his own money out of one of the troubled Bear Stearns hedge funds.
The Wall Street Journal reported today that prosecutors in the U.S. Attorney's office are investigaitng the disparity between the public and prive comments of Mr. Cioffi and whether they constitute fraud.
Thursday, February 14, 2008
The decline of auction rate securities
Auction rate securities are a type of long-term fixed income instruement that perform like short term bonds. Auction rate securites became popular with investors looking for safe, cash type investments that offered additional returns beyond a typical money market account. Investors were also driven to these securities because they were liquid and simple to buy and sell.
The market for auction rate securites has now evaporated given fears about the decline of subprime securities.
Today the Wall Street Journal reported that a wealthy family lost nearly $286 million dollars in auction rate securities with Lehman Brothers Holdings, Inc. The clients did not believe that they were taking significant risks and have since brought a claim with the Financial Industry Regulatory Authority (FINRA) to recover their losses.
The market for auction rate securites has now evaporated given fears about the decline of subprime securities.
Today the Wall Street Journal reported that a wealthy family lost nearly $286 million dollars in auction rate securities with Lehman Brothers Holdings, Inc. The clients did not believe that they were taking significant risks and have since brought a claim with the Financial Industry Regulatory Authority (FINRA) to recover their losses.
Wednesday, February 13, 2008
Morgan Stanley cuts mortgage jobs
Morgan Stanley on Wednesday said it will cut 1,000 jobs as the nation's second-largest investment bank trims its residential mortgage operations amid the continued deterioration of the mortgage markets.
The New York-based company said it will shutter its U.K. business that issues home loans and significantly scale back its mortgage business in the United States. Morgan Stanley joins hundreds of lenders in scaling back operations as the worst U.S. housing market in 26 years slows economic growth.
The New York-based company said it will shutter its U.K. business that issues home loans and significantly scale back its mortgage business in the United States. Morgan Stanley joins hundreds of lenders in scaling back operations as the worst U.S. housing market in 26 years slows economic growth.
Tuesday, February 12, 2008
Banks seek to avoid more subprime foreclosures
Today lenders promised to seek contact with homeowners who are 90 or more days overdue on their mortgages. In some cases, homeowners will be given the chance to "pause" their foreclosure for 30 days while lenders try to work out a way to make the loans affordable. Lenders could begin sending letters to these borrowers as soon as this week.
Homeowners wouldn't qualify for the program if they are in bankruptcy, if they already have a foreclosure date within 30 days or if the loan was for an investment or vacant property.
At least 1.3 million home-mortgage loans were either seriously delinquent or in foreclosure at the end of the third quarter, according to the Mortgage Bankers Association. Not all of those loans would qualify for the program, however.
Homeowners wouldn't qualify for the program if they are in bankruptcy, if they already have a foreclosure date within 30 days or if the loan was for an investment or vacant property.
At least 1.3 million home-mortgage loans were either seriously delinquent or in foreclosure at the end of the third quarter, according to the Mortgage Bankers Association. Not all of those loans would qualify for the program, however.
Monday, February 11, 2008
SEC eyes credit rating firms
The Securities and Exchange Commission may soon propose rules that require credit-ratings firms to disclose the accuracy of past ratings and distinguish between various products they rate, the first indication how the industry might be regulated in the wake of the subprime crisis.
SEC Chairman Christopher Cox said the potential rules "would require credit-rating agencies to make disclosures surrounding past ratings in a format that would improve the comparability of track records and promote competitive assessments of the accuracy of past ratings."
SEC Chairman Christopher Cox said the potential rules "would require credit-rating agencies to make disclosures surrounding past ratings in a format that would improve the comparability of track records and promote competitive assessments of the accuracy of past ratings."
Sunday, February 10, 2008
Prosecutors widen probe, seek Merrill subprime information
Citing people familiar with the situation, The Journal called the Justice Department's interest "preliminary" but said sources told the newspaper that the U.S. attorney's office request could be a precursor to a criminal investigation
The Justice Department's move comes after the SEC upgraded its own investigation into a formal probe, the paper reported. Moreover, the FBI is looking into dealings at 14 different firms and the way they did mortgage business.
Last week, authorities in Massachusetts charged Merrill and two of its employees with fraud in connection with securities it sold to the city of Springfield, Mass., which collapsed in value shortly after they were sold.
The Justice Department's move comes after the SEC upgraded its own investigation into a formal probe, the paper reported. Moreover, the FBI is looking into dealings at 14 different firms and the way they did mortgage business.
Last week, authorities in Massachusetts charged Merrill and two of its employees with fraud in connection with securities it sold to the city of Springfield, Mass., which collapsed in value shortly after they were sold.
Friday, February 8, 2008
Bear Stearns to face indictment for hedge fund collapse?
Federal prosecutors are talking to high ranking officials at Bear Stearns Cos Inc after the collapse of two hedge funds last summer, and an indictment of the firm is possible, CNBC's reporter Charlie Gasparino said on Thursday.
Prosecutors recently spoke to former asset management head Rich Marin, Gasparino said. A spokesman for Bear Stearns was not immediately available for comment.
Prosecutors recently spoke to former asset management head Rich Marin, Gasparino said. A spokesman for Bear Stearns was not immediately available for comment.
Bear Stearns changes course placing $1 billion bet on the decline of subprime
Bear Stearns Cos., the U.S. securities firm that posted its first-ever loss last quarter on mortgage writedowns, is betting more than $1 billion that subprime home loans and bonds will continue to decline.
The wager, a "short'' position on subprime mortgage securities, was increased from $600 million at the end of November, Chief Financial Officer Sam Molinaro said today at an investor conference in Naples, Florida. The company also reduced its holdings of so-called collateralized debt obligations and underlying bonds, Molinaro said.
The sinking value of assets tied to mortgages led to Bear Stearns's fourth-quarter loss of $854 million. The company, the fifth-largest U.S. securities firm by market value, dropped 46 percent in New York trading last year, more than any Wall Street rival, leading James "Jimmy'' Cayne to hand the chief executive officer role to Alan Schwartz last month.
Two Bear Stearns hedge funds that invested in securities tied to mortgages collapsed in July, prompting investors to shun the debt. Bear Stearns had to bail out the funds and take possession of many of the securities.
The wager, a "short'' position on subprime mortgage securities, was increased from $600 million at the end of November, Chief Financial Officer Sam Molinaro said today at an investor conference in Naples, Florida. The company also reduced its holdings of so-called collateralized debt obligations and underlying bonds, Molinaro said.
The sinking value of assets tied to mortgages led to Bear Stearns's fourth-quarter loss of $854 million. The company, the fifth-largest U.S. securities firm by market value, dropped 46 percent in New York trading last year, more than any Wall Street rival, leading James "Jimmy'' Cayne to hand the chief executive officer role to Alan Schwartz last month.
Two Bear Stearns hedge funds that invested in securities tied to mortgages collapsed in July, prompting investors to shun the debt. Bear Stearns had to bail out the funds and take possession of many of the securities.
Thursday, February 7, 2008
Wall Street Executives Land on Top in the Wake of Subprime Cotastrophe
According to a story by Landon Thomas, Jr. in the New York Times on Jan. 27, 2008, which first reported on Wall Street’s reaction to the huge losses in the subprime debacle, many of Wall Street’s top executives who oversaw subprime investments at Merrill Lynch and Citigroup apparently have bright futures ahead of them.
The article specifically focused on Merrill Lynch’s Dow Kim and Thomas G. Maheras of Citigroup. Both men were top executives who built up a large position of subprime-related securities, which eventually led to $34 billion in losses last year. The fallout ultimately cost the chief executive officers at Merrill Lynch and Citgroup, Stan O’Neal and Charles Prince, their jobs. Dow Kim and Thomas G. Maheras, however, fared much better.
Kim, former co-president at Merrill Lynch with responsibility for trading and market operations, has been involved in raising money throughout the world for his new hedge fund, Diamond Lake Capital. Maheras, former co-president of Citigroup’s investment bank, is in discussions with several investment banks, including Bear Stearns, regarding a senior-level position. Several investments banks also have approached Maheras with offers to back him with up to $1 billion should he decide to start a hedge fund.
Wall Street apparently is wooing other subprime veterans, as well. Morgan Stanley co-president Zoe Cruz has reportedly been approached by investment banks, hedge funds, and private equity funds for a senior-level position. Cruz was forced to leave her job after the company suffered $10.8 billion of subprime losses.
These developments are a growing sign from Wall Street that it was the system that failed, not the people within the system. Then there are others who simply get more than one more chance. John Meriwether, who was fired from Salomon Brothers for his part in a bond trading scandal in 1991, went on to create the hedge fund, Long Term Capital Management. When the Fund nearly failed in 1998, it shook financial markets worldwide. Today, Meriwether has founded another hedge fund, JWM Partners, which has assets of approximately $3 billion.
Another case in point is Brian Hunter, the energy trader at Amaranth Advisors whose disastrous bets led to the disintegration of that $9 billion hedge fund. He is now advising a private equity fund on starting a new hedge fund. Of course, not everyone associated with the subprime contagion experiences such treatment. Rank and file employees from the merger and acquisition bankers at Bank of America to the sales executives at Citigroup’s hedge fund servicing business are seeing their jobs eliminated daily.
Morgan Stanley, is cutting 1,000 operational jobs; Merrill Lynch is also is expected to announce staff reductions Bank of America plans to cut more than 1,000 positions in its trading and investment banking operations, and Citigroup already has announced layoffs of investment bankers and plans to cut 4,200 jobs.
The article specifically focused on Merrill Lynch’s Dow Kim and Thomas G. Maheras of Citigroup. Both men were top executives who built up a large position of subprime-related securities, which eventually led to $34 billion in losses last year. The fallout ultimately cost the chief executive officers at Merrill Lynch and Citgroup, Stan O’Neal and Charles Prince, their jobs. Dow Kim and Thomas G. Maheras, however, fared much better.
Kim, former co-president at Merrill Lynch with responsibility for trading and market operations, has been involved in raising money throughout the world for his new hedge fund, Diamond Lake Capital. Maheras, former co-president of Citigroup’s investment bank, is in discussions with several investment banks, including Bear Stearns, regarding a senior-level position. Several investments banks also have approached Maheras with offers to back him with up to $1 billion should he decide to start a hedge fund.
Wall Street apparently is wooing other subprime veterans, as well. Morgan Stanley co-president Zoe Cruz has reportedly been approached by investment banks, hedge funds, and private equity funds for a senior-level position. Cruz was forced to leave her job after the company suffered $10.8 billion of subprime losses.
These developments are a growing sign from Wall Street that it was the system that failed, not the people within the system. Then there are others who simply get more than one more chance. John Meriwether, who was fired from Salomon Brothers for his part in a bond trading scandal in 1991, went on to create the hedge fund, Long Term Capital Management. When the Fund nearly failed in 1998, it shook financial markets worldwide. Today, Meriwether has founded another hedge fund, JWM Partners, which has assets of approximately $3 billion.
Another case in point is Brian Hunter, the energy trader at Amaranth Advisors whose disastrous bets led to the disintegration of that $9 billion hedge fund. He is now advising a private equity fund on starting a new hedge fund. Of course, not everyone associated with the subprime contagion experiences such treatment. Rank and file employees from the merger and acquisition bankers at Bank of America to the sales executives at Citigroup’s hedge fund servicing business are seeing their jobs eliminated daily.
Morgan Stanley, is cutting 1,000 operational jobs; Merrill Lynch is also is expected to announce staff reductions Bank of America plans to cut more than 1,000 positions in its trading and investment banking operations, and Citigroup already has announced layoffs of investment bankers and plans to cut 4,200 jobs.
Wednesday, February 6, 2008
ABX Index shows $180 billion more in subprime losses
Reuters reported that prices on the ABX Index of the United States subprime market indicate a further $180 billion write down in addition to the $130 billion in losses already taken according to analysts at Dresdner Kleinwort.
The ABX indexes are based on only specific slices of the underlying asset-backed securities. The traded triple-A tranche, for example, refers only to the most junior, or riskiest, slice of all the AAA tranches in the underlying deals.
Many loss calculations derived from ABX prices do not take this into account, while another common mistake is to ignore the time value of money, the analysts found. The forecast losses will play out over the next two years as rates are reset on adjustable rate mortgages.
The ABX indexes are based on only specific slices of the underlying asset-backed securities. The traded triple-A tranche, for example, refers only to the most junior, or riskiest, slice of all the AAA tranches in the underlying deals.
Many loss calculations derived from ABX prices do not take this into account, while another common mistake is to ignore the time value of money, the analysts found. The forecast losses will play out over the next two years as rates are reset on adjustable rate mortgages.
Tuesday, February 5, 2008
Norma CDO investigation
Aidikoff, Uhl & Bakhtiari is investigating the possibility of taking legal action on behalf of investors that lost money in a collateralized debt obligation ("CDO") called Norma CDO I Ltd. ("Norma").
Norma, brought into existence by Merrill Lynch, bet heavily on the success of the sub-prime market. Just nine months after it sold about $1.5 billion in securities to its investors, the value of Norma has been decimated in the collapse of the housing market and is reported to be worth only a fraction of its original value.
We are investigating how Merrill Lynch and others marketed Norma, andwhether the true risks of Norma were fully disclosed to its investors. Questions have arisen and we are working to determine whether Norma was suitable for the retail and institutional customers that invested in the product.
Norma, brought into existence by Merrill Lynch, bet heavily on the success of the sub-prime market. Just nine months after it sold about $1.5 billion in securities to its investors, the value of Norma has been decimated in the collapse of the housing market and is reported to be worth only a fraction of its original value.
We are investigating how Merrill Lynch and others marketed Norma, andwhether the true risks of Norma were fully disclosed to its investors. Questions have arisen and we are working to determine whether Norma was suitable for the retail and institutional customers that invested in the product.
Monday, February 4, 2008
Morgan Keegan bond mutual fund investor claims
The collapse of Morgan Keegan bond mutual funds has led to investor claims and a continuing investigation of Regions Financial Corp. (NYSE:RF), according to a four-law firm legal team with nationally recognized securities law experience.
A class action lawsuit was filed against Morgan Keegan in the United States District Court for the Western District of Tennessee, Atkinson et al. v. Morgan Asset Management, Inc., et al, Case No. 2007cv02784.
February 4, 2008 is the court deadline to file for appointment as Lead Plaintiff."If you are an investor that lost more than $75,000, you should consider all legal options," said attorney Mark Maddox of Maddox Hargett & Caruso, P.C. "Morgan Keegan bond mutual fund investors have a variety remedies that they should discuss with qualified counsel."
"Our investigation has revealed that Morgan Keegan brokers were unaware of the true nature of these securities, in part because of how the underlying debt was marketed," added Mr. Maddox.
A class action lawsuit was filed against Morgan Keegan in the United States District Court for the Western District of Tennessee, Atkinson et al. v. Morgan Asset Management, Inc., et al, Case No. 2007cv02784.
February 4, 2008 is the court deadline to file for appointment as Lead Plaintiff."If you are an investor that lost more than $75,000, you should consider all legal options," said attorney Mark Maddox of Maddox Hargett & Caruso, P.C. "Morgan Keegan bond mutual fund investors have a variety remedies that they should discuss with qualified counsel."
"Our investigation has revealed that Morgan Keegan brokers were unaware of the true nature of these securities, in part because of how the underlying debt was marketed," added Mr. Maddox.
Wall Street, Bear Stearns Hit Again By Investors Fleeing Mortgage Sector
The nation's weak housing sector sent another shudder through Wall Street, with insurers and lenders taking further hits and Bear Stearns Cos. shutting off withdrawals from a mortgage-investment fund.
The stock market, which had been up sharply early yesterday, reversed course abruptly amid renewed concerns about loans and securities derived from home mortgages. The Dow Jones Industrial Average, which had been up more than 140 points, closed down 146.32 points, or 1.1% from a day earlier, at 13211.99 -- a swing of nearly 300 points, or more than 2%. U.S. Treasury bonds rallied as investors sought the stability of government-backed bonds.
The nervousness was fed by rumors of troubles at hedge funds that are invested heavily in mortgage securities. Bear Stearns, its reputation already dented after two of its hedge funds that bet heavily on securities connected to risky home loans blew up in June, has prevented investors from taking their money from another fund that put about $850 million into mortgage investments.
In recent weeks, as the housing market continued to weaken and trading firms began to price many mortgage investments at discounted levels, Bear executives realized their Asset-Backed Securities Fund was facing a rough July, said people familiar with their thinking.
Unlike Bear's other two funds, these people said, the asset-backed fund borrowed no capital and had practically no exposure to subprime mortgages, as home loans extended to people with weak credit are known. But a combination of markdowns on a broad range of mortgages and a series of refund requests could force the fund out of business eventually, according to one person familiar with the situation.
The stock market, which had been up sharply early yesterday, reversed course abruptly amid renewed concerns about loans and securities derived from home mortgages. The Dow Jones Industrial Average, which had been up more than 140 points, closed down 146.32 points, or 1.1% from a day earlier, at 13211.99 -- a swing of nearly 300 points, or more than 2%. U.S. Treasury bonds rallied as investors sought the stability of government-backed bonds.
The nervousness was fed by rumors of troubles at hedge funds that are invested heavily in mortgage securities. Bear Stearns, its reputation already dented after two of its hedge funds that bet heavily on securities connected to risky home loans blew up in June, has prevented investors from taking their money from another fund that put about $850 million into mortgage investments.
In recent weeks, as the housing market continued to weaken and trading firms began to price many mortgage investments at discounted levels, Bear executives realized their Asset-Backed Securities Fund was facing a rough July, said people familiar with their thinking.
Unlike Bear's other two funds, these people said, the asset-backed fund borrowed no capital and had practically no exposure to subprime mortgages, as home loans extended to people with weak credit are known. But a combination of markdowns on a broad range of mortgages and a series of refund requests could force the fund out of business eventually, according to one person familiar with the situation.
Sunday, February 3, 2008
UBS subprime losses mount
Subprime-related problems at UBS AG mounted on Wednesday as the Swiss bank unveiled $4 billion in new write-downs in a surprise statement and sank deep into the red for the year, depressing its shares.
The latest disclosure lifted the bank's total write-downs from the subprime debacle to $18.4 billion and will likely increase pressure on chairman Marcel Ospel, at the UBS helm during its push into risky U.S. investments, to resign.
UBS, world banking's leading wealth manager, posted a 12.5 billion Swiss franc ($11.45 billion) loss for the last three months of 2007 and a full-year loss of 4.4 billion francs, a grim closure to its worst performance in history.
The latest disclosure lifted the bank's total write-downs from the subprime debacle to $18.4 billion and will likely increase pressure on chairman Marcel Ospel, at the UBS helm during its push into risky U.S. investments, to resign.
UBS, world banking's leading wealth manager, posted a 12.5 billion Swiss franc ($11.45 billion) loss for the last three months of 2007 and a full-year loss of 4.4 billion francs, a grim closure to its worst performance in history.
Saturday, February 2, 2008
UBS Faces Investigation By Criminal Prosecutors
Federal criminal prosecutors in New York are investigating whether UBS AG misled investors by booking inflated prices of mortgage bonds it held despite knowledge that the valuations had dropped, according to people familiar with the matter.
The investigation, by the U.S. attorney in New York's Eastern District in Brooklyn, is preliminary. The U.S. attorney's office frequently works closely with the Securities and Exchange Commission to coordinate efforts to gather information.
The New York prosecutors haven't issued subpoenas, according to people familiar with the matter.
The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage securities, recently upgraded probes of UBS and Merrill Lynch & Co. into formal investigations, people familiar with the matter say. This step, which requires approval of the full commission, gives the SEC broad subpoena power, or the authority to require firms and individuals to produce information.
The investigation, by the U.S. attorney in New York's Eastern District in Brooklyn, is preliminary. The U.S. attorney's office frequently works closely with the Securities and Exchange Commission to coordinate efforts to gather information.
The New York prosecutors haven't issued subpoenas, according to people familiar with the matter.
The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage securities, recently upgraded probes of UBS and Merrill Lynch & Co. into formal investigations, people familiar with the matter say. This step, which requires approval of the full commission, gives the SEC broad subpoena power, or the authority to require firms and individuals to produce information.
Merrill Lynch Faces Allegations of Fraud
The Wall Street Journal reported that Massachusetts authorities accused Merrill Lynch of fraud and misrepresentations in connection with Merill Lynch sale of Collaterialized Debt Obligation (CDOs) that recently collapsed during the subprime credit crisis.
The allegations come just a day after Merrill bought back the securities, known as collateralized debt obligations, from Springfield, Mass. Merrill repurchased the CDOs at the same price of $13.9 million that the firm initially sold them to the city last spring.
These CDOs, which are pools of debt that included subprime mortgages, had plunged in value to $1.2 million, according to a recent Merrill account statement for Springfield.
In the Massachusetts complaint, the secretary of state alleges that Merrill acted in a way that was "inappropriate and illegal." The complaint said "these highly-risky and esoteric CDOs were unsuitable for the City of Springfield [and] Merrill Lynch did not properly disclose to the City the risks of owning these CDOs."
The allegations are civil and could result in fines and other penalties, but the secretary's office doesn't have criminal authority.
The allegations come just a day after Merrill bought back the securities, known as collateralized debt obligations, from Springfield, Mass. Merrill repurchased the CDOs at the same price of $13.9 million that the firm initially sold them to the city last spring.
These CDOs, which are pools of debt that included subprime mortgages, had plunged in value to $1.2 million, according to a recent Merrill account statement for Springfield.
In the Massachusetts complaint, the secretary of state alleges that Merrill acted in a way that was "inappropriate and illegal." The complaint said "these highly-risky and esoteric CDOs were unsuitable for the City of Springfield [and] Merrill Lynch did not properly disclose to the City the risks of owning these CDOs."
The allegations are civil and could result in fines and other penalties, but the secretary's office doesn't have criminal authority.
Friday, February 1, 2008
Merrill Lynch Settles With Massachusetts City
Merrill Lynch has repurchased CDOs from Springfield, Massachusetts.
The securities, known as collateralized debt obligations, were repurchased at the same price of $13.9 million that Merrill initially sold them to the city last spring. These CDOs, which are pools of debt that included subprime mortgages, are worth only $1.2 million, according to a recent Merrill account statement for Springfield.
Merrill also agreed to pay outside legal fees incurred by the Springfield Finance Control Board, which overseas the city's finances."The City of Springfield and the Springfield Financial Control Board have said that neither body approved the purchases of these investments," said Mark Herr, a Merrill spokesman. "After carefully reviewing the facts, we have determined the purchases of these securities were made without the express permission of the city. As a result, we are making the city whole and we have taken appropriate steps internally to ensure this conduct is not repeated."
The Massachusetts Attorney General's Office said it continues to investigate the sale. "We are still reviewing this matter to determine if additional action by our office is necessary," said Melissa Sherman, a spokeswoman.State and city governments are emerging as the most recent victims of the subprime crisis. Some critics charged that the CDOs were inappropriate for government cash funds.
The securities, known as collateralized debt obligations, were repurchased at the same price of $13.9 million that Merrill initially sold them to the city last spring. These CDOs, which are pools of debt that included subprime mortgages, are worth only $1.2 million, according to a recent Merrill account statement for Springfield.
Merrill also agreed to pay outside legal fees incurred by the Springfield Finance Control Board, which overseas the city's finances."The City of Springfield and the Springfield Financial Control Board have said that neither body approved the purchases of these investments," said Mark Herr, a Merrill spokesman. "After carefully reviewing the facts, we have determined the purchases of these securities were made without the express permission of the city. As a result, we are making the city whole and we have taken appropriate steps internally to ensure this conduct is not repeated."
The Massachusetts Attorney General's Office said it continues to investigate the sale. "We are still reviewing this matter to determine if additional action by our office is necessary," said Melissa Sherman, a spokeswoman.State and city governments are emerging as the most recent victims of the subprime crisis. Some critics charged that the CDOs were inappropriate for government cash funds.
Subscribe to:
Posts (Atom)