US banks scrap plans for SIV ‘superfund’

This has got to be one of the biggest “non-surprises” of 2007:  a “lack of interest from other banks in providing financial support” killed the “superfund” scheme.  What BlackRock was proposing is ludicrous.  Take a severely under-capitalized group of banks in the US, pool together their crap, and then try to re-market this to other under-capitalized banks / buyers as a liquidity trap and further write-down.  If there were buyers for these SIVs in the first place, we wouldn’t have these problems.  Article from Financial Times (December 20, 2007):   

The US Treasury-backed $75bn “superfund” planned by the top three US banks was scrapped on Friday after lack of interest from other banks in providing financial support.

The banks also faced waning interest from cash-strapped structured investment vehicles (SIVs) in selling assets to the fund, according to someone close to the plan.

The fund, which was to be managed by BlackRock, was proposed by the banks with the encouragement of the Treasury two months ago amid fears of possible fire sales of assets by SIVs.

Such sales could cause further dislocation in the credit markets and threaten money market funds, which are the main investors in SIV commercial paper. Continue reading

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Marking to Market

The recent E-trade sale of $2.5 billion of asset backed securities (ABS) to a Citadel led consortium demonstrates the massive write-downs ahead for ABS.  At a range of 11 to 27 cents on the dollar with approximately 73% of loans backed by prime mortgages, that is a dramatic write-down for prime mortgages and is actually worse than reflected by the ABX indices for prime.  Of course, there is significant variability within each of the 2,400 securitized loan pools originated over the past three years.  Most important to note is that the pricing of the recent E-trade deal is more in line with subprime mortgages (see below), rather than prime.

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Analyst Thinks Banks Might Be A Good Buy

A credit crunch wouldn’t seem to be the best time to buy financials, but an analyst from Morningstar says there might be opportunities for investors who want to buy cheap.Sonya Morris, senior analyst at Morningstar, writes that there are ETFs focused on financials that have high-value stocks that could be poised for a turnaround.

Read article here.  Wow, this woman will live to regret this statement recommending Bank of America, Wells Fargo, and JPMorgan right now.  There were certainly analysts recommending “cheap” tech stocks on the way down in 2002 and 2003.  No different here.