The London Interbank offered rate, better known as LIBOR, is being questioned this morning. The rate, which is an average of rates supplied by many of the largest banks, might actually be higher than what's actually being quoted. That's great for borrowers, but not so great for lenders. The issue: are all banks submitting LIBOR rates that reflect their true borrowing costs? Or are some fudging them and submitting lower numbers in a face saving move so that the world won't know what their real borrowing rates are if they're in fact much higher? The Wall Street Journal poses that question this morning...
In a development that has implications for
borrowers everywhere, from Russian oil producers to homeowners in Detroit,
bankers and traders are expressing concerns that the London inter-bank offered
rate, known as Libor, is becoming unreliable.
Libor plays a crucial role in the global
financial system. Calculated every morning in London from information supplied
by banks all over the world, it's a measure of the average interest rate at
which banks make short-term loans to one another. Libor provides a key indicator
of their health, rising when banks are in trouble. Its influence extends far
beyond banking: The interest rates on trillions of dollars in corporate debt,
home mortgages and financial contracts reset according to Libor.
Continue reading "LIE-BOR?: Are banks fibbing about the rates they supply for LIBOR?" »
As if bank balance sheets haven't already been financially ravaged enough, home equity loans are the latest trouble spots with rocketing default rates. According to the WSJ:
When times were good, banks raked in
billions of dollars in profit from home-equity loans, which allow borrowers to
tap the accumulated value in their property with either a loan for a specific
amount or a line of credit. As long as home prices were rising, lenders had
little to worry about.
But falling home values are leaving banks
with little or nothing to collect on many home-equity loans in case of default.
Some stretched borrowers are keeping up with their mortgage and credit cards --
but not their home-equity loan.
The problems are already causing trouble
for J.P. Morgan Chase & Co. and Wells Fargo & Co., and are expected to
hit other large banks when first-quarter earnings results are released next
month. The pain is likely to deepen through the rest of 2008, sapping capital
levels and resulting in tighter lending standards as banks try to reduce their
risk.
"These losses are well beyond what we
would have modeled...and continue to get worse," said Charles Scharf, head
of J.P. Morgan's retail business.
Continue reading "The next bubble to burst: Home equity loans" »
Screw the banks. Blackstone thinks they don't need them. According to Blackstone President Hamilton James, they'll find their own sources of cash to fund their LBOs. That's gonna mean lower fees to Wall Street banks..
The firm is contacting hedge funds and
mutual funds to provide loans for takeovers, James said after a panel discussion
today at the Super Return conference in Munich. Other firms may follow New
York-based Blackstone's lead, he added.
``We're bypassing the banks,'' James said.
``There's still ultimately demand for this paper out there if you can go
directly to the buyers.''
Continue reading "Blackstone: We don't need no stinking bank debt financing" »
One small fund based in California, Lahde Capital, says they're up over 1,000%. And of course there's Paulson & Co....
The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulson’s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.
Continue reading "Shorting sub-prime may be the most profitable single trade of all time...." »
Forget panels about mortgages and sub-prime debt. This year's hottest ticket at the Mortgage Bankers Association's annual conference in Boston had nothing to do with the sagging mortgage market. U2's Bono was the featured speaker. And while he didn't rescue the market, he did give what could have been a depressing conference a big entertaining shot in the arm:
But for the bankers and loan brokers in
attendance, the glum mood was broken somewhat by U2 singer Bono, the featured
speaker at the association's gathering at the Hynes Convention Center. Bono is
on the lecture circuit, using his rock superstar status to advocate for aid for
the poor and disease-wracked of Africa.
"You're sitting there thinking you're
having a bad day, and he's talking about millions of people in Africa - the
poverty," said Maureen Ostrom, one of thousands who caught Bono's speech at
8:30 a.m.
"It was just so inspirational,"
she said, as co-worker Sal Mazzocca, seated next to her, sang a few bars of the
U2 hit "Running to Stand Still."
Continue reading "It's a Beautiful Day: Bono inspires the mortgage bankers" »
