ING Gets Massive Dutch Bailout.... Dumping € 27.7 Billion Alt-A RMBS On The Dutch Taxpayer........

They call it "illiquid"... I call it "toxic"..... A fantastic deal for ING and a lousy one for the taxpayer..... The loss assumptions for the transfered ALT-A is overly optimistic and the structure of the deal is just another poorly hidden bailout postponing a nationalization with no upside for the taxpayer.....Looks like they have adopted the UBS, Citi, Merrill/Bank Of America structure leaving the taxpayer with a massive disatvantage ( no equity stake ) ..... I think the term "looting" is not a massive overstatement.....

Ziemlich dreist. ING nennet die Position "illiquide", eine bessere Bezeichnung währe sicher " toxisch"...... ING mußte offensichtlich erneut gerettet werden. Für ING ein fantastischer Deal der den Steuerzahler ziemlich teuer zu stehen kommen dürfte. Die Verlustprognosen der ALT-A Positionen sind überaus rosig und stehen im totalen Kontrast zu den jüngsten Bewertungen bei anderen Instituten. Alles in allem ein peinlicher Versuch eine weiter direkte Mrdschwere Kapitalbeteiligung die dem Steuerzahler zumindest einen massiven Aktienanteil ( sprich ne verkappte Verstaatlichung) und damit die Chance bei einer Erholung zumindest einen Teil der Verluste zurückzuerwerben..... Das ganze ähnelt der UBS, Citi, Merrill/Bank Of America Variante (bei denen allerdings der Schrott größtenteils bei den jeweiligen Notenbanken gelandet ist ) die man guten Gewissens als "Plünderung" der Steuerzhaler betiteln kann....


ING update on results and measures to reduce risk and costs
ILLIQUID ASSETS BACK-UP FACILITY
ING and the Dutch government have reached an agreement on an Illiquid Assets Back-up Facility covering 80% of ING’s Alt-A mortgage securities. Market prices for these securities have become depressed as liquidity dried up, which had an impact on ING’s results and equity far in excess of reasonably expected credit losses. The transaction will significantly reduce the uncertainty regarding the impact on ING of any future losses in the portfolio.

Under the terms of the Back-up Facility, a full risk transfer to the Dutch State will be realized on 80% of ING’s EUR 27.7 billion portfolio of Alt-A RMBS at ING Direct USA and ING Insurance Americas. The Dutch State therefore will participate in 80% of any results of the portfolio. This risk transfer will take place at a discount of 10% of par value.

ING will remain the legal owner of 100% of the securities and will remain exposed to 20% of any results on the portfolio. > For more details from todays "taxpayer looting" see the ING Presentation

> If you want to see the details of the "illiquid" ALT-A RMBS visist page 56 - 63 Third Quarter 2008 Results . It´s the latest update i could find. Probably no coincidence that there was no update in todays release...... Wouldn´t be surprised if we will very soon see other "illiquid" assets like corporates bonds, CMBS etc being dumped under similar terms.......

> Wer mehr Details zu den "illiquiden" ALT-A Portfolio sehen möchte empfehle ich die Seiten 56-63 Third Quarter 2008 Results. Sind bis heute die aktuellsten Daten die verfügbar sind. Sicher kein Zufall das es dazu heute kein Update gegeben hat........ Würde mich nicht wundern wenn wir demnächst ähnliche Versuche in anderen sog. "illiquiden" Bilanzpositionen sehen werden ( denke hier besonders an Unternehmensanleihen und Positionen die mit gewerblichen Immobilien zu tun haben )......

As a consequence of the transaction, the Dutch State will be entitled to receive 80% of the cash flows of the total portfolio. ING will pay to the Dutch state an annual Guarantee Fee consisting of a fixed amount plus a percentage of the payments received on the securities. The net present value of this fee is EUR -0.6 billion. ING will receive from the Dutch State payments representing a net present value of EUR 0.5 billion. In addition ING will receive from the Dutch State a management fee with a net present value of EUR 0.7 billion. As a consequence of the factors above, the transaction will have a limited impact on ING’s first quarter profit & loss.

The effects of the transaction on ING’s capital and balance sheet will include a reduction of equity volatility, a positive impact on shareholders’ equity of EUR 5 billion through a reduction of the negative revaluation reserve. Risk-weighted assets will be reduced by approximately EUR 15 billion, raising ING Bank’s Tier-1 ratio by approximately 40 basis points to 9.5% and the core Tier-1 by 32 basis points to 7.4%, both on a pro forma basis. The transaction is expected to close in the first quarter of 2009, subject to further documentation and regulatory approval.

ING will earmark part of the capital released by the Back-up Facility to support the growth of the Dutch lending business for an amount of EUR 25 billion at market conforming conditions. Under the terms of the agreement, ING commits itself to pro-actively use EUR 10 billion of the Credit Guarantee Scheme of the State of the Netherlands to support the scheme.

For the duration of the Back-up Facility, ING will maintain the corporate governance measures agreed upon issuing core Tier-1 securities to the State in November 2008. In addition, the government-nominated members of the ING Supervisory Board will have approval rights on certain executive appointments. The Executive Board of ING has agreed to forego all bonuses until a reviewed remuneration policy will be completed. (LOL)!!!!This policy will include criteria on sustainability for the Executive Board and is expected to be proposed to the annual General Meeting of Shareholders in 2010.

“With this agreement, we take a firm stride to reduce the risks on our balance sheet. We much appreciate the measures the Dutch government is taking in this phase to restore confidence in the financial sector and stimulate the economy and thank them for reaching this agreement,” said Jan Hommen.

> No wonder the stock is now up almost 25 percent.....Time to renegotiate the stock options / bonus programms....... More bailout news out of Europe France to support Airbus via banks: source & Schaeffler and Continental in aid talks ( even more outrageous than ING )

> Kein Wunder das die Aktie mal eben satte 25% höher springt......Höchste Zeit fürs Management die Aktienoptionsprogramme sowie die Boniprogramme nachzuverhandeln.... Mehr in Sachen Bailout die einem die einem zumindest mit dem Kopf schüttel lassen kommt aus Frankreich ( siehe France to support Airbus via banks: source ) sowie aus Deutschland Staatshilfe für Schaeffler und Conti geplant. Besonders der Fall Fall Conti/Schaeffler is ein klares Anzeichen dafür das selbst größte Inkompetenz momentan erstklassige Chancen hat vom Steuerzahler rausgehauen zu werden.....

“Subprime Was The Tip Of The Iceberg”.... “Prime Will Be Far Bigger In Its Impact.”

Nothing really new but sometimes it is always good to get an update on the ongoing residential housing bust..... Scary that there are still some bottom callers out there..... I really hope that they have always put their money where their mouth was during their perma-bottom-calls.....

Das nachfolgende Posting liefert nicht wirklich bahnbrechend Neues und soll in erster Linie ein Update in Sachen US Wohnimmobilienmarkt geben. Denke hier werden all diejenigen die schon fast penetrant den Boden ausrufen als Phantasten entlarvt. Wenn man jetzt bedenkt das der Verfall im gewerblichen Sektor gerade erst Fahrt aufnimmt erscheinen einige bullische Kommentare in einem noch fragwürdigerem Licht...... Kein noch so großer Bailout kann die dringend notwendige Bereinigung verhindern.... Bin sogar der Meinung das je länger die Korrektur durch die "Eingriffe" verlängert wird desto größer wird der volkswirtschaftliche Gesamtschaden letztendlich sein. Da aber in der Realität immer irgendwelche Wahlen anstehen muß man wie die aktuellen Beispiele zeigen mit dem Schlimmsten rechnen.....

Housing Lenders Fear Bigger Wave of Loan Defaults NYT
The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

Delinquencies on mortgages tend to peak three to five years after loans are made....

Prime and alt-A borrowers typically had a five- or seven-year grace period before payments toward principal were required. By contrast, subprime loans had a two-to-three-year introductory period. That difference partly explains the lag in delinquencies between the two types of loans, said David Watts, an analyst with CreditSights

> You don´t need to be a genius to figure out will happen during the next few years..... The following quotes from Calculated Risk sums it up

> Denke hier braucht man nun wirklich kein Genie zu sein um zuerkennen das die nächsten Jahre brutal werden. Der nachfolgende Kommentar von Calculated Risk dürfte zutreffen.....

I think the second wave of foreclosures will be smaller in numbers, as compared to the largely subprime first wave, but the price of each home will be much higher. And the second wave will impact prices in the mid-to-high end areas, as opposed to the subprime foreclosures impacting prices in the low end areas.

Barry Ritholtz on "perma-bottom-callers"

Wishful thinking is never a substitute for reviewing the actual data;
thoughtful analysis is better than cheerleading

UPDATE: Click trough pages 61 & 62 from the HSBC Earnings Release to get an up to date picture of their US mortgages, consumer lending, credit card and vehicles credit book.... I also want to highlight page 12 & 13. They are showing the credit trends worldwide ( personal & commercial ) ...... Watch Latin America ( mainly related to Mexico ) ......

UPDATE: Passendweise hat gerade HSBC berichtet. In diesem Report findest man auf den Seiten 61 & 62 Daten nette Charts zu der US Kreditqualität quer durch alle Sektoren ( Kreditkarten , PKW Finanzierungen usw ). Darüberhinaus sollte man einen Blick auf die Seiten 12 & 13 werfen. Hier werden die weltweiten Rsikovorsorgen für den privaten und den gewerblichen Sektor aufgeschlüsselt. Hier sticht besonders und für mich etwas überracshend der starke Anstieg in Süd Amerika hervor ( Lt. Telefonkonferenz überwiegend Mexico )...... Die 200% Aufstockung der Risikovorsorge im gewerblichen US Bereich dürfte erst der Anfang sein.....

Which “inning” of the mortgage crisis are we in? / Hussman

Once again nice "Anti Spin" from Hussman. And don´t forget that after the mortgage crises we will see the commercial real estate crises, the credit card crises, the auto loan crises.......

Einmal mehr wohltuend sachliches von Hussman der einmal mehr die in den Raum geworfenen Behauptungen in ein rechtes Licht zu rücken versucht. Ist zwar bei dem ganzen Müll ein fast aussichtsloses Unterfangen aber bewahrt vielleicht den ein oder anderen den "Rattenfängern" oder Permabullen auf den Leim zu gehen. Und man sollte im Hinterkopf verankert haben das nach der Hypothekenkrise, die Krise der gewerblichen Immobilien, die der Kreditkarten, der Autofinanzierungen usw. kommt.

Which "Inning" of the Mortgage Crisis Are We In?

One of the fascinating aspects of Wall Street is the ability of analysts to provide opinions without the faintest backing from evidence. Among the latest topics of opinion is how far the mortgage crisis has to go. Evidently, the idea is that the recession that these analysts didn't forecast is already over, so it is time to “look across the valley” on the belief that most of the writedowns are behind us.

A good way to estimate where we are in the process of writedowns and foreclosures is to revisit the schedule of resets for adjustable rate mortgages.

The chart doesn't extend out to 2010 ( see extra chart Credit Suisse), where another spike in resets will occur in the third quarter of that year, but it is enough to recognize that resets are only now entering the heavy period.

To understand the implications of this schedule, it is important to recognize the foreclosure timeline. Once a reset occurs, it takes up to 30 days for the first payment to be missed. After 90 days of attempts to catch up on missed payments, the homeowner is served with a “Notice of Default.” It then takes another 90 days with the homeowner in default for a “Notice of Trustee Sale” to be delivered, shortly after which the property is sold in a foreclosure. In short, there is generally a span of about 6 months from reset to foreclosure, which means that we have to lag the data to get the profile of anticipated loan losses.

Fortunately, only a portion of the mortgages that reset will actually go into default, but we estimate which “inning” we are currently in by calculating the cumulative amount of mortgages that will have reset at each point in time (i.e. integrating the curve), and lagging it by 6 months (roughly the span between reset and foreclosure). That produces the following profile for the cumulative losses that can be expected. Again, these are not dollar amounts, since only a portion of even sub-prime mortgages will default. While we will also undoubtedly observe losses from credit cards, commerical real estate, and home equity loans, the point here is only about the general shape of the cumulative loss curve:


Clearly, as we enter April 2008, we appear to be quite early in the mortgage crisis, with only about a quarter of the cumulative resets having occurred. That places us near the start of the third inning, where we can expect each of the nine “innings” to be about three months in duration. Unfortunately, the next three innings (quarters) are when the heavy hitters on the opposing team will come up to the plate, as the cumulative amount of resets will surge. With that surge, loan losses and foreclosures will also predictably spike higher.

Moreover, because of the bundling, securitization*, and slicing and dicing of mortgage obligations, financial companies have little ability to take the required writedowns in advance, because they don't know yet which ones will go into default. To opine that we are in some late “inning” of the mortgage problem, without reference to the reset data, is just naïve. If anything, the probable rate of foreclosure on later resets will be higher, not lower, than the earlier resets, because those later resets represent the mortgages initiated at the peak of home prices and the trough of lending standards.

"Fools Day" With The Greatest Fool UBS

I have suspended my temporary time out. It took a little longer than initially planned. Due to time constraints my postings in the future will be lighter than before the break. Thanks for all the kind words and mails during the break.

I think it is a good start to kick off the "Fools Day" with news from the the greatest fool UBS. I suggest to read the Q4 details to understand all the drama in the specific positions.

With still close to $ 30 billion ( even if some positions are hedged ) exposure in Subprime and Alt A i expect further write downs and a break up of UBS during the coming 6 to 12 month....

Ich habe meine zwischenzeitliche Auszeit beendet. Sie hat ein wenig länger als ursrünglich geplant gedauert. Aufgrund von Zeitproblemen wird das Posting zukünftig wohl auch weniger häufig ausfallen. Auf diesem Wege möchte ich mich bei allen für die netten Mails und Kommentare bedanken.

Es gibt wohl kaum einen besseren Weg den 1. April mit Neuigkeiten von der UBS zu eröffnen. Bei den nachfolgenden Summen handelt es sich leider um keinen Aprilscherz. Ich empfehle um das ganze Ausmaß des Debakel zu erfassen sich die einzelnen Positionen aus Q4 "reinzuziehen".

Mit immer noch knapp 30 Mrd $ an Subprime und Alt A Positionen ( selbst wenn einiges gehedged sein sollte ) dürfte die nächste Abschreibung schon in Stein gemeißelt sein. Ich tippe weiterhin das die UBS binnen der nächsten 12 Monate aufgepalten wird.

UBS

For the first quarter 2008 UBS expects to report a net loss attributable to UBS shareholders of approximately CHF 12 billion after losses and writedowns of approximately USD 19 billion on US real estate and related structured credit positions. In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals

Over the first quarter, UBS's exposure to US residential sub-prime mortgage related positions declined to approximately USD 15 billion from USD 27.6 billion on 31 December, and the exposure to Alt-A positions was reduced from USD 26.6 billion to approximately USD 16 billion. These developments are the result of asset disposals as well as the effects of further writedowns. Other risk positions were also reduced. Auction rate certificate positions increased from USD 5.9 billion on 31 December to approximately USD 11 billion

UBS

Für das 1. Quartal 2008 erwartet UBS einen den UBS-Aktionären zurechenbaren Reinverlust von ungefähr CHF 12 Milliarden nach Verlusten und Abschreibungen in Höhe von ungefähr USD 19 Milliarden auf Positionen US-Immobilienmarkt und damit zusammenhängenden strukturierten Krediten. Im 1. Quartal reduzierte UBS ihre Positionen im US-Immobilienmarkt in erheblichem Masse. Dies geschah einerseits durch Wertberichtigungen, anderseits durch Veräusserungen.

Im 1. Quartal 2008 hat sich das Engagement von UBS in US Subprime-Hypotheken auf ungefähr USD 15 Milliarden verringert (von USD 27,6 Milliarden am 31. Dezember 2007). Das Engagement in Alt-A-Positionen wurde von USD 26,6 Milliarden auf ungefähr USD 16 Milliarden reduziert. Weitere Risikopositionen konnten ebenfalls verringert werden. Die Positionen in Auction Rate Certificates erhöhten sich von USD 5,9 Milliarden am 31. Dezember 2007 auf ungefähr USD 11 Milliarden

UBS: The writedown and the (analysts') reaction FT Alphaville

The Q1 loss is approximately CHF 12 billion. That includes the CHF 18 billion write-down partly offset by CHF 2 billion of fair value accounting gain on your own debt and CHF 3.8 billion of fair value accounting for the option embedded in the mandatory convertible - or, said another way - the money GIC lost when it bought the UBS mandatory convertible. That last part was unexpected by us, and still seems a bit odd.

UBS’s 1Q08 net profit benefited from a CHF6bn positive accounting gain on revaluation of own debt and the mandatory convertible.

UPDATE: Deutsche Bank sees $3.9 billion mark-downs in Q1

Deutsche Bank said Tuesday that conditions have become significantly more challenging during the last few weeks and it expects first quarter mark-downs of around 2.5 billion euros ($3.9 billion). The mark downs are related to leveraged loans and loan commitments, commercial real estate, and residential mortgage-backed securities (principally Alt-A). Deutsche Bank said that it expects a BIS Tier 1 capital ratio at the end of the first quarter of between 8 and 9%, consistent with the bank's published targets

Compare this with the bragging just a few weeks ago......

Vergleicht das mit der Prahlerei von Ackermann von vor gerade einmal 8 Wochen.....

“In the fourth quarter, we again demonstrated the quality of our risk management. We had no net write-downs related to sub-prime, CDO or RMBS exposures. Those trading businesses in which we reported losses in the third quarter produced a positive result in the fourth quarter. In leveraged finance, where we had significant write-downs in the third quarter, net write-downs in the fourth quarter were less than EUR 50 million.”

SCHADENFREUDE!

IndyMac Increases Credit Reserves 47 Percent to $1.39 Billion

This number from the top Alt-A originator ( 14 percent) gives a hint how ugly the situation has become beyond subprime.

That might give a hint how bad the situation for several other players is that have bought back shares hand over fist during the past years and are more involed in subprime, havn´t sold their originations etc......

bigger / größer via Calculated Risk

Forecasted Home price depreciation ranging between 6% and 10% is factored into our loss expectations that drive valuation and reserves – average HPI declines expected to be around 9%

Diese Zahlen von dem Top Alt-A Kreditgeber ( 14 %) geben ein paar klare Indizien das neben Subrpime auch andere Segmente massiv an Qualität verlieren.

Das läßt erahnen wie übel es für andere Institute aussehen muß die im Gegensatz zu IndyMac in den letzten Jahren haufenweise Aktien zurückgekauft havben und sinnlose wertvernichtende Übernahmen getätigt haben aussehen mag. Ganz zu schweigen von denen die Ihre Riskiken nicht weiterreichen konnten und noch stärker im Subprime Sektor engagiert waren.....

We Hold Direct Credit Risk On $19.02 Billion Of Total Single Family Loans Serviced In Our Whole Loans And In Non-Investment Grade And Residual Securities

> Watch the large percentage of homebuilder credit costs....

> Man beachte den gewaltigen Anteil der Rückstellungen für die Homebuilder.....

In the call they said that they had claer signs in 2005 that the market for builders has peaked, but they have ignored it. Now they are paying a high price. They have stopped making any loans to builders and have no intend to re-enter the market soon.

Im CC hat das Management zugegeben das bereits Ende 2005 ganz klare Anzeichen für Probpleme bei den Buildern zu erkennen waren. Dummerweise wurden diese ignoriert und es wirde munter weiter verliehen. Nun kommt die Rechnung. Immerhin haben Sie versprochen dieses Segment nicht weiter zu bedienen und bis auf weiteres keine neuen Kredite zu begeben.

IndyMac Bancorp Reports Third Quarter Loss of $202.7 Million, ($2.77) Per Share

• Total pre-tax credit costs were $407.7 million (versus $103.5 million in the second quarter of 2007), or a negative impact on earnings per share (“EPS”) of $3.40.
• Spread widening in the private-label (non-GSE) mortgage secondary market resulted in a loss of gain on sale and MBS securities revenue estimated at $167.2 million pre-tax for the third quarter, or a negative EPS impact of $1.39.
• After surviving the global liquidity crisis in 1998 as a REIT, we purchased a federally chartered thrift and put our entire business inside the thrift, with the result that we have no liquidity issues today, while many mortgage companies have gone bankrupt or recorded massive losses due to liquidity shortfalls.
• We protected and bolstered our capital by not repurchasing any shares since 2002 and, in fact, raised a substantial amount of capital in 2007.
• We held virtually no subprime, closed-end seconds or HELOCs for investment purposes ($112 million, or 0.3 percent of total assets at September 30, 2007).
• We were not a major subprime lender, ranking 32nd among subprime lenders (according to the National Mortgage News 2006 survey). Our subprime volume in 2006 was $2.7 billion, or 0.39 percent of the total subprime market.
• While we originated $43 billion of Option ARMs from 2005 through Q3-07, we sold all but $1.0 billion (held for investment) and $2.6 billion (held for sale), and we retained no non-investment grade or residual securities related to these loans.
• We laid off virtually all Alt-A 2005/2006 credit risk into the secondary market, retaining only $7.0 million in non-investment grade and residual securities from this production.
• We hold no investments in collateralized debt obligations (CDOs) or structured investment vehicles (SIVs) and only hold mortgage backed securities (93.5 percent of the investment grade MBS are rated AAA and AA, none of which have been downgraded).
• We made one of the only successful acquisitions this decade in the mortgage business – Financial Freedom, the largest reverse mortgage lender in the nation – while virtually all other significant acquisitions have produced very poor results.

> Almost all of the new liquidity is coming from the Federal Home Loan Banks ......

> Fast die ganze zusätzliche Liquidität kommt von Seiten der Federal Home Loan Banks ......

Our operating liquidity is at an all time high of $6.3 billion at 9/30/07, up 54% from $4.1 billion at 6/30/07, and we have no reverse repurchase borrowings or extendable assetbacked commercial paper…95% of our borrowings are deposits, FHLB advances and long-term debt

> the next slide shows a nice Level 3 aka "Mark-to-Make-Believe Gains" etc gain. Wonder why they havn´t used an assumption that would have cover the entire loss from the credit costs.......... Maybe they are conservatice.......

> Nebenbei bemerkt zeigt die nächste Grafik das auch hier mal wieder ein nicht ganz unerheblicher Level 3 aka Mark-to-Make-Believe Gains etc Gewinnbestandteil. Schon erfreulich das Sie nicht gleich eine Berechnungsgrundlage berechnet haben die gleich die gesamten Verluste im Zusammenhang mit den Kreditkosten abdeckt...... Evtl. ist IndyMac ja betont konservativ......

I want to highlight the IndyMac Presentation / pdf that is full of details about every aspect of the mortgage market

Ich möchste Euch in diesem Zusammenhang die IndyMac Präsentation / pdf ans Herz legen die vollgepackt mit Details zur aktuellen Verfassung der Hypothekenmärkte ist.