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Post by jeffolie on Jul 24, 2007 12:06:27 GMT -6
July 24 (Bloomberg) -- The Wall Street money-machine known as collateralized debt obligations is grinding to a halt, imperiling $8.6 billion in annual underwriting fees and reducing credit for everyone from buyout king Henry Kravis to homeowners.
Sales of the securities -- used to pool bonds, loans and their derivatives into new debt -- dwindled to $3.7 billion in the U.S. this month from $42 billion in June, analysts at New York-based JPMorgan Chase & Co. said yesterday. The market is ``virtually shut,'' the bank said in a July 13 report. . . .
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Post by unlawflcombatnt on Jul 24, 2007 13:21:48 GMT -6
It looks like the investment bankers are taking a big hit. (And a well-deserved one, at that.) The investment bank index has dropped about 10% since the beginning of last Tuesday. The cumulative index has gone from approximately 1450 to down to 1311 at present. Unfortunately, the total index only goes back 5 days, so it's necessary to copy down previous 5-day intervals to track its longer-term movement.
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Post by jeffolie on Jul 24, 2007 13:24:45 GMT -6
...sudden liquidity crisis... NEW YORK, July 24 (Reuters) - Soaring defaults in the subprime mortgage market are spreading into the U.S. credit markets, producing a "sudden liquidity crisis" in the high-yield bond sector, according to widely followed bond manager Bill Gross. A lack of confidence has shut down the markets for lending and backed up new junk-bond offerings -- a major source of funding for leveraged buyouts and may become a factor ultimately impacting the U.S. economy, said Gross, manager of the world's largest bond fund at Pacific Investment Management Co., or PIMCO. He made the comment in his August investment outlook letter Last week marked the slowest July for junk bond offerings since 1994, according to Dealogic, with only three deals totaling $708 million priced. It was also the sixth week in which investors yanked money out of mutual funds that invest in high-yield securities. www.reuters.com/article/marketsNews/idUKN2419758220070724?rpc=44&pageNumber=1
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Post by jeffolie on Jul 24, 2007 13:57:30 GMT -6
“‘We are having a flight to quality,’ in which investors favor Treasuries over riskier assets including swaps, said Eric Liverance, head of U.S. rate derivatives strategy with UBS. ‘Credit in general is blowing out,’ he said.”
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Post by beachbumbob on Jul 26, 2007 5:08:46 GMT -6
the dominos are falling as predicted...soon the govt bailout will take centerstage while the people get tossed from their homes
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Post by jeffolie on Jul 26, 2007 12:30:56 GMT -6
I predict that this will be on center stage for the 2008 elections. The Democrats will blame the Republicans for the systematic failure by the summer of 2008.
It will be a race to build the biggest bailout plan.
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Post by unlawflcombatnt on Jul 26, 2007 22:37:55 GMT -6
I predict that this will be on center stage for the 2008 elections. The Democrats will blame the Republicans for the systematic failure by the summer of 2008. It will be a race to build the biggest bailout plan. Exactly. It'll be a contest as to which party can come up with the most disingenuous plan to bail out banks and financial institutions, while disguising it as a bail-out of defaulting home owners and small investors. Whichever party does the best con job on the voters will be the winner.
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Post by jeffolie on Jul 28, 2007 11:00:13 GMT -6
CLO market has almost shut down, experts say
Loans for LBOs and corporate borrowing are getting harder to sell
By Alistair Barr, MarketWatch Last Update: 6:58 PM ET Jul 26, 2007
SAN FRANCISCO (MarketWatch) -- The market for Collateralized Loan Obligations has almost shut down in recent weeks, making loans for leveraged buyouts and corporate borrowing harder to sell, experts said Thursday. CLOs are packages of leveraged loans that are sold by investment banks to hedge funds and other institutional investors. Roughly $100 billion of the vehicles were issued in 2006 and about $58 billion were sold in the first half of 2007, according to Steven Miller, managing director of Standard & Poor's Leveraged Commentary & Data. The fast-growing market helped fuel the leveraged buyout boom in recent years, which in turn has been a major driver of stock market gains. However, that trend has stopped abruptly in recent weeks, Miller and others said. "It's absolutely shut down for any new CLOs in the last two weeks," said Kingman Penniman, president of KDP Investment Advisors, an independent research firm focused on high-yield bonds and leverage loans. Existing CLO deals continue to progress, Miller said, "but the market for brand new deals getting a financing line and warehousing has shut." "That's very important," Miller added. "The CLO market has been the cornerstone of the leveraged loan market. Lower demand from CLOs means it's harder to sell loans." Part of the problem is that many of the natural buyers of CLOs also bought Collateralized Debt Obligations (CDOs), KDP's Penniman said. CDOs are a bit like mutual funds that buy asset-backed securities. Those vehicles snapped up a lot of the riskier bits of subprime mortgage-backed securities in recent years, helping to fuel the housing market boom. But subprime mortgage delinquencies have jumped and some CDOs have been downgraded, leaving investors suffering losses. "When these investors started to realized there were problems and losses in CDOs, that caused widespread concern and risk aversion that basically shut down the CLO market," Penniman explained. Another concern for investors is that there are more than $200 billion of leveraged loans and about $100 billion of high-yield bonds that need to be sold in coming months, many of which will help finance leveraged buyouts that have already been announced, Penniman and others noted. "Investors are holding back, knowing dealers have large inventories," Chris Flanagan, head of global structured finance research at J.P. Morgan Chase (JPM : jp morgan chase & co com News , chart , profile , more Last: 44.23+0.15+0.34%
4:00pm 07/27/2007
"Investors are still grappling with the implications of subprime turmoil" and remain "unwilling to step in until there is more clarity," he added.
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Post by jeffolie on Jul 28, 2007 11:06:32 GMT -6
Issuance of collateralized loan obligations (CLOs) soared to a record $57 billion in the first half of 2007. That has since slowed to a trickle. So far this month, just $1.9 billion of CLOs have been sold, according to Standard & Poor's Leveraged Commentary & Data. "Leveraged finance's cash engine -- the CLO market -- has ground to a halt," S&P noted in a written commentary on July 19. (WSJ Online) www.safehaven.com/article-8059.htm
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Post by unlawflcombatnt on Jul 28, 2007 14:46:41 GMT -6
from the Safehaven article, Mauldin states the following:
"Over 40 Leveraged Buy Out (LBO) deals have been pulled in the past few weeks. The biggest investment banks are having to "eat" the paper on the Chrysler and Boots LBOs, as they cannot find buyers for the paper. In essence, they committed to lend the money and planned to sell the bonds into the market, keeping fat fees and commissions. Now, they have to put the loans onto their books.
This is not all bad. It simply means they have to use their own capital, and at yields lower than they could get today, to fund the deals. It is not that the paper is bad. It is just that the market wants a higher yield, and the banks would have to lose money to sell at the higher yields.
But what it does mean is that now the banks have less capital to fund new deals, and that private equity funds will have to pay more interest and put more equity into a deal to get it done. That makes a lot of deals less attractive than they were a few weeks ago.
Part of the sell-off in the stock market is from stocks which were thought to be "in play" but are now no longer take over candidates. The wind in the sails that has been private equity and buybacks is dropping, as funding is drying up rapidly...."
For the economy as a whole (as opposed to Wall Street), this all sounds very positive-- less asset inflation, less profits from purely financial transactions (manipulations), and less market domination by the largest, richest players. It sounds like an excellent development for smaller businesses and entrepreneurs, as they Corporate giants they have to compete with will be less "giant."
Maybe some investors will decide to divert their capital into true capital equipment expenditures, instead of purely financial manipulations.
Mauldin states "this is not all bad." To me that's an understatement. I'd say "this is all good". Profits from "financial" capitalism do little for the overall economy, nor for the majority of people.
Anything reducing non-productive profiteering from purely financial transactions sounds good to me.
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