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Bear Stearns' tropical fire sale; Will Fannie and Freddie save the day?; Luminent dims; plus more dispatches from the subprime front
BEAR STEARNS' CARIBBEAN HOLIDAY
Ahh, sun, sand, and subprimes. According to a Bloomberg report, Bear Stearns Cos. (BSC) has decided to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York -- a move that may limit creditors' and investors' ability to get their money back. While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated. The Bloomberg report also says Bear also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings. Now, of course, there’s nothing terribly unusual about this. It's worth noting that tussles between creditors and managements over bankruptcy venues occur even within the U.S. And institutional creditors and investors know there are more risks when they turn money over to entities registered offshore. Still, the tropical fire-sale may not be the savviest P.R. move for a company that's already seen its share of bad publicity.
FANNIE AND FREDDIE TO THE RESCUE?
Action Economics notes that talk about U.S. housing agency portfolio expansion circulated on Aug. 6 and apparently helped fuel the late rally on Wall Street. Even as the markets were pinning some hopes of a verbal rescue from the Fed, a simple solution to the credit crunch would be to allow Fannie Mae (FNM) and Freddie Mac (FRE) to sharply increase the number of loans they are allowed by regulators to purchase from the market beyond their current limits, says Action Econ. "This seems more like wishful thinking at the moment, since their accounting irregularities and mismanagement put them under tighter scrutiny", according to the research group.
Meanwhile, Freddie CEO Richard Syron is reported to have said that the company is ready to find the "proper approach" to "prevent disruptions" to the mortgage market, but he made clear he was not in favor of a bailout. Standard Chartered economists in London said this "is potentially good news for helping to stem concerns over a spreading credit crunch." And, we might add, a chance for Fannie and Freddie to buff up their battered reputations if things fall their way.
OUT, OUT BRIEF CANDLE!
Remember Luminent Mortgage (LUM) from yesterday's Confidential? Trading in the shares of the mortgage REIT was halted on the NYSE on Aug. 6 pending news. Well, the news came out on Aug. 7, and it wasn't good. Luminent suspended its second-quarter dividend, canceled a conference call with analysts, and delayed the filing of its Form 10-Q report for the quarter. The rapidly dimming REIT says it is exploring strategic options to address its liquidity issues. Friedman Billings Ramsey (FBR) analyst Merrill Ross notes that Luminent brass announced that the company is facing significant increase in margin calls. According to an Aug. 7 research note, Ross can no longer recommend the shares and considers management's credibility "shot". As if that wasn't enough, the analyst slashed the firm's $11.50 target price to $1. The shares plunged 75% on Aug. 7, finishing at $1.08.
A NEW YORK STATE OF UNWIND
What does your dollar get you these days? How about a share of residential mortgage finance outfit New York Mortgage Trust (NTR). NTR, which specializes in ARMs, saw its share price sink below a buck after it unveiled some painful news Aug. 7. The company announced a second-quarter loss from continuing operations of 29 cents a share, compared with earnings of 1 cent a year earlier, well beyond the 14-cent loss the Street was expecting. NTR is suffering as portfolio loans go sour and it's forced to boost to its loan-loss reserves. S&P equity analysts are a bit hopeful: "Despite the difficult quarter and current market, we believe NTR has stabilized its liquidity position and taken positive steps to reposition its portfolio." But S&P cut its target price by $1.50, to $1 -- 50% of NTR's current book value, excluding its deferred tax assets. The stock finished at 91 cents on Aug. 7.
C IT EXIT
Commercial finance giant CIT Group (CIT) said on Aug. 6 it will get out of the home lending business, and expects to take related charge-offs to its earnings of about $45M-50 million in the third to fourth quarters. While not a huge chunk of change, the move underscores just how unappetizing the residential lending biz has become even to larger, well-capitalized financial firms.
FILE UNDER "MODESTLY POSITIVE"
Shares of Countrywide (CFC) gained 2.2% Aug. 7 after it agreed to acquire assets related to the retail mortgage operations of shuttered lender HomeBanc, including five retail branches.