Archive for August, 2011
Bank of America is in talks to sell a major portion of Merrill Lynch’s real estate portfolio to the Blackstone Group for up to $1 billion, a person briefed on the matter told DealBook on Tuesday, as the bank seeks to raise additional capital.
The holdings in question include a variety of commercial properties and real estate stakes around the world, said this person, who spoke on condition of anonymity because the talks were continuing and might fall apart.
A sale would be the latest effort by Bank of America to sell noncore assets to help shore up its balance sheet. Bank of America’s stock has slumped 25.7 percent over the last month, propelled in part by investor fears that the bank would need to sell additional shares.
Consumers cut the amount of disposable income going toward debt repayments, such as mortgages, to below the average measured in the 1990s, according to the Federal Reserve Bank of Cleveland.
Researchers said much of the drop likely stems from historically low interest rates, which press such payments downward. The Cleveland Fed measured consistent declines in debt levels since the third quarter of 2008.
"The ratio is now well below the average levels seen from 1990 to 2000, and it is rapidly approaching its lowest levels since 1993 to 1994," researchers said.
Consumer spending represents 70% of GDP and consumption growth is recovering since the crisis in 2008. Income growth, however is currently moving toward levels measured during times of economic stress, and while consumption growth continues upward, it barely reached its 20-year average in 2010.
Researchers said the contraction in income, consumer spending and borrowing, is also explained by higher-than-average defaults on mortgages and other loans.
Even as banks continue to charge off mortgages at high-levels, they are loosening standards on other debt, especially credit cards, researchers said.
According to a study from consumer credit firm Experian, delinquencies in credit cards are improving at a far greater clip than mortgages.
The Cleveland Fed said the as consumers continue to deleverage at such a steep clip, new lending may begin to ramp up.
"While the (debt-to-income) ratio may potentially undershoot its long-term average, its sharp decline since 2008 indicates that the debt-service burden has fallen substantially, which may make borrowers more inclined to borrow again and financial institutions more willing to lend," researchers said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior
It's hard to tell how many residential mortgage-backed securities lawsuits will see the light of day in court.
If they do, the resultant court transcripts will reveal just how creative MBS creators can get, for starters, by describing their own RMBS deals as "goat poo," "lemons" and "pigs."
No doubt the plaintiffs will be less-than-amused over the way sell side spoke of its own deals — internally — while no doubt speaking about the same deals in glowing terms externally. By making the true nature of the deals seem less unpleasant, it is alleged investors bought the confidence of those selling structured finance products they themselves would never buy.
Those real intentions, being used as "proof" today, reveal the doublespeak of pre-bust mortgage bond sales.
And, lucky for us (and maybe not for at least some of the parties), a few insiders wrote those vivid RMBS descriptions down in e-mail form for everyone, including the lawyers, to enjoy.
Wall Street, a little note to self: don't put your thoughts in e-mail. I know it's easier than picking up the phone, but come on. We've had computers, e-mail and e-discovery for quite some time, so when you're about to "dog" your own product so to speak, think twice before writing it down.
So what led to this discussion? For starters, the latest RMBS case filed against Goldman Sachs by Allstate Insurance includes another instance of an "oops, did I write (or say) that moment?"
In the suit, Allstate claims Goldman misrepresented the underlying collateral backing RMBS securities sold to the insurer. In the complaint, Allstate claims Goldman employees once referred to their own securities as "junk," "lemons," "crap," and "dogs."
Similarly, a month earlier, Dexia sued Deutsche Bank for allegedly selling it toxic RMBS. In the complaint, the plaintiff claimed one Deutsche trader referred to the RMBS as "pigs" and "crap."
News reports earlier in the year revealed e-mails in which Goldman executive Thomas Montag described a mortgage transaction as "one S— deal" in e-mail. Not to mention, JPMorgan's case against Lehman in which they cited a Lehman e-mail where an employee called RMBS, "goat poo."
Since many of the investors suing over RMBS acquisitions claim the quality of the underlying loans were misrepresented to the buyer at the time of the deal, the looming question is how much did the sellers know?
Perhaps the answer to that hinges on the upcoming legal definitions of crap, pigs and goat poo — all which will ultimately create a triplespeak of pre-bust mortgage bond sales.
Write to: Kerri Panchuk.
Tags: deutsche bank, Dexia, residential mortgage-backed securities, RMBS, Wall Street
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