Various published reports this morning are suggesting that UBS AG probably sold $24 billion of holdings backed by Alt-A mortgages in a fire sale earlier this week, exacerbating difficulties in a RMBS market already reeling from a histsoric downturn in the U.S. housing market.
UBS was "highly likely" to have sold the securities in a fire sale, said J.P. Morgan analyst Kian Abouhossein, noting press speculation on the subject.
"We see the speculated level of 70 cents on the dollar as realistic in a fire sale," he said in a Thursday note to clients, adding the current market price is probably 84 cents on the dollar.
Various sources have suggested to Housing Wire this morning that Europe's largest bank by assets had dumped the Alt-A securities to none other than PIMCO, a bond-house owned by German insurer Allianz.
Earlier coverage on HW had mentioned the likely fire sale by UBS in discussing the difficulties now facing ultra-prime mortgage lender Thornburg Mortgage, whose failure to meet margin calls on the Alt-A securities it holds have put it on the brink of bankruptcy
"UBS has set a new strategic direction with the asset fire sale, following a period of mainly orderly asset sales within the global banking system," Abouhossein wrote, lowering his share-price estimate by 1 franc to 55 francs. "UBS actions have led to a spilling over into credit-market prices."
No kidding. This is just the sort of run-for-the-hills
panicking that few in the market had hoped to see, preferring instead to focus on an orderly wind-down of existing positions. Sources that spoke with HW this morning have said that UBS' move may force holders of Alt-A securities, as well as other RMBS, to more aggressively mark down their positions -- generating larger losses in the quarters ahead for many of the nation's larger banking operations.
And then there's the issue of a renewed liquidity crisis.
Beyond Thornburg, which has been sent reeling by the UBS sale, the Wall Street Journal reported Thursday
that Carlyle Capital Corp. had failed to meet margin calls on its $21.7 billion portfolio Wednesday. Carlyle holds a portfolio of top-rated agency-backed MBS, for the record, but even holding Fannie and Freddie issues haven't shielded it from $60 million in margin calls and additional collateral requirements -- in less than one week.
All of which means we'll be hearing plenty of nattering about a "disconnect" between the market and the real value of underlying assets in the coming days. It's a point that is absolutely true, but one that unfortunately doesn't lessen the severity of the cash crunch now being thrust on many leveraged RMBS investors.
Disclosure: The author held no positions in any publicly-traded companies mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.