Both Latvia’s and Estonia’s debt ratings were downgraded by Standard and Poors.  Estonia was cut from A to A-, while Latvia was cut to BB+ to BB – its considered high yield securities aka junk bonds. This should come as no surprise as both countries have been in the news due to severe economic dislocations as they attempt to maintain currency pegs in the face of a severe debt deleveraging.

Latvia has been having severe difficulties getting its IMF monies disbursed due to the lack of fiscal belt tightening. Just today Latvia released dreadful economic news with statistics revealing a19.6% fall in gross domestic product. As macabre as the figures were, they were better than analyst expectations of a 22% fall. Nonetheless, S&P has decided to use this backdrop as an occasion to downgrade the country’s debt along with northern neighbour Estonia.

Win Thin, an analyst at Brown Brothers Harriman, had this to say about the downgrades (emphasis added):

Somehow, Lithuania escaped this time but it should have been cut from the current BBB, as we rate it BB- vs. actual BBB/A3/BBB.  The only surprise to us was that the downgrades weren’t deeper, as we see eventual junk status (below BBB-) for all three.  As we noted in our most recent FX quarterly, the ratings agencies have been overly generous with Eastern Europe, particularly the Baltics.  Our sovereign rating model puts Estonia at a BB/Ba2/BB rating, way below actual ratings of A-/A1/BBB+.  For Latvia, we rate it B- vs. actual BB/Baa3/BB+.  Others that are overrated in the region include Bulgaria (we rate it BB vs. actual BBB/Baa3/BBB-), Hungary (we rate it BB- vs. actual BBB-/Baa1/BBB, and Romania (we rate it BB vs. actual BB+/Baa3/BB+).

We fully expect Estonia, Lithuania, and Bulgaria to follow Latvia and Romania into IMF programs.  Our negative view on the Baltics still underscores our bearish calls on SEK given the high levels of Swedish banking exposure to the region, and helps explain why SEK was the worst performer today vs. USD and EUR… Just look at Latvia.  It just reported Q2 GDP as contracting 19.6% y/y vs. an 18% drop in Q1.  The banking regulator has reported that all overdue loans rose to 23.5% of total loans in June...  Those numbers will only get worse, as we see little relief in sight for the economy…

The long and short of it is: expect more pain in Latvia and Estonia, but also across Eastern Europe as well. As the global recovery seems to within reach, particularly in emerging markets, expect Eastern Europe to underperform.

Sources

Brown Brothers Harriman FX Team

Related posts:

• Baltics: Fitch downgrade and more downgrades to come
• Moody’s: Iceland, Latvia and Hungary in “fragile stabilization”
• A bearish view on Eastern Europe
• Hungary cut to a notch above junk by S&P
• CDS contracts and the implosion of several Eastern European economies

Reuters is reporting that the ratings agencies are about to get into some serious legal problems.  You see,during the bubble years, the ratings agencies gave a gold-standard AAA rating to what now seems to be dubious investment vehicles.  Now, investors are angry and they are starting to sue.

Calpers, the biggest U.S. public pension fund, has sued the three largest credit rating agencies for giving perfect grades to securities that later suffered huge subprime mortgage losses.

The California Public Employees’ Retirement System said in a lawsuit filed last week in California Superior Court in San Francisco that it might lose more than $1 billion from structured investment vehicles, or SIVs, that received top grades from Moody’s Investors Service Inc, Standard & Poor’s and Fitch Inc.

SIVs are complex packages of loans and debt, including subprime mortgages and collateralized debt obligations, pooled by investment banks and which then issue debt to investors.

By giving these securities their highest ratings, the agencies "made negligent misrepresentations" to the pension fund, Calpers said. Such ratings, which typically accompany investments with almost no risk of loss, "proved to be wildly inaccurate and unreasonably high."

Calpers seeks unspecified damages.

The ratings agencies deny these claims. ""The claim is without legal or factual merit, and we will take action to have it dismissed," a McGraw-Hill spokesman said.  McGraw-Hill, you will recall, is the same company that created a bit of a stir when it refused to release a book critical of the ratings agencies written by blogger Barry Ritholtz (see my February article “McGraw Hill drops book critical of its own subsidiary”).  The book was picked up by another publisher and has gone on to become widely read and critically acclaimed.

It does make you wonder about the ratings agencies.  Just last week I mentioned that they were up to their old ways again, rating assets from tarnished investment pools Aaa.  While some find their ratings defensible, the conflicts of interest inherent in the ratings agencies’ business models has led others to call for an investigation of ratings practices.  Apparently, these calls have borne fruit. The Financial Time reports:

The Securities and Exchange Commission has created a new group of examiners to oversee credit rating agencies, which came under sharp criticism for their role during the financial crisis.

The SEC has already adopted a number of measures to increase transparency at credit rating agencies, which are paid by the issuers they rate. But greater oversight is needed with officials expected to conduct both routine and special examinations of their activities, Ms Schapiro is set to tell a Congressional oversight hearing on Tuesday.

‘’I also have directed the Commission staff to explore possible new regulations in this area, including limiting the potential for rating shopping,’’ Ms Schapiro said in prepared testimony to the House Financial Services subcommittee on capital markets.

These investigations are long overdue.  The conflicts between the rating agencies consulting business and ratings business are exactly the types of conflicts we saw with audit firms during the tech and telecom bubble in the 1990s.  And this led to disaster at firms like Enron as the Enron auditor Arthur Andersen looked the other way.

Moreover, as it stands today, audited firms actually pay for their ratings, making the ratings agencies revenue stream dependent on the firms they audit. My hope is that conflicts like this can be stopped.  So, I welcome the SEC investigation and look forward to seeing substantive changes.

Meanwhile, it may take legal action like the one being initiated by Calpers to affect real change because, to date, few substantive regulatory changes have been made despite a crisis which is more than two years old.

Related posts:

• McGraw Hill drops book critical of its own subsidiary
• Lawsuits: Rating agencies are next
• S&P cuts ratings of big U.S. banks
• S&P cuts HBOS counterparty credit ratings
• Hungary cut to a notch above junk by S&P

The Online Merriam-Webster Dictionary describes alchemy as “a power or process of transforming something common into something special” or “aiming to achieve the transmutation of the base metals into gold.”  Well, it seems Morgan Stanley is engaging in some financial alchemy because it is about to trade near-junk rated paper for Aaa gold-standard bonds (hat tip Max Keiser and Stacy Herbert).

Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.

Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.

Here’s the problem.  In June, Moody’s downgraded the Aaa tranche of this CDO six notches to A3 because the default rate for loans in the tranche soared to 7 percent.  So, now, Morgan Stanley has been able to re-package this paper, and…voila this debt is Aaa again.  Everybody’s doing this repackaging.  Goldman plans to sell over $200 million of repackaged Commercial mortgage-backed paper very soon.

So, when earnings start coming in this quarter and you are wondering how these banks aren’t writing down huge losses due to events like this and this, you now have one more reason why.  Here are two more reasons here and here.   The question is whether investors will be fooled.

ps. – I am sure Morgan Stanley added credit enhancement, collateral, reduced the poorly performing assets, etc, etc.  But, nevertheless, you have to wonder how this stuff gets a Aaa rating when substantially the same loan pool was just downgraded six notches.

Source

Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds – Bloomberg

Related posts:

• Goldman and Morgan Stanley are now banks
• Morgan Stanley’s writedowns bring us to a cool $1 trillion
• Are covered bonds really the solution?
• Quote of the day: Investment Bank Leverage
• Morgan Stanley: rogue trader goes missing

PIMCO’s founder Bill Gross is out with his latest monthly missive.  It makes for interesting reading, especially in regards to the captains of finance and their desire to stay rich using other people’s money.

I remember as a child my parents telling me, perhaps resentfully, that only a doctor, airline pilot, or a car dealer could afford to join a country club. My how things have changed. Now, as I write this overlooking the 16th hole on the Vintage Club near Palm Springs, the only golfers who shank seven irons into the lake are real estate developers, investment bankers, or heads of investment management companies. The rich are different, not only in the manner intoned by F. Scott Fitzgerald, but also in who they are and what they do for a living. Whether some or all of them are filthy is a judgment for society and history to make. Of one thing you can be sure however: over the next several decades, the ability to make a fortune by using other people’s money will be a lot harder. Deleveraging, reregulation, increased taxation, and compensation limits will allow only the most skillful – or the shadiest – into the Balzac or Forbes 400.

Gross goes on to reflect that the U.S. is not keeping pace with the rest of the world in terms of producing Forbes 400 wealth, the obvious takeaways being that the U.S. is declining relative to the rest of the world and this spells trouble for the megarich as much as it does for the average American.  Obviously, this has great significance for the fortunes of the U.S. government and its ability to stimulate the economy with deficit spending.  Gross was on record saying the sell-off in U.S. government paper was a direct result of doubts regarding the U.S. government’s solvency, something Willem Buiter is also analysing regarding the U.K. government.  Gross has this to say about the fortunes of the U.S. government (emphasis his):

To zero in on the U.S. of A., its annual deficit of nearly $1.5 trillion is 10% of GDP alone, a number never approached since the 1930s Depression. While policymakers, including the President and Treasury Secretary Geithner, assure voters and financial markets alike that such a path is unsustainable and that a return to fiscal conservatism is just around the recovery’s corner, it is hard to comprehend exactly how that more balanced rabbit can be pulled out of Washington’s hat. Private sector deleveraging, reregulation and reduced consumption all argue for a real growth rate in the U.S. that requires a government checkbook for years to come just to keep its head above the 1% required to stabilize unemployment. Five more years of those 10% of GDP deficits will quickly raise America’s debt to GDP level to over 100%, a level that the rating services – and more importantly the markets – recognize as a point of no return. At 100% debt to GDP, the interest on the debt might amount to 5% or 6% of annual output alone, and it quickly compounds as the interest upon interest becomes as heavy as those “sixteen tons” in Tennessee Ernie Ford’s famous song of a West Virginia coal miner. “You load sixteen tons and whattaya get? Another day older and deeper in debt.” Pretty soon you need 17, 18, 19 tons just to stay even and that describes the potential fate of the United States as the deficits string out into the Obama and other future Administrations.

Later in this same piece, he opines that moving to a more balanced budget is certainly the way to end the increase in treasury yields and the prospect of enormous interest payments compounding annually to new breathtaking proportions.

The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on the former or the latter. It is probable that trillion-dollar deficits are here to stay because any recovery is likely to reflect “new normal” GDP growth rates of 1%-2% not 3%+ as we used to have.

But, as he suggests, trillion-dollar deficits ARE the new normal indeed.  Moving to eliminate these deficits too early as Tim Geithner suggests the Obama Administration wants to do risks a 1937 outcome.  See my post “Beware of deficit hawks” to see why Japan in the 1990s and the U.S. in the 1930s suffered prolonged depressions because of deficit hawkishness.

In the end, one can only conclude that the U.S. is indeed likely to deficit spend for a considerable period and that this is going to have negative effects on its credit rating and relative standing in the global economy.  A diminished future for America is an inevitability of having lived beyond its means for far too long.  Accepting this fact is likely to provide a better outcome than resisting it as the U.K. did when its tenure as king of the hill came to an end.

Source

Staying Rich in the New Normal – Bill Gross, PIMCO

Related posts:

• The $1 trillion deficit: has Bill Gross gone crazy?
• Bill Gross: the new normal means investors should shun risk
• Gross: The new normal for “the next 10 years and maybe even the next 20 years”
• Will federal largesse be countered by state and local cutbacks?
• Bill Gross: Sell equities and buy Treasuries

The first time I wrote about the Baltics was back in August in a post entitled, “Are the Baltics the new Argentina?.” Since then, things have gotten progressively worse and the Baltics are clearly in Depression with Latvia leading the way to the downside. The credit ratings agencies have caught on to this and Fitch is marking the countries down near and into junk territory with negative outlooks. Win Thin of Brown Brothers Harriman has a good read on what to make of this:

Fitch downgraded the Baltics and kept the outlooks at negative. Estonia was cut to BBB+ from A- Latvia was cut to BB+ from BBB-, and Lithuania was cut to BBB from BBB+. The only surprise to us was that the downgrades weren’t deeper, as we see eventual junk status (below BBB-) for all three. As we noted in our most recent FX quarterly, the ratings agencies have been overly generous with Eastern Europe, particularly the Baltics. Our sovereign rating model puts Estonia at a BB/Ba2/BB rating, way below actual ratings of A/A1/BBB+. For Lithuania, we rate it BB+ vs. actual BBB/A2/BBB. For Latvia, we rate it B+ vs. actual BB+/Baa1/BB+. Others that are overrated in the region include Bulgaria (we rate it BB- vs. actual BBB/Baa3/BBB-), Hungary (we rate it BB vs. actual BBB-/Baa1/BBB, and Romania (we rate it BB vs. actual BB+/Baa3/BB+).

By the way, we still expect Bulgaria, Estonia, and Lithuania to join the others in IMF programs this year. EMEA remains the weak link in emerging markets, as a glance at our vulnerability table will verify, and we continue to question the viability of the pegs in the Baltics and Bulgaria. Investors have turned more positive on EM in recent weeks, but are surely differentiating between the good (Brazil, China, etc.), the bad (South Africa, Turkey, etc.), and the ugly (Baltics, Bulgaria, Hungary, etc.). We cannot see investors piling back into the EM countries with the worst fundamentals even if the global crisis continues to abate.

Much worse is coming to Eastern Europe and the Baltics are the worst of the lot.  You should note that Sweden has significant exposure in the Baltics and downgrades there will weigh heavily on that country.  Marc Chandler of BBH also picks up this theme:

Austria and Belgium have a higher percentage of their GDP in Eastern European exposure than Sweden, but are protected to some extent by being in the eurozone. Sweden’s exposure is concentrated in the Baltics. It’s currency floats freely. The Fitch downgrade and negative outlook for the Baltics has seen the krona hit. The euro hit a high on of SEK10.9840 in response and this represents a new high on the month. The SEK11.00 is a important barrier, around where stops are thought to lie. The euro is moving above the 20 day moving average for the first time since March 11th. A break of SEK11.00 could see a quick move toward SEK11.10-SEK11.20.

Related posts:

• More trouble in the Baltics as S&P downgrades
• CDS contracts and the implosion of several Eastern European economies
• A bearish view on Eastern Europe
• Moody’s: Iceland, Latvia and Hungary in “fragile stabilization”
• Estonia and Latvia: headed for the rails

Standard and Poors had their hands full today cutting credit ratings.  They cut Ireland. But, they also cut Hungary, putting the country just above a junk credit rating.  I don’t think these will be the last sovereign debt ratings downgrades, especially in emerging markets — economies worldwide are deteriorating.

The Brown Brothers Harriman currency group has released a view that includes South Africa, Poland, Mexico and Korea as well as Hungary.

Here is what Win Thin, a senior currency strategist in the group, had to say about the downgrades:

S&P has been busy today. Besides downgrading Ireland, it also cut Hungary by one notch to BBB- with the negative outlook kept. Just like they missed the mark with regards to subprime, so too did these agencies overrate many of the weaker EM credits (was Iceland really AAA?). Our internal sovereign ratings model (which we just updated for the latest FX quarterly) puts Hungary at a BB- rating vs. BB last quarter and actual ratings of BBB-/A3/BBB actual. Yes, Moody’s still puts Hungary at A3 (equivalent to A-). We think junk status is in the cards shortly for Hungary, and to reiterate our rather frank view, most of these EMEA credits really never deserved to be investment grade in the first place. Our model points to severe downgrade risks in the Baltics and the Balkans. We think Poland and South Africa face modest downgrade risk in 2009, as does Korea and Mexico. Otherwise, we believe the lion’s share of downgrades this year will be in the EMEA region. EUR/HUF likely to retest the 317 high.

Obviously emerging market risk still remains quite elevated and will not diminish for some time to come.

Related posts:

• Baltics: Fitch downgrade and more downgrades to come
• A bearish view on Eastern Europe
• More trouble in the Baltics as S&P downgrades
• Moody’s: Iceland, Latvia and Hungary in “fragile stabilization”
• Greece sees credit rating cut by S&P

By now you have heard that Warren Buffett’s bets on GE, Goldman, and Swiss Re and his derivatives positions have earned him a downgrade from Fitch Rating Agency.  Below is the Fitch statement.  I have highlighted the key sections:

Fitch Ratings has downgraded the Issuer Default Rating (IDR) and senior unsecured debt ratings of Berkshire Hathaway Inc. (NYSE:BRK/A) as follows:

–IDR to ‘AA+’ from ‘AAA’;

–Senior unsecured debt to ‘AA’ from ‘AAA’.

Fitch has concurrently affirmed its ‘AAA’ Insurer Financial Strength (IFS) ratings on BRK’s insurance and reinsurance subsidiaries. The Rating Outlook for all entities is Negative. See full list of rating actions below.

Today’s actions are part of a broader review of insurance and financial services company ratings being conducted by Fitch, which includes taking a fresh look at various risk factors and criteria application in light of the current stressful economic environment. Related to this ongoing exercise, which has resulted in numerous insurance and other financial services sector downgrades in recent weeks, Fitch believes that ‘AAA’ ratings are not appropriate at the holding company level for financial-oriented enterprises given significant market volatility and correlation of risks under stress, recently observed throughout the global economy.

With respect to BRK, Fitch views the company’s potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the ‘AAA’ level. Such exposures include large, concentrated equity investments, as well as exposure to the equity and credit markets through various derivative contracts. Fitch views BRK’s investments in a wide variety of retail, service and manufacturing companies as mitigating this exposure somewhat, but Fitch does not view BRK’s degree of diversification as sufficient to offset these concerns at the ‘AAA’ level.

The downgrade also recognizes that even the most senior obligations at the holding company level are deeply subordinated to policyholder obligations at the regulated insurance and reinsurance company subsidiaries. Fitch notes this point is not new, but rather reflects Fitch’s view on appropriate weighting given to this risk in the current environment and at the current rating level.

BRK’s ratings also continue to reflect Fitch long-standing concerns with respect to ‘key man’ risk in the form of the company’s chairman, Warren Buffett. Fitch views this risk as unrelated to Mr. Buffet’s age, but rather Fitch’s belief that BRK’s record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett. In current application of its criteria, Fitch does not view this concentration as consistent with an ‘AAA’ rating.

The ‘AAA’ IFS ratings of BRK’s insurance subsidiaries continue to reflect their strong capitalization and competitive positions, and underlying underwriting results. Fitch notes that at their current levels, BRK’s IFS, IDR and senior unsecured ratings continue to be among the highest in Fitch’s rating universe.

Fitch’s current ratings on BRK assume that the company is likely to continue to aggressively deploy its cash and capital as the potential for ongoing difficult economic and capital market conditions persists and companies look for investors with strong balance sheets to provide funding. Fitch would view this deployment as consistent with BRK’s long-standing opportunistic investment style although it adds an element of fluidity to BRK’s profile. Over the last six months BRK has agreed to purchase CHF3 billion of 12% preferred shares in Swiss Re, and has purchased $5 billion of 10% preferred shares in Goldman Sachs, and $3 billion of 10% preferred shares in General Electric. Additionally, in early 2008, BRK formed a financial guarantor to insure tax exempt bonds issued by states, cities, and other local entities and by year-end (YE) 2008 the company had written $595 million of financial guaranty premiums.

In 2008, BRK’s total shareholders equity declined by 9.5% to $109 billion. Major components of the change in equity included a $15 billion (after-tax) decline in BRK’s net unrealized gain on investment securities, largely tied to declining equity markets, partially offset by $5 billion of net income. Net earnings were down from over $13 billion in 2007 and represent a six-year low for the firm.

BRK’s 2008 earnings also included $3.3 billion (after-tax) of non-cash mark-to-market losses on equity index put contracts the company has written with a notional value of $37 billion as of YE 2008. These contracts include equity index put option contracts on four indexes, including three indexes outside of the United States. BRK has also written credit default swap (CDS) contracts on various high yield indexes, state and municipal bond issuers, and single name corporate issuers with notional amounts of $30 billion as of YE 2008.

While the contracts’ recent mark-to-market losses are large, the agency believes that the ultimate economic effects, while uncertain, are likely to be significantly less than indicated by the marks. Favorably, the equity index put contracts were generally written with strike prices equal to the then current index value, had a weighted average maturity of 13.5 years at YE 2008, and are exercisable only at maturity. The CDS contracts appear to be well-managed with reasonable contract and per issuer limits. Additionally, few of the contracts have collateral positing requirements. At YE 2008 BRK had posted $550 million of collateral related to these contracts, a small amount for a company with BRK’s liquidity profile.

BRK uses a reasonable amount of financial leverage in its capital structure and at YE 2008 its consolidated debt-to-total capital ratio was 25%. BRK’s consolidated debt is derived from three sources; debt issued or guaranteed by the holding company, debt issued by the company’s finance and financial products subsidiaries, and debt issued by the company’s utilities and energy subsidiaries.

When evaluating BRK’s financial leverage at the parent level, Fitch generally excludes debt issued by BRK’s utilities and energy subsidiaries from its analysis since the agency believes that these subsidiaries have the ability and intent to fund this debt without parent support. In contrast, Fitch includes debt issued by BRK’s finance company subsidiaries that is guaranteed by BRK. Much of this debt is issued to fund loans and receivables, with these assets ‘matched’ against the debt balances. Given the current difficult economic environment and pressure on asset values, Fitch believes “matched” debt poses additional risks to those posed in the past.

The Negative Outlook reflects uncertainty surrounding the ultimate effect of the current financial market conditions on BRK and its insurance company subsidiaries. These uncertainties include potential further equity market declines and the affect they would have on BRK’s vast equity portfolio and capitalization, as well as the adverse effect of general economic conditions which are likely to pressure BRK’s earnings over the next 12-to-18 months.

For its current review, Fitch received from BRK’s management certain non-public information regarding BRK’s derivative exposures. However, Fitch does not regularly meet with BRK management, and does not believe the extent of interaction meets that required for Fitch to consider its ratings on BRK and its subsidiaries to be fully interactive. Fitch’s ratings on General Reinsurance Corporation (GenRe) and its direct and indirect subsidiaries, is the result of an interactive process between GenRe and Fitch in which Fitch regularly meets with Gen Re management and has received non-public information from the company.

Fitch has taken the following rating actions:

Berkshire Hathaway, Inc.

–IDR downgraded to ‘AA+’ from ‘AAA’.

Berkshire Hathaway Finance Corporation (BHFC)

–IDR rated ‘AA+’;

–$1.5 billion 5.11875% notes due Jan. 11, 2011 downgraded to ‘AA’ from ‘AAA’;

–$1 billion 4.6% notes due May 15, 2013 downgraded to ‘AA’ from ‘AAA’;

–$1 billion 5% notes due Aug. 15, 2013 downgraded to ‘AA’ from ‘AAA’;

–$1.5 billion 4.125% notes due Jan. 15, 2010 downgraded to ‘AA’ from ‘AAA’;

–$500 million 4.20% notes due Dec. 15, 2010 downgraded to ‘AA’; from ‘AAA’;

–$700 million 4.75% notes due May 15, 2012 downgraded to ‘AA’ from ‘AAA’;

–$750 million 5.125% notes due Sept. 15, 2012 downgraded to ‘AA’ from ‘AAA’;

–$500 million 4.5% notes due Jan. 1, 2013 downgraded to ‘AA’ from ‘AAA’;

–$950 million 4.625% notes due Oct. 15, 2013 downgraded to ‘AA’ from ‘AAA’;

–$400 million 5.10% notes due July 15, 2014 downgraded to ‘AA’ from ‘AAA’;

–$1 billion 4.85% notes due Jan. 15, 2015 downgraded to ‘AA’ from ‘AAA’.

GEICO Corporation

–IDR downgraded to ‘AA+’ from ‘AAA’;

–$150 million 7.40% senior notes due July 15, 2023 downgraded to ‘AA’ from ‘AAA’.

General Re Corporation

–IDR downgraded to ‘AA+’ from ‘AAA’;

–$150 million 9% senior notes due Sept. 12, 2009 downgraded to ‘AA’ from ‘AA+’;

–Short-term IDR affirmed at ‘F1+’;

–$500 million commercial paper program affirmed at ‘F1+’.

Fitch has affirmed the ‘AAA’ IFS ratings of the following companies with a Negative Rating Outlook:

–Government Employers Insurance Company;

–General Reinsurance Corporation;

–General Star Indemnity Company;

–National Reinsurance Corporation;

–General Star National Insurance Company;

–Genesis Insurance Company;

–Genesis Indemnity Insurance Co.;

–Fairfield Insurance Company;

–National Indemnity Company;

–Columbia Insurance Company;

–National Fire and Marine Insurance Company;

–National Liability and Fire Insurance Company;

–National Indemnity Company of the South;

–National Indemnity Company of Mid-America;

–Wesco Financial Insurance Company.

Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site,www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.

Source
Fitch Downgrades Berkshire Hathaway to ‘AA’; Affirms ‘AAA’ IFS; Outlook Negative – Business Wire

Related posts:

• Baltics: Fitch downgrade and more downgrades to come
• Berkshire Hathaway Annual Meeting this weekend
• Financial Alchemy at Morgan Stanley: Greywolf A3 CDOs now Aaa bonds
• California starts issuing IOUs as bankruptcy nears
• JPMorgan Chase: Large exposure to real economy downturn

Read it at Alphaville:

Standard & Poor’s Ratings Services today lowered its long-term ratings on General Electric Co. (GE) and units, including General Electric Capital Corp. (GECC), by one notch to ‘AA+’ from ‘AAA’. We affirmed the ‘A-1+’ short-term credit ratings. The outlook is stable.

The main factor in the downgrade was our assessment of the stand-alone credit profile of financial services unit GECC, which we now view as ‘A’, compared to the ‘A+’ we had indicated before.

“We believe that GECC is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe,” said Standard & Poor’s credit analyst Robert Schulz.

“This will result, in our opinion, in rising credit losses across key segments of GECC’s finance portfolio. Still, we believe that GE’s industrial-based cash generation capabilities remain fundamentally strong–even in the face of enormous global economic headwinds–and that it will generate growing cash balances from current levels over the next two years. We do not anticipate that GE will benefit from any meaningful earnings or cash flow from GECC through 2010.”

Let’s be honest, GE is a financial institution – a private equity firm, if you will. It was laughable that they were rated AAA even after they cut their dividend. All of this was well known. Read my takes on their dividend and their prospects.

GE Capital’s looming time bomb

Why is General Electric paying a dividend of 10%?

Let’s hope Immelt can get this ship righted now that the pressure to preserve the AAA rating is no longer there.

Source
S&P downgrades GE – FT Alphaville

Related posts:

• General Electric to cut dividend by over 67%
• Structured Credit downgrades
• MBIA pulls the plug on its insurance arm
• S&P cuts ratings of big U.S. banks
• S&P cuts HBOS counterparty credit ratings

Now GE has finally cut, but will they be able to maintain their AAA rating?

Related posts:

• Why is General Electric paying a dividend of 10%?
• General Electric is cut to AA+ by S&P
• Buffett to invest in General Electric
• Bank of America cuts its dividend
• KeyCorp to raise $1.5 billion, cut dividend 50%

McGraw Hill is one of the world’s major book publishers. It also happens to own Standard & Poors, a well-known rating agency. Fellow econblogger Barry Ritholtz was due to release a book via McGraw Hill titled “Bailout Nation.” In the book, he gets a bit rough with the rating agencies — outfits which I see as analogues in the housing bubble to the accounting firms in the shenanigans from the late 1990s.

Guess what? McGraw Hill, abruptly canceled the book, shortly before its release was due. They did not like the ’style.’ Apparently, this is how business in the United States is conducted.  Shambolic, if you ask me. I suspect this could be a PR nightmare for McGraw Hill.

Here’s what Barry has to say.

Since the news came out today, I might as well spill the details about my battle with McGraw Hill over the content in the book.

I did not release this news. I got a message this morning (apparently left last night) from a reporter at the NY Observer who covers the publishing industry. I assumed McGraw Hill had contacted him, but I have no direct knowledge of that.

I had previously spoke to Jesse Eisinger of Portfolio about my headaches with the publisher a few weeks ago, but asked him to keep it off the record. Once the Observer called me, I told Jesse “The cats out of the bag” and he ran with this story: McGraw Hill Drops Book Critical of S&P.

The manuscript was submitted to S&P in December (I posted on it here) and the review and revision process began. For the most part, the editing process was painless. I had been warned by other writers that most modern publishers edit for typos and grammar, but not for deep content or editorial vision. I hired Aaron Task, whom I know from the Street.com, to be my editor. (Aaron ended up being a whole lot more than that, but I will save that story for a later date).

Most of the changes that came back from McGraw Hill were minor stylistic copy editing stuff. Very light, very simple. They took out the word “Fuck” which appears 2x (once each in two separate chapters) and I of course put it back in. How can any book about Wall Street not have that word in it?

When it came to chapter 14 — Who is to Blame?, there were issues about the style of what I wrote about the ratings agencies. I literally called the ratings agencies and investment bankers “Pimps and Whores;” I accused them of engaging in pay for play (buying ratings) payola, etc. Rather than describe it, I will simply post the original version here.

There was a lot of pushback on this. My editor at McGH convinced me this was a matter of style, not content. So being flexible (something I don’t usually do), I agreed to rewrite this. The newly edited version was far more factual, detailed — and in my opinion, more damning. You can read the revised version here.

Now, before you assume I am an idiot for doing a book that was critical of the ratings agencies with a publisher that owns S&P, understand that I properly anticipated this. My contract gave me Final Edit. Not only that, I had previously discussed this issue months earlier with then publisher Herb Schaffner. (He was laid off in a big Q4 round of firings).

Sometime over the summer, Herb informed me that the ratings agencies discussions would have to be handled “delicately and diplomatically.”

I responded, “Sorry, Herb, but I don’t do diplomacy.” If they wanted someone who was subtle or diplomatic, boy did they have the wrong guy. I offered to return the advance check and we could all move on. He backed down, and I assumed — apparently quite wrongly — that this was the end of this issue. How can you write a book on this subject and not lambast the ratings agencies?

I am not sure if this was in August or September, but that is my best guess as to the approximate time frame.

Where was I? Oh, yes, the pushback on the changes

The stylistic changes were still objected to. The problems came not from Legal, but from the corporate division of McGH. Legal had not even finished reviewing the manuscript at this time.

I came to the inescapable conclusion that this was an attempt by the McGH corporation to water down my content. All of the conversation with various editors strongly implied as much, and the same was made clear by them to my agent Lloyd.  I even found an email from me to him, subject matter:  “McG Hill S&P Freaking Out” dated Monday, January 05, 2009 11:14 AM.

Anyway, at this I drew my line in the sand at this point. My contract gave me FINAL EDIT.

I informed McGraw Hill that at this point, the manuscript was finished, and I was done. It was either “Fill or Kill.” In an email, I gave them until that Friday, to accept or reject the manuscript. That deadline came and went with no answer, and the following. Monday I went to lunch with my editor and told her I was ready to show the book to other publishers, as I assumed they had rejected it. She asked for another week (I agreed) and that Friday, they told me they as per my request, they would drop it.

They gave me two nonsense excuses — the first, they were concerned about my libeling Senator Phil Gramm (My answer to them: bullshit).

The second excuse was an issue with sourcing and verifying the material. This is of course, more nonsense. Nearly all of my sources are available online, and the others that are in books were all purchased from Amazon.com. And that does not address the small matter that McGraw Hill had pulled 90 pages of additional sources from the book as “redundant and unnecessary.”

All of the book’s submitted footnotes/end notes can be found here.

~~~

I did not go to the media, they did. I was stunned to read this ridiculous statement from McGraw Hill Spokesman Steven Weiss:

the publisher dropped the book because of a conflict with Ritholtz over editing, not because of his criticism of S&P. “The material needed extensive corroboration across a range of topics. We could not agree on unified approach with the author for resolving the issues”

Really? You cannot verify these footnotes?

As you can see, the overwhelming majority of the footnotes come with URL included. So I guess if you lack an internet connection or are unfamiliar with Google, you might have trouble corroborating the contents of the book. But for everyone else over the age of 6 years old who is possession of any IQ score better than 75, it really should not be a problem to accomplish.

But to prove it even further, I challenge any of the McGraw Hill editors or publishers (or any of the editorial staff) to take a polygraph/lie detector test — at my expense. If the poly proves anything I said was false or anything Mr Weiss said was true, I will let them edit the book however they want, or kill it altogether and not publish anywhere else. (The PR flack would likely pass the poly, because he doesn’t have first hand knowledge of what transpired, only what he is told — so even if he is telling lies, he doesn’t know they are false. Hence, he would pass).

Yes, I will happily take a poly also.

But if the test proves that they are lying and I am telling the truth, I want a public apology from them in a trade magazine or the WSJ, and a waiver of the advance return.

Sources:
McGraw Hill Drops Book Critical of S&P
Jesse Eisinger
Portfolio, Feb 10 2009 1:15pm EST
http://www.portfolio.com/views/blogs/daily-brief/2009/02/10/mcgraw-hill-drops-book-critical-of-sp

Did McGraw Hill Spike Barry Ritholtz’ Book Over Comments About S&P?
Joe Weisenthal
ClusterStock, Feb. 10, 2009, 3:42 PM
http://www.businessinsider.com/2009/2/did-mcgraw-hill-spike-barry-ritholtz-book-over-comments-about-sp

Original Version: Ratings Agencies: Moodys, S&P, and Fitch
http://www.ritholtz.com/blog/2009/02/ratings-agencies-moodys-sp-and-fitch-original/

Revised Version: Ratings Agencies: Moodys, S&P, and Fitch
http://www.ritholtz.com/blog/2009/02/rating-agencies-moodys-sp-and-fitch-revised-version/

Footnotes/Endnotes
http://www.ritholtz.com/blog/2009/02/endnotessources/

Source
About Bailout Nation . . . – Barry Ritholtz

Related posts:

• Calpers sues ratings agencies over SIVs
• Hungary cut to a notch above junk by S&P
• Bloomberg News vs. Fed: Judgment against Fed attached
• Lawsuits: Rating agencies are next
• Statements on Capitol Hill by Geithner and Warren

I just picked up two reports on California’s desperate situation. California, whose legislature and Governor have been hold up in around the clock negotiations, is now issuing IOU’s instead of cash. They have also been downgraded by Moody’s credit rating agency. The first story came from the well-known political site Monsters & Critics.  And it demonstrates that California is on the verge of bankruptcy:

The world’s eighth largest economy started issuing IOU (I-owe-you) vouchers instead of checks Monday as an ongoing budget battle and a 42-billion-dollar deficit left the state without enough cash to meet its commitments.

Governor Arnold Schwarzenegger was meeting with legislators in a bid to resolve the standoff that has prevented the state from passing a budget. State comptroller John Ching has warned that the state could completely run out of cash by the end of this month if a solution is not found.

On Friday tens of thousands of state workers will begin taking two days a month of forced leave without pay.

A representative for the state’s Department of Finance said checks were not being issued for Cal Grant college scholarships, county social services and the California Highway Patrol. No state tax rebates will be issued until a plan is adopted to deal with the state’s huge deficit, the Department of Finance said.

Schwarzenegger has declared a fiscal emergency as California faces a 42-billion-dollar deficit through June 2010. The massive US state has been hard hit by the recession which has seen housing prices plunge and revenues dry up.

Issuing state bonds is also tough given the paralysis in the credit markets and a credit downgrade because of the lack of a budget. Attempts to bridge the gap through a combination of spending cuts and tax hikes have been stymied by Republican legislators who reject any new taxes.

But, that’s not all, MarketWatch has picked up a press release showing that California’s short-term debt is being downgraded from F-1 to F-2 (Hat tip Paul Kedrosky). And even this downgrade is predicated on California resolving its crisis (see my highlight in bold).

Fitch Ratings has downgraded the short-term rating on the State of California’s $5 billion 2008-09 revenue anticipation notes (RANs, or the notes) to ‘F2′ from ‘F1′. The downgrade is based on the severe erosion of state revenues and cash resources since note issuance, prompting payment deferrals while the state develops solutions to its deficits.
Since the notes were sold in October the state’s baseline forecast of fiscal 2008-09 cash receipts has dropped by 13%, to $89 billion. Although negotiations are underway on a $42 billion package of cash and budgetary solutions for this fiscal year and next, even with near-term action the state is likely to confront another downward forecast revision in the spring, as economic and revenue performance has worsened since the current forecast was completed in November. In the absence of corrective measures to date, the eroding cash situation has caused the controller to begin payment deferrals in order to ensure sufficient resources for constitutional and statutory priorities.

The downgrade to ‘F2′ assumes that the state takes action to alleviate near-term cash pressures. Fitch’s long-term rating on the state’s general obligation (GO) bonds, currently at ‘A+’, Rating Watch Negative, will be reviewed in the coming weeks based on the state’s ability to agree upon budgetary solutions, and the effectiveness and completeness of those solutions.

This news is sure to roil the municipal bond market because California will be seen as a harbinger of things to come on the state and municipal level. Not being able to print your own money will mean bankruptcy for many states and municipalities.

Sources
Near bankruptcy, California starts issuing IOU’s instead of checks – Monsters & Critics
Fitch Downgrades California’s $5B RANs to ‘F2′ – MarketWatch

Related posts:

• California is to begin handing out IOUs tomorrow
• Banks to stop accepting California’s IOUs
• Kansas and California and the race to U.S. state insolvency
• Text of Schwarzenegger letter to Paulson
• Is the State of California bankrupt?

With the economy weakening significantly around the globe, the budgets of sovereign nations are coming under increased pressure.  As a result S&P has put a number of countries under review for potential credit downgrades.  However, now, the first actual cut is in:  it is Greece.

Greece on Wednesday became the first western European economy to have its credit ratings downgraded since the credit crisis blew up in August 2007, because its high levels of public and private debt.

Standard & Poor’s moved swiftly to cut the country’s credit ratings after warning of a possible downgrade only five days ago. The euro fell sharply against the dollar, while the gap between Greek and German bond yields rose to fresh record highs.

Marko Mrsnik, S&P analyst, said: ”The global financial and economic crisis has, in our opinion, exacerbated an underlying loss of competitiveness in the Greek economy.”

Greece’s sovereign credit ratings were downgraded from A, which is five notches below the top triple-A rating, to A-minus.

S&P’s decision follows its recent warnings to Spain, Portugal and Ireland that their credit ratings could be downgraded because of their deteriorating public finances.

Earlier on Wednesday, problems mounted for Greece and other so-called peripheral eurozone economies on reports that Ireland was planning to seek help from the International Monetary Fund.

The report sent bond spreads between Germany and the rest of the eurozone to fresh highs since the launch of the single currency in January 1999.

Credit default swaps – a form of insurance against bond defaults – of the peripheral nations also rose sharply, implying the economies of these countries are increasingly in danger of defaulting.

The crux of the problem here is the Euro. The Euro is a currency that spans 16 nations now, including recent Euro entrant Slovakia. When an economy tanks, the currency is an escape valve that is vital but that is now unavailable to the Eurozone’s worst hit economies. In my view, the UK and Switzerland are in a much better position than, say, Ireland precisely because they control their own currency — and their own money printing presses.

So, yes, many want in to the Eurozone to prevent the battering that Iceland took.  But, the Euro is not the salve for all ills.  Monetary union causes as many problems as it solves.  As I see it, staying out of the Euro was the best thing Gordon Brown accomplished as Chancellor.

Related posts:

• The Eurozone and the spectre of banking collapse
• The EU promises to bail out eurozone members
• The case against the Euro
• Denmark wants in on the Euro
• Did joining the eurozone bust Ireland?

Just months ago, Rio Tinto was a behemoth swaggering from the huge run up in commodity prices.  This is a company that had revenue of nearly $30 billion and net income of nearly $8 billion in 2007. It was worth over $160 billion by May as the commodities boom took shape.

They were everywhere: building projects in Saudi Arabia, resisting a takeover by BHP Billiton and operating across the globe.  Most of that is history now, except for the debt.

Rio Tinto Group, the world’s third- largest mining company, had ratings on $5 billion of its debt cut by Moody’s Investors Service after failing to meet asset sale targets.

Rio’s earnings may also be affected by falling metal prices, including expected declines in iron ore next year, Moody’s said yesterday in a statement. It lowered London-based Rio’s rating to ‘Baa1’ from ‘A3,’ and has a negative outlook on the company.

Rio plans to eliminate 14,000 jobs, more than halve capital spending and sell mines to reduce debt by $10 billion by the end of 2009 as demand for metals sinks. Its needs to sell assets over the next few months to help clear debt, the ratings service said.

“A key factor in the company’s rating will be its ability to execute on its divestiture program and reduce debt over the next 12 months,” Moody’s said. That includes $8.9 billion due next October and $10 billion due a year later, it said.

Rio declined 1.2 percent to A$39.80 on the Australian stock exchange at 11:55 a.m. Sydney time. It has declined 38 percent since BHP Billiton Ltd. scrapped its hostile $66 billion takeover bid on Nov. 25, citing Rio’s $38.9 billion of debt, slumping metal prices and global turmoil on financial markets.

Ed here. You will notice that BHP Billiton made a $66 Billion offer according to this article by Bloomberg. That was the value of the offer after share prices had already cratered. Originally, the offer was much higher and would have created a mining juggernaut worth $252 billion when it was made in November of last year. Rio is now worth $31 Billion.

But, it gets worse. Rio is firing people left and right and pulling out of projects and selling assets in order to save cash. That’s the profile of a company in trouble: high debt, plunging stock, plunging prices, cutting staff and capital spending. Maybe they shouldn’t have loaded up on debt in acquiring Alcan.

Citing the “unprecedented rapidity and severity of the global economic downturn,” the company said it will slash as many as 14,000 job roles globally, including 8,500 contractors.

In addition, the Anglo-Australian company will cut in half capital expenditures for next year and sell further “significant” assets.

Analysts cheered the downsizing, saying it shows the degree of conviction that Rio Tinto’s management has in reining in expenses.

In all, the measures are intended to cut the company’s net debt by $10 billion by the end of 2009. Rio Tinto said it will also trim operating costs by at least $2.5 billion a year in 2010.

The reduction in debt will be on top of the $3.2 billion already paid down since the end of June. At Oct. 31, net debt stood at $38.9 billion.

Rio Tinto also effectively abandoned its policy of progressively higher dividend payouts, which has been in place for 30 years. Instead it said the total dividend payout for 2008 will be held steady at $1.36 a share.

“This is one quick way to shore up the balance sheet and put confidence back in the company,” said Jonathan Barratt, managing director of Commodity Broking Services in Sydney. “When you are looking to offload so many people around the world, it goes to the bottom line quite quickly.”

Here’s a blurb from the Sydney Morning Herald today showing how desperate things have become.  Rio Tinto took on too much debt in acquiring Alcan at the top of the market. Now they are selling assets.You should note the reference to Xstrata. It is owned by Glencore of Switzerland, another commodities company I don’t particularly like.

Mining giant Rio Tinto is hiving off assets to pay down $US40 billion ($57 billion) in debt after BHP Billiton withdrew a $US66 billion bid, but in these turbulent times, who’s buying?

Bankers and analysts say the world’s largest miner BHP, Brazil’s Vale, Switzerland’s Xstrata and China’s aluminium giant Chinalco, parent of Chalco, are all eyeing Rio’s diverse collection of assets.

Most have the cash to pounce on any near-term opportunities.

“The two with the most cash, BHP and Vale, they’re definitely looking at the situation,” one Hong Kong-based resources banker at a Wall Street firm said.

“Xstrata is still highly leveraged. Its stock has taken a beating – it’d be interested, but has less ability to do a big deal,” the banker said.

Now you’ll remember I posted a blurb in August about this company’s CEO Tom Albanese making ridiculous predictions about commodity prices and skyscapers in China.

Rio Tinto yesterday shrugged off talk of an impending collapse in the commodities market, pointing to recent research that suggested China will build up to 50,000 skyscrapers in the next 20 years, the equivalent of 10 New Yorks, creating sustained long-term demand for steel and other raw materials.

The mining group reported half-year profits of $5.5bn (£3bn), a 55% increase on the same period a year earlier, providing the company with ammunition in its battle to see off a hostile bid by BHP Billiton valued at about £70bn.

Rio’s chairman, Paul Skinner, said the board’s view was unchanged since BHP increased its bid in February. “The offer on the table is still short of what we would consider full value for Rio Tinto and its prospects, and these results emphasise that,” he said. “We are demonstrating what Rio Tinto is really capable of.”…….

By 2025, the report predicts that China will have 221 cities with more than a million inhabitants, compared with 35 in Europe today. As well as the need for huge spending on infrastructure, McKinsey projects that China will build between 20,000 and 50,000 skyscrapers, many of them in less developed interior provinces far from Beijing and Shanghai.

The company’s revenue from China in the first half more than doubled on the previous year, from $2.4bn to $4.9bn. Group revenue topped $30bn.

“There is no question that we are living in an era of unprecedented demand for minerals and metals,” said Rio’s chief executive, Tom Albanese.

hmmm…. Houston, I think we have a problem.

Sources
Rio Tinto pulls out of $10bn Saudi project – Telegraph
Rio Tinto to cut jobs, pare debt and capital spending – Market Watch
Moody’s Cuts Debt Rating on Part of Rio Tinto Debt – Bloomberg
Chinese skyscraper builders to put up equivalent of 10 New Yorks, says Rio Tinto – Guardian
Rio’s selling, but who’s buying? – Sydney Morning Herald

Related posts:

• Rio Tinto’s Leng quits after a month on the job
• Who is the Rio executive arrested by the Chinese?
• Should we expect a protectionist China?
• China’s skyscrapers will be ten times New York
• Question: How is Fannie Mae a AAA company?

You have probably never heard of Glencore. Well you have heard of its founder Marc Rich, the man infamously pardoned by President Clinton before he left office. And I suspect that you will soon hear a lot more about the company as well.

Glencore is a metals production and trading company based in Switzerland. It is one of the largest privately-owned companies in the world and a very large employer in Switzerland. The problem is that commodities prices have been absolutely decimated. So, the secretive Swiss company’s credit default swaps are trading at huge premiums, something we alluded to last month.

The obvious question is: why is that? Unfortunately, the answer is: nobody knows. But rumors of financial problems are mounting.

Glencore announced on Tuesday that it was considering a debt buy-back after the cost of insuring against its default rose to a level that did not reflect its financial situation, the world’s largest commodities trader said.

The decision by the secretive Swiss-based group came hours after Standard & Poor’s, the rating agency, downgraded Glencore’s long- and short-term credit rating to BBB-minus and A-3 respectively, down from BBB and A-2. The outlook is “stable”, S&P said.

Glencore’s credit default swap spread reached a record high last week. From a level of less than 200 basis points in early September, it rose to more than 3,100bp, meaning it cost more than €3.1m ($4.1m) annually to protect €10m of the firm’s debt over five years.

“Glencore strongly believes its current credit spreads do not reflect its underlying credit profile, and has therefore decided to utilise part of its strong liquidity position to selectively consider debt buy-back opportunities,” it said in a statement.

The company did not say how much debt it planned to buy back.

Glencore said that its current liquidity, both cash and undrawn banking facilities, exceeded $3.5bn. It added that lower commodities prices were reducing its working capital needs and estimated that this natural deleveraging would result in another $2bn of spare liquidity by the end of the year. S&P estimated Glencore’s short-term debt for 2009 at about $2bn.

This seems like a case where the external business environment is declining rapidly, yet the company paints a pretty picture of its finances. But, no one really knows what’s happening inside. They can only speculate based on publicly available data. And that data is not good.

Glencore, which is controlled by its employees, trades base metals, minerals, oil and agriculture commodities. It also owns smelters and stakes in mining companies, such as 35 per cent of miner Xstrata.

S&P said it had cut its view on the Swiss trader because of “metal prices’ unprecedented fall and weak near-term outlook” and “the related significant drop in the value of Glencore’s industrial investments portfolio, which has resulted in weaker asset-debt coverage levels”.

The market value of Glencore’s 35 per cent stake in Xstrata has, for instance, shrunk to about $3.7bn from around $22bn at the end of June.

Stay tuned.

Sources
Glencore considers debt buy-back – Financial Times

Related posts:

• The latest on Glencore
• Glencore: A Swiss giant on the edge
• Rio Tinto: all kinds of trouble
• Lehman Brothers: a primer on Credit Default Swaps
• Treasury credit default swaps rise dramatically

In a shocking news story, the Wall Street Journal reports that the media company Tribune Company, which publishes the Chicago Tribune, is exploring bankruptcy.  While advertising revenue has contracted significantly, impacting all major media companies, it was not expected that this would lead to bankruptcy.  Below is a snippet of the Journal story.

Tribune Co. is preparing for a possible filing for bankruptcy-court protection as soon as this week, according to people familiar with the matter, in another sign of trouble for the newspaper industry.

In recent days, as Tribune continued talks with lenders to restructure its debt, the newspaper-and-television concern hired Lazard Ltd. as its financial adviser, as well as legal counsel for a possible trip through bankruptcy court, according to people familiar with the matter.

A Tribune spokesman said the company doesn’t comment on rumors or speculation. Tribune owns eight major daily newspapers, including the Los Angeles Times, Chicago Tribune and Baltimore Sun, and a string of local TV stations.

A spokesman for investment bank Lazard didn’t respond to a request for comment.

Tribune’s latest actions underscore the deepening distress enveloping Tribune and other newspaper publishers. Their businesses are being battered by dwindling advertising sales, and they are carrying debt loads that are unmanageable under current market conditions. Insider insiders expect some papers will need to fold or seek protection from creditors to reorganize in coming months.

Tribune has been on wobbly footing since last December, when real-estate mogul Samuel Zell led a debt-backed deal to take the company private. Tribune so far has stayed ahead of its $12 billion in borrowings with the help of asset sales. Now, however, dwindling profits are tightening the noose.

The company’s cash flow may not be enough to cover nearly $1 billion in interest payments due this year, and Tribune owes a $512 million debt payment in June.

A toxic mix of debt and a monumental downturn may well be enough to take down one of America’s most prestigious media empires. This turn of events was not entirely unexpected as the over-leveraged company had a very poor debt credit rating. It’s most recent 10-Q filing with the SEC from 10 Nov 2008 said the following:

As of Nov. 7, 2008, the Company’s corporate credit ratings were as follows: “B-” with negative outlook by Standard & Poor’s Rating Services, “Caa2” with negative outlook by Moody’s Investor Service and “CCC” with negative outlook by Fitch Ratings.

However, this will not be the last such announcement of a major U.S. company before we hit bottom.

UPDATE:  The Tribune has now filed for bankruptcy. See story here.

Source
Tribune Co. Taps Lazard,Weighs Filing for Chapter 11 – WSJ
Tribune Company 10-Q, Q3 2008
Tribune files for bankruptcy protection – Reuters

Related posts:

• The Tribune files for bankruptcy
• Obama ready to put Chrysler into bankruptcy
• GM Board: Bankruptcy is an option we will consider
• Tribune bondholders will lose 98.5 percent
• Opel and Fiat spells bankruptcy for Chrysler and GM

The latest news in bailouts involves GE Capital. Apparently, the company has gone begging to the FDIC for a bailout. In fact, the FDIC has offered to back $139 billion in GE Capital debt. I have serious reservations about this move by Sheila Bair. In fact, I am outraged.

First, as I understand it, the FDIC has much less than $139 billion in capital on hand. And they have hundreds of banks to watch that are busy going broke. So, how is it possible that they can guarantee GE Capital’s debt? The answer is they cannot. American taxpayers are what is behind this move just as they were with Fannie and Freddie – not that we will get stuck with the bill as GE is not going under, but the FDIC certainly can’t pay. (UPDATE: a reader who writes the blog “Skeptical CPA” is not so sanguine about GE and passed on a post he wrote doubting GE Capital’s funding model.)

Second, how is GE a AAA company? As I understood it, AAA means bullet-proof, high quality, or excellent. If a company needs the support of the government, it is not possible to be considered AAA. Do you see Berkshire Hathaway going cap in hand to the government for a bailout? As a matter of fact, Berkshire assisted GE Capital by buying preferred shares at a steep price, which allowed the company to raise billions in capital. The difference is striking.

Third, GE Capital isn’t even a bank.** The FDIC only deals with depositary institutions. Are you kidding me? The U.S. Government is obviously willing to do anything to bail out financial institutions at this point. Forget rules and regulations. Just give them the money.

G.E.’s AAA rating is a sham.

General Electric said Wednesday that the federal government had agreed to insure as much as $139 billion in debt for its lending subsidiary, GE Capital. This is the second time in a month that G.E. has turned to a federal program aimed at helping companies during the global credit crisis.

GE Capital is not a bank, but granting it access to a new program from the Federal Deposit Insurance Corporation may reassure investors and help the lender compete with banks that already have government-protected debt, a G.E. spokesman, Russell Wilkerson, told Bloomberg News.

“Inclusion in this program will allow us to source our debt competitively with other participating financial institutions,” Mr. Wilkerson said.

The F.D.I.C. program covers about $139 billion of G.E.’s debt, or 125 percent of total senior unsecured debt outstanding as of Sept. 30 and maturing by June 30.

Source
F.D.I.C. to Back $139 Billion in GE Capital Debt – Deal Book

**UPDATE 17 Nov 2008 – 1700 ET: GE Capital actually is a bank. I have a new post addressing this correction here.

Related posts:

• U.S. has begun to drain liquidity
• Question: How is Fannie Mae a AAA company?
• FDIC Statement on the Stress Tests
• Seven more bank failures brings total to 64
• GE Capital is a bank, but Genworth will be too

In yet another move by ratings agencies likely to roil markets, HBOS has been cut by S&P. Given the fact that HBOS is the biggest loser to date in the European banking sector in the wake of Lehman’s collapse. This cannot be seen as good news.

Standard & Poor’s said Tuesday it is lowering its long-term counterparty credit ratings on British bank holding company HBOS PLC to reflect the increased risk posed by the weak operating environment and slumping British housing market.

S&P said it is cutting ratings on HBOS and its main operating subsidiary Bank of Scotland to ‘A+’ from ‘AA-’, the fourth-highest investment grade. The outlook remains stable, said S&P.

“The rating action reflects Standard & Poor’s opinion that HBOS’ financial profile is less well positioned to manage the deteriorating operating environment than ‘AA’ rated global peers,” analyst Nigel Greenwood said in a statement.

The main differentiating factor is credit risk, said Greenwood.

“The U.K. housing and mortgage markets are in a period of “severe strain” and are unlikely to recover in the near term, said the analyst.

HBOS is more exposed than its peers because its British mortgage book accounts for more than half its total loan book, he said.

Earnings may also be hurt by lower revenue from the company’s corporate investments, which weakened “considerably” in the first half.

Recent initiatives to raise capital, including a 4 billion pound rights issue, were welcome moves from a credit rating perspective, said Greenwood. However, the rights issue was achieved without strong support from existing shareholders, suggesting financial flexibility is weak, he said.

The cost of protecting HBOS debt with credit default swaps surged Tuesday. HBOS’ five-year CDS widened by 150 basis points, according to IFR Markets, a service of Thomson Reuters.
-Reuters

I said the following just yesterday:

The question remains what the response by the Bank of England will be. The BoE and the European Central Bank seem less likely to bail out failing institutions than the Fed, although Northern Rock was eventually bailed out by the BoE and is now a British taxpayer liability. It must be worrying for the likes of HBOS to know that even the Fed let Lehman Brothers fail.

All eyes have been on the Fed, the U.S. Treasury and the SEC. We may be about to find out how the BoE, the Chancellor and the FSA handle crisis.

See also: Credit Crisis Timeline for a full list of writedowns by institution and a timeline of the credit crunch.

Related posts
Lehman fallout: HBOS and RBS are getting slaughtered
HBOS versus Freddie and Fannie
B&B gets its money, HBOS and Barclays don’t
HBOS in trouble
Where’s HBOS?

Related posts:

• Lloyds gets HBOS for a song
• S&P cuts ratings of big U.S. banks
• HBOS to raise new capital
• Hungary cut to a notch above junk by S&P
• Lehman fallout: HBOS and RBS are getting slaughtered

The world of financial services in not looking terribly stable in the wake of the Frannie nationalization. In fact, things are as jumbled as they have ever been. The latest news has AIG down 30% and both WaMu and Lehman brothers on the auction block.

Given the pace of the news cycle these past few days, I would expect to see some big news on the merger front over the weekend. And now that markets have closed, we can look to see if the FDIC is going to pull another Friday Night Special.

Welcome to the wonderful world of American Finance.

AIG
Let’s start with AIG. It closed down 30% at a 13-year low in heavy trading. AIG executive just recently paid an enormous $115 million fine for prior improprieties. The word now is that AIG had heavy exposure to Frannie and other mortgage-related instruments and will have billions in writedowns, putting their credit rating and capital adequacy at risk.

The stock has fallen more than 70 percent since it earlier this year warned investors that it could be hit by large, unrealized losses on credit default swaps it wrote to guarantee securities linked to subprime mortgages.

Since, the insurer has taken writedowns on these investments totaling about $25 billion, leaving it in the red by a cumulative $18 billion over the past three quarters.

“We attribute this (the share fall) to concerns about AIG’s ability to shed its troubled mortgage-related assets and we expect the shares to remain volatile as investors await news from the company,” said Standard & Poor’s analyst Catherine Seifert, in a research note on Friday.
-Reuters

WaMu
Washington Mutual’s stock is selling for a song at under $3 a share after a Moody’s downgrade and as worries mount about the companies ability to remain solvent. The latest in WaMu is that JP Morgan is interested in taking over the company.

JPMorgan Chase & Co is in advanced discussions to acquire Washington Mutual Inc, a source familiar with the discussions said on Friday.

“They are in advanced talks,” the source told Reuters.

The source said the sensitive talks had been going on for some time and JPMorgan had conducted a lot of due diligence into Washington Mutual.

Thursday’s downgrade of Washington Mutual by Moody’s Investors Service helped advance the discussions between the two companies, the source said.
-Reuters

Given the advanced nature of the talks and the heavy due diligence already done, I imagine this is a deal that can get done.

Lehman Brothers
And then there’s Lehman Brothers — now trading below $4 a share. Lehman is the financial services company subject to the most rumors over the past week. Goldman, Deutsche Bank, Barclays, HSBC and a bunch of other companies have all been bandied about as potential suitors. Now, it seems that a consortium that includes JC Flowers,the China Investment Company and Bank of America is going to be the main suitor (see article from the FT).

All in all, it was a pretty crazy week in finance. And we should expect more of the same craziness over the weekend and into next week. It was often said during the tech crash in 2001 and 2002 that stocks that drop into the single digits never recover. I reckon the same is true here for Lehman and WaMu. These two firms would be well advised to close a deal sooner rather than later. As for AIG, the carnage will continue for some time. It too may fall into the single digits, destined never to recover.

Related posts
Will Lehman be bought on Sep 13th?
WaMu on the brink of disaster: has agreement with regulators

Related posts:

• Brace yourself!
• WaMu on the brink of disaster: has agreement with regulators
• WaMu: Mr. Smith goes to Washington and turns predatory
• Anecdotes on reckless lending at WaMu from the Seattle Times
• Lehman has filed for bankruptcy

Remember how the impartial accountancies lost their way during the tech bubble? The most egregious case was Arthur Andersen’s wrongdoings at Enron, which eventually bankrupted both Enron and Arthur Anderson.

Well in this particular crisis it looks like the rating agencies are getting ready to take it on the chin. The state of Connecticut has sued Moody’s S&P and Fitch. I certainly see the rating agencies, with their AAA ratings for highly suspect CDOs, as complicit in the whole Ponzi scheme built on sub-prime and other dodgy assets. Apparently the Connecticut Attorney General agrees.

Connecticut Attorney General Richard Blumenthal plans to cite Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, the three biggest credit-rating companies, for “deceptive and unfair practices.”

The firms’ conduct is costing taxpayers “millions of dollars,” according to an e-mailed statement today from Blumenthal’s office announcing plans for “legal action.”

-Bloomberg, 30 Jul 2008

Interestingly, Moody’s biggest Shareholder is Warren Buffett’s Berkshire Hathaway.

Related posts:

• Calpers sues ratings agencies over SIVs
• MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating
• McGraw Hill drops book critical of its own subsidiary
• Baltics: Fitch downgrade and more downgrades to come
• Hungary cut to a notch above junk by S&P

How many AAA companies do you know of that have seen 80% declines in their market value?

Two that I can think of:

Fannie Mae (FNM)

and Freddie Mac (FRE)

Related posts:

• CDS Market: Did Fannie and Freddie Default?
• Gateway Bank sold, hurt by Frannie preferreds
• Gateway Financial and Midwest Banc have one-third of capital in Fannie and Freddie Preferreds
• Quote of the day: China hopping mad about GSEs
• Quote of the day: Gordon Brown, get your bazooka

from Bloomberg News:

Ambac Financial Group Inc., the world’s second-biggest bond insurer, stopped trading on the New York Stock Exchange in a “subpenny halt” after its share price fell as low as $1.04.

Ambac declined 3 cents, or 2.5 percent, to $1.15 in over- the-counter trading at 1:39 p.m. in New York. Ambac, which was stripped of all three of its AAA rankings from the largest credit-rating companies, has tumbled 99 percent in the past year.

The New York Stock Exchange issues a so-called “subpenny halt” when shares fall below $1.05 apiece. Trading on the exchange won’t resume until the shares stay above $1.10 for an entire day on another automated trading platform and the shares may be subject to a six-month probationary period if the average closing price drops below $1 over a six-month period.

A message left for Vandana Sharma, a spokeswoman for New York-based Ambac, wasn’t immediately returned.

Related posts:

• MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating
• Ambac may file bankruptcy soon
• Australia bans short selling too
• Welcome to The United Socialist States of America
• Financial shares now diving

As the financial sector melts down, one wonders which institutions are the safest: smaller local banks, money center banks, super regionals, credit unions. Credit unions are certainly something to think about becuase they offer high rates of deposit interest and low rates on loans.

I don’t know if credit unions are safer than banks across the board, but I willing to bet they are because they avoid the principal-agent problem.

Intro

A ‘credit union’ is described on Wikipedia like this:

A credit union is a cooperative financial institution that is privately owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union and they elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union.
-Wikipedia

And therein lies the key advantage of credit unions: they are owned by the members themselves. As a result, they are much more likely to be conservative and there is a much smaller chance of a principal-agent problem.

Much the same dilemma is apparent on Wall Street. Almost all the big Wall Street firms were partnerships owned by their employees. Goldman Sachs, Morgan Stanley, Salomon (now a part of Citigroup), and Lehman all went public in the last years. The result has been a massive increase in risk as the principal-agent problem is clear. But, that’s a topic for later.

Wikipedia says this about the principal-agent problem with credit unions:

Credit unions may be viewed as non-profit organizations, or alternatively as for-profit enterprises charged with making a profit for their members (who receive any profits earned by the cooperative in the form of reduced interest rates on loans, or as dividends paid on savings, which are taxed as ordinary income).

This debate reflects credit unions’ unusual organizational structure, which attempts to solve the principal-agent problem by ensuring the owners and the users of the institution are the same people. In any case, credit unions generally cannot accept donations and must be able to prosper in a competitive market economy.

USAA: a credit union-like company
I happen to be a member of the co-operative USAA, which I think is a good example of how these types of organizations work.

They are a AAA-rated full services co-operative that is much like a credit union. Let’s take a look at their financials (PDF), as they have them posted online.

USAA is a member-owned full service financial services company specializing in insurance. Its members are made up exclusively of present and former military personnel and their dependents. It is not publicly traded and issues dividends only occasionally to members in the form of their Subscriber’s Savings Accounts. On their website they describe themselves this way:

Our Mission

The mission of the association is to facilitate the financial security of its members, associates, and their families through provision of a full range of highly competitive financial products and services; in so doing, USAA seeks to be the provider of choice for the military community.

The Value of Membership

USAA is not a publicly traded company, so we don’t answer to stockholders — we answer to our members. They rely on us to suggest products and services that meet their financial needs. In fact, some of our best advice costs absolutely nothing. Advisors in our Financial Advice Center are here to answer questions, large and small, at no charge.

Financial Strength

When members join USAA, they join generations of military families who have depended on us to provide superior products and services in an atmosphere of financial strength.

USAA maintains superior ratings from all three of its rating agencies. In fact, it is one of just two U.S. property and casualty companies with the highest ratings from A.M. Best, Moody’s Investors Service, and Standard & Poor’s.

Leverage
If you look back at my analysis on deleveraging, you’ll note I mentioned that Citibank has a typical bank’s profile at 17x assets to equity. How does that compare to USAA?

USAA had over $67 billion in assets at the end of 2007 on equity of $14.3 billion, a leverage ratio of 5 times. Do they have exposure to CDOs, SIVs and RMBSs? Are they likely to have massive losses from subprime lending? I can’t say. I don’t have comprehensive financials for the company.

I do know they are AAA rated if that means anything anymore. There are fewer than 10 S&P 500 companies that still are AAA-rated in the U.S. because of debt levels. None of the publicly-traded U.S. regionals, none of the money center banks, and none of the global commercial banks can say this. This suggests conservative and cautious, the way bankers used to be.

Conclusion
This rather flimsy analysis doesn’t prove or disprove anything, frankly. But, hopefully, it will give you food for thought about which financial counterparties are trustworthy and which ones may not be. How many times have you heard about credit unions blowing up because of massive exposure to derivatives?

In Australia, credit unions are at risk of demutualising because they operate under financial institutions law rather than co-operative legislation.

I know that many co-operatives in the UK de-mutualised and became public companies, because the money was too much for their shareholders to turn down. (I remember a funny Cold Feet episode where the character David Marsden was talking to his wife about investments and how they had struck it rich in a building society demutualisation scheme — pop culture as a sign of market euphoria). Suddenly, the principal-agent problem was real.

Now, many of those same institutions are in financial trouble because of excessive risk taking over the past years. This includes HBOS (which is a merger of Bank of Scotland and the Halifax, a former mutual company), Bradford and Bingley, Abbey National (now a part of Banco Santander of Spain), and, most famously, Northern Rock.*

Member-owned building socieities and credit unions are inherently more risk-averse institutions because they are owned by their members. If one is concerned about the riskiness of the local bank, a member-owned cooperative like a credit union may be the way to go.

As far as demutualisation goes, it’s looking like a bust for shareholders in the UK.

Related articles
Once there were building societies. Then they became banks, and it all went wrong, The Independent, 7 Jun 2008
B&B and the perils of demutualisation, eFinancial News, 09 Jun 2008
Was the fad for demutualisation to blame for the mess we are in now?, Citywire, 13 Jun 2008

*Personal disclosure: I have a life assurance policy with the Abbey.

Related posts:

• Two largest wholesale credit unions seized
• Credit Unions in trouble
• Florida credit union put into conservatorship
• The horrible self-dealing of Ken Lewis and the principal-agent problem
• Bradford & Bingley is being shopped by the FSA

You kind of saw this one coming.

Bloomberg News article here

Related posts:

• Bank consolidation and getting positive about the credit crisis
• Calpers sues ratings agencies over SIVs
• S&P downgrades BofA
• S&P cuts ratings of big U.S. banks
• Are European banks sitting on 16.3 trillion in toxic assets?

Wow! I’ve heard of multi-year lows, but a 53-year low. That’s painful.

Look, let’s not beat around the bush here. GM is in big trouble. They sell many products that people don’t want anymore (gas guzzlers), their growth engine is sputtering (GMAC) and they have enormous liabilities (retiree healthcare and pensions). Is there any way out of this problem? Heck if I know.

What I do know is that not only are SUV autos a problem but auto loans are going to become a liability very soon as well. And that spells trouble not only for financials but also for the big three automakers.

“There was not room for slippage,” said Ramsey, 49, a former Bank of America Corp. executive who joined Detroit-based GMAC in September and became chief risk officer two months later. He pulled it off as banks led by New York-based JPMorgan Chase & Co. and Citigroup Inc. provided GMAC and its Residential Capital LLC mortgage unit with the biggest restructuring package since the credit-market rout began a year ago.

Whether that’s enough to ride out the worst housing slump since the Great Depression remains in doubt. Moody’s Investors Service cut GMAC’s credit rating one level to six rankings below investment-grade last week as ResCap burns through cash after losing $5.3 billion in the past six quarters.

-Bloomberg News, 24 Jun 2008

Bankruptcy is a real possibility for both GMAC and GM. I haver no crystal ball, but I do know that they are facing challenges with the economic slowdown and the high cost of oil.

But let’s also remember that RMBS’s imploded because the underlying collateral was damaged. And some of this stuff was AAA? Well, the same is true with auto loan ABS paper. Take a look.

Subject [/] CMBS: GMAC 06-C1 *PUBLICS* Px Guidance

GMAC Commercial Mortgage Securities, Inc,Commercial Mortgage Pass-Through Certificates,Series 2006-C1 $1.561B NEW ISSUE CMBS

Lead-Mgrs: Deutsche Bank Securities / Morgan Stanley & Co. Inc.Co-Managers: GMACRating Agencies: Fitch / Standard & Poor’s

Ratings Class WAL Principal Sub PxClass (Fitch/S&P) Size (1) (yrs) Window Levels GuidA-1 AAA/AAA 37.0 2.99 02/06-09/10 30.000% S+9aA-1D AAA/AAA 15.0 2.99 02/06-09/10 30.000% (No Longer Available)A-2 AAA/AAA 166.0 4.72 09/10-02/11 30.000% S+22aA-3 AAA/AAA 98.0 7.19 02/11-06/15 30.000% S+32aA-1A AAA/AAA 296.1 7.68 02/06-12/15 30.000% (No Longer Available)A-4 AAA/AAA 576.1 9.66 06/15-11/15 30.000% S+28aA-M AAA/AAA 169.7 9.86 12/15-12/15 20.000% S+32aA-J AAA/AAA 114.6 9.86 12/15-12/15 13.250% S+39a

-SEC filing, 25 Jan 2006

Above was a sampling of the AAA rated paper that GMAC issued in 2006. There is a lot more of this stuff floating around from 2007 and 2008. Where these bonds are going is anyone’s guess but given the turmoil GMAC has had, I suspect difficulty lies ahead. Moreover, GMAC also got into Home Equity lines of credit. Here’s are a few AAA tranches from 2007.

$1,185,871,000 (Approximate) GMACM HOME EQUITY LOAN TRUST 2007-HE1

____________________________________________________________________________________________________________________________________ Note WAL (Yrs.) Payment Window Expected Rating Legal FinalClass(1) Balance(2) Call/Mat(3) Call/Mat (Months)(3) Note Rate Note Type (S&P/Moody’s) Maturity____________________________________________________________________________________________________________________________________A-1 $677,500,000 1.00 / 1.00 1 – 23 / 1 – 23 Floater(4) Sequential AAA/Aaa August 2037A-2 $136,300,000 2.20 / 2.20 23 – 30 / 23 – 30 Fixed(5) Sequential AAA/Aaa August 2037A-3 $129,600,000 3.00 / 3.00 30 – 43 / 30 – 43 Fixed(5) Sequential AAA/Aaa August 2037A-4 $123,871,000 4.51 / 5.16 43 – 61 / 43 – 139 Fixed(5) Sequential AAA/Aaa August 2037A-5 $118,600,000 4.70 / 5.85 37 – 61 / 37 – 137 Fixed (5) NAS AAA/Aaa August 2037Total $1,185,871,000
-SEC filing, 22 Mar 2007

As the real economy deflates, auto loans and home equity loans will become another area to see collateral impaired and the result will be writedowns just like with subprime.

Related articles
GM drops to 53-year low after Goldman says ’sell’, Financial Post, 26 Jun 2008
GMAC’s Other Headache, WSJ, 26 Jun 2008

Related posts:

• The fixed rate mortgage is king again
• GMAC: Loosening credit standards in the teeth of recession
• GMAC chairman resigns effective immediately
• GMAC gets a helping hand
• Corporate defaults mean more hedge fund blow-ups

You kind of saw this one coming. Bank of America is crazy to take Countrywide Financial’s balance sheet onto its books. Apparently, S&P Equity Research agrees and correctly downgraded BofA to a sell rating because of the risk.

Note: Oppenheimer’s Meredith Whitney expects BofA to eventually be forced to cut its divided.

S&P said

“We take unfavorable note of the large Countrywide option-adjustable rate mortgage portfolio that Bank of America will inherit, since we believe this portfolio has yet to be stress tested.”
-MarketWatch, 20 Jun 2008

Stay tuned.

Hat tip to CalculatedRisk

Related Posts
BofA is nuts: still going to acquire Countrywide

Related posts:

• BofA is nuts: still going to acquire Countrywide
• More reason BofA is crazy to take on Countrywide
• Countrywide is the real problem at Bank of America
• Countrywide: California sues too
• Bank of America cuts its dividend