Wednesday, May 04, 2005

Bubble Scandals Taint Another Corporation

Another reader recommended story is that of Allied Capital, which is hastily selling it's mortgage securites. "Commercial lending company Allied Capital Corp. sold a portfolio of commercial mortgage-backed securities, bonds and preferred shares to a Canadian fund management company for about $976 million and plans to sell the remainder of its commercial real estate assets to the same firm."

The firms stock is under pressure, off 4% today, as news of government investigations emerged with ties to the AIG scandal. Herb Greenberg has a more serious question. "Questions about whether Allied or any of its subsidiaries authorized anybody to look into my phone records? It came to my attention that last year somebody had illegally gained access to my phone records and the phone records of several sources."

Anyone interested in the housing bubble must pay attention to the financial firms. The GSE's alone cannot guarantee all the mortgage securities. As the value of MBS's comes under scrutiny it will certainly take down corporations you wouldn't think are exposed.


At 3:30 PM, Anonymous Anonymous said...

Everyone seems to be selling MBSs these days. I wonder if the buyers know what they are really getting.

Bubble talk seems pretty high these days.

At 3:42 PM, Anonymous Anonymous said...

Yeah, I think it's starting to crumble around us... Even Fannie Mae, Freddie Mac and FDIC are very concerned now.

At 3:51 PM, Anonymous Don said...

Just to be clear, since I guess Ben got this link from me. All scandal issues are quite old AFAIK (haven't been following closely in the last 12 months). Greenburg's been negative on the company for a long time (3+ years). They have a multi billion dollar portfolio of private equity investments of which about a billion was CMBS which they bought in bad times and now are selling when the sellin' is good.

I think you read a bit more in here than is really there Ben. I'd buy ALD again, I sold out because their multiple to NAV was higher than I was comfortable with.

At 4:33 PM, Anonymous Anonymous said...

I agree those scandals are old, but the companies themselves haven't really dealt with the consequences. It is kind of like when we knew something wasn't quite right at Enron but nobody knew the extent of the damage and what was really been going on.

I suspect when they get to the bottom of Fannie that it is just about bankrupt. If it wasn't a GSE, people would be reacting a lot more strongly.

All these mortgage corps are the same sort of play on strong foreign bond demand, derivatives and repackaging the debt so it isn't on their books. That will unravel as time goes on and the results aren't going to be pretty.

At 4:57 PM, Anonymous kailuabruddah said...

Now this is a sign of frothiness:

At 5:40 PM, Blogger deb said...

"As of January 1, 55.8% of all fixed-rate conduit loans featured IO periods—up from 5.9% at the beginning of 2002."

From kailuabruddah's link regard commercial RE loans. WOW! I had no idea commercial had gone as nuts as residential. And all these IO deals when rates are the lowest they have been in decades. Mind blowing!

This sums it up...

"Why worry? Because the jump in IO loans may be a signal of loose underwriting standards and emblematic of a speculation-driven market: For a borrower who is intent on flipping assets, IOs make sense: By the time the loan requires him to pay back the principle, he’s on to another deal. As long as it’s a seller’s market, that is. If rising interest rates or other factors stop the price spiral and deal frenzy, IO buyers will be stuck."



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