John Kendall recently rejoined the team at Mason Street Advisors, taking up a position in its non-agency mortgage group, according to market sources. Kendall worked at Mason Street up until four years ago, when he left to join Fieldstone Mortgage Investment Corp. In his last position there, he was a highlevel executive. Fieldstone Mortgage declared bankruptcy and went out of business amid the volatility that uprooted the subprime mortgage market.
Mortgage Bankers Associa-tion Chief Economist Douglas Duncan will be leaving the mortgage industry trade group for Fannie Mae. In a statement late Tuesday, Jonathan Kempner, president and CEO of the MBA, commented on Duncan's departure. Duncan announced last Tuesday that he has accepted an offer to be vice president and chief economist at the GSE. "Personally, I am very excited for Doug and this new opportunity," Kempner said. "At the same time, I lament losing his expertise and counsel on which we have come to rely. But MBA's loss is Fannie Mae's gain, and I am buoyed by the fact that America's housing industry will continue to benefit from Doug's talents." The chief economist has been with the MBA since 1992. Before joining the MBA, Duncan was a LEGIS fellow with the U.S. House of Representatives Committee on Banking, Finance and Urban Affairs. Duncan will be replacing David Berson, who left Fannie Mae for PMI Group last September.
A poll of senior executives from investment management firms and third-party administrators conducted by research forum Investit Intelligence found that developing the credit derivatives market is a key priority for 2008. The 37 firms participating said that if properly managed, derivatives are likely to be a keystone of future investment. This segment of the bond market should continue to grow in accordance with the arrivals of new participants, notably hedge funds. The investment managers participating in the recent poll said that over the past few years they have been working hard to develop derivative products that can insulate their clients from market volatility. These products, however, need careful management of both investment and operational risk. "Following the very high-scale write-downs experienced among financial organizations lately, there is an atmosphere of complexity, contagion and contamination around derivatives," said Philip Robinson, a principal at Investit. "But the real message should be that these instruments will continue to be used for the benefit of investors, as long as investment managers can demonstrate that they can effectively manage the operational risk."
HSH Nordbank began legal proceedings against UBS to win back the $500 million portfolio of CDOs linked to U.S. MBS that were structured and sold by the bank. These claims refer to the North Street 2002-4 CDO that was structured and managed by UBS. HSH is arguing that UBS is in breach of its contractual obligations and sold the assets to HSH to "benefit itself at the expense of its clients." Later in the week, UBS filed a countersuit against HSH arguing that both banks had agreed on the terms of the portfolio and that UBS has fulfilled its contractual responsibilities.
Newcastle Investment Corp. said that it took a $13 million charge on two securities in the fourth quarter of 2007, including an $11 million impairment on a CDO managed by a third party, according to its year-end earnings results released last week. The firm also recorded an $84 million loss in its $586 million subprime securities portfolio based on a $59 million impairment in its 2006 vintage subprime securities. Newcastle currently has a $6.9 billion investment portfolio consisting of commercial, residential and corporate debt. During the fourth quarter, Newcastle purchased $145 million, sold $40 million and had paydowns of $346 million, for a net decrease of $241 million in the portfolio. Since the beginning of 2008, the firm said it has sold off an additional $1.3 billion in assets, reduced its recourse debt by $888 million, reduced its non-recourse debt by $379 million and increased its cash available to invest to $120 million from $29 million. In making these adjustments, Newcastle took a loss of $14.2 million.
Spector, Roseman & Kodroff and Kaplan Fox & Kilsheimer both filed a class-action lawsuit on behalf of Ambac Financial Group stockholders last week. Among the allegations against Ambac are that the guarantor violated the federal securities laws by issuing "materially false and misleading statements contained in press releases and filings with the Securities and Exchange Commission" that were based on "defective assumptions and/or manipulated facts." Other complaints include misleading financial statements due to a failure to account for mark-to-market losses. Both suits allege that Ambac concealed the extent of its exposure to CDO losses, even on the higher end of the credit spectrum. Spector Roseman asserted that Ambac did not properly underwrite and internally rate these CDO contracts.
Dresdner Bank said that it would take part in bank consortium plans to infuse $3 billion into Ambac Financial Group, the bank's head of investment banking Stefan Jentzsch announced at the bank's annual news conference last Monday. Among other banks participating are Citigroup and Wachovia. The investment is part of a rescue effort to aid the ailing bond insurer.
TriMas Corp., a multi-purpose commercial manufacturing company, announced that it has renewed its receivables securitization facility. The new facility, which has a customary 364-day term, will provide committed funding up to $90 million, a $15 million increase from the company's current liquidity facility. TriMas said it was also able to reduce its borrowing spread 25 basis points and will have a cost of funds under the facility equal to a commercial paper-based rate - which is currently around 3.7% - plus a spread of 105 basis points.
Three market value total-rate-of-return CLOs were restructured as cashflow CLOs and began marketing, according to JPMorgan Securities. These deals are all Citigroup transactions and include the Babson Capital $680 million Vinacasa CLO, the Hartford Investment Management Co. (HIMCO) $382 million Bushnell Loan Fund II and the HIMCO $562mn Stedman Loan Fund II. The pools are static, with sequential amortization. Each transaction is shopping AA' and single-A tranches at 275 and 425 basis points, respectively, JPMorgan said. HIMCO and Babson declined to comment on the restructurings.
Mortgage Lenders Network (MLN), a subprime lender who filed for bankruptcy last year, was asked by Connecticut Attorney General Richard Blumenthal and the state Department of Labor to pay $2.6 million in back pay to former employees. The state alleges that MLN failed to pay wages and commissions to more than 100 employees.
RealtyTrac released its January foreclosure report, which shows foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 233,001 properties, an increase of 8% from the previous month and an increase of nearly 57% from January 2007. Among the foreclosure results, Nevada had the highest foreclosure rate among the 50 states with 6,087 foreclosures during the month, a 45% decrease from the previous month but still a 95% increase from January 2007, RealtyTrac said. California and Florida ranked second and third in January foreclosures, respectively. Other states with foreclosure rates in the top 10 were Arizona, Colorado, Massachusetts, Georgia, Connecticut, Ohio and Michigan.
GMAC is currently restructuring its North American auto financing unit. According to a recent report from Merrill Lynch, the plan is likely going to affect the operations of the firm's wholesale/floorplan business and, to a lesser degree, the operations of its retail financing business. The report added that the auto company should be watchful in terms of the effects of any disruptions in the quality of the existing and future auto financing portfolios. Even though the underwriting and servicing operations of GMAC's wholesale financing unit appear more decentralized, Merrill Lynch analysts think that the nature of the relationship between GMAC and its dealers should minimize the effect of any disruptions on the credit performance of the firm's wholesale portfolio, with branches being consolidated. "The more centralized and automated underwriting and servicing operations of the retail financing business and the more limited scope of the restructuring on the retail financing business should minimize the risk to credit quality of the retail portfolio," Merrill analysts said.
Merrill Lynch plans to shut down most of its First Franklin subprime mortgage lending unit in response to the deteriorating market, according to published reports. The move will result in the elimination of 400 to 500 jobs. Merrill plans to retain the unit's loan servicing business. The brokerage house bought First Franklin from National City Corp in December 2006 for $1.3 billion. Merrill, however, quit originating subprime loans last Dec. 28. It reported mortgage-related losses and write-downs totaling $24.4 billion in 2007, according to reports. The losses led to the ouster of Chief Executive Stan O'Neal.
American International Group's Issuer Default Rating (IDR) as well as all holding company ratings and subsidiary debt ratings, including International Lease Finance and American General Finance are still on Rating Watch Negative by Fitch Ratings. The rating agency said this after AIG announced its 4Q07 financial results. According to a release, the rating agency first placed AIG and its subsidiary debt ratings on Rating Watch Negative on Feb. 11 following the firm's acknowledgement in an 8-K filing that as of last Dec. 31, its independent auditor believed that the insurance firm had a material weakness in internal controls related to the valuation of AIG Financial Products Corp.'s super senior credit derivative portfolio.
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