PrefBlog

I gave an example of tranching when looking at the Bear Stearns product a few days ago. Now I want to clear up some possible confusion regarding the practice.

Quality is Very Expensive

Let us say, just for the sake of an argument, that we have a pile of AA rated securities that we want to securitize. We have two choices:

• We can securitize them in one big bucket, rated AA, or
• We can divide it in two tranches. The first gets priority in distributions and will be rated AAA; the second will be junior and rated A

The second choice will be familiar to preferred share afficionados – it’s the same process that is used in split share corporations. The holders of the senior tranche (the preferred shares) don’t really care a lot about the underlying portfolio, as long as it’s reasonably good quality and there’s a lot of it! The junior tranche holders care a lot, because they’re taking the risk they’ll get paid less than expected in exchange for an expected reward of getting paid more.

It will always be more profitable to the underwriter to split the issue because bond investors pay up for quality. I might get 10 cents less than base price for the junior tranche, but I’ll get 25 cents more for the senior tranche.

This is even more important with the mortgages, because it’s not a 50-50 proposition … there is a better than even chance any particular mortgage in the underlying pool will behave exactly as expected. There is, shall we say, some debate over just what the default probability is, but let’s make up some numbers. The mortgages are all one-year term. I expect  10% of the underlying to disappear completely; interest is received equal to 20% of the original pool; therefore, my return on the overall pool will be 10%.

These numbers are obviously very exaggerated. If anybody wants to make up better numbers – or, even better, wants to dig through ratings reports to get actual numbers – be my guest and let me know what you come up with. Put it in the comments or eMail me and I’ll put it in the post.

OK, so I look at the market and I see that AAA instruments yield 5%, while A instruments yield 20%. So what I do, is I create two tranches. The first tranche is senior and comprises $80 of the original pool of $100. It gets an AAA rating because the pool as a whole can lose 20% of its original value and this tranche won’t even notice. That’s double the loss rate I expect.

On the senior issue, I pay only 5% interest, which comes to $4.

The second tranche, worth $20, takes the first loss, which is expected to be 10% of the original pool, or $10. If the end value of the second tranche is $24 at the end of the year, it will have yielded 20% on invested capital. So on this tranche, I pay $14 from my interest receipts and the expected value of the tranche is $20 (invested) – $10 (loss on pool) + $14 (interest) = $24.

Now I work out my expectations: I’m going to receive $20 interest from the underlying pool. I pay $5 interest to the first tranche and $14 to the second tranche. Hey, looky looky! There’s $1 left over! I’ll invent an IO (Interest Only) tranche to receive that interest and keep that tranche for myself!

Bingo! Financial alchemy!

Why is Quality Expensive?

The basic reason is segmentation, which will be familiar to readers of my paper on Portfolio Construction. There might be some investors who don’t have a portfolio big enough to diversify. Maybe they can buy only one bond; maybe they’re just a little bigger and are only buying 5 bonds to make a ladder. Five bonds is not a lot. If one goes bad, that’s 20% of the portfolio. Such players, too small to diversify away specific risk, should stick to higher quality instruments so that their portfolios have a greater chance of behaving as expected. So these players are logically restricted to higher quality instruments and shouldn’t invest in our junior tranche. They have to buy the senior tranche virtually irrespective of how much extra they could expect from the junior, because they are highly risk-averse.

Another reason for quality segmentation is fiduciary policies. Maybe the East Podunk Widows’ and Orphans’ Fund has a set policy: AAA only. They’ll go to jail if they buy our junior tranche.

There’s liquidity as well. The senior tranche is worth $80, the junior tranche $20. It’s not unreasonable to expect four times as much trading of the senior tranche in the secondary market. Market timers, for instance, will have a prediliction for the senior tranche because they’ll be able to trade out of it more cheaply if the market moves their way and they want to realize a capital gain.

All these factors conspire to ensure that interest rates on the lower grades of paper will (normally) be higher than they would need to be if default risk was the sole consideration. Therefore, an investor who (i) has no arbitrary limits, and (ii) can purchase a well diversified portfolio and (iii) has no intention of trading a lot can (normally!) achieve excess returns by moving down the quality scale.

This was exploited in the late ’80’s, when the junk bond market was invented.

Sorry about all this sub-prime stuff in a blog that usually sticks pretty close to its knitting, but this is a lot of fun!

Global Diversified Investment Grade Income Trust (TSX: DG.UN) (“Global DIGIT”) has announced:

that, considering the liquidity problems of MMAI-I Trust (“MMAI”) due to its inability to roll its maturing commercial paper in the present state of the Canadian asset-backed commercial paper market, it will not have sufficient financial resources to allow for the payment of the redemption price for the redemption of Units and consequently must announce the suspension, until further notice, of the August 31st, 2007 annual and quarterly redemptions of Units.

This is a fascinating investment scheme. What they have done, according to their financials is (with lots of rounding by me):

– taken $89-million of unitholders equity

– borrowed about $1,400-million, mostly as commercial paper

– put all this money into term deposits in banks, at the Bankers’ Acceptance rate plus a spread.

– written Credit Default Swaps against a portfolio of mainly mortgage backed securities and pledged the term deposits as security (note that writing a CDS gives you exposure and, hopefully, yield basically equivalent to what you wrote the CDS on)

The point? It’s discussed:

The Trust’s objective (save for any loss exceeding the first loss amount) is to provide a return on investment of 5.94% per annum to Unitholders up to September 7, 2009 and thereafter a floating distribution equal to the rate of bankers acceptance plus 2%.

Units cost $10.00 at issue in September 2004, of which sixty-five cents went to start-up costs. The provide a handy computation of their returns since inception, using a starting point of $9.35 net … they’ve made about 5.5% annualized.

It seems to me like a helluva complicated & (term-mismatch-) risky & very highly-leveraged way to go after BAs+200, but I should have said that three years ago if I wanted to be taken seriously.

And now they’re having a little difficulty rolling their CP, have suspended redemptions and I see that DG.UN is now quoted at $2.90-99 on the TSX, compared with a NAVPU of $9.17 reported as of 2007-6-30.

Y’know, the underlying doesn’t look all that terrible to me … having looked at it very, very briefly and with no intent of investing or recommending. The big question is how much of the lolly the CP holders are going to grab and, frankly, I’m not going to rip apart the prospectuses trying to find out. I’m not going to pay for any expensive legal opinions, either! But it does seem to me that this very, very distressed security that has enormous liquidity problems would be worth looking at … although, until we know more about what the CP guys are going to take, it’s a wild speculation and, what’s worse, blind.

Too bad the damn thing’s $1.4-billion … that’s getting into serious money that will be hard to finance in this environment … which, I imagine, is part of the problem. If it were smaller, it would be (I think) attractive to the hedge fund crowd. If any of my readers has $1.4-billion they want to put into a nice floating rate note with a term of nine years, call me and maybe we can help these guys out a little … after looking at this stuff a whole lot more closely, of course!

Hat tip : Financial Webring Forum.

Gee, the last one was so much fun I think I’ll do another! Let’s look at “Bear Stearns Asset Backed Securities Trust 2005-1”.

On August 24, S&P released the following:

Standard & Poor’s Ratings Services today lowered its ratings on seven classes from Bear Stearns Asset Backed Securities Trust’s series 2001-3, 2005-1, 2005-2 and 2005-3 transactions (see list).
     The lowered ratings reflect pool performance that has caused actual and projected credit support for the affected classes to decline considerably. All four transactions have experienced losses that have eroded overcollateralization (O/C) to levels that are significantly below their targets. Furthermore, delinquencies have escalated over the past six months. For series 2001-3, losses have, on average over the past six months, been approximately 2.10x monthly excess interest. For series 2005-1, losses have, on average over the past six months, been approximately 3.73x monthly excess interest. Severe delinquencies (90-plus days, foreclosures, and REOs) for the transactions, as a percentage of the current pool balances, range between
approximately 17.09% (series 2005-1) and 13.40% (series 2001-3). Realized losses for the transactions, as a percentage of the original pool balances, range between approximately 9.20% (series 2001-3) and 1.33% (series 2005-3).
     These performance trends have caused projected credit support for the transactions to fall well below the required levels. Standard & Poor’s will continue to closely monitor the performance of these transactions. If the transactions incur further losses and delinquencies continue to erode projected credit support, we will take further negative rating actions.
     Subordination, excess interest, and O/C provide credit support for the two transactions. The underlying collateral backing the certificates consists of both fixed- and adjustable-rate mortgage loans.

RATINGS LOWERED
  
Bear Stearns Asset Backed Securities Trust
Residential mortgage-backed certificates
                               Rating
Series      Class       To              From
2001-3      M-2         BB              A
2001-3      B           B               BBB
2005-1      M-6         BB              BBB-
2005-1      M-7         CCC             BB
2005-2      M-7         B               BB
2005-3      M-6         B               BBB-
2005-3      M-7         CCC             BB

… which looks pretty horrific. But now let’s look at ALL of BSABST 2005-1:

 US$395 million asset-backed certificates, series 2005-1 
Class  Maturity Date   Rating  Rating Date    
 
A  Mar 25, 2035  AAA  Feb 24, 2005    
 
M-1  Mar 25, 2035  AA  Feb 24, 2005    
 
M-2  Mar 25, 2035  A  Feb 24, 2005    
 
M-3  Mar 25, 2035  A-  Feb 24, 2005    
 
M-4  Mar 25, 2035  BBB+  Feb 24, 2005    
 
M-5  Mar 25, 2035  BBB  Feb 24, 2005    
 
M-6  Mar 25, 2035  BB  Aug 24, 2007    
 
M-7  Mar 25, 2035  CCC  Aug 24, 2007    
 
R-I  Mar 25, 2035  NR  Feb 24, 2005    
 
R-II  Mar 25, 2035  NR  Feb 24, 2005    
 
B-IO  Mar 25, 2035  NR  Feb 24, 2005 
 

The SEC ID for this trust is 333-113636, for those who wish to see all the gory detail. Tranche sizes, from the prospectus on SEC / EDGAR are (this is SEC document 0000911420-05-000084.txt : 20050216) are:

Class A : $313,746,000 (pays LIBOR + 0.35% before optional termination / +0.70% afterwards)

Class M-1: $37,689,000 (+0.70% / +1.05%)

Class M-2: $18,549,000 (+1.40% / +2.10%)

Class M-3: $4,341,000 (+1.60% / +2.40%)

Class M-4: $3,946,000 (+2.20% / +3.30%)

Class M-5: $2,960,000 (+3.00% / +4.50%)

Class M-6: $4,538,000 (+3.50% / +5.25%)

Class M-7 was not offered in the prospectus. R-I and R-II are “residual interests in the real estate mortgage investment conduits established by the trust”, and were also not offered. B-IO gets all the Excess Spread. None of these last three classes had a stated principal value; I’m not going to tear apart the prospectus analyzing them because I don’t really care a lot how they work … I’m just after the principal values here!

The “optional termination” becomes effective “when the stated principal balance of the mortgage loans and any foreclosed real estate owned by the trust fund has declined to or below 10% of the stated principal balance of the mortgage loans as of the cut-off date”. At this point EMC Mortgage corporation could purchase all the assets.

At any rate, it should be clear that – while downgrades are always bad, and to be deplored by all right-thinking people – the downgrades that sounded so awful at the beginning of this post lose a lot of their ability to terrify when put into perspective.

Perspective is what’s needed when thinking about sub-prime … and I can’t provide it. I’m not a specialist, and I think a specialist would need a pretty good database to get it. What I really want is a transition study that has dollar figures attached, not just number of ratings. It would be nice, too, if interest rates could be attached to such a study … because, well, gee, the guys in the downgraded class M-6 were getting LIBOR + 350bp (and still are, since the issue is not in default)!

I’ll keep my eyes out, however, and whenever I see something interesting, I’ll post again.

Update 2007-09-18: I became involved in a discussion at Econbrowser in which this issue came up. In the course of the discussion I retrieved a bit more information from the prospectus, which I shall reproduce here:

The following table summarizes certain characteristics of the mortgage loans as of the cut-off date:

Number of mortgage loans……………………3,527
Aggregate principal balance…………..$394,649,130
Average principal balance………………..$111,894
Range of principal balance………$1,041 to $800,000
Range of mortgage rates……………0.00% to 16.50%
Weighted average mortgage rate……………..8.032%
Weighted average combined loan-to-value ratio……………………84.50%
Range of scheduled remaining terms to maturity……….9 months to 361 months

I’ve just read a good paper by Engel & McCoy, Turning a Blind Eye: Wall Street Finance of Predatory Lending, which, while certainly having an axe to grind (they want more regulation), does give a good overview of the problems. Their central point is:

As this excerpt from one prospectus illustrates,securitization turns a blind eye to the underwriting of subprime loans:

With the exception of approximately 20.82% of the mortgage loans in the statistical mortgage pool that were underwritten in accordance with the underwriting criteria of The Winter Group, underwriting criteria are generally not available with respect to the mortgage loans. In many instances the mortgage loans in the statistical mortgage pool were acquired by Terwin Advisors LLC from sources, including mortgage brokers and other non-originators, that could not provide detailed information regarding the underwriting guidelines of the originators.

As this suggests, Wall Street firms securitize subprime home loans without determining if loan pools contain predatory loans. In the worst situations, secondary market actors have actively facilitated abusive lending.

The big problem (to me) is loan re-negotiation, which has been the subject of some political chatter in recent weeks:

Securitization complicates and often blocks work-outs with borrowers who are harmed by predatory loans. This is because the underlying securitization contracts tie the trustee’s and servicer’s hands if they attempt to negotiate a repayment plan in lieu of foreclosure. The value of the securities and the amount of their returns are based on cash flows that are determined, in part, by the loan terms. To protect these cash flows, securitization contracts typically prohibit changes to the terms of the underlying loans. In addition, securitization contracts often prohibit servicers from waiving prepayment penalties and other loan provisions.

There is a very good table in the Engel & McCoy paper (on page 2056 of the Fordham Law Review), showing S&P Upgrades and Downgrades of Public Subprime RMBS, 2003-2006. It’s not a proper transition matrix, but it’s a start. 

Anyway, what brought on this surge of interest in the mechanics of sub-prime was the recent announce by Fitch:

Fitch has affirmed three classes and downgraded one class of notes issued by Northwall Funding CDO I, Ltd., (Northwall). The following rating actions are effective immediately:

–$165,326,758 class A-1 notes affirmed at ‘AAA’;
–$46,500,000 class A-2 notes affirmed at ‘AAA’;
–$40,500,000 class B notes affirmed at ‘AA’;
–$18,000,000 class C notes downgraded to ‘BB’ from ‘BBB’ and remain on Rating Watch Negative (RWN).

Northwall is a collateralized debt obligation (CDO) that closed May 17, 2005 and is managed by Terwin Money Management, LLC (Terwin). Northwall has a substitution period that grants Terwin limited trading ability until September 2007. The portfolio is composed of approximately 89% subprime residential mortgage-backed securities (RMBS), 8% Prime RMBS, and 3% CDOs.

The downgrade of the class C notes reflects the deterioration in credit quality of the portfolio.
Approximately 11% of the portfolio has been downgraded since last review and as of the most recent trustee report the WARF has increased to 5.07 (‘BBB/BBB-‘) from 4.35 (‘BBB/BBB-‘) at last review. In Fitch’s view approximately 13.5% of the portfolio is below investment grade quality, including approximately 5.9% ‘CCC’ or lower quality. There is one defaulted asset comprising $994,341 of the portfolio. In addition, approximately 7% of bonds in the portfolio are on Rating Watch Negative (RWN).

As far as I can make out from a google-cached report by Credit Suisse, the original issue came in the tranches indicated above, with an additional “equity tranche” representing 5% of the issue.

There was another announcement by Moody’s:

Moody’s Investors Service today announced downgrades on 120 securities originated in the second half of 2005 and backed by subprime, first-lien mortgage loans. The actions follow a review of the securities rated in the second half of 2005 and affect securities with an original face value of over $1.5 billion, representing 0.7% of the dollar volume and 4.1% of the securities rated by Moody’s in the second-half of 2005 that were backed by subprime, first-lien loans.

 

The actions reflect the higher than anticipated delinquency rates of first-lien subprime mortgage loans securitized in the second half of 2005. These loans were originated in an environment of aggressive underwriting, although not to the same degree as the subprime loans originated in 2006. Aggressive underwriting combined with the prolonged slowdown in the housing market has caused significant loan performance deterioration and is the primary factor in these rating actions. Moody’s has noted a persistent negative trend in severe delinquencies for first-lien subprime mortgage loans securitized in late 2005 and 2006.

 

The vast majority of these downgrades impacted securities originally rated Baa or lower. In total 54 securities originally rated Baa and 60 securities previously rated Ba were downgraded. Additionally, 6 tranches originally rated A were downgraded. No action was taken on securities rated Aaa or Aa.

 

In addition to the high rates of early delinquency predicating today’s actions, Moody’s notes that subprime mortgages originated in late 2005 and 2006 that are subject to interest rate reset present an additional cause for credit concern. Subprime borrowers from previous vintages of such collateral avoided “payment shock” and potential default by refinancing. However, with the recent pressure in home price appreciation and tightening of mortgage lending standards, such refinancing opportunities may be more limited. Moody’s has noted that transactions issued in the second half of 2005 have begun to exhibit slower prepayment speeds as they near the two-year interest reset than did prior vintages. Moody’s is actively surveying loan servicers to evaluate the impact of potential increases in loan modification due to these upcoming resets.

Why do I bring this up? Well … no real reason. I just wanted to point out that the highest rated tranche of the issue reviewed by Fitch was the best-protected $165-million of a $300-million issue … asset coverage of 1.8:1, in fact, to put it in terms familiar to those who invest in Split-Share preferreds.

Also, I’m really annoyed at all the weeping and wailing over sub-prime. There have been significant losses, but so far they have been borne by

i) those who bought the lower-rated or equity tranches, and it serves ’em right!

ii) those who have panicked and sold stuff into a panicked market because it has the word “sub-prime” in it somewhere. To say something is a sub-prime derivative is about as meaningful as saying something else is an equity. It comes in many flavours.

There’s more perspective over at Tom Graff’s Accrued Interest.

There has been some slight readjustment in the market lately at the intersection of the three titled subjects, and I’ve received some queries regarding how it all works.

So, for those who don’t wish to read Moody’s explanation of the market (hat tip: Financial Webring Forum) or the Federal Reserve’s Examiners’ Supervision Manual, here’s a stripped down version of how it all came together. Please note that I have no inside information whatsoever regarding the specifics of the holdings or clients of Coventree’s trusts; also note that I am recklessly making up the numbers with a view to showing how the system works, not with a view to calculating actual profits:

(i) A hedge-fund guy (HF) has $100 he needs to invest.

(ii) HF is offered some 6% 30-year sub-prime paper and decides that it’s a good investment.

(iii) HF buys $1,000 of this 6% paper and borrows $900 on margin at 7% to pay for it. At this point he has negative carry, which is a Bad Thing.

(iv) Coventree offers to lend him $900 at 5% for ten years against the assets, provided he over-collateralizes. HF borrows the $900 from the Coventree trust at 5% for a ten year term and uses these proceeds to repay his margin debt. The loan is secured by a pledge of the $1,000 worth of 30-year 6% sub-prime paper.

(v) Coventree then issues $900 of three-month paper to yield 4%. The buyer is … Investor Guy (IG), who needs a liquid investment but doesn’t want to buy T-Bills yielding 3%.

So at this point, everybody’s happy:

(a) The ultimate financer has $900 worth of three-month paper yielding 4%

(b) Coventree’s trust is borrowing $900 at 4% and lending $900 at 5%, for projected profit of $9 annually.

(c) HF is levering his $100 capital into a $1,000 investment which pays $60 interest annually and financing $900 at 5%, paying $45 annually. HF thus has a positive carry of $15 annually on an investment of $100 and has a chance at a capital gain … if the market goes his way, he can sell the sub-prime paper and collapse the loan.

Everybody’s happy. Coventree is confident they’ll be able to issue three month paper for the next ten years; HF is confident he’ll be able to take out 10-year loans for the next thirty years. The ratings agencies poke around inside Coventree and say, hey! There’s over-collaterallization here, and positive carry on the underlying investment. No problems. Until step six:

(vi) IG reads in the paper that sub-prime paper is worthless. All of it! Not only are all those deadbeats going to default on their mortgages, but the houses won’t be worth anything after foreclosure.

(vii) IG gets a note telling him that Coventree trusts have sub-prime paper in them – something like that disclosed by Coventree in their latest MD&A:

Management continues to believe in the high quality of those underlying assets. Coventree-sponsored conduits have limited exposure to U.S. subprime mortgages – less than 4% of the total assets in Coventree-sponsored conduits are backed by assets related to U.S. subprime mortgages. Those assets continue to perform within the range of initial expectations and, as such, continue to be rated AAA, and are not expected to be materially affected by the recent increase in delinquencies and losses in that asset class.

(viii) IG just wants a really safe Money Market investment. He doesn’t like headlines. He therefore does not buy any more Coventree-sponsored paper.

(ix) Coventree-sponsored trusts can no longer operate since they’re unable to repay the money market notes as they come due.

(x) The Montreal Proposal is made; notes will be issued to reflect the underlying trust asset; thus, there will be a conversion of the overnight paper into a ten-year note, secured by Coventree’s ten-year loan to HF.

In short: Coventree was doing a classic bank thing: borrowing short and lending long, making money on the term spread and the quality spread.

They ran into the other classic bank thing: a run.

Update, 2007-08-24 : Tom Graff has explained a variation on the theme. 

Update, 2007-08-24 : The issuers of the short term paper did anticipate that a run might happen and set themselves up with one of two defenses:(i) Extendible Notes … if the paper can’t be rolled, they can just extend the maturity by a period of time, which gives them some breathing space.

(ii) Back up Liquidity – in the example above, they’ve got $9 net interest income. They can enter into a contract with a bank, whereby they pay the bank $1 annually for an emergency borrowing facility. The trouble starts when the word “emergency” is defined, as noted by DBRS:

During the weeks of August 13 and August 20, 2007, DBRS noted that while many ABCP issuers continued market issuance activities in the normal course, a number of ABCP issuers were unable to roll their ABCP maturities. In these instances, backup liquidity facilities were drawn upon and while liquidity was advanced in several cases, in others they were not. In cases where liquidity was not advanced, investors may now be exposed to mark-to-market risk in the underlying assets.

In further comments,

During the last two weeks, DBRS noted, a number of issuers of asset backed debt, also known as ABCP, were unable to roll over – or find buyers for – debt as it matured.

The situation was made worse when the issuers couldn’t get cash under liquidity provisions set up as a sort of safety net in case of market disruptions.

[DBRS group managing director Huston] Loke said this is one area that DBRS is looking at, since its rating system hasn’t previously looked at the reliability of the liquidity agreements put in place between the issuers and their financial institutions.

He noted that some financial institutions provided liquidity when requested by ABCP issuers and others did not, even though the contracts were worded similarly.

“I think that’s something we would need to look at in terms of our revisions to criteria,” Loke said.

Update, 2007-08-24: Coventree uses the term “credit arbitrage” to describe its process; Fabrice Taylor made fun of this term:

Coventree earns fees and spread income from trusts that buy assets like mortgages, leases and other receivables that earn interest income. They then issue shorter-term debt to investors on which they pay interest, hopefully earning a spread. The company calls this spread revenue “credit arbitrage,” which is a misnomer because, by definition, arbitrage is supposed to be a risk-free profit.

Fabrice Taylor’s track record was not disclosed. According to the Moody’s primer linked above:

Credit arbitrage programs are bank-sponsored programs that invest in securities rated Aa3 or higher. The programs are similar to a cash flow CDO, but funded with short-term liabilities instead of term debt. They generally have no credit enhancement because the securities are highly-rated and the program administrator must sell the securities or provide credit enhancement if the assets are downgraded. The liquidity facility is sized at the face amount of ABCP outstanding and purchases assets at book value, implicitly protecting investors from market value risk. These programs exist largely because the initial BIS regulatory capital regulations for commercial banks do not distinguish between highly-rated and lower-rated securities. By funding off-balance sheet, banks obtain regulatory capital relief. The program also serves to diversify the bank’s sources of financing.

And according to Coventree:

Credit arbitrage transactions closely resemble derivative transactions which are designed to transfer risk from one highly sophisticated financial institution to another. Coventree’s revenues for credit arbitrage transactions consist of the spread between the return on the underlying investment and the conduit’s cost of funds.

OK, maybe this isn’t really worth a post all of its own. But I can’t resist.

Bloomberg has a story up now, Taiwan Life Has Loss on Subprime Fund; Shares Fall:

Taiwan Life Insurance Co. booked a NT$428 million ($13 million) loss in the first half on its investment in a Bear Stearns Cos. fund containing U.S. sub-prime mortgages. The company’s shares slumped. The life insurer wrote off its entire investment in the Bear Stearns High Grade Credit Strategies fund to fully reflect the fund’s value, Taipei-based Taiwan Life said in an e-mailed statement today.
…
Taiwan Life had a first-half profit of NT$1.66 billion, including the loss on the Bear Stearns fund, up from NT$660 million a year earlier, according to the statement.

I also had a look at Taiwan Life’s English language website, which is pretty amateurish, but much better than my Chinese language website:

Presently, the shareholders include state-owned banks and the conglomerate: the Bank of Taiwan, the Land Bank of Taiwan, the Long Bon Development Company, with a total asset reaching NT$3.4 trillion. It is a reliable insurance company that has rich financial resources, stable management and unlimited responsibilities for its insurants. 

So let’s see if we have things straight here:

• 1H07 Profit: 1,660-million
• After Bear-Stearns Fund Loss of: 448-million
• Total Assets: 3,400,000-million

I’m sure that the shareholders of Taiwan Life did not appreciate seeing 20% of their first half’s profit getting vapourized, but is this really a significant enough event to warrant Bloomberg home-page coverage? Is it really?