Proof that the Sub-Prime Panic has Reached the Silly Stage

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?

4 Responses to “Proof that the Sub-Prime Panic has Reached the Silly Stage”

  1. kaspu says:

    US bank prefs, average rating AA, trading 350 over treasuries.
    US Bank credit default swaps trading at spreads normally reserved for BB-, 7 levels below actual normal rating spread.

  2. jiHymas says:

    Where are you getting your CDS data, kaspu?

    I’m seeing indications of
    Amex 40-45
    Capital One 57-64
    Countrywide 166-183
    GE Cap 32-37
    Washington Mutual 85-96
    Wells Fargo 29-34
    CIT 92-104
    FHLMC 28-33
    FNMA 32-37
    International Lease Finance Corp 58-66
    ResCap 443-466

    Note that the last one really is a BBB.

    I had a look at some US Prefs as well, using third party pricing and analytics. I see that Ford is yielding 8.80% … but it really is junk. The eight issues rated from A- to A+ by S&P that are also in the top-ten by weight of their index as of 2006-9-30 have yield-to-call between 5.29 (US Bancorp) and 7.07 (Citigroup).

  3. kaspu says:

    Sorry about that, I meant Ba1:

    On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.

    Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody’s Investors Service show.

    The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.

    “The market is being driven by fear,” said Mark Kiesel, who oversees $80 billion of corporate debt at Newport Beach, California-based Pacific Investment Management Co., manager of the world’s biggest bond fund.

    Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, were quoted as high as $145,000 yesterday, from $30,000 at the start of June, indicating growing investor concerns. The swaps traded today at $85,000, according to broker Phoenix Partners Group in New York.

    The contracts, financial instruments based on bonds and used to speculate on the chances of default, imply a rating of Ba1, one level below investment grade and six lower than Bear Stearns’ A1 ranking, according to New York-based Moody’s.

    `Wall of Worry’

    Prices of credit-default swaps for Goldman, the biggest investment bank by market value, Merrill, the third largest, and Lehman, the No. 1 mortgage bond underwriter, also equate to a Ba1 rating, data from Moody’s credit strategy group show. Bonds of New York-based Goldman and Merrill are rated Aa3, seven levels higher than swaps suggest. Lehman is rated A1, the same as Bear Stearns.

    About 1 percent of the thousands of companies followed by Moody’s have a gap of more than five levels between their actual and implied rankings, analyst Tony Smith said in a July 19 report titled “Broker Securities Climb a Wall of Worry.”

    Spokesmen for the firms declined to comment or didn’t return phone calls. High-yield, or junk, bonds are rated below Baa3 by Moody’s and BBB- by Standard & Poor’s.

    Insofar as US banks are concerned, you can easily get at least 7.2% TYW, not YTC….the YTC is in double digits. Just offhand…. BAC X, FBF M, C V, WB C……

  4. jiHymas says:

    I saw that Bloomberg story and referred to it on July 31. I then found a rebuttal and referenced it on August 1. Basically, there is a single junk bond with a smaller spread – Bloomberg implies this exception is the norm, presumably because that makes the story more exciting.

    I am not sufficiently familiar with US Preferreds to pontificate on them. I will note, however, that a 7.2% yield is more like 230 bp over Treasuries.

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