Atty. Vanessa Fluker at MECAWI meeting speaking on predatory lending at Central United Methodist Church on December 8, 2007. The meeting is part of a fightback campaign to declare a moratorium on foreclosures in Michigan. (Photo: Abayomi Azikiwe).
Originally uploaded by Pan-African News Wire File Photos
Group to pressure city and state to declare emergency, moratorium
by Abayomi Azikiwe, Editor
Pan-African News Wire
DETROIT, 8 December, 2007, (PANW)--A fightback campaign to declare a state of emergency in Michigan designed to halt forclosures and utility shut-off was launched on Saturday at
Central United Methodist Church located downtown.
Rev. Ed Rowe, Pastor of Central United Methodist Church, opened the meeting by saying that this is one of the most important issues people are facing in the state. "The only solution is a moratorium," Rowe declared.
The meeting was called by the Michigan Emergency Committee Against War & Injustice (MECAWI). The organization has been raising the demand for Governor Jennifer Granholm to declare an economic state of emergency in Michigan resulting from the massive unemployment, poverty, utility shut-off and epidemic foreclosures rates ravaging the state.
The city of Detroit has been the most severely affected with tens of thousands of homes and businesses being in some form of foreclosure in addition to many residents being subjected to living without electricity, heat and water services.
Atty. Jerome Goldberg made a presentation highlighting the history of the 1930s, when as a result of popular struggles during the period, a moratorium on foreclosures was declared.
"I am speaking to you not as a lawyer but as an activist," Goldberg said. "Let us be clear: we realize that a moratorium will only be won as a result of a struggle, not as a result of the laws which provide the Governor the powers to declare one."
Atty. Vanessa Fluker also addressed the audience on the impact of predatory lending in the Detroit metropolitan area. It appears that the city has been a target of the bankers and real estate firms who have forced mortgages on to tens of thousands of households which have and will lead to the loss of their homes. In the southeast Michigan region it is estimated that some 72,000 homes have been put in foreclosure over the last two years.
"There are red flags that people should look out for," Fluker said. She discussed the myraid of violations of the "truth in lending" laws where homeowners are given huge documents with obscure language that confuse and conceal the predatory designs of the mortgage lenders.
In the city of Detroit some 85% of mortgages are subprime. These mortgages have higher interest and adjustable rate mortgages (ARMs). These deals have disproportionately affected African-Americans, who as a result of racist lending practices, are automatically steered into subprime loans.
Saturday's meeting was attended by over 60 people from a wide variety of community and labor organizations. People attended from Detroit and Highland Park but also other communities such as Hamtramack and Warren.
Alfreda Weather of the Rainbow/Push Coalition addressed the meeting stating that her organization was holding a national demonstration on Wall Street on Monday, December 10 which will focus on subprime lending practices.
Wall Street banking institutions have been seriously affected by the current crisis in the subprime mortgage meltdown. Banks and financial institutions such as Citigroup, Merrill-Lynch, Countrywide and Quickenloans have loss billions of dollars as a result of the default in homeowner's loans in recent months. Central banks throughout Europe, where financial institutions there have purchased these largely fradulent loans, have injected billions of dollars in liquidity to prevent a collapse of dozens of investment and financial firms.
The meeting concluded with the signing of a letter to the Mayor of the city of Detroit Kwame Kilpatrick demanding that he request the Governor to declare an economic emergency in Detroit and consequently halt the tens of thousands of evictions and utility shut-offs currently underway.
In addition, the meeting agreed to attend a City Council hearing called by Councilwoman JoAnn Watson on Tuesday, December 11 at 10:00am to discuss a moratorium on water shut-offs in Detroit. Councilwoman Watson, who was in attendance at Saturday's meeting, said that she was in full support of a moratorium on foreclosures, utility shut-offs and evictions and that the City Council had passed a resolution demanding that the Governor declare a state of emergency in Detroit.
Also on December 13, Attorney General Mike Cox will hold a conference at Cobo Center downtown which will invite mortgage lenders and the public to discuss methods to avoid foreclosure. MECAWI plans to leaflet and picket this meeting on December 13 feeling that Cox's efforts are not designed to seriously addressed the immediate crisis.
Most of the people in the city and state will not be eligible for relief under the current proposals being offered by the federal government and the bankers. The determination of who will be granted a freeze in rates and the opportunity to refinance will be made by the same institutions that are responsible for the crisis.
According to MECAWI spokespersons, the only real solution is the declaration of a state of emergency by the Governor and the implementation of a moratorium on foreclosures, utility shut-offs and evictions. If the Governor does not respond by providing immediate relief to the people of the state, MECAWI will call for a march on Lansing during the annual "state of the state address" in January of 2008.
MECAWI, which focuses on ending the wars in Iraq and Afghanistan as well as other US interventions throughout the world, sees the current economic crisis in Detroit and throughout the country as manifestation of the multi-billion dollar defense budget which is robbing the people of resources to fund public works projects, health care, education, child and senior services as well as quality housing.
MECAWI is calling for another public meeting on January 5 at Central United Methodist Church. The Detroit City Council will hold a hearing on the housing crisis again on January 11.
For more information contact MECAWI through its web site at the following URL: http://www.mecawi.org
4 comments:
Stop banks from taking our homes!
Detroit protest demands moratorium on foreclosures
By Jerry Goldberg
Detroit
Published Dec 2, 2007 11:00 PM
Demonstrators in downtown Detroit on Nov. 27 demanded a moratorium on home foreclosures. They were picketing outside a summit on foreclosures hosted by Detroit Mayor Kwame Kilpatrick and attended by mayors from across the U.S.
The summit came the same day a Detroit News article exposed that 72,000 homes went into foreclosure in metropolitan Detroit over the last two years. Some Detroit neighborhoods had foreclosure rates of 17 percent.
The mayors’ conference was closed to the public but open to the banks and financial institutions.
These same banks and financial institutions have brought on the housing crisis with their predatory lending practices and racist sub-prime mortgages.
In fact, the only proposal emanating from this summit was that the mortgage lenders’ association would set up a hot line for people in foreclosure—in other words, the mayors are relying on the vultures to help their prey.
In contrast, the Michigan Emergency Committee Against War and Injustice (MECAWI), organizers of the moratorium demonstration, demanded that Michigan Gov. Granholm and governors throughout the country immediately declare states of emergency in their respective states and use their emergency powers under the law to place a moratorium to halt all foreclosures.
MECAWI organizers point out that such a moratorium on foreclosures was enacted in Michigan and 24 other states during the 1930s and upheld as constitutional by the U.S. Supreme Court.
The MECAWI protest and the call for a moratorium on foreclosures was covered by the Detroit daily newspapers, the Michigan Citizen, Detroit’s progressive African-American newspaper, TV 2 Fox news, and given extensive play on Detroit’s all-news radio station.
Significantly, in press coverage of the mayors’ summit and demonstration, Detroit Mayor Kilpatrick was heard acknowledging that he is for a moratorium on foreclosures and plans to take the issue to Lansing, the state capital. Activists plan to hold the mayor to his words.
MECAWI is planning a community organizing meeting on Saturday, Dec. 8, at 1:00 p.m., at Central United Methodist Church, 23 E. Adams, in Detroit at Grand Circus Park. The meeting will discuss building a fightback movement with demonstrations and militant actions to press for a moratorium on foreclosures and utility shut-offs, as well as educate people about their legal rights to challenge predatory loans.
The Detroit News article noted that the Detroit foreclosure rate, which was already at an all-time record in January 2006, has jumped six-fold since then. There are some Detroit neighborhoods where one in seven homes received a foreclosure notice between January 2006 and September 2007. One in ten Detroit homes has had a foreclosure notice in that time period.
More than one million homes in metro Detroit, which comes to two out of three households, are worth less today because their value has been damaged by nearby foreclosures. Over 10 percent of Detroit’s population is potentially facing imminent homelessness. Thousands face a winter with no heat, water or electricity.
Coupled with the economic devastation that has hit the people of Michigan, the foreclosure crisis in Detroit is a direct product of the racist, predatory lending practices of the banks and financial institutions.
In Detroit, 85 percent of mortgages are “sub-prime,” meaning that they are at a much higher rate than the 6-percent rate for “prime” mortgages. Most of the mortgages are variable adjustable rate mortgages, meaning the payments double or triple after the first couple of years.
Seniors who had paid off their homes now find themselves with unaffordable monthly payments, as a result of being lured into unaffordable, illegal home-equity loans by brokers working on behalf of the financial institutions.
Studies have documented that even among women, African Americans and Latin@s with good credit, sub-prime mortgages are the rule due to racist and sexist banking practices.
Three separate Michigan statutes—MCL 10.31 et.seq., 10.85 et.seq. and 30.401 et.seq.—mandate that the governor declare a state of emergency during periods of crisis, natural or “man-made,” and provide special powers to meet the crisis.
MECAWI is demanding that Gov. Granholm utilize these emergency powers to impose an emergency moratorium to stop foreclosures and utility shut-offs.
During the 1930s, the state legislature utilized its emergency powers to pass the Mortgage Moratorium Act, Act No. 98, Pub. Acts 1933. The act extended the redemption period during which homeowners could not have their property taken from them after foreclosure, from six months to five years. The Michigan Moratorium Act was upheld by the Michigan and U.S. Supreme courts.
For more information on the fight for a moratorium on foreclosures and utility shut-offs, contact 313-319-0870 or visit http://www.mecawi.org
--------------------------------
Articles copyright 1995-2007 Workers World. Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.
Workers World, 55 W. 17 St., NY, NY 10011
Email: ww@workers.org
Page printed from:
http://www.workers.org/2000/us/detroit-1206/
December 9, 2007
How to Solve a Subprime Mess? An Iowan Says, Let’s Caucus
By VIKAS BAJAJ
New York Times
A HALF-DOZEN years before subprime mortgages were on the national agenda, Tom Miller, the attorney general of Iowa, led teams of state officials from around the country in negotiating settlements totaling more than $800 million with two large home lenders that were accused of misleading and overcharging borrowers.
Now, as the mortgage boom of the last few years unravels, Mr. Miller is leading another multistate campaign to help consumers.
This time, he is not threatening major litigation — at least not yet. Rather, he is trying to stem what most experts say will be a surge of foreclosures by cajoling and pressuring mortgage servicing companies to modify loans before borrowers fall too far behind.
“It’s not an obvious law-enforcement attitude,” Mr. Miller, 63, said in early November in his office in Des Moines.
“But we view ourselves as consumer protectors and we see an avalanche of foreclosures sitting out there and you have to learn from experience.”
The preference of Mr. Miller, a Democrat, for prevention over prosecution sets him apart from a newer, younger crop of attorneys general in other states. His counterparts in New York, Ohio and Massachusetts, all of whom are also Democrats, have filed lawsuits or publicly discussed their intention to bring cases against mortgage lenders, investment banks and credit rating agencies.
The difference between Mr. Miller and his peers highlights the challenges facing policy makers as they decide how to respond to the mortgage crisis. Should they look to mete out punishment, try to stem rising foreclosures or focus on enacting new standards for future lending?
Though most government officials, including Mr. Miller, agree that all three approaches should be part of the response, there is less consensus on how aggressively and quickly each should be pursued.
The Bush administration has focused mostly on foreclosure prevention and new regulations to check reckless lending in the future.
(The Treasury Department and federal bank regulators on Thursday announced plans to freeze introductory rates on some adjustable-rate mortgages for five years.) Federal and state officials have also disagreed about who should take the lead role.
Mr. Miller acknowledges that his loan modification effort, which is backed by 10 states, may not seem the obvious response from attorneys general, who typically focus on enforcing laws, not making policy.
But he asserts that as an advocate for consumers, his group must try to forestall the devastation that foreclosures wreak upon neighborhoods.
He cites the farm crisis that swept across Iowa in the 1980s as a strong influence on his thinking.
Back then, he helped create and pass a law that required lenders to seek mediation of troubled farm loans before they could foreclose.
Across the spectrum from Mr. Miller is Andrew M. Cuomo, New York’s attorney general. Among government officials, he has been one of the most vocal about wanting to bring cases intended to highlight what he considers systemic problems in the mortgage market, like inflated appraisals and a lack of oversight of the secondary market where loans are packaged into securities.
He recently filed a suit accusing the First American Corporation of overstating property appraisals to please Washington Mutual, a client; both companies deny that.
Mr. Cuomo has also demanded that Fannie Mae and Freddie Mac hire an independent examiner to review loans they bought from Washington Mutual, and he has promised to bring more cases.
Mr. Cuomo, who was the secretary of housing and urban development in the Clinton administration, said he respects and is involved in Mr. Miller’s multistate efforts to prevent foreclosures, but believes that the approach is not a sufficient response to the mortgage crisis.
“It’s a false choice to say focus on treating the victims or attacking the source of the problems,” Mr. Cuomo said in a recent interview. “I will stick to the analogy of a forest fire: Do we put out the fire or do we treat the victim? You do both.”
MR. MILLER says he understands the desire to pursue cases against lenders and others involved in the mortgage business. But he expresses some skepticism that a case could be built, for instance, against credit rating agencies, which have successfully fended off lawsuits in the past by arguing that the First Amendment protects their ratings.
Other players whom officials have suggested should be investigated include investment banks that packaged subprime loans and sold bonds backed by mortgages. But federal law makes it hard to sue players in the secondary market for mortgages.
“If others develop some good theories, I would consider joining them,” Mr. Miller said of his fellow attorneys general.
The meltdown in the mortgage market has much in common with the farm crisis of the 1980s, he said. Then, as now, rapidly rising real estate prices and excessive borrowing were followed by a sharp slowdown.
Many farmers who had expanded aggressively to take advantage of high crop prices and surging food exports were ruined when demand slackened and prices fell back.
At the time, Mr. Miller pushed for a state law prohibiting lenders from foreclosing on farms without first seeking mediation.
The Iowa Mediation Service, started in 1985, operated on the principle that even if farmers could not pay the full amount they owed, they often could pay something. In many cases, banks were happy to get that smaller amount instead of taking ownership of depreciating farmland.
Micheal Thompson, executive director of the service, said that during the farm crisis, it settled 21,000 cases to the satisfaction of both parties; other borrowers had to walk away from 12,000 farms.
In September, Mr. Miller hired the mediation service to set up a toll-free phone line for homeowners in Iowa, which has the nation’s seventh-highest subprime foreclosure rate, at 9.4 percent. (Ohio is No. 1, at 12.8 percent.)
The Iowa service has received 4,100calls and is working on about 520 mortgage cases. The service is close to settling 100 of those cases, Mr. Thompson said.
Kathleen Keest, a senior policy counsel at the Center for Responsible Lending who once worked for Mr. Miller, said his responses to both the farm crisis and the current mortgage mess reflected his deep-seated pragmatism.
“Tom is one of the world’s nice guys,” she said. He takes the position of “let’s see if we can fix things; if we can fix it cooperatively, let’s do it that way and move on,” she added.
MR. MILLER, an only child, grew up in Dubuque, a city of about 60,000 in northeastern Iowa. His father was a county assessor and his mother a nurse. After working as a Legal Aid lawyer and in private practice, Mr. Miller was elected attorney general in 1978.
After an unsuccessful run for governor in 1990, he ran for attorney general again in 1994 and has not sought higher office since. He has spent all but 4 of the last 29 years in his current job.
In part because of his long tenure, Mr. Miller wields considerable political clout in the state and the Democratic Party, where his endorsement can help swing some votes in the Iowa caucuses, which are on Jan. 3. This year he is the Iowa co-chairman of the presidential campaign of Senator Barack Obama of Illinois.
In person, Mr. Miller is more ministerial than prosecutorial. He almost always maintains an even-tempered tone, even as he discusses lending practices that he says he considers abhorrent.
Friends and associates say Mr. Miller’s low-key approach should not be mistaken for weakness. They note his work leading several big cases, including those against major tobacco companies and Microsoft.
Though he does not appear inclined to sue mortgage companies at the moment, defense lawyers and other legal experts say that could change quickly if the industry does not cooperate with him on loan modification efforts.
“If that is not successful, I would expect there would be enforcement,” said Andrew L. Sandler, a partner at Skadden, Arps who works on consumer financial services cases.
And despite his Midwestern pragmatism and laid-back sensibility, Mr. Miller sees a big role for himself and his office on the national stage. In the 1980s he realized that to have an impact on the forces affecting farmers, an important constituency for any Iowa politician, he would have to become involved in issues being decided far from Des Moines, said James E. Tierney, director of the national state attorneys general program at Columbia Law School in New York and a former attorney general of Maine.
“He believes that the best interest of Iowa will not be effected only in the four corners of Iowa,” Mr. Tierney said.
Mr. Miller was criticized in Iowa and elsewhere for his involvement in the Microsoft and tobacco cases; the critics said these cases ventured far afield into areas where his state did not seem to have a big stake.
Those cases also put him at odds with federal officials, a tension that is present in the mortgage area, too. Mr. Miller and other attorneys general have battled with federal policy makers over how closely lenders should be monitored, with the states arguing for more supervision.
And the two sides have argued in court over states’ jurisdiction over banks and their subsidiaries; federal officials have prevailed on many of these disagreements.
The two cases that made Mr. Miller one of the nation’s top authorities on subprime lending came earlier this decade, when a large group of states sued Household International, now part of the British banking giant HSBC, and then the Ameriquest Mortgage Company.
In those cases, a group of attorneys general and bank regulators brought lawsuits based on consumer complaints and what they called evidence of deceptive practices. The Household case was settled in 2002, and the company agreed to pay $484 million, much of it to compensate borrowers. The company also agreed to limit its fees to 5 percent of the loan amount.
In 2006, a large group of states reached a $325 million settlement with Ameriquest, which was then one of the biggest subprime lenders. The agreement required the company to provide better disclosures of loan terms, to charge customers with similar credit histories the same interest rates, to improve how it conducts appraisals and to make other changes in its lending. Neither Household nor Ameriquest admitted to any wrongdoing.
THE cases were broadly seen as victories for consumers, but some consumer advocates have called them hollow victories, in part because subprime lending grew rapidly after they were settled and more homes are now in foreclosure.
The Ameriquest settlement was successful at improving lending practices at the company’s retail branch network but did not apply to the Argent Mortgage Company, an Ameriquest affiliate that operated through mortgage brokers. (Roland E. Arnall, who became the American ambassador to the Netherlands last year, owned both companies. Citigroup recently acquired Argent, and Ameriquest’s retail lending unit was closed.)
Calvin Bradford, a housing researcher and consumer advocate in Williamsburg, Va., says he is ambivalent about the results of the Ameriquest and Household cases. He said he appreciates the effort Mr. Miller and other attorneys general put into the cases at a time when most regulators were not paying attention to subprime lending.
But, he says, they should have anticipated that the industry would start doing business through brokers. Mortgage brokers are lightly regulated, mostly at the state level. Over the last decade, officials have often discussed regulating brokers more closely but have made few changes.
“The A.G.’s were busy settling these cases, but you didn’t see a lot of foresight,” Mr. Bradford said.
He points to mortgage default rates that show that while relatively few Ameriquest loans made in 2006 encountered problems, mortgages made by Argent, a wholesale lender, were increasingly shaky. Defaults on loans made last year by Argent are nearly twice what they are at Ameriquest, according to data from Moody’s Investors Service.
Mr. Miller and others involved in the two cases argue that they did see the shift but did not have enough time before the industry imploded to build a case against other lenders that did business through brokers.
Chuck Cross, a vice president for mortgage regulatory policy at the Conference of State Bank Supervisors and a former banking regulator for the state of Washington, recalled that Mr. Miller was often the voice of reason when states fought among themselves on the best course of action in the Household and Ameriquest cases. Some states argued for a quick settlement; others pushed the group to take the cases to court.
“At times we were in greater fights with each other than the companies,” he said. “Tom landed in the middle: leave the company intact, change its practices and put hundreds of millions of dollars back into consumers’ pockets.”
UBS takes new $10bn subprime hit
By Haig Simonian in Zurich
Published: December 10 2007 07:00
UBS, one of the banks most exposed to the US subprime crisis, bit the bullet on Monday with a further $10bn writedown, combined with the issue of SFr13bn ($11.5bn) in new capital to two strategic investors from Asia and the Middle East.
The Swiss group also said it would sell treasury shares, previously due to be cancelled, to raise a further SFr2bn in capital, and scrap its 2007 cash dividend in favour of an all stock issue.
The move, which will have to be approved by a special shareholders’ meeting in February, will raise the bank’s Tier 1 capital by an additional SFr4.4bn. The bank expects its combined capital raisings to lift its Tier 1capital ratio to more than 12 per cent.
The moves, ahead of an investors’ day in London on Tuesday, were combined with a severe profits warning. UBS, which in the third quarter announced its first group loss in five years because of subprime writedowns, said it was “now possible” that it would report a loss of the full year.
The revised outlook, based on the new writedowns, overturns the previous forecast by Marcel Rohner, chief executive, that the bank would continue to suffer losses in investment banking in the fourth quarter, but return to profitability as a group. The new warning implies the fourth-quarter loss could now exceed the net profits of SFr7.7bn generated in the first nine months of this year.
UBS said the measures reflected the need to maintain ”a very strong capital base” for its wealth and asset management business. The bank revealed it had continued to pull in significant amounts of new money – SFr30bn in October and November – but analysts had warned of damage to its blue chip reputation if it did not take further action to address the subprime problems.
“In our judgement, these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation”, said Mr Rohner.
UBS shares on Monday opened down 3.2 per cent at €55.35 but by mid-morning had recovered and were up 1.8 per cent at €58.25. In the last year they have lost a fifth of their value as fears about the scale of the investment bank’s exposure to assets linked to subprime lending in the US have mounted.
The bank is following the example of Citigroup, which last month sold special stock to an Abu Dhabi sovereign wealth fund to bolster its capital position.
UBS will issue SFr11bn to the Government of Singapore Investment Corporation (GIC), and SFr2bn to an unnamed investor from the Middle East. It also said some 34m treasury shares, due to be cancelled, would be placed in the market “over time.”
The GIC deal is thought to represent the largest overseas investment by any Singapore government entity.
UBS’s measures follow a deterioration in the subprime market since its initial SFr4.4bn writedowns made in October. That first step was widely viewed as inadequate, with many analysts predicting further losses of up to $8bn in the final quarter.
The bank, which initially appeared to prefer writing down its holdings gradually over 2008, was known to be in intense discussions with its auditors and Switzerland’s Federal Banking Commission over how to proceed. UBS’s board is believed to have held an emergency meeting over the weekend to decide on the strategy.
Copyright The Financial Times Limited 2007
UBS Gains Two New Investors, Writes Down $10 Billion
By ANITA GREIL
Wall Street Journal
December 10, 2007 12:24 p.m.
ZURICH -- UBS AG Monday said that two strategic foreign investors committed to inject capital worth 13 billion Swiss francs ($11.5 billion) as part of a broader move to strengthen capital as the Swiss bank announced a further $10 billion in write-downs on subprime holdings.
UBS, based in Zurich, also revised its outlook, saying it now expects to post a net loss attributable to shareholders in the fourth quarter, after having said earlier that it expects a profit overall. The bank said it was now possible that it will record a net loss for the full year.
Analysts had expected that the bank would be forced to write down its subprime holdings by up to $10 billion, but only few had forecast a capital increase and the entry of a big strategic investor.
UBS said that the Government of Singapore Investment Corp., or GIC, is investing 11 billion francs, while an undisclosed strategic investor in the Middle East is contributing two billion francs. Market participants speculated that this second investor could be Abu Dhabi Investment Authority, which had also invested in Citigroup Inc., or the government of Oman.
GIC will own around 9% of UBS following its investment, GIC Deputy Chairman Tony Tan said at a news conference in Singapore. GIC's investment in the Swiss bank is long term, the fund isn't looking for management control of the Swiss bank, he added. (See related article.3)
UBS is issuing mandatory convertible notes worth 13 billion francs for these investments, which will pay a coupon of 9%. This is subject to approval from shareholders at an extraordinary general meeting in mid-February.
"Our losses in the U.S. mortgage securities market are substantial but could have been absorbed by our earnings and capital base," UBS Chairman Marcel Ospel said in a statement. "Nevertheless, it is important to always maintain a notably strong capital position to support the continued growth of our wealth management business, which is the largest generator of value to UBS shareholders."
Mr. Ospel said he will forego a bonus payment this year. In an interview with Swiss radio, he also said that there had been no pressure from the bank's board for him to resign from his post.
UBS said it attracted new money from clients of around 30 billion francs in October and November.
The bank said it has introduced measures to strengthen its capital position, adding 19.4 billion francs of BIS Tier 1 capital. Beyond the investments from these two parties, UBS plans to sell treasury shares and replace its 2007 cash dividend with a stock dividend, boosting capital by 6.4 billion francs.
UBS said that it was writing down the value of positions related to the U.S. subprime residential mortgage market in response to continued deterioration of that market. The write-downs are primarily on collateralized debt obligations, or CDOs, and "super senior" holdings, UBS said. At the end of September, UBS subprime exposure amounted to $40 billion.
"UBS is removing much of the uncertainty with this step," said Dirk Becker, banking analyst with broker Kepler Landesbanki, who has a buy rating on the stock. He welcomed that UBS was taking one big write-down rather than several smaller ones over coming quarters, but cautioned that it remains to be seen if this enough.
"In the last several months, continued speculation about the ultimate value of our subprime holdings -- which remains unknowable -- has been distracting," Chief Executive Marcel Rohner said in a statement. "In our judgment, these write-downs will create maximum clarity on this issue and will have the effect of substantially eliminating speculation."
UBS is Europe's fourth-largest bank by market capitalization. Its shares closed Friday at 57.20 francs. The bank's stock has dropped 24% so far this year, underperforming the European sector average as measured by the FTSE Banks Index, which is flat.
Cross-town rival Credit Suisse, which is less affected by the subprime crisis than many of its rivals, declined to comment whether it planned more write-downs. At an investor conference in mid-November in New York, Paul Calello, Credit Suisse's Investment Banking CEO had said that the bank's exposure to subprime was limited.
Write to Anita Greil at anita.greil@dowjones.com4
The Roots of the Lending Crisis Run Through Wall Street
By Nomi Prins, The Nation
Posted on December 9, 2007
http://www.alternet.org/story/70096
Behind every great bubble and its subsequent bust lies the power of Wall Street's trading operations.
In the case of our national housing market saga and toxic subprime fallout, it's true that banks and specialist lending institutions rapaciously extended credit to ill-equipped borrowers.
But that's not the whole story. Housing value fluctuations weren't just caused by lending run amok, but by the trading that enabled the lending and made a precarious situation even worse.
Regardless of whether you adopt the progressive view of the crisis (banks lured borrowers with reckless procedures) or the conservative one (borrowers should have known not to get in over their heads), lenders knew it was an easy game to lavish money and extract fees from consumers as long as they had lots of customers wanting to own the home of their dreams.
More than that, they knew they could package and sell loans to investors, indirectly through Wall Street firms, and directly, to traders, creating room on their balance sheets to originate even more mortgages. Trouble was, investor appetite for the once-lucrative sub-prime mortgage packages dried up as credit did.
Investment banks that bet their client investors would be there forever got crucified and are paying the price with multi-billion dollar writedowns and ejected CEO's. But so are homeowners, for whom every piece of bad news makes their individual financial situation seem worse.
With Citigroup's $11 billion writedown, on top of the $2.2 billion writedown the firm had already announced in third-quarter earnings, more of that destructive news poured from Wall Street.
Citigroup's writedowns were not just due to losses resulting from borrowers defaulting on mortgage payments, but to exuberant trading on top of the mega-exuberant leveraging of those trades.
This latest writedown spelled the end of Chuck Prince's four-year reign over Citigroup (he assumed the helm from Sanford Weill, who, with then-Treasury Secretary Robert Rubin, was instrumental in shattering the barriers imposed by the Glass-Steagall Act, the law that had kept the commercial and investment banking functions of banks separated since 1933.
And in a circuitous twist of fate, Rubin, who in 1999 stepped from Treasury Secretary into the role of Citigroup's vice chairman, has now jumped to the top of the banking hydra.
But it's not just Citigroup's writedown, or Merrill Lynch's $8.4 billion one, or J.P. Morgan Chase's nearly $2 billion one, or Wachovia's $2.4 billion one that continue to suck the air out of the bubble they created.
It's the collective implosion of trading positions around Wall Street. And given that these are mid-earnings announcement write-downs, it's possible more bad positions wait in the wings.
Merrill's writedown led to the booting of CEO Stanley O'Neal, who admitted that he didn't quite get the magnitude of impending trading losses. Wall Street traders at other houses would have been aware of it much sooner, since their own trading positions in sub-prime mortgage via CDO's (collateralized debt obligations, the packaged loans supposedly supported by the underlying value of the assets on which their debt rests) were shrinking before them.
Traders' bets were simple: since lenders were lending at high, or sub-prime, rates, they could buy prepackaged bunches of those loans and sell them to investors seeking to benefit from this high-payment steam.
The downside risk, they calculated, was that some borrowers wouldn't pay their mortgages and default. But, if those defaults occurred to a low enough percentage of all the mortgages in package, there would be more than enough non-defaulting loans to keep money flowing in.
And, even if defaults were happening at a quicker rate, they reasoned, surely home values would continue to rise such that any foreclosed properties could be sold back to the market at a profit. Then came the perfect storm.
Rising defaults (for lack of ability to pay, over-appraised properties and too much supply) led to a credit panic, as foreclosures began flooding the market with supply.
Prices dropped, which caused less borrowing because potential borrowers were either scared, already in the market or unable to obtain new mortgages at favorable terms. Then, trading losses mounted, caused by evaluating positions based on declining mortgage payments and home values.
While politicians are focused on stricter lending practices or debating the merits of Treasury Secretary, Hank Paulson's $100 billion Wall Street trader bail-out fund, they miss a glaring point. If lenders couldn't offset their loans to Wall Street, their lending practices couldn't have spiraled out of control.
If Wall Street hadn't leveraged these positions, their losses wouldn't have brought the economic and psychological damage to the housing market that mere inability on the part of borrowers to repay their loans would have caused.
There is no chance that trading limits will be imposed, and for this particular cycle, it would be too late to assuage the volatility in the housing market anyway. But greater transparency of the role of trading that created much of the housing upward and downward hysteria would go a long way to calming it the next time.
Nomi Prins is a senior fellow at the public policy center Demos and author of Other People's Money and Jacked: How "Conservatives" are Picking your Pocket (Whether you voted for them or not).
Post a Comment