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Tuesday, May 6, 2008

Fannie Mae and UBS Miss, Bankruptcy Filings Up Big Time

The real fun begins now.

Fannie Mae (FNM) reported earnings that obviously sucked badly. I’m still short as I explained in Slowly Building Shorts. (Strangely the market was SURPRISED by this number. Let me get this straight, after the largest speculative real estate and credit bubble in history the market is SURPISED by the magnitude of the losses to the single largest holder of mortgage debt in the U.S.? I'm fairly certain there are NO minimum requirements for becoming an analyst. Can't decide what to do with your life? Become an analyst. It's easy. You don't even have to have to be right. About anything you cover. Ever.)

Fannie Mae Posts $2.19 Billion Loss, Plans to Raise $6 Billion: “Fannie Mae reported a $2.19 billion loss as record home foreclosure rates and falling real estate prices drove the largest U.S. mortgage-finance company into its third straight period of losses. The company plans to raise $6 billion in capital and cut its dividend.

The first-quarter net loss was $2.57 a share, compared with profit of $961 million, or 85 cents, a year earlier, the government-chartered company said in a statement today. Fannie Mae was expected to lose 64 cents a share before some items, the average estimate of 12 analysts surveyed by Bloomberg.

Fannie Mae and smaller rival Freddie Mac may each need as much as $15 billion in capital to cope with the delinquencies and foreclosures that pushed their shares down more than 50 percent in the past year. Fannie Mae was able to narrow its loss from the combined $5 billion recorded for the third and fourth quarters partly by raising fees, and seeking out safer mortgage purchases.”

The $2.57 a share loss was much more than expected. Equity and fixed income futures reacted quickly pre-market. The S&P is now sitting just above the key support level of 1 400. (I'm so excited. In the distance I can already here the first faint sounds of the financial system creaking under the stress... Things could snap anywhere along the chain... anytime. Where is the weakest link?)

FNM cut its dividend in an attempt to save about $390 million a year. They’ve left a 25 cent dividend. Why not just cut it to ZERO? The company IS spiraling out of control with no quick recovery on the horizon. Hilarious.

FNM plans to raise $6 billion in a common and preferred. This is where common shareholders begin to get diluted hard.

“Fannie Mae said last month its holdings of mortgage assets rose at a 2 percent annual rate to $722.7 billion in March and had agreements to add another $8.98 billion in April. Freddie Mac's holdings likely expanded by $34 billion in April after a 5 percent jump to $712.4 billion in March, according to Jim Vogel, a debt analyst at FTN Financial Group in Memphis, Tennessee.”

Even as things deteriorate further and with no end in sight, FNM continues to INCREASE its holdings of mortgage assets. They increased 2% in March alone. Annualize that. Freddie Mac (FRE) is doing the same thing. FNM and FRE are becoming the garbage dumps for toxic waste by intentional design. Concentrating the toxic waste in a handful of key players is just begging for systemic failure.

In the Bloomberg screenshot the line in bright red is most important of all: FANNIE MAE SEES 2009 CREDIT LOSSES WIDER THAN 2008.

Still believe that crap about a second half recovery? Still believe this recession will be shallow?

FNM and FRE make me angry:
Sarcastic Rant on Fannie and Freddie.
Fannie Mae, Freddie Mac: The Dumbest Idea Ever
Fannie Mae: Another Shoe Drops

Also, another bank reports…

UBS Set to Cut 5,500 Jobs After First-Quarter Loss (Update4): “UBS AG, battered by $17.3 billion of first-quarter losses at its investment-banking unit, plans to cut 5,500 jobs and said clients withdrew a net $12.2 billion from its asset- and wealth-management divisions.

The headcount reductions, which amount to about 7 percent of the workforce, will include as many as 2,600 positions at the securities division, the company said in a statement today. The bank also said it plans to exit the municipal bond business and sell $15 billion in distressed assets to a newly created fund managed by BlackRock Inc. UBS had a net loss of 11.5 billion francs ($10.9 billion) in the first quarter.

UBS fell as much as 5.6 percent in Swiss trading, the most in seven weeks, after clients withdrew more assets than they added for the first time in almost eight years.”

UBS has already written off $38 billion. While truly staggering, there is still more to come considering we have yet to dive into the depths of the coming recession...

U.S. April Business Bankruptcy Filings Increase 49% (Update1): “U.S. business bankruptcy filings in April increased 49 percent from a year earlier, the biggest gain so far this year, as the slowing economy prompted more companies to shut down.

Business filings rose to 5,173 during the month, according to statistics compiled from court records by Jupiter eSources LLC in Oklahoma City. Total bankruptcy filings, including those by individuals, were up 31 percent from a year earlier to 93,096, the group said.

Signs of distress, such as bankruptcies and foreclosures, are rising as economic growth has slowed to its weakest pace since the last recession in 2001. The economy lost jobs in April for the fourth month in a row, for a total of 260,000 jobs cuts so far this year.”

Those uber nerds over at the big banks and investment houses are probably furiously calculating exactly how badly they MISCALCULATED when they wrote Credit Default Swaps (CDSs) at ridiculously low prices exactly when business bankruptcies were at RECORD LOWS and set to do a moonshot.

7 comments:

B.B. said...

I wasn't really trading during dot-com bust. But this must of been what it was like. TV bobbleheads on CNBS blabbering about "a great time to buy". I scalp ES Futs only and dont really care which way the market runs. And dont really want to see a deep recession (as I have believed since 2005). However, I am remembering all of these idiots. Time will tell. Great post like always Ben! Thanks

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