The US Mortgage Crisis – FHFA sues all
The six European Banks HSBC, SocGen, Deutsche Bank, RBS and others are paying dearly for having joined the bandwagon on US retail mortgages in 2006 / 2007 as even 2005 tranches get listed in the US regulator’s action against more than 17 banks on Friday. The continent’s banks are down 5% on the European Banks and Financial Services Index this afternoon , after having been battered a near 50% year to date on the local Sovereign debt crisis.
The 80% US govt owned Bank of America is listed in the suit for $6 bln ( another $26 bln lists Countrywide as defendant) in mortgage tranches that misrepresent the component of 80% LTV in each by nearly 20-30% and are almost all now rated CCC and below (WD/–). All the tranches also have a nearly 20% component of loans with loan outstanding more than the value of the collateral property
J P Morgan is listed in the suit for $33 bln in morts and Merrill $24.85 bln, but the European Banks are listed for a much higher having used Shelf Registration statements in some cases to create local corporations for the Securities. Deutsche Bank is listed for $14 bln in Mortgage Tranches, HSBC itself for $ 6.2 bln, $30.4 bln worth from Royal Bank of Scotland, $1.3 bln for Societe Generale and Credit Suisse another $14.1 bln
Banks will now be expecting to report losses for 2011
The European Banks could easily be held liable for more if the Shelf Registration structures are also targeted in a mostly politically charged action in the case. Even otherwise the $65 bln odd mortgages listed as purchased by the GSEs Fannie Mae and Freddie Mac would easily cost a double digit settlement for the European Banks wiping out 2011 profits for Deutsche Bank and leading RBS deeper into the red. Barclays is listed for only $4.9 bln while BNP Paribas is not named in the suit by FHFA against 17 Global banks.
This is esp true if necessary provisions are made by the banks despite the prety grim retail conditions in Europe and the debt overhang from Greece and Italy where 2 Y default has almost become certain with 50% yield on the 2 year Greek sovereign paper.
Deutsche Bank has recently been reported looking at savings of $1.5 – $3 bln that translates into large job cuts at the bank while it has already raised the red flag on its retail earnings despite a decent Q1 , Q2 showing in the PCAM division of almost EUR 1 bln each The bank needed to add another EUR 5 bln in profits in the second half to meet its $14.5 bln profit target for the year before news of the suit hit the wires last weekend
Credit Suisse and UBS are already looking at 2000 and 3000 job cuts respectively while US banks have been attriting from before Q2 results were due in July this year. However CDS premiums for the European cousins still remain below 200 points and even below their height in the Lehman crisis in December 2008
Last week an unnamed Swiss Bank had used the sovereign facilities with the US treasury to borrow more than 200 mln Swiss Francs FHFA had earlier sued UBS over $4.5 bln in morts in a similar action earlier Because of the attendant sovereign crisis banks such as Banco Santander were also pulled down nearly 10% in European trades today
- RBS Leads European Banks Lower on Funding Concern, U.S. Lawsuit (businessweek.com)
- Europe Markets: RBS, Deutsche Bank lead sharp decline for Europe (marketwatch.com)
- Deutsche Bank Warns on Jobs (online.wsj.com)
- RBS Leads European Lender Declines on U.S. Mortgage Lawsuit (businessweek.com)
- Ackermann unplugged (ftalphaville.ft.com)
- Your Guide To The MASSIVE FHFA Bank Lawsuits (businessinsider.com)
- Bank of America layoffs could reach 30,000 (seattletimes.nwsource.com)
- Is HSBC retail competitive enough to keep 6000 jobs? (Foreign Banks in India) (awardz.wordpress.com)