Banks not accepting credit portfolios as collateral:

[naeron]

Banks not accepting credit portfolios as collateral: report


By Steve Goldstein






LONDON (MarketWatch) -- U.S. banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios, the Financial Times reported Wednesday. Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral, the newspaper said. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing, the report added. The report said the banks mentioned were Bank of America and Countrywide , although there were believed to be others. Bank of America declined to comment to the newspaper and Countrywide did not return calls
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So if banks are not trusting the credit portfolios we can see more problems to the shops having exposure in subprime securities. But I am wondering where did all thos billions of dollars go which were injected by the feds. This money should be used to buy some of the subprime securities.
Any comments !!!!

 

[bob]

Banks not accepting credit portfolios as collateral: report


By Steve Goldstein






LONDON (MarketWatch) -- U.S. banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios, the Financial Times reported Wednesday. Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral, the newspaper said. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing, the report added. The report said the banks mentioned were Bank of America and Countrywide , although there were believed to be others. Bank of America declined to comment to the newspaper and Countrywide did not return calls
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So if banks are not trusting the credit portfolios we can see more problems to the shops having exposure in subprime securities. But I am wondering where did all thos billions of dollars go which were injected by the feds. This money should be used to buy some of the subprime securities.
Any comments !!!!

Another aspect of the liquidity freeze. The (cash) CDO and RMBS markets have basically seized up. The next one that looks ready to go is the ABCP market, which means banks themselves are going to be worried about their cash situations. The last thing anyone's going to do with that liquidity from the Fed is loan it out to ventures that look shaky on collateral that's trading at bone-deep discounts.

 

[naeron]

But where we will see this lending. If banks are concerned about their own liquidity then it is hard to imagine that they will lend the same money to other guys. May be they will charge a hefty peice.

I remember one article on bloomberg which quoted CDO having TOXIC WASTE and that this will soon explode. We can see the effect now.

 

[bob]

But where we will see this lending. If banks are concerned about their own liquidity then it is hard to imagine that they will lend the same money to other guys.

This is precisely my point. Commercial banks have gotten into the habit of securitizing to keep a cash equilibrium. They sell mortgages as soon as possible after origination; when they acquire another kind of asset with future cash flows, they pop it into an ABCP conduit, again recovering cash, to continue their day-to-day operations.

It's a good system as long as the pipeline continues to flow. But when there's an interruption like this one, banks have to be extremely cautious about how they use their cash. Everyone's thinking about liquidity. Even if the deal looks favorable from a value perspective, there are still factors that make banks hesitate to send cash out the door right now.

It's like those situations in college when it's 3am, you're the only one in the house who has cigarettes, but you're running low, and somebody offers to pay you $1 for one. From a sheer value perspective, it's a very good deal. But from a liquidity perspective--if you know you're not going to have a chance to get more if you run out--there may be no reasonable amount of money that would make the deal go.

 

[naeron]

hahhah ... I can totally agree with the damn running low on cigarettes situation....

and yeah you are right on the secritzation. banks dont want future cash flow assets on their balance sheets anymore...