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Meltdown's Losers & Winners

Recent mergers and corporate activity

December 11, 2007

By COCO SALAZAR


photo of Coco Salazar

Citigroup Inc. has a new chairman and a new chief executive officer, Washington Mutual Inc. and IndyMac Bancorp have lower debt ratings and two foreign firms have less capital as a result of losses tied to U.S. mortgage loans. And as one Florida lender ends operations, a Connecticut firm has launched to take advantage of current market conditions.

Citi appointed Vikram Pandit as the its new CEO and Sir Win Bischoff as chairman of the board, according to a filing with the Securities and Exchange Commission today. Both men replace Charles Prince, who was ousted last month after the company reported a massive $11 billion charge on its subprime investments.

Most recently, Pandit was chairman and CEO of Citi's institutional clients group, the filing indicated. Prior to that, he held a number of senior positions at Morgan Stanley during more than two decades.

Win, who temporarily served as Citi's CEO upon Prince's exit, was chairman of Schroders plc before it was acquired by Citi in 2000, the filing indicated.

Fitch Ratings downgraded the ratings of WaMu and its primary subsidiary, Washington Mutual Bank, with a negative outlook, according to an announcement yesterday, which followed WaMu's disclosure of a restructuring at its home loans business and capital boosting initiatives. The rating incorporates Fitch's expectation of "further, meaningful asset quality deterioration in the residential mortgage portfolio," which will play into notable earnings pressure over the near term and possible losses that will likely translate to a further ratings downgrade.

Standard & Poor's Ratings Services today announced that it lowered its rating on IndyMac and its subsidiaries, including a counterparty credit rating to a reported non-investment grade BB+/B from investment grade BBB-/A-3, due to exposure to deteriorating housing markets and the effect credit losses will have on capital levels. Plus, the ratings agency gave ratings a negative outlook because it expects IndyMac will "continue to maintain prudent contingent liquidity, especially in light of management's origination volume goals." Indymac's profitability is anticipated to remain depressed in the near term and higher credit costs could result in erosion of capitalization, or increase funding and liquidity pressure.

H&R Block Inc., which terminated Option One Mortgage Corp.'s operations earlier this month, today said almost three-quarters, or $366.2 million, of its net loss for the second quarter ending Oct. 31 resulted from discontinued operations. These operations' pretax losses of $551.2 million included a $252 million loss from the sale of $3.0 billion in whole mortgage loans since August, a $123 million impairment charge to adjust remaining mortgage origination and servicing assets to their fair value, a $62 million impairment charge relating to residual interests on mortgage securities, and $61 million tied restructuring Option One Mortgage Corp.'s origination activities and a write down of fixed assets. Block expects an additional Option One restructuring charge of $47 million in its third quarter.

In advising investors to stay away from financial companies with mortgage exposure, Zacks.com today announced senior analyst Neena Mishra specifically cited National City as a sell due to its heavy exposure to mortgage, home equity and construction lending. Meanwhile, she noted continued concerns on Countrywide Financial have prompted advice for the last few months to view any upside in the share price as an opportunity to sell.

"While we think that [Countrywide] is still in serious financial trouble, the only reason for our Hold rating at the current valuation is our view that it is too big and important to the economy that regulators would not let it fail," the analyst said in the announcement.

Financial guarantor MBIA Inc.'s move to raise $1 billion in capital "meaningfully enhances the financial flexibility of the firm and provides an important signal of market support for the franchise," Moody's Investors Service announced today. Warburg Pincus will make a $500 common equity investment and a $500 million shareholders rights offering backstopped.

Lloyds TSB Group plc announced Monday the "recent market dislocation" will result in a charge of about $408 million at Oct. 31. While the British bank has not direct exposure to U.S. subprime ABS, it has limited indirect exposure through ABS CDOs. The charge will include write downs of about $181 million in ABS CDO holdings and $45 million in capital notes of structured investment vehicles.

Current market conditions have led to Societe Generale's decision to consolidate its sole $4.3 billion structured investment vehicle, Premier Asset Collateralised Entity, ensuring its full refinancing, the French bank announced Monday. While a quarter of PACE's assets are U.S. financial institutions senior debt obligations primarily rated A- or better, three-quarters are asset-backed securities, including residential mortgage-backed securities with subprime underlying and collateralized debt obligations. The value of Societe's $103.5 million investment in capital notes of PACE sunk to $27.6 million at the end of November.

Wachovia Corp. extended through Jan. 4 a waiver on net worth requirements for NovaStar Financial Inc. and also lowered to $24 million from $30 million the level of liquidity NovaStar must maintain to remain compliant with lending agreements, according to a filing with the Securities and Exchange Commission Monday. The extension came after Wachovia's one-week waiver of the original Nov. 30 deadline ended Friday.

An employee of TransLand Financial Services, which had an involuntary bankruptcy petition filed on Aug. 23 and recently had the case dismissed, confirmed to MortgageDaily.com that it stopped doing loans.

The Maitland, Fla.-based company has not been accepting loan applications or packets since late September or October, though a more accurate date could not be obtained at the time of the call. Since "this whole thing started" at the end of August, 170 employees have been terminated, starting in September. The company does not have any other business.

"We're just holding on to see what comes out of the court decisions and settlements," the TransLand employee said.

Evest Capital LLC and EvestMAC LLC announced today two new facilities for $46 million funded through a new subsidiary, EvestMAC Funding ll LLC. The new venture invests in distressed and sub-performing mortgage assets.

"We believe the recent turbulence in the mortgage finance industry has created a unique investment opportunity for our particular model," Peter Kilbinger Hansen, chairman of Stamford, Conn.-based EvestMAC LLC, said in the statement. "The additional capital we've raised will enable us to further take advantage of current market conditions with a plethora of distressed mortgage assets available."


Coco Salazar is an associate editor and staff writer for MortgageDaily.com.

e-mail: [email protected]


The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.



Secondary Marketing News | Correspondent Lender Directory
Mortgage portfolio trades and forward commitments. Correspondent lending, r e p u r c h a s e s and warehouse news. Secondary marketing statistics and lawsuits.



Nonprime and Subprime News | Subprime Statistics
Stories about non-QM products. Coverage of subprime, Alt-A and
hard money lending. Home-equity loans and home-equity lines of credit.


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