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Another $13 Billion in Losses

Another $13 Billion in LossesRecent mergers, earnings and corporate activity

May 7, 2008


Mortgage-related losses announced during the past two days topped $13 billion. Meanwhile, a government-sponsored enterprise has a new chief and a New York-based financial services company on an apparent acquisition binge said it has taken a bigger position in mortgage lending than originally planned.

The Federal Home Loan Bank of Chicago, which had an $0.1 billion first quarter loss and last month halted its secondary mortgage purchases, announced that Matthew R. Feldman was named president and chief executive officer. Feldman became acting president of the GSE on April 11.

Another GSE, Fannie Mae, reported a $2.2 billion first-quarter loss, down from the $3.6 billion loss in the fourth quarter but worse than the $1.4 billion profit a year earlier. As credit spreads widened to 22-year highs and home prices declined, first-quarter mark-to-market fair-value losses increased to $4.4 billion from $3.4 billion the prior quarter. Credit-loss provisions and foreclosed-property expenses also rose to $3.2 billion compared to the fourth quarter’s $3.0 billion, while the combined loan-loss reserves jumped to $5.2 billion on March 31 from $3.4 billion at yearend.

UBS announced a loss of CHF 11.5 billion (U.S. $10.9 billion) in the first quarter, plunging from a CHF 3.0 billion (U.S. $2.9 billion) profit during the same period in 2007. The Zurich, Switzerland-based bank said losses on U.S. real estate and certain structured credit positions were CHF 19.0 billion (U.S. $18.0 billion).

“The downward spiral in U.S. mortgages and related instruments accelerated during [the] first quarter and also spread to other structured credit positions,” UBS stated.

First-quarter earnings at Swiss Re were down 53 percent from a year earlier to CHF 624 million (U.S. $0.6 billion), a statement from the company said. The bank, also based in Zurich, attributed the decline to continuing financial markets turmoil that forced mark-to-market write-downs on structured credit default swaps of CHF 819 million (U.S. $561 million). Swiss Re estimated it would have another CHF 200 million [U.S. $189 million] in writedowns during April.

Alpharetta, Ga.-based Integrity Bancshares Inc. entered an agreement with Georgia’s banking commissioner to take steps to preserve capital, the Federal Reserve reported. Among the steps are the discontinuation of dividend payments, the prohibition of stock redemptions and a ban on unapproved increases in borrowing. Integrity will need to submit within 60 days an acceptable plan to build and maintain adequate capital.

Vantedge Group said it helped ArborOne Financial determine the profile of prospective borrowers in the Northeastern rural area of South Carolina. Among profile attributes of the highest opportunity prospects were that they were married, college-educated, and 50-65 years-old with an annual average income of $137,900. The data reportedly helped 91-year-old ArborOne better target its marketing messages.

Thornburg Mortgage Inc. urged its shareholders to approve a highly dilutive increase in authorized shares from 500 million to 4 billion, according to a filing Monday with the Securities and Exchange Commission. The request is the result of a $1.35 billion private placement with MatlinPatterson of senior subordinated secured notes, warrants for the purchase of common stock and participations in the monthly principal payments of its mortgage-backed securities portfolio financed with reverse repurchase agreements. That placement was made as part of Thornburg’s effort to avoid bankruptcy.

If two-thirds of shareholders do not approve the proposed increased in authorized shares at the June 12 annual meeting in Santa Fe, N.M., the notes will be maintained at an 18 percent interest rate instead of 12 percent, the filing said. Shares of Thornburg, which have traded at more than $28 during the past year, were down 18 percent for the day to 88 cents in early trading.

New York-based Fortress Financial Group Inc., which has released a stream of press releases about acquisition activity it is involved in, issued another statement indicating “the amount and the size of these acquisitions is now considerably larger than ever envisaged by the company’s management.” Fortress claims it will be “a very substantial company in the consumer finance industry” with an initial concentration in mortgage lending once it completes the acquisitions.

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