Shocking CDO Loss Estimate Precedent – 90% Loss!

Posted on July 25th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

I am not suggesting all CDO’s are worth 10 cents on the dollar, but this is sounding like the most realistic loss estimate to date. It’s no wonder why the banks have done everything possible to hide these losses and keep the bond insurers afloat.

To be specific, the securities in question consist of 10 CDOs of which two are ‘super senior’ strips and eight are ‘AAA’ senior strips. This means NAB is expecting 100 per cent loss on $900 million worth of AAA rated securities!

NAB’s drastic mark could have serious consequences for those holding similar paper. This could turn out to be a big story. Heck, it could put the monolines under in a minute.

I am sure this news will be swept under the carpet, as bubblevision and the rest of the media try to focus on the SEC’s Cox who said late yesterday he wanted to incorporate the new SEC short selling rules across THE ENTIRE MARKET.  What this tells me, however, is that the US equities market sit in a much more precarious position than most can imagine.

Keep an eye out for spill over from this CDO story. This could be a biggie. Or, you will just see the bank’s Level 3 (mark-to-myth) ‘asset’ levels surge in Q3. – Best, Mr Mortgage

Bloomberg reports:

July 25 (Bloomberg) — National Australia Bank Ltd., the country’s biggest, set aside A$830 million ($795 million) for credit market losses, triggering the steepest decline in its stock in seven years.

National Australia made provisions equivalent to 90 percent of the value of its A$1.2 billion of collateralized debt obligations. The Melbourne-based bank set aside a A$181 million provision in March.

Chief Executive Officer John Stewart said mounting foreclosures in the U.S., where falling home sales yesterday sent financial shares to their worst drop in eight years, is eroding the value of the investments. Bad debts at the bank jumped 86 percent last year as Australia’s 16-year economic expansion falters and interest rates rise amid accelerating inflation.

“There’s a lack of trust at this stage,” said Nader Naeimi, a Sydney-based investment strategist at AMP Capital Investors, which manages $108 billion. “The fear is there’s a lot more bad news to come. Investors are out there thinking everything’s fine and another bank comes out and increases its provision for credit-related losses.”



14 Responses to “Shocking CDO Loss Estimate Precedent – 90% Loss!”

  1. Collateralized by a black hole. Does this mean that the valuations of CDO’s and the Level 3 loans on Morgan’s Stanley balance sheet are TOTAL SHIT ? “Lie or perish.” Start with Morgan Stanley.

  2. COX & SEC let banks lie for the past year and half in their 10Qs with regard to their assets and their values. COX IS A COX. Using scare tatics against the shorts all the while standing back and letting the SHILLS run up banks, builders, etc on MASSIVE MARGIN and PROMOTION MACHINE.

    Mark to Market is EXACTLY what every MARGIN ACCOUNT holder faces daily. Of Course these HIGHLY LEVERAGED financials should have ALL assets reflect the current daily value. This is the only way to determine a company’s debt to equity.

    They SCREAM on SHILL STREET that it’s unfair becuase these banks and others are going to hold onto the mortgages & etc for the LONG TERM.

    Well you can hold onto the Shares of QQQQ for 9 years and the Value is still down 50%.

  3. Rick Santelli is just talking about this in the pre-opening. Says investors are REAAAALY nervous about this news!! Thanks again Mark for being in the forefront of the news!!

  4. Well this news, if in reality will affect L3 ASSets on many of the lenders books, then it does not bode well for the following banks…

    Wachovia – 30 Billion PLUS in L3 ASSets on their books!

    BOA – 31 Billion PLUS in L3 ASSets on their books!

    Citi – 22 Billion Plus in L3 ASSets on their books!

    Wells – 23 Billion PLUS in L3 ASSets on their books!

    RBS – 24 Billion PLUS in L3 ASSets in their books!

    This totals in just 5 banks over 130 BILLION and that was BEFORE this update which is sure to cause some of them to throw more ASSets from L2 over onto L3.

    I am still pissed off about this “Bail Out” bill!!!

    I saw this quote today from Elizabeth McDoanld on Fox Business. She is quoting Ronald Reagan from his inaugral address.

    Quote of the YEAR!!! WOW!!!

    “In this present crisis, government is not the solution to our problem, government is the problem… It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government.” – Ronald Reagan, Inaugural Address, January 20, 1981

  5. Well Mr. M. it appears as though some others have jumped onto this story today.

    The Business Spectator is now on board with you and your thoughts on this. They are equally calling for “Dramatic Repercussions around the world” As they say “global banks have nowhere near provided for their exposure to US housing loans”

    It feels as though “It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble”

    You look to be right on top of things as usual!!!

    P.S. If we “Bail Out” Fannie and Freddie too quickly we will have nothing left. Then it starts getting really interesting as the printing presses go into hyper drive and inflation climbs through the roof almost overnight!!!

  6. Something that really put a bee in my bonnet the other day.

    Good old Sheila Bair, bitching and moaning about how the “blogs were just getting so out of control”!! Can you believe it?!!!

    Dear Sheila–NEWSFLASH—I bet a chunk of your depositer base would have been a WHOLE lot happier-(and richer today) if they had known of the blogs, and gotten the TRUTH!! They would have been able to look at the numbers, the recent news on IMB, and draw the conclusion for themselves to get their money the hell up outta Indy Mac DAYS ahead of you taking the bank down.

    Is it really any WONDER that the public has ZERO trust in what the government and agencies like yours are saying day in, day out?? All we get are lies, half-truths, and spin, spin, SPIN when the whole mess is in far worse shape than the unsuspecting public even knows!!

    THANK GOD for the blogs. There are a lot of very connected, smart people there that I would trust far and above over the lies we get from the govt. and Mainstream media that is their mouthpiece!!

  7. Go Figure! It took American Banks, Wall Street, Rating Agencies and U.S. Federal Regulators to load the cannon that will fire the shot that mortally wounds the world wide economy, but it took an Australian Bank to finally pull the trigger!

  8. Hey Everyone,

    Mr. Mortgage is right, this story is getting swept under the rug in the U.S. Press. I don’t see it on Bloomberger, WSJ, CNN, or CNBC. It just seems to be getting coverage Down Under in Australian news papers. Does anybody have connections at the U.S. press level to get this story out? Isn’t it about time we make the Banks come clean? Contact Ron Paul, Jim Bunning or anyone that can make sure this DOES NOT GET SWEPT UNDER THE RUG!

  9. There is no more room under the rug!

  10. Actually, the story has been on Bloomberg, and CNBC was talking about it this morning as well.

    This article is being quoted fairly widely today, but it could take more time before it really sinks in….

  11. It’s not getting headlines because remember it’s very close to a crime in this country to question a bank’s condition. However, it’s not a problem to question the value of a CDO, since nobody knows what they are anyway. In this light, it’s getting a lot of press. It’s in the European press, Canada, and I have come across it 7-8 times in the US. It’s no secret; boys and girls. It’s either going to get bigger or smaller on Monday. The little kid has finally said: The King has no clothes. I think it likely the surrounding adults: FDIC FSLIC FED etc Will grab the kid slap him silly and say: yes he does. The issue is what the crowd does, and thats likely to be very quiet.

  12. The Emperor has no clothes and no brains. KKR is trying to sell its stock crap today. -50% guaranteed like Blackstone Group. KKR will probably find a really stupid chineese sovereign fund to buy the LBO specialist shit. Time to buy buy buy.

  13. […] is not the truth.  The truth is that Merrill’s marks are very similar to National Australia Banks write-down earlier this week and other banks with similar holdings will likely have to write down their […]

  14. […] CDO loss provisions as high as 90% of total value? […]

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