Credit crunch is here

I go away for a few days and everything falls apart. Well not really, things have been falling apart for some time now.

First the boring stuff. US producer prices declined a surprising 0.2% in June whilst consumer prices rose a moderate 0.2%. Nothing earth-shattering there, expect the short term pullback in energy prices in June to be short-lived as oil punched through US$75 a barrel this month. Consumers will continue to feel the pinch of rising food and energy costs.

Now for the fun stuff.

Bear Stearns hedge Funds worthless
The Bear Stearns hedge funds are now officially worthless. The net value of assets in the High-Grade Structured Credit Strategies Enhanced Leverage Fund are zero, according to the Wall Street Journal and the net value of assets in its other, larger, less-leveraged fund lost about 91%. Bear Stearns has only had to use about $200m of the 1.6bn that it committed to shore up the assets of the less leveraged of the funds. Not such a bad outcome for (BSC), however quite a different outcome for investors.


Sub-prime contagion spreads to Alt-A
Residential mortgage lender "Alliance Bancorp announced that they will go into liquidation since:

“We have exhausted our resources and do not have the means to move forward. Therefore, it is with great sadness that I announce that we have ceased operations as of today, July 13th.”

Click here for the full story.

Once again the containment scenario is being exposed as farcical. Alliance Bancorp was not a sub-prime lender, rather they specialized in lending to so-called Alt-A borrowers: mortgage borrowers with credit between those of prime and subprime borrowers. These mortgages are loans where borrowers lack some of the documentation required by traditional mortgages. No doubt there are loads of RMBS's packed with Alt-A loans to keep the ratings agencies busy for a while yet.


Moody's setting the standards for the industry WTF?
Speaking of scum, I mean ratings agencies, it seems Moody's are trying to make themselves out to be the island of propriety in a sea of corruption as they valiantly refuse to attach high ratings to low grade crap. Baseless self-aggrandizement at its best. Click here for the full story from MGETA.


Credit cycle catches up the Bank of America.
I've been mentioning for some time now that financial companies have yet to substantially raise their bad loan provisions in the face of a worsening credit cycle. On Thursday Banc of America (BAC) had to finally face reality by raising credit loss provisions by almost 50% as non-performing loans rose 18% for 2Q07 from a year ago. Strong capital market gains offset the rising tide of non-performing loans helping the company to a 5% profit rise. Not encouraging results. When the music stops in the capital markets expect BAC to start bleeding red ink.