The hits just keep on coming

The globally contained credit crunch continues to weak havoc. Everyday new admissions keep popping up all over the globe. Here are some of the latest.


Mortgage lenders struggle in face of higher funding costs

Rams Says Credit Markets Threaten Profit; Shares Fall

Aug. 14 (Bloomberg) -- Australia's Rams Home Loans Group Ltd. said the shakeout in global debt markets may cut profit, sparking a 19 percent plunge in the stock that makes it the nation's worst-performing initial public offering this year.

The impact on the company's June profit forecast ``is likely to be material'' because of rising financing costs, Rams said today in a statement. The Sydney-based lender, which went public last month, gets almost half the funds for its mortgages by selling short-term debt in the U.S.

``Companies like Rams are heavily dependent on what's happening in the credit markets, and a major global event like this one is going to hurt,'' said Peter Morgan, who manages more than $3 billion at 452 Capital in Sydney. ``Rams won't be the last Australian company to feel it, and you can multiply it by a hundred overseas.''

The warning from Rams, the first Australian home-loan company to say profit may be hurt by the deepening crisis in credit markets, follows bankruptcy filings in the U.S. by American Home Mortgage Investment Corp. and New Century Financial Corp.

The company's shares fell 34 cents to A$1.41 in Sydney. The stock has slumped 43 percent since it was sold to the public at A$2.50 and began trading on July 27.

`Unprecedented Disruptions'

``The U.S. has experienced unprecedented disruptions in recent weeks, which has resulted in material increases in spreads and shortages in liquidity,'' Rams said in the statement.

The cost of U.S. short-term commercial loans has risen about 20 basis points to 32 basis points above the 30-day bank bill swap rate, said Rams, which has A$14.2 billion ($11.9 billion) of loans.

Thornburg Mortgage delays dividend - warns of margin calls, funding disruptions

SAN FRANCISCO (MarketWatch) -- Thornburg Mortgage Asset Corp. said late Tuesday that it is delaying a dividend payment after getting margin calls and finding it more difficult to fund its mortgage assets in the commercial-paper and asset-backed securities markets.

Some comments from management:

"The board determined that the best way to preserve shareholder value in the near term and grow it over time is to retain our cash to enhance our ability to work with our lenders and weather this tumultuous environment," Larry Goldstone, Thornburg's president and chief operating officer, said in a statement.

Above = we are running out of money.

Goldstone said the value of Thornburg's assets has dropped to $14.28 a share from $19.38 a share at the end of June. Most of that decline happened in the past week and doesn't reflect a change in the credit quality of the company's mortgage assets, he noted.

"Barring substantial additional decline in the market value of mortgage-backed securities, we will continue to originate and invest in high-quality mortgage assets once we get through this environment," he said.

If things don't turn around we will be out of business soon.


Hedge Fund Geniuses

Sentinel moves to halt client redemptions

SAN FRANCISCO (MarketWatch) -- Sentinel Management Group Inc., a firm that manages cash for other investors, has moved to halt client redemptions to avoid selling securities at deep discounts.

Sentinel told clients in a letter that it has asked the Commodity Futures Trading Commission for permission to halt withdrawals.

A liquidity crisis in credit markets has made it "virtually impossible" to properly price and trade securities, leaving highly rated debt trading like junk bonds, Sentinel explained in the letter, a copy of which was obtained by MarketWatch.

"We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients," Sentinel said. "We contacted the CFTC today and asked for their permission to halt redemptions until we can honor them in an orderly fashion."

Minyanville had a nice article on what Sentinels halt really means:

Importantly, Sentinel says the firm buys "only the highest quality and most liquid securities (unless specifically directed by a client to seek higher yield in somewhat lower quality issues.)" Ah, there we go. If Sentinel was managing cash positions for clients who were not in need of daily liquidity, then those clients perhaps directed the firm to invest in somewhat "lower' quality" issues in order to boost their yields. And as we now know, demand for those higher-yielding securities has dried up. Consequently, the firm is unable to trade, or even price, many of those securities.

Sentinel, like Goldman Sachs (GS) when referring to their Global Equities Opportunities firm, now says they own securities selling at "deep discounts to their fair value" and that would cause their investors "unnecessary losses." So, the bottom line is they don't want to sell those assets and give investors back their money. Yes, no one likes to sell things for a loss. Of course, markets care nothing about "fair value." Fair value is what someone is willing to pay, not what an investor deserves to receive.

And so now we have a standoff - between those demanding fairness, and those who may or may not be willing to extend a little charity in honor of it.

Mish of MGETA also chimed in on this one with the following observations:

If you're looking for the source of the problem here it is: "We have never experienced a situation quite like this one. Liquidity has dried up all over the Street." What happened is that Sentinel thought that just because they have not seen something yet, that it could not happen. This is in essence the same thing that happened to the models at Moody's, Fitch, and the S&P, and various quant models that I talked about in Genius Fails Again.

and:

Let's return to the Sentinel letter to clients for a review of this statement: "We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients."

Excuse me, but doesn't the market determine "fair value"? Apparently Sentinel thinks it knows what fair value is but the market doesn't. Recall that Bear Stearns thought the same thing. Bear Stearns locked out clients who wanted to redeem all the way back in January. Those investors would have gotten something back. Perhaps as much as 70 cents on the dollar. Bear Stearns locked those clients in and the Hedge Fund went to zero: totally worthless.

While Sentinel does not like the current offer for those assets, there is no guarantee (or even likelihood) that the market is going to think more of those assets tomorrow than they think of them today. Should Sentinel have seen this coming? I think so, or at least they should have been alerted to the possibility. Instead they stuck with a now failed model that offers these excuses:

* Investor fear has overtaken reason
* That the market would return to some semblance of order
* That our clients would not join in the panic
* That securities are at deep discounts to their fair value

There you have it, these so-called geniuses are unable to see anything other than rising markets forever. Then when the market turns they have absolutely no idea what to do. Their computer models were not built to take into account falling markets.

The dotcom boom proved that any idiot can make money in a rising market, Sentinel and other hedge fund managers such as Goldman Sachs and AQR prove that they are just another group of idiots.