1H 2007:
02/08/07: HSBC announces they are setting aside 20% more than analysts estimated for loan losses in 2006 due to the companies deteriorating US mortgage business. The company announced that home loans to riskier borrowers were going bad faster than estimates. Concurrent with the announcement an index tracking swaps on sub-prime dropped sharply, indicating a significant increase in implied risk.
02/22/07: Two HSBC top mortgage executives announce departure from US business.
03/04/07: HSBC announces they will write of USD11bn to cover mounting losses in its US based HSBC Finance Corporation.
03/05/07: New Century Financial Co. leads massive drop in US subprime lenders.
03/12/07: DR Horton CEO announces to investors his company’s fortunes are likely to ‘suck’ in 2007. During the same day trading is suspended on New Century Financial shares as fears rise firm is headed toward bankruptcy.
03/21/07: Mortgage delinquencies and defaults continue to rise and short sellers reap large rewards for their positions in the US subprime lenders.
04/02/07: New Century Financial officially files for Chapter 11 bankruptcy; immediately cuts 3,200 jobs.
04/05/07: Subprime mortgage lender Novastar announces they will stop funding independent mortgage bankers.
05/30/07: UK mortgage lender Kensington agrees to USD561mn takeover by Investec, a South African Bank. The subprime lender also announces that revenues for the current year will be significantly below the previous years.
2H 2007:
06/23/07: Bear Stearns pledges USD3.2bn to rescue one of its internal hedge funds after it placed bad bets on subprime mortgages.
07/30/07: IKB cuts profit forecast and replaces its CEO after feeling the effects of the US subprime rout. Additionally, according to Bberg more than 40 companies globally have reorganized or abandoned borrowing plans over the past month.
07/31/07: American Home Mortgage announces it does not have the cash flow to fund new loans, shares plunge 90%. Bberg reported that creditors made ‘very significant margin calls’ against the company over the past 3 weeks and it still has ‘substantial unpaid margin calls pending’.
08/02/07: Accredited Home Lenders announce merger with Lone Star Funds in doubt and bankruptcy is possible.
08/06/07: American Home Mortgage files for bankruptcy after laying off 7,000 employees. One reason cited is repeated interest rate increases have pushed up loan repayments and defaults of borrowers.
08/08/07: German WestLB Mellon suspended redemptions from its asset-backed security securities fund amid concerns over the US subprime mortgage market. The company was quoted as saying current market conditions were making it impossible to calculate the fair net asset value of the fund.
08/09/07: BNP Paribas halts redemptions from 3 investment funds due to complications over calculating fair net asset value due to the mortgage markets effects on credit markets.
08/14/07: Goldman Sachs and a group of investors announce an USD3bn injection into the bank’s Global Equity Opportunities Fund, after losing 30% of its value in 1 week.
08/15/07: Countrywide falls 13% on bankruptcy fears if conditions continue to deteriorate.
08/17/07: FOMC approved changes to the primary credit discount window facility reducing the spread it and the fed funds target to 50bps. The Fed also announced it would allow term financing for up to 30 days. Finally, in the statement the fed recognized that ‘downside risks to growth have increased appreciably’, and that they were prepared to take action. Nevertheless, there was no change in the target rate.
08/21/07: It is reported that German SachsenLB holds USD4bn in US subprime assets.
08/22/07: H&R Block unable to tap US commercial paper markets due to market turmoil is forced to borrow USD200mn from its credit line. Also, Lehman Brothers becomes the first Wall Street firm to shut down its subprime lending unit, laying of 1,200 employees. Other mortgagee companies announced layoffs totaling 3,700.
08/23/07: BoA, Citi, & DB borrow USD2bn from the Fed via the discount window to help reduce the ‘last resort’ stigma associated with this lending facility.
08/29/07: Australian firm Basis Yield files for bankruptcy over subprime defaults.
09/06/07: Inter-bank lending rates continues to soar; the ECB lends USD57bn to banks in a move to help counter the ongoing global credit squeeze.
09/14/07: Northern Rock receives emergency funding from the Bank of England Funding after rising borrowing costs left the company unable to make new loans.
09/17/07: Fears of a Northern Rock and/or other financial innutrition failures force the government to guarantee Northern Rock deposits to avoid a potential bank run. The same day Novastar, US subprime home lender, forfeits REIT status as it decides not to pay a dividend on 2006 profit in an effort to conserve cash.
09/18/07: Stocks rally as Fed announces 50bp rate cut moving the target rate to 4.75%.
10/05/07: Merrill Lynch announces it will be forced to write down a USD5.5bn loss associated with defaulted US sub-prime mortgages. Analysts are concerned ML’s losses may continue to mount.
10/24/07: Merrill Lynch announces largest loss quarterly loss in its 93 year history after taking USD8.4bn in write downs. Rating agencies reduced ML’s rating and described the quarterly loss as ‘startling’.
10/31/07: FOMC decreases fed funds target by 25bps to 4.25%.
11/08/07: Morgan Stanley reveals a USD3.7bn loss from its US sub-prime mortgage exposure. The bank attributes the loss to the record level of defaults by subprime borrowers.
11/27/07: Citigroup announces it is selling a USD7.5bn stake to Abu Dhabi to bolster its depleted capital base due to recent acquisitions and credit market turmoil.
12/10/07: UBS writes off USD10bn in debt linked to subprime mortgage market. The company also reported that losses would total more than the previous year’s profits. Additionally, UBS announced it received USD9.7bn in funds from the Singapore Government Investment Corporation. MBIA, the world’s largest bond insurer announces it will raise as much as USD1bn by selling a stake to a private equity to avoid losing its AAA credit rating. Finally, Bank of America announced it will liquidate a USD12bn cash fund due to turmoil in credit markets. These type of funds attempt to return a higher yield vs. traditional money market funds via positions in riskier assets.
12/11/07: Fed reduces target rate 25bps to 4.25%. However, markets reacted adversely interpreting the action and the statement as too weak considering current market conditions.
12/13/07: Due to fears of what effects a sustained elevated LIBOR could have on the global economy the Fed in conjunction with the central banks of Canada, England, Switzerland, and the EU announced’ measures designed to address elevated pressures in short-term funding markets.’ This announcement setup the temporary Term Auction Facility (TAF) designed to ‘auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window’
12/14/07: Citi announces it will take over seven troubled Special Investment Vehicles (SIVs) and assume USD58bn in debt to avoid forced assets sales. Moody’s also lowered Citi’s credit rating to Aa3 from Aa2, and warned of further potential downgrades. As an interesting aside, Citi invented SIVs in 1988.
12/17/07: Fed auctions USD20bn to major banks in an attempt to alleviate the global credit crunch as banks remain hesitant to lend based on market uncertainty.
12/18/07: In response to the Fed the ECB allocates USD500bn to banks at below market rates in a refinancing move to ease tightened credit markets and lower LIBOR.
12/19/07: As default risks rise, Standard & Poor’s reduces the rating outlooks for many bond insurance companies including MBIA, XL Capital Assurance, and Ambac Financial. According to Bberg industry-wide downgrades would lead to losses of USD200bn on securities as banks would be forced to sell bonds due to investment guidelines.
12/24/07: Merrill Lynch after experiencing the largest loss in the company’s history receives a USD6.2bn cash injection from Singapore’s Temasek Holdings. By this point in the process sovereign wealth funds have already invested over USD25bn in Wall Street banks.
1H 2008
01/11/08: Bank of America purchases faltering US home lender Countrywide Financial for USD4bn in an all stock deal.
01/15/08: Citi announces USD18.1bn in write-downs related to its subprime mortgage related exposure. Concurrently, in a move to shore up its capital base Citi announced it will cut its dividend. The same day, Merrill Lynch reported they sold a USD6.6bn stake to foreign investors including the Korean and Kuwaiti governments.
01/22/08: As global financial conditions continue to deteriorate the Fed announces a rare inter-meeting rate cut of 75bps to 3.50%, largest cut in 25 years.
01/30/08: The Fed cuts rates by an additional 50bps to 3.00% in an attempt to help avoid the US from moving into a recession. Statement reads; "Financial markets remain under considerable stress, and credit has tightened further for some businesses and households."
02/14/08: UBS confirms loss for 2007 as exposure to US housing market hits earnings. The firm warned of poor performance and USD18.4bn of write downs weeks earlier. The firm also unveiled an additional USD26.6bn in exposure to risky mortgages. UBS’s losses were far worse than analysts’ estimates.
03/03/08: HSBC announces a USD17.2bn loss derived from the effect of the decline in the US housing market on its loan values. However, annual profits still rose 10%.
03/06/08: Large hedge fund run by Peloton Partners collapses as it can no longer make interest payments on loans made to the company to buy assets, forcing the fund to sell assets at substantial losses.
03/07/08: Ambac raises roughly USD1.5bn in a sale of convertible stock to maintain AAA credit rating. Some analysts report this will only work as a short-term fix.
03/08/08: The Fed announces two new initiatives to address growing liquidity pressures in the term funding markets. These included increases in the amounts outstanding to the TAF to USD100bn, and a series of term repurchase transactions totaling USD100bn.
03/11/08: The Fed issues a statement that G10 central banks continue to work closely together on liquidity pressures, but pressures have continued to rise.
