We learn today that giant insurance company Allstate has sued BankAmerica and its Countrywide Financial unit over a bum investment. It seems Allstate bought $700 million of Collateralized Debt Obligations from Countrywide which were backed by residential mortgages originated by the mortgage lender. Allstate believes Countrywide misrepresented the quality of the portfolio.
Well, we don’t know yet the merits of this case – and we don’t know exactly what Countrywide disclosed in the offering documents for this CDO (were these stated-income mortgages? was performance of the mortgages listed in the documents? default rates? delinquencies?) To be sure, Countrywide originated some really bad mortgages and it is entirely possible that some of those made their way into the CDO Allstate bought.
Posted by Neal Lipschutz
on March 03, 2010
, Credit Markets
, Financial Markets
, Hedge Funds
The volatility in trading credit default swaps of soveriegn nations, especially of Greece, will now be stirred by an additional fundamental factor: the real threat of significant government regulation.
An already skeptical governing class in Europe about these instruments when they were confined mainly to insuring against corporate default has ratcheted up to outright disdain in many quarters now that they often focus on countries.
Even believers in free markets have to wonder about credit default swaps. You’ve heard the quotes that put these instruments in sharp relief. George Soros said credit default swaps were like letting someone take out insurance on a stranger and then shoot him. They stand out from regular insurance in a simple way: you can insure against something you have no stake in.
If you make a strong bet that someone is going into default, you have the ability by that very action, if it’s big enough, and through related market moves, to increase the chance of it happening,
If that entity is a nation the impact can be on millions and will resonate far beyond the financial world into the heart of politics and regulation.
This is where recent comments by U.K. Financial Services Authority Chairman Adair Turner make sense. He suggested you limit credit default swaps to those who actually own bonds that need to be insured against default. Others have made similar suggestions and that may be the future of at least soveriegn credit default swaps.
Posted by Rick Stine
on February 26, 2010
“While there are a few shafts of encouraging light, results overall were murkier and messier than the market overall expected.” That’s what Nomura Securities analyst David Havens told Newswires reporter Joe Bel Bruno when asked about AIG’s 4Q results, released earlier today.
To get a sense of how difficult things are for AIG, the $9 billion loss in the most recent quarter was a significant improvement over the $62 billion loss a year ago. The company is making progress in unwinding some of the derivative products that got it into so much trouble to begin with – it’s now at $940 billion versus the $1.6 trillion a year ago. And it actually made some money off those unwinds.
But the underlying insurance business is suffering. It sees continued weakness in property and casualty insurance premium pricing. The stock fell nearly 10% today, and rests near $25. It is likely to get a lot closer to the 52-week low of $6.60 before it approaches the high of $55.90.
Posted by Rick Stine
on May 22, 2009
Here’s something we haven’t seen much of over the past year – a financial services company that raised its dividend rather than cut it. Unum Group did just that today, increasing the payout by 10%. Now, the new dividend isn’t huge – it becomes 8.25 cents per share – but it does reflect a company that has stayed the course and continues to make money. It recently reported it made $164.9 million in the first quarter versus $163.1 million in the year-ago quarter. And that’s even after writing down $57 million in investment-related losses. Those losses come from investments in a media conglomerate, a specialty chemical company that went bankrupt and an auto-parts supplier. Unum is a provider of employee benefits and disability insurance.