With banks still holding LBO loan inventory that they’d like to be rid of, and recent sales requiring seller financing, it’s no surprise that loan prices continue to decay.
From the Financial Times:
The value of leveraged loans fell to record lows during the past week, creating further potential mark-to-market losses for both investors and banks.
The average bid on the most traded US leveraged loans dropped 330 basis points to an all-time low of 84.28 per cent of face value, according to data from Standard & Poor’s LCD and Markit.
The average bid for Europe’s most traded leveraged loans fell to its lowest level in seven months but, across a broader range of loans, the average price also fell to a historic low….
Simon Hood, joint head of leveraged loans and mezzanine debt at European Credit Management, said: “With renewed volatility in the stock market and concern about the economic situation, a dawning of reality that the economy will get worse has taken over and we have seen a drift downward of prices, accentuated by recent events.”
The spread between the price at which traders were quoting bids and offers nearly doubled, indicating a level of uncertainty and illiquidity not seen since last August when the credit crunch hit.
Mr Hood said buyers were sitting on the sidelines awaiting stability before investing.
He said: “We are seeing some senior secured debt trade below 50 cents and some of the flow names [most traded loans] in the low-80s, which is extraordinary, presenting a buying opportunity”…..
While the fall in loan prices threaten losses for banks that mark to market, banks’ funding needs are the main concern, according to Matt King, a credit strategist at Citigroup, particularly as much of the backlog of leveraged loans that had been weighing on banks has been reduced.
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I've always felt that the LBOs were going to be next on their balance sheets.
So why don't we just let them hold the toxic waste at a made up price until their balance sheets are repaired enough to take the full write down?
Wouldn't it be easier & cheaper if they just suspended mark-to-market accounting "temporarily?"
It's better than having the Treasury buy all this stuff at par at the TARP.
The government saw this all coming long ago starting with deleting M-3. The accounting or non-accounting at the Federal Reserve hid most of the behind the scene actions except the dollar value. A blind man could see RE correcting taking down anything connect to it. Then out of nowhere you had an IRS give away trying to avert a straight line down economy. Then the bailouts. Now a realignment of banking to hide again behind Fed Reserve accounting.
700b is a drop in the bucket when 100x trillions is the size of outstanding debt worldwide.
Stopgap measures at best.
Too many nooks and crannies that have to deflate. My head aches…
Still falling? What a great time to “invest” $700 billion in the name of the Worker/Suckers, to catch a falling knife.
Oops, there goes my hand! Oh well, Medicaid will pay for a swanky prosthesis.
Matthew Dubuque
Anon at 6:12:
Sorry, but MEDICAID will NOT pay for that.
Keep in mind the next wave is for the Friedman fanatics to push their radical jihad social agenda upon us in this time of crisis. That’s their modus operandi.
The BIG push will be on to privatize BOTH Social Security AND Medicare.
Morgan and Goldman need the billions in fees and we now KNOW that the private sector miraculously solves all problems, come right over here m’am, just pray at this little altar of the INVISIBLE HAND, give me your wallet and everything will be just fine.
PRIVATIZE all gains, SOCIALIZE all losses.
Matthew Dubuque
Anyone know what happened to Citi’s $5B LBO debt from Terra Firmas (Guy Hands ex Nomura) EMI LBO?
Citi struggles to reduce EMI loan exposure:
http://www.ft.com/cms/s/0/c863d380-0807-11dd-a922-0000779fd2ac.html?nclick_check=1
Spengler has an interesting and somewhat humorous take on the current US financial situation…I have taken the liberty of excerpting a couple of comments…
‘E pluribus hokum or
When the gamblers bail out the casino’
‘Believe it or not, there is a rational explanation, and quite in keeping with America’s national motto, E pluribus hokum. Part of the problem is that Wall Street, like the ethnic godfather in the old joke, has made America an offer it can’t understand. The collapsing the mortgage-backed securities market embodies a degree of complexity that mystifies the average policy wonk. But that is a lesser, superficial side of the story.
Paulson’s dreadful scheme will become law, because Americans love their bankers. The bankers enable their collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole.’
and…
‘Alas for the gamblers of America: they will tax themselves to keep the casino in operation, but it will not profit them. Where, oh where, is America’s Vladimir Putin, who will drive out the oligarchs who have stolen the country’s treasure and debased it’s currency.’
http://www.atimes.com/atimes/Global_Economy/JI23Dj06.html
River