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Morgan Stanley Sued by Taiwan’s China Development Industrial Bank Over CDO Losses

September 15, 2010 By Leave a Comment

Karen Freifeld, Bloomberg

Morgan Stanley was sued by Taipei- based China Development Industrial Bank for fraud to recover losses from an investment tied to residential mortgage-backed securities.

The Taiwanese bank claims Morgan Stanley made an investment linked to U.S. subprime mortgage bonds in mid-2006 and, after learning of problems with it, “dumped those losses” on CDIB in April 2007. The complaint, filed in New York state Supreme Court on July 15, was made public yesterday by CDIB’s lawyers.

“Morgan Stanley structured and sold CDIB a security that was a house of cards built on a shoddy foundation of fraudulently manipulated credit ratings,” Samuel Rudman of Robbins Geller Rudman & Dowd LLP, lead counsel for CDIB, said in a statement.

Read more here: http://www.bloomberg.com/news/2010-09-14/morgan-stanley-sued-by-china-development-over-losses-on-cdo-investment.html

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Citi ‘Negative’ On Subprime Mortgages As Early As 2006, Yet Continued To Pump Them Out

April 8, 2010 By Leave a Comment

Shahien Hasiripour, Huffington Post

A top Citigroup official testified Wednesday that the firm was reducing its risk to subprime mortgage products as early as 2006, fully expecting housing prices to decline. Yet a review of industry figures shows that in 2007 Citi underwrote billions in subprime mortgage securities and was the nation’s top lender of subprime mortgages.

It also purchased insurance on those holdings in 2007 in the form of credit default swaps in case they soured, regulatory filings show.

“We were negative on subprime, as a matter,” Thomas Maheras, the bank’s former trading chief, who served as co-CEO of Citi Markets and Banking, told the panel created by Congress to investigate the roots of the financial crisis. “We were, from the very earliest part of ’07 and the end of ’06, we were in most of our business areas reducing our risk around subprime.”

Yet despite the firm’s efforts to mitigate those risks as early as 2006, Citigroup, which is about 27 percent owned by taxpayers in the wake of the 2008 bailout, still proceeded to originate an estimated $19.7 billion in subprime mortgages, according to Inside Mortgage Finance, a leading trade publication whose data is used extensively by the federal government. Citigroup was the nation’s top subprime mortgage lender that year, according to Guy Cecala, CEO and publisher of Inside Mortgage Finance.

Read more here: http://www.huffingtonpost.com/2010/04/08/citi-negative-on-subprime_n_531130.html?ref=twitter

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Bankrupt Subprime Mortgage Lender Fremont Settles $89m Tax Dispute

March 29, 2010 By 1 Comment

Housingwire.com

Bankrupt subprime lender and servicer Fremont General will settle more than $89m in tax obligations to the Internal Revenue Service (IRS) without actually paying a majority of the back taxes.

Last week, the U.S. Bankruptcy Court for the Central District of California, Santa Ana Division approved a motion that allows Fremont General to claim a net operating loss (NOL) deduction for 2004 that’s attributable for its 2006 tax obligations, according to a regulatory filing with the Securities and Exchange Commission (SEC).

In addition, Fremont General will deduct additional 2004 taxes, thanks to a temporary extension to the period when companies can claim the credit. The extension from two years to five went into effect when President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009, the same legislation that extended and expanded the homebuyer tax credit. The NOL carryback extension is a boon for large publicly traded homebuilders, who’ve recouped billions in taxes paid during profitable years.

While approved by the bankruptcy court judge, the agreement must also meet the approval of the Congressional Joint Committee on Taxation, but according to the SEC filing, both Fremont General and the IRS anticipate that it is more likely than not the committee will approve the agreement “within the next several months.”

All told, Fremont’s nearly $89.4m tax assessment is now reduced to about $2.8m, including interest. In addition, as a result of the IRS agreement, a California Franchise Tax Board tax claim of $13.3m was reduced to $550,000.

Read more here: http://www.housingwire.com/2010/03/29/bankrupt-subprime-mortgage-lender-fremont-settles-89m-tax-dispute/

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Wall Street Had ‘No Idea’ What Subprime CDSs Were, Lewis Writes

March 4, 2010 By Leave a Comment

James Pressley, Bloomberg

Michael Burry, the California hedge-fund manager who figured out how to bet against the subprime bubble, prodded seven Wall Street banks in early 2005 to create credit-default swaps for subprime-mortgage bonds, Michael Lewis writes in his book, “The Big Short.”

Five of them “had no idea what he was talking about,” Lewis says. Only Deutsche Bank AG and Goldman Sachs Group Inc. expressed any interest in the concept, he says.

“Inside of three years, credit-default swaps on subprime- mortgage bonds would become a trillion-dollar market and precipitate hundreds of billions of losses inside big Wall Street firms,” Lewis writes in an excerpt from the book on the Web site of Vanity Fair magazine.

“Yet, when Michael Burry pestered the firms in the beginning of 2005, only Deutsche Bank and Goldman Sachs had any real interest in continuing the conversation. No one on Wall Street, as far as he could tell, saw what he was seeing.”

The book is scheduled to be published later this month by W.W. Norton in the U.S. and by Allen Lane in the U.K.

Burry, the head of Cupertino, California-based Scion Capital Group LLC, had concluded that lending standards had hit bottom, Lewis writes. He had studied subprime mortgage bonds in detail, wading through hundreds of prospectuses, Lewis says, and had figured out that the way to bet against them would be with credit-default swaps, which allow investors to insure against — or bet on — the likelihood that the issuer will default.

At the time, there was no such thing for subprime mortgage bonds, writes Lewis, a Bloomberg News columnist. So Burry had to get Wall Street banks to create one.

http://www.bloomberg.com/apps/news?pid=20601088&sid=ahU3.EVqKSH8

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