Doug Noland wrote a commentary for the Asian Times that said the stock market may be been perfectly content to brush the news aside that it was a brutal week for mortgage finance companies.” Merrill Lynch, a kingpin of structured credit products, shocked the market place with a $7.9bn asset write-down – up significantly from the $4.5bn amount discussed just two weeks ago. Doug Noland wrote a commentary for the Asian Times that said much of the write-off related to the company’s CDO (collateralized debt obligations) portfolio, the size of which was reduced in half to $15.2bn during the quarter. But with proxy indices of subprime and CDO exposures down between 15% and 30% since the end of the quarter, Street analysts have already warned of the possibility for an additional $4bn hit. Merrill is not alone.
Doug Noland wrote a commentary for the Asian Times that said also hit by sinking CDO fundamentals, Credit insurer Ambac Financial reported a third-quarter loss of $361 million – it’s first-ever quarter of negative earnings. The company posted a $743 million markdown on its derivative exposures, “primarily the result of unfavorable market pricing of collateralized debt obligations.” Credit insurance compatriot MBIA also reported its first loss ($36.6 million), on the back of a $352 million “mark-to-market” write-down of its “structured Credit derivatives portfolio.” These two Credit insurance behemoths – and the “financial guarantor” industry generally – would have been a whole lot better off these days had they stuck to insuring municipal bonds and fought off the allure of easy (“writing flood insurance during a drought”) profits guaranteeing Wall Street’s endless array of new structured Credit products.