Posted by Larry Doyle on July 19th, 2013 12:23 PM |
With no surprise to absolutely anybody, the City of Detroit filed bankruptcy yesterday via Chapter 9.
How does an entity such as Detroit get to the point of being 18 billion in debt? Well, I addressed that point a month ago in writing, Detroit: D is for Disaster.
There will be years worth of likely challenging negotiations and contested legal battles among Detroit’s creditors (primarily the pensioners and bondholders). Those within the municipal bond market and beyond will be watching this play out with bated breath. (more…)
Posted by Larry Doyle on November 27th, 2009 8:29 AM |
Will the government of Dubai default on its debt? Will that trigger a wave of defaults in other nations or in selected companies? With Dubai situated in the oil-rich Middle East, how could this nation be on the precipice of default?
Thanks to kbdabear for sharing with us this unsettling story from The Times.co.uk, Dubai in Deep Water as Debt Crisis Spreads:
Fears of a dangerous new phase in the economic crisis swept around the globe yesterday as traders responded to the shock announcement that a debt-laden Dubai state corporation was unable to meet its interest bill.
Shares plunged, weak currencies were battered and more than £14 billion was wiped from the value of British banks on fears that they would be left nursing new losses.
Nervous traders transferred the focus of their anxieties from the risk of companies failing to the risk of nation states defaulting. Investors owed money by Mexico, Russia and Greece saw the price of insuring themselves against default rocket.
If Dubai were to default, it would be the first nation to default on its debt since Argentina in 2001. Whether Russia in 1998, Argentina in 2001, Dubai currently, or a number of countries in the future, the weight of unbearable debt forces default. The fact is, this overwhelming debt burden is not localized but truly global in nature. Situations like Dubai should not surprise us. In fact, I would be surprised if we do not witness more nations facing default. (more…)
Posted by Larry Doyle on November 20th, 2009 7:22 AM |
Having provided an overview from three top rated banking analysts in my commentary, “2010 Outlook for Banking,” I welcome the opportunity to offer the thoughts from the most highly rated banking analyst on Wall Street, Meredith Whitney.
Ms. Whitney has become increasingly bearish on the market. Yesterday, Ms. Whitney added further fuel to the fire and provided further specifics to her aggressive call. Bloomberg offers, Meredith Whitney Says Bank Stocks are ‘Grossly’ Overvalued,
Meredith Whitney, the analyst who has no “buy” recommendations on U.S. banks, said valuations on lender stocks are too high and what “scares” her most is the government stepping away from buying mortgage-backed securities.
“The banks are still grossly overvalued,” Whitney said today in an interview on Bloomberg Radio. “People are expecting something great to happen in 2010 and I think they are going to be severely disappointed.” (more…)
Posted by Larry Doyle on November 2nd, 2009 9:08 AM |
Did the American taxpayer unnecessarily take a $2.3 billion hit on financing provided to the now bankrupt entity known as CIT? You bet. It’s only money we don’t have, right? This is also true.
In the midst of so many other dramatic developments on our global economic landscape, people may lose sight of the fact that the handwriting was on the wall ten months ago for this middle market lender. That bankruptcy handwriting was crystallized this past July. I addressed the likelihood in my commentary of July 21st, “CIT-go Into Bankruptcy?”, and posed the following questions at that time:
I thought CIT pulled the rabbit out of the hat in arranging $3 billion in financing yesterday. What happened? Let’s navigate this institution and shed some light where Wall Street may care to keep us in the dark.
> Why is the stock plummeting and why are analysts speculating it may very well file for bankruptcy?
> What did the $3 billion financing accomplish?
> Were certain unsecured creditors just abused by this transaction?
> Are CIT shareholders about to be wiped out?
> Will CIT be a precursor for other lenders to the middle and smaller markets?
Now let’s review the particulars we learn about the prepackaged bankruptcy filed over the weekend by CIT. Bloomberg provides details in CIT’s Bankruptcy May Help Bondholders and Erase Taxpayers Stake:
CIT Group Inc.’s decision to seek court protection probably will keep money flowing to bondholders and 1 million customers of the 101-year-old commercial lender. Shareholders and taxpayers won’t be as fortunate.
CIT’s Chapter 11 bankruptcy may give bondholders new notes at 70 cents on the dollar plus new common stock, and Chief Executive Officer Jeffrey Peek said clients will be able to get funds. Common stock owners could be mostly wiped out, and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.
The question begs as to why the wizards in Washington allowed CIT to convert to a bank-holding company last December in order to receive TARP funds. In my opinion, the lack of discipline displayed by the Washington crowd in this CIT bankruptcy is rampant across a wide number of other situations. Washington neither has the political will nor courage to truly protect taxpayer interests.
I firmly believe CIT will be the first of many bankruptcies in which Washington’s ploy to “extend and pretend” entities which are already toast ultimately cost American taxpayers more in the long haul.
Posted by Larry Doyle on September 9th, 2009 3:42 PM |
In the midst of speaking with a wide array of people over the course of the last 6 months, I continue to hear of more and more individuals who fall into the category of “house rich but cash poor.” This phenomena clearly developed over the last 8-10 years given the skyrocketing of home values. As people continued to take equity out of their homes, the home itself was viewed as a provider of wealth rather than a store of wealth. Well, now that the piggy bank that was the home has plummeted in value, many supposed well-to-do Americans are facing bankruptcy.
This unwind has happened so quickly as to leave these ‘successful’ and ‘savvy’ people bewildered. The fact is, a bear market in any segment of the market takes no prisoners.
Bloomberg highlights the explosion in bankruptcies that many high income but overleveraged individuals are facing in writing, Wealthy Families Face Bankruptcy on Real Estate Crash:
Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.
More individuals or families with at least $1,010,650 in secured debt and $336,900 unsecured are using Chapter 11 of the U.S. bankruptcy code typically associated with business reorganizations. Falling U.S. home prices leave them unable to refinance or sell properties when they drop below the value of the mortgage, said Joseph Baldi, a Chicago bankruptcy attorney.
How is this playing out for banks and other credit providers? An ongoing increase in delinquencies, defaults, and foreclosures. Moreover, this segment of the population consumed more high priced items and took more extravagant vacations. The pullback and impact on companies servicing this clientele will continue to be deep and meaningful. (more…)