what? me worry?
i sold my enron/global crossing n bought cattle futures...
Posted on 08/15/2002 9:30:33 PM PDT by Libloather
What, Me Worry?
Thursday August 15, 6:35 pm Eastern Time
Forbes Magazine
By Scott Woolley
The banks that led $365 billion in telecom lending have avoided big losses. The folks they used to offload the risk weren't so lucky.
The bankers that fueled the telecom borrowing binge should be throwing themselves off a rooftop by now. Since early 1998 they have lent $365 billion to telecom companies, says Loan Pricing Corp. Then came an unending string of defaults. Winstar, McLeodUSA, 360 Networks, Global Crossing and Metromedia Fiber have filed for bankruptcy protection--trailed by the biggest belly flop of all, WorldCom with $32 billion in debt. Qwest may go next.
Yet the debacle has, so far, barely bruised the banks that led the way: J.P. Morgan Chase, Citigroup and Bank of America. Those three each led over $40 billion in telecom debt deals last year alone. But they have eluded the financial fallout by shifting much of the flaky paper--and most of the risk--on such institutions as the California Public Employees Retirement Systems (Calpers) and the pension fund for government workers in Los Angeles County as well as lesser rivals like Mellon Financial. Which helps explain why the banks floated so many risky loans in the first place. "Bankers have gotten away from being bankers," says Frank Colombo, managing director at Seaport Group, which trades distressed debt. "There used to be a discipline founded from the fact that you own the debt."
The big banks offloaded the risk by syndicating loans widely to other banks and shipping bonds to pension funds and insurance companies drawn to the high yields. Now Calpers and other pension funds are among the bondholders suing J.P. Morgan, Citigroup, Bank of America and myriad other lenders, charging a lack of due diligence in their underwriting. (The banks say the suits have no merit.)
Calpers lost $330 million in WorldCom debt. A Texas teachers' pension fund lost $59 million, the New York State pension fund $88 million. Mellon Financial just wrote off $100 million as a result of bum WorldCom loans it held. Since the beginning of 2001 the value of telecom debt in the secondary market has fallen 28%, compared with no change for the debt market overall.
The megabanks' exposure, by contrast, was mild. J.P. Morgan, which led telecom deals worth $235 billion since 1998, today holds $8 billion in telecom loans--mostly very senior debt that is likely to be repaid in full. Last quarter J.P. Morgan saw commercial loan chargeoffs rise $81 million to $293 million, due in part to telecom problems as well as the overall sluggish economy. As for the biggest bankruptcy in history--WorldCom--J.P. Morgan's exposure ended up being less than $20 million.
Sometimes banks fare all too well at spreading the risk to others. WorldCom's wipeout was a nonevent at Citigroup's banking arm, which sold off the risk to institutional clients--including Citigroup's own insurance divisions, which owned $335 million in WorldCom debt that is now worth a tiny fraction of that, says Chief Financial Officer Todd Thomson. As the year began, 4% of Citigroup's corporate credit loan portfolio was in telecom, compared with 8% of total debt offerings since 1998. Bank of America's total is down to 1%.
Now the big Wall Street banks are capitalizing nicely on the sad shape of telecom. The big loans they make now are debtor-in-possession financing deals with companies in Chapter 11. Unlike earlier loans, this paper is typically very well secured. Among the leaders of WorldCom's recent $750 million possession loan: J.P. Morgan and Citigroup.
It could be months or years before Calpers and other stung debt-holders get a verdict in their lawsuits against the lead lenders. A bigger threat: More falling telecom dominoes could yet stick the banks with debt they can't dump or hedge. Wireless companies, some looking overextended, tend to have much more bank debt. Other telecom companies also have bank lines of credit they can draw on as a last resort.
But, for now at least, the megabanks have shown that making bad loans can be a good business--as long as you can find suckers you can fob them off on.
Sources: Loan Pricing Corp.; company reports.
By the Numbers - Big banks were lead agents on hundreds of billions in telecom debt. Yet, happily for them, they held on to little of that paper.
TELECOM LOANS ORIGINATED SINCE JANUARY 1999($BILLION)
J.P.Morgan $235
Citigroup $127
Bank of America $199
TELECOM LOANS HELD($BILLION)
J.P.Morgan $8
Citigroup $16
Bank of America $3.7
PERCENT OF ORIGINATED LOANS NOW HELD
J.P.Morgan 3.4%
Citigroup 12%
Bank of America 1.9%
WASHINGTON, Aug. 14 /PRNewswire/ -- The following is DNC Chairman McAuliffe's statement on the Anniversary of Social Security:
"Today marks the 67th Anniversary of President Franklin Delano Roosevelt signing Social Security into law. Republicans opposed it then and have worked to tear down a system that has provided retirement security to generations ever since.
"Now, Republicans want to privatize the system, taking out trillions of dollars for a plan that would -- in the words of President Bush's own commission -- force a raise in the retirement age, a cut in benefits, and an increase of payments into the system.
"Currently, President Bush and Republicans in Congress are engaged in election year deception. On the advice of their pollsters, Republican supporters of privatization are doing everything they can to mask their true agenda.
"Democrats know the Bush administration is committed to privatizing the system. Treasury Secretary Paul O'Neill promised yesterday, at the Bush economic photo-op, that the Administration will take up privatization next year.
"But this fall, Democrats will stand with retirees to ensure that Social Security does not become Social Insecurity."
Ping!
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Boilerplate Whitewater ~right down tothe straw-man father-in -law
By September it was revealed that Terry had underwritten the Clinton Mortgage in NY ~ the case seems to have died
ELECTRICAL WORKERS (IBEW)
DOL Sues Union Fund Tied to Clinton-Crony McAuliffe
The U.S. Dep't of Labor filed suit May 5 against two trustees of the $8.3 billion Nat. Electrical Benefit Fund charging improper dealings between the fund and top Clinton-fundraiser Terence R. McAuliffe. According to DOL, NEBF trustee John Grau and ex-trustee Jack F. Moore imprudently lent over $6 million in pension assets. NEBF is operated jointly by the Int'l Bhd. of Electrical Workers, from which Moore retired as secretary in 1997, and the Nat. Electrical Contractors Ass'n, of which Grau is a vice president.
The scam involved a $6 million loan in 1992 to Columbia Land & Development Corp. of Orlando to buy a subdivision called Country Run which was to be developed into 545 lots. McAuliffe and his wife, Dorothy S. McAuliffe, own Columbia. The loan was in default from Dec. 1992 to Oct. 1997. DOL says NEBF should have known the loan couldn't be repaid in full with interest. The suit seeks the trustees to reimburse the fund for losses, including interest.
The McAuliffes also own Am. Capitol Management, a partner with NEBF in a separate investment called Am. Capitol Group I Assets LP, which guaranteed payment of the Columbia loan. In a separate 1991 investment, NEBF paid $38.7 million to buy five apartment complexes and a shopping center near St. Petersburg. The partnership bought the properties from the Resolution Trust Corp., which had taken control of them from a bank in receivership that had been owned by McAuliffe's father-in-law.
DOL alleges NEBF imprudently purchased a $2.45 million interests in ACGIA, a move that reduced the value of the ACM guarantee on the Columbia loan. McAuliffe's holdings in ACM had been collateral for the loan. The suit further alleges trustees made one of the purchases in the ACM partnership even though the Columbia loan was in default. The pension fund then reportedly sold its share of the partnership and the Columbia loan to ACM at a loss. [Pensions & Investments 5/17/99]
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It is the largest single loss in the pension fund's history . . . The California Public Employees Retirement System, the nation's largest public pension system at about $150 billion, had WorldCom stock and bond losses of about $565 million, according to CalPERS spokesman Brad Pacheo.
Michigan officials said their state pension fund lost about $116 million on WorldCom. Florida's $90 billion state pension fund, already hobbled by an estimated $300 million loss on Enron stock, lost between $85 million and $90 million, state officials there said. . .
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