you read this, crack teams of balance-sheet boffins are hunched over laptops,
clutching checklists, scrolling through spreadsheets and asking awkward
questions in the final push to the big year-end reporting season. There is no
mistake it is crunch time for the auditing profession. A slowing economy and
banks' rising caution over lending is expected to spark a rise in business
failures - which inevitably will produce the age-old question of 'where were
the auditors?' On top of this, the profession is uncomfortably aware it is not
far enough away from the era of the Enron and WorldCom scandals to be safe from
suspicions of systemic
weakness should something be shown to have gone wrong this
time. Small wonder then that an informal poll I conducted of global and UK
large accounting firm heads showed most put some form of credit crunch worries
at the top of their list of issues for 2008."
December 31 - Financial Times (Peter Thal Larsen): "The world's banks issued a
record amount of equity in the second half of the year as they sought funds for
large deals and rebuilt their balance sheets in the wake of the global credit
squeeze. According to data from Dealogic, commercial and investment banks
raised equity worth $83bn in the final six months of 2007 ... an increase of
more than 20% on the same period last year, and more than was issued by the
banking sector in all of 2005 ... The figures underline a growing shift in the
banking sector towards issuing equity as lenders grapple with turmoil in the
credit markets and the need to consolidate assets previously stored in
off-balance sheet vehicles" .
January 2 - Telegraph (Ben Harrington): "The amount of bonds issued by
companies fell by 8% last year as the fallout from credit crunch wreaked havoc
in debt markets. According to data provider Dealogic, the volume of bonds sold
globally by companies totalled $6,000bn in 2007 compared with $6,500bn the year
before."
January 3 - Breakingviews.com (John Foley): "The M&A business started 2007
with a bang - and ended it with a crunch. The gumming up of the credit markets
has left investment bankers facing a gloomy economic outlook, and the
withdrawal from the dealmaking scene of private equity buyers, a major source
of fees. But, they needn't be crying into their cups ... Deal volumes beat last
year's record and hit $4.7 trillion, according to ... Dealogic."
January 3 - Dow Jones (Michael Wilson and Mark Brown): "Global issuance of
structured finance securities fell 24% in 2007, with new issues totaling $2.14
trillion from $2.8 trillion in 2006 - a record high, according to ... Dealogic.
Structured finance includes mortgage-backed bonds and structured credit
products such as collateralized debt obligations, or CDOs, which have been at
the center of the subprime-driven credit crunch ... Following a bumper
first-half, in which new issues totaled $1.58 trillion, higher than in any
previous half-year, volumes declined 44% and 75% in the third and fourth
quarters respectively, compared with the same period in 2006 ... Issuance of
bonds backed by US subprime mortgages fell 50% during 2007 and totaled $191.8
billion, compared with $382.3 billion issued in 2006. Fourth-quarter volumes
were the lowest for any quarter in more than seven years ... European issuance
was down 21% from 2006 at $446 billion. And issuance of CDOs…dropped 21% to
$305.7 billion. Fourth-quarter CDO issuance fell 84% in 2007, compared with the
fourth quarter of 2006."
January 3 - Dow Jones (Aparajita Saha-Bubna, Anusha Shrivastava and Lingling
Wei): "Keith Johnson, president of mortgage-analysis provider Clayton Holdings
Inc. (CLAY), spent the last four months visiting some 400 investors in the
mortgage-bond market - including hedge funds, mutual funds and insurance
companies - to promote the firm's services. But the message he received was a
stark one. 'Those investors are very frustrated and surprised by the amount of
defaults and losses they're seeing,' he says. 'They are not certain about what
to believe.' Not only that, in many cases, investors also don't know what
exactly they own, what it is worth and who else might be holding it - an
all-around lack of confidence caused by less-than-perfect transparency ... The
lack of confidence among investors represents a major obstacle for the trillion
dollar asset-backed market to come back ... Sales of CDOs ... plunged 85% to
$15.69 billion in the fourth quarter ... The sputtering Wall Street debt
machine, in turn, has exacerbated the funding pressure on banks and further
reduced credit for everybody from corporate borrowers to home buyers."
January 3 - Bloomberg (Neil Unmack): "Sales of bonds backed by mortgages and
loans will fall 39% this year in the US as losses on subprime-related debt
curbs investor demand for the securities, according to Barclays Capital
analysts. Banks and companies will issue $382 billion of the debt this year in
the US while sales in Europe will decline 43% to 185 billion euros ($273
billion)... US sales totaled $625 billion in 2007 while issuance in Europe
slowed to 326 billion euros, the first-ever decline, the analysts said."
January 3 - Dow Jones (Donna Kardos): "Issuance of so-called Alt-A mortgages
tumbled in the third quarter as the credit crunch peaked, according to ...
S&P ... which projected more declines into early 2008, citing limited
liquidity. The value of Alt-A mortgages ... issued in the third quarter fell
64% to $39.3 billion from the second quarter's record high of $109.5 billion
... The third quarter's issuance was less than half that seen in the same
period of 2005 and 2006. However, the mortgages still made up 28% of all
mortgages originated in the quarter ... S&P expects further declines of
Alt-A issuance in the fourth quarter and early 2008 as the industry continues
to be affected by limited liquidity in the residential mortgage-backed
securities market. S&P said the dramatic drop is the result of
'unprecedented credit and liquidity disruptions' for both borrowers and lenders
..."
January 3 - Bloomberg (Pierre Paulden): "For investors stung by $28 billion of
losses on high-yield, high-risk loans, it's payback time. Creditors are making
borrowers from Carlyle Group's LifeCare Holdings Inc. to casino owner Tropicana
Entertainment LLC increase the interest on their debt by an average 0.83
percentage point to change the terms of their loans, the highest price since at
least 1997 ... The penalties are four times higher than six months ago, S&P
said. A total of 179 North American companies have a high risk of default or
may need to change details of their debt agreements, Moody's Investors Service
said."
January 3 - Bloomberg (Svenja O’Donnell and Jennifer Ryan): "UK lenders told
the Bank of England they plan to reduce the supply of credit to consumers and
companies in the first quarter, threatening to deepen the economic slowdown.
Banks curbed secured credit for households 'materially' and cut debt to
companies 'significantly' in the past three months, the central bank said… They
plan to pare loans to those borrowers further, the report showed."
December 31 - Bloomberg (Laura Cochrane): "Australian mortgage-backed bond
sales fell to the lowest in three years as the fallout from the US housing
recession cut demand for the assets in the second half of the year. Sales of
bonds backed by Australian home loans plunged 87% in the last six months to
A$5.9 billion ($5.2bn), from a record high of A$44.4 billion in the first half
... according to Deutsche Bank AG. Issuance fell 12% this year to A$50.3
billion, the lowest since 2004 ... 'This is definitely the biggest challenge
the Australian securitization industry has faced,' said Phil Vernon, chairman
of the Australian Securitization Forum."
January 2 - Economic Times: "Australian dollar bond issuance fell 40% in 2007
from the year before, data from Thomson Financial shows, reflecting the global
credit crunch ... A total of A$66 billion ($58bn) worth of Australian dollar
denominated bonds, including securitisations but excluding Australian
government debt, was raised worldwide from 143 issues ... Supply figures since
credit markets froze are even more telling. Volume between July and December
slumped 72.5% and reached a five-year record low for a half-year supply ..."
January 3 - Financial Times (Paul Betts): "Last spring, the Spanish property
developer Astroc started the ball rolling. Its debt servicing problems
triggered the first serious plunge in the shares of Spain's financially
over-stretched property and construction companies. Before crashing, Astroc
shares had increased 10-fold since first listing in 2006. Its chairman, Enrique
Banuela, who had been catapulted into the Fortune 100 list of the world's
richest tycoons ... Then, in the autumn, it was the turn of Llanera to bite the
dust ... Now, it is Colonial, another small property fish that has grown by
aggressive debt-financed acquisition into the country’s second biggest property
group ... Luis Portillo, its chairman and largest shareholder, has been sacked.
The company is selling assets to cut its huge debt burden accumulated during
the heady years of expansion and to reassure investors who have seen the value
of their Colonial holdings crumble ... It has become clear the heavily indebted
business model behind the spectacular rise in Spanish property companies will
simply cease to function in the current environment."
January 2 - Financial Times (Martin Arnold and Henny Sender): "A $1.8bn deal
between General Electric and Blackstone to acquire PHH, a mortgage and leasing
business, became the latest casualty of turmoil in the credit markets as PHH
said yesterday it had terminated the agreement. Blackstone Group immediately
issued a statement suggesting that it held its banks responsible for the
failure of the deal to go through. 'Blackstone was prepared to close its end of
the transaction using the financing that in March was originally committed to
be made available,' it said. 'We regret that the banks are now unwilling to
provide financing under the terms they originally agreed to'."
January 4 - Bloomberg (Caroline Salas and Pierre Paulden): "Mutual funds that
buy bank loans turned in the smallest gains of any fixed-income group in 2007
after subprime-mortgage losses scared off high-yield debt investors."
January 3 - Financial Times (Peter Smith): "Centro Properties, the
second-largest shopping mall owner in Australia and the fifth-biggest in the
US, has put itself on the auction block ahead of a February 15 deadline to
refinance $3.4bn of short-term debt. The heavily indebted Australia-listed
property trust last month failed to refinance $1.3bn of loans that were used to
fund expansion in the US, becoming a casualty of tough credit market conditions
arising
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