Archive for December, 2008

Wal-Mart joins Russian retail lobby group (Reuters)

Monday, December 29th, 2008 | Finance News

MOSCOW (Reuters) –
Wal-Mart Stores Inc (WMT.N) has joined the Russian retail association, the lobby group said on Monday, the latest in a series of moves indicating the world's largest retailer's interest in expanding into Russia.

"Wal-Mart is working on the Russian market," Ilya Belonovskiy, the executive director of the 28-strong industry group told Reuters on Monday. He declined to elaborate.

Members of the association include French retail giants Carrefour (CARR.PA) and Auchan, Germany's Metro AG (MEOG.DE) and Russia's largest food retailers X5 Retail Group (PJPq.L) and Magnit (MGNTq.L).

In April, Wal-Mart appointed an executive to head its efforts to explore business opportunities in Russia and neighboring markets.

In June, the company said it was "exploring opportunities in Russia," weeks after it acknowledged taking "active steps" to research Russia and nearby countries in Eastern Europe [ID:nN06360405].

A source with an investment bank advising Wal-Mart told Reuters on Monday the U.S. company was in acquisition talks with Russian chains that may need a cash injection.

"It's a very opportune moment for Wal-Mart now that assets are getting cheaper," he said.

The Russian retail sector has been badly hit by a credit squeeze triggered by the global economic crisis, which analysts say could speed up consolidation within the fragmented sector.

A source with a headhunting agency familiar with Wal-Mart's expansion plans in Russia said the U.S. giant has been hiring administrative staff. "There are already about 30 managers working in their team," the source said.

Wal-Mart currently operates in a dozen markets outside of the United States including Japan and China. It has also established a joint venture in India.

(Reporting by Maria Plis; writing by Maria Kiselyova; Editing by David Cowell)

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How one family’s mortgage is linked to meltdown (Reuters)

Monday, December 29th, 2008 | Finance News

HAMPTON BAYS, New York (Reuters) –
Cynthia Goldrick's daughter is in and out of the hospital for brain surgery, her mother has Stage 4 lung cancer and her father has moved into a home for the elderly.

So when the Goldrick family's adjustable rate mortgage reset while husband Patrick was off work for a job-related injury, it eliminated the thin margin between their income and the mortgage payment and put them on the road to foreclosure.

While these circumstances may seem extreme -- a perfect storm of bad luck -- the basic economics of a hike in mortgage rates and a bank's inability or unwillingness to modify terms have been shared by many Americans over the past year.

The Goldricks took out a $375,000 mortgage in 2005, when they refinanced a previous mortgage on their 1,800-square-foot (167-square-meter) house in semirural Hampton Bays, some 90 miles east of New York city.

At first, the interest rate was 6.5 percent and the monthly payment was $2,370. After two years, it rose to 9.5 percent and suddenly the payment of $3,850 was beyond the means of a family living off Patrick Goldrick's salary as a cable guy.

Appraised at $605,000 in 2005, the house today is surrounded by others with "For Sale" signs out front and is probably worth less than the outstanding loan.

It is also the only home the Goldrick children have known. "It's just walls. But this is where my daughter comes home after surgery, so they're comfortable walls," Cynthia Goldrick said.

The loan was granted by Rose Mortgage Inc. of New Jersey and is being serviced by Saxon Mortgage Services, a unit of Morgan Stanley.

But the mortgage is in the hands of neither because it was securitized, pooled with $700 million worth of mortgages into an investment vehicle created by Morgan Stanley known as IXIS 2005-HE4, and sold to investors.

Such pools constitute much of the so-called toxic assets at the heart of the worst financial crisis in the United States since the 1930s.

Today's investors in IXIS 2005-HE4 include Prudential Insurance, Pimco Advisors, Western Asset Management and Legg Mason -- institutions that manage money for the wealthy and the population at large.

NOT JUST A HOUSE BUT A HOME

"We didn't jump on the refinancing bandwagon to take a cruise or buy a Mercedes," Cynthia Goldrick said. "We refinanced to give my child a life, not a lifestyle, but a life."

The Goldricks' 10-year-old daughter, Erin, has had 10 operations for hydrocephalus, a Chiari malformation and spina bifida. Most of the medical bills are paid by insurance and a fund established from the settlement of a malpractice suit over Erin's treatment as a baby.

Erin is an honor student who would have made high honors but for a score of 83 in dance. She bears little outward sign of her medical history, unless she pulls up her hair to show scars on her neck and an open wound on her scalp. She looks after her little sister, Emily, 6, and their room is decorated by dozens of stuffed animals.

But her constant medical needs prevent Cynthia from going back to work. "How can you go to work when your daughter's on the operating table?" Cynthia said.

At one point, the Goldricks considered selling their home and moving to a larger and cheaper one in North Carolina, but that would separate Erin from the doctors who have been treating her since she was 2.

So they enlisted the services of Sal Pane Jr., president of AmeriMod, a company specializing in modifying mortgages, a process in which banks agree to lower mortgage payments and interest rates to avoid the cost of foreclosures.

"Modifications can save this economy," Pane said. "My company could do 60,000 loan modifications a month with our current staffing. Give us government assistance and I can modify the entire country in a year."

But modification efforts have encountered difficulties. Increasingly, people are falling behind on loans that have already been modified and regulators warn the trend may worsen. Of all the modifications made in the first quarter, 55 percent were at least 30 days delinquent after six months, according to a government report.

Then there are the rights of bondholders -- the financial institutions that invest in mortgage-backed securities like the pool that contains the Goldrick mortgage.

While modification advocates say it is better for investors to accept a lower rate of return rather than nothing, bondholders don't see much benefit if modifications just delay an inevitable foreclosure.

Moreover, some securitizations prohibit modifications, as is the case with the pool containing the Goldrick mortgage. Such clauses are meant to protect bondholders -- sometimes a hedge fund, sometimes a pension fund -- who have been guaranteed a certain return.

So even though the Goldricks could afford to stay in their home if the interest rate was 6.5 percent, and the bondholders would benefit by continuing to receive income on the loan rather than have it stuck in foreclosure, the servicer of the loan -- Saxon -- cannot budge.

"Your loan modification request has been denied because the investor does not allow modifications for this loan. We apologize for any inconvenience," a Saxon customer service representative wrote to AmeriMod on December 19.

Saxon referred inquiries on the Goldrick mortgage to its parent, Morgan Stanley, which declined to comment.

Despite the notice, Pane vowed to continue fighting to modify the loan, citing the extraordinary circumstances of the Goldrick family and a clerical error that put the Goldricks further into arrears when a payment to cover property taxes was credited to the wrong account.

POOL RULES

Back in 2005, the securitization pool containing the Goldrick mortgage looked like a safe bet for fixed-income investors. Fitch Ratings gave the senior debt in that pool a grade of AAA -- a rating it maintains to this day -- and Fitch said 80 percent of the AAA bonds have been repaid in full.

The lower-rated debt in the pool has not fared as well, resulting in multiple downgrades.

Three years after the deal closed, 24.3 percent of what is left in the fund is in foreclosure and another 13.1 percent delinquent by at least 30 days, according to November data on Morgan Stanley's website.

And 2005 was still a pretty good year. Mortgage bonds from 2006 and 2007 are even more "distressed."

Until the credit crisis blew up in 2007, Wall Street institutions were piling into mortgage-backed securities. It was dominated by Lehman Brothers, which has since collapsed, and Bear Stearns, which was sold to JPMorgan Chase & Co in an emergency deal.

Investment banks were making 1.25 to 1.35 percent on securitizations, which would mean a profit of $8.75 million to $9.45 million on a $700 million pool.

"That doesn't sound like a lot, but mortgage markets are so big there's a lot of profitability," said Brad Hintz, a securities industry analyst for Sanford C. Bernstein & Co.

Firms were in frenzied competition for market share at a time when mortgage companies were handing out easy credit.

Now, that bubble has burst and new issues of securitized mortgages have come to a halt. Investors are buying mortgage bonds at a steep discount on the secondary market.

"Distressed yields are on the order of 15 to 20 percent, so people are kind of responding to that," said JPMorgan analyst Chris Flanagan.

For example, Whitney Tilson, founder of the hedge fund T2 Partners LLC, said he was betting that losses on underlying loans won't be as bad as the market expects. In other words, enough people will continue to make their mortgage payments.

"For the first time in our 10-year history we are buying distressed debt, and we are selling equities to do it," Tilson told the Reuters Investment Outlook Summit earlier this month.

But that won't help the Goldricks, who like many other families are in danger of losing their house and not likely to benefit from the $700 billion that Congress has allocated to Wall Street for bailing out financial institutions.

"I am absolutely bitter," said Patrick Goldrick, who sees the scandal surrounding investment advisor Bernard Madoff as further evidence of Wall Street wrongdoing. "I am bitter toward Congress and bitter toward the big banks and the creepy billionaires who get away with stealing pensions."

"I just don't even listen anymore. I turn it off. It's all bad news."

(Reporting by Daniel Trotta; Editing by Eddie Evans)

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JC Flowers and others close to IndyMac deal: source (Reuters)

Monday, December 29th, 2008 | Finance News

NEW YORK (Reuters) –
A consortium of private equity and hedge fund firms, including J.C. Flowers & Co, is close to a deal to buy the assets of failed mortgage lender IndyMac, a source familiar with the matter said on Sunday.

The prospective buyers also include Dune Capital Management, a private investment firm run by former Goldman Sachs executives, and hedge fund Paulson & Co, the source said.

The consortium would buy the bank and its 33 branches, IndyMac's reverse-mortgage unit and a $176 billion loan-servicing portfolio, the source said.

The presence of private equity and hedge fund firms comes after the FDIC said last month it was expanding the pool of qualified bidders to include those institutions that do not currently have a bank charter, although they must have conditional approval for a charter from the responsible agency.

The Federal Deposit Insurance Corp and IndyMac as well as the buyers in the consortium could not be immediately reached.

Last week IndyMac spokesman Evan Wagner said a deal was expected before the end of the year. The deadline for final bids for IndyMac's assets was December 15.

FDIC estimates IndyMac's failure cost the agency $8.9 billion. Barclays Capital and Deutsche Bank are advising the FDIC on the sale.

The mortgage specialist's IndyMac Bank unit was taken over by regulators after it failed on July 11 in one of the largest bank failures in U.S. history. At the time, it had $32 billion in assets and $19 billion in deposits.

IndyMac Bancorp Inc (IDMCQ.PK), the holding company, filed for Chapter 7 protection soon after with the U.S. bankruptcy Court in Los Angeles, indicating it plans to liquidate.

Founded in 1985 by Angelo Mozilo and David Loeb, who also founded Countrywide Financial Corp, IndyMac once specialized in "Alt-A" home loans, which often didn't require borrowers to fully document income or assets.

It collapsed after defaults mounted and as tight capital markets caused losses on mortgages it couldn't sell.

The seizure came after panicked customers withdrew more than $1.3 billion of deposits over 11 business days. The withdrawals followed comments in late June by U.S. Sen. Charles Schumer questioning IndyMac's survival.

(For more M&A news and our DealZone blog, go to http:/www.reuters.com/deals.)

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