by Calculated Risk on 12/13/2007 11:48:00 AM

From Jonathan Weil at Bloomberg: CIBC's Big Subprime Secret Might Cost Billions (hat tip Justin)

CIBC last week [said some company] is insuring $3.47 billion, or about a third, of the collateralized- debt obligations it holds that are tied to U.S. subprime mortgages.

The [insurer]'s identity matters because the bank said these hedged CDOs were worth just $1.76 billion at Oct. 31, down almost half from their face amount. If the guarantor goes poof, CIBC loses its hedge on these derivative contracts. And the Toronto-based bank would have to recognize the loss, which is growing.

If ACA is the insurer, this would be bad for CIBC ... ACA Financial ... had $425.5 million of statutory capital at Sept. 30 and $1.1 billion of so-called claims-paying resources to back its guarantees -- for all its customers. That's not enough to cover the CDOs in question at CIBC.

Weil is speculating that ACA is the counterparty to CIBC, but it does seem likely.

I've also been told that on the Lehman conference call this morning, a Lehman executive said (paraphrased by source) that they "don’t have visibility into--and can’t count on--some counterparties so they have bought CDS’s to hedge that exposure."

by Calculated Risk on 12/13/2007 11:33:00 AM

From Financial News: HBOS pain takes UK bank writedowns to £2bn in a week (hat tip Barley)

HBOS has become the fourth UK lender in a week to announce a multi-million pound writedown on the back of the turmoil in global credit markets, taking the total written off by UK banks in the last seven days to almost £2bn (€4bn).

The bank this morning said it wrote down £520m on its investments, three days after Lloyds TSB revealed a £200m hit on its own portfolio and a week after Royal Bank of Scotland reduced the value of its assets by £950m as a result of its exposure to US sub-prime.

Northern Rock continued to add to the woes of the UK banking sector, saying this morning it had written down its collateralised debt obligation portfolio by £281m.

And the beat goes on ...

by Calculated Risk on 12/13/2007 11:00:00 AM

Click on graph for larger image.

Office vacancy rates have spiked in California's Inland Empire and Orange County according to the USC Lusk Center’s Casden Real Estate Economics Forecast.

Jeff Collins at the O.C. Register reports: USC sees vacancies chilling O.C. office rents in ‘08

Construction of new office buildings and layoffs in the financial services and mortgage industries will keep office vacancies high in Orange County through 2008, halting the upward spiral of lease rates, according to the USC Lusk Center’s Casden Real Estate Economics Forecast.

But despite a slight slowdown in sales and rent increases, industrial real estate should remain strong next year, with continued low vacancies, added Delores Conway, director of the Casden Forecast.

Tighter credit, almost no job growth, and falling consumer confidence is leading to a lot of uncertainty, Conway explained. But the slowdown will amount to “a short-term adjustment,” even in the office sector.

Note that the Casden Forecast doesn’t expect a recession next year.

by Calculated Risk on 12/13/2007 09:15:00 AM

From CoStar: TROUBLE IN TEXAS: Huge Multifamily Owner Nears Collapse (hat tip Nick)

MBS Cos., one of the largest multifamily property owners in the country, is delinquent, in default or in danger of becoming so, on more than $900 million in loans.

... if MBS defaults, it ... will ... generate a huge spike up in CMBS delinquencies, expected to be reported this week or next.

PNC Financial Services Group originated almost all of the loans made to MBS Cos., about 90% of MBS's total loan exposure. Most of those loans are no longer on PNC's books because they were off-loaded into commercial mortgage backed securities (CMBS) ...

As of last month, Smuck-affiliated companies had as many as 65 other loans totaling more than $900 million spread across 36 CMBS deals. Most of the loans were taken out since 2000, some as recently as this year. Nearly two-thirds of those were reported to be at least 30 or more days delinquent ...

by Calculated Risk on 12/13/2007 09:05:00 AM

From MarketWatch: Retail sales rise across the board in November

U.S. retail sales rose sharply in November, pushed higher by rising gasoline prices, the Commerce Department reported Thursday.

The early Thanksgiving holiday, which allowed for more Christmas shopping, may have played a role in the strong showing.

Auto sales were the only area of weakness in November.

Retail sales rose 1.2% in November after rising 0.2% in October. This is the strongest sales pace since May. Retail sales are up 6.3% in the past 12 months.
...
In a separate report, the Labor Department said producer prices jumped 3.2% in October, the largest since 1973 and the core rate rose 0.4%. See full story.