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U.S. Banks Are Not Alone in Feeling the Pain

posted by Jason Kilborn

In yet another instance of "it's a small world," Royal Bank of Scotland yesterday posted the largest annual net loss in British banking history--£24 thousand million (US$34 billion). Like many U.S. megabanks, RBS (1) suffered from extreme investments in complex financial instruments, especially with its acquisiton of part of the Dutch bank ABN Amro, (2) lent heavily to consumers all over Europe in what I have heard are shoot-for-the-moon risk-fests similar to what we've seen from Citi and other U.S. consumer-heavy lenders, and (3) has already received a partial nationalizing investment (68%) and might be on its way to a full nationalization, all on the heels of impressive profits in 2007 (apparently, Citibank will likely remain only half-way nationalized). Notice that, while the U.S. discussion has focused nearly exclusively on the fallout from bad security investments (CMBS, CDS, CDO, etc.), RBS appears to suggest that significant losses will stem from "consumer loans." This makes me wonder how much pain from poor consumer lending (e.g., credit cards) big banks like Citi are managing to conceal behind the complexities of this financal crisis.

One line in the linked story particularly caught my eye: "The restructuring will leave the bank centered on Britain, with smaller, more focused global operations." This seems to be the approach du jour in many areas--abandoning wild-frontier global expansion and concentrating on familiar markets with more predictable risks (at least ostensibly more predictable). Is the world now no longer shrinking, but indeed expanding again?

Hat tip: Global Insolvency Daily News from ABI


Off topic but do any of you have an opinion on the proposed cramdown legislation (HR1106)?


You know I have seen, locally (in the past, not so much now) quite a few ABN Amro mortgages/Servicing (more 80/20s than anything). As I remember it was a little tough telling the two apart in Bankruptcy anyway. (Servicing/mortgage (I know NOW it was servicing). If it were not for "Mike (where are you?) I would have not looked for or looked at the "pooling and servicing agreement". What I have realized is that it was not so evident (in the past) in their POCs. I don't know if it was because "Mike,” pointed me in that direction or that it actually was not in there. All I know is that now it's like popping out every time I look especially on RFS's (Relief from Stays).

Does Deutcshe Bank own all Sub-Prime Mortgages? Holly smokes! I see their name on practically every "exotic" Mortgage Note PSA. Sup wit dat JK? What’s your take on that?

Oooh oooh, I got one CathyG! I know I know, you already know what it is :( . Ya JK! What's your take on the "Equitable Mortgage Realignment" (my name) legislation aka "Cramdown or Cram down"? Cramdown is so harsh…

Ok for real now. I just read it.

Not withstanding the switching of the “ands” and “ors”.. and such (I know, I know it makes a huge difference sometimes, I just don’t have my “mini-code” on me right now) but the first thing that popped out at me was:

One WE FINNALY GET TO PASS IT THROUGH THE 506 “gate”. Which to me means you get a % of the unsecured portion of the “Equitably Realigned Mortgage” note.

The second was that, we don’t know what kind of interest a BK judge will order. It just says, Prime Rate “plus a reasonable premium for risk”. That could create some un-uniformity throughout the various districts.

Three, (THE BIG ONE for me). Clawback! It seems really fair to me for some reason. You don’t complete the “Plan” you sell the home, you pay a “Clawback”. 80% the First year, 60% the second, and so on and so on. Not to exceed the original secured portion of the loan. (that could be huge! Huge!) I didn’t really read any clawback post-discharge, which I think, is fair.

Four, the “Excessive Fees” part. It is very similar if not identical to the practice we are already seeing. I think the difference is the one we have now is 60 days from “notice” and the proposed legislation has 1 year from the date the charge is incurred “OR” 60 days from notice.

Where am I? Oh ya, FIVE. Trustee fees, yada yada, great 4% by passing the MTG payment thru the Trustee. Great. Nice number.

Last but definitely not least SIX! OMG! (but pretty fair over all to me anyway) FHA! SEC 122(a)and on….. For me it was…….. “the Secretary may pay insurance benefits for the mortgage as follows”. “The Secretary may pay the insurance benefits for the mortgage, but only upon the assignment, transfer, and delivery to the Secretary of all rights, interest, claims, evidence, and records”. If I read and understand this right if you modify a FHA loan the “Secretary” will pay insurance benefits. (What MIP would have paid I could only assume) So “fees” including attorneys’ fees, BPS, Inspection fees etc AT ASSIGNMENT. I still think that would leave room for servicing companies to… ahhhheeem…. Inflate some fees… Not saying that they would, only that it’s possible. WHAT MORE INCENTIVE DO YOU NEED?

Ok, I’m done being a nerd tonight. I still have Friday and it’s the week before “foreclosure” Tuesday.

There are few who can manage to escape having some sort of debt: Mortgages, credit cards, personal loans for cars, all have become part and parcel of leading an adult life, for many of us. However, the current economic climate, combined with over borrowing, has left Australians with an incredible 60 BILLION debt bill.

Read more about it at: www.debthelp.net.au

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