Robert Bittencourt’s Post

Collateralized loan obligations, or CLOs, are becoming popular investment vehicles offered by major wall street institutons to retail investors. In fact, demand for CLOs is so hot right now that they are becoming ETF'd; creating a more comfortable and familiar way to gain exposure. CLOs sound a lot like CDOs and, depending on your age, you may be put off given their underlying contribution to the Great Finacial Crisis of 2007. Wall Street banks will tell you that CLOs are way different than CDOs since their structured underlying portfolio differ in risk. While CDOs are structured using high-yielding [risky] debt, CLOs are structured by corporate debt with a relatively low level of default (depending on the tranche). To me, this simply sounds like the latest, greatest, and cleverly marketed product coming out of wall street. Investors should always proceed with caution when complex financial structures are being marketed to the general public. #clo #cdo #collateralizeddebt #wallstreet https://lnkd.in/em_qKctR

Story of Lehman Brothers In 1844 Henry Lehman, an immigrant from Germany moved to US. He started with a new dry goods & general store. His brothers joined him and gave birth to Lehman Brothers in 1850. LB began its trading with raw cotton. The firm’s operations shifted to New York in 1958. He was responsible for incarnation of grocery and commodity business & his brothers laid the foundation for financial industry. For next 150 years LB underwent various changes & formed alliances and partnerships. LB managed to survive the Great Depression, two world wars, a capital shortage when it was spun off by American Express 1994 in an IPO and the Long term Capital management collapse. LB found an opportunity in newly deregulated financial industry, LB increased its involvement in trading, securitization, derivatives, asset management and real estate. The housing boom of early 2000’s saw involvement of the LB and other firms in collateral debt obligation & mortgage backed securities. LB expanded into loan segment, including subprime mortgages, which were given to borrowers without any documentation with weaker credit who would not have been able to obtain mortgage. In Feb 2007 the stock price of LB reached $86.18. By the first quarter, borrowers started to default on loan mortgages. Top analyst considered it to be an alarming sign for a big disaster. In Mar 2007, the stock saw its 1st drop since five years. LB thought that the borrowers default was for short term. The Stock fell with the credit crisis eruption in Aug 2007 with failure of 2 bear sterns hedge funds, following which LB had to shut offices in 3 states. In Sep 2008 the stock plunged 77% which also took the world market down. LB was hoping that the Korean Development Bank take stake in the LB but the bank kept its decision on hold which lead to a drop by 45% in price. Hedge fund companies began to abandon LB with its fragile financial results. Moody’s Investment services reviewed LB’s credit rating & concluded that the only way to avoid downgrading is to sell majority of LB's stake to a strategic partner. LB was left with just $1 Billion in cash. On Sep 13th 2008 Barclays & Bank Of America made an effort to facilitate the takeover but were unsuccessful. On Mon 15th 2008 LB was declared Bankrupt which resulted in plunging of stock prices by 93%. This day is called as BLACK MONDAY in the history of the stock market. The Sensex declined 50% from its peak in Jan 2008. The crash extended beyond equities, leading to a liquidity crunch. India witnessed reversal of capital inflows as FII's sold off heavily. The impact on Indian economy was less severe due to lower dependence on exports and a substantial contribution to GDP from domestic sources. Banks had limited exposure to the U.S. mortgage market and financially stressed global financial institutions There have been many such cases of default in the world and the world economies are dealing very cautiously to keep strong in such scenarios.

📚 5 - The Big Short Another major piece from Michael Lewis, and it's worth the time to digest niffty detail out of what it offers. Don't get tricked and confused that this book is to narrate the screen time of the same name title, but it is actually the movie that bases on and follows closely in every major details. It describes for what & how the subprime mortgage crisis back in 2007-2008 happened, characters or firms that get involved, motives and incentives of every counter-party individuals as part of the transaction that accumulatively introduce the time bomb of bubble in housing market. "Crooks" shall be the word we are familiar with. From rating agencies that can't afford to lose customers like banks or investment banking as the line says "if we don't give them the rating, they'll go to Moody's. Right down the block.". Banks package all the loan packages together as so called "tranche" then group together as CDOs (Collateral Debt Obligation) in order to have much higher chance for better rating overall as average pays off from individual loan before selling off to brokers or dealers. Banks shove off the risk of defaults from their book to the intermediaries who bought from them but still get fees and premiums up on agreement on those deals. Investors tricked to layers of risk depicting as tranches. But almost all of them is "dog shit". They are nomically regarded as same same risk. Actually CDOs doesn't just magically appear out of thin air but due to demands majorly influenced by Michael Burry who asked banks to create investment product as he would like to bet against the housing market, then banks created swap so-called CDS (Credit Default Swap) on subprime mortgage-backed securities (MBS) then it propagates from there. The rate of defaults according to the mathematical model that banks and other entities can sustain the loss has been hit and exceeded. So things start to collapse and finally exploded. M.Burry hand picked the risky loans for CDS to bet against. He paid premiums to keep those bet alive if the price still not going down. He has put his investors money on the line on this bet for like 3 years since 2005. Investors who have stuck with M.Burry would see the profit of 489.34%. The scene of M.Burry wrote the % gain of the fund on the whiteboard accurately depicts such number. One point, don't get caught to the technical jargons e.g. subprime mortgage, tranche, CDOs, and BLA BLA term. It is carefully crafted by financial individuals to not let outsiders easily understand these terms so people in industry can sell products much easily. "subprime" means not on par, it is not good. That should ling a bell. In short, watch the movie, collect all those curiosity points along the scenes, read the book, then rewatch it again. This tremendously increases the understanding of financial market and products banks trying to sell us. Lastly, bonds and options would be as of interest after finishing the book. #books #finance

The commercial mortgage-backed securities market had an exceptionally strong year in 2024, but analysts said this securitized market is still coming out of a net negative supply, which is expected to spur stronger origination and greater investors' appetite this year. For the outlook story on the CMBS market, I talked to Rachel Szymanski at Trepp, Inc., Eliza Jane Crawford at TCW, and Mark Weiss at Chatham Financial who shared their insights into the evolvements of the sector. #CRE #CMBS #commercialrealestate #debt #cre2025outlook https://lnkd.in/ghb2yFtd

Extend and Pretend is Still a Leading Resolution Outcome, but Other Workout Strategies are Taking Hold - The Beginning of a Trend?   The Highlights: ·      According to CRED iQ®, 2024 YTD October, the so-called “extend and pretend” strategy still has the fastest growth rate of all workout strategies.  ·      Loan modifications grew by 81.2% since January of this year. ·      Foreclosures grew 79.6% this year, for the second most common workout strategy. ·      Full resolution, the largest category by dollar, at $31.4B in October, grew by 7.9% so far in 2024, but is still less than half of all outcomes. ·      REO, the fourth largest category reached over $5.0 billion in October, with a 13.3% growth rate (now the third fastest growing strategy of workouts).  ·      Extensions also saw a decrease since January, but more modestly, at 15%.   ·      The fastest growing strategies in this secondary category of Other Workout Reasons, were Deed in Lieu of Foreclosure (80.7% increase), Bankruptcy (68.6% increase) and Note Sale (62.2% increase). Observations: ·      Remember that these metrics only track the public markets, so, there is also much more on the balance sheets of private lenders and banks. ·      While modifications and “Extend and Pretend” are still increasing, other resolution strategies are starting to take hold. ·      These emerging trends, along with recent public announcements of major banks increasing reserves, are signals that we are slowly moving into the next phase of the recovery….and opportunity creation. ·      We see this with borrowers and lenders we work with, especially the lenders. ·      There is no “one size fits all” to resolve these loans, and we often find that philosophical or other overriding corporate reasons drive the real estate outcome. ·      The loan resolution road map needs to be thoughtful for each asset, bringing together company goals, understanding the property operations, market, business plan, and the resources and experience to execute the resolution plan. ·      Creativity counts but so does practicality.   In navigating through these challenges, it’s important to understand all the complexities of the current capital markets, assets, and loans. EOS Real Estate has the multi-disciplinary expertise to guide you through to resolution.   We can help.   #CRE #realestatefinance #assetmanagement #distresseddebt # #maturitywall

💯 Any clue about what Securitization means in Trading ? 💡 ▶ Securitization is the financial alchemy of taking not-easily- or nontradable assets, pooling them together, and selling tradeable shares in that pool to investors. Broadly, securitization can involve any assets, such as bitcoin or ether for crypto exchange-traded funds or properties and related assets for real estate investment trusts. How Securitization Works ? 🔆 ▶ In securitization, the company or the originator that holds the assets determines which assets to remove from its balance sheets. A bank might do this with mortgages and personal loans it no longer wants to service or to raise capital for additional loans. The gathered group of assets is now considered a reference portfolio. The originator then sells the portfolio to an issuer who creates tradable securities with a stake in the assets in the portfolio. Investors buy the new securities for a specific rate of return and effectively take the position of the lender. Advantages and Disadvantages of Securitization ⏩ Advantages: ▶ Turns illiquid assets into liquid ones: Securitization allows for the conversion of non-liquid assets into tradeable securities, improving market liquidity. ▶ Frees up capital for the originator: By selling off assets, originators can raise capital for additional loans or investments. ▶ Provides income for investors: Investors receive income from interest and principal payments of the underlying assets. ▶ Small investors can participate: Securitization opens up investment opportunities to smaller investors who can buy into different tranches based on their risk appetite. ⏩ Disadvantages: ▶ Investor assumes creditor role: Investors take on the role of creditors, bearing the risk of default on underlying loans. ▶ Risk of default on underlying loans: If borrowers default, investors face potential losses. ▶ Lack of transparency regarding assets: Investors may not have full visibility into the quality of underlying assets. ▶ Early repayment damages investor's returns: Prepayments on loans can affect the expected returns for investors. Key Takeaways ✅ ▶ Securitization pools or groups debt into portfolios. Issuers create marketable financial instruments by merging various financial assets into tranches. ▶ Securitized instruments provide investors with income from interest and principal. ▶ Mortgage-backed securities (MBS) are backed by home loans issued to consumers. ▶ Other asset-backed securities (ABS) are backed by auto loans, mobile home loans, credit card loans, and student loans. #Securitization #FinancialMarkets #InvestmentStrategies #AssetBackedSecurities #MortgageBackedSecurities #FinancialInstruments #RiskManagement #CapitalAllocation #InvestorEducation #FinancialServices

What’s Happening. A View from the Castle. Thou shalt not take the name of the military in vain... Crypto portfolio manager CoinStats temporarily shut down after 1,590 wallets were drained. The platform had promised its users “military-grade encryption.” "I find Milton probably as boring as you find Milton; Mrs. Milton found him boring too"... Small cap stocks are down 2% so far this year while large cap stocks are up 15%, causing many to change their investment philosophy. Kids, are you reading this??? An estimated 29 million people in the US workforce also care for an adult family member. 60% of them work full time (compared with 46% in 2009) spending about 20 unpaid hours per week providing care. "Honesty is such a lonely word. Everyone is so untrue"... Short-term rental specialist Sonder is closing down 25% of its portfolio and faces at least two class-action fraud complaints. Its valuation has fallen from $1.9 billion (when it went public in 2022) to $44 million. It has yet to reach profitability and its financial reporting has been significantly questioned. Drip, drip, drip, default... The distress category rate for commercial real estate collateralized loan obligations (CLOs) has risen to 9.74%. "If you think you are leading and turn around to see no one following, then you are just taking a walk"... There are 50 million influencers globally profiting from their social media posts. 50% make $15,000/year or less. In total they make $13.7 billion. 13% make over $100,000 (1 out of every 1,250 people on the planet, so don't quit your day job). "That's right, Iceman"... Golden Goose, the shoe company that makes $600 distressed-look sneakers, paused what was expected to be one of the biggest European IPOs one day before the planned launch amid volatile market conditions in Europe. Reality bites... Commercial property prices have declined by 21% since March 2022, $1.2 trillion of commercial real estate debt is maturing in the next two years, CMBS loans are resolving for increasingly greater losses, and many loans are being extended to be revisited later. And more reality bites even more... The underlying valuations implied by CMBS prices are often out of whack with the prices at which real estate is actually trading. In 2023 CMBS loan special servicing volume increased by 29% to $41 billion (7% of the $600 billion CMBS universe). Well, this is certainly a head scratcher... In May: i) home prices hit a record high; and ii) housing supply continued to pile up as inventory rose 34.2% YOY. If you can't beat them... The SEC has reportedly dropped its lawsuit against Consensys which, in conjunction with its approval of ETH ETFs, indicates the government's intention to treat ETH as a commodity. ETH staking? Not so fast. #investmentbanking #technology #corporatecurrency #privateequity #venturecapital #castleplacement #cpgoapp

STOCK MKT, BANKS BANKS, INVESTMENT FIRMS, STOCK MKT BANKRUPTCY OR INSOLVENCY : "once known as the "Catholic" firm of Wall Street[9] and most of its executives were Irish Catholics." Merrill_(company)#: "company was founded on January 6, 1914, when Charles E. Merrill opened Charles E. Merrill & Co. for business at 7 Wall Street in New York City.[11] A few months later, Merrill's friend, Edmund C. Lynch, joined him, and in 1915 the name was officially changed to Merrill, Lynch & Co.[" Merrill_(company)#: "Winthrop H. Smith Born 1893 South Hadley, Massachusetts Died January 10, 1961 Litchfield, Connecticut" Winthrop_H._Smith#: "RKO Radio Pictures Inc., commonly known as RKO Pictures or simply RKO, was an American film production and distribution company, one of the "Big Five" film studios of Hollywood's Golden Age. The" RKO_Pictures#: "retail brokerage business to E. A. Pierce & Co. to focus on investment banking" Merrill_(company)#: retail investment similarities brokerage vs investment : "1941, Merrill Lynch, E. A. Pierce, and Cassatt merged with Fenner & Beane, a New Orleans–based investment bank and commodities company. Throughout the 1930s, Fenner & Beane was consistently the second largest securities firm in the U.S. was renamed Merrill Lynch, Pierce, Fenner & Beane tourism and finances --- structural issues in tourist visa /Merrill_(company)#: : "money market products and government bond mutual fund products" electronics and defense industry 28 exchanges stock mkt and foreign exchange Merrill_(company)#: "the Alfa Group of companies, was formerly Vice President for Russia of the London branch of Merrill Lynch." /Merrill_(company)#: london queen russia king --- in financial checkmate games probably robbery "1990, the company sold its Canadian private client operations to CIBC Wood Gundy" Merrill_(company)#: checkmate and bishop : "many subprime loans were packaged into mortgage-backed securities (MBS) and ultimately defaulted, contributing to the financial crisis of 2007–2008." /Subprime_lending#: loan vs loan getting a loan to repay another loan loan restructuring?? "that $1 trillion rapidly grew by 50% to $1.5 trillion as of 2018.[" Subprime_lending#: student loan "Founded 1895 first local credit cooperative; 1898 central organizations Headquarters Rabotoren, Utrecht , Netherlands" Rabobank#:~: "sold inappropriate and risky investments to former county treasurer Robert Citron." Merrill_(company)#: 2011 : "22 March 2019, Merrill Lynch agreed to pay more than $8 million (~$9.4 million in 2023) to settle charges of improper handling of pre-released American depositary receipts under investigation of the U.S. Securities and Exchange Commission" Merrill_(company)#: mismarking in london misinformation luring Nigerian barrage of energy "started with holding various positions in equity derivatives and capital markets, to the capital market business Sergio_Ermotti#:~: enron scandal

Another tanker down.. Sorry bank Republic First Bank failed, and most of it was purchased by Fulton Financial.  Despite its previous status as a publicly traded entity, it struggled with disclosures, managing only a PowerPoint presentation in July 2023 after regular annual reports ceased in 2021.  This was largely attributed to ongoing difficulties in retaining an auditor. In 2023, Republic's investor presentation confidently outlined a recovery plan from a poorly executed PPP-funded expansion into NYC commercial real estate,  jumbo residential mortgages at below-market rates and acquisitions of low-fixed rate, long-term securities. The bank had even laid off its NYC credit and sales staff in a bid to exit these troubled business lines—though, presumably, (finger-crossed), the restructuring team remained intact. With new leadership comprising a CEO, CFO, and General Counsel, Republic Frist Bank tried to re-position itself to its core  in the metropolitan Philadelphia and Southern New Jersey markets. It emphasized a niche between smaller community banks with limited resources and larger national banks lacking localized expertise. The strategic positioning was simultaneously precise and vague, casting doubt on the clarity of its vision. Either way, management did not give away their exact plans to exploit their  ( newly)defined strength. It might not have mattered much. Banks resemble tankers more than yachts, as they cannot swiftly change course in response to macroeconomic shifts. Smaller banks, especially those with assets under $10 billion, are usually left without too many easy options.  Often, these banks are the last to enter risky loan categories and the last to exit, forcing them to sell distressed assets in struggling markets when net interest margins are at their thinnest. Such scenarios require deep capital reserves, usually non-existent, and stakeholders favoring a complete overhaul over a prolonged struggle. Compounded by activist investors, Republic First was without the means to rally capital, struggled with increasing loan losses, and had a name confusingly similar to another troubled bank. The toughness of course correction isn't isolated to Republic First. Other larger banks like NYCB face similar challenges even after a capital raise. It will be interesting to see how Fulton Financial manages to steer this new acquisition towards recovery.

Bullish commentary on CRE CLO issuance dynamics from panelists at #ABSEast in Miami this week…. "2024 performance (of CRE CLOs) has given us a lot of confidence," said Harris Trifon, partner and portfolio manager at Lord, Abbett & Co. LLC. "Triple-A CRE CLO bonds started the year with "incredibly cheap" spreads in the low 200s, but they rallied into the mid-150s, according to Andrew Flick, managing director of CMBS trading at Cantor Fitzgerald. Flick said he expects $15bn-$20bn of CRE CLO issuance next year across 20 to 25 deals. Above comments are as covered in linked article by GlobalCapital. The article also notes the trend of increasing reinvestment periods for newly issued CRE CLOs. Last week's Commercial Mortgage Alert noted, "CRE CLO issuers have been stretching the reinvestment timelines of their managed deals lately, signaling that investor demand for such securities is outstripping supply." Related to the improving pricing, Chong Sin wrote in an October 4th J.P. Morgan research note, “the economics for CRE CLO securitizations have also improved as spreads have rallied. Loan spreads, at 1m tSOFR+386 on average, tightened by 14bp since 2023 but the pricing spreads on the offered notes tightened by 62bp to 1m tSOFR+221, improving the economics for the CRE CLO managers materially relative to 2022 and 2023. A continuation of improving economics should lead to an increase in issuance.” #CMBS #commercialrealestate #capitalmarkets