Let’s see what happens on Monday
We discussed Carlyle Capital just the other day. The situation seems to be coming to a head rather quickly, with trading suspended on Friday and what appear to be some make or break decisions by Monday WSJ:
It looked like easy money at first. Carlyle Capital would exploit the difference between the interest earned on its investments in mortgage securities and the costs of financing those investments. The secret to making money was borrowing massive sums. Carlyle Capital managed only $670 million in client money, but used borrowings to boost its portfolio of bonds to $21.7 billion, meaning it was about 32 times leveraged. Market participants say that Carlyle Capital’s leverage was on the high side.
With credit markets unraveling, the borrowing has proved to be Carlyle Capital’s undoing. Lenders are requiring more collateral for loans, because of a decline in the market value of their mortgage assets. “They were maxed out on their leverage,” or debt level, said Mr. Howlett, an analyst at Fox-Pitt, Kelton. The fund’s biggest creditors at year-end 2007 included Citigroup Inc. with repurchase agreements totaling $4.7 billion, Bank of America Corp. at $2.1 billion, UBS AG at $1.8 billion, and Deutsche Bank AG at $1.7 billion…
A meeting among the fund’s lenders is scheduled for Monday, at 10:30 a.m. in New York. The goal is what some market participants call a “stretchout,” which replaces short-term debt with longer-term financing. “If Carlyle Group does not provide another backstop,” Donald Fandetti, a Citgroup analyst, said it “could be forced into significant asset sales into a weak market or could face bankruptcy.”
Reuters reports: “Wall Street banks are facing a ’systemic margin call’ that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co, said in a report late on Friday.” Good luck to us all.