THE DAILY TRADING RISK: JP Morgan Gets Hit With $6 Billion of RMBS Downgrades

Wednesday, June 24, 2009

JP Morgan Gets Hit With $6 Billion of RMBS Downgrades

*now can we SHORT the banks?

from RebelTrader.net
Late this afternoon JP Morgan (JPM) had $6 billion worth of their RMBS (residential mortgage backed securities) downgraded by Moody’s due to the deteriorating mortgage situation.

Moody’’s Downgrades $6B Of RMBS Issued By J.P. Morgan Mortgage Trust And Chl Mortgage Pass-Through Trust

Moody’’s Investors Service has downgraded 217 tranches and confirmed 3 tranches from 9 deals issued by J.P. Morgan Mortgage Trust and CHL Mortgage Pass-Through Trust in 2006 and 2008.

The collateral backing these transactions consists primarily of first-lien, fixed and adjustable-rate, Jumbo mortgage loans. The actions are triggered by the quickly deteriorating performance — marked by rising delinquencies and loss severity, along with concerns about the continuing drop in housing prices nationwide and the rising unemployment levels. The actions listed below reflect Moody’’s updated expected losses on the jumbo sector announced in a press release on March 19th, 2009, and are part of Moody’’s on-going review process. (emphasis added)

Among the tranches downgraded include:
- CHL Mortgage Pass-Through Trust 2008-1
- Cl. A-1, Downgraded to Ba3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-2, Downgraded to Baa1; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-3, Downgraded to A3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-4, Downgraded to A3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. A-5, Downgraded to Baa2; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. PO, Downgraded to Ba3; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade
- Cl. X, Downgraded to A2; previously on 4/9/2009 Aaa Placed Under Review for Possible Downgrade

2 comments:

RebeltraderJune 25, 2009 at 12:50 AM
Traderbum.. If you are going to cut and paste an article from another web site I would advise providing the source where the information came from. This story was taken from my site and no mention of the source was provided. This is copyright violation.

Rebeltraders.net
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TRADEBUMJune 25, 2009 at 7:16 AM
you are right I am sorry it was late and I forgot to post you.
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Fundamentals of Investing in Oil by Chris Termeer
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Options as a Strategic Investment by Lawrence G. MacMillan
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SHORTING STOCK

Lets say you think GE is headed down in price. You would borrow 100 GE shares from A at say, $10, then sell them to B for $10, and when the price goes down to say $5, you would go into the market and buy them at $5 and give back the shares to A, pocketing the difference.

The Mechanics of a Short-Sale
by Andrew Tobin
When you sell stock short, you are selling shares you don’t own, hoping they will go down. Your broker just borrows someone else’s shares for you to sell. Eventually, you have to buy them back and return them (unless you’re really lucky and the stock goes all the way to zero and disappears, in which case there’s nothing to return). If you can buy the shares back for less then you got for them, you make a profit; if you have to pay more, you suffer a loss.

But where do brokers get shares to lend short-sellers? The first thing they do is look to see whether one of their other customers holds the same stock in a margin account. Anyone with a margin account has signed an agreement authorizing the broker to lend his shares. He will not know they’ve been loaned, and he needn’t worry about it either way. He’ll still get his dividend (it will come out of the short-seller’s account); he will still be able to sell at a moment’s notice. (The broker will just replace the shares by borrowing someone else’s shares. Or, if that proves impossible, he’ll "buy in" the short-seller, forcing him to cover his short — typically at a loss — and return the shares. This doesn’t often happen, but it definitely can. It’s one more risk of the hazardous short-selling game.)

Brokers love short sales, because although you take all the risk, they typically get the interest on the proceeds of the stock you’ve sold. That’s right: you shorted 1,000 shares of some stock at $50; well, that means the broker got $50,000 in cash money in return . . . but you won’t find that money in your account. It’s earning interest in his account, whether he be a deep discounter or the most expensive full-service firm on the block.
(Active, pushy customers can sometimes twist arms and, if they do enough short-selling, persuade their brokers to share some of that interest. But few even know to ask and fewer still will be told yes. If you do $20,000 a year in commissions, say, well, that might be a different story.)

If your own broker doesn’t have shares of stock in one of his other client’s margin accounts to lend you, he will call around to find a broker or institution that does have shares to lend. Harvard, with its $10 billion endowment, makes some good money this way.

When a broker or institution lends stock, the "rent" it charges is interest on the value of the shares. In other words, your own broker has to split some of the largess with the lender (making him all the less eager to share any of his share with you).

*to give you an indication of how crooked the market is lately, Fidelity has put out word that they will not lend out shares of IWM.

If you have more questions feel free to email me at tradebum@gmail.com.

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Wednesday, June 24, 2009

JP Morgan Gets Hit With $6 Billion of RMBS Downgrades

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