Federal criminal prosecutors in New York are investigating whether UBS AG misled investors by booking inflated prices of mortgage bonds it held despite knowledge that the valuations had dropped, according to people familiar with the matter.
The investigation, by the U.S. attorney in New York's Eastern District in Brooklyn, is preliminary. The U.S. attorney's office frequently works closely with the Securities and Exchange Commission to coordinate efforts to gather information. The New York prosecutors haven't issued subpoenas, according to people familiar with the matter.
The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage ...
"Where are the FBI and SEC Investigations Leading?"
DK Matai - January 29, 2008
The US Federal Bureau of Investigation has opened criminal investigations into 14 companies relating to improper subprime mortgage loans. The probes involve potential violations, including accounting fraud and insider trading.
The FBI has not identified the companies and the probes reach across the industry to include housing developers, subprime lenders, companies that securitised loans and investment banks that held them.
The FBI is investigating the 14 corporate cases in parallel with the US Securities and Exchange Commission (SEC), which has opened about three dozen civil investigations into the subprime market collapse. Some of the probes overlap with the FBI.
Separately as reported: Bear Stearns, Goldman Sachs and Morgan Stanley have said that government entities and regulators are seeking information from them about their subprime mortgage activities including mortgage securitisations, Collateralised Debt Obligations (CDOs) and synthetic products tied to subprime mortgages. The investment banks disclosed the various requests and subpoenas in their respective annual reports filed with the SEC on Tuesday.
Targets of the SEC probe, as reported, include the Swiss bank UBS AG and US investment banks Morgan Stanley, Merrill Lynch, Bear Stearns, as well as the bond insurer MBIA. The SEC, which has formed an internal subprime mortgage task force, is looking at how financial firms priced mortgage-based securities and whether they should have told investors earlier about the declining value of those securities.
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The tougher standards will prohibit Citigroup, Goldman Sachs, Morgan Stanley and other US banks from setting values to sub-prime mortgages and other forms of exotic debt on the basis of "assumptions", compelling them instead to value assets at market prices - mostly far lower.
The change could not come at a worse time for banks already taking huge writedowns. The Dow Jones index has fallen 617 points over the past three trading days after rumours of huge bank losses swept Wall Street, ending with a sharp drop in the closing minutes on Friday that bodes ill for global equity markets this week.
In London, Barclays' share price fell 9pc at one point, causing trading to be suspended briefly. The bank denied reports that it is preparing to write off $10bn in sub-prime investments.
The new rule from the US Financial Accounting Standards Board - known as FASB regulation 157 - comes into force on Thursday. It affects the Level 3 tier of assets that are currently valued according to in-house models, or "mark-to-make-believe" in the words of Bob Janjuah, credit chief for the Royal Bank of Scotland.
FASBの新規則(第157条)は木曜日に施行された。
これは現在インハウス・モデル、またはRBSのクレジット・チーフ、Bob Janjuahの言葉を借りれば「mark to make believe」によって評価されている、レベル3資産に影響を与えるものだ。
Mr Janjuah says the FASB rule change could lead to a further $100bn of writedowns as banks are forced to come clean, with total losses climbing as high as $500bn across all forms of distressed credit. The top six banks alone have $365bn of assets in Level 3.
Although Level 3 assets are thinly traded, a series of ABX indexes give a rough guide to the market value of some $1,200bn sub-prime mortgage securities. These show that the lowest grades of 2006 vintage debt are worthless; BBB grades are down to just 18 cents on the dollar. AA grades are trading at around 60 cents, and AAA are near 85 cents.
Moreover, much of the entire $3,000bn global market for collateralised debt obligations is under strain. Merrill Lynch has declared a 30pc writedown on its holding of CDOs, offering a glimpse into the true values.
Few of the banks have admitted to losses on anything like the scale suggested by market prices. UBS is still booking its US mortgage debt at 90 cents on the dollar.
While nobody knows what lies under the Level 3 rock, the new rule could spell trouble. Citigroup has $128bn of assets in this category, or 205pc of its tangible equity. The figures for other banks are: Morgan Stanley $88bn, (275pc); Goldman Sachs $72bn (212pc); and Lehman Brothers $35bn (194pc).
The banks say a temporary panic has pushed prices below fair value, no longer reflecting likely default rates. A Goldman Sachs spokesman said the rules had compelled the bank to place quality assets in the Level 3 category that are not at risk in any way.
With the markets in an unforgiving mood, however, all banks are now assumed guilty until proven innocent.
しかし市場が厳しいムードにある中、全ての銀行は今では無実と証明されるまでは推定有罪だ。
In a rare piece of good news, The New York Times reported yesterday that Citigroup, Bank of America and JPMorgan had agreed terms for a $75bn rescue fund - or Super-Siv - to prevent a fresh fire sale of sub-prime debt. They are now in talks with 60 banks on plans to launch the scheme in December.
If it works, it will allow the lenders to feed out losses slowly, giving the market time to adapt. Critics say it is merely another attempt to cover the crisis by preventing "price discovery".