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Banks face "systemic margin call," $325 billion hit: JPM

Reuters.co.uk

Sat Mar 8, 2008 9:23am EST

By Walden Siew

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.
JPMorgan, which sent a default notice to Thornburg Mortgage Inc. after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls this week.
"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call."
The credit crisis that began about a year ago will likely intensify after Friday's weak February U.S. employment report "that most definitely signals recession," JPMorgan said.
Indeed,
corporate bond spreads widened to a new record on Friday, surpassing levels seen in October 2002 during a boom in bankruptcies following the dot-com crash
. U.S. employers cut payrolls in February for a second consecutive month, slashing 63,000 jobs, the biggest monthly job decline in nearly five years, the U.S. Labor Department reported on Friday.
"The weak February employment report points to an economy in recession," JPMorgan said.
The JPMorgan report included a revised bleaker forecast for subprime-related home prices. The bank now sees prices falling 30 percent, from its prior 25 percent forecast. Those prices have declined 14 percent since mid-2006, JPMorgan said.
The U.S. jobs results also came after the Federal Reserve expanded the amount of its short-term auctions to $100 billion in total in the central bank's latest effort to ease credit concerns.
Ongoing concerns about bond insurers, known as monolines, and their effort to save their top ratings also are weighing on market sentiment.

I am new to all this, so please forgive the ignorance.

Could Extradry Martini or someone approaching his level of knowledge explain the ramifications if this margin call is made? Would all these margin calls be made within a short space of time?

Edited by Pacific State

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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.
Put bluntly all trust has gone out of the window, they're all sh!tting themselves.

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Isn't George Bush associated with the Carlyle Group along with members of the Bin Laden family?

If so....can't wait for it to crumble under it's margin call!

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At the end of the day a lot of "wealth" is going to evaporate, it`s all fantasy money anyway. The masses of sheeple around the world will have to be kept in some form of "employment" and some form of exchange will have to be run off a printing press. Let the bankers take it up the bum. I am not going to lose any sleep. If bankers still want to be bankers, they will have to accept the losses they themselves have created, and they will have to keep the sheeple borrowing something somehow.

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In fairness there is nothing in this article that hasnt been said here (and elsewhere) over a year ago.

Time to move on to the post-very-large-crash-and-recession-but-NOT-a-depression scenario...

Lets try to stay ahead of the curve...

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A depression is inevitable, and a very severe one at that. Our service sector economy has no means by which to lift us out of recession and there won't be any capital available to fund enterprises that might help economic growth.

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Isn't George Bush associated with the Carlyle Group along with members of the Bin Laden family?

If so....can't wait for it to crumble under it's margin call!

George Bush (Sr.), James Baker III and.......................... John Major.

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This site has always been 'ahead of the curve' besides the article is relevant, no one knows how this will pan out, the desperate measures taken by the fed are having no impact, we are in unchartered waters recession looks the best possible outcome.

In fairness there is nothing in this article that hasnt been said here (and elsewhere) over a year ago.

Time to move on to the post-very-large-crash-and-recession-but-NOT-a-depression scenario...

Lets try to stay ahead of the curve...

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Guest grumpy-old-man
A depression is inevitable, and a very severe one at that. Our service sector economy has no means by which to lift us out of recession and there won't be any capital available to fund enterprises that might help economic growth.

agreed BoomBoom,

what do you reckon, 2012 ?

ps everyone else - I might come across as a doom'n'gloom armageddon type with all my depression & stat fiddling talk, but in reality I am an optimistic pessimist. ;):P

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Theres been a growing number of articles about various large margin calls, invevitably there are many more behind the scenes. If funds/banks/investors are forced to sell assets into the illiquid markets to meet margin call the credit crunch will quickly turn into the asset crunch as the crashing markets cause more margin calls and so on. Thats the part of the depression where things get shockingly ugly.

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Theres been a growing number of articles about various large margin calls, invevitably there are many more behind the scenes. If funds/banks/investors are forced to sell assets into the illiquid markets to meet margin call the credit crunch will quickly turn into the asset crunch as the crashing markets cause more margin calls and so on. Thats the part of the depression where things get shockingly ugly.

This article really spells it out: Debt Rattle, March 09, 2008: The Game is Over

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Are margin calls are a bad thing? If so I would expect that article to get pulled, $325 BILLION even by the last 6 months media coverage headlines still seems like a huge figure, That will probably spook an investor or two. Shame it wasn't in the Monday morning headlines.

Good job most will not get to work tomorrow morning as all the trees/leaves on the line. Scary parrallels...

I just hope I don't have to liquidate my 'Sick Childern' (AKA Shergar) fund offshored in Jersey, my investors will get the right **** if they find out it was a worthless con, on the plus side they can't liquidate till I sue the crap out of the people that sold me that worthless junk, which in turn could be described as... another margin call?

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agreed BoomBoom,

what do you reckon, 2012 ?

ps everyone else - I might come across as a doom'n'gloom armageddon type with all my depression & stat fiddling talk, but in reality I am an optimistic pessimist. ;):P

Thats the miracle of modern medicine. ;)

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This article really spells it out: Debt Rattle, March 09, 2008: The Game is Over

I find all of this fascinating, (in a bizzare sort of way!).

I would like some advice on the following from those that are more clued up in Credit markets and corporate financing than I:-

I know of a profitable organisation that was aquired 4 years ago by a major FMCG PLC. In the last 12 months the parent (the PLC) aquired a competitor to the first company purchased and has since merged both into one organisation.

This last aquisition took place just before the credit crunch kicked off, and they paid a substantial amount for this second aquisition. The reason I am paying to close attention here is because it is quite obvious that they are overly geared.

My question is: presumably Corporates are subject to the same potential for margin calls as Hedge Funds and other Financial institutions for the debt that they carry?

If this is correct, how would any financier judge that the value of what was purchased (ie the companies aquired) had gone down in order to justify a margin call? Is this required at all in order to request a margin call or can it be done at anytime the bank feels like it?

I can see how in financial markets, as everything has a traded price, the value of an asset is more transparent and obvious to all and therefore it would be easy to spot a situation where the assets held didn't at least equate to the value of the debt. I am right in thinking that this wouldn't be as easy for a bank to spot for the companies listed above? Would it be basically turnover and profit that would be the compelling factor that the banks would consider before making a margin call?

Where would a corporate default on debt stack up in the grand scheme of things?

Any "City" types who are able to answer these points would be greatly appreciated.

Edited by Notlongnow

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Do you mean company A wants to buy Company B which is vallued at 250 million.

Company A borrows on the various markets 250 million and buys Company B.

Company B falls dramatically in price so is now only worth 50 million.

Banks need money and tell Company A to pay back the loans on buying Company B but there is now a shortfall of 200 million so both Company A and B are screwed?

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Do you mean company A wants to buy Company B which is vallued at 250 million.

Company A borrows on the various markets 250 million and buys Company B.

Company B falls dramatically in price so is now only worth 50 million.

Banks need money and tell Company A to pay back the loans on buying Company B but there is now a shortfall of 200 million so both Company A and B are screwed?

In a nutshell - yes.

But how would one determine that company B has fallen in value sufficiently to determine a margin call. If company B is not publicy quoted as an independent entity: and therefore is not a publicy quoted share price that could be used to determins the specific value of company B.

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  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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