MARKETWATCH
"Bernanke, Geithner and Paulson ‘have invented alternative history’ of Lehman collapse, professor says"
By Greg Robb
Published: Sept 13, 2018 4:01 p.m. ET
Nearly ten years ago, Lehman Brothers, declared bankruptcy after a frantic weekend of unsuccessful talks to find a buyer at the New York Fed.
Lehman’s collapse followed the takeover of Bear Stearns in early March by J.P. Morgan Chase that was assisted by a Fed loan and the government takeover of Fannie Mae and Freddie Mac.
The outcome has always been controversial.
After rescuing Bear Stearns and the GSEs, no public money was provided Lehman to stay afloat.
Days later, the Fed reversed course, providing assistance to two other investment banks, Goldman Sachs and Morgan Stanley, through access to loan programs.
Goldman’s total borrowing peaked at $69 billion while Morgan Stanley’s peaked at $107 billion.
The Fed also rescued American International Group through an initial $85 billion line of credit.
This was followed by the broad $700 billion bank bailout that Congress passed, known as the Troubled Asset Relief Program.
Ben Bernanke, Timothy Geithner and Henry Paulson have all said that they wished to rescue Lehman but that their hands were tied because Lehman did not have enough collateral to allow the government to provide a financial lifeline.
Laurence Ball, in a new book “The Fed and Lehman Brothers, Setting the Record Straight on a Financial Disaster,” debunks this official narrative.
An economics professor at Johns Hopkins University, Ball says there was no discussion of Lehman’s collateral or the legality of a loan during the crucial weekend.
In addition, he said that Lehman did have enough collateral, if anyone had looked.
Other analysts, including Joseph Gagnon of the Peterson Institute for International Economics, have argued that Lehman was probably deeply insolvent at the time of its bankruptcy.
MarketWatch sat down with Ball to discuss the findings of his book.
Henry Paulson said this recently:
“The thing we get the most criticism for is letting Lehman go down."
"Despite the fact that the three of us have all said, you know, we did everything we could to save Lehman."
"We didn’t believe then and don’t believe now a single authority we had that would have worked."
"Many people say well 'they were able to save Bear Stearns, they were able save AIG, why couldn’t they save Lehman?'“
"We answer it and most people still don’t believe us.”
You don’t believe them.
I don’t believe them.
They have been asked that question again and again and they have given the same answer again and again.
And when I first started researching this I didn’t know what the right answer was — there were such starkly different claims.
But having spent four years looking at the evidence — and there’s a lot of evidence, what Secretary Paulson is saying there is just simply not true.
What the three officials say is that Lehman didn’t have enough collateral so that the Fed couldn’t legally give them a loan.
Yes, that’s the sense of it.
And actually that is absolutely incorrect in two related, but distinct, senses.
First of all, in terms of their decision-making— again there’s a big record from some investigations with subpoena power about what people were discussing in that weekend — they were discussing various economic and political ramifications of letting Lehman fail or not letting Lehman fail.
They were not discussing does Lehman have enough collateral — do we have the legal authority.
So that was not the reason that they made the decision.
In addition, at this point it is possible to go back and put together the numbers, there is enough data on what Lehman’s assets were, what its liquidity needs were, and if one actually does that exercise, it is clear that Lehman did have ample collateral for the loan it needed to survive.
So, if the Fed had asked is there enough collateral, the answer would clearly have been yes.
They could have made a loan, it would have been legal, it would not have been very risky, and probably the whole financial crisis and Great Recession would have been less severe.
Paulson was trying to say to Wall Street, we’re not going to bail out Lehman, let this be a lesson for you.
In essence that’s Elizabeth Warren’s anti-bailout view.
But it didn’t last more than a day or two.
What I, in my opinion, establish with absolute certainty in the book, is that the official explanation about legal authority and collateral was simply not correct.
Again the fact that those three impressive people say it again and again, very strongly, does not make it true.
As far as what then is the real reason, there we have to be a little bit more speculative, and my conclusions there are not terribly original: I think it was political.
Of course, many people have said all along obviously it was political but everything I’ve seen is consistent with that.
It wasn’t just Elizabeth Warren, it was everybody.
It was the one completely bipartisan issue with Bernie Sanders saying this is a giveaways to the rich and conservatives saying this is socialism taking over the banks.
The two presidential candidates, Barack Obama and John McCain, both issued very stern statements.
This was right after the takeovers of Fannie Mae and Freddie Mac.
Obama and McCain issued statements saying we can’t have any more of this nonsense.
So there was tremendous political pressure.
In addition to that, there was an underestimation of the damage the failure would do, maybe some wishful thinking.
And you’re absolutely right that there was a 180 degree turn in a day-and-a-half when they rescued AIG.
I would put a positive interpretation on that.
They made a bad mistake, one that they have not owned up to.
But at least they quickly saw what a bad mistake it was.
Henry Paulson widely was quoted as saying I can’t be “Mr. Bailout.”
But I think he realized pretty quickly that being “Mr. Caused The Worst Depression Since The 1930s” would be even worse, so we’re lucky that he and the other policy makers at least were flexible enough to shift course.
Because Lehman was the accelerant on the financial crisis?
Yes.
Federal Reserve economists several days before the Lehman bankruptcy predicted that the unemployment rate would peak at 6% because of strains on financial markets.
Lehman was the event that caused strains on financial markets to turn into... people use metaphors like tsunami, trainwreck and so on.
Earlier in 2008, in March, Bear Stearns has been rescued.
Lehman failed in September.
What happened in between?
There were the big five investment banks and Bear Stearns was the fifth biggest and they were very invested in real estate.
So there was a lot of speculation that maybe this could happen to another one of these investment banks.
And the fourth biggest, Lehman Brothers, was also heavily invested in real estate, so there was speculation perhaps Lehman Brothers could be the next one to go.
Lehman Brothers actually had a very sharp shift in its business strategy.
Up until the Bear Stearns event, they were continuing to try to expand in real estate.
They actually thought “Gee, this is great."
"Real estate prices are depressed and we will buy low and make a lot of money.”
But after Bear Stearns, they realized they had a big problem and they tried hard to raise capital, they looked for an acquirer, and Secretary Paulson was very involved trying to be a broker for that.
Now I think they talked to basically every global investment bank, every sovereign wealth fund, Warren Buffett, Carlos Slim, anybody with money, and no deal was done.
I think various people I think including Secretary Paulson think the problem was that Richard Fuld, the Lehman CEO, didn’t fully face reality and had an unrealistically optimistic view about what his company was worth and wasn’t going to engage in a fire sale.
Of course that changed at the very, very end, when they faced bankruptcy.
I can certainly understand why Paulson and Fed officials were very frustrated.
They did work very hard for six months to try to arrange at Lehman takeover and were not successful.
The problem with the investment banks is they had long-term investments funded by short-term paper?
The basic mechanism by which they got in trouble is well understood.
It’s really the same story for all five banks: Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman and Bear.
They all had similar problems with then quite different outcomes.
But there were three interrelated problems.
Number one, they made these big bets on real estate during the housing boom and they lost a lot of money on those.
Factor number two was they had very low equity and once they started losing money on real estate it didn’t take long before their equity started getting close to zero and people started to question their solvency and their viability.
And then problem number three was exactly what you said: reliance on short-term funding — largely overnight repos — so that once people lost confidence, you had essentially the same phenomenon as a bank run.
The people who were providing them funds on a daily basis said: “We don’t want to be providing funds for somebody who might go bankrupt.”
So Lehman Brothers filed for bankruptcy at 1:45 a.m. on a Monday morning because they were supposed to open for business in a few hours and pay somebody a billion dollars and they just didn’t have billion dollars.
They were out of cash because their short-term financing was not rolled over.
The Fed’s job is to step in when there is a bank run.
That’s right.
According to classic central banking doctrine, going back to Walter Bagehot in the 19th century, the central bank is the lender of last resort, if there is a bank run, a panic.
And again, it could be an old-fashioned bank run with the depositors running and taking their cash out or it could be this 21st century version of repurchase agreements cut off.
The central bank’s job is to provide enough cash to keep things going.
Lehman could have been kept going long enough to work out some kind resolution that was better than just telling them you have six hours to prepare a bankruptcy petition for the largest bankruptcy in U.S. history.
Instead of acting, the two Fed officials, Bernanke and Geithner, deferred to Paulson?
The politics are interesting.
Under the law at the time, it was the Fed’s sole responsibility to decide whether or not to make emergency loans.
There was a procedure in which, if the New York Fed had chosen to, they could have told the Board of Governors in Washington we’d like to make a loan and to get approval for that loan by a vote of the Board of Governors.
The role of the treasury secretary legally in that process was exactly the same as the role of the secretary of agriculture or the mayor of Baltimore.
Now, what actually happened was that Paulson got on an airplane and flew to the New York Fed and started telling Geithner and others what to do, and at some point said: “Lehman has to declare bankruptcy.”
As far as I can tell, just by force of personality, he took over and told people what to do.
I should say Geithner, in his most recent discussions, made the point that the Dodd-Frank Act has limited the Fed’s ability to be the lender of last resort and that’s possibly dangerous as far as handling future crises.
One of the ways in which the Fed’s authority has been limited is now the law says the secretary of treasury has to approve [a loan].
I worry because the treasury secretary is inherently a political appointee that might lead to politically motivated decisions.
I have to say it is ironic that Geithner would bring up that point, because again he chose to follow the instructions of the treasury secretary, even though at the time he wasn’t legally required to do so.
What are the lessons for today?
There are takeaways at several levels I think.
One is I think the whole financial crisis has confirmed the traditional thinking about central banking.
I think we saw how beneficial it was when the Fed did perform its role as a lender of last resort with AIG and Bear Stearns.
We saw how damaging it was when the Fed did not step up to the plate at the key moment with Lehman.
So, one narrow thing we learned is that the part of the Dodd-Frank Act that restricts the Fed’s ability to be lender of last resort was a mistake and that’s dangerous and that ought to be repealed.
Now, of course, in reality a number of parts of Dodd-Frank probably will be repealed and it’s not going to be the lender-of-last-resort part but maybe someday.
I think more broadly, from my research, I became persuaded the financial crisis didn’t have to be nearly as severe as it was.
People have told a story in which there were these big mistakes made involving the real-estate bubble and too much debt and risky behavior on Wall Street and when you sin like that there has to be punishment.
I think the punishment didn’t have to be so bad.
I think if Lehman have been rescued we might be looking back at that episode the way we look back at the savings-and-loan crisis of the 1980s or the dot-com bubble of the early 2000s.
Those were cases in which people made mistakes, financial institutions lost a lot of money, there was some effect on the economy, but much much milder.
The whole Great Recession was not necessary.
I can’t help saying the other thing we learned is you’ve got to really be careful listening to government officials.
Paulson, Bernanke and Geithner are correctly viewed as the class of government officials as far as very intelligent, competent, dedicated public servants, but still the story they’re telling is just not accurate.
If what Paulson, Bernanke and Geithner were saying was “Hey we did a pretty good job overall, yes at 2 a.m. on Sept. 14th we didn’t quite get it right on Lehman Brothers in this incredibly crazy confusing situation,” I would be the last person to insist on perfection in that kind of situation.
But what irks me is that they have not owned up at all to any kind of mistake and they’ve invented this alternative history of what happened on the Lehman weekend that just isn’t accurate.
https://www.marketwatch.com/story/berna ... ewer_click
LEST WE FORGET THE LOOTERS
Re: LEST WE FORGET THE LOOTERS
MARKETWATCH
"Quarles says Fed looking to lessen regulation on large banks"
By Steve Goldstein
Published: Oct 1, 2018 4:35 p.m. ET
The Federal Reserve is looking to loosen regulation on big banks that are not on the list of global systemically important banks, according to testimony by Vice Chairman for Supervision Randal Quarles.
Quarles, who will testify before the Senate Banking Committee on Tuesday, said the Fed is reviewing requirements for firms with more than $250 billion in total assets but below the G-SIB threshold.
"Currently, some aspects of our regulatory regime--liquidity regulation, for example--treat banks with more than $250 billion in assets with the same stringency as G-SIBs."
"I can see reason to apply a clear differentiation," he said.
The Fed is putting its "highest priority" on issuing a proposed rule on tailoring enhanced prudential standards for banking firms with assets between $100 billion and $250 billion, Quarles said.
Topics covered by such a proposal could include capital and liquidity rules, and resolution planning requirements for the less complex and interconnected of these firms, he said.
https://www.marketwatch.com/story/quarl ... ewer_click
"Quarles says Fed looking to lessen regulation on large banks"
By Steve Goldstein
Published: Oct 1, 2018 4:35 p.m. ET
The Federal Reserve is looking to loosen regulation on big banks that are not on the list of global systemically important banks, according to testimony by Vice Chairman for Supervision Randal Quarles.
Quarles, who will testify before the Senate Banking Committee on Tuesday, said the Fed is reviewing requirements for firms with more than $250 billion in total assets but below the G-SIB threshold.
"Currently, some aspects of our regulatory regime--liquidity regulation, for example--treat banks with more than $250 billion in assets with the same stringency as G-SIBs."
"I can see reason to apply a clear differentiation," he said.
The Fed is putting its "highest priority" on issuing a proposed rule on tailoring enhanced prudential standards for banking firms with assets between $100 billion and $250 billion, Quarles said.
Topics covered by such a proposal could include capital and liquidity rules, and resolution planning requirements for the less complex and interconnected of these firms, he said.
https://www.marketwatch.com/story/quarl ... ewer_click
Re: LEST WE FORGET THE LOOTERS
MARKETWATCH
"Fed set to propose loosening capital, liquidity rules over Brainard's objection"
By Steve Goldstein
Published: Oct 31, 2018 10:40 a.m. ET
Statements released by Federal Reserve indicate the board will vote to loosen capital and liquidity rules on banks between $100 billion and $700 billion in assets.
Vice Chairman for Supervision Randal Quarles said the cumulative effect of the proposed changes would result in a decrease of $8 billion of required capital, or a change of 0.6%, and the cumulative effect of the proposed changes, would be a reduction of between 2% to 2.5% of high quality liquid assets.
"As a result, I am hopeful that firms will see reduced regulatory complexity and easier compliance with no decline in the resiliency of the U.S. banking system," he said.
Gov. Lael Brainard, however, said that while she supports revising the standards applicable to banks between $100 billion and $250 billion in assets that are not complex, the rules for banks between $250 billion and $700 billion "weaken the buffers that are core to the resilience of our system."
She said staff analysis indicates that the reduced requirements would lead to an estimated reduction in high quality liquid assets for banks between $100 billion and $250 billion of assets of as much as $70 billion overall and a reduction of 15% their liquidity buffers, and an upward adjustment of banks between $250 billion and $700 billion in their reported core risk-adjusted capital ratio of 50 basis points without changing their actual capacity to absorb losses.
https://www.marketwatch.com/story/fed-s ... ewer_click
"Fed set to propose loosening capital, liquidity rules over Brainard's objection"
By Steve Goldstein
Published: Oct 31, 2018 10:40 a.m. ET
Statements released by Federal Reserve indicate the board will vote to loosen capital and liquidity rules on banks between $100 billion and $700 billion in assets.
Vice Chairman for Supervision Randal Quarles said the cumulative effect of the proposed changes would result in a decrease of $8 billion of required capital, or a change of 0.6%, and the cumulative effect of the proposed changes, would be a reduction of between 2% to 2.5% of high quality liquid assets.
"As a result, I am hopeful that firms will see reduced regulatory complexity and easier compliance with no decline in the resiliency of the U.S. banking system," he said.
Gov. Lael Brainard, however, said that while she supports revising the standards applicable to banks between $100 billion and $250 billion in assets that are not complex, the rules for banks between $250 billion and $700 billion "weaken the buffers that are core to the resilience of our system."
She said staff analysis indicates that the reduced requirements would lead to an estimated reduction in high quality liquid assets for banks between $100 billion and $250 billion of assets of as much as $70 billion overall and a reduction of 15% their liquidity buffers, and an upward adjustment of banks between $250 billion and $700 billion in their reported core risk-adjusted capital ratio of 50 basis points without changing their actual capacity to absorb losses.
https://www.marketwatch.com/story/fed-s ... ewer_click
Re: LEST WE FORGET THE LOOTERS
BLOOMBERG
"Goldman Sachs Slides With Fresh 1MDB Worries, BofAML Downgrade"
By Felice Maranz and Joshua Fineman
November 30, 2018, 6:51 AM EST
Goldman Sachs Inc. stock is falling 1.7 percent in pre-market trading after people briefed on the matter said the Federal Reserve is ramping up its investigation into how the bank’s executives dodged internal controls while helping Malaysian authorities raise billions of dollars that later went missing.
Separately, Bank of America Merrill Lynch analyst Michael Carrier cut his recommendation on Goldman shares to neutral from buy and slashed his price target to $225 from $280.
“While we view the current valuation as discounting most of the potential negative scenarios related to 1MDB, we only have limited information and the uncertainty could linger for a while,” Carrier wrote in a note.
Goldman’s shares have tumbled 14 percent in the past month, versus a 1.9 percent gain in the S&P 500 financials index, amid concern about potential fallout from the firm’s involvement in raising money for Malaysia’s scandal-plagued state investment company.
Earlier this month, Morgan Stanley analyst Betsy Graseck cut her recommendation on Goldman to equal-weight, saying the firm faced rippling risk.
At the same time, there could be hope further down the road.
Any fines, penalties and other sanctions Goldman may face are unlikely to have a long-term impact on the bank’s business, BofAML’s Carrier said.
With a new management team, business review, strategic growth initiatives, and a focus on cost and capital management, “we see potential post the investigation conclusion.”
https://www.bloomberg.com/news/articles ... ts&utm_cam
"Goldman Sachs Slides With Fresh 1MDB Worries, BofAML Downgrade"
By Felice Maranz and Joshua Fineman
November 30, 2018, 6:51 AM EST
Goldman Sachs Inc. stock is falling 1.7 percent in pre-market trading after people briefed on the matter said the Federal Reserve is ramping up its investigation into how the bank’s executives dodged internal controls while helping Malaysian authorities raise billions of dollars that later went missing.
Separately, Bank of America Merrill Lynch analyst Michael Carrier cut his recommendation on Goldman shares to neutral from buy and slashed his price target to $225 from $280.
“While we view the current valuation as discounting most of the potential negative scenarios related to 1MDB, we only have limited information and the uncertainty could linger for a while,” Carrier wrote in a note.
Goldman’s shares have tumbled 14 percent in the past month, versus a 1.9 percent gain in the S&P 500 financials index, amid concern about potential fallout from the firm’s involvement in raising money for Malaysia’s scandal-plagued state investment company.
Earlier this month, Morgan Stanley analyst Betsy Graseck cut her recommendation on Goldman to equal-weight, saying the firm faced rippling risk.
At the same time, there could be hope further down the road.
Any fines, penalties and other sanctions Goldman may face are unlikely to have a long-term impact on the bank’s business, BofAML’s Carrier said.
With a new management team, business review, strategic growth initiatives, and a focus on cost and capital management, “we see potential post the investigation conclusion.”
https://www.bloomberg.com/news/articles ... ts&utm_cam
Re: LEST WE FORGET THE LOOTERS
MARKETWATCH
"Banks expect deterioration in loan performance this year, Fed survey finds"
By Greg Robb
Published: Feb 4, 2019 2:05 p.m. ET
Banks expect that the performance of their existing loans will deteriorate somewhat this year on many different types of consumer and business loans, and as a result are tightening access to credit, according to a Federal Reserve survey of senior loan officers released on Monday.
The quarterly survey found that banks are expecting to tighten standards for business loans as well as credit cards and jumbo mortgages this year.
Banks were already starting to tighten standards on credit cards in the fourth quarter, according to the survey.
The Fed surveyed officers at 73 domestic banks and 22 foreign institutions.
Asked about the quality of their loans over 2019, as measured by delinquencies and charge-offs, most banks said they expected the performance to remain unchanged.
But in every loan category, either a “moderate or significant” net percentage of banks said they saw their loan performance would “deteriorate somewhat” this year.
In contrast, no more than two banks reported they expected some improvement in any category.
Banks also reported they expected weaker demand for most loan categories.
The loan officers told the Fed that a reduction in risk tolerance also contributed to the expected tightening of standards.
https://www.marketwatch.com/story/banks ... iewer_clic
"Banks expect deterioration in loan performance this year, Fed survey finds"
By Greg Robb
Published: Feb 4, 2019 2:05 p.m. ET
Banks expect that the performance of their existing loans will deteriorate somewhat this year on many different types of consumer and business loans, and as a result are tightening access to credit, according to a Federal Reserve survey of senior loan officers released on Monday.
The quarterly survey found that banks are expecting to tighten standards for business loans as well as credit cards and jumbo mortgages this year.
Banks were already starting to tighten standards on credit cards in the fourth quarter, according to the survey.
The Fed surveyed officers at 73 domestic banks and 22 foreign institutions.
Asked about the quality of their loans over 2019, as measured by delinquencies and charge-offs, most banks said they expected the performance to remain unchanged.
But in every loan category, either a “moderate or significant” net percentage of banks said they saw their loan performance would “deteriorate somewhat” this year.
In contrast, no more than two banks reported they expected some improvement in any category.
Banks also reported they expected weaker demand for most loan categories.
The loan officers told the Fed that a reduction in risk tolerance also contributed to the expected tightening of standards.
https://www.marketwatch.com/story/banks ... iewer_clic
Re: LEST WE FORGET THE LOOTERS
The Wall Street Journal.
"Banks warm to mortgage bonds that burned them in 2008"
Ben Eisen and Telis Demos
16 SEPTEMBER 2019
Banks are getting back into the business of building mortgage bonds, laying the groundwork for a market that stands to grow as the Trump administration tries to reduce the government’s role in housing finance.
Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co., and JPMorgan Chase & Co. over the past year have restarted or expanded the business of spinning fresh pools of mortgages into securities.
They are adding a jolt of energy to efforts to revive the so-called private-label market for mortgage bonds, which virtually disappeared after it blew up during the financial crisis of 2008.
Smaller operators have long tried, but mostly failed, to rebuild what was once among the most significant businesses on Wall Street.
Last year, some $70 billion of mortgages ended up in private-label mortgage bonds, according to the Urban Institute.
Though that is far below a peak of more than $1 trillion in precrisis years, it is the most since 2007.
And this market could continue to grow if Fannie Mae and Freddie Mac shrink, traders and executives say, opening up more room for private players to take over this middleman role of packaging and selling mortgages.
The Trump administration this month proposed privatizing the two government-sponsored mortgage giants, and the administration is expected to shrink them even if it can’t return them to private hands.
The fact that many investors say they are once again getting comfortable buying these bonds also underscores the broader market’s search for yield.
Instead of viewing these bonds as toxic reminders of the financial crisis, many money managers see them as an opportunity to generate more income in a low-rate world.
Fannie and Freddie don’t make loans.
Instead, they buy mortgages, package them into securities and sell them to investors.
Investors view these securities as safe because the government-backed mortgage giants assume much of the default risk.
The bonds packaged and sold by the banks don’t have the same protection, so investors demand higher yields to compensate them for taking on more risk.
Many banks soured on making mortgages after the financial crisis.
Today, the majority of U.S. mortgages are made by nonbanks, which are less regulated than their bank counterparts and sometimes thinly capitalized.
Even so, banks still see an opportunity to make money by supporting the infrastructure that underlies the U.S. mortgage system.
Citigroup, for example, recently purchased a pool of 932 mortgages from a nonbank lender called Impac Mortgage Holdings Inc. and used them to back bonds worth more than $350 million.
The deal closed last month.
While some banks never fully extricated themselves from the private-label market, they typically issued bonds in the years after the crisis only to package odds and ends, such as old loans that had defaulted and been modified in some way.
Some deals were done to help out important clients.
What is different now is that banks are also stepping into the role of buying loans from third parties and underwriting the securities they piece together.
This more closely resembles the precrisis days when banks would bid on loans that were up for sale by the lenders that made them.
Banks today are buying both mortgages that are eligible to be sold to Fannie and Freddie as well as ones that aren’t because they are too large or they are considered riskier — often because they use alternative documentation to approve the borrower.
These are baby steps back into the market, to be sure.
Largely gone are the complex derivatives once overlaid on these deals.
And the market is tiny compared with precrisis days: In the first half of this year, 2.1% of mortgages went into private bonds.
That is up from 2009, when private-label issuance was virtually nonexistent.
But private bonds made up 41% of the market at a peak in 2005, according to the Urban Institute.
One problem with precrisis deals was that data about the underlying mortgages was often difficult to come by, even for the bankers originating the deals.
In the Impac deal, Citigroup is working with startup dv01 Inc. to provide data to investors about the underlying mortgages, according to a report by ratings firm DBRS Inc.
JPMorgan restarted its private-label program several years ago but has recently broadened it.
In April, the nation’s largest lender by assets did a deal with a group of its own mortgages that didn’t qualify to be bought by Fannie and Freddie.
Wells Fargo introduced its first postcrisis deal last October and has done more since.
Goldman Sachs, which did one deal in 2014, stayed out of this market until March, but since then has done three deals.
Bank of America Corp. hasn’t reintroduced its own mortgage bonds, but aggregates loans that are issued through Chimera Investment Corp., a real-estate investment trust, according to people familiar with the matter.
http://www.msn.com/en-us/money/realesta ... P17#page=2
"Banks warm to mortgage bonds that burned them in 2008"
Ben Eisen and Telis Demos
16 SEPTEMBER 2019
Banks are getting back into the business of building mortgage bonds, laying the groundwork for a market that stands to grow as the Trump administration tries to reduce the government’s role in housing finance.
Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co., and JPMorgan Chase & Co. over the past year have restarted or expanded the business of spinning fresh pools of mortgages into securities.
They are adding a jolt of energy to efforts to revive the so-called private-label market for mortgage bonds, which virtually disappeared after it blew up during the financial crisis of 2008.
Smaller operators have long tried, but mostly failed, to rebuild what was once among the most significant businesses on Wall Street.
Last year, some $70 billion of mortgages ended up in private-label mortgage bonds, according to the Urban Institute.
Though that is far below a peak of more than $1 trillion in precrisis years, it is the most since 2007.
And this market could continue to grow if Fannie Mae and Freddie Mac shrink, traders and executives say, opening up more room for private players to take over this middleman role of packaging and selling mortgages.
The Trump administration this month proposed privatizing the two government-sponsored mortgage giants, and the administration is expected to shrink them even if it can’t return them to private hands.
The fact that many investors say they are once again getting comfortable buying these bonds also underscores the broader market’s search for yield.
Instead of viewing these bonds as toxic reminders of the financial crisis, many money managers see them as an opportunity to generate more income in a low-rate world.
Fannie and Freddie don’t make loans.
Instead, they buy mortgages, package them into securities and sell them to investors.
Investors view these securities as safe because the government-backed mortgage giants assume much of the default risk.
The bonds packaged and sold by the banks don’t have the same protection, so investors demand higher yields to compensate them for taking on more risk.
Many banks soured on making mortgages after the financial crisis.
Today, the majority of U.S. mortgages are made by nonbanks, which are less regulated than their bank counterparts and sometimes thinly capitalized.
Even so, banks still see an opportunity to make money by supporting the infrastructure that underlies the U.S. mortgage system.
Citigroup, for example, recently purchased a pool of 932 mortgages from a nonbank lender called Impac Mortgage Holdings Inc. and used them to back bonds worth more than $350 million.
The deal closed last month.
While some banks never fully extricated themselves from the private-label market, they typically issued bonds in the years after the crisis only to package odds and ends, such as old loans that had defaulted and been modified in some way.
Some deals were done to help out important clients.
What is different now is that banks are also stepping into the role of buying loans from third parties and underwriting the securities they piece together.
This more closely resembles the precrisis days when banks would bid on loans that were up for sale by the lenders that made them.
Banks today are buying both mortgages that are eligible to be sold to Fannie and Freddie as well as ones that aren’t because they are too large or they are considered riskier — often because they use alternative documentation to approve the borrower.
These are baby steps back into the market, to be sure.
Largely gone are the complex derivatives once overlaid on these deals.
And the market is tiny compared with precrisis days: In the first half of this year, 2.1% of mortgages went into private bonds.
That is up from 2009, when private-label issuance was virtually nonexistent.
But private bonds made up 41% of the market at a peak in 2005, according to the Urban Institute.
One problem with precrisis deals was that data about the underlying mortgages was often difficult to come by, even for the bankers originating the deals.
In the Impac deal, Citigroup is working with startup dv01 Inc. to provide data to investors about the underlying mortgages, according to a report by ratings firm DBRS Inc.
JPMorgan restarted its private-label program several years ago but has recently broadened it.
In April, the nation’s largest lender by assets did a deal with a group of its own mortgages that didn’t qualify to be bought by Fannie and Freddie.
Wells Fargo introduced its first postcrisis deal last October and has done more since.
Goldman Sachs, which did one deal in 2014, stayed out of this market until March, but since then has done three deals.
Bank of America Corp. hasn’t reintroduced its own mortgage bonds, but aggregates loans that are issued through Chimera Investment Corp., a real-estate investment trust, according to people familiar with the matter.
http://www.msn.com/en-us/money/realesta ... P17#page=2
Re: LEST WE FORGET THE LOOTERS
The Wall Street Journal
"J.P. Morgan investigating employee conduct that ‘may even be illegal’ surrounding coronavirus stimulus programs"
By David Benoit
Published: Sept. 8, 2020 at 2:55 p.m. ET
JPMorgan Chase & Co. has found evidence of employees and customers misusing the government’s flood of stimulus funds this spring and is cooperating with authorities, the bank’s leaders told employees Tuesday.
In a memo to employees, the bank didn’t detail specific instances but said it had found customer wrongdoing involving the small-business rescue plan known as the Paycheck Protection Program, unemployment benefits and other government programs aimed at easing the coronavirus pandemic’s economic effects.
“Some employees have fallen short, too,” the memo said, without elaborating.
The memo described the issues as “conduct that does not live up to our business and ethical principles — and may even be illegal.”
A bank spokeswoman declined to provide more details.
https://www.wsj.com/articles/jpmorgan-i ... 1599586697
https://www.marketwatch.com/story/jp-mo ... latestnews
"J.P. Morgan investigating employee conduct that ‘may even be illegal’ surrounding coronavirus stimulus programs"
By David Benoit
Published: Sept. 8, 2020 at 2:55 p.m. ET
JPMorgan Chase & Co. has found evidence of employees and customers misusing the government’s flood of stimulus funds this spring and is cooperating with authorities, the bank’s leaders told employees Tuesday.
In a memo to employees, the bank didn’t detail specific instances but said it had found customer wrongdoing involving the small-business rescue plan known as the Paycheck Protection Program, unemployment benefits and other government programs aimed at easing the coronavirus pandemic’s economic effects.
“Some employees have fallen short, too,” the memo said, without elaborating.
The memo described the issues as “conduct that does not live up to our business and ethical principles — and may even be illegal.”
A bank spokeswoman declined to provide more details.
https://www.wsj.com/articles/jpmorgan-i ... 1599586697
https://www.marketwatch.com/story/jp-mo ... latestnews
Re: LEST WE FORGET THE LOOTERS
MARKETWATCH
"European bank stocks including Deutsche Bank’s slide after money-laundering allegations"
By Steve Goldstein
Last Updated: Sept. 21, 2020 at 11:52 a.m. ET
First Published: Sept. 21, 2020 at 3:46 a.m. ET
Shares of Europe’s top banks dropped on Monday, after the publication of reports alleging they kept doing business with customers they suspected of money laundering and other wrongdoing.
The report, led by BuzzFeed News and including other media outlets around the world, was on the basis of what are called suspicious activity reports filed by the banks to the U.S. Treasury, that had been gathered for Congressional investigators to look at President Donald Trump’s 2016 campaign.
The banks by law aren’t allowed to comment on the SARs they file.
Deutsche Bank, Standard Chartered, Barclays, Commerzbank, Danske Bank and HSBC Holdings were all named in the report, as were several U.S. banks.
Deutsche Bank shares fell 9% after it accounted for a majority of the suspicious activity reports in the BuzzFeed trove, and allegedly, Bank of America appealed to Deutsche Bank’s chairman at the time to take action.
HSBC closed at its lowest level since Oct. 5, 1998.
The broader Stoxx Europe 600 fell 3.2%, and the major regional indexes were slammed too.
The German DAX fell 4.4%, the French CAC 40 fell 3.7% and the U.K. FTSE 100 lost 3.4%.
U.S. stocks opened lower as well.
The death of Supreme Court associate justice Ruth Bader Ginsburg may have market implications, as what is expected to be a hotly contested nomination battle for her replacement could further roil Washington, D.C., which has yet to agree on a new stimulus package or funding beyond the end of September.
“The fight between the President and Congressional Democrats on whether to fill the vacant seat now or wait until after the election is expected to lead to more delays in reaching a middle ground on a new fiscal package."
"Hence, we would expect that the much-needed stimulus will be pushed back until after the U.S. elections,” said Hussein Sayed, chief market strategist at FXTM.
Travel stocks in Europe were pressured on worries over the region locking down in response to a new wave of coronavirus cases.
U.K. Prime Minister Boris Johnson will address the House of Commons on Tuesday to discuss COVID-19.
British Airways owner International Airlines Group tumbled to an eight-year low, and Ryanair Holdings also fell sharply
Food delivery service Just Eat Takeaway, and mealkit preparation firm HelloFresh, gained on the lockdown speculation.
Shares of engine maker Rolls Royce dropped 11%, after saying it was considering raising up to £2.5 billion in new equity capital.
United Internet shares tumbled 24%, after Telefónica Deutschland said in negotiations that it would hike wholesale costs.
United Internet said it has appealed to the European Commission over the matter.
https://www.marketwatch.com/story/europ ... _headlines
"European bank stocks including Deutsche Bank’s slide after money-laundering allegations"
By Steve Goldstein
Last Updated: Sept. 21, 2020 at 11:52 a.m. ET
First Published: Sept. 21, 2020 at 3:46 a.m. ET
Shares of Europe’s top banks dropped on Monday, after the publication of reports alleging they kept doing business with customers they suspected of money laundering and other wrongdoing.
The report, led by BuzzFeed News and including other media outlets around the world, was on the basis of what are called suspicious activity reports filed by the banks to the U.S. Treasury, that had been gathered for Congressional investigators to look at President Donald Trump’s 2016 campaign.
The banks by law aren’t allowed to comment on the SARs they file.
Deutsche Bank, Standard Chartered, Barclays, Commerzbank, Danske Bank and HSBC Holdings were all named in the report, as were several U.S. banks.
Deutsche Bank shares fell 9% after it accounted for a majority of the suspicious activity reports in the BuzzFeed trove, and allegedly, Bank of America appealed to Deutsche Bank’s chairman at the time to take action.
HSBC closed at its lowest level since Oct. 5, 1998.
The broader Stoxx Europe 600 fell 3.2%, and the major regional indexes were slammed too.
The German DAX fell 4.4%, the French CAC 40 fell 3.7% and the U.K. FTSE 100 lost 3.4%.
U.S. stocks opened lower as well.
The death of Supreme Court associate justice Ruth Bader Ginsburg may have market implications, as what is expected to be a hotly contested nomination battle for her replacement could further roil Washington, D.C., which has yet to agree on a new stimulus package or funding beyond the end of September.
“The fight between the President and Congressional Democrats on whether to fill the vacant seat now or wait until after the election is expected to lead to more delays in reaching a middle ground on a new fiscal package."
"Hence, we would expect that the much-needed stimulus will be pushed back until after the U.S. elections,” said Hussein Sayed, chief market strategist at FXTM.
Travel stocks in Europe were pressured on worries over the region locking down in response to a new wave of coronavirus cases.
U.K. Prime Minister Boris Johnson will address the House of Commons on Tuesday to discuss COVID-19.
British Airways owner International Airlines Group tumbled to an eight-year low, and Ryanair Holdings also fell sharply
Food delivery service Just Eat Takeaway, and mealkit preparation firm HelloFresh, gained on the lockdown speculation.
Shares of engine maker Rolls Royce dropped 11%, after saying it was considering raising up to £2.5 billion in new equity capital.
United Internet shares tumbled 24%, after Telefónica Deutschland said in negotiations that it would hike wholesale costs.
United Internet said it has appealed to the European Commission over the matter.
https://www.marketwatch.com/story/europ ... _headlines
Re: LEST WE FORGET THE LOOTERS
CNBC
"Morgan Stanley dumped $5 billion in Archegos’ stocks the night before massive fire sale hit rivals"
Hugh Son @hugh_son
Published Tue, Apr 6 2021
Key Points
* Morgan Stanley sold about $5 billion in shares from Archegos’ doomed bets to a small group of hedge funds late Thursday, March 25, according to people who requested anonymity to speak frankly about the transaction.
* Morgan Stanley had the consent of Archegos, run by former Tiger Management analyst Bill Hwang, to shop around its stock late Thursday, these people said. The bank offered the shares at a discount, telling the hedge funds that they were part of a margin call that could prevent the collapse of an unnamed client.
* But the investment bank had information it didn’t share with the stock buyers: The basket of shares it was selling was merely the opening salvo of an unprecedented wave of sales by Morgan Stanley and five other investment banks starting the very next day.
The night before the Archegos Capital story burst into public view late last month, the fund’s biggest prime broker quietly unloaded some of its risky positions to hedge funds, people with knowledge of the trades told CNBC.
Morgan Stanley sold about $5 billion in shares from Archegos’ doomed bets on U.S. media and Chinese tech names to a small group of hedge funds late Thursday, March 25, according to the people, who requested anonymity to speak frankly about the transaction.
It’s a previously unreported detail that shows the extraordinary steps some banks took to protect themselves from incurring losses from a client’s meltdown.
The moves benefited Morgan Stanley, the world’s biggest equities trading shop, and its shareholders.
While the bank escaped from the episode without material losses, other firms were less fortunate.
Credit Suisse said Tuesday that it took a $4.7 billion hit after unwinding losing Archegos positions; the firm also cut its dividend and halted share buybacks.
Morgan Stanley had the consent of Archegos, run by former Tiger Management analyst Bill Hwang, to shop around its stock late Thursday, these people said.
The bank offered the shares at a discount, telling the hedge funds that they were part of a margin call that could prevent the collapse of an unnamed client.
But the investment bank had information it didn’t share with the stock buyers: The basket of shares it was selling, comprised of eight or so names including Baidu and Tencent Music, was merely the opening salvo of an unprecedented wave of tens of billions of dollars in sales by Morgan Stanley and other investment banks starting the very next day.
Some of the clients felt betrayed by Morgan Stanley because they didn’t receive that crucial context, according to one of the people familiar with the trades.
The hedge funds learned later in press reports that Hwang and his prime brokers convened Thursday night to attempt an orderly unwind of his positions, a difficult task considering the risk that word would get out.
That means that at least some bankers at Morgan Stanley knew the extent of the selling that was likely and that Hwang’s firm was unlikely to be saved, these people contend.
That knowledge helped Morgan Stanley and rival Goldman Sachs avoid losses because the firms quickly disposed of shares tied to Archegos.
Morgan Stanley and Goldman declined to comment for this article.
Morgan Stanley was the biggest holder of the top ten stocks traded by Archegos at the end of 2020 with about $18 billion in positions overall, according to an analysis of filings by market participants.
Credit Suisse was the second most exposed with about $10 billion, these sources noted.
That means that Morgan Stanley could’ve faced roughly $10 billion in losses had it not acted quickly.
“I think it was an ‘oh s---’ moment where Morgan was looking at potentially $10 billion in losses on their book alone, and they had to move risk fast,” the person with knowledge said.
While Goldman’s sale of $10.5 billion in Archegos-related stock on Friday, March 26 was widely reported after the bank blasted emails to a broad list of clients, Morgan Stanley’s move the night before went unreported until now because the bank dealt with fewer than a half-dozen hedge funds, allowing the transactions to remain hidden.
The clients, a subgenre of hedge funds sometimes dubbed “equity capital markets strategies,” typically don’t have views on the merits of individual stocks.
Instead, they’ll purchase blocks of stock from big prime brokers like Morgan Stanley and others when the discount is deep enough, usually to unwind the trades over time.
After Morgan Stanley and Goldman sold the first blocks of shares with the consent of Archegos, the floodgates opened.
Prime brokers including Morgan Stanley and Credit Suisse then exercised their rights under default, seizing the firm’s collateral and selling off positions on Friday, according to the sources.
In a wild session for stocks on that Friday in late March came another twist: Some of the hedge fund investors who had participated in the Thursday sales also bought more stock from Goldman, which came later to market at prices that were 5% to 20% below the Morgan Stanley sales.
While these positions were deeply underwater that day, several names including Baidu and Tencent rebounded, allowing hedge funds to unload positions for a profit.
“It was a gigantic clusterf--- of five different banks trying to unwind billions of dollars at risk at the same time, not talking to each other, trading at wherever prices were advantageous to themselves,” one industry source said.
Morgan Stanley largely exited its Archegos positions by Friday, March 26 with the exception of one holding: 45 million shares of ViacomCBS, which it shopped to clients on Sunday, according to the people.
The bank’s delayed disposal of Viacom shares has sparked questions and speculation that it held onto the stock because it wanted a secondary offering run by Morgan Stanley the week before to close.
Despite leaving some of its hedge fund clients feeling less-than-thrilled, Morgan Stanley isn’t likely to lose them over the Archegos episode, the people said.
That’s because the funds want access to shares of hot initial public offerings that Morgan Stanley, as the top banker to the U.S. tech industry, can dole out, they said.
Data also provided by Reuters
https://www.cnbc.com/2021/04/06/morgan- ... -sale.html
"Morgan Stanley dumped $5 billion in Archegos’ stocks the night before massive fire sale hit rivals"
Hugh Son @hugh_son
Published Tue, Apr 6 2021
Key Points
* Morgan Stanley sold about $5 billion in shares from Archegos’ doomed bets to a small group of hedge funds late Thursday, March 25, according to people who requested anonymity to speak frankly about the transaction.
* Morgan Stanley had the consent of Archegos, run by former Tiger Management analyst Bill Hwang, to shop around its stock late Thursday, these people said. The bank offered the shares at a discount, telling the hedge funds that they were part of a margin call that could prevent the collapse of an unnamed client.
* But the investment bank had information it didn’t share with the stock buyers: The basket of shares it was selling was merely the opening salvo of an unprecedented wave of sales by Morgan Stanley and five other investment banks starting the very next day.
The night before the Archegos Capital story burst into public view late last month, the fund’s biggest prime broker quietly unloaded some of its risky positions to hedge funds, people with knowledge of the trades told CNBC.
Morgan Stanley sold about $5 billion in shares from Archegos’ doomed bets on U.S. media and Chinese tech names to a small group of hedge funds late Thursday, March 25, according to the people, who requested anonymity to speak frankly about the transaction.
It’s a previously unreported detail that shows the extraordinary steps some banks took to protect themselves from incurring losses from a client’s meltdown.
The moves benefited Morgan Stanley, the world’s biggest equities trading shop, and its shareholders.
While the bank escaped from the episode without material losses, other firms were less fortunate.
Credit Suisse said Tuesday that it took a $4.7 billion hit after unwinding losing Archegos positions; the firm also cut its dividend and halted share buybacks.
Morgan Stanley had the consent of Archegos, run by former Tiger Management analyst Bill Hwang, to shop around its stock late Thursday, these people said.
The bank offered the shares at a discount, telling the hedge funds that they were part of a margin call that could prevent the collapse of an unnamed client.
But the investment bank had information it didn’t share with the stock buyers: The basket of shares it was selling, comprised of eight or so names including Baidu and Tencent Music, was merely the opening salvo of an unprecedented wave of tens of billions of dollars in sales by Morgan Stanley and other investment banks starting the very next day.
Some of the clients felt betrayed by Morgan Stanley because they didn’t receive that crucial context, according to one of the people familiar with the trades.
The hedge funds learned later in press reports that Hwang and his prime brokers convened Thursday night to attempt an orderly unwind of his positions, a difficult task considering the risk that word would get out.
That means that at least some bankers at Morgan Stanley knew the extent of the selling that was likely and that Hwang’s firm was unlikely to be saved, these people contend.
That knowledge helped Morgan Stanley and rival Goldman Sachs avoid losses because the firms quickly disposed of shares tied to Archegos.
Morgan Stanley and Goldman declined to comment for this article.
Morgan Stanley was the biggest holder of the top ten stocks traded by Archegos at the end of 2020 with about $18 billion in positions overall, according to an analysis of filings by market participants.
Credit Suisse was the second most exposed with about $10 billion, these sources noted.
That means that Morgan Stanley could’ve faced roughly $10 billion in losses had it not acted quickly.
“I think it was an ‘oh s---’ moment where Morgan was looking at potentially $10 billion in losses on their book alone, and they had to move risk fast,” the person with knowledge said.
While Goldman’s sale of $10.5 billion in Archegos-related stock on Friday, March 26 was widely reported after the bank blasted emails to a broad list of clients, Morgan Stanley’s move the night before went unreported until now because the bank dealt with fewer than a half-dozen hedge funds, allowing the transactions to remain hidden.
The clients, a subgenre of hedge funds sometimes dubbed “equity capital markets strategies,” typically don’t have views on the merits of individual stocks.
Instead, they’ll purchase blocks of stock from big prime brokers like Morgan Stanley and others when the discount is deep enough, usually to unwind the trades over time.
After Morgan Stanley and Goldman sold the first blocks of shares with the consent of Archegos, the floodgates opened.
Prime brokers including Morgan Stanley and Credit Suisse then exercised their rights under default, seizing the firm’s collateral and selling off positions on Friday, according to the sources.
In a wild session for stocks on that Friday in late March came another twist: Some of the hedge fund investors who had participated in the Thursday sales also bought more stock from Goldman, which came later to market at prices that were 5% to 20% below the Morgan Stanley sales.
While these positions were deeply underwater that day, several names including Baidu and Tencent rebounded, allowing hedge funds to unload positions for a profit.
“It was a gigantic clusterf--- of five different banks trying to unwind billions of dollars at risk at the same time, not talking to each other, trading at wherever prices were advantageous to themselves,” one industry source said.
Morgan Stanley largely exited its Archegos positions by Friday, March 26 with the exception of one holding: 45 million shares of ViacomCBS, which it shopped to clients on Sunday, according to the people.
The bank’s delayed disposal of Viacom shares has sparked questions and speculation that it held onto the stock because it wanted a secondary offering run by Morgan Stanley the week before to close.
Despite leaving some of its hedge fund clients feeling less-than-thrilled, Morgan Stanley isn’t likely to lose them over the Archegos episode, the people said.
That’s because the funds want access to shares of hot initial public offerings that Morgan Stanley, as the top banker to the U.S. tech industry, can dole out, they said.
Data also provided by Reuters
https://www.cnbc.com/2021/04/06/morgan- ... -sale.html
Re: LEST WE FORGET THE LOOTERS
REUTERS
"Exclusive: Texas energy fund shuts, founder says millions squandered"
By Shariq Khan
APRIL 22, 2021
(Reuters) - The founder of a Texas oil and gas investment firm that raised about $31 million shut the business this month and acknowledged in a Reuters interview that he had squandered investors’ cash on “bad” and “non-arm’s-length” deals.
Christopher Bentley, who founded Bellatorum Resources LLC in 2016 and raised funds from about 150 wealthy individuals, closed its doors on April 9 and contacted U.S. prosecutors.
His firm bought mineral rights in Texas shale fields, betting on appreciation as oil and gas drilling rose.
The Federal Bureau of Investigation and Department of Justice are reviewing the company’s records, Bentley said in the interview on Tuesday.
Bentley has not been charged.
The FBI said it does not confirm or deny the existence of any investigations and referred questions on Bentley to the U.S. Attorney’s office.
A spokeswoman for U.S. Attorney Jennifer Lowery of the Southern District of Texas did not reply to several requests for comment.
Alongside this year’s spectacular investment busts, Bellatorum’s is small.
This year’s failure of highly leveraged equity investor Archegos Capital saddled investors with billions of dollars in losses.
But Bellatorum stands out for its founder’s mea culpa email to investors and decision to turn himself into authorities.
‘I WAS OVERLY CONFIDENT’
At times contrite about his failings, the 40-year-old former energy worker and U.S. Marine admitted to acquiring “bad” and “non-arm’s-length” deals, overspending on corporate overheads, and failing to hire professionals to advise him.
He said he lost some of his own money in the venture.
“I was overly confident that if I can hit even one home run that’ll make everything right,” Bentley said of his hiding the fund’s financial troubles from investors and employees.
“I kept digging the hole."
"I turned myself in because I couldn’t live the lie any longer.”
The buying and selling of mineral rights, an about $2.1 billion-a-year business in the United States, took off in the shale patch around 2016 as drilling activity jumped, said Enverus M&A analyst Andrew Dittmar.
But the business slumped last year as deals dried up with oil demand.
Bentley had borrowed money using fund assets in a last-ditch effort to generate enough cash to pay investor distributions.
Instead, he used some of the cash to finance Bellatorum’s daily operations and cover distributions to early fund investors, he told Reuters.
“I have made serious mistakes in an effort to keep the operation going,” he told investors in the email dated April 9 and seen by Reuters.
The company’s two largest funds have almost no assets left, he said, after he borrowed $6.6 million against the assets and the lender foreclosed earlier this year.
‘TIME WILL TELL’
Jeff Voelkel, an investor in Bellatorum’s third and smallest fund who has reviewed its records, said less than half the $2.6 million that 40 investors put into the fund was used to buy assets, with the rest apparently consumed by expenses.
Voelkel described Bentley as “open and forthcoming with information” since the April 9 email, but added: “Only time will tell if he siphoned anything off for himself.”
Bentley stressed to Reuters he had not diverted funds, saying he had sold his own assets and put money into the company.
But he admitted working nights and weekends to keep the losses hidden from his employees and investors.
Bellatorum staff, 21 employees at its peak, were unaware of his actions, he said.
“I didn’t let them have access to information."
"That’s why they didn’t end up working for me for long,” he said.
Additional reporting by Liz Hampton in Denver; Writing by Gary McWilliams in Houston; Editing by Howard Goller
https://www.reuters.com/article/us-usa- ... SKBN2C919L
"Exclusive: Texas energy fund shuts, founder says millions squandered"
By Shariq Khan
APRIL 22, 2021
(Reuters) - The founder of a Texas oil and gas investment firm that raised about $31 million shut the business this month and acknowledged in a Reuters interview that he had squandered investors’ cash on “bad” and “non-arm’s-length” deals.
Christopher Bentley, who founded Bellatorum Resources LLC in 2016 and raised funds from about 150 wealthy individuals, closed its doors on April 9 and contacted U.S. prosecutors.
His firm bought mineral rights in Texas shale fields, betting on appreciation as oil and gas drilling rose.
The Federal Bureau of Investigation and Department of Justice are reviewing the company’s records, Bentley said in the interview on Tuesday.
Bentley has not been charged.
The FBI said it does not confirm or deny the existence of any investigations and referred questions on Bentley to the U.S. Attorney’s office.
A spokeswoman for U.S. Attorney Jennifer Lowery of the Southern District of Texas did not reply to several requests for comment.
Alongside this year’s spectacular investment busts, Bellatorum’s is small.
This year’s failure of highly leveraged equity investor Archegos Capital saddled investors with billions of dollars in losses.
But Bellatorum stands out for its founder’s mea culpa email to investors and decision to turn himself into authorities.
‘I WAS OVERLY CONFIDENT’
At times contrite about his failings, the 40-year-old former energy worker and U.S. Marine admitted to acquiring “bad” and “non-arm’s-length” deals, overspending on corporate overheads, and failing to hire professionals to advise him.
He said he lost some of his own money in the venture.
“I was overly confident that if I can hit even one home run that’ll make everything right,” Bentley said of his hiding the fund’s financial troubles from investors and employees.
“I kept digging the hole."
"I turned myself in because I couldn’t live the lie any longer.”
The buying and selling of mineral rights, an about $2.1 billion-a-year business in the United States, took off in the shale patch around 2016 as drilling activity jumped, said Enverus M&A analyst Andrew Dittmar.
But the business slumped last year as deals dried up with oil demand.
Bentley had borrowed money using fund assets in a last-ditch effort to generate enough cash to pay investor distributions.
Instead, he used some of the cash to finance Bellatorum’s daily operations and cover distributions to early fund investors, he told Reuters.
“I have made serious mistakes in an effort to keep the operation going,” he told investors in the email dated April 9 and seen by Reuters.
The company’s two largest funds have almost no assets left, he said, after he borrowed $6.6 million against the assets and the lender foreclosed earlier this year.
‘TIME WILL TELL’
Jeff Voelkel, an investor in Bellatorum’s third and smallest fund who has reviewed its records, said less than half the $2.6 million that 40 investors put into the fund was used to buy assets, with the rest apparently consumed by expenses.
Voelkel described Bentley as “open and forthcoming with information” since the April 9 email, but added: “Only time will tell if he siphoned anything off for himself.”
Bentley stressed to Reuters he had not diverted funds, saying he had sold his own assets and put money into the company.
But he admitted working nights and weekends to keep the losses hidden from his employees and investors.
Bellatorum staff, 21 employees at its peak, were unaware of his actions, he said.
“I didn’t let them have access to information."
"That’s why they didn’t end up working for me for long,” he said.
Additional reporting by Liz Hampton in Denver; Writing by Gary McWilliams in Houston; Editing by Howard Goller
https://www.reuters.com/article/us-usa- ... SKBN2C919L