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Credit Crisis Timeline[*] CREDIT CRISIS TIMELINE[*] THE UNIVERSITY OF IOWA CENTER FOR INTERNATIONAL FINANCE & DEVELOPMENT PREPARED BY JASON COX AND LAURIE GLAPA Last updated: July 1, 2009 • June 2003: o Greenspan lowers Fed’s key rate to 1%, the lowest in 45 years http://www.bloomberg.com/apps/news?pid=20601087&sid=aclMlgBb3taQ&refer=home • 2006: o Lenders make $640 billion in subprime loans o 20% of all mortgage lending was subprime http://money.cnn.com/2007/04/02/news/companies/new_century_bankruptcy/ • May 5, 2006: o In possibly the first casualty of the looming subprime crisis, Kirkland, Washington based Merit Financial Inc. files for bankruptcy and closes its doors, firing all but 80 of its 410 employees, kept to wind down the business. o Chief financial officer, Ryan Kidd, said that Merit’s marketplace had declined about 40% and sales were not bringing in enough revenue to support the overhead of running the company. http://seattlepi.nwsource.com/business/269154_merit05.html • August 26, 2006: o Defaults on subprime mortgages start to occur much earlier in the mortgage process. o Investors and analysts believe this trend could be the result of lax underwriting quality or a sign of a weakening mortgage credit market. http://www.facorelogic.com/uploadedFiles/Newsroom/RES_in_the_News/Subprime_Mortgage_Lenders_Seeing_Early_Payment_Defaults.pdf • January 3, 2007: o Ownit Mortgage Solutions Inc. files for Chapter 11. o Owed Merrill Lynch around $93 million when filing. http://www.californiabankruptcylawyerblog.com/2007/01/californiabased_ownit_mortgage.html • February 5, 2007: o Mortgage Lenders Network USA Inc. files for Chapter 11. th o 15 largest subprime lender with $3.3 billion in loans funded in third quarter 2006. http://www.boston.com/news/local/connecticut/articles/2007/02/05/mortgage_lenders_network_files_for_ch_11_bankruptcy_protection/ • February 7, 2007: o HSBC, a large London based bank, issues a warning that an earlier statement about its Mortgage Services operations will be much worse than current market estimates. o HSBS blames this drop on the increased delinquencies of US subprime mortgages and the inability to refinance because of falling equity prices. o The release said that the aggregate loan impairment charges and credit risk provisions could be 20% higher than the earlier statement. http://www.hsbc.com/1/2/newsroom/news/news-archive-2007/hsbc-trading-update-us-mortgage-services • February 10, 2007: o The Group of Seven Finance Ministers meet in Essen, Germany to discuss worldwide financial problems. o One of the main concerns is the lack of regulation of hedge funds. Germany says this could be a source of systematic risk for the financial system where the US believed market discipline is the best way to address the issue. o Henry Paulson noted that the US residential housing market had been cooling over the last year but appears to have stabilized. http://www.ft.com/cms/s/0/3db4a4e4-b650-11db-9eea-0000779e2340.html http://www.ustreas.gov/press/releases/hp255.htm • February 13, 2007: o ResMae Mortgage Corp. files for Chapter 11. o Credit Suisse Group buys $19.1 million in assets in auction. th o ResMae made $7.7 billion in subprime loans in 2006 making it 26 in subprime lending. http://www.bloomberg.com/apps/news?pid=20601087&sid=arsKNQcbPcxc&refer=home • March 2007: o New Century Financial announces it will stop making loans and needs emergency financing to survive. o Stock price goes from $15 at the beginning of March to $3.21 when announcement is made. http://www.nytimes.com/2007/03/11/business/11mortgage.html?pagewanted=3&_r=1 • March 20, 2007: o People’s Choice Home Loan files for Chapter 11. http://www.bloomberg.com/apps/news?pid=20601087&sid=atkiRNcdlZ8M&refer=home • April 3, 2007: o New Century Financial files for Chapter 11. o Cuts 54% of its workforce or 3,200 jobs o Largest subprime lender in US. o Delisted from the NYSE o Defaults on $8.4 billion in loan repayments nd o New Century made $51.6 billion in subprime loans in 2006 making it 2 in subprime lending http://money.cnn.com/2007/04/02/news/companies/new_century_bankruptcy/ • April 12, 2007: o SouthStar Funding LLC files for Chapter 7. o Another subprime lender http://www.reuters.com/article/gc06/idUSN1236927220070412 • June 7, 2007: o In a letter to investors, Bear Stearns suspends redemption rights for a hedge fund heavily invested in the subprime debt market because of liquidity problems. o The fund had lost 23% of its value since January 2007 including almost 19% in April alone. http://www.businessweek.com/bwdaily/dnflash/content/jun2007/db20070612_748264.htm • June 22, 2007: o Bear Stearns agrees to a plan to loan $3.2 billion to one of its hedge funds. o The lack of liquidity at the hedge fund is blamed on the bad bets that were placed on the US subprime mortgage market. http://www.ft.com/cms/s/0/d7936764-f1d5-11dc-9b45-0000779fd2ac.html • June 27, 2007: o SEC Chairman, Christopher Cox, testifies to Congress that the SEC has opened 12 enforcement investigations into collateralized debt obligation (CDO) practices. o This was in response to questions from Congress about the transparency of CDOs http://www.reuters.com/article/bondsNews/idUSWAT00779720070626 http://www1.cchwallstreet.com/ws-portal/content/news/container.jsp?fn=07-02-07 • July 6, 2007: o UBS fires CEO and the heir apparent for chairman of the board, Peter Wuffi. http://www.ft.com/cms/s/0/e29e2376-2b59-11dc-85f9-000b5df10621.html • July 9, 2007: o Credit Suisse releases a report that shows CDO losses could total up to $52 billion. o The report stated that CDO investors will likely be in trouble but they do not predict any systematic risk. o Ivan Vatchkov, a Credit Suisse analyst, said that “[b]anks’ direct exposure to CDOs is not as high as people think.” http://www.bloomberg.com/apps/news?pid=20601087&sid=aPKIHSk5cS50&refer=home • July 10, 2007: o The Federal Reserve reports that consumer credit debt rose at an annual rate of 6.4%, the biggest jump in six months. o This was close to double what analysts were expecting. http://query.nytimes.com/gst/fullpage.html?res=9E02E3D7103EF933A25754C0A9619C8B63 • July 16, 2007: o Alliance Bankcorp files for Chapter 7. o Ceased operations on July 13, 2007. o Lent to category of borrowers between subprime and prime. http://www.reuters.com/article/bondsNews/idUSN1625754520070716 • July 17, 2007: o In a letter sent to investors, two Bear Stearns hedge funds specializing in subprime debt announce that each fund has lost at least 90% of its value. o Bear Stearns declined to provide more liquidity following the $3.2 billion given as a bailout in June 2007 to cover margin calls. o The total of investor contributions to the funds was around $1.6 billion. o AAA tranches of subprime debt were the only rating investing in by the funds. http://www.investopedia.com/articles/07/bear-stearns-collapse.asp?viewall=1 • July 18, 2007: o Ben Bernanke, chairman of the Federal Reserve, says the Fed has reduced its growth forecast for 2007 based on continuing problems in the housing market. o The Fed still predicts moderate growth for the rest of 2007 with the economy expanding at a 2.5% to 2.75% rate, 0.5% lower than earlier estimates. o Mr. Bernanke also acknowledged that the Fed and other regulators had been too timid in reigning in aggressive mortgage lenders. o The Fed also announced plans to review the practices of mortgage lenders to see if new rules or enforcement are necessary. o Bernanke estimates that the fallout of the US subprime crisis could cost up to $100 billion. http://www.nytimes.com/2007/07/19/business/19fed.html • July 24, 2007: o Countrywide Financial announces that second quarter profits were down 33%. o They also mentioned that the problems with subprime mortgages were starting to spread to conventional home loans. o Subprime delinquencies along with a doubling of delinquencies on prime mortgages were blamed for the drop. http://www.ft.com/cms/s/0/e2ab1b62-3a13-11dc-9d73-0000779fd2ac.html • July 31, 2007: o The two Bear Sterns hedge funds that had released losses on July 17 filed for Chapter 15 bankruptcy. o Bear Stearns wound down the funds and liquidated all of the holdings in the funds. o One commentator called it the worse thing that had ever happened to Bear Stearns. http://www.investopedia.com/articles/07/bear-stearns-collapse.asp?viewall=1 • August 1, 2007: o The first civil lawsuits are filed against Bear Sterns for the collapse of 2 hedge funds invested in subprime debt. o The two complaints charged Bear Stearns with misleading statements about the fund’s exposure to subprime debt. http://www.usatoday.com/money/economy/2007-08-01-4138637345_x.htm • August 3, 2007: o A German government-led bailout of IKB Deutsche Industriebank results in state-owned KfW assuming up to €1 billion in expected possible losses. o KfW and other banks agreed to guarantee a liquidity line of up to €8.1 billion to cover the loss in value of the bank’s subprime US investments. http://www.ft.com/cms/s/0/3dd8cbf4-41e6-11dc-8328-0000779fd2ac.html • August 6, 2007: o Bear Stearns fires their co-president, Warren Spector, allegedly for being outspoken about the error in exposing the hedge funds to subprime debt. o Spector had worked at Bear Sterns for 24 years and was deemed by many to be the heir apparent to the CEO job. o The presidential duties that Spector did were assigned to his co-president, Alan Schwartz. http://www.nytimes.com/2007/08/06/business/06bear.html?_r=1&oref=slogin • August 7, 2007: o American Home Mortgage files for Chapter 11.
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