Collapse in bonds may top $32 billion

[emad]

May 23, 2005

Collapse in bonds may top $32 billion
By Carl Mortished, International Business Editor



HEDGE FUNDS and banks could be sitting on combined losses of more than $32 billion (£18 billion) after recent downgrades to General Motors and Ford, credit analysts at Deutsche Bank have calculated.
The bank gave warning that the full scale of the collapse in corporate bond markets had yet to come out.

Deutsche Bank estimated that the total loss on GM debt since the beginning of the year, on a mark-to-market basis, was $17.8 billion, while the capital value of Ford’s debt had fallen by almost $14 billion. This exceeded even the scale of the $23 billion WorldCom default and overwhelmed the $10 billion owed to Enron creditors.

Although neither Ford nor GM is insolvent and no default is believed to be imminent, the loss in market value of the securities would hurt investors in the two companies debt.

Gary Jenkins, a credit analyst at Deutsche, cautioned that the absence of any sign of distress from leading investors should not be misread. He characterised the market losses for GM and Ford bond investors as a “default by stealth”. He pointed to the Russian debt crisis in 1998 and the time lag before problems emerged at Long Term Capital Management, the hedge fund.

http://www.timesonline.co.uk/newspaper/0,,170-1623500,00.html

[carnie_sf]

1. Ouch

[liberal N proud]

2. How long before the rest of the market follows Ford and GM?

[TahitiNut]

3. Large pension funds suffer as well, further eroding pension guarantees ...

... resulting in even greater underfunding, and so on. Funny how the federal and regulatory firewalls have been made so paper-thin that the economic slow-motion conflagration is inevitable. Wait until the housing bubble bursts.