Knobias Clip Report (03-07-2008)
Submitted By Knobias ClipReport
TMA: Announces Margin Calls and Default Notices; Shares Fall 20%
Friday’s session saw the Dow fall below 12,000 as news before the bell reported the Fed to bolster liquidity by announcing an increase in the size of the two Term Auction Facility, or TAF and that it would initiate a series of term repurchase transactions that are expected to cumulate to $100 billion.
The day was also marred by the jobs report which saw a decrease of 63,000 jobs with revisions to the January and December reports. Even so, the Jobless Rate fell from 4.9% to 4.8% as the number in the work force dropped dramatically. Retirement is normally the cause of the number in the workforce to decline but many theorized a loss from discouraged workers who give up looking for jobs for a period of time as the cause of the decrease in the Jobless Rate. If that is the case, the job market is possibly worse than thought and reported.
Thornburg Mortgage also contributed to the misery as the Company announced that it would restate financial statements to recognize impairment losses on assets. The charge was noted as being $427 million and notes margin calls for $610 million, which exceeded their liquidity abilities.
The Company noted default from 4 lenders and doubts are raised about going concern continuation unless additional capital is raised. The latest disclosures helped shares plummet to lows of $1.28, more than 20% down on the day.
“The panic that has gripped the mortgage financing market is irrational and has no basis in investment reality,” Larry Goldstone, chief executive of Thornburg, said in a statement on Friday.
Thornburg hold securities backed by so called Alternate-A home loans which are supposedly more creditworthy than subprime but require less documentation.
When prices started dropping, Thornburg began receiving margin calls and has received some $1.8 billion of margin calls this year. According to filings, the Company only had $580 million in liquidity to meet such calls.
With the inability to meet the calls, the Company will have to seek additional financing, something that might not be very conducive considering their circumstances and the overall environment or/and sell some of these mortgage assets.
With the overall credit environment in such a bind, continued Fed easing on the Fed Funds Rate was theorized to be on the way which will result in higher commodity prices and continue the squeeze being put on consumers to drive their cars, eat food, and live their lives. With that in mind, investors would be wise to watch.
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