BROWSE BY TOPIC
Stories of Interest
- New Law Bans Kaspersky Software from Use in U.S. Government
- I Owned Bitcoin For a Weekend and Here's What I Learned
- SEC Appoints New Chair and Board Members to PCAOB
- FINRA, Georgetown Team Up to Deliver 'Certified Regulatory and Compliance Professional' Program
- FINRA Board Meeting - This Week's Agenda
- Statement on Cryptocurrencies and Initial Coin Offerings - SEC Chair Clayton
- Company Halts Initial Coin Offering Over SEC Registration Concerns
- Kevin O'Leary Explains One Big Thing People Don't Understand About Bitcoin (But Need To)
- CME Bitcoin Futures: A Better Way to Buy (or Short) Bitcoin?
- Address at ICI's 2017 Securities Law Developments Conference - SEC Commissioner Stein
- New York Pension Fund Seeks More Pay Disclosure from Wells Fargo
- Wells Fargo Sanctions Are on Ice Under Trump Official
- Josh Brown: Here's How to Buy Bitcoin, But Realize It Could Be One Giant Bubble
- Trump's New Tax Plan Could Cost Citigroup $20 Billion
- Morgan Stanley Fires Former Congressman Harold Ford Jr.
- Al Franken Will Resign Over Sexual Misconduct Allegations - His Full Resignation Speech
- Ex-NFL Player Gets 40 Years for Running $10Mn Fraud
- Bitcoin Blows Past $15K, Adding $2K in Under 12 Hours
- Financial Adviser Settles Charges for Defrauding Private Equity Fund Investors
- New Cross Market Equity Supervision Report Cards - FINRA Phone-In Workshop, WebEx Presentation
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
Wall Street News
JPMorgan, Wells Fargo Are Selling Subprime Asset-Backed Securities - Should You Be A Buyer?
by Howard Haykin
Did you hear? JPMorgan Chase and Wells Fargo have gotten ‘the yips’ when it comes to offering sub-prime loans to auto buyers. But that doesn’t mean these banks are getting out of that business. Fact is, they’re funding billions of dollars of loans – indirectly. According to Bloomberg News:
- Wall Street banks packaged more subprime auto loans from finance companies into bonds in the Q1 of 2017 than the same period last year - $7.1 billion, up from $5.9 billion.
- Wells Fargo and JPMorgan remained the top two underwriters of the securities.
Seems like only yesterday when, in 2008, asset-backed securities (ABS’s) began to sour. And it's worth repeating that a Senate subcommittee report in 2011 laid the blame squarely on investment banks - saying that sales of structured finance products “provided a steady stream of funding for lenders originating high risk, poor quality loans and that magnified risk throughout the U.S. financial system.”
Nowadays, banks are still peddling ABS’s, though they’re more likely to be stuffed with subprime auto loans than with subprime mortgage loans. While that transition lessens the risk exposures for banks, investors who buy those ABS’s are seeing their risks grow.
How do we know?
- Subprime borrowers are falling behind on their car loan payments at the highest rate since the financial crisis.
- Borrowers are already defaulting on a growing amount of auto debt.
- Growth in auto debt since the financial crisis has set off alarm bells on Wall Street and among regulators who are concerned that borrowers may be overburdened.
- Declining car prices mean that the value of the loans’ collateral is dropping. (Can you say “underwater?”)
- Even Wells Fargo’s analysts who look at bonds backed by car loans cautioned in March that it may be a good time for investors to cut their exposure.
- At least one Wall Street bank – BofA - has steered clear of underwriting bonds backed by subprime auto loans.
WHEN YOU GET TO THE FORK, TAKE IT! Research analysts at Wells Fargo, the #1 seller of bonds backed by subprime auto loans, have said that the bonds pose few risks to bondholders. They also recommended that investors cut their risk exposure because of valuations.
[WOULD SOMEONE PLEASE TELL WELLS FARGO THAT YOU CAN'T HAVE IT BOTH WAYS!]