Ambrose Evans-Pritchard seems a fairly reliable source of financial information - today in the Telegraph Online he reports ;
Carlyle Capital Corp Ltd., has leveraged itself to the hilt, taking out debt at a ratio of 32:1 to invest in US mortgage assets. Carlyle Capital leverages its $670 million equity 32 times to finance a $21.7 billion portfolio of residential mortgage-backed securities issued by U.S. housing agencies Freddie Mac and Fannie Mae.
Fire sales of these assets raise the spectre of distress sales on a scale large enough to trigger a cascade of liquidations by other funds. What we bankers call the "House of Cards" theory.
Shares in Carlyle Capital Corporation closed down Thursday almost 60 % at US $5.00 on Euronext Amsterdam - where it floated only in July 2007 at US$19.
Carlyle one of the world's largest private-equity firms with $76 billion in assets under management and have 55 different funds of which CCC is the only one in trouble.
Traders said Carlyle Capital had been scooping up AAA-rated mortgage securities, believing that they had fallen fall below inherent value. The risky bet - known as "catching a falling knife" - appears similar to the strategy that ensnared the UK hedge fund Peloton Partners, which was forced to close a $2bn fund last week.
(Peleton was run by Ron Beller ex Goldman Sachs and his beautiful, talented wife Jennifer Moses, an ex-Goldman Sachs managing director will NOT now be joining Gordon Brown's shit hot , hot shot team of wizard financial advisers)
Carlyle Capital Corp (CCC) said it had missed margin calls to seven creditors and lacked collateral to cover its trading exposure to mortgage securities.
This has sent nasty signals throughout the the financial markets. It held securities worth a $21.7bn (£10.8bn) last month, raising the spectre of distress sales on a scale large enough to trigger a cascade of liquidations by other funds.
Fears of forced sales ravaged real estate investment trusts, which also own big holdings of Fannie Mae and Freddie Mac debt. Santa Monica based Anworth Mortgage (ANH : NASDAQ) shares plunged 24pc and Dallas based Capstead Mortgage was off 25pc.
Thornburg Mortgage (TMA:NYSE)crashed 60pc (and then almost disappered today) after revealing an SEC-filing in New York that it had missed a $28m margin call to JP Morgan Chase. It has suffered from the collapse in investor demand for so-called jumbo mortgages.
An analyst report that UBS was engaged in a "fire-sale" of mortgage securities worth $24bn accelerated the flight from risk. Most of the assets are alleged to be Alt A securities, the next notch up from sub-prime.