Gillian Tett has an intriguing little piece in today’s Financial Times, in which she reports on the first public valuation of particular structured credit instruments.
The odd bit (and theories by those that may have insight are welcome) is that JP Morgan apparently elected to make these prices public. JPM needed to value the securities for a court filing; perhaps it decided it had nothing to lose by sharing its pricing and thought it might encourage other banks to similarly disclose value estimates in legal cases in the hopes of encouraging more transparency.
But as the article makes clear, the markdowns from face value, even of the top rated instruments, were considerable.
From the Financial Times:
The first public price estimates for specific structured credit securities to have emerged since the start of the credit crisis show that values have fallen sharply.
Some securities have lost almost a third of their value – even though many were considered to be so safe that they carried top-notch ratings from the credit ratings agencies.
Meanwhile, some subprime mortgage-linked securities issued by groups such as UBS have lost almost 95 per cent of their value.
The price estimates were made in a legal filing following a decision by JPMorgan Chase to publish detailed securities valuations in a Canadian court. The securities are linked to commercial loans and medium-grade mortgages.
The estimates are likely to be scrutinised by auditors and regulators since they come at a time when the issue of security pricing has become controversial.
Banks are under pressure from regulators to book losses they have incurred on such instruments. However, trading has virtually dried up in many corners of the credit markets, and it is hard to compare prices for these instruments between banks.
Many regulators and investors fear that banks are still varying in the degree to which they have booked losses on their credit instruments in recent months – not least because it is hard for auditors to compare internal estimates with external benchmarks.
The figures have emerged because the US bank is leading an effort to restructure a group of 20 Canadian structured investment vehicles that issued $32bn of asset-backed commercial paper.