New Century collapse sends shockwaves across the biggest lenders on Wall Street
Goldman Sachs has emerged as the single biggest creditor of New Century, the American sub-prime mortgage lender, which filed for Chapter 11 bankruptcy last night, after writing $60 billion (£30.4 billion) of American home loans.
Barclays, the British bank, is at No 15 in the list of top 50 creditors. HSBC, which is already directly exposed to turmoil in the sub-prime market through its US sub-prime lending subsidiary, is at No 22.
Although the amounts that the banks are owed are not revealed in the New Century’s Chapter 11 filing, analysts believe that Barclays has lent about $1 billion to the collapsed bank and had been seeking to withdraw its loan before yesterday’s bankruptcy.
The creditors’ list is a who’s who of Wall Street bankers, with Credit Suisse at No 2, Morgan Stanley at No 4 and Deutsche Bank, Bank of America, UBS and Lehman brothers also in the top ten.
Worryingly for the health of the entire US sub-prime market, Countrywide Financial, another sub-prime lender, is the No 10 creditor.
Shares in Countrywide, America’s biggest mortgage lender, were hit last night by growing fears over sub-prime lending and it emerged that two directors had quit its board.
Kathleen Brown, who is also a Goldman Sachs executive, left late last Friday without any explanation. Michael Dough-erty, another board member, is not standing for reelection at the company’s next annual meeting.
New Century was the one of biggest sub-prime lenders in the United States, originating $60 billion in mortgages last year, second only to HSBC. It is unclear how much creditors will recover in the bankruptcy proceeding.
The company has said that it had $17.4 billion in credit lines from investment banks, but most of those debts are secured on New Century’s loans to customers, which are of uncertain value. Creditors such as Barclays, which declared New Century in default this month, had begun to seize the loans or auction them off in the past two weeks.
The demand for these packages of loans and the price that they receive will indicate how much creditors such as Goldman and Barclays will have to write off.
Barclays said: “The vast majority of our exposure to all US sub-prime lenders is fully collateralised and short-term, pending distribution. We do not anticipate any material losses to arise from our exposure to the sector.”
In the front line
1 Goldman Sachs Mortgage Company
2 Credit Suisse First Boston Mortgage Capital LLC
3 Credit-Based Asset Servicing and Securitization LLC
4 Morgan Stanley Mortgage Capital
5 DB Structured Products
6 Deutsche Bank
7 Bank of America
8 UBS Real Estate Securities
9 Lehman Brothers Bank FSB
11 Citigroup Global Markets Realty
12 Residential Funding Corporation
13 SG Mortgage Finance
14 IXIS Real Estate Capital
15 Barclays Bank