About Vanita Trippe

I just can’t peel my eyes away from the meltdown in the subprime mortgage industry (which is also spreading to other parts of the financial world). If you’re following it, too, check out this Business Week story.

When Accredited Home Lenders belatedly filed its annual report with the SEC this week, some of the dire information contained therein (including a “going-concern” statement) sent the subprime lender’s stock into a nosedive.

While Accredited still apparently has its white knight in the form of private equity lender Lone Star Funds, the industry as a whole is still in need of rescuing. (See previous Bizmology post on the subprime mortgage industry.)

Besides the company-specific info, Accredited’s 10-K contains a succinct little recap of the various woes that have befallen the industry so far in 2007. Here (in a slightly edited form) is the scoop:

• New Century announced that it would restate results for the nine months ended September 30, 2006 to account for losses on defaulted loans that it was obligated to repurchase (February 7th);
• HSBC Holdings PLC, one of the world’s largest banks and non-prime lenders, announced an increase in its bad debt charge for 2006, which it attributed to problems in its U.S. non-prime mortgage lending division (February 8th);
• Credit-Based Asset Servicing and Securitization LLC (“C-BASS”) and Fieldstone Investment Corporation (“Fieldstone”) announced that they had entered into a definitive merger agreement under which C-BASS would acquire all of Fieldstone’s outstanding common stock (February 16th);
• ACC Capital Holdings, the parent company of Ameriquest Mortgage Company and Argent Mortgage Company, two large non-prime mortgage originators, announced that it had secured additional capital from Citi’s Markets and Banking Division and its majority shareholder, and that Citi had agreed to become the company’s primary warehouse lender and had acquired an option to buy the company’s wholesale mortgage business (February 28th);
• Fremont General Corp. (“Fremont”), another significant non-prime mortgage originator, announced that it would exit its non-prime real estate lending operations and that it was in discussions with various parties regarding the sale of this business (March 2nd);
• The New York Stock Exchange suspended trading of New Century’s common stock based on uncertainties concerning its liquidity position (March 12th);
• Fieldstone announced that it had amended its previously announced merger agreement with C-BASS to reduce the price of Fieldstone’s common stock to $4.00 per share (March 16th);
• People’s Choice Home Loan, Inc., another significant non-prime mortgage originator, filed for bankruptcy protection (March 20th);
• Fremont sold approximately $4.0 billion of non-prime residential real estate loans and entered into exclusive negotiations with the same institution to sell most of its residential real estate business (March 21st);
• New Century filed for bankruptcy protection (April 2nd);
• NovaStar Financial, another significant non-prime mortgage originator, initiated a formal process to explore strategic alternatives and received $100 million in financing (April 11th);
• First Horizon National Corp. blamed difficulty selling mortgages in the secondary market and increased repurchase requests for its decision to shutter its subprime business (April 20th);
• H&R Block Inc. announced the sale of Option One Mortgage Corp. (“Option One”), another large non-prime mortgage originator, to an affiliate of Cerberus Capital Management with a transaction value equal to Option One’s tangible net assets as of the date of closing less $300 million (April 20th);
• WMC, a unit of General Electric Co., announced that it would cut 771 jobs (April 20th);
• Standard & Poor’s Ratings Service placed its credit ratings on 612 classes of residential mortgage-backed securities backed by U.S. non-prime collateral on “credit watch” with negative implications because of poor collateral performance, expectation of increasing losses on the underlying collateral pools, the consequent reduction of credit support, and changes that will be implemented with respect to the methodology for rating new transactions (July 10);
• Moody’s Investors Service downgraded 399 residential mortgage-backed securities and placed an additional 32 residential mortgage-backed securities under review for possible downgrade based on higher than anticipated rates of delinquency in the underlying collateral compared to current credit enhancement levels (July 10);
• General Electric Co. announced plans to sell WMC Mortgage Corp, its three-year-old U.S. non-prime mortgage unit (July 12);
• NovaStar Financial, Inc. announced an investment of $48.8 million by MassMutual and Jefferies Capital Partners as part of a commitment to raise $150 million in new equity to complete its formal process of exploring strategic alternatives (July 16);
• Bear Stearns announced the collapse of two of its hedge funds that had invested in non-prime mortgage securities (July 18);
• Countrywide Financial Corp.’s second-quarter net income fell 33% because of softening home prices. Countrywide cut its 2007 earnings estimate because it expects a challenging second half, including difficulty in the housing and mortgage markets (July 24);
• American Home Mortgage Investment Corp. announced a delayed payment of its quarterly cash dividend on the company’s common stock and anticipated delaying payment of its quarterly cash dividends on its preferred stock in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the company’s balance sheet and overall liquidity. American Home Mortgage said that the unprecedented disruption in the credit markets in the past few weeks caused major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities (July 28);
• MGIC Investment Corporation announced that it had concluded that the value of its investment in C-BASS had been materially impaired because the market for non-prime mortgages had experienced significant turmoil beginning in February 2007, with market dislocations accelerating to unprecedented levels beginning in approximately mid-July 2007 (July 30); and
• American Home Mortgage announced that it was unable to borrow on its credit facilities and to fund its lending obligations of approximately $300 million on July 30 and that it did not anticipate funding approximately $450 to $500 million on July 31. (July 31).

And in an unsurprising addendum to the subprime lending industry’s Greatest Hits List, American Home Mortgage announced Friday that it was closed for business.

Despite all of the “floweriness” associated with Lady Bird Johnson, the late First Lady may have been the very epitome of a “steel magnolia.” She parlayed a modest inheritance into a communications empire that helped fund her husband’s campaigns and further his political career. Although she went about her commercial activities quietly, she was by most accounts the brains behind the business. By the 1990s, the family fortune (which came to involve radio and TV stations, cable systems, banks, real estate, and private equity investments) was estimated to be valued at more than $100 million.

Today, the Johnsons’ former radio stations are owned by Emmis Communications, the non-profit wildflower center Mrs. Johnson established in Austin is part of the University of Texas (for which Lady Bird served as a regent for many years), and the LBJ Ranch has been owned by the National Park Service since 1972 (although the family established a life estate for themselves when they donated the property).

Austin abounds with reminders of Lady Bird and LBJ, and all eyes were on our city when the former first lady died last month. For two days, Mrs. Johnson lay in repose at the LBJ Library and Museum, where thousands came to pay their respects.

Austin’s Riverbend Church (also the site of the 2002 Jessica Simpson-Nick Lachey nuptials, now defunct) was packed with presidents, first ladies, and other dignitaries attending Lady Bird’s invitation-only “public” funeral. (A private family service had been held earlier in the week.)

On the Sunday after her death, I rousted my sleepy husband and grumpy teenage son to take an early Capital Metro bus downtown so we could pay our respects to Mrs. Johnson and family as the funeral cortege passed from the state capitol, along Town Lake (soon to be renamed Lady Bird Lake), and out west to the Johnsons’ Hill Country ranch, where she was buried.

As one might expect, wildflowers were a recurring theme among the mourners waiting for the cortege to pass; one young woman even wandered up and down Congress Avenue handing out flowers as remembrances and as reminders of Lady Bird’s lasting contribution to environmentalism in the US.

Many whom Lady Bird touched will also remember her as a businesswoman who helped to build an empire that continues even today, as the members of her family remain active in politics, business, and philanthropy. Austin will miss Lady Bird Johnson, but we’re proud to have been blessed with her grace, beauty, and strength.

When we last visited Wal-Mart’s repeatedly unsuccessful attempts to launch a bank, my parting words were the equivalent of the good ol’ Southern saying “hide and watch.” (Generic translation: Just you wait and see.)

To recap briefly: Consumer groups, financial services organizations, politicos, and government watchdogs had opposed a plan that would have allowed the world’s largest retailer to move into banking.

But, well, where there’s a Wal-Mart, there’s a way. The company recently announced it would move into financial services in a big way, even without the blessing of a bank charter, thank you very much. The move closely followed Wal-Mart’s withdrawal of its much-opposed industrial loan company application, which would have given it broader banking powers, including the ability to make loans.

As it is, the mega-retailer plans to have Wal-Mart MoneyCenters in some 1,000 of its stores by the end of next year. Services (most offered through affiliations with such third parties as Moneygram and CheckFree) largely target the so-called unbanked — the tens of millions of moderate- or low-income Americans who for reasons of necessity or preference don’t have a relationship with a bank or a credit union.

Wal-Mart is already one of the nation’s largest check cashers. Add such services as money transfer and prepaid Visa cards (dubbed Wal-Mart MoneyCards) on a nationwide scale, and you have what amounts to a ginormous bank (albeit one that doesn’t offer savings account or make consumer loans or mortgages … yet.)

Community banks and check-cashing companies (such as Cash America, Ace Cash Express, and Dollar Financial) may say they’re not quaking in their boots, but the vision of a possible future with some 4,000 Wal-Mart stores offering “banking” services coast-to-coast in the US undoubtedly has many companies and institutions racing to revise their business plans.

(Editor’s note: This is a continuation of yesterday’s post chronicling the naughty behavior of the rich and famous.)

Although overnight success can certainly lead to headline-grabbing excess (see: Lindsay Lohan, Britney Spears, Paris Hilton, the Olsen twins), old corporate money has a way of engendering “affluenza,” as well. Once you get past the (typically) men of industry who created a family fortune through their own efforts, you often find ensuing generations that reap a harvest of trouble out of their rich idleness.

The Getty family’s oil wealth (such companies as Shell Oil and Chevron can claim Getty lineage) triggered the kidnapping of young John Paul Getty III, who later in life suffered a drug overdose-induced stroke that left him paralyzed and vision-impaired.

The Kennedy clan — bootlegging was the initial source of family wealth — has helped define the phrase “rich kids behaving badly” in recent decades. Teddy’s Chappaquiddick “incident” may have started the trend, but several of his now-deceased nephews carried on the tradition. Michael had an affair with his kids’ babysitter, did a stint in rehab, then died after smashing into a tree during a football game on snow skis. David battled drug and alcohol addiction until his death from an overdose at the age of 28. JFK Jr. stayed clean by comparison, but (like his cousins) was known for dating famous beauties, including Daryl Hannah, Cindy Crawford, Madonna, and Sarah Jessica Parker.

Chicago’s fabulously wealthy — and famously private — Pritzker family is behind such companies as Hyatt Hotels, The Marmon Group, and TransUnion. Although the family has been largely free of the woes visited upon other clans (one young adult family member did commit suicide), the Pritzkers in recent years have been fighting (much more publicly than they’d like) over how best to divvy up the family businesses and wealth. Two young Pritzkers sued their elder kinsmen, accusing them of depleting their trust funds.

Americans aren’t the only ones susceptible to affluence-borne illness: The head of Ireland’s family-owned Dunnes Stores was ousted in 1992 after a Florida binge that reportedly involved illegal drugs and a prostitute.

Despite all of this, though, I’m happy to report that the presence of wealth doesn’t necessarily spell doom for the patient. For a shining example of how a modern-day Croesus can inoculate his offspring, we turn to my capitalist hero, Warren Buffett of Berkshire Hathaway. Mr. B has certainly not left his children Howard, Peter, and Susan in a penniless state; nevertheless, he has pledged the vast majority of his fortune to the Gates Foundation.

Why would he do such a thing, you ask? Well, my guess is that he thinks a lot of kids who’ve been handed wealth are — well — just spoiled. And who wants to be around a spoiled brat, anyway? (Are you listening, Paris?)