The blame game…
Though footnoted.org has managed to avoid writing about the subprime mess so far, it’s become increasingly hard to ignore the number of companies that seem to be warning about their exposure — real or imagined — to subprime mortgages. Just take this disclosure from Giant Motorsports (GMOS) filed yesterday:
During the first half of 2007, the U.S. credit markets have been dealing with the effects of numerous defaults by homeowners on ’subprime’ mortgage loans. By June 2007 these defaults had also begun to increase with respect to mortgages considered to be of less credit risk than ’subprime’ mortgages. It is expected that mortgage default rates will continue to increase at least throughout the remainder of 2007 and possibly through the first half of 2008. These defaults have not only had a materially adverse impact on the spending power of the borrowers of such defaulted mortgage loans, but have also reduced the value of investment portfolios containing securities affected by such mortgages. Since motorcycle purchases, in the U.S. and, to a greater extent, purchases of ATV’s, are normally purchases for entertainment and sport, and not necessarily for transportation, any significant reduction in discretionary spending power could have an adverse effect on sales of our motorcycles and other power sports products.
Of course, tiny Giant (market cap of under $5 million) is hardly the only company to issue this sort of warning in their filings. Companies as diverse as restaurant chain Triac (TRY) and Leap Wireless (LEAP) also warned about their potential exposure in recent filings. Indeed, a quick skim of filings from last year and this year shows that the word subprime is mentioned in 1,349 filings between June 1 and today. In comparison, subprime was only mentioned in 764 filings during the same period in 2006. Presumably, some of those are duplicates since a company might mention their subprime exposure in both an 8K and a Q. But the fact that the number is essentially double is pretty amazing.
Here’s another interesting factoid just to put this in perspective. In the Q that Stewart Enterprises (STC) filed last week, it noted that it has reduced its employee headcount by 1,280, or 12.7% since the end of 2005, due to the downturn in the real estate market.
So footnoted.org has launched a new category to start paying closer attention to subprime woes. If you come across an interesting factoid in the filings, please consider sharing.
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August 15th, 2007 at 12:31 pm
Hmmmm. I think many companies will want to add this in their filings. What it really says is, “Hey, we didn’t meet our numbers this quarter. We are not going to tell you that we managed poorly, but let’s blame it on the market”.
Jim
August 15th, 2007 at 12:58 pm
Yeah dog ate my homework. HOG cycles has been
weak this year as have RV sales. Duh. House on wheels is soft as much as a “lier’s mortgage”
so me thinks this is a system breakdown.
High fuel charges and no credit lines. Well of course WMT is gonna suffer.
btw STC is a title insurance company and doesn’t appear to face the woes of homebuilders
or lenders. Even a bank house repo auction uses a fresh title search. Golden biz unless a second Great Depression.
Watching the distressed commercial auction biz since they were an early tell as dot coms went bust and unloaded all those ergo chairs.
An exchange-traded fund tracking home-builder stocks, iShares Dow Jones U.S. Home Construction, was off 41% so far this year as of Tuesday’s close.
And tied to mortgage mess…
Top Hedge Fund Blow-up News and Commentary:
http://hf-implode.com/
August 16th, 2007 at 9:36 am
[...] to Footnoted.org, the term subprime was mentioned in 1,349 SEC filings since June 1, 2007, nearly double the number [...]
August 17th, 2007 at 3:40 am
[...] in fields as diverse as wireless, restaruant, and motorsports have blamed the mortgage market for poor performance. Asian stock markets have also been hit hard of [...]
August 17th, 2007 at 7:17 am
[...] the word “subprime” in their SEC filings and she’s found, not surprisingly, a spike in the word’s use. What is a bit surprising are the companies that have invoked the situation to explain their [...]
August 17th, 2007 at 9:37 am
Check out http://www.eyeoncountrywide.info, an independent consumer resource examining sub-prime lending and Countrywide Financial Corporation
August 20th, 2007 at 9:33 pm
Optimists point out that only a small fraction of mortgages will actually be forclosed. Everyone else will refinance or simply tighten their belts and make the payments. So the subprime mess isn’t going to affect the rest of the economy, right? And it’s obviously silly to suggest that the subprime mess has caused a drop in motorcycle sales, isn’t it?
Wrong. The problem isn’t the foreclosures, the problem is the actions of people with good credit who pay their loans. People who refinance into fixed rate mortgages or simply bite the bullet and make the reset ARM payments will have higher monthly mortgage payments and will have less to spend on everything else. Which means, less to spend on new clothes, new cars, new computers, restaurant meals, new motorcycles. Which means that all businesses that sell to consumers will see sharp drops in their year on year sales as the belt tightening process plays itself out. The motorcycle manufacturers are getting hit first because motorcycles are a luxury/leisure item for many people. The car manufacturers will see their turn coming in fall 2007 when the new models come out and few people buy them. I’m predicting that 18 months from now, 20% of all American businesses in existence today will fold or seek bankruptcy protection. And then there will be an unemployment problem … Hate to be so negative, but everyone keeps missing the obvious, which - as pointed out above - is the problem that’s going to result when people with high paying jobs and good credit decide to modify their budgets in order to pay their mortgages.