Another SIV bailout planned; auction-rate securities hit. Dresdner to support troubled $19 bln SIV as auction-rate problems linger

Feb.21, 2008 in Market Outlook

Another bank’s fund requires a bailout

Dresdner to support troubled $19 bln SIV as auction-rate problems linger

By MarketWatch

Last Update: 11:27 AM ET Feb 21, 2008

BOSTON (MarketWatch) — Dresdner Bank is the latest company forced to bail out a
structured investment vehicle in another stark reminder of the ongoing crisis in
international credit markets.

Dresdner, a division of German insurer Allianz (AZ), said Thursday that it will
provide a support facility for its struggling $18.8 billion K2 SIV, joining the
list of banks that have stepped in the support such funds.

The move came as Allianz reported a 52% drop in fourth-quarter net profit, hurt
by write-downs, but still promised a hefty increase in its dividend, helping its
shares gain. See related story.
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Elsewhere in the European banking sector, Societe Generale (FR:013080), the
French bank hit by a rogue-trader scandal, on Thursday reported a fourth-quarter
loss, slashed its dividend and warned that its asset-management arm could see
further write-downs. See full coverage.
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Swiss banking giant UBS (UBS), which has been hit hard by the subprime mortgage
crisis, on Thursday said it will propose the reelection of under-fire chairman
Marcel Ospel and other directors at its annual meeting in April, but for a
shortened term of just one year. Read the article.
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Meanwhile, shares of U.S.-listed financials stocks were mixed in early trading
Thursday. The Select Sector SPDR Financial ETF (XLF) was off 0.5% at last check.
The Amex Securities Broker/Dealer Index (XBD) rose 0.3% and the KBW Philadelphia
Bank Index (BKX) dropped 0.5%.

Morgan Stanley (MS) said Kenneth deRegt will oversee the investment firm’s risk,
The Wall Street Journal reported Thursday on its Web site, citing an internal
company memo. The Journal also reported Morgan Stanley Chief Risk Officer Tom
Daula will step down once a successor is named. DeRegt, 52, once headed the
firm’s fixed-income business.

Friedman, Billings, Ramsey Group Inc.(FBR) Thursday said it swung to a
fourth-quarter loss of $270.4 million, or $1.77 a share, from earnings of $3.8
million, or 2 cents a share, in the year-ago period.

The Arlington, Va.-based company said the loss included a $108 million write-down
of goodwill.

“Whole loan mortgages and on-balance sheet residuals have been eliminated,” said
Chief Operating Officer Rock Tonkel in a statement. “Our remaining non-prime
securities exposure is below $30 million - about 1.5% of total assets - and is
self-liquidating.”

Eaton Vance Corp. (EV) Thursday reported fiscal first-quarter net income of $57.9
million, or 46 cents a share, compared with $2.6 million, or 2 cents a share, the
previous year.

The Boston-based investment manager said quarterly earnings reduced by about 34
cents a share as a result of closed-end fund related expenses.

“We are closely monitoring developments in the [closed-end fund auction preferred
securities] market and are engaged in discussions with other market leaders to
develop solutions to restore liquidity to holders of APS as quickly as possible,”
said Thomas Faust, chief executive, in the earnings release.

Separately, Massachusetts’s top securities regulator asked nine financial-service
firms yesterday for information on their closed-end funds in the wake of woes in
the auction-rate securities market, The Wall Street Journal reported.

Secretary of State William Galvin’s office is concerned about failed auctions
that have left some investors in certain “auction-rate” shares issued by
closed-end funds unable to sell because no one is bidding for their funds,
according to the story.

Auction-rate securities are the latest trouble spot for struggling credit
markets.

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