Telegraph (UK)
Property investment trusts shares have crashed on panic selling in New York after an affiliate of the private equity giant Carlyle Group fell into default on mortgage losses.
Carlyle Capital Corp (CCC) said it had missed margin calls to seven creditors and lacked collateral to cover its trading exposure to mortgage securities.
The news sent shockwaves through the financial markets. Carlyle Capital has leveraged itself to the hilt, taking out debt at a ratio of 32:1 to invest in the US mortgage assets. It held securities worth a $21.7bn (£10.8bn) last month, raising the spectre of distress sales on a scale large enough to trigger a cascade of liquidations by other funds.
Fears of forced sales ravaged real estate investment trusts, which also own big holdings of Fannie Mae and Freddie Mac debt. Anworth Mortgage shares plunged 24pc and Capstead Mortgage was off 25pc.
Thornburg Mortgage crashed 60pc after revealing an SEC-filing in New York that it had missed a $28m margin call to JP Morgan Chase. It has suffered from the collapse in investor demand for so-called jumbo mortgages.
An analyst report that UBS was engaged in a "fire-sale" of mortgage securities worth $24bn accelerated the flight from risk. Most of the assets are alleged to be Alt A securities, the next notch up from sub-prime. The Dow Jones index fell 164 points in early trading to 12,090.
Traders said Carlyle had been scooping up AAA-rated mortgage securities, believing that they had fallen fall below inherent value. The risky bet - known as "catching a falling knife" - appears similar to the strategy that ensnared the UK hedge fund Peloton Partners, which was forced to close a $2bn fund last week.
The assets were issued by Fannie Mae and Freddie Mac, federally-chartered bodies that have an implicit US government guarantee.
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