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| Version 5 | Version 6 |
|---|---|
| Hedge fund on verge of collapse | Hedge fund on verge of collapse |
| (about 2 hours later) | |
| Carlyle Capital Corporation (CCC), a unit of the private equity firm Carlyle Group, has said it will not be able to meet lenders' demands for money. | Carlyle Capital Corporation (CCC), a unit of the private equity firm Carlyle Group, has said it will not be able to meet lenders' demands for money. |
| The US mortgage-backed bond fund will collapse if, as expected, its lenders seize its remaining assets. | The US mortgage-backed bond fund will collapse if, as expected, its lenders seize its remaining assets. |
| CCC's problems are the latest sign of the credit market turmoil that has prompted billions of dollars of losses at some of the world's biggest banks. | CCC's problems are the latest sign of the credit market turmoil that has prompted billions of dollars of losses at some of the world's biggest banks. |
| Other investment funds may now face similar problems, analysts fear. | Other investment funds may now face similar problems, analysts fear. |
| In the past year, global banks and hedge funds have been buying mortgage-backed securities, which offered strong returns and were seen as relatively safe investments during the US housing boom. | In the past year, global banks and hedge funds have been buying mortgage-backed securities, which offered strong returns and were seen as relatively safe investments during the US housing boom. |
| However, they have fallen in value after higher interest rates led to a drop in the housing market and a surge in mortgage defaults, especially in the sub-prime sector which focused on clients with low incomes or poor credit. | However, they have fallen in value after higher interest rates led to a drop in the housing market and a surge in mortgage defaults, especially in the sub-prime sector which focused on clients with low incomes or poor credit. |
| "There will be some very scared people in hedge-fund land today," said BBC business editor Robert Peston. | "There will be some very scared people in hedge-fund land today," said BBC business editor Robert Peston. |
| "Hedge funds that have borrowed from banks against the security of mortgage-backed debt could be about to see their assets sucked into the banking system and their businesses vanish," he added. | "Hedge funds that have borrowed from banks against the security of mortgage-backed debt could be about to see their assets sucked into the banking system and their businesses vanish," he added. |
| 'Whirlwind blowing' | 'Whirlwind blowing' |
| CCC's problems came to a head last week when it became apparent that it was not going to be able to service its debts. | CCC's problems came to a head last week when it became apparent that it was not going to be able to service its debts. |
| Some of the banks that had lent CCC money started liquidating assets, and the Dutch-listed fund's shares were suspended. | Some of the banks that had lent CCC money started liquidating assets, and the Dutch-listed fund's shares were suspended. |
| Almost within the blink of an eye, a business that had borrowed $21bn from the world's biggest banks will be gone Robert Peston BBC business editor Read Robert Peston's blog | Almost within the blink of an eye, a business that had borrowed $21bn from the world's biggest banks will be gone Robert Peston BBC business editor Read Robert Peston's blog |
| On Wednesday, CCC said that it had not been able to refinance its business. It said it had so far defaulted on about $16.6bn (£8.1bn) of its debt and the only assets it had left were US government AAA-rated residential mortgage-backed securities. | On Wednesday, CCC said that it had not been able to refinance its business. It said it had so far defaulted on about $16.6bn (£8.1bn) of its debt and the only assets it had left were US government AAA-rated residential mortgage-backed securities. |
| CCC said it also expected to default on this after the portfolio's value was marked down again on Wednesday. | CCC said it also expected to default on this after the portfolio's value was marked down again on Wednesday. |
| "Almost within the blink of an eye, a business that had borrowed $21bn from the world's biggest banks to invest in high-quality mortgage-backed securities will be gone, liquidated, kaput," said BBC business editor Robert Peston. | "Almost within the blink of an eye, a business that had borrowed $21bn from the world's biggest banks to invest in high-quality mortgage-backed securities will be gone, liquidated, kaput," said BBC business editor Robert Peston. |
| "Such is the whirlwind blowing through global financial markets." | "Such is the whirlwind blowing through global financial markets." |
| CCC's collapse will lose its clients some $600m. | CCC's collapse will lose its clients some $600m. |
| 'Highly illiquid' | 'Highly illiquid' |
| The irony of CCC's problems is that the measures brought in to help ease the global credit crunch, may actually have exacerbated the situation. | The irony of CCC's problems is that the measures brought in to help ease the global credit crunch, may actually have exacerbated the situation. |
| Earlier this week, the US Federal Reserve, the Bank of England, the European Central Bank and other central banks said they would pump $200bn into financial markets to stimulate lending. | Earlier this week, the US Federal Reserve, the Bank of England, the European Central Bank and other central banks said they would pump $200bn into financial markets to stimulate lending. |
| As part of their plan, they would allow lenders to put up the problematic mortgage-backed securities as collateral for the new central bank-backed loans they were offering. | As part of their plan, they would allow lenders to put up the problematic mortgage-backed securities as collateral for the new central bank-backed loans they were offering. |
| However, instead of underpinning the mortgage-backed securities market, it seems to have had the opposite effect, giving lenders an opportunity to dump the risky asset. | However, instead of underpinning the mortgage-backed securities market, it seems to have had the opposite effect, giving lenders an opportunity to dump the risky asset. |
| "The Fed's new lending emergency lending facility allows the banks to swap mortgage-backed debt for Treasury Bills in a way that Carlyle could not do," said the BBC's business editor. | "The Fed's new lending emergency lending facility allows the banks to swap mortgage-backed debt for Treasury Bills in a way that Carlyle could not do," said the BBC's business editor. |
| "So it would be rational for the banks to take Carlyle's assets and exchange them for top-quality, liquid US government bonds, rather than leave loans in place to a business, Carlyle, whose assets remained highly illiquid." | "So it would be rational for the banks to take Carlyle's assets and exchange them for top-quality, liquid US government bonds, rather than leave loans in place to a business, Carlyle, whose assets remained highly illiquid." |