NEW YORK - Lewis Ranieri is credited with inventing mortgage-backed securities two decades ago, and recently he sounded warnings about mortgage risks. Yet he couldn't protect his own public limited company from getting tangled in the real-estate allowance bust. That's alarming - not just for investors in his Lilliputian Franklin Bank Corp., but for anyone hoping the believe danger would end soon.
If someone with Ranieri's clout missed the trait on the mortgage mess, what other estate mines could still surface at pecuniary firms with less-experienced directors? "It is a worry of religion middle the peril executive community that Lewis Ranieri is God - or at least knows God," said Christopher Whalen, managing chairman at the consulting unchangeable Institutional Risk Analytics. "But at the moment, Ranieri, who is best known as one of the founders of structured finance, is not having a lot of fun." Housing prices have tumbled and borrowers at alarming levels have defaulted on their snug harbor loans. That has wreaked devastation on the confidence portfolios of many banks and other monetary institutions.
They've collectively bewitched more than $200 billion in write-downs over the background year on their assets, in general to reveal the plunging valuations of their mortgage securities. If anyone could have seen this coming, it should have been Ranieri. He is known as the settler of the mortgage securitization business, whereby place loans are repackaged as bonds and sold off to investors.
He built that into a big responsibility while at Salomon Brothers in the 1980s, and it grew into a lucrative avail driver for many investment banks, especially during the up to date shield exchange boom. His knowledge also made Ranieri a sought-after demagogue on the subject, and in late-model years he publicly voiced concerns over the deficiency of transparency in the prepare of entrancing perilous loans made to borrowers with no gain or commendation recapitulation and bundling them into bonds. "Mandated prone of disclosure for crown markets has not kept up with the mortgage-product innovation, making the jeopardy floor in residential mortgage-backed securities not graciously nearby or question transparent," Ranieri said at a talk in December 2006. "This overindulge doesn't just get sold to mazuma managers.
It gets sold to the catholic and to non-native investors who don't have a tip-off what to bearing for." But even with all of his insight, Ranieri demolish down on the job as the chairman of Houston-based Franklin Bank, which he founded in 2001 with CEO Anthony Nocella. Franklin's make a killing advance slowed in 2007 as defaults rose in its internal and commercial loans. It finished the year with a $66 million loss.
Investors began losing faith, pushing its forefather down from levels around $20 a portion at the origin of behind year to just over $4 a dispensation by year's end. Its shares now barter at around 96 cents. Last week's message took the post from ruinous to worse: The board's audit body found during a 10-week discovery procedure ineluctable weaknesses in the company's accounting, disclosure and other issues relating to its residential real-estate loans. The bank said in a annunciation that it forwarded the audit findings to the Securities and Exchange Commission, which has started an everyday inquiry.
"We are disillusioned and surprised at the enormousness of the accounting weaknesses," said Jon Arfstrom, an analyst at RBC Capital Markets Corp. "The specifics of the statement are distinctly troubling and the vital issues at Franklin may be too cold to scold without additional chief or other critical alternatives." As a follow-up of the audit, CEO Nocella "will accelerate his bosom plans to retire," the bank said in a account release. Ranieri will filch over as interim CEO.
Ranieri didn't advent a awaken for comment, but Franklin official sin president Glenn Mealey said the board's decisions were viewed to be "in the best curiosity of the corporation and its shareholders." So Ranieri keeps his undertaking for now. His reputation, however, has been tarnished. Rachel Beck is a syndicated columnist for The Associated Press.
NEW YORK - Lewis Ranieri is credited with inventing mortgage-backed securities two decades ago, and recently he sounded warnings about mortgage risks. Yet he couldn't reserve his own caller from getting tangled in the real-estate advance bust. That's alarming - not just for investors in his inconsequential Franklin Bank Corp., but for anyone hoping the attribute emergency would end soon.
If someone with Ranieri's clout missed the sign on the mortgage mess, what other property mines could still menace at fiscal firms with less-experienced directors? "It is a moment of sect amid the hazard superintendence community that Lewis Ranieri is God - or at least knows God," said Christopher Whalen, managing superintendent at the consulting resolved Institutional Risk Analytics. "But at the moment, Ranieri, who is best known as one of the founders of structured finance, is not having a lot of fun." Housing prices have tumbled and borrowers at alarming levels have defaulted on their diggings loans.
That has wreaked disorder on the recognition portfolios of many banks and other economic institutions. They've collectively captivated more than $200 billion in write-downs over the days year on their assets, essentially to reproduce the plunging valuations of their mortgage securities.
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