KUALA LUMPUR, Nov 19 (Bernama) -- Bursa Malaysia gave up earlier gains to end mixed today, amid a higher regional market showing, as property, construction, and healthcare counters attracted buying interests, while plantation, banking, and telecommunication stocks saw some profit-taking, an analyst said. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 1.70 points to close at 1,602.34 from yesterday’s close of 1,604.04. The benchmark index, which opened 0.86 of-a-point lower at 1,603.18, moved between 1,601.02 and 1,608.88 during the trading session. However, the broader market was mixed to higher, with gainers leading decliners by 565 to 438 while 502 counters remained unchanged, 961 untraded, and 14 suspended. Turnover narrowed to 2.83 billion units valued at RM2.08 billion versus 2.96 billion units valued at RM2.23 billion yesterday. Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng said the benchmark index remained range-bound and it required a dec
The financial markets were shaken by the first loss on a AAA-rated bond since the 2008 financial crisis, with investors suffering a 26% loss on a $157.5 million investment in commercial mortgage-backed securities (CMBS) tied to a New York City office tower at 1740 Broadway. The loss, which blindsided investors, highlights the significant risks in the commercial real estate market, especially when compounded by delays in ratings downgrades and property appraisals.
Key Takeaways:
Delayed Ratings Downgrade and Investor Impact: The ratings downgrade of the 1740 Broadway bonds from AAA to junk status by S&P and DBRS Morningstar was significantly delayed, occurring more than a year after the building's anchor tenant, L Brands, vacated in March 2022. This delay, coupled with a failed sale of the property, left investors in the dark about the true risk of their investment, leading to a substantial financial loss.
Appraisal Delays and Overvaluation: The delayed property appraisal was a critical factor in the overvaluation of the building and the subsequent loss for investors. Initially, an appraisal was not ordered as a potential buyer was expected to purchase the building at full value. However, when the deal fell through due to rising interest rates and declining property values, the delayed appraisal in July 2023 revealed the building was worth only $175 million, far below the expected value, leading to a dramatic drop in bond value.
Systemic Risks and Comparisons to 2008: The failure to downgrade the bond in a timely manner and the reliance on outdated valuation models have raised concerns reminiscent of the 2008 financial crisis. Critics argue that the delayed downgrade and subsequent losses on a AAA-rated bond call to mind the destructive impact of poorly assessed risks in the past, underscoring the need for more rigorous and timely evaluations in the financial markets.
In summary, the loss on the 1740 Broadway bonds has exposed vulnerabilities in the commercial mortgage-backed securities market, particularly regarding the timeliness and accuracy of credit ratings and property appraisals. The incident serves as a stark reminder of the systemic risks that can emerge when key financial safeguards are delayed or overlooked.
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