The blame game…

August 15, 2007

images4.jpegThough footnoted.org has managed to avoid writing about the subprime mess so far, it’s become increasingly hard to ignore the number of companies that seem to be warning about their exposure — real or imagined — to subprime mortgages. Just take this disclosure from Giant Motorsports (GMOS) filed yesterday:

During the first half of 2007, the U.S. credit markets have been dealing with the effects of numerous defaults by homeowners on ‘subprime’_ mortgage loans. By June 2007 these defaults had also begun to increase with respect to mortgages considered to be of less credit risk than ‘subprime’_ mortgages. It is expected that mortgage default rates will continue to increase at least throughout the remainder of 2007 and possibly through the first half of 2008. These defaults have not only had a materially adverse impact on the spending power of the borrowers of such defaulted mortgage loans, but have also reduced the value of investment portfolios containing securities affected by such mortgages. Since motorcycle purchases, in the U.S. and, to a greater extent, purchases of ATV’s, are normally purchases for entertainment and sport, and not necessarily for transportation, any significant reduction in discretionary spending power could have an adverse effect on sales of our motorcycles and other power sports products.

Of course, tiny Giant (market cap of under $5 million) is hardly the only company to issue this sort of warning in their filings. Companies as diverse as restaurant chain Triac (TRY) and Leap Wireless (LEAP) also warned about their potential exposure in recent filings. Indeed, a quick skim of filings from last year and this year shows that the word subprime is mentioned in 1,349 filings between June 1 and today. In comparison, subprime was only mentioned in 764 filings during the same period in 2006. Presumably, some of those are duplicates since a company might mention their subprime exposure in both an 8K and a Q. But the fact that the number is essentially double is pretty amazing.

Here’s another interesting factoid just to put this in perspective. In the Q that Stewart Enterprises (STC) filed last week, it noted that it has reduced its employee headcount by 1,280, or 12.7% since the end of 2005, due to the downturn in the real estate market.

So footnoted.org has launched a new category to start paying closer attention to subprime woes. If you come across an interesting factoid in the filings, please consider sharing.

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