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.
Carlyle has a debt ratio of 32:1 on their investments.
Their investments of £10.8bn are based on an investment of £337.5m.
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