Bear Stearns: $1.9 Billion Writedowns
Submitted by
CalculatedRisk on Thu, 12/20/2007 - 6:46am (40 comments)
in
Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 7 members and 140 guests online.
Currently online
Recent Recommendations
When are we going to see the write downs after they use 0 as the counter party risk offset.
Gonna be fugly.
First?
Cheers,
People love to buy stocks when companies loose $6-7 per share....sounds like a wise investment to me. Especially when you have so many more quarters of writedowns and don't forget the main part of the business, fixed income, is getting killed and there really is no more secondary market for mortgage back securities. Solid buy in my book.
Barclays lodges lawsuit against Bear Stearns:
FT.com / Financials - Barclays lodges lawsuit against Bear
BS?!
I guess Bear Stearns never figured out that if bet against the house, the house will always win!
And I neglected to mention the lawsuits...good post! That should really add to the value of this company. And the SEC investigation. Good news all around for BSC.
It is still evident to me that the stock market has no clue as to that term used so often here:
"we are all subprime now".
BSC isn't the story right now. MBIA's got $8B of CDO-squared exposure on its books and didn't bother to tell anyone. Forget Warburg Pincus, China or Abu Dhabi - I don't think Jesus could save MBIA right now...
MBIA down 25%.
Uh oh.
Careful out there boys.
Yeah the MBIA news is bigger...
... and soon you're talking about material write-offs...
A company would hide something ...no way
"We are shocked that management withheld this information for as long as it did," said Morgan Stanley analysts.
Anyone catch any news lately on the first lawsuit against BSC on this cycle that blew away the 'we're a Cayman Islands outfit' defense for the two hedge funds?
I love the quote from the AP "The results broadly missed Wall Street expectations, ....."
The "Cayman Defense".....
WSJ econ blog cull:
Green Eggs and CDOs
...
Would you buy my CDO?
I do not like them, Broker Joe
I do not like your CDO!
...
The losses in mortgage securities were wider than expected, but not by a mile, but the loss per share was wider by several miles more than expected. hmmm.
Meanwhile Credit Suisse and fox-Pitt are saying Merrill may take an $ 8bn writedown.
Let's see, China done, Singapore check, Gulf, yes, so i fancy Russians to the rescue this time.
I'm so glad there is a January effect. Whew! Otherwise it could get really ugly out there.
JimK...
I was thinking along the same lines. Earnings was about 4 times larger then expected but the writedown was not even double. Does make you wonder what happened.
Nemo thank you the link is top!
BSC has 43 billion in mortgage in MBS.....
MBIA discloses $8.14 billion in CDO squared exposure
Morgan Stanley analyst 'shocked' that MBIA withheld info.
BSC execs are required to not receive bonuses for their performance, yet pass it off as they are "forgoing" bonuses.
Oh well, at least Jimmy can pass the dutchie around.
OT - but hot off the presses. The Fed reduced the slosh ( the continuously expiring repos ) today by 23.75B.
The Slosh Report
and for raw data
Temporary Open Market Operations - Federal Reserve Bank of New York
The point here is that the TAF facility addition of $20B is being balanced by the 23.75B reduction in TOMOs above. Its something that people like me are watching - to see whether the Fed intends to sneakily increase the money supply - so far it doesn't look like it - even on a temporary basis; in fact I think they are even draining the supply a little. Who'd have thunk it ? Of course, that suggests they are serious about the value of the $, about inflation - at this point in time
-K
-K,
That includes the $20 B TIO money that comes back off today?
ANNNNNNNND for the 19th straight week of the incredible disappearing Asset Backed Commercial Paper market:
FRB Commercial Paper Outstanding
ABCP week ending Dec 19: -27.5 B
All CP week ending Dec 19: -54.7 B
This whole IB episode seems surreal to me. Where is the shareholder outrage?
The notion that investment banking employees are entitled to big bonuses despite massive losses is ludicrous.
But some top managers will forego bonuses. Give me a break. These managers should be fired an never allowed to manage other peoples money again.
IB's do well because of bull markets (public sentiment really) not their hard work.
As proof, just consider the "roaring 20's", "nifty fifty", "milken hi-yield era", "dot com boom" and "housing bubbles". All the result of irrational public sentiment.
I have yet to see genius from wall street.
Here's a link for the MBIA issue:
Eschaton
Leverage x leverage x leverage x ?????
Profit!
Great business model.
sk --
Yes, thus far the evidence suggests the Fed is using the TAF as an alternative to traditional TOMOs. So for now, it is just the usual open market operations but with a widening of the eligible counterparties and the eligible collateral.
If the problem statement is "liquidity injections are not going far enough", the TAF is a rational solution. Or the first step of one, anyway. If it does not work, the next step logical step would be to extend the eligible counterparties and collateral further.
The trouble, of course, is that liquidity is not the only problem... But as a specific answer to a specific question, moving injections from OMOs to the TAF is sensible, in my opinion.
k, They may have many more quarters in which they will lose money, but what is the reality of the losses being recorded now?
This money was lost in 2004-2006 when the bad paper was accepted. There should be massive restatements of earnings going back to those years when reserves were inadequate and earnings were inflated.
Management at these firms is hiding behind the principle of "best information at the time", but if GS et al are so smart, why didn't they see this coming like we anonybloggers and crackpot posters? I think they did know some of it was coming.
By fighting restatements, management protects the bonuses they did not earn.
Additional writedown because of Alt-A, and losses in Asia...wait I thought once you writedown the subprime stuff we're in the clear????
That includes the $20 B TIO money that comes back off today?
energyecon
You mean this 2 - 18 B 5 day one ?
http://www.fms.treas.gov/webservices/show?ciURL=/tip/auctions/tio-announcement-406-12202007.pdf
Excellent point and nope, it doesn't.
So lets do some addition here 25B in redemptions + 23B in TOMO drain - 20B + 20B of TAF = roughly 8B in drain by the Fed.
Now the Treasury side - I'm a purist - since they can't create money out of thin air - only the Fed can do that, I don't monitor it and certainly not on a long term slosh value basis. I should - its hard to screen/web-scrape a PDF report though -perhaps I'll email them and suggest that put a webservice out there or at least a scrapeable web page.
-K
And who was that guy who invested heavily in BS when it was, as I recall, above $100?
Joe Lewis.
Ouch.
I've actually had the pleasure of his company a few times.
Don't think we'll be going for drinks this Xmas..!
James, Did he have his sleeves rolled up?
-K
Here are all the reports, you likely know this site already:
TIO Reports
What I was thinking of, actually $22 B
TIO $22 B coming off December 20, 2007
That was the second operation on December 14th.
According to the new filing, Lewis owned 9.25 million shares of Bear Stearns as of December 5.
Overall Lewis and several investment vehicles he controls paid a total of $1 billion for the shares, the filing said. He paid more than $118 a share for all of his acquired shares over the past 60 days.
But so far, based on Bear's closing price of $98.21 Thursday, those shares are worth just $908.74 million, leaving Lewis down roughly $100 million.
Billionaire Lewis raises stake in Bear Stearns
| Reuters
Let's see... as of today, he's at (118-90)*9.25 = $259M down. Ouch.
Let's see... as of today, he's at (118-90)*9.25 = $259M down. Ouch.
DCRogers | 12.20.07 - 11:35 am | #
He'd make Sebastian proud!
Can you see the regulators/auditors/Fed, et.al as Capt. Renault in Casablanca?
Rick Blaine: How can you close me up? On what grounds?
Capt Renault: I'm shocked! Shocked... to find that gambling is going on here!
Ugarte: (hands Renault huge wad of cash) Your winning's, sir.
Capt Renault: Oh, thank you very much. Everybody out at once!