A hustle here and a hustle there
New York city is the place where they said
Hey babe, take a walk on the wild side
I Said hey Joe, take a walk on the wild side
"the majority of which comprises older vintage collateral 2005 and earlier."
2005 is older? Anything after 1999 is shaky, b/c home prices will likely be falling there. So, if the majority of the majority is from 1999 to 2005, they are not happy.
Interesting that Merrill was one of the noted leaders on the downside today despite "no breaking news" and now after the markets close, there's big breaking news. Seems like somebody knew.
Dealbreaker answers my question about why the government is involved:
"For investors, the main attraction of covered bonds seems to be an implicit promise by regulators that they will permit the bonds to continue to perform even if the bank issuing the bond fails. You'd think we've had enough of implicit promises from the government about our mortgage markets. But that seems to be what the government is relying on to get investors back in the habit of lending money to banks."
That actually makes sense. Because the problem with the housing market is that we haven't socialized enough of the losses yet.
Elvis is right, the days of 2005 looking good are gone everywhere but the NW (oh, and maybe Raleigh).
Messrs Case and Shiller should provide some clarity tomorrow (along with a gorgeous CR graph) proving that unless the vintage is 2002 or earlier, it just ain't a-cuttin' it anymore.
Let's assume the face value of $30b is 26 years and yielding 6%. An investor purchase of $6.7b would push the yield to 27%. They must be assuming more than 50% losses in the next several years. Merrill must have needed cash real bad to accept these terms.
Implications for other banks as this market clearing price is applied?
I'm sure that NO other banks will need to raise capital... After all, we just went thru quarterly reports telling us how hunky dory everybody is doing.
and merrill is financing 75% of the purchase for lone star funds who is buying all this paper...most of those lbo loans were sold with the seller financing up to 90% of the purchase..these acts are clearly the most acute evidence of the ponzi scheme that is wall st..
Extreme Makeover house faces foreclosure
Harper family used home as collateral for a $450,000 loan
Materials and labor were donated for the home, which would have cost about $450,000 to build. Beazer Homes employees and company partners also raised $250,000 in contributions for the family, including scholarships for the couples three children and a home maintenance fund.
"Interesting that Merrill was one of the noted leaders on the downside today despite "no breaking news" and now after the markets close, there's big breaking news. Seems like somebody knew"
I guess a lot of Wall St insiders knew. Cox set up the neked short rule ahead of this event. Wonder if he will investigate the insider sellers from today. Any bets he has bigger fish to fry ?
i gotta think this could wipe-out merrill within weeks..the mkt will eventually and rightfully expose the seller-financed deals which are allowing the banks to deleverage. this is a ricky move by thain, motivated by desperation..i think it backfires soon..i hope not but mr. mrkt will expose this fraud and desperation..
If the buyer does not make their payments on time, will Merrill be able to foreclose, or will they have to rework the loan and reduce the principal? And if so, will Merrill be able to participate in any future appreciation?
From their website:
Lone Star Funds (Lone Star) are closed-end, private-equity limited partnerships that include corporate and public pension funds, university endowments, foundations, bank holding companies, family trusts and insurance companies. Since 1995, the principals of Lone Star have organized private equity funds totaling more than $13.3 billion to invest globally in secured and corporate unsecured debt instruments, real estate related assets and select corporate opportunities.
Heres an idea that Paulson and Bernake should do. Let all these banks, show whats really in their books and lets get all this write down crap over with already. Expose all these CDO's, and bad debt thats backed by garbage and let the market tank 1500 points, and theres are Capitulation day. Otherwise we will have this writedown stuff go on and on, with this slow death never ending. Lets get it over with already!!!
"The pro forma $8.8 billion super senior long exposure is hedged with an aggregate of $7.2 billion of short exposure, of which $6.0 billion are with highly-rated non-monoline counterparties, of which virtually all have strong collateral servicing agreements, and $1.1 billion are with MBIA."
Someone know what a highly rated non-monoline counterparty might be. Would that be the same as a highly rated credit default swap?
Well I couldn't find any terms on the loan, but these CDO's will be the only assets held by Lone Star...
AND it looks like Temasek is only going to kick in an additional $0.9 billion, the other $2.5 billion of their $3.5 billion purchase is coming from Merrill...plus there looks like some extra dividends they need to pay out to the preferreds?
In the third quarter, Merrill Lynch also expects to record an expense of $2.5 billion related to its reset payment to Temasek and $2.4 billion of additional dividends as a result of the exchange of certain existing mandatory convertible preferred stock for common stock as described under Common Stock Offerings and Early Conversion of Mandatory Convertible Preferred.
[snip]
Temasek Holdings, Merrill Lynchs largest shareholder, has committed to purchase $3.4 billion of common stock in the offering, a portion of which is subject to regulatory approvals that are expected to be obtained after the closing of the offering. In addition, Merrill Lynchs executive management team intends to purchase approximately 750 thousand shares of common stock in the offering.
In satisfaction of Merrill Lynchs obligations under the reset provisions contained in the investment agreement with Temasek Holdings, Merrill Lynch has agreed to pay Temasek $2.5 billion, 100% of which Temasek has contractually agreed to invest in the offering at the public offering price without any future reset protection.
[snip]
Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction. The transaction is expected to close within 60 days.
Sheila Bair, now speaking on Lehrer. "How many other banks in trouble? Answer
13% of banks on troubled bank list eventually fail. The number of troubled banks is very low by historical standards"
Well so much for mark to market. At the end of the 2nd qtr (a mere 28 days ago) MER had the assets valued at $11.1 billion and here they are selling them for $6.7 billion. The mark was bad or the market worsened dramatically these past few weeks. Most likely a combo of both.
These are ABS so they most likely contain HELOC's, credit cards and auto loans. Loss severity is likely to worsen on the 2006 and 2007 stuff - this may end up being a great sale...
Well at least the terms of this deal are clear and easy to follow. Nothing shady or confusing about it. Although it seems like maybe the company selling the junk practically owns the company buying the junk and that the company selling the junk is paying for the sale of the junk to the buyer who has no financial responsibility for the junk going forward. But blogs and joe6pack are to blame, that much is clear. Could any of this be any less clear? Oh and sorry if I have explained the terms of this rather simple and straight forward deal inaccurately. God how I long for the simpler times of a few hours ago when we were only trying to discern what the hell covered bonds were.
Not much reduction in MER's exposure since they are financing 75% of the "purchase" price. And if purchaser defaults MER just gets the assets back. A key phrase in the release is the "pro forma"; that is just legalese meaning "take our press release for what it's worth; no guarantees here." This whole transaction is smoke and mirrors.
Press release is an interesting read. Note that in addition to the $5.7 write down,
"Merrill Lynch also expects to record an expense of $2.5 billion related to its reset payment to Temasek and $2.4 billion of additional dividends as a result of the exchange of certain existing mandatory convertible preferred stock for common stock. . . "
More on Lone Star. It looks like they stiffed Japan for a few billion yen back in the 90's:
"Lone Star gained profit by collecting non-performing loans handed over from former Tokyo Sowa Bank (Tokyo Star Bank), which collapsed in 1999 and was then granted 760 billion yen from Japanese government. However, the profit was transferred to a fund based in Bermuda via an Irish corporation, supposedly only a shell, which barred Japanese government from directly collecting taxes.
The company did not report the profit, but the Tokyo Regional Taxation Bureau recognized the case, corrected Lone Star's books by about 14 billion yen for years 2002 and 2003, and adjusted the company's corporate tax by 5 billion yen, including additional tax. However, the company has not yet paid the tax and because it owns no domestic assets, the government so far could not seize its property."
That Extreme Makeover story has gotta be a top candidate for most over the top galling episode from this whole housing bubble era. Family gets free house, turns around and immediately does a cash out mortgage for $450k, squanders the cash and now is getting foreclosed.
The transaction is like the convertible preferred stock issues the banks were doing to raise capital last year: complicated enough that you can't really figure out what's going on. This is kind of raising 6 billion in capital and kind of 30 billion in balance sheet shenanigans and kind of a fire sale at grossly reduced prices. Sorting it all out would be quite a project even with info on exactly what's going into the conduits.
I wonder when I see these things - who, exactly, are they trying to fool? The investors? Their auditors? Regulators? Stockholders? Based on what's going to happen to those convertible stock purchasers fooling the investor has been a prime goal in the past but it's hard to be sure.
"Lone Star CEO and Founder John Grayken is pictured below making his proposal for Lone Star, after having just returned from testifying at his firms trial over market manipulation in South Korea regarding the Korea Exchange Bank. This is somewhat ironic because in his proposal to the OIC Grayken noted that when his firm buys distressed securities portfolios, they often get the underlying bank for free. In the Korean banks case they plan to sell the bank to HSBC for $6 billion, if approved by regulators there."
Lone Star,
I wouldn't trust that pond scum to go through with the deal, they screwed me outta 18 grand with their lack of follow through on LEND.
I hope they lose the rest of their clients money and go outta business.
Karma is a bitch, Grayken.
As for the suckers selling, they must be desperate to raise capital and lower exposure. I wonder if something big is about to hit.
20% of value for super senior ABS- dang that is cruel.
"Mr. Grayken isn't even an American citizen, having given up that status in 1999. He travels extensively on an Irish passport to find the next undervalued deal, according to the Bloomberg profile."
Average Joe, I spoke with a Merrill exec at the end of 2007, and he was anticipating write-ups ... he definitely felt that Merrill had written down too much back then (many billions ago). Oops.
I read this as Lone Star bought a call option for about 25% of $6.7 billion (about $1.6 billion) and they get any value over 75% of $6.7 billion. Now any upside belongs to Lone Star - and the remaining down side still belongs to Merrill.
The termination of the monoline deal is ugly too - as is the common stock offering and arrangement with Temasek Holdings. This smells of desperation.
Roubini said that most US investment banks would soon be toast and disappear. MER may be leading the troop to their fate. Wanna bet how long before there is no Merrill more?
$6 billion in write-downs is a huge hit when the market value of their equity today is only $24 billion. Especially since it cleans up only part of their balance sheet (assuming it achieves even that).
MER's stock price has halved since Thain said they had enough capital back in April... tough luck for anyone who believed him.
I think it must have been clear to MER's management in late 2007 that they in reality had no capital left. They have been tap dancing their way towards a total recapitalization ever since, reporting whatever bullshit numbers they have to, to stay afloat in the meantime.
A total recapitalization means in effect selling the entire company to new investors while wiping out your old investors and simultaneously attempting to stay in place as the management. A cute and remunerative trick if you can pull it off.
"Merrill said at the time that if it sold stock at a lower price within 12 months, it would compensate the $48-a-share investors. With Merrill's stock at a closing price of $24.33 a share, that price protection would cost Merrill $2.5 billion, though Temasek agreed to plow that into its $3.4 billion of the new stock sale."
So, what they really paid for this was not $3.4, but $1.1 billion.
OT but interesting. Mish has a great post on McCain's son who just resigned from the boards of the Silver State Bank and from its' holding company.
His dual resignation has nothing to do with the bank's terrible balance sheet, it's for "personal reasons".
Well, ok then.
energyecon writes:
Well I couldn't find any terms on the loan, but these CDO's will be the only assets held by Lone Star...
Is this correct? As I recall, Lone Star was the buyer of Accredited Home (LEND).
There may be several separate funds under the Lone Star parent; maybe these assets are the sole holdings of this particular fund?
I'd appreciate anything anybody can offer on Lone Star. They seem to be the go-to market if you've got unmarketable assets you need to offload at a favorable price. Who owns them, and what's their game?
That bear market rally already fizzled since last Thursday and today was a blood bath across the board with major indices down another 2%. But we are still very far away from the bottom. As i have argued the peak to through of U.S. equity indices will be 40%; so we are barely half way into that bearish adjustment as equity prices have fallen only about 20%.
The equity market slaughter will continue even if - from time to time - surprise government actions (like the recent ones) will temporarily lead to another bear market rally. Since last summer the same pattern has occurred at least six times: lousy economic and financial news that lead to a equity market fall; then surprise action by the Fed or the government to stimulate and rescue markets (cuts in Fed Funds rates, creation of new liquidity facilities such as the TAF,TSLF, PDCF, bailout of Bear and its creditors, bailout of Fannie and Freddie, SEC manipulation of equity prices, use of the FHLB system to bailout bankrupt mortgage lenders, fiscal stimulus, Frank-Dodd bill, regulatory fudging and forbearance, etc.). In each case this government action boosts equity markets for a short while but the the force of the tsunami of bad macro and financial news pushes equity markets lower. And over time the length of the bear market rally becomes shorter and shorter as the government actions become more and more desperate. So the last rally lasted barely a week and now we are back into the ugly bear downward path.
The reality is that you cannot fight with drugs and tricks the laws of gravity: the worst financial crisis since the Great Depression, the biggest housing bust since the Great Depression, the coming biggest systemic banking crisis in the last 50 years, the worst U.S. recession since the stagflations of the 1970s, the biggest liquidity and credit crunch in decades. Over time these fundamental factors - a crisis of credit and insolvency for over-leveraged and insolvent households, financial institutions, mortgage lenders, homebuilders, municipalities and even a good fat tail of the corporate sector - cannot be rescued with liquidity actions. A severe recession and financial and banking crisis is unavoidable.
The only question is how severe, nasty and protracted. And the answer is long, nasty and severe with credit losses ending up being closer to $2 trillion rather than $1 trillion, home prices falling at least 30% and wiping out $6.6 trillion of housing wealth, 40% of households ending up into negative equity in their homes and up to 50% walking away from these homes, a 40% fall in equity prices and a banking crisis where hundreds of small, regional and national banks will go bust
ZF,
I concur with your analysis. I wouldn't have a problem with Singapore taking over this company, canning current management and using the entity as an offshoot of the country's SWF. Get rid of retail, just run it as an in-house trading operation, while keeping the Treasury dealer operation to curry favor with US govt.
Thanks, Uncle Billy and others--I should have hit refresh before I posted. It was all already here.
Well, probably not all. I'm still a bit surprised these guys (Lone Star, not Merrill) are still in the game given the losses they would already seem to have taken.
Also, can't remember where I read this, but the "Irish" CEO of Lone Star learned his tricks from Robert Bass. If that adds to the knowledge base at all...
MERs collapse is but two or three movie frames in the multi-decade tragi-documentary we're living through: the liquidation and encumbering of the incomparable American enterprise.
"What the heck does "affiliate" mean? Not partner, not subsidiary, not principal. "Affiliate" could be ANYbody."
This why the only assets involved on the investor's part are the ABS CDOs themselves. Affiliate probably protects Lone Star's other assets if this deal goes below zero.
Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction.
So, Lone Star paid $2.2B for $30B of bonds. Eight cents on the dollar....
Uncle Billy Vs. Mt. Pelerin writes:
Also, can't remember where I read this, but the "Irish" CEO of Lone Star learned his tricks from Robert Bass. If that adds to the knowledge base at all...
He worked for Bass in the early 90s, according to this article:
"This is as good a distressed environment as we've seen in a long time," Mr. Grayken told the Oregon Investment Council during a fund pitch in January, according to published reports.
I just looked up the futures and they're flat. How can they be flat? It's like it was already priced in to the market today. But we know that is impossible because this "news" was afterhours. No one could have known, right?
"The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction."
Merrill Lynch dumps financial toxic waste so it can load up on more Level 3 assets to wash - rinse - repeat cycle.
Financial engineering and American crony capitalism at its finest !
"dingojoe writes:
Interesting that Merrill was one of the noted leaders on the downside today despite "no breaking news" and now after the markets close, there's big breaking news. Seems like somebody knew."
Any "reading of the math" that fails to take into account that the seller has financed 75% of the purchase price of the deal and has recourse only to the sold assets is suspect, if you ask me.
When did Roubini go from $1 trillion in losses to "closer to $2 trillion"? Is he turning more bearish?
I haven't pinpointed the exact moment. But I suspect he knows a lot that we (I) don't and it's all very very bad. Imagine the worst and you won't be disappointed.
This has been commented on above, but here's the BN headlines. One wonders what rate they gave. What a racket, what a ponzi scheme... financing someone else to purchase their shares. 'nuff said.
BN 14:29 *MERRILL LYNCH TO PAY TEMASEK $2.5B :MER US
BN 14:28 *MERRILL LYNCH SAYS TEMASEK TO BUY $3.4B STOCK :MER US
BN 14:28 *MERRILL LYNCH TO PROVIDE FINANCING FOR 75% PURCHASE PRICE
km4: Exactly. Except all the good folk are going to get their poopers plunged. The Little Guy is going to have to struggle to survive. But the managers of society are going to get to live like the Little People, get their pay confiscated, and get treated like criminals or terrorists every time they go in public.
Lee Greenwood should choke on a c*ck the next time he sings "Proud to be an American."
All, I posted some details on the stock dilution with the reset to Temasek.
This is a pretty ugly announcement, and, based on today's market action, it seems someone anticipated it (must be those evil short sellers!). I'm sure the SEC is on top of it. (please excuse the sarcasm)
OK...I just took a nice rip. And, for AT&T (I know this is going in my file), I'd just like to say that I was kidding. I'm looking forward to serving in the National Service for $16k/year and giving most of to pay for these fine institutions.
How about SPG's results today? Higher vacancy rates covered up by higher rental rates. With supply and demand being what it is in CRE right now, it sounds like they are tip-toeing on thin ice.
I bought a Silver State CD (nice rate, FDIC insured....yes, I'm a little tax payer trying to halt the slide in my purchasing power) mid week....two days later, the CD was unpurchased by my brokerage.
Now mish reports that a mccain is resigning from the Silver State board?
FDIC Friday seems so far off, and yet so close....
Actually, this is an accounting trick. You make a liability turn into an asset by providing the cash to buy one of your assets. Since you are also writing down the asset's value when you sell, you will also miss out on any appreciation. However, since you sold the asset with financing provided by you, if the buyer decides that the assets are not performing, they can return the assets to you by having the loan not perform. Perfect... heads I win, tails you lose. This really smacks of desperation as it says that they could not get financing another way and also they did not want to get into trouble from their 2nd quarter financial filing where they stated that they had enough capital. Unbelievable.
I have two certified letters from the IRS waiting for me at the post office. I suspect I'll be pitching in my fair share towards the bailout. Kinda sux.
this mer sale will also serve to expose lower mark-to mkt prices for like assets elsewhere on the street. just like when etrade sold its cdo's to hedge fund (citadel) for 26c on the dollar 8 months ago. it set off furious writedowns within weeks for other banks..
CR writes:
"must be those evil short sellers!... I'm sure the SEC is on top of it. (please excuse the sarcasm)"
Yup, they're hot after the short sellers making sure they shorted on an up tick or zero tick. 'Probably not concerned at all with all those traders front running the inside information of the dilution.
It's truly disgusting. The unusual trading activity was noted very early. I suspect we'll hear nothing even though it is clear that some got out or profited by the inside info.
Hey FDIC - You there? There are the few and there are the many. We need some grass roots whistle blowers.
Here are some Simon Property Group conference call comments from David Simon and crew.
"the days of "oh the tenant is interested. let's build it!" are done"
"the risk we have is if it is 90% leased"
"we're in the first half of the downturn, i do think we'll see the worst of it manifest itself in '09, no in '10"
"you're going to see more stores closing cause of the credit situation"
Q: Will year end '09 be lower than year end '08?
A: "Too difficult to say"
"Good malls are getting better and bad malls are getting worse"
"The under-writing is very conservative... It would take a consortium of banks in order to get a mortgage on some of the bigger malls"
"Inventory is increasing. We're shopping the inventory to the best of our abilities"
Q: Will you be a buyer of your stock around these levels?
A: "Prudence at this point is not an unwanted asset. We're going to be very prudent as we think about that"
"A man once convicted of heading up a ruthless Haitian death squad that is blamed for raping and killing political rivals has been convicted of carrying out a mortgage fraud scheme in the United States."
I don't think anyone in my family would laugh at this, so I felt the need to share it here.
Lone Star is buying the ABS CDOs for 21.9 cents on the dollar and with MER financing 75% of the purchase Lone Star is only coming out of pocket for less than five and a half cents.
Oh and if Lone Star doesnt pay the loan, MER gets the CDOs back ;o)
"Someone know what a highly rated non-monoline counterparty might be. Would that be the same as a highly rated credit default swap?"
Well, it will be a credit default swap or possibly some kind of guarantee (almost certainly the former) - the question is who the counterparty is. It could be a CDPC (credit derivative product company) although banks have traditionally been wary of using them as counterparties, or it could be another bank or insurance company.
I concur with your analysis. I wouldn't have a problem with Singapore taking over this company, canning current management and using the entity as an offshoot of the country's SWF.
I read that paragraph three times before I realized that you hadn't written "caning" there.
And yet I was nodding my head the first two times through, saying, "yeah, that sounds like something a Singapore SWF would do, and those sunsabitches certainly deserve it."
As Franz, Thomas Jefferson and others point out above, the financing of the ABS sale is a total joke. UBS did the same thing for Blackrock. All of the banks with any significant ABS CDO, Alt-A, Option-ARM and last-cashflow Subprime are looking to finance sales of assets. When they market these deals, even the docs look like CDO deals.
Why isn't the press getting the fact that all Merrill is doing is replacing its exposures with a new super-senior tranche of a new CDO? Granted the purchase price of the assets underlying the CDO is better than it was in 2006, but all Merrill is doing is buying protection on the first 25% of losses on the underlying..
I can't see this as anything other than an act of pure desperation. To sell that cheaply and THEN to finance the bulk of the sale and THEN to have no recourse except for the assets you just 'sold'... is absolute desperation.
I agree with sentiment expressed above: I think Merrill has some deep problems and I would not be surprised to see them gone soon.
I didn't know Sebastian had $30.6 billion to invest.
I'll bet the details stink since MER had to underwrite the deal.
This said it all to me - still no mark to market:
Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price.
First?
Guess not.
Issue more debt to buy debt, interesting premise.
A hustle here and a hustle there
New York city is the place where they said
Hey babe, take a walk on the wild side
I Said hey Joe, take a walk on the wild side
Brother, can you spare $10 billion?
Can you say "dilution"?
I knew you could.
"the majority of which comprises older vintage collateral 2005 and earlier."
2005 is older? Anything after 1999 is shaky, b/c home prices will likely be falling there. So, if the majority of the majority is from 1999 to 2005, they are not happy.
Anybody else read "super senior" and picture an elderly guy in a wheelchair with a cape?
Interesting that Merrill was one of the noted leaders on the downside today despite "no breaking news" and now after the markets close, there's big breaking news. Seems like somebody knew.
Re: covered bonds
Dealbreaker answers my question about why the government is involved:
"For investors, the main attraction of covered bonds seems to be an implicit promise by regulators that they will permit the bonds to continue to perform even if the bank issuing the bond fails. You'd think we've had enough of implicit promises from the government about our mortgage markets. But that seems to be what the government is relying on to get investors back in the habit of lending money to banks."
That actually makes sense. Because the problem with the housing market is that we haven't socialized enough of the losses yet.
Elvis is right, the days of 2005 looking good are gone everywhere but the NW (oh, and maybe Raleigh).
Messrs Case and Shiller should provide some clarity tomorrow (along with a gorgeous CR graph) proving that unless the vintage is 2002 or earlier, it just ain't a-cuttin' it anymore.
P.S. MERde!
had to say it
They should call them "Blanketed Bonds" and ask twice their real value for them.
and the DELEVERAGING continues!
Or "Barry Bonds"
"to juice up your returns!"
Well, I'm glad the SEC's ban on naked shorting helped out MER's stock.
This is timely:
Government
If this is what super senior kinda sorta goes for, what does not so super go for?
Nemo,
Thanks for the grins:
That actually makes sense. Because the problem with the housing market is that we haven't socialized enough of the losses yet.
Let's assume the face value of $30b is 26 years and yielding 6%. An investor purchase of $6.7b would push the yield to 27%. They must be assuming more than 50% losses in the next several years. Merrill must have needed cash real bad to accept these terms.
They had to finance their own sale. Wow.
Seen that before with Citibank.
Implications for other banks as this market clearing price is applied? hunch...not good
They had to finance their own sale. Wow.
How is that anything other than just manipulation of the balance sheet?
I got your "super senior long exposure" RIGHT HERE
Rob D,
AND they had to loan 75% of the purchase price - anyone dig up the particulars of the loan - any additional juice for the purchaser there?
Implications for other banks as this market clearing price is applied?
I'm sure that NO other banks will need to raise capital... After all, we just went thru quarterly reports telling us how hunky dory everybody is doing.
snicker snicker snicker
and merrill is financing 75% of the purchase for lone star funds who is buying all this paper...most of those lbo loans were sold with the seller financing up to 90% of the purchase..these acts are clearly the most acute evidence of the ponzi scheme that is wall st..
"Seen that before with Citibank."
Yeah, that's a good precedent. They're a leader in the field.
The field of nightmares.
I got your "super senior long exposure" RIGHT HERE
Implying that it needs viagra too. What a metaphor.
Extreme Makeover house faces foreclosure
Harper family used home as collateral for a $450,000 loan
Materials and labor were donated for the home, which would have cost about $450,000 to build. Beazer Homes employees and company partners also raised $250,000 in contributions for the family, including scholarships for the couples three children and a home maintenance fund.
‘Extreme Makeover’ house faces foreclosure - REALITY TV- msnbc.com
Quote of the year: "We are well capitalized."
"Interesting that Merrill was one of the noted leaders on the downside today despite "no breaking news" and now after the markets close, there's big breaking news. Seems like somebody knew"
I guess a lot of Wall St insiders knew. Cox set up the neked short rule ahead of this event. Wonder if he will investigate the insider sellers from today. Any bets he has bigger fish to fry ?
EYES ONLY
Since we've been taking a lot of flak for being behind the curve, it's time to move past our campaign to prevent short selling.
OPERATION FLYPAPER
Effective immediately, stocks can be bought but not sold.
We are looking forward to complete restoration of confidence in the markets.
PS Next week, please form task force to address in-house e-mail security concerns.
i gotta think this could wipe-out merrill within weeks..the mkt will eventually and rightfully expose the seller-financed deals which are allowing the banks to deleverage. this is a ricky move by thain, motivated by desperation..i think it backfires soon..i hope not but mr. mrkt will expose this fraud and desperation..
I love that the assets for the financing are the assets they sold.
But hey at least the loan is recourse right? LOL
If the buyer does not make their payments on time, will Merrill be able to foreclose, or will they have to rework the loan and reduce the principal? And if so, will Merrill be able to participate in any future appreciation?
From their website:
Lone Star Funds (Lone Star) are closed-end, private-equity limited partnerships that include corporate and public pension funds, university endowments, foundations, bank holding companies, family trusts and insurance companies. Since 1995, the principals of Lone Star have organized private equity funds totaling more than $13.3 billion to invest globally in secured and corporate unsecured debt instruments, real estate related assets and select corporate opportunities.
Anyone want to buy my credit card debt?
If you buy it out, I will give you 75% back with a cash advance on my credit card.
Hey this actually might work on prosper.com
This is good news, right, so MER stock goes up tomorrow, right? What else.
Didn't Citi set the precedent for financing your their own sale last quarter? 14 billion in some alphabet soup crap...
Heres an idea that Paulson and Bernake should do. Let all these banks, show whats really in their books and lets get all this write down crap over with already. Expose all these CDO's, and bad debt thats backed by garbage and let the market tank 1500 points, and theres are Capitulation day. Otherwise we will have this writedown stuff go on and on, with this slow death never ending. Lets get it over with already!!!
Does anyone have an English translation of this article?
"The pro forma $8.8 billion super senior long exposure is hedged with an aggregate of $7.2 billion of short exposure, of which $6.0 billion are with highly-rated non-monoline counterparties, of which virtually all have strong collateral servicing agreements, and $1.1 billion are with MBIA."
Someone know what a highly rated non-monoline counterparty might be. Would that be the same as a highly rated credit default swap?
This borders on lunacy.....
..........
Well I couldn't find any terms on the loan, but these CDO's will be the only assets held by Lone Star...
AND it looks like Temasek is only going to kick in an additional $0.9 billion, the other $2.5 billion of their $3.5 billion purchase is coming from Merrill...plus there looks like some extra dividends they need to pay out to the preferreds?
Merrill Lynch Announces Substantial Sale of U.S. ABS CDOs, Exposure Reduction of $11.1 Billion
[snip]
In the third quarter, Merrill Lynch also expects to record an expense of $2.5 billion related to its reset payment to Temasek and $2.4 billion of additional dividends as a result of the exchange of certain existing mandatory convertible preferred stock for common stock as described under Common Stock Offerings and Early Conversion of Mandatory Convertible Preferred.
[snip]
Temasek Holdings, Merrill Lynchs largest shareholder, has committed to purchase $3.4 billion of common stock in the offering, a portion of which is subject to regulatory approvals that are expected to be obtained after the closing of the offering. In addition, Merrill Lynchs executive management team intends to purchase approximately 750 thousand shares of common stock in the offering.
In satisfaction of Merrill Lynchs obligations under the reset provisions contained in the investment agreement with Temasek Holdings, Merrill Lynch has agreed to pay Temasek $2.5 billion, 100% of which Temasek has contractually agreed to invest in the offering at the public offering price without any future reset protection.
[snip]
Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction. The transaction is expected to close within 60 days.
[snip]
Sheila Bair, now speaking on Lehrer. "How many other banks in trouble? Answer
13% of banks on troubled bank list eventually fail. The number of troubled banks is very low by historical standards"
Lying through her teeth.
Well so much for mark to market. At the end of the 2nd qtr (a mere 28 days ago) MER had the assets valued at $11.1 billion and here they are selling them for $6.7 billion. The mark was bad or the market worsened dramatically these past few weeks. Most likely a combo of both.
These are ABS so they most likely contain HELOC's, credit cards and auto loans. Loss severity is likely to worsen on the 2006 and 2007 stuff - this may end up being a great sale...
ac, lol. gonna get one of those posters for the home office.
Well at least the terms of this deal are clear and easy to follow. Nothing shady or confusing about it. Although it seems like maybe the company selling the junk practically owns the company buying the junk and that the company selling the junk is paying for the sale of the junk to the buyer who has no financial responsibility for the junk going forward. But blogs and joe6pack are to blame, that much is clear. Could any of this be any less clear? Oh and sorry if I have explained the terms of this rather simple and straight forward deal inaccurately. God how I long for the simpler times of a few hours ago when we were only trying to discern what the hell covered bonds were.
Remember LEND ? LoneStar bellied up to the bar to swallow that loser whole... and got to shut it down this year. The double-down on Wall St ?
Not much reduction in MER's exposure since they are financing 75% of the "purchase" price. And if purchaser defaults MER just gets the assets back. A key phrase in the release is the "pro forma"; that is just legalese meaning "take our press release for what it's worth; no guarantees here." This whole transaction is smoke and mirrors.
Press release is an interesting read. Note that in addition to the $5.7 write down,
"Merrill Lynch also expects to record an expense of $2.5 billion related to its reset payment to Temasek and $2.4 billion of additional dividends as a result of the exchange of certain existing mandatory convertible preferred stock for common stock. . . "
Seems like another $5 billon lost to me!
well, energyecon seems to have read that part first and understood it better.
MER might be making money on the financing due to spread between Fed window and whatever rate negotiated with the buyer.
Also, they're taking a $4.4 billion writedown but their assets have gone down by $29 billion?
The math here isn't adding up.
How can we get the "write-ups" Dick Bove and all the others were talking about if they sell what they are supposed to write-up later!
Amatures sell at the bottom!
Now is the time to buy financials, just ask Don Luskin (who said it in Nov 07).
Geez, even Merryl needed a 25% downpayment from someone who was supposedly buying severly "undervalued" fire-sale assets.
Interesting.
Geez, even Merryl needed a 25% downpayment from someone who was supposedly buying severly "undervalued" fire-sale assets.
And the 25% may well have come from shorting the stock.
You don't think Merrill is in any kind of trouble, do you???
LOL
More on Lone Star. It looks like they stiffed Japan for a few billion yen back in the 90's:
"Lone Star gained profit by collecting non-performing loans handed over from former Tokyo Sowa Bank (Tokyo Star Bank), which collapsed in 1999 and was then granted 760 billion yen from Japanese government. However, the profit was transferred to a fund based in Bermuda via an Irish corporation, supposedly only a shell, which barred Japanese government from directly collecting taxes.
The company did not report the profit, but the Tokyo Regional Taxation Bureau recognized the case, corrected Lone Star's books by about 14 billion yen for years 2002 and 2003, and adjusted the company's corporate tax by 5 billion yen, including additional tax. However, the company has not yet paid the tax and because it owns no domestic assets, the government so far could not seize its property."
[uncle wiki]
Watch out for lone stars and irish bearing gifts.
That Extreme Makeover story has gotta be a top candidate for most over the top galling episode from this whole housing bubble era. Family gets free house, turns around and immediately does a cash out mortgage for $450k, squanders the cash and now is getting foreclosed.
The transaction is like the convertible preferred stock issues the banks were doing to raise capital last year: complicated enough that you can't really figure out what's going on. This is kind of raising 6 billion in capital and kind of 30 billion in balance sheet shenanigans and kind of a fire sale at grossly reduced prices. Sorting it all out would be quite a project even with info on exactly what's going into the conduits.
I wonder when I see these things - who, exactly, are they trying to fool? The investors? Their auditors? Regulators? Stockholders? Based on what's going to happen to those convertible stock purchasers fooling the investor has been a prime goal in the past but it's hard to be sure.
Merrill fronts 75% and the recourse is the assets?
Wait...what?
I'm going to buy a half ounce. F this.
Can anyone tell me how many shares this $8.4 billion offering consists of? That piece of information seems to be missing from the articles.
More on Lone Star:
"Lone Star CEO and Founder John Grayken is pictured below making his proposal for Lone Star, after having just returned from testifying at his firms trial over market manipulation in South Korea regarding the Korea Exchange Bank. This is somewhat ironic because in his proposal to the OIC Grayken noted that when his firm buys distressed securities portfolios, they often get the underlying bank for free. In the Korean banks case they plan to sell the bank to HSBC for $6 billion, if approved by regulators there."
Oregon PERS & Loan Star to Cash In On Foreclosures: John Grayken, Korea Bank, Richard Solomon « Bill Parish – Parish & Company Investment Management
I have an idea,
I will use Merryl's money to buy Merryl's asset where the asset is the recourse.
I will then use the asset to get a non-recourse loan.
I'll then default on the loan, keep the money, and give the assets back to Merryl.
If it works for some schmucks on Extreme Home Makeover, maybe it can work for me!
Lone Star,
I wouldn't trust that pond scum to go through with the deal, they screwed me outta 18 grand with their lack of follow through on LEND.
I hope they lose the rest of their clients money and go outta business.
Karma is a bitch, Grayken.
As for the suckers selling, they must be desperate to raise capital and lower exposure. I wonder if something big is about to hit.
20% of value for super senior ABS- dang that is cruel.
Someday this war's gonna end...
Feed the rats, to the cats, and the cats, to the rats, and get the cat skins for nothing.
Cats to rats, rats to the cats, cat skins for nothing.
HD
AllenM said "As for the suckers selling, they must be desperate to raise capital and lower exposure."
That's the thing...if you need cash and want to reduce exposure then why do the financing and accept your own assets as collateral?
Lone Star's Grayken cnt'd:
"Mr. Grayken isn't even an American citizen, having given up that status in 1999. He travels extensively on an Irish passport to find the next undervalued deal, according to the Bloomberg profile."
It would be fun to meet his Irish friends.
Lone Star Funds chief John Grayken is value spotter |
News for Dallas, Texas | Dallas Morning News
| Personal Finance | Dallas Business News
What Me Worry? Taxpayers back all the world's credits, right?
You just can't make this stuff up, can you? If you had told me even two years ago the sheer lunacy of all this I'd have laughed in your face.
Now, not so much...
Average Joe, I spoke with a Merrill exec at the end of 2007, and he was anticipating write-ups ... he definitely felt that Merrill had written down too much back then (many billions ago). Oops.
I read this as Lone Star bought a call option for about 25% of $6.7 billion (about $1.6 billion) and they get any value over 75% of $6.7 billion. Now any upside belongs to Lone Star - and the remaining down side still belongs to Merrill.
The termination of the monoline deal is ugly too - as is the common stock offering and arrangement with Temasek Holdings. This smells of desperation.
Best to all.
Roubini said that most US investment banks would soon be toast and disappear. MER may be leading the troop to their fate. Wanna bet how long before there is no Merrill more?
I think it must have been clear to MER's management in late 2007 that they in reality had no capital left. They have been tap dancing their way towards a total recapitalization ever since, reporting whatever bullshit numbers they have to, to stay afloat in the meantime.
A total recapitalization means in effect selling the entire company to new investors while wiping out your old investors and simultaneously attempting to stay in place as the management. A cute and remunerative trick if you can pull it off.
Get this :
"Merrill said at the time that if it sold stock at a lower price within 12 months, it would compensate the $48-a-share investors. With Merrill's stock at a closing price of $24.33 a share, that price protection would cost Merrill $2.5 billion, though Temasek agreed to plow that into its $3.4 billion of the new stock sale."
So, what they really paid for this was not $3.4, but $1.1 billion.
bad math day, make that $0.9 Bil.
OT but interesting. Mish has a great post on McCain's son who just resigned from the boards of the Silver State Bank and from its' holding company.
His dual resignation has nothing to do with the bank's terrible balance sheet, it's for "personal reasons".
Well, ok then.
energyecon writes:
Well I couldn't find any terms on the loan, but these CDO's will be the only assets held by Lone Star...
Is this correct? As I recall, Lone Star was the buyer of Accredited Home (LEND).
There may be several separate funds under the Lone Star parent; maybe these assets are the sole holdings of this particular fund?
I'd appreciate anything anybody can offer on Lone Star. They seem to be the go-to market if you've got unmarketable assets you need to offload at a favorable price. Who owns them, and what's their game?
There's your mark 19 cents on the dollar... now everyone, "Write down"
Geoff writes:
Feed the rats, to the cats, and the cats, to the rats, and get the cat skins for nothing.
Cats to rats, rats to the cats, cat skins for nothing.
HD
Probably the only Husker Du song I can't stand.
A more appropriate name for the purchasing fund would be Texas Holdem.
Are there any ties between Lone Star & the Bush Family Values Clan?
Goldilocks ?
Here is Roubini's latest to cheer us up:
That bear market rally already fizzled since last Thursday and today was a blood bath across the board with major indices down another 2%. But we are still very far away from the bottom. As i have argued the peak to through of U.S. equity indices will be 40%; so we are barely half way into that bearish adjustment as equity prices have fallen only about 20%.
The equity market slaughter will continue even if - from time to time - surprise government actions (like the recent ones) will temporarily lead to another bear market rally. Since last summer the same pattern has occurred at least six times: lousy economic and financial news that lead to a equity market fall; then surprise action by the Fed or the government to stimulate and rescue markets (cuts in Fed Funds rates, creation of new liquidity facilities such as the TAF,TSLF, PDCF, bailout of Bear and its creditors, bailout of Fannie and Freddie, SEC manipulation of equity prices, use of the FHLB system to bailout bankrupt mortgage lenders, fiscal stimulus, Frank-Dodd bill, regulatory fudging and forbearance, etc.). In each case this government action boosts equity markets for a short while but the the force of the tsunami of bad macro and financial news pushes equity markets lower. And over time the length of the bear market rally becomes shorter and shorter as the government actions become more and more desperate. So the last rally lasted barely a week and now we are back into the ugly bear downward path.
The reality is that you cannot fight with drugs and tricks the laws of gravity: the worst financial crisis since the Great Depression, the biggest housing bust since the Great Depression, the coming biggest systemic banking crisis in the last 50 years, the worst U.S. recession since the stagflations of the 1970s, the biggest liquidity and credit crunch in decades. Over time these fundamental factors - a crisis of credit and insolvency for over-leveraged and insolvent households, financial institutions, mortgage lenders, homebuilders, municipalities and even a good fat tail of the corporate sector - cannot be rescued with liquidity actions. A severe recession and financial and banking crisis is unavoidable.
The only question is how severe, nasty and protracted. And the answer is long, nasty and severe with credit losses ending up being closer to $2 trillion rather than $1 trillion, home prices falling at least 30% and wiping out $6.6 trillion of housing wealth, 40% of households ending up into negative equity in their homes and up to 50% walking away from these homes, a 40% fall in equity prices and a banking crisis where hundreds of small, regional and national banks will go bust
ZF,
I concur with your analysis. I wouldn't have a problem with Singapore taking over this company, canning current management and using the entity as an offshoot of the country's SWF. Get rid of retail, just run it as an in-house trading operation, while keeping the Treasury dealer operation to curry favor with US govt.
Thanks, Uncle Billy and others--I should have hit refresh before I posted. It was all already here.
Well, probably not all. I'm still a bit surprised these guys (Lone Star, not Merrill) are still in the game given the losses they would already seem to have taken.
A trillion here, a trillion there... ya' know what sound deflation makes? H$$$,$$$,$$$,$$$,$$$,$$$sssssssssssssss.......
What confuses me is why not park these w/ the Fed and get Ts if they need cash.
Do they see the value dropping if so why finance the deal?
We need to take a closer look at Lonestar and see whats what. Me thinks something is a miss and it may not be in the shareholders interest...
"...Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds..."
What the heck does "affiliate" mean? Not partner, not subsidiary, not principal. "Affiliate" could be ANYbody.
Feckless: Look to Ireland. Ireland and Lone Star are good friends.
Also, can't remember where I read this, but the "Irish" CEO of Lone Star learned his tricks from Robert Bass. If that adds to the knowledge base at all...
"Affiliate" ordinarily means common ownership; I assumed that's what it meant here. If anybody learns otherwise, please let us know....
MERs collapse is but two or three movie frames in the multi-decade tragi-documentary we're living through: the liquidation and encumbering of the incomparable American enterprise.
"What the heck does "affiliate" mean? Not partner, not subsidiary, not principal. "Affiliate" could be ANYbody."
This why the only assets involved on the investor's part are the ABS CDOs themselves. Affiliate probably protects Lone Star's other assets if this deal goes below zero.
geoff-
a Husker reference?
you made my day.
Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction.
So, Lone Star paid $2.2B for $30B of bonds. Eight cents on the dollar....
When did Roubini go from $1 trillion in losses to "closer to $2 trillion"? Is he turning more bearish?
WTF - 2 people here that know that husker song?
~this~ is definitely the place to hang out.
Uncle Billy Vs. Mt. Pelerin writes:
Also, can't remember where I read this, but the "Irish" CEO of Lone Star learned his tricks from Robert Bass. If that adds to the knowledge base at all...
He worked for Bass in the early 90s, according to this article:
Lone Star Funds chief John Grayken is value spotter |
News for Dallas, Texas | Dallas Morning News
| Personal Finance | Dallas Business News
I especially enjoyed this quote:
"This is as good a distressed environment as we've seen in a long time," Mr. Grayken told the Oregon Investment Council during a fund pitch in January, according to published reports.
That's one way of putting it....
I just looked up the futures and they're flat. How can they be flat? It's like it was already priced in to the market today. But we know that is impossible because this "news" was afterhours. No one could have known, right?
"The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction."
Um, isn't that the same as non-recourse?
Merrill Lynch dumps financial toxic waste so it can load up on more Level 3 assets to wash - rinse - repeat cycle.
Financial engineering and American crony capitalism at its finest !
After smoking a fat bowl of supa phine cannabis, I can tell you all that you are way overreacting to this.
This deal makes perfect sense. I'm calling bottom.
I should clarify: I don't mean bottom in the sense that the market will go up. I'm using it strictly in the homosexual vernacular sense.
"dingojoe writes:
Interesting that Merrill was one of the noted leaders on the downside today despite "no breaking news" and now after the markets close, there's big breaking news. Seems like somebody knew."
Same with AIG?
What is the financial toxic waste equivalent to Yucca Mountain nuclear waste dump project ?
km4: Your tax liability.
Another take.
Merrill Lynch gored by $5.7 billion worth of write-downs - BloggingStocks
Bob, I read the math differently: CDOs valued at $11.1B, sold for $6.7B --> loss of $4.4B = 39% (i.e., sold for 61% of carrying value).
The $31B notional amount strikes me as the gross amount of principal and interest repaid over the life of the instrument.
Just my layman's read.
In any event, a lovely benchmark/datapoint/market price for other super senior CDOs.
Currently Smoking Cannabis writes:
km4: Your tax liability.
I believe you mean this and its painfully simple.
Hey Bartman, maybe AIG is the 'highly rated non-monoline counterparty,' now more likely on the hook for the $6B exposure.
Bob, I read the math differently
Any "reading of the math" that fails to take into account that the seller has financed 75% of the purchase price of the deal and has recourse only to the sold assets is suspect, if you ask me.
When did Roubini go from $1 trillion in losses to "closer to $2 trillion"? Is he turning more bearish?
I haven't pinpointed the exact moment. But I suspect he knows a lot that we (I) don't and it's all very very bad. Imagine the worst and you won't be disappointed.
This has been commented on above, but here's the BN headlines. One wonders what rate they gave. What a racket, what a ponzi scheme... financing someone else to purchase their shares. 'nuff said.
BN 14:29 *MERRILL LYNCH TO PAY TEMASEK $2.5B :MER US
BN 14:28 *MERRILL LYNCH SAYS TEMASEK TO BUY $3.4B STOCK :MER US
BN 14:28 *MERRILL LYNCH TO PROVIDE FINANCING FOR 75% PURCHASE PRICE
Chris Cox / Operation Flypaper
LMFAO - but I wouldn't be surprised if it did happen !
Good point, Yalt.
Another lovely asset on MER's books. Hilarious.
km4: Exactly. Except all the good folk are going to get their poopers plunged. The Little Guy is going to have to struggle to survive. But the managers of society are going to get to live like the Little People, get their pay confiscated, and get treated like criminals or terrorists every time they go in public.
Lee Greenwood should choke on a c*ck the next time he sings "Proud to be an American."
This has really gotten effin sick.
Pretty dire. When does the sprint for the exits on Wall St begin, in earnest?
All, I posted some details on the stock dilution with the reset to Temasek.
This is a pretty ugly announcement, and, based on today's market action, it seems someone anticipated it (must be those evil short sellers!). I'm sure the SEC is on top of it. (please excuse the sarcasm)
Best to all.
OK...I just took a nice rip. And, for AT&T (I know this is going in my file), I'd just like to say that I was kidding. I'm looking forward to serving in the National Service for $16k/year and giving most of to pay for these fine institutions.
God Bless...
Methinks someone dropped acid AND shrooms at the same time, waited an hour, then started calculatin'.
I've read that 2nd paragraph of the sale deal...at least 10 times. It makes no sense.
Cheers,
Where's Sebastian, to explain why this is BULLISH and the summer rally started TODAY.
Barely,
How about SPG's results today? Higher vacancy rates covered up by higher rental rates. With supply and demand being what it is in CRE right now, it sounds like they are tip-toeing on thin ice.
We'll see if GGP and KIM can do the same.
I bought a Silver State CD (nice rate, FDIC insured....yes, I'm a little tax payer trying to halt the slide in my purchasing power) mid week....two days later, the CD was unpurchased by my brokerage.
Now mish reports that a mccain is resigning from the Silver State board?
FDIC Friday seems so far off, and yet so close....
Actually, this is an accounting trick. You make a liability turn into an asset by providing the cash to buy one of your assets. Since you are also writing down the asset's value when you sell, you will also miss out on any appreciation. However, since you sold the asset with financing provided by you, if the buyer decides that the assets are not performing, they can return the assets to you by having the loan not perform. Perfect... heads I win, tails you lose. This really smacks of desperation as it says that they could not get financing another way and also they did not want to get into trouble from their 2nd quarter financial filing where they stated that they had enough capital. Unbelievable.
I have two certified letters from the IRS waiting for me at the post office. I suspect I'll be pitching in my fair share towards the bailout. Kinda sux.
OT again (still lots of fun)- Nikkei down 313 and falling.
Is there any way to get any idea of how smaller regional Brokers RW Baird are holding up? This is a remarkably opaque industry to get a feel for.
this mer sale will also serve to expose lower mark-to mkt prices for like assets elsewhere on the street. just like when etrade sold its cdo's to hedge fund (citadel) for 26c on the dollar 8 months ago. it set off furious writedowns within weeks for other banks..
Does anyone know what kind of interest rate Lone Star is paying on the financing?
CR writes:
"must be those evil short sellers!... I'm sure the SEC is on top of it. (please excuse the sarcasm)"
Yup, they're hot after the short sellers making sure they shorted on an up tick or zero tick. 'Probably not concerned at all with all those traders front running the inside information of the dilution.
"Um, isn't that the same as non-recourse?"
Maybe they can confuse a few...
"I'm sure the SEC is on top of it."
It's truly disgusting. The unusual trading activity was noted very early. I suspect we'll hear nothing even though it is clear that some got out or profited by the inside info.
Hey FDIC - You there? There are the few and there are the many. We need some grass roots whistle blowers.
CR,
Here are some Simon Property Group conference call comments from David Simon and crew.
"the days of "oh the tenant is interested. let's build it!" are done"
"the risk we have is if it is 90% leased"
"we're in the first half of the downturn, i do think we'll see the worst of it manifest itself in '09, no in '10"
"you're going to see more stores closing cause of the credit situation"
Q: Will year end '09 be lower than year end '08?
A: "Too difficult to say"
"Good malls are getting better and bad malls are getting worse"
"The under-writing is very conservative... It would take a consortium of banks in order to get a mortgage on some of the bigger malls"
"Inventory is increasing. We're shopping the inventory to the best of our abilities"
Q: Will you be a buyer of your stock around these levels?
A: "Prudence at this point is not an unwanted asset. We're going to be very prudent as we think about that"
ac,
Great find. That's hilarious!
I don't reac CR all the time, but because I do I laughed when I read this: Haitian strongman convicted of mortgage fraud in U.S. - CNN.com
"A man once convicted of heading up a ruthless Haitian death squad that is blamed for raping and killing political rivals has been convicted of carrying out a mortgage fraud scheme in the United States."
I don't think anyone in my family would laugh at this, so I felt the need to share it here.
Lone Star is buying the ABS CDOs for 21.9 cents on the dollar and with MER financing 75% of the purchase Lone Star is only coming out of pocket for less than five and a half cents.
Oh and if Lone Star doesnt pay the loan, MER gets the CDOs back ;o)
Nice trade Lone Star!
"leverage is a bitch on the way down"
"Someone know what a highly rated non-monoline counterparty might be. Would that be the same as a highly rated credit default swap?"
Well, it will be a credit default swap or possibly some kind of guarantee (almost certainly the former) - the question is who the counterparty is. It could be a CDPC (credit derivative product company) although banks have traditionally been wary of using them as counterparties, or it could be another bank or insurance company.
I concur with your analysis. I wouldn't have a problem with Singapore taking over this company, canning current management and using the entity as an offshoot of the country's SWF.
I read that paragraph three times before I realized that you hadn't written "caning" there.
And yet I was nodding my head the first two times through, saying, "yeah, that sounds like something a Singapore SWF would do, and those sunsabitches certainly deserve it."
As Franz, Thomas Jefferson and others point out above, the financing of the ABS sale is a total joke. UBS did the same thing for Blackrock. All of the banks with any significant ABS CDO, Alt-A, Option-ARM and last-cashflow Subprime are looking to finance sales of assets. When they market these deals, even the docs look like CDO deals.
Why isn't the press getting the fact that all Merrill is doing is replacing its exposures with a new super-senior tranche of a new CDO? Granted the purchase price of the assets underlying the CDO is better than it was in 2006, but all Merrill is doing is buying protection on the first 25% of losses on the underlying..
John Grayken has called the bottom.
He's putting up 1.7 bn, and he runs a leveraged investment company, so in a market where nobody will supply leverage, he negotiated for it.
18 monts ago, super senior tranches got 100% financing.
Time will tell if Grayken is right. He's been right more often than he's been wrong, but nobody has a monoopoly on market timing.
"Why isn't the press getting the fact that all Merrill is doing is replacing its exposures with a new super-senior tranche of a new CDO? "
I am. I'm writing an article on it right now.
I can't see this as anything other than an act of pure desperation. To sell that cheaply and THEN to finance the bulk of the sale and THEN to have no recourse except for the assets you just 'sold'... is absolute desperation.
I agree with sentiment expressed above: I think Merrill has some deep problems and I would not be surprised to see them gone soon.
" to an affiliate of Lone Star Funds
The recourse on this loan will be limited
to the assets of the purchaser. "
What "affiliate" is the purchaser, and is their
book value stable and more than 50 bucks ?
"What "affiliate" is the purchaser, and is their book value stable and more than 50 bucks ?"
Almost certainly an SPV or trust owned by Lone Star. The ML release says that the purchaser has no other assets.
Correction: SPV owned by Lone Star or trust with Lone Star as the beneficiary.