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I can get the same effect by eating 5 pounds of raw figs,and it is cheaper,too.
The author is very correct but a little late.
All the best stuff has been bought.
Too much money at stake. It is not in the interest of JPM to say anything other than this. And we wonder why the stock-market keeps climbing. Too much money at stake by the largest of stake-holders.
Given past performance, I'm guessing that my pension fund will be very intrigued by this analysis.
Why should the corporate world be any different than the individual. Perhaps the junior CLO tranches will benefit from refinanced corp debt when the liquidity puppet continues to lower rates.
and near-zero default rates
My favorite
back to the OCC report
http://www.occ.treas.gov/ftp/deriv/dq406.pdf
pg 5
no one loses, ever
"Wow... that makes sense. CLO-squareds sure seem safer than vanilla CLOs, with all that extra diversification and tranching. But I'm still a little nervous... better buy CLO-cubeds instead."
If a little is good, then a lot is better?
If this stuff is so great why not keep it for themselves?
ECB leaving rates at 4%
Trichet Signals Interest-Rate Pause on Credit Rout (Update4) - Bloomberg.com
UK left rates at 5.75%.
BBC NEWS | Business | No change for UK interest rates
This should allow a brief respite for the dollar.
More 'Simple, Stupid'...
Citi talks to KKR about leveraged debt
Citigroup is in talks with KKR to provide financing to buy some of the leveraged loans on its balance sheet. It has also talked to other private equity firms about providing such funding.
However, people close to the talks say such deals have so far proved difficult to structure. KKR
Banks have been looking for ways to help clear some of the $300bn worth of leveraged loan commitments they have made but are struggling to sell on to investors following the credit turmoil.
How cool is that? Lend money to KKR to buy the debt generated from debt KKR generated via LBOs.
And its turning out to be 'difficult to structure'. Imagine that.
So is this 'credit crunch ^2'?
One of the ways the big boys can save their shirts is to trade their way out of the mess they are in. Hence, some argue is the reason that the Fed Rates were lowered.
Looks like they will write fiction to induce buyers back into the debt market. Wonder if the can get Tom Robbins to help them write the promos? Now that would be something worth to reading.
You picked Door Number 3. Lets see what you got! Monty Hall
With all the people who have spun out on the ice out of the way, there's no better time to put the hammer down and make good time. Put 'er in high gear and get goin'!
My 10:01 post above shows us the path out of this mess and Citi is the beacon leading the way... sell the leveraged debt to the borrowers generating the leveraged debt! And if they don't have the means to buy it, then borrow them the money and securitize that & sell it back to them.
Brilliant!
Let's see, how can we get sub-prime borrowers to buy those CDOs, MBS and ABS? Do that and all of the containment will be fully contained.
In George R.R. Martin's books, characters occasionally die from a pox-ridden creditflux.
This whole market is fluxed.
I was told that the banks (like Lehman for example) booked a large profit in the last quarter from writing up the value of their own debt issuance. The argument being that if they issued debt at Libor+50 say and its now trading at Libor+150 they can book that as profit (supposedly being able to buy back their debt cheaper). Does anyone know more about this?
Is there any difference from these guys and a used car saleman except for the more expensive suits and the advanced degrees?
CLOs-squared are conceptually similar to ABS CDOs, but they are better suited for leverage.
Oh. It's The Onion for ubernerds. Call it 'A Modest Proposal'.
"Junior tranches in particular offer higher spreads than triple B and double B tranches of regular CLOs with similar or lower risk."
Isn't that the way it ought to be? Lower risk, lower yield? How does this make "junior tranches" a buy?
Let's see... this dreck is absolutly GREAT STUFF, you want to buy it and hold it.
That's why they're SELLING it.
Got it!
Why should the corporate world be any different than the individual. Perhaps the junior CLO tranches will benefit from refinanced corp debt when the liquidity puppet continues to lower rates.
Laurellium | 10.04.07 - 9:13 am | #
Liquidity puppet? That's priceless! LMAO!
" Better suited for leverage " sounds more like an advertisement for The Men's Wearhouse. If only they'd keep it that way.
Let's see, how can we get sub-prime borrowers to buy those CDOs, MBS and ABS? Do that and all of the containment will be fully contained.
dryfly
also known as Monetizatio
My vote: dryfly for czar of credit-stuff-that-is-too-complicated-to-really-understand.
Is there any difference from these guys and a used car saleman except for the more expensive suits and the advanced degrees?
Yes, the used car salesmen never actually go after that much money, just a few thousand. Wall Street bankers will suck every penny from your soul, and still want more.
ponzimonetizacorrupicapitalism,
great name, welcome aboard.
The Federal Reserve Board today said that Congress should pass legislation to close an exception in current law that allows a handful of states to create unregulated banks that are federally insured and can be bought and operated by companies.
Alvarez said this trend is threatening to create an uncompetitive playing field for banks, since ILCs are not subject to the same level of regulation as normal banks. It could also give companies that own an ILC an unfair edge over their competitors, and make it harder to monitor risk in the banking sector as more ILCs are run by companies.
Alvarez said that companies' ability to own these ILCs has the potential to skew the market, as it effectively extends federal deposit insurance to unregulated company-controlled banks. It also could lead to decisions by ILCs not to lend to competitors of their holding company, or to lend to their holding company at favourable rates.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
It's ok for banks to do it we just don't want anyone else in on the scam. Wahh Wahhhh
Interesting study.
REFILE-CDOs resemble economic catastrophe bonds -Harvard
| Reuters
"...Investors, perhaps for the wrong reasons, are now less interested in these products [CDOs]," Stafford said. "They think the ratings agencies got the probabilities wrong. We think that even if they got the probabilities (of default) right, they (CDOs) were totally mispriced..."
S.
I wish it was in the interest of JP Morgan to settle my mom's estate they've been sitting on the last piece of for FOUR YEARS!!!
I hate that company with a passion, and hope they lose a ton of money with all their leveraged crap.
"Let's see, how can we get sub-prime borrowers to buy those CDOs, MBS and ABS? Do that and all of the containment will be fully contained."
great idea! but we have to lend them the money.
londonrerow -- what you are talking about are structured notes -- Lehman Citi Goldman Morgan - all booked paper profits this way.
these notes are simply bonds with performance linked to the credit spreads of the issuer. because the CDS for financials and brokers in particular widened out, dealers got to book a profit. on the other end of that an investor somewhere is taking a hit on their mark but dont think they are taking an actual writedow
Yes, it's true, a number of investment banks wrote down the value of their issued debt and booked it as a profit last quarter. Legal, but certainly this year's Enron Creative Accounting Trophy winner. How can a substantial increase in the cost of financing a business logically lead to a substantial profit being booked? I fully understand the rational, but it rather flies in the face of the "going concern" concept of accounting.
Londoner Now I see people are having regular trouble with your name. Maybe you should try usedtobeasomethingelsebutnowimalondoner
Smart junk players will ignore JP Morgan's recommendation. The way to get upside is to buy bonds (or leveraged loans) at a substantial discount to par. I assume Morgan is offering this stuff at 90c or more on the dollar. Under these difficult credit market conditons, and at a time when the peak of the business cycle has just passed, CLOs are not a good bet. After all, when you buy bonds or loans, your upside is limited to 100 cents on the dollar in most cases. Buying at 90 or 95c leaves little room for capital appreciation if you are right and plenty of downside risk if you are wrong.
A smart player will also buy the pieces of the syndicated loans directly rather than through a CLO or CLO-squared. Buying the loans directly makes sense because, again, if you are wrong, your lawyers will be in position to negotiate with the manager of the loan syndicate, and the borrower, directly, rather than worry about a complex structure that would stand in the middle. A structure, I would also note, that has not been court tested during an economic downturn.
Buying CLOs, let alone CLO-squareds right now looks like all risk and no reward to me.
"Is there any difference from these guys and a used car saleman except for the more expensive suits and the advanced degrees?
cwd | 10.04.07 - 10:29 am | # "
There aren't any lemon laws for bonds. Plus a dead car is still worth a few hundred bucks on the scrap steel market.
Dryfly,
There are two different arms of KKR, actually there are several, but for mour purposes there are two. The KKR PE group isn't part of this deal. The arm of KKR that is in the business of investing in leveraged loans is. The only unusual thing about this deal is the "block" nature of the trade. As I noted earlier, KKR will extract a pound of flesh in the urchase price and another in securing very pleasant financing terms. Citi will provide financing, their business and KKR's entity will own leveraged loans and perhaps some junk bonds, which is their business.
Londoner Now I see people are having regular trouble with your name.
I thought it was just people with Scooby-Doo Syndrome like anonymous above who wrote "londonrerow"
Time to update Orwell.
This is an idea so absurd only a (sell side) intellectual could believe it.
Banker,
I wrote this earler; I agree with your(their) logic, but how does a JV between both sides of prior transactions who are buying bonds from said transactions even pass a smell test of an arm's length transaction in a legal or accounting wise?
Subprime Delinquencies Accelerating, Moody's Says (Correct) - Bloomberg.com
Money quote:
It is shocking what you see,'' said Kyle Bass of Hayman Advisors LP, a Dallas-based hedge fund that reported a 400 percent return on its bet the U.S. housing market would fall.Anything securitized in 2007 has got to have the worst collateral performance of any trust I've seen in my life.'
Maybe it should be:
maybeitsbecauseimalondonerNOW
MAYBE IT'S BECAUSE I'M A LONDONER - Lyrics - International Lyrics Playground
-K
I don't think you should be shot. Everybody makes mistakes and your consistently downbeat view on the markets has been roughly offset by your good call on housing itself. You are batting about 500 or maybe just a tad under weighted by importance to your readers. Not so bad. No need to shoot you.
Alec,
The Devil,as always, is in the details. As long as Citi is under no repurchase oblgation, nor under any obligation to inject more capital (directly or indrectly) why is this JV any different than any other JV? Those are, I believe, the major components of a "true sale." I think one key to remember is that this is NOT the arm of KKR that owns companes that issues these kinds of securities, it is an asset management firm with a different, though perhaps overlapping, set of investors.
Now is this a sign of distress at Citi? You betcha. But as I noted earlier, I suspect Citi and others have marked these assets down to the lowest possible level so as to create plenty of flexibility for a) things like this and b) later recovery driven paper profits.
"KKR will extract a pound of flesh in the purchase price and another in securing very pleasant financing terms. Citi will provide financing, their business and KKR's entity will own leveraged loans and perhaps some junk bonds, which is their business."
Citi providing vendor financing on their damaged good, so now all they have to figure out how to dump the risk from KKR defaulting their vendor finance loan if the damaged goods the bought from Citi blowup. More crap to hide in an increasingly hard environment. Must be a pension plan somewhere, Ummmmmm long term investor.
Kevin,
What makes you say the Citi assets involved are damaged? There is no evidence of credit problems that I can see, it is all a pricing issue. Aso, the environment is significantly better than a month ago, not increasingly hard."
Banker
It is a pricing issue that's what happens to damaged goods they get marked down although some of the funds buying this crap seem to be a little pissed off that in order to get them they have to borrow from the bank that issued them.
Now big banks are trying to solve both problems by offering to lend to the funds - as long as they use the money to buy the unwanted LBO loans from the banks.
"The banks are saying, 'If you buy my loan above market, we will give you more leverage,'" said one investment banker.
"They are taking market risk and turning it into counterparty risk."
From the point of view of the banks it makes sense, as their risk would be partly mitigated by the investors in the fund, who bear the brunt of any defaults.
From the point of view of the funds, whether it makes sense does not depend just on the price paid for the LBO loan but on the cost of the total package, including the leverage.
Some hedge funds dislike the restrictions on who they can buy loans from so much that they have held back from borrowing.
"The banks are saying you have to buy stuff through them, and who wants to do that?" said one manager.
"We have not found a facility that is priced correctly, levered the way we want and allows us to go shopping at the stores we want to go shopping at."
Yahoo! 404 - Page Not Found
Is there any difference from these guys and a used car saleman except for the more expensive suits and the advanced degrees?
cwd | 10.04.07 - 10:29 am |
I'm holding out for a tent sale with one one of those big "NO MONEY DOWN!!!" banners, oh, and balloon animals.
"Let's see, how can we get sub-prime borrowers to buy those CDOs, MBS and ABS? Do that and all of the containment will be fully contained."
great idea! but we have to lend them the money.
idoc | 10.04.07 - 12:44 pm | #
Isn't that all we do now, lend money to anyone: builder, banker or hedge fund manager be.