Greenberg: The Real Story on Countrywide ...
Submitted by
CalculatedRisk on Thu, 01/10/2008 - 2:22pm (140 comments)
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fizerst
If this is Fed pushed, I guess the next step will be that the Fed will accept AR items (as in those servicing fees that BofA will be racking up) at the super-secret discount window.
Greenberg is dopey. The FRB can't guarantee anything to BoA. The only way for BoA to get a government guarantee would be for the bank to be closed by OTS, with a Purchase & Assumption agreement between BoA and FDIC allowing for bad assets to be put to the insurance fund. Similar to what happened with Bank of New England in 1991, a deal I was involved in.
Nope Greenberg is not Dopey- the Fed can buy all that FHLB paper at par.
Presto chango- what huge problems?
Well, aside from the monetization of losses;-}
Someday this war's gonna end...
so, why couldn't that happen again? Considering its otherwise the failure of a large financial institution (s), desperate times will force the Fed to do whatever it takes.
"We show over 304,000 calls traded against 248,000 puts, but the interesting thing here is that the bulk, some 76 percent of these calls were bought before the announcement! To us this means the likelihood of someone being tipped off was quite high. Like Burj Dubai Tower high!"
Or, it was all a big scam. I'm sorry, but what possible guarantee could the FED offer BAC that wouldn't backfire? And what kind of "losses" are we talking about anyway?
Newsflash: CFC has no money. It's gone forever. Lipstick on a pig indeed...
the Fed can buy all that FHLB paper at par.
If there was ever the sound of warning sirens telling you to head for the bunker, that would be it.
I look forward to Conjure Bag's assessment.
Does Herb think 9/11 was an inside job?
Anyone long Countrywide should look back at SouthEast Bank.
In the late 80's early 90's the bank was struggling before First Union came in with a "takeover"
SouthEast stock was acquired for $0 if memory serves me correct. The feds were behind the deal.
I went to work with First Union (now Wachovia) and worked along SouthEast employees who lost everything.
I'm not saying or suggesting that will happen here, but be careful what you wish for.
Uncle Buck
I call bullsh*t on this story.
"As part of the deal, the Fed likely agrees to guarantee BofA against Countrywide-related losses."
That part of Greenberg's post is simply inane. There is NO WAY the Fed would make such a guarantee. A totally irresponsible post.
Greenburg is a dope, and a shill for CNBC, Rupert and Company.
Bankrupcy rumor creates buying window, buyout rumor pushes CFC up.
The yahoo 5 day chart tells the tale of the fabulous pump and dump job on CFC.
CFC @ yahoo finance
Steve,
Re: bank of New England.
Someone I know lost a fortune after a New England bank bought his leasing company and then went bust prior to the him receiving his balloon payment.
Really ugly when banks go bust.
Even positing that CFC is too-big-to-fail and gets bailed out, the stockholders won't get squat. All those buyers think they're going to get a premium. pfffft.
CFC is essentially insolvent. As CR pointed out last night, servicing can be cash intensive with high delinquencies.
I bet one or more agencies are behind this. Can anyone out there comment on potential govt commitments without congress?
3 cheers for the free market system...
Who will bail out the Fed?
"There is NO WAY the Fed would make such a guarantee."
Doesn't the Fed guarantee the deposits in CFC bank paying 5.4% rates?
Apparently the Fed already guarantees Countrywide, is it such a stretch that they'd extend some guarantee to BAC?
MLM,
I admit I am tempted to head into the bunker as we have this interchange, but that last EW from citibank has me wanting to take a flyer on the tax lien market;-}
Borrow 12k at 3.9%, invest at 15%, be ready to file the foreclosure paperwork in three years.
After all it is only paper dollars, and paper profits.
Gold just under $900 and silver over $16.
If you had told me that they both would have tripled since bush took office, even I would have been doubtful before 9/11.
Too much damage from our foolish ways to change now;-]
Someday this war's gonna end...
Must be those "people close to the matter," 'cause I'm gettin' that deja vu feeling all over again....
(FWIW, I agree with Tom Lawler's comment above--I can imagine the Fed getting involved in talks to transfer the bank and the servicing assets to a relatively safe haven, but there's absolutely no way they'd issue a guarantee against future losses. None.
Bernanke's helicopter speech is really having the desired effect; re-inflation expectations remain inflated. People seem willing to believe almost anything at this point.)
January 26, 2007
NEW YORK (Reuters) - Bank of America Corp. , the No. 2 U.S. bank, and Countrywide Financial Corp. , the largest U.S. mortgage lender, are in talks that could lead to a joint venture or merger, the Financial Times said on its Web site on Friday.
Countrywide shares rose as much as 12.1 percent, but gave up much of that gain to end up $1.71, or 4.2 percent, at $42.00. Bank of America shares fell 36 cents to $52.04.
Bank of America spokesman Scott Silvestri declined to discuss the report. Countrywide did not immediately return a call seeking comment.
Citing people close to the matter, the newspaper said the two companies have held talks about a possible combination.
Bank of America might acquire Countrywide in a transaction that could value the latter at $30 billion, or enter a joint venture under which it would use its branch network to sell home mortgages originated by Countrywide, the newspaper said. Talks are at an early stage and could fall apart, it said.
Countrywide's market value was roughly $26.1 billion as of Friday's close.
"I think it makes sense for B of A," said Brian Rohman, who helps manage $30 billion at Robeco Investment Management in New York. "B of A is a quintessential consumer bank, with retail banking and credit cards, so this fits into that. You could make the case that they are buying assets when they are out of favor. You can't argue with the logic of that."
At its worst, BAC buys the servicing and perhaps some of the origination machine and leaves the portfolio.
If the accusations of insider trading stick it will be worse for the stock market than anything we've seen so far. There's just so many times the Godfather can deny you your respect. Imagine those millions of retail investors shorting CFC because they correctly gauged the company and the market. They aren't going to fooled back into the slaughterhouse again for a long time. I predict this one event will be ultimately identified as a watershed event signaling the ong term exit of the small investor from the general market.
Does that mean we'll have 1 bank with a $2 Trillion servicing platform?
"Doesn't the Fed guarantee the deposits in CFC bank paying 5.4% rates?
"Apparently the Fed already guarantees Countrywide, is it such a stretch that they'd extend some guarantee to BAC?"
You do understand the difference between guaranteeing deposits and guaranteeing the equity of the bank, I hope?
(And if that's the source of Greenberg's "guarantee" comment, I give up.)
Yalt,
That is an awesome bit of research, thanks for the post!
If there is going to be government involvement, here is how it would work. The Office of Thrift Supervision, the chartering authority for CW Bank, declares it insolvent. Under the FDICIA, a bridge bank' can be created if the failure of the institution poses systemic risk. That determination is made by FDIC, the Fed, and the Secretary of the Treasury in consultation with the President. The FDIC would then inject capital into aNew CW bank', the bridge bank, at which point the shareholders are wiped out. All deposits would be covered by FDIC insurance, and most other liabilities would be covered by the bridge bank. The FDIC would then auction the bank in whole or in pieces. The FDIC would be expected to keep the bad assets and only sell the good assets. In the past, these agreements have had a multi-year window for asset put-backs by the purchaser.
A BofA take over may also smooth things over with all the State AGs who are gunning for CWF. To many of them CWF is poster child number one for abuses within the mortgage lending: to much time spent in the NYT.
"You do understand the difference between guaranteeing deposits and guaranteeing the equity of the bank, I hope?"
Of course I don't.
But apparently knowing the inner workings and rules to all the institutions etc aint worth a hill of beans. They apparently make up the rules as they go. I have a handful of CEO names I could give you that are no longer employed who had a very detailed knowledge of the difference, who also didn't see the most obvious housing collapse in history. So I'll take my ignorance any day. Somehow I have a feeling they'll find a way to surprise you Yalt.
From WSJ:
When the Federal Reserve approved Bank of America's acquisition of LaSalle in September, the combined bank grew to hold 9.88% of the country's deposits. Federal law prohibits a bank holding company from controlling more than 10% of U.S. deposits after acquiring another bank.
But the law includes a caveat: The 10% limit doesn't apply to federally chartered thrifts, meaning a bank-holding company may control more than 10% of deposits in the U.S. following a thrift acquisition. Since a Countrywide subsidiary called Countrywide Bank is a federally insured thrift, that may give Bank of America room to maneuver around the deposit cap.
It isn't known if Bank of America is trying to structure the deal in a way that would help shield the bank from some of the biggest financial uncertainties facing Countrywide.
Re BoA and CFC: The bride wore a barrel...
To us this means the likelihood of someone being tipped off was quite high. Like Burj Dubai Tower high!"
some before others
An interesting thing was posted on the Herb Greenberg blog comments. A commenter cites mortgagedaily.com that some warehouse lines to Countrywide and Indymac were closed today.
Seems to be pretty important news to me.
pretty ballsy, Idiot.
Imagine those millions of retail investors shorting CFC because they correctly gauged the company and the market.
There aren't millions of retail investors who understand what shorting even is, much less millions of them shorting CFC.
Without funding, there are no mortgages, without mortgages there is no market. CFC was, sorry is, a big fish and to let this sail into the Sunset, or alternativley take the same meandering course as Northern Rock would be a shock to the US economy.
Like it or not the Fed's job is to smooth out the ripples.
As to Fed backing, BoA simply has to park all that paper at the window for cash to do any deal.
"BoA simply has to park all that paper at the window for cash to do any deal."
The problem is that the paper eventually come home...
strong case for gold guys. USD taking a U turn down from all these clown tricks happening almost daily.
And the tender offer for all outstanding shares is???
This kinda shenanigans is going to get even a republican cop to vote for Obama.
What about the legal liabilities that CFC faces ? As I wait for the news, the lack of logic for any deal that doesn't wipe out the CFC shareholders stands out. Whether they do it slow, dress it up with warrants or whatever - to make it palatable - nothing for nothing seems to be the only deal that makes sense.
I look forward to whatever inventiveness goes into this deal. I wish they'd hurry up though - the suspense is killing me.
-K
yeah, the silence is killin me.
Market says $7.75 right now, call it $8 even when it closes.
After all, there would be free money left on the table if it was higher, and those hedgies wouldn't let you get their money for free?
Someday this war's gonna end...
Herb Greenberg-
Valedictorian of the class of 2007 at
Millionaire University
the Fed can buy all that FHLB paper at par.
Monetize all of CFC's nasty paper at par value and then pass off the cleaned up company to BofA for a nominal fee?
Sounds like a plan to me.
If that's what the Fed has planned, the question is do they have the government buy these toxic assets at inflated values and monetize the government debt, or does the Fed have some clever means to take on those assets themselves and monetize directly?
At least if the US government buys the assets that's not really money printing -- the new dollars created are backed by an appropriate obligation.
But if the Fed can somehow monetize them directly... that's a very different story.
In the latter case we're opening Pandora's Box IMO.
Conjure Clock
11:59:01
better not be true.
I get angrier every day about the federal reserve. Not sure how much angrier I can get.
stealthwii
yeah i hear yuh. i used to get angry; now i just accept it and try to play it to my advantage. as Seb says, think like a criminal.
well, stealth...
seems you won't be able to do much about it with these new rules
Citi Merchant Services and First Data Corp. are refusing to process any credit card transactions between federally licensed firearms retailers, distributors and manufacturers a move which will severely limit available inventory of firearms and ammunition
NSSF
Buffett could buy parts of Countrywide: report
| Reuters
Buffett could buy parts of Countrywide: report
Tue Aug 21, 2007 9:12am EDT
Big real estate bubble bursts.
Government addresses bad assets by forcing good banks to acquire bad banks.
Sounds reasonable. How'd that work for Japan?
Buffett could buy parts of Countrywide.
I remember that, it was before I covered my short and I was all pissed off. Now I'm just smiling and making jokes.
Big jump in tomo's today.
24b, biggest day in least 3 weeks.
Hmmmmmmmm.
404 Page not found
Mozillo is one of God's children.
But most important, in what looks like sheer genius, in less than a month it can buy Countrywide for what looks to be on the cheap in a business that is about to get great: servicing and issuing mortgages, Cramer said.
Cramer Sees Bank of America Countrywide Merger
This is a rumor. At no point has BofA made a press release about its plans to buy CFC.
They could've come out and said they aren't in discussions, but that would sling shot CFC shares into the abyssal toilet.
BAC trades higher today as well. Very "unlikely" that BAC's stock could trade higher with that news while taking on all of CFC's mortgage exposure/risk, unless of course, Greenberg is correct regarding his analysis of the Fed "guarantee".
If true, look for Congressional Hearings regarding the action and new Fed "mandate" on public sector bailouts.
IMO
i remember being short CFC on its last rumor of a buyout when it went up 35% from approx. 16-22. i remember good ol Yal selling at 22 and Barely rubbing his nose in it as it turned right back around and dived once it became clear it was a rumor.
i also remember being short BSC at 108 when a rumor of a Buffett buyout sent it from i believe 102 all the way up to 125. it took about a wk for it to reverse and now look at it.
sure this could be the real deal but it just doesn't make sense as well as the track record. in either case, it won't be good for shareholders.
I did a limited amount of shorting during the tech crash, because I was out meeting with a lot of companies and some of them were just so utterly full of s#$t that I couldn't help myself.
One of the lessons was that it only took a moron CEO and a pack of idiots as a board of directors to buy all kinds of ridiculous crap -- you never know.
I get angrier every day about the federal reserve. Not sure how much angrier I can get.
This thing with the Fed coming to the rescue is hilarious in a way that's not really funny.
It's like asking a burglar to house sit while you're on vacation.
Or hiring that electrician who accidently burnt down your house installing a light to do the wiring for your new home...
Big jump in tomo's today.
24b, biggest day in least 3 weeks.
Hmmmmmmmm.
Striper
We've been through this in this blog, Hussman funds, Mish's blog Ad nauseam - you have to look at the amount expiring today to get the real picture. Today 22.5b expired, 24 added so net net its an add of 1.5b.
That sort of expiry/replenishment is the normal state of affairs.
The TAF complicated the situation for Fed data watchers - we now need to watch their announcements of redemptions too - e.g. Separately, the Fed also announced a $5B redemption of T-bills and as today's speech by Bernanke stated, the Fed is not adding money with its TAF - it drains those additions by adjusting its open market operations - Here's the extract from his speech:
However, as a tool for easing the strains in money markets, the discount window has two drawbacks. First, ...Second, to maintain the federal funds rate near its target, the Federal Reserve Systems open market desk must take into account the fact that loans through the discount window add reserves to the banking system and thus, all else equal, could tend to push the federal funds rate below the target set by the FOMC. The open market desk can offset this effect by draining reserves from the system. But the amounts that banks choose to borrow at the discount window can be difficult to predict, complicating the management of the federal funds rate, especially when borrowings are large.
To address the limitations of the discount window, the Federal Reserve recently introduced a term auction facility, or TAF, through which prespecified amounts of discount window credit can be auctioned to eligible borrowers. As I will discuss in greater detail in a moment, our intention in developing the TAF was to provide a tool that could more effectively address the problems currently affecting the interbank lending market without complicating the administration of reserves and the federal funds rate.
...
Based on our initial experience, it appears that the TAF may have overcome the two drawbacks of the discount window, in that there appears to have been little if any stigma associated with participation in the auction, and--because the Fed was able to set the amounts to be auctioned in advance--the open market desk faced minimal uncertainty about the effects of the operation on bank reserves.
FRB: Speech--Bernanke, Financial Markets, the Economic Outlook, and Monetary Policy --January 10, 2008
Back to CFC.
-K
Can I take my Beanie Babies to the discount window yet?
The Freemasons are behind the deal.
Why don't we just have Buffet buy the Fed? No question he could do a better job.
Just prior to declaring bankrupcy, Worldcom tried desperately to buy or merge with Sprint. This came after an attemted merger with Nextel had failed.
Today, Sprint is trading at less than 1/4 of its market cap at the time of the failed Worldcom deal. This is so in spite of the fact that Sprint acquired Nextel after Worldcom's bankruptcy.
Worldcom shareholders fared even worse - $0.00/share by year end.
The true genius of wall street is its never ending ability to seperate people from their money.
Protect your own nut. Wall street will not do it for you. FED or no FED.
Food for thought.
(OT) from the "BOA to acquire Countrywide" thread. Apologies, I just wanted to make sure Kirk Spencer didn't miss this at the end of an old thread.
Kirk Spencer, now that I've generously shared, please extend me the same courtesy and tell me the objective, independently-verifiable methods you're using for measuring the health of the economy.
I've said "no recession now or at any time in 2007 and no recession in 2008" based on my methods and I still stand by my statement.
I propose a challenge, your method and forecast against mine. Okay? Nothing like actually putting yourself out there to really clarify things, am I right?
Sebastia
Of course, recessions aren't officially categorized as such until months after the event.
"I've said "no recession now or at any time in 2007 and no recession in 2008" based on my methods and I still stand by my statement."
You're betting on a depression, too?
BAC stockholders just got screwed by the fed. As a taxpayer I get pissed, if I had pension money tied up in these shenanigans I'd be doubly pissed. Predictable, let the whitewash begin!
When is the Dynegy buyout of Enron going to be completed?
BTW, I heard a rumor that the fed sent some people over to CFC headquarters. Apparently they went right to work measuring the walls. When Tangelo asked what they were doing they said: "We're here to paper over this clusterf@ck". Bwahaha!!
Denzel said: "Of course, recessions aren't officially categorized as such until months after the event."
Don't care. There's no recession, however long it takes the NBER to deliberate on it.
Sebastia
"I've said "no recession now or at any time in 2007 and no recession in 2008" based on my methods and I still stand by my statement."
Sebastian..Apparently Bernanke disagrees and is willing to bet 50bps, inflation and reputation be damned, to prevent what exactly....a slow short term growth with cuts that don't take effect until 2009? I don't think so.
Also,
As for BAC and CFC....you don't get this much speculation over a deal that makes sense.
Average Joe said: "Sebastian..Apparently Bernanke disagrees and is willing to bet 50bps, inflation and reputation be damned, to prevent what exactly....a slow short term growth with cuts that don't take effect until 2009? I don't think so."
So your argument is that now the Fed is right?
I bet I could get some bears here to take my side given that alternative.
S.
They are late, right, but late.
someone posted this graph a few days ago about how much more difficult its been for the Fed to control the Effective Funds rate here:
Open Market Operations - Federal Reserve Bank of New York
BB-"But the amounts that banks choose to borrow at the discount window can be difficult to predict, complicating the management of the federal funds rate, especially when borrowings are large."
FRB: Speech--Bernanke, Financial Markets, the Economic Outlook, and Monetary Policy --January 10, 2008
now we know why. if you look carefully, the EFR has spent more of its time BELOW the target rate. i submit that this supports the stagflationists theory that there is too much money leaking into the system and why gold is spiking.
The Tan Man has you...he has you all.
I don't know about anyone else, but the move today by Bernanke to show that he is every bit a market whore as Alan Greenspan ever was is refreshing. I propose Ben's new name be "BernanSpan". It rolls off the tongue and you can use "BS" as an abbreviation and it still works. As far as the CFC news, can there be any doubt the FED and Treasury were in on this?
I'm still short financials, but if CFC was really close to bankruptcy, they should be sold off to someone, at whatever cost.
I get the impression there are some here who really look forward to some sort of financial armageddon.
"As far as the CFC news, can there be any doubt the FED and Treasury were in on this?"
Is there any evidence at this point that there's any "this" for the Fed and Treasury to be in on?
Sebastian,
Do you follow Kasriel? His record is pretty good, and his model (which he states is historically reliable) is favoring recession. Your thoughts?
Slightly OT:
I found this letter from Fed Reserve to BAC about it's request to loosen capital requirements on margin loans. Is this nothingburger?
PDF!
Link to letter
Bob_in_MA,
I don't think it's so much wanting Armageddon so much as some semblance of reality.
Unless the drill has been changed, this will be the end result:
BoA buys good parts of business
Govt. gets stuck with bad bits
Countrywide equity holders get nothing or close to nothing
How much of a stake does the federal government have in Countrywide's loans?
I'm all for ARM a geddon, as long as the maggots get the noose.
i also think that the TAF loans are inflationary in that they are being auctioned out at below what otherwise would be the discount penalty rate. why can't i get money this cheaply?
i also don't buy the fact that they couldn't have set a 40B limit on discount window borrowings after August and before TAF. TAF was set up to provide anonymity for dead men walking and get more money out into the system above and beyond what the discount window was providing.
As for the FED and Treasury in on the deal, CFC had taken 50 Billion from The FHLB and perhaps they wanted to see some of that money again this century? Or maybe everything is innocent and free market capitalism? Time will tell.
i think steve is closer to the mark on the technicalities here but not totally accurate.
yes, the OTS would have to declare CFC's thrift insolvent. then the FDIC has to make a decision on how to handle the failure of CFC's thrift subsidiary. the FDIC could use a bridge bank strucure until a resolution could be completed. however, there is no guarantee that uninsured depositors or unsecured creditors would be protected under a bridge bank setup.
under any FDIC resolution now, there must be a "least cost test" performed on any sale. so the FDIC must sell a failure at a price that leads to the lowest cost to the insurance fund. however, the analysis in the "least cost test" can get sketchy at times and can lead to deal that may not necessarilly be the cheapest (i.e., FDIC has flexibilty to sell to whom they want to as they prepare the analysis).
i think under the systemic risk provision, part of the resolution cost would be borne by treasury or fed and not solely by fdic. but there must be a failure of the thrift for any ideminification to happen for the buyer.
in any event, there is an important issue based on CFC's organizational structure. from what i understand, CFC's servicing portfolio is not housed within the insured thrift. therefore, it is not an asset that would be passed to the FDIC in the event of failure of the thrift subsidiary or bankrupcty filing by the parent (CFC). while this seems technical, it is a highly important issue. the servicing platform would most likely be the most valuable asset, but it would not be available for sale by the FDIC. hence, the FDIC would be stuck with a much larger loss. exactly how much does someone want to pay for a thrift with no branches and a deteriorating book of mortgages funded by high cost deposits and secured borrowings.
the value of the originating platform is diminishing as CFC's problems persist. value here is mostly human and CFC's job cuts along with other departures that will occur in a failing scenario means the originating platform is losing value daily (not even considering the reputational hits on-going).
because the servicing is not in the bank, this is why the intercompany funding dynamics need to be closely analyzed. techinically, CFC's thrift subsidiary should not be providing liquidity support to the servicing entity. hence, the fhlb borrowings or high cost deposits cannot flow to the servicing company. here is where the OTS should be protecting the thrift on behalf of the FDIC. as tanta indicated in an earlier entry, the liquidity of servicers will be interesting to watch (timing of payments to invetors versus payments received). this will be entertaining to watch.
I'm still short financials, but if CFC was really close to bankruptcy, they should be sold off to someone, at whatever cost.
I get the impression there are some here who really look forward to some sort of financial armageddon.
Bob_in_MA | 01.10.08 - 7:45 pm | #
Seriously. Some of the posters here seem to need some serious mental help. It's like their lives are so miserable that they wish everyone else's was too. Cheerleading for some Mad Max scenario is even more disgusting than the REIC cheerleading.
Thanksfully, these posters are more than evened out by the excellent and reasonable posters like Banker, Stagflationary Mark, Rich, Gary, Allen M, etc., etc., etc.
This would be a first, and is unlikely to happen. The FDIC would bear any losses, just as it always has.
How much BofA is going to pay for CFC?
$3/share ?
idoc, " i also remember being short BSC at 108 when a rumor of a Buffett buyout sent it from i believe 102 all the way up to 125. it took about a wk for it to reverse and now look at it."
You are forgetting my favorite buffett rumor last year. Yes, I shorted CFC on that one but better yet was the HOV rumor joke. I waited until it steadied out, jumped in and it went straight south without looking back.
If by Armeggedon, you are referring to fairness, transparency, capitalism, then sign me up.
Steve sounds correct to me and may even be a federal employee or retiree. My sources say bridge banks will be popular at least until things get worse. And, a new RTC type institution will be born with massive expensive contracting to replace hiring (hard-to-fire & protected) fed employees.
Looking like an Argentina economy every day.
I love the Jon Najarian comment.
In my opinion the reality here is the BAC buying CFC might be spun around by wall street "traders" as a bad deal but anyone who owns a home or has any modicum of knowledge about the real estate lending industry knows full well that if CFC goes under this country is ****ed. Unless you are a career renter with no assets of course.
barely,
yeah i do remember that one on HOV. i shorted BZH at the time and still am holding it.
you were heartless with Yal. "i was there at the opening to take your shares. thanks!"
LOL!
SurferDude,
I really enjoy your posts and obvious federal experience of some type. I am deeply curious if you are or were a FDIC employee. A yes or no will do if you care to comment. Don't you think that Countrywide's legal department and outside attorneys knew that the servicing platform/portfolio would be the most valuable asset and set out to keep it from the FDIC's greedy liquidation grasp? I love it. Mr. Mozillo really may be the smartest guy in the room so far it seems. I think he will find the FDIC will win in the end (if he lives that long)when it files a nasty D&O Liability suit in federal court which will take years and many millions to settle. Been there, done that.
Anyone who "brags" about a trade is a bullsh!t artist plain and simple.
Tell us about stories about when your equity curve got axed 38% and you made it all back because you are a savvy dude man!
"SurferDude,
I really enjoy your posts and obvious federal experience of some type. I am deeply curious if you are or were a FDIC employee. "
No and no.
I'm just a crusty 40 something dude who loves to surf with a wife, kid, home by the beach and a decent working knowledge of econ, real estate, and equities.
Love,
surf
To say that if CFC,FNM, etc fail everyone would be screwed so therefore anything and everything should be done to make sure that does not happen shows a lack of real understanding. The point is that any entitity should not be regarded as free from any consequences simply because it would suck if they fail. If we want real leaders running good firms doing sane things there must be a price for failure. I guess in an age where grades for high school students are being phased out so as not to hurt anyones feelings, the move toward mediocrity is unstoppable.
I get the impression there are some here who really look forward to some sort of financial armageddon.
I used to be in this camp myself until I realized that financial armageddon would mean I wouldn't be able to sell my puts to anyone. Then the lightbulb went on ...
BTW, an interesting trade idea I might try is to buy a put/call spread on CFC. Right now February calls/puts at the 7.50 strike are selling in the $1.10 -> $1.35 range. Buying both would mean likely profits in either direction if CFC goes BK or if the BoA rumor turns out to be true and traders bid up the price.
I haven't run the numbers, though. This trade could still be a loser if CFC ends up near the current trading price of $7.75 by February expiry. Also if BoA comes out quick with a solid offer to shareholders in the $6-9 dollar range, this trade may not work. Don't try this unless you know what you are doing.
surf,
Impressive knowledge for someone who has not worked at one of the regulatory agencies, isn't apparently a lawyer, banker or ever worked for Tanta. Please post more often. Thanks.
Surferdude:
Thanks for saying I almost got things right. I was actually involved in the resolution of several bridge banks many years ago.
The systemic risk exception in FDICIA specially envisions that all excess deposits will be insured. If a bridge bank is created to avoid systemic risk--what I was talking about--no depositor will lose money. This is particularly important in the case of CW bank, because they hold billions of dollars of servicing pool escrows. Those escrows are the most likely basis for invoking the systemic risk exception, if that happens. By the way, the systemic risk exceptions means that no least-cost resolution test is required.
There is absolutely no provision of law that requires the Fed or the Treasury to share in the losses to the FDIC under the systematic risk exception. However, all insured institutions are subject to a special deposit insurance assessment to cover the cost to the FDIC for insuring excess deposits in a systemic risk exception event.
If anything involving the government happens, it might involve a simultaneous sale of the servicing business by the holding company and the creation of a bridge bank. I very much doubt that the holding company can sell the servicer otherwise: a) because the sale would destroy the rating required for the bank sub to hold escrows; and b) because the bank sub lacks the liquidity to transfer the escrows en masse to another institution.
BTW, any CFC longs are basically toast at this point.
I would guess that any BoA offer will leave 99% of shareholders with pennies on the dollar, unless they bought it way back in the early 90s, in which case they have ridden it up and almost all the way down the rollercoaster.
I'm a bit curious. Sure I think that some arm twisting by treasury and fed is here. FFDIC posted earlier today these rumors are coming from Warshinton not NY.
And then we have the servicing arguments about CFC. CFC facing servicing problems could easily lead to cascading cross defaults. So, does anyone know where to find how much of Freddy and Fanny's book of loans is serviced by KFC, if any? That is bothering me.
Cheers,
Gatsby, you uber-suck.
Seb,
Just a question:
Does your model include the possibility of systemic risk, or more appropriately, cascading cross defaults? Does it assume a housing bubble as an asset bubble (which it is not) or a consumption bubble (which it is)?
Cheers,
Misean, hold up dude. Washington is leaking no doubt about it and will continue to do so. NY may also be leaking too. I never said the rumors are only coming out of DC or if I did or left that impression I am wrong. DC & NY are probably leaking on this one because it's BIG.
YouTube -
.
I don't know about Conjure Bag, but it seems to me that CFC will need a Conjure Bank.....
I wonder where Angelo will park his $110 Million severance package, if any of this stuff proves to be true.
Joe
Got a question. Friend has a large, but less than 100K 3-month CD with CFC. If CFC goes down, how long will he likely have to wait to get his money back?
FFDIC,
Sorry man, I read it in haste taking a break this afternoon, I probably read it wrong. Sincerest apologies.
Cheers,
I'm for armageddon so we get a new national economic direction. I don't really want to die though. The sooner we air the dirty laundry the better. The longer we paper things over the worse...
Armageddon?
I'd prefer not but if things get really bad is it better to be prepared or rely on the gubbermint for your future?
Oh, wait....
Randy. Your friend's principle is safe if it is under 100K but any interest is gone and there will be a period before all money is available.
Actually, I think that we all agree that BoA will want just the loan servicing area of CountryWide and not the bank or liabiliies. Perhaps the FED and Washington will allow BoA to aquire the servicing area with a promise to do more loan mondifications and leave the bank assets (loans, REOs) and liabilities as a failed bank. The shareholders would get screwed but the public would share in the losses.
I put
I get the impression there are some here who really look forward to some sort of financial armageddon.
Everybodys just talking their book.
Anyone who "brags" about a trade is a bullsh!t artist plain and simple.
Tell us about stories about when your equity curve got axed 38% and you made it all back because you are a savvy dude man!
surf | 01.10.08 - 8:44 pm |
Hey Surf,
Barely and i were basically having a private conversation reminiscing about our experiences here on this board over the last yr. We can independently back each other up since we were both in the thick of things during those squeezes.
so bug the sh*t out.
The Nabob has a frank view which might have been substantiated had anyone asked Bernanke at his press conference today about the relationship between BoA and Countrywide...and that (new, improved, unconventional...desperate?) Fed "substantial action".
The Nattering Naybob Chronicles
I don't buy point 3 because I don't think that BoA as a counterparty could be sure enough of the Feds ability to follow through if the deal became public. What the Fed CAN do however is make BoA's life a living hell if they don't acquire CFC. Bank auditors, very close examination of any collateral presented at the discount window etc.. If this is an arranged marriage, the Fed is bringing a shotgun and not a dowery. The leak is probably because there are enough people at BoA who DON'T thik that Mozillo could "pass for 43 in the dark with the light behind him," that they'll do anything to not have to go through with the deal.
Here's my take on today's rumors. The rumors were floated by by CW/Fed personnel to buy time to figure out what to do as CW spirals toward BK. CW basically has two pieces: 1) the thrift, which is a shell funded by wholesale/brokered deposits, FHLB advances and short term liabilites such as CP. These funds were used by the thrift to buy home equity, option ARM, IO and other loans now unsalable at par. These loans were purchased from 2) the loan origination and loan servicing group (not covered by FDIC). So as the the wholesale/brokered deposits and short term liability investors pull back 2) is in a severe short term liquity squeeze. Please correct my understanding, if necessary.
One interesting question is: In the case on a BK by 1) will the FDIC go after the assets of 2) for fraudulently selling bad loans to 1), the thrift. Yes, it will be intersting to watch as this unfolds.
I wonder if the fact that Robert T. Parry, former president of the San Francisco Fed, sits on CW's board has anything to do with this alleged deal.
BTW, an interesting trade idea I might try is to buy a put/call spread on CFC. Right now February calls/puts at the 7.50 strike are selling in the $1.10 -> $1.35 range. Buying both would mean likely profits in either direction if CFC goes BK or if the BoA rumor turns out to be true and traders bid up the price.
It sounds like you're talking about buying a straddle rather than a spread. Now, keep in mind that I wasn't a very good options trader, but I'd avoid that one. You're looking at an implied vol of about 150, so you're paying a huge premium. It looks like the straddle would cost you about $3.20. Do you really think that any buyout offer is going to be for more than $11.00? Right now, that's your upside break even point on the straddle.
Hell, looking at that, I'd probably be willing to sell the straddle.
Nobody can or will declare CFC insolvent, it is party to so many credit swaps that a whole lot of other players will be taken under with it.
BofA will probably buy servicing operations, which were making $600 million per year and may be worth close to $5 billion and then would probably put some money into join mortgage venture, but that's all.
Buffet will not touch this turd with 10-foot pole. In addition to all this debt, there is likely big legal liability to come with. His insurance unit would lose AAA rating and the gamble simply is not worth it.
The Feds have simple interest in this -- if BofA takes servicing off the CFC'a hands, 9 million mortgages are safe from going bonkers in a haos of BK. CFC gets another $3-$4 more billion cash, offloads some branches and keeps swimming. The question is for how long.
I don't know how you people find the time to read every single post. I do know that I have come across many educated derelicts in my life. You can take what you will from that. I don't have time to explain my life story to some clown on the internet. I will mention that a just transferred over six figures from an ETrade savings account just this week to a Schwab account for "fear" of Etrade collapse. As far as the "educated" derelicts judging my education and business savvy...well...umm you internet tough guys spend way too much time stressing over sh it written on anonymous bulletin boards on the internets. Oh, did I mention you can go fu ck a goat? You know who you are.
Thanks,
the tanned one
Where's the next bubble gonna be? Metals? All this free money has to go somewhere.
You waited until this week to make that transfer from Eturd? You have some balls my friend.
Surf, you are quite enamored with yourself aren't you?
Tell us more about how you rip the waves and the markets.
poser
:-/
It sounds like you're talking about buying a straddle rather than a spread
Correct, although the math on the cost of both premiums works out to more like $2.50 rather than $3.20, as of yday market close. That puts the upside breakeven at more like $10/share.
I still like the odds of either an outright bankruptcy or a BoA offer well below $5/share. So the hedge here would really be just to limit my losses if my bet turns out bad.
I would recommend paper trading this rather than using real money.
Gretchen Mortgenson (Tanta fave) has an update in the NYTimes:
BoA CFC Deal?
Looks like the offer is $4 billion, which would work out to about $6.91/share if my math is correct.
However, there is the little problem of the preferred stock out there. There are two, count 'em, two $2 billion preferred issues out there. One is BoA's bailout from last August. Not sure who has the other.
That implies that the common shareholders may very well end up with nothing. Sorry, you guys took one for the team, gotta keep the system going, you know.
Just in ... deal is confirmed.
so it's official. but 7.16 is not a bullish price. US is going the way of Japan morphing bad banks with good.
I love how the idiot conspiracy-theorists on this thread have egg on their face now.
" You waited until this week to make that transfer from Eturd? You have some balls my friend"
PURE BRASS MAN!
Misean asked: "Does your model include the possibility of systemic risk, or more appropriately, cascading cross defaults? Does it assume a housing bubble as an asset bubble (which it is not) or a consumption bubble (which it is)?"
Not specifically. However, if those issues are big enough to be a serious threat their effects have got to show up somewhere. Even quickly-escalating, cascade-type events (like the October, 1987 crash or the August, 1998 meltdown) had telltale warnings of vulnerability. If the problems are that big, they're too big to hide.
Sebastia
"There is NO WAY the Fed would make such a guarantee. A totally irresponsible post."
The Fed can and will do anything it wants.
I see a lot of comments here about the FDIC coming to the rescue on a golden stallion. The FDIC DOES NOT have the reserves to handle the failure of a large bank. Where do you think the rest comes from? The same place it always comes from when we have a bailout...
Someone needs to say something about this! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they "WERE" making during the booming 90's!!! Now we are BAILING OUT THESE CROOKS....SOUNDS LIKE the good ol' 1980's Savings and Loan BAILOUT DAYS to me! http://www.fakepaycheckstubs.com see with YOUR OWN EYES!