Tuesday, 31 March 2009 01:00

Reggie Middleton's Troubled Bank MBS/ABS list


  • Comment Link gwizz Thursday, 02 April 2009 22:06 posted by gwizz


    This is information that Martin Weiss sent out this week on interest rate derivatives and data from the OTC.

    Now, with these new losses in interest rate derivatives, the disease has begun to infect a sector that encompasses a whopping 82 percent of the derivatives market.

    Thus, considering their far larger volume, any threat to interest rate derivatives could be far more serious than anything we've seen so far.

    The large banks are exposed to the danger that, with exploding federal deficits and new fears of inflation, interest rates will suddenly surge, delivering a whole new round of even bigger losses in the months ahead.

    Worst of all, the five biggest banks are exposed to breathtaking default risk — the danger that their trading partners could fail to make good on their gambling debts, transforming even the best winning trades into some of the worst losers.

    Specifically, at year-end 2008,

    Bank of America's total credit exposure to derivatives was 179 percent of its risk-based capital;

    Citibank's was 278 percent;

    JPMorgan Chase's, 382 percent; and

    HSBC America's, 550 percent.

    What's excessive? The banking regulators won't tell us. But as a rule, exposure of more than 25 percent in any one major risk area is too much, in my view.

    And if you think these four banks are overexposed, wait till you see the super-high roller that the OCC has just added to its quarterly reports: Goldman Sachs.

    According to the OCC, Goldman Sachs' total credit exposure at year-end was 1,056 percent, or over ten times more than its capital.

  • Comment Link phirang Thursday, 02 April 2009 15:01 posted by phirang

    what all this money does to CMBS spreads and refi's.

    Considering reggie's latest work, this is the most relevant.

  • Comment Link greenja1 Thursday, 02 April 2009 14:58 posted by greenja1

    Financials rallied huge and....... Morgan Stanley is down today?!?!?! Errrr... stress test loser, perhaps? Anyone?

  • Comment Link greenja1 Thursday, 02 April 2009 14:23 posted by greenja1



    Ticking Financial Nukes (OTC Derivatives)

    Oh, this is not good.

    Go read the latest AIG Ticker again. Specifically, this paragraph:

    As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.

    Now consider this.

    There is some gross "notional" (or face) value of $683.7 trillion dollars outstanding as of the end of June 08 (last data available.)

    The lions share of those are not "CDS" on individual names or CDOs like what is going on here with AIG. They are instead interest-rate and/or FX products of one sort or another; $458 trillion worth.

    If even a couple of percent of those swaps are in fact "private lettered" out in the fashion that AIG is alleged to have done with their CDS.....

    (Hint: This is how "notional" amounts end up becoming realized losses!)

    Our Congress had better dig into this hornets nest right damn now because if in fact there is any material amount of this crap going on in the OTC derivative market the $170+ billion blown on AIG trying to cover it up will be a mosquito on an elephant's ass in comparison to what's about to happen to the world's economy and banking system.

    If, in fact, it cannot be proved that this is not the case, given the extraordinary lengths that both government and private parties have gone to in order to cover up what IRA alleges AIG was actually up to, we must ring-fence and cut off any part of the financial system impacted by a potential detonation of that market right now, including the US Federal Government, as such a detonation will, if it occurs, destroy any part of the financial system it infests at the time the unwind occurs.

  • Comment Link greenja1 Thursday, 02 April 2009 13:54 posted by greenja1

    ....to buy LEAPs on REITs and forget about life for awhile...

  • Comment Link greenja1 Thursday, 02 April 2009 13:53 posted by greenja1

    Its as if we need an intermediate target, hahaha. Government loves to burn shorts, but the long-term fundamentals scream out for you to be short. Staying solvent is proving to be hard in the face of irrationality, as always. My gut tells me to double-down short on banks (at least after Q1 numbers) while my brain tells me

  • Comment Link phirang Thursday, 02 April 2009 12:19 posted by phirang

    he's definitely not long them!

  • Comment Link greenja1 Thursday, 02 April 2009 11:49 posted by greenja1


    With all that's been going on, I still don't like their prospects, but accounting rule changes have made them short-term death to short. That being said, could this be an amazing opportunity to build up a short position for 3-6 months from now?

  • Comment Link NDbadger Wednesday, 01 April 2009 21:03 posted by NDbadger

    last estimate from Treasury was something closer to $135B, but if they use that for PPIP, then they won't have any to use to recapitalize. $135B wouldn't even cut it for just C.

    But the bigger issue is the WSJ article pointed out by greenja1. By limiting the bidding to firms that already have large quantities of toxic assets, the Treasury is guaranteeing participant overbidding, and that the losses will be transferred to the taxpayer (see Reggie's example of the sale between two banks with toxic assets).

    If Congress doesn't step in to prevent this, then we really do live in a third world like country owned by the bankers. This is so sad that Treasury thinks this is the right way to proceed.

  • Comment Link phirang Wednesday, 01 April 2009 19:23 posted by phirang

    and there will be more money from "deposit insurance".

    Congress will feign indignation to mollify the unwashed masses, but the bankers will still get their free money.

  • Comment Link greenja1 Wednesday, 01 April 2009 18:45 posted by greenja1





  • Comment Link tuck Wednesday, 01 April 2009 17:53 posted by tuck

    Why can't people with large positions in banks or can acquire same game PPIP? Don't they have the extra incentive of less risk of exposure? And I'm pretty sure banks want to participate after MtoM is rescinded to unload toxic assets now rather than eat losses later when defaults start rolling in.

  • Comment Link ihot Wednesday, 01 April 2009 17:06 posted by ihot

    Geither Plan: http://www.youtube.com/watch?v=n-arbfLTCtI

    Thanks Big_Bear. Great link to Bloomberg article. I'm not sure why Bloomberg did not display that more prominently - cause I check Bloomberg everyday and did not see that article.

  • Comment Link NDbadger Wednesday, 01 April 2009 16:39 posted by NDbadger

    50% of JP's assets are marketed to market. I don't have the stats on the other banks but can give them to you if you like. WFC was something like 28% (but I don't remember exactly).

    All I am saying is I think the market will look through the mark to market. Investors may even feel the mark to myth numbers are so unreliable that they withhold funds from the big banks. Whatever accounting rules FASB puts in won't impact the likelihood someone repays his mortgage.

    Phirang. Not sure what you are talking about. TARP is almost empty.

  • Comment Link phirang Wednesday, 01 April 2009 15:31 posted by phirang

    FDIC rules are going to use TARP funds to make up for loss at the banks from PPIP auction.

    Shorting money-center banks is suicidal until this changes.

  • Comment Link Big_bear Wednesday, 01 April 2009 13:41 posted by Big_bear

    this is why relaxing M2M won't do squat ...

    [i]Of the $8.46 trillion in assets held by the 12 largest banks in the KBW Bank Index, only 29 percent is marked to market prices, according to my analysis of company data. General Electric Co., meanwhile, said last week that just 2 percent of assets were marked to market at its General Electric Capital Corp. subsidiary, which is similar in size to the sixth-biggest U.S. bank.

  • Comment Link NDbadger Wednesday, 01 April 2009 12:18 posted by NDbadger

    I expect the banks (at least the money centers) to modestly beat, given the M2M changes and the funds from AIG and the other bullsh1t the government has been pulling. But NPAs and NPLs should still look awful and I believe the market will see through the accounting changes and other one time items. Should be an interesting quarter. Investors want to believe, but if they do, they are likely to get f*cked.

  • Comment Link phirang Wednesday, 01 April 2009 12:14 posted by phirang

    are you still short your financials? If so, you're a true gladiator!

  • Comment Link phirang Wednesday, 01 April 2009 12:12 posted by phirang

    Where's the dartboard?

  • Comment Link NDbadger Wednesday, 01 April 2009 09:42 posted by NDbadger

    Seems like the proposed M2M changes would make banks even less likely to participate in the PPIP-and further extend the contraction.

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