Well, This Is Interesting

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Jul 30, 2008 7:38 pm

Think we've hit bottom, yet? If yes, you may change your opinion, after reading this article.

 
The gist of it is that some of the large B/D's lent money to hedge funds to buy the "toxic" CDO's from the B/D. That way, the B/D's get to take the "toxic" CDO's off their balance sheet. Neat, huh?
 
Problem is, the risk is still there for the B/D. I'd say they're just putting-off the inevitable.
 
http://dealbook.blogs.nytimes.com/2008/07/30/for-merrill-the-investments-are-gone-but-the-risk-remains/
Jul 30, 2008 7:44 pm

don't tell Bullbroker, he thinks this is a good thing.

Jul 30, 2008 7:50 pm
Primo:

don't tell Bullbroker, he thinks this is a good thing.

 

 
"But Merrill is leading by example and stepping up to the plate to fix their mistakes"
 
 
Jul 30, 2008 7:54 pm

I read an interesting article today about John Thain and his quotes since 12/07.  Each time they have raised equity, they have said "this is it, we're good now" (obvious paraphrase), then repeated the same statement the next time they had to go to the market to raise cash.  If memory serves, 3 times so far this year.  Wish I had brought it home, I would share.

Jul 30, 2008 8:00 pm

Merrill smells of feces right about now.  John Thain is Darth Vader.  It's impossible to see the problem when you ARE the problem.  Good thing he has his drones buying into everything.

 
What's funny is that the MER guys are probably reading "internal" press releases telling what's happening and why it's good.  It's probably got the same amount of spin on it as it would take Tiger Woods to hit a 7 iron onto the green and back it up all the way to the tee box behind him.  (Terrible golf analogy, I know).
 
 
Jul 30, 2008 8:31 pm
snaggletooth:
Primo:

don't tell Bullbroker, he thinks this is a good thing.

 

 
...goes double for me...
Jul 30, 2008 8:42 pm

It's scary when the "leader" in the industry is leading the way with writoffs, fundraising, "spin control", etc. How an entire industry could get it so wrong is beyond me.

Jul 30, 2008 8:48 pm

Alright Alright take your shots here I am.................................................

 
 
Let me bounce the ball back to you all, what would you do if you were the CEO of a Major B/D right now?
 
Would you do what you could to raise capital and get toxic CDO's off the books?
 
Just my opinion but someone had to step up and get a value to these CDO's to begin to put this all behind us.  I find it ironic that Merrill steps up to the plate and takes one for the entire industry and all everyone can do is point blame at Merrill.  It's not like any other firm had the nuts to lay all the cards on the table.  I think what you are seeing with Merrill is the beginning of the end of the CDO market.  Just as Merrill is the leader in the financial industry all the other firms will follow suit and whomever has enough capital to step up and buy these CDO's will make a pile of money.
 
I'm not calling a bottom right here, I do think at some point in the 3rd quarter you will see a true bottom.  As more and more firms step up and price their CDO's we will have some more down days as the market reacts to the losses and the index will form a solid support level. 
 
 
Alright commence your Merrill bashing session.   
Jul 30, 2008 8:56 pm

I got nothin' to say...that was actually a pretty good post...

 
...but you have to admit...Primo was pretty funny...
Jul 30, 2008 9:02 pm
BullBroker:

Alright Alright take your shots here I am.................................................

 
 
Let me bounce the ball back to you all, what would you do if you were the CEO of a Major B/D right now?
 
Would you do what you could to raise capital and get toxic CDO's off the books?
 
Just my opinion but someone had to step up and get a value to these CDO's to begin to put this all behind us.  I find it ironic that Merrill steps up to the plate and takes one for the entire industry and all everyone can do is point blame at Merrill.  It's not like any other firm had the nuts to lay all the cards on the table.  I think what you are seeing with Merrill is the beginning of the end of the CDO market.  Just as Merrill is the leader in the financial industry all the other firms will follow suit and whomever has enough capital to step up and buy these CDO's will make a pile of money.
 
I'm not calling a bottom right here, I do think at some point in the 3rd quarter you will see a true bottom.  As more and more firms step up and price their CDO's we will have some more down days as the market reacts to the losses and the index will form a solid support level. 
 
 
Alright commence your Merrill bashing session.   
 
I don't think CEO's of any of the troubled financials have it easy.  Damned if they do, damned if they don't.  My issue is Merrill (or anybody else for that matter) has not laid all the cards on the table.  Of course Thain has been saying for 8 months now "that is it" and then more comes out later.  Fool me once shame on you.  Fool me twice shame on me.  This isn't doom and gloom, just realism.  I will believe it is truly over when one of the troubled financials announces (sp?) a huge unexpected profit, which will happen as all of these writedowns will come back on the books as earnings when the CDO market begins to move again.
Jul 30, 2008 9:17 pm

Merrill has, thus far, written off 91% of their book equity. UBS 81%. MS and Citi in the 20%+ range.

Jul 30, 2008 9:19 pm

I've read that Merrill still has an estimated $10bil on the books to write off.  Cannot say the source is accurate, but where do you get accurate information from any of the troubled financials?

Jul 30, 2008 9:21 pm
Primo:
BullBroker:

Alright Alright take your shots here I am.................................................

 
 
Let me bounce the ball back to you all, what would you do if you were the CEO of a Major B/D right now?
 
Would you do what you could to raise capital and get toxic CDO's off the books?
 
Just my opinion but someone had to step up and get a value to these CDO's to begin to put this all behind us.  I find it ironic that Merrill steps up to the plate and takes one for the entire industry and all everyone can do is point blame at Merrill.  It's not like any other firm had the nuts to lay all the cards on the table.  I think what you are seeing with Merrill is the beginning of the end of the CDO market.  Just as Merrill is the leader in the financial industry all the other firms will follow suit and whomever has enough capital to step up and buy these CDO's will make a pile of money.
 
I'm not calling a bottom right here, I do think at some point in the 3rd quarter you will see a true bottom.  As more and more firms step up and price their CDO's we will have some more down days as the market reacts to the losses and the index will form a solid support level. 
 
 
Alright commence your Merrill bashing session.   
 
I don't think CEO's of any of the troubled financials have it easy.  Damned if they do, damned if they don't.  My issue is Merrill (or anybody else for that matter) has not laid all the cards on the table.  Of course Thain has been saying for 8 months now "that is it" and then more comes out later.  Fool me once shame on you.  Fool me twice shame on me.  This isn't doom and gloom, just realism.  I will believe it is truly over when one of the troubled financials announces (sp?) a huge unexpected profit, which will happen as all of these writedowns will come back on the books as earnings when the CDO market begins to move again.
 
Not that I believe anything CNBC says, but I remember overhearing someone on there say the other day that after the tech crash, it took 5 years for new tech companies to emerge and lead that sector higher.
 
Could it be possible that financial firms are effed for 5 years until they can figure out a new way to make money?  I don't know.  But one has to think, how long do you stay away from an area that has been napalmed or nuked?
 
And given the importance of the financial sector to the market, coupled with housing's problems and lack of loans, what will it take to get things going again? 
Jul 30, 2008 9:24 pm

When?  That is the billion $ question. 

Jul 31, 2008 8:42 am
BullBroker:


 
Let me bounce the ball back to you all, what would you do if you were the CEO of a Major B/D right now?
 
Would you do what you could to raise capital and get toxic CDO's off the books?
 
 
First and foremost, you must not lie to your shareholders. Lending money to a hedge fund, so they can buy your "toxic" CDO's; thus, allowing you to remove the risk from your balance sheet is lying. Is it just Merrill doing this? NO! Read the article, other major players are doing the same thing, but Merrill is leading the way.
 
Now, what would I do to get the stuff off my balance sheet? Write it off, take the hit, and move on.
Jul 31, 2008 3:57 pm

Makes sense to me. The current prevailing wisdom says that CDOs are currently priced well below their intrinsic value. So Merrill gets to take the uncertainty off its books, loans money to a company that can stomach the fluctuation, although at .22 on the dollar, there can't be much more decline from here can there?? So, to an extent they can make some money in the form of interest off the loans, and still get it off their books. Seems pretty smart to me... But, then I was buying BAC at $30 just weeks before it hit $18.

Jul 31, 2008 6:30 pm
doberman:
BullBroker:


 
Let me bounce the ball back to you all, what would you do if you were the CEO of a Major B/D right now?
 
Would you do what you could to raise capital and get toxic CDO's off the books?
 
 
First and foremost, you must not lie to your shareholders. Lending money to a hedge fund, so they can buy your "toxic" CDO's; thus, allowing you to remove the risk from your balance sheet is lying. Is it just Merrill doing this? NO! Read the article, other major players are doing the same thing, but Merrill is leading the way.
 
Now, what would I do to get the stuff off my balance sheet? Write it off, take the hit, and move on.
 
How is it not removing the risk from your balance sheet?  What risk is there?  The risk that the "hedge fund" that you did a non-recourse loan with, to purchase the "toxic" CDO's (that you have already written off) will default on you?  How is there any where to go but up from something you have already taken a write down on?  So what if the "hedge fund" defaults on Merrill, Merrill has already written the assests off.  Only good can come of it, the "hedge fund" sells the CDO's, makes a profit and pays off their loan.  How do you lose money on something you have already written off the books? 
 
There are only two things that can happen; The "hedge fund" defaults on the loan and the result is that Merrill realizes the full amount of the write down.  Or, the "hedge fund" pays back the loan and Merrill realizes a $0.22 on the dollar profit on what they originally wrote off. 
Jul 31, 2008 6:35 pm

Merrill didn't write down the $.22, they wrote down the $.78.  They removed the CDO from their balance sheet in this deal.  If the borrower defaults, this all comes back on the books for an immediate write-down which could happen when Merrill could afford it the least.  Selling something and providing 75% of the financing to get it done is not a good deal.  If there is a default, this simply becomes a SIV.  Merrill is not the first to try this, Enron was.  Not saying this will end the same way by any means, but this is almost exactly what Enron was doing.