Tuesday, October 16, 2007
Fly Buy: BWLD
Disclaimer: If you buy BWLD because of this post, someone will vomit on you. And, you may lose money.
Introducing the Solar Subprime Super Burrito:
That Treasury Secretary Henry Paulson is leading efforts to organize an $80 billion or so pool of private capital to finance four times that much in illiquid subprime assets controlled by some of the largest US banks is not a good sign. Looks to us like a prelude to a federal bailout.
Led by names like Citigroup (NYSE:C) and JPMorgan (NYSE:JPM), the supposed "super conduit" seeks to make attractive assets which now seem dead orphans. A number of banks and other dealers are increasingly illiquid and face losses on supposedly off-balance sheet conduits or structured investment vehicles ("SIV"), losses that in extreme cases could damage their solvency. Thus Hank Paulson is back in deal mode, but this last minute window dressing may be too little too late to stop the inevitable market based resolution.
Orchestrating the pooling of hundreds of billions worth of illiquid assets into a single conduit strikes us as a bad move. In analytics, we call such proposals a "difference without distinction." Instead of seeking to restore the abnormal and manic market conditions that prevailed in the world of structured finance prior to Q2 2007, we think Secretary Paulson and his Street-wise colleagues should be trying to reach a more stable formulation.
The subsidiary banks of C, for example, have about $112 billion in Tier One Risk Based Capital supporting 10x that in "on balance sheet" assets, assets which typically throw off 3x the charge offs of C's large bank peers. A modest haircut of C's total conduit exposure of $400 billion could leave that capital decimated, forcing C into the hands of the New York Fed and FDIC. Of note, looks like the ratio of Economic Capital to Tier One RBC for C at 3.75:1 calculated by the IRA Bank Monitor was not so severe as some Citibankers previously have suggested.
The fact that much of the debt issued by C-controlled SIV's was maturing in November seems to have prompted the Treasury to act, yet another example of "limited government" under President George W. Bush. Apparently there are some people at the Treasury who think that aggregating large bank conduit risk into a single subprime burrito will somehow draw foreign and domestic investors back to the structured asset trough. This notion would be laughable were the situation not so perilous.
All they need to do is smack a "full faith and credit" sticker on that mother and they're off to the races.
I've even got the name, ready, free of charge:
Yeomps article quoting Fry:
Microvision's contract with Motorola is non-binding, meaning they can sign contracts with whoever they please.
Or "whomever" of they are gramatically correct in their partnering strategies.
We'll know Oct 30...Are female CEOs any good? Got a lot riding on her and Fredy. lessgobeeatches!
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