Tuesday, March 24, 2009

The Ridiculous Marks of Toxic Assets (part 2)

Following up on Tyler's earlier post, it's important to put the potential PPIP assets in perspective to the overall holdings of the banks.












Citi is clearly the most interested party in this whole thing, with a whopping 44% of its total assets tied up in legacy assets. As Citi is valuing these things at such a ridiculously high level, Citi stockholders are going to be closely watching the PPIP proceedings and how the players approach their bidding strategy. The benefit of the PPIP-leverage is it is likely to boost valuations higher than they would be without the PPIP leverage/backstops - it remains to be seen if that benefit will be substantial enough to stem the bloodloss at Citi.

Another interesting tidbit is that the weighted average ex-Citi is still at a pretty high 9%. If the valuations for these legacy assets drop from the 90-100 range to roughly half that (which doesn't seem wholly unreasonable) that's an instant 5% drop in assets across the entire financial industry.

The takeaway from this whole thing is that the PPIP program is wrought with conflicting interests, and every movement in valuations for deals is going to have a huge impact beyond the specific parties of that particular deal. Stay tuned...

Update: Institutional Risk points out the gap between Geithner/Bernanke's pricing of these legacy assets at around 80 cents/dollar and the market's pricing at between 20-40 cents/dollar. Further, it highlights the possibility of these following to 15 cents/dollar by Q3 - implying a 37.4% net asset markdown for Citi and a 7.65% net asset markdown across the entire financial industry. Sphere: Related Content
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27 comments:

Anonymous said...

What about BAC, JPM etc. ?

Anonymous said...

Goldman Sachs Research! Indeed. I call bullsh*t on this. Who was left off of the list?

Really "Tyler", who the F are you spinning for?

Anonymous said...

Anyone going to the Harvard Club to rub elbows for the credit event? Tell us who you see "Tyler" with. Watch the back rooms because we believe that "Tyler" will be spending most of his time getting service in exchange for slander.

Anonymous said...

really? your mama is going there too?

Anonymous said...

Nice! "Tyler", the leader of the "Fight Club" has pussed out and now has Cornelius fight his battles. Go back to calling your lame EUR/USD moves. Big day for the Euro!

Anonymous @5:09 PM

Anonymous said...

The 119bn wachovia portfolio has been cut to ~80bn due to purchase accounting.

The pickapay was the problem child -- it is 58bn of that 80bn 00 but that remaining 58bn has a 30+ day deliqnecy rate of just 10bp as of feb.

Link for those stats is here.

page 26 for the total portfolio
page 34 for the pick a pay stats

Simply put, this post isn't very rigorous.

Anonymous said...

"Simply put, this post isn't very rigorous."

More like this post is closer to displaying the signs of full Rigor mortis. Where this blog will be in 30 days.

Anonymous said...

nice to see that tyler is taking the time that he usually spends in writing anonymous self-applause comments to write anonymous self-insults

Anonymous said...

great tyler, you leave for a few days and you got the wachovites crawling out of the woodwork and blaming you for a gs report that did not take into account their pickapay portfolio. any way to back into the IPs of how many of these angry MTM nonfans originate at PIMROCK?

Anonymous said...

to anon at 5:26, you sly dog tyler you... not only do you post for and against yourself (it reminded me of my first fight with tyler) but you also point out that you do so... brilliant

Anonymous said...

@ 5:31, you must be tyler too... as must be i

Anonymous said...

Tyler I hate you/me. I/you am very angry at you/me for tell me/you that not everything is great as I/you want to believe. I/you am never reading/publishing anything else on this blog ever again.

Anonymous said...

i/tyler has met the enemy, and i/he is i/tyler

aviat72 said...

I noticed that Citi was at the top in the construction and CMBS marks but near the bottom in the consumer exposure marks. Can you quantify what percentage of Citi's assets are in each category? If Citi has minimal exposure to the first two or if those assets are actually performing then this post becomes pretty much meaningless.

Anonymous said...

Put me down for a $10 mezz equity piece levered 12x to watch Tyler punch Tyler in the ear

Anonymous said...

Why all the hate? Tyler does this blog FREE and has some pretty fantastic analysis.

If you fucktards think you can do better, please point us to your pithy commentary.

Anonymous said...

.

I don't have a problem with slanted articles as long as you make it clear up front who you're in bed with.


If you disappoint me I'll let you know. It's part of a little clause (Amendment 1) in a document called the US Constitution. Don't like the Constitution? Then maybe you should seek refuge elsewhere.

Anonymous said...

Apparently, irony isn't dead. Did someone posting as "Anonymous" just call out someone for posting behind a pseudonym? Did that really just happen or did I imagine it?

Russell said...

Can anyone point me to a detailed, well-explained analysis that backs up all these claims that the .20-.30 bids out there for all these toxic assets really do reflect the deteriorating cash flows from these assets that have/will develop? Not claiming to be any type of structured product expert here, but even if you make some pretty drastic assumptions like 30-40% default rate with a 30% recovery rate on foreclosed properties, don't you still end up with a lot of these pools/whole loans being worth somewhere around 70-80% of par? What am I missing here? Something to do with leverage inherit in the product structures? And if that's the case, would this logic still apply for the whole loans that so many people are flipping out about?

aviat72 said...

Russell:

Your analysis is correct. However if there is no liquidity (buyer), there is no market. If there is no market there is no fair pricing.

Why would any private credit fund, which typically rely on leverage to goose up their returns, take the risk of blowing through their equity? Only strong hands who can either hold to maturity or hold till whenever the market participants return can think of owning the bond. And the smart money knew that patience was the key since they could count on Uncle Sam to come through one way or the other.

You will see a lot of articles damning the PPIP or the so-called overinflated prices being paid to the banks. The bottom-line remains that a 30% default rate and a 50% average recovery rate still implies that 85% of the principal will be recovered. This is not true of CDOs and other derivates of low quality tranches. It is however true of true vanilla cash bonds backed by mortgages.

Anonymous said...

Even at 70% of par.......do you realize the devastation to lenders balance sheets?

Why not just have the gov't transfer the money that they are about to flush down the wormhole right on to the balance sheet's of the banks....might as well cut out the middle man and save some fees.......

Anonymous said...

The author uses two exhibits excerpted directly from Goldman Sachs Research. The report, presumably, deals with the issue of troubled assets and the proposed solution for unclogging bank balance sheets. I believe the author should reveal the context of the exhibits, as presented by Goldman. Does GS opine on the value of these assets? Has GS taken a stance on the wisdom of the PIPP? I am very interested in knowing whether the author is parotting Goldman's work or presenting a contrasting view.

Anonymous said...

I live in a so-called ring area of a semi-metropolitan city. Of roughly 300 houses in my development, 40 are officially listed on Zillow.

I can tell you who those folks are that got those loans to supposedly qualify for those mortgages, and how that implicates further up the food chain, but I won't.

This thing is going down and a heckuva lot faster than any official source is going to recognize.

Decisions for a lot of consumers coming up: do you try and keep the house or the car? Both have their pros and cons, you know.

I'm seeing a lot of for sale signs in my hood and the nominal value of the cars alone in the parking lots is what you could consider, generously, about 25% of the value of the house, and that's not an exaggeration where I am (loan started on house at 86K, 7pc loan, 12 years later owe 74K for payoff).

I'll be looking at weaponry of the personal kind soon, and I even think I missed it by about 9 months trying to deny what was happening.

Don't be anywhere near a major city in the next 3, 6, or 9 months. It's going to get ugly.

Anonymous said...

9:21 what is your zip code?

Anonymous said...

anybody read chanos'oped today?

what a scam. he states that "only" 29% of banks' total assets ($8.5trn) are marked to market and thus, repealing mk to market wouldn't do very much.

He's smoking crack. 29% of 8.5tr is ~2.5tr in securities that are probably marked at 20-40c...when they are likely worth at least 50% to 2x more than what markets are saying. That would amount to anywhere from $500bn to 2.5tr in equity that would be realized if mk to market were eased. That's the equivalent of 1-3 tarp plans.

to reiterate, this oped is just more evidence of that chanos conflicted beyond all ability to give an unqualified opinion on anything...and thus should not be listened to.

Got A Watch said...

Whine, whine, whine...I hear some 'Anonymous' morons crying like 4 year olds. Too lazy to type in a name?

Tyler, Cornelius...great Blog. Ignore these losers, and keep on keeping on.

For all you idiots who can't appreciate the free information you get on Blogs like this, and the hours they spend writing it up...get a life. You can't even state your case in readable English, which points to your IQ being a single digit number.

I appreciate the work Tyler & crew put in, having written for Blogs, and contemplated running my own. It is a lot of work, every day. Probably a concept unknown to the 'Anonymous'.

Thanks for great Blogging, and don't be dismayed by the immature. I was moved to comment for the first time, but I had meant to convey my thanks before, after reading some of the great posts here, like the 'Black Swan'.

Best wishes.

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