tag:blogger.com,1999:blog-4863014635257598503.post2858261045683500238..comments2024-02-27T22:18:53.706-05:00Comments on Zero Hedge: Moody's Says Bank Bondholders Will Not Suffer HaircutsTyler Durdenhttp://www.blogger.com/profile/00165439451205639523noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-4863014635257598503.post-70567765434175784072009-03-17T13:17:00.000-04:002009-03-17T13:17:00.000-04:00"The US banks that we believe benefit from very hi..."The US banks that we believe benefit from very high systemic support are the Bank of America, Bank of New York, Citigroup, JPMorgan Chase, and Wells Fargo; for these institutions, we see the likelihood of senior or senior subordinated creditors taking losses as being very modest."<BR/><BR/>Although I see your point, I'm going to go with Moody's on this as a political prediction.<BR/><BR/>Don the libertarian DemocratDonald Pretarihttps://www.blogger.com/profile/14493535232127084725noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-23524591035295399492009-03-17T12:11:00.000-04:002009-03-17T12:11:00.000-04:00contracts and liens are the most difficult to modi...contracts and liens are the most difficult to modify in bankruptcy. for a contract to be reneged, things would need to get very ugly... although let's not forget lehman bonds which were 80 pre filing and 10 3 days post... another reason why nobody obviously mark anything even remotely close to marketTyler Durdenhttps://www.blogger.com/profile/00165439451205639523noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-79016970781304073992009-03-17T11:40:00.000-04:002009-03-17T11:40:00.000-04:00Got a question. If I have a contract with one of ...Got a question. If I have a contract with one of these banks (e.g. Citi or BofA) to receive a commodity every month for the next few years, what's the risk that they default on the contract? The contract is with the commodity arm of the bank and fully guaranteed by the parent bank. <BR/><BR/>I'd think that this sort of obligation is even more robust than a senior bond, as there is no way to force the commodity obligation into a lower part of the capital structure.<BR/><BR/>Any thoughts on this?Alexhttps://www.blogger.com/profile/10442314108707869527noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-40321732575181942222009-03-17T09:13:00.000-04:002009-03-17T09:13:00.000-04:00Bank bondholders need to take haircut, probably fr...Bank bondholders need to take haircut, probably from being forced to exchange their bonds for equity in the banks. But, if governments force this equitization, then a default event occurs and all the off-balance sheet CDS's written on those bonds become payable. <BR/><BR/>What if: To reduce to a more manageable level, the net proceeds of these CDS payouts due CDS holders, governments, collaborating worldwide, enact (say) a 90% tax on proceeds of CDS's to holders without an insurable interest. (see Willem Buitner's column "Should you be able to sell what you do not own? at http://blogs.ft.com/maverecon/ ). Then the various governments' share of CDS proceeds could simply be forfeited and left with the payor/obligor. It seems this would mitigate the panic from a forced equitization of bank bonds...J.D. Swampfoxhttps://www.blogger.com/profile/10044980047704299815noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-65504639570872219532009-03-17T08:11:00.000-04:002009-03-17T08:11:00.000-04:00I'm not sure what the relevance of sub debt holder...I'm not sure what the relevance of sub debt holders views is to the likelihood of senior debt holders being paid off. Nobody expects sub debt holders to be paid off in a worst case scenario, bailout or no. The whole point is that they're subordinated. Conversely, governments all over the world have gone to enormous lengths to indicate they will not let senior bondholders of systemically important firms take any credit losses. Now, they may not be able to follow through on that (think Iceland) but the argument is hardly Moody's alone.Ginger Yellowhttps://www.blogger.com/profile/06103410278129312943noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-20681672676377312542009-03-16T23:13:00.000-04:002009-03-16T23:13:00.000-04:00In May, Moody's also said that the government woul...In May, Moody's also said that the government wouldn't let any major CDS dealer (including Lehman) fail. From the <A HREF="http://www.moodys.com/moodys/cust/research/MDCdocs/27/2007100000502470.pdf" REL="nofollow">May 2008 report</A>:<BR/><BR/>"The more important the function played by an institution, the more likely it is to be considered by regulators to be 'too big to fail' or 'too complex to unwind'. <B>Thus, a systemically important institution would be more likely to trigger intervention from the regulatory authorities</B> to prevent a disorderly liquidation that may imperil the broader financial system. <B>Indeed, this is what happened with Bear Stearns</B>, when the Federal Reserve and JPMorgan Chase stepped in to save it from collapsing.<BR/><BR/>"The largest CDS dealers are highly rated securities firms and banks, which play systemically important roles in the efficient functioning of the financial markets. ... <B>In Moody’s opinion, the systemic importance of these firms [which included Lehman] therefore provides meaningful incentives to regulatory authorities to prevent such firms’ disorderly failure</B>, given the disruptive effect this would likely have on the derivatives market."<BR/><BR/>Moody's = garbage. End of story.Economics of Contempthttps://www.blogger.com/profile/17251622598490403638noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-22161022510684169352009-03-16T23:03:00.000-04:002009-03-16T23:03:00.000-04:00Moody's can't be wrong all the time (as much as th...Moody's can't be wrong all the time (as much as they try.) It is probably a fluke but I think they are correct in this instance, though their reasoning is flawed.<BR/><BR/>Give it up on the toxic assets. They are just like the Weapons of Mass Destruction we spent so many months searching for. The way you and Yves go on about them, you would think that they were 120% of bank assets.<BR/><BR/>There are assets that are marked down and assets that are non-performing but the current level of those are manageable. The problems that banks need to worry about is the assets that are currently performing but about to go bad especially Commercial Real Estate mortgages and Credit Card receivables.<BR/><BR/>The question is whether they can gouge their good customers enough to pay for all their bad customers. I personally have faith in the ability of banks to gouge their customers (having experienced it myself.)Advant Guardhttps://www.blogger.com/profile/13724697741711826082noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-23796779822723030932009-03-16T22:56:00.000-04:002009-03-16T22:56:00.000-04:00the way it would work is a portion of holders woul...the way it would work is a portion of holders would be "incented" to convert into a lower class of securities, the same way the public preferred got "preferrential" terms to convert to common. It is not a default as there has not been a trigger bankruptcy event. the co continues paying interest on the non-converting piece of sub/sr debtUnknownhttps://www.blogger.com/profile/01592959189260074109noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-87040190207437871352009-03-16T22:52:00.000-04:002009-03-16T22:52:00.000-04:00OK, so you are a senior bondholder and the governm...OK, so you are a senior bondholder and the government decides to give you a haricut of some sort. Can't you then legally put the company into liquidiation? The new owner (the government) isn't paying their obligations... that's bankruptcy right? <BR/><BR/>Well if the one thing the gov't wants to avoid is pushing the "systemically important" into bankruptcy, then why would the give SENIOR bondholders a haircut?<BR/><BR/>Please point out where I'm wrong.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-40333236231125087682009-03-16T21:59:00.000-04:002009-03-16T21:59:00.000-04:00not at all. the government has been trying ALL ALO...not at all. the government has been trying ALL ALONG to find loopholes to buy toxic assets (or rather for banks to sell assets) at way above market prices. that is the only way for equity capital to be worth something above the debt. As Yves points out this was the thought behind MLEC, TARP and now TALF...even MTM suspension is essentially a way to short circuit price discovery and find greater fools to buy BBB rated CMBS (for example) at 80 cents when it barely trades at 35. the public is now on to this rouse which is why the admin has taken to looking at the liabilities side of the equation: you can only adjust two things: equity (i.e. issue more stock and dilute) or reduce debt (equitize). the last is exactly what Citi was and I believe (until proven otherwise) this is how the gov't will continue to try to allign assets with liabilities + equityTyler Durdenhttps://www.blogger.com/profile/00165439451205639523noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-13948222767306184772009-03-16T21:48:00.000-04:002009-03-16T21:48:00.000-04:00what are the odds that Sean lives to regret that l...what are the odds that Sean lives to regret that letter............Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-80033796550400715132009-03-16T21:43:00.000-04:002009-03-16T21:43:00.000-04:00Tyler, isn't Yves post just the opposite of your s...Tyler, isn't Yves post just the opposite of your stated position, that the Treasury will in fact arrange for above-market purchaes?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-84087548868802551872009-03-16T20:04:00.001-04:002009-03-16T20:04:00.001-04:00beyond beliefso the govt actually has the ability ...beyond belief<BR/><BR/>so the govt actually has the ability to make good in case of a credit event at one of these institutions?!<BR/><BR/>i recommend you take a look at lehman's recovery values for a reality checkjmkhttps://www.blogger.com/profile/08026380591216200871noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-24220090303003263582009-03-16T20:04:00.000-04:002009-03-16T20:04:00.000-04:00beyond beliefso the govt actually has the ability ...beyond belief<BR/><BR/>so the govt actually has the ability to make good in case of a credit event at one of these institutions?!<BR/><BR/>i recommend you take a look at lehman's recovery values for a reality checkjmkhttps://www.blogger.com/profile/08026380591216200871noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-90235386298383741602009-03-16T19:40:00.000-04:002009-03-16T19:40:00.000-04:00IF Moody's is right (and I dont believe they are) ...IF Moody's is right (and I dont believe they are) there are SCREAMING buys in the middle of the capital structure of these banks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-44447224427149430292009-03-16T19:33:00.000-04:002009-03-16T19:33:00.000-04:00yves has a good post on the issue today:http://www...yves has a good post on the issue today:<BR/><BR/>http://www.nakedcapitalism.com/2009/03/now-its-official-public-private.html<BR/><BR/>also, i have written on the topic in a variety of posts here just dont remember which ones.Tyler Durdenhttps://www.blogger.com/profile/00165439451205639523noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-18919426927574676862009-03-16T19:27:00.000-04:002009-03-16T19:27:00.000-04:00Tyler, why do you believe the government won't mak...Tyler, why do you believe the government won't make (or rather incentivize others to make) "above-market asset purchases"? I thought that is the whole point of the PPIF. I am not trying to sound ironic or sarcastic. I would really like to know why you don't beleive that is treasury's true intent. Thanks for any response.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-67803708579327221892009-03-16T19:06:00.000-04:002009-03-16T19:06:00.000-04:00Business as usual. (link to Primus press release)...<A HREF="http://easyir.marketwire.com/easyir/prssrel.do?easyirid=D12A8EA726C432AF&version=live&prid=482496" REL="nofollow">Business as usual.</A> <BR/>(link to Primus press release)Anonymousnoreply@blogger.com