tag:blogger.com,1999:blog-4863014635257598503.post8470264351826018173..comments2024-02-27T22:18:53.706-05:00Comments on Zero Hedge: On The Worthless Equity Value Of BanksTyler Durdenhttp://www.blogger.com/profile/00165439451205639523noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-4863014635257598503.post-86109622646283036242009-03-13T08:10:00.000-04:002009-03-13T08:10:00.000-04:00Anon at 9:02, to find any debt security, the best ...Anon at 9:02, to find any debt security, the best route is to run a search through a Bloomberg terminal with the criteria you've set. If you don't have access to a Bloomberg, you can probably do an OK search by going to the NASD's TRACE public website. After you find the issues you need, then call your broker to locate the bonds if he dosen't already have them.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-89562172630301445342009-03-12T21:02:00.000-04:002009-03-12T21:02:00.000-04:00I've only dabbled in debt securities via the NYSE ...I've only dabbled in debt securities via the NYSE (Comcast CCW, for example). Is this the method others are using as well? Or is there some other way to buy either senior or subordinate debt?<BR/><BR/>This area of +10% yields definitely has my interest, and thanks to the posts. They've definitely added some new perspectives.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-55041234052539549992009-03-12T15:14:00.000-04:002009-03-12T15:14:00.000-04:00While not a good sign, it is technically not true ...While not a good sign, it is technically not true that these prices imply that the equity and pref are worthless.<BR/><BR/>Assuming that the price of the debt only reflects the risk neutral assessment of expected loss (i.e credit risk ) and not things such as funding, liquidity, volatility, interest rates, etc. once has to remember that expected loss equals probability of default times the severity of the loss given default.<BR/><BR/>It is possible that the price represents a high probability of a default with a (relatively) low loss (in which case the equity is most likely worthless) or a low probability of default with a high loss, in which case the equity does have value.<BR/><BR/>I'm betting on the former, but felt the need to be pedantic.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-11295555422811801802009-03-12T09:33:00.000-04:002009-03-12T09:33:00.000-04:00xtreeter: I think I agree with your statement th...xtreeter: I think I agree with your statement that if a bank were to skip a coupon on sub, that it would be catastrophic for the continuing operations of the bank. <BR/><BR/>That said, what is the point then of issuing sub-debt??? It seems the only value to the bank is that you can issue sub-debt without hurting your senior credit rating much. So...banks issue bonds at higher yields because of flawed ratings agency assumptions. <BR/><BR/>Have any banks other than DB extended rather than called any sub-debt? (After DB didn't call their LT2 bonds, their equity got pounded.)Alexhttps://www.blogger.com/profile/10442314108707869527noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-33438242928991724132009-03-12T04:45:00.000-04:002009-03-12T04:45:00.000-04:00I am betting that to distinguish unsecured senior ...I am betting that to distinguish unsecured senior from sub debt is a moot point (at least prior to bankruptcy). <BR/><BR/>A)A bankruptcy filing for Citi and the likes will not be allowed to happen. <BR/><BR/>B)To miss a coupon payment on the sub, although technically possible, but is in really impossible. Since such actions will no doubt lead to Citi's trading partners/counter parties/customers loosing faith and abandoning Citi all at once, forcing a bankruptcy filing.<BR/><BR/>disclosure: I recently took a long positions in Citi's Sub with cost is the 50's.xtreeterhttps://www.blogger.com/profile/06047600095541560926noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-43961911308734979832009-03-11T22:51:00.000-04:002009-03-11T22:51:00.000-04:00Advant: i would say that asset managers are too ar...Advant: i would say that asset managers are too arrogant to care about what blogs have to say, but care about capital preservations. claiming they are hysteric is itself hysteric. As for the voluntary conversion, anyone who opted out would be stuck with a preferred that would be stripped of all benefits (dividend, structural seniority) effectively putting them below the common. If you really think it was "voluntary" i have some share of citi for sale.Tyler Durdenhttps://www.blogger.com/profile/00165439451205639523noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-91701776149203746292009-03-11T20:57:00.000-04:002009-03-11T20:57:00.000-04:001. "Among others, PIMCO has been loading up on it....1. "Among others, PIMCO has been loading up on it." - Because BG expects the government to make sure senior bondholders don't lose, and perhaps get taken out at par?<BR/><BR/>2. "why would senior bonds take a hit?" - because market believes that these banks are worth way less than even the face amount of their senior debt? And this assumption may well be correct imho.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-52282988343330471982009-03-11T20:36:00.000-04:002009-03-11T20:36:00.000-04:00why would senior bonds take a hit?why would senior bonds take a hit?babar ganeshhttps://www.blogger.com/profile/01898299856773302141noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-88232961254476537162009-03-11T20:13:00.000-04:002009-03-11T20:13:00.000-04:00So do the bond holders have any information that i...So do the bond holders have any information that is not public? Or are they just paying attention to the multitude of bloggers who claim to know of trillions of dollars of losses at banks without any factual basis? The fact that the bonds are trading where they are, is only proof of hysteria, not any indication of actual losses at this bank or any other. <BR/><BR/>As for the conversion from preferred to common, if you check your notes it was completely voluntary, which is why Citibank approached the government to add a sweetener of government participation.Advant Guardhttps://www.blogger.com/profile/13724697741711826082noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-44124219060351148512009-03-11T19:44:00.000-04:002009-03-11T19:44:00.000-04:00I think you are mixing up the arguments for bank d...I think you are mixing up the arguments for bank debt. The Barclays analyst is saying the SENIOR bonds are cheap, not the SUB. <BR/>Can't a bank miss or delay payments of the coupons of Sub debt without "defaulting?" I thought this was the point of Sub debt...to give banks equity-like capital. <BR/>However, taking a haircut on senior debt = bankruptcy. A SENIOR bondholder who is not paid could FORCE a company into liquidation, thereby totally wiping out the tranches below him. No?Alexhttps://www.blogger.com/profile/10442314108707869527noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-58409315184546450152009-03-11T18:45:00.000-04:002009-03-11T18:45:00.000-04:00"Since most bank debt is held by insurers and fore..."Since most bank debt is held by insurers and foreign investors, and only a small portfio is owned by mutual funds"<BR/><BR/>Having looked into several domestic insurance portfolio and some of the biggest fixed income mutual funds, I can tell you this debt is VERY widely held domestically. I see the assertion in the BBG article, but it is bogus. Among others, PIMCO has been loading up on it.Andrew Hoferhttps://www.blogger.com/profile/02270207403412720789noreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-9715967030180527852009-03-11T17:28:00.000-04:002009-03-11T17:28:00.000-04:00And only a fool would bet on the equity market ove...And only a fool would bet on the equity market over the bond market. It's astounding that anyone is buying the common in these names knowing what is coming down the line for them....Behind door #1 we have massive unmitigated shareholder diluton! And behind door #2 we have an eventual government takeover!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4863014635257598503.post-8213719398946942082009-03-11T17:19:00.000-04:002009-03-11T17:19:00.000-04:00So, is this going to lead to more fireworks in the...So, is this going to lead to more fireworks in the coming weeks?Jameshttps://www.blogger.com/profile/12183085827525696523noreply@blogger.com