Monday, October 22, 2007

NAV SIVs

No wonder Paulson & Co are working overtime.......

Kein Wunder das Paulson & Co momentan sehr beschäftigt sind........

FT The point of M-LEC
Since SIVs were last in the limelight, things have not improved. In fact, asset prices in SIVs have continued to slide. Take a look at this graph, published by Fitch ratings in a note to clients:

Net Asset Value, or NAV, is a measure of the amount by which the market value of a SIVs portfolio exceeds the senior debt, divided by the capital - in other words, a measure of a SIVs underlying worth after leverage.

Not only does Fitch’s graph highlight that SIV’s fortunes have steadily worsened, it also points to a growing divide. Some SIVs are in a far worse NAV situation than others. Axon Financial, managed by TPC-Axon Capital Management, has a NAV currently at 35-40 per cent. Compare to AbAcAs Investments, managed by EBI/NSM. Its net asset value (NAV) is at around 100-105 per cent.

Even if funding briefly loosened up after August, SIV NAVs are still clearly troubled.

Citi - the prime mover behind M-LEC, is a case in point. While the bank could last week declare it had funding for all its SIV CP for the next year, it couldn’t rest on its laurels: The 3 Citi SIVs Fitch rates (in total there are 7) have seen NAVs slide pretty much in line with Fitch’s graph. On September 6, Beta’s NAV was 85.3 per cent, Five’s NAV was 81.6 per cent and Sedna’s NAV was 81 per cent. One month later, on October 8, Fitch puts Beta at 75-80 per cent, Five at 70-75 per cent and Sedna at 75-80 per cent. A decline of up to 10 per cent.

>Mish is asking in Enron Accounting at Citigroup

If a fire sale of those SIVs and conduits resulted in a 25% loss, Citigroup would have net tangible assets of $25.5 billion. If a fire sale of SIVs and conduits resulted in a 41% loss in those SIVs and conduits, Citigroup would have zero net tangible assets.

M-LEC is not only about restoring confidence and making the market more transparent. It’s about restoring asset values.

> Hellasious from Sudden Debt has a related post that is also painting a very bleak picture

> Hellasious von Sudden Debt hat ebenfalls ein Post zu diesem Thema das wenig Linderung verspricht

Hat Tip Eh

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15 Comments:

Anonymous Anonymous said...

J-M,

Here is a related post.

eh

8:55 AM  
Blogger jmf said...

Have added the post

Besten Dank!

9:12 AM  
Anonymous Anonymous said...

Citibank is providing liquidity lines to Conduits. Here it is Kfw to IKB.

It appears also be providing credit enhancement and maybe some liquidity at best guess to its SIVs. It may thus be invested in these but at capital/subordinated level and for small amounts relative to asset size.

2:34 PM  
Blogger jmf said...


RBS joins Cheyne SIV rescue


A $6.6bn investment vehicle that was run by Cheyne Capital, a London hedge fund, moved a step closer to rehabilitation after RBS was granted exclusivity in talks over refinancing the troubled Cheyne Finance. No price range has been disclosed but it is highly likely that the value of the junior creditors’ notes and some part of the mezzanine creditors’ notes will be wiped out, according to those involved. A successful deal would mark the first time an entire SIV portfolio has been sold and provide hope for the other vehicles controlling more than $40bn in assets that have had their debt downgraded by ratings agencies. It would also demonstrate another possible method of avoiding a firesale of assets from the SIV sector, after the mooted plans for a super-SIV being promoted by Citi, JPMorgan and Bank of America.

9:48 PM  
Blogger jmf said...


Fed Signals Support for Paulson Plan to Help Commercial Paper


The Federal Reserve indicated it supports the plan brokered by Treasury Secretary Henry Paulson to increase liquidity in the market for asset-backed commercial paper.

The agreement reached by Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. is well-enough designed that it may help credit markets, a Fed official, who declined to be identified, said late yesterday in Washington. The plan also may help investors establish prices for complex securities that funds purchased with the proceeds of commercial-paper sales, the official said.

As long as they support it only with words......

10:08 PM  
Blogger jmf said...

via UK Housing Bubble


Subprime crisis continues - Barclays and RBS need funds


If you thought that the Bank of England's misguided rescue of Northern rock marked the end of the subprime crisis for the UK banking sector, think again. Today, the Telegraph carried a story suggesting that Barclays and RBS have negotiated a £15 billion line of credit from the US Federal Reserve. Ironically, this credit line is about the same size as the amount of cash that the Bank of England have poured into the forlorn and failing Northern Rock.

11:05 PM  
Blogger jmf said...

the take from
Naked Capitalism

12:12 AM  
Anonymous Anonymous said...

Anonymous said...

JP Morgan noted mid 2006 the following split in SIV investor base:

Money Mkt Fund.........70%
Securities Lenders......20%
Inv Mgr....................5%
Govt.......................3%

Lets assume this has stayed the same and turn holdings to $ using $375bn total.

Money Mkt Fund.......262.50
Securities Lenders.....75.00
Inv Mgr..................18.75
Govt.....................11.25

Lets do the same for geography and then for assets as given by an FT breakout from Bloomberg/Moodys.

Geography
US....................213.75
UK.....................63.75
Aus....................30.00
Ger....................15.00
Fra....................11.25
Neth....................7.50
Other..................33.75

Asset Type
Corp Financial........161.25
Mortgage Backed......86.25
CDOs...................41.25
CMBS...................22.50
Credit Cards...........18.75
Student loans..........15.00
Other ABS.............. 7.50
Other..................11.25

RegW 23A exemption amount limits

Citibank .........25bn
JP Morgan.........25bn
BofA..............25bn
Deutsche..........13bn
Barclays..........20bn
RBS.............. 10bn


Most expansive RegW and 23a exemptions stated purposes for RBS and Barclays:

... "to extend credit to market participants in need of short-term liquidity to finance their holdings of certain
residential and commercial mortgage loans and mortgage-backed securities, commercial paper and other structured products... the transactions between Affiliated Broker Dealer... and unaffiliated market participants.... will take the form of either reverse repurchase agreements or securites borrowing transactions "securities fiancing transactions"".

Other conditions:
-over-collateralised
-daily M-to-M
-daily margin maintenance
-SFT with affiliated must be accompanied by SFT with unaffiliated market participant on same terms
-collection even in case of bankcruptcy
-available for SFTs initiated while special discount window lending facility (SDWLF) is available
-For SFTs whose term exceeds SDWLF life, transactions can be held to maturity



All have public interest rationale
"public benefits.... enable Bank to provide substantial liquidity to the markets for the Assets.......Affiliated Broker-Dealer as its conduit to convey funds to market participants, the exemption would allow..... liquidity in the most rapid and cost effective manner"

Similar prior exemptions related to securities financing from Wachovia and Citibank, but the latest five, from Aug 20th on, have public interest rationale and the relationship to the SDWLF.

Note that not using them undermines the public interest rationale.

The connection to the extended discount window lending (30 days) is a Fed backstop allowing collateral to be liquefied though with quite big haircuts (http://www.frbdiscountwindow.org/discountmargins.pdf)

__________(% of Mkt Price)____% Par/Bal

Duration........<5...5-10..>10

ABS- AAA
incl CLO/CDO___98%..96%..93%____85%
ABS- non AAA
ex CLO/CDO)___97%..95%..92%____80%

CMBS- AAA_____97%..95%..92%____80%

MBS incl agcy
/priv lbl_______98%..96%..93%____90%

CMOs- AAA incl
agcy/priv lbl___97%..95%..92%____80%


More important perhaps is the allowance to hold transactions in this case reverse repos or securities lending to maturity if SDWLF expires gives some incentive to extend maturity.

So we have 118bn of potential loans to Broker Dealers secured by various securites and backstopped by the Fed discount window coming into/ready to come into the markets since Aug 20th or so.

2:42 AM  
Blogger jmf said...

Thanks Anon!

Even if the Fed is not adding direct liquidity (monetary base) they are doing lots of action behind the curtain.

The moral hazard issue will hopefully haunt them at some point.

Got gold..... :-)


Merrill’s peril? Rumours fly ahead of Q3 figures


Did you hear? $12bn?

The rumour flew round the London market on Tuesday morning that Merrill, poised to reveal its third quarter numbers in full, was going to have a larger-than-flagged charge on troubled investments.

The nasty figure in question was $12bn - significantly higher than the $5bn write-down the Wall Street bank warned it was facing earlier this month, a hit that meant it would post a loss for the quarter. That charge was the result of the reduced value of CDOs, subprime mortgages and leveraged finance commitments held on its balance sheet.

The New York Post reports that the whispers started in the US on Friday, among CDO traders and portfolio managers - but does not name a figure being bandied around. Part of the fuel for this fire was the notion that a special board meeting had been called to discuss the matter.

But adds the Post:

In reality, the board’s get-together was a regularly scheduled meeting. But the losses - at least into the first three weeks of the quarter - appear to be real enough.

The bulk, $4.5bn, of the announced losses were in subprime mortgage and CDO securities. The continued deterioration in that market over the past few weeks has, in the words of a Merrill executive, “kept the blood on the page,” says the Post story.

It would be quite some case of haemophilia to have kept Merrill bleeding to the extent that the London rumour mill would have you believe.

But the banks’, including Merrill benefited from a relief rally earlier in the month when their losses on subprime-related securities and leverage loans weren’t as bad as investors feared. Will the not-as-bad news turn out to be merely one step on the way to the worst news?

3:38 AM  
Anonymous Anonymous said...

A fly on the wall.

eh

4:50 AM  
Blogger jmf said...

Moin Eh,

:-)!

Have you heard that Dresdner will maybe participate in the SIV bailout.....

Maybe they won´t put the reputation of Pimco in the line of fire so Allianz has decided to let Dresdner go for it.

There is nothing left to lose..... I assume they will soon be named Allianz Bank


Dresdner prüft Engagement bei Rettungsfonds


Die Dresdner Bank zieht ein Engagement bei dem milliardenschweren US-Rettungsfonds für außerbilanzielle Zweckgesellschaften in Betracht. „Wir sind von den Initiatoren angesprochen worden, wir prüfen das jetzt“, sagte ein Sprecher der Allianz-Tochter am Rande der IWF-Jahrestagung in Washington. Sollten die Frankfurter sich für eine Beteiligung entscheiden, wäre dies ein Signal für die Branche. Bislang sind nur US-Häuser engagiert, gerade aus Deutschland war die Haltung bislang eher ablehnend.

5:04 AM  
Anonymous Anonymous said...

J-M,

Nein, das habe ich nicht gewusst.

But it is no surprise; es ist nur sinvioll that, given what will likely happen in the future (see my comment on the Sudden Debt post/site) as these assets degrade (a likely scenario), that the people planning this M-LEC would try to get as many players as possible to invest in it, i.e. to spread the coming losses around. Who knows what is being promised behind the scenes.

They will probably manage to put something together.

The public is largely ignorant of what is going on.

eh

5:58 AM  
Blogger jmf said...

Moin Eh,

"Who knows what is being promised behind the scenes."

If you look at the latest action i assume a lot.....

Looks like the N100 will hit a new high today.....

6:09 AM  
Blogger jmf said...


Richmond Fed Oct Manufacturing Index -5 Vs Sep 14


NEW YORK (Dow Jones)--Economic activity in the Richmond region was mixed during October.

The Federal Reserve Bank of Richmond said Tuesday that its manufacturing index for the current month moved to -5, from 14 in September. The shipments index was -5, from 22 the prior month. Numbers above zero point to growth.

Meanwhile, in the service sector, the service sector revenues index was 4, from -9 in September, while the retail sales index hit -11, from -7.

9:09 AM  
Blogger jmf said...


Charts & More Details Manufacturing Conditions Survey

9:10 AM  

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