Thursday, March 01, 2007

sears fineprint / swap losses

looks like eddie´s transformation from sears to a second "berkshire/buffet" has taken a hit....... too bad that the core business is also weak..... here is a former take on shld

eddie lampert wird im allgemeinen als der zweite buffet bezeichnet. dieses quartal hat es nicht so ganz hingehauen. blöderweise kommt hier noch das schwächelnde kerngeschäft hinzu. man könnte die situation am ehesten damit vergleichen das karstadt/middelhof plötzlich massiv in derivaten spekulieren würden. kling unglaublich? ´sears und eddie sind der lebende gegenbeweis......

Total return swap income (loss) (27 mio$) vs 0$ in 06. (full year 06 74 mio$ plus)

The Company, from time to time, invests its surplus cash in various securities and financial instruments, including total return swaps, which are derivative contracts that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities.

In exchange for receiving the return tied to the position underlying a total return swap, the Company pays a floating rate of interest tied to LIBOR on the notional amount of the contract. The fair value of a total return swap is based on the quoted market price of the underlying position and changes in fair value of the total return swaps are recognized currently in earnings.

During fiscal 2006, the Company entered into total return swaps and recognized $74 million of pre-tax investment income.

At February 3, 2007, the total return swaps had an aggregate notional amount of $375 million and a fair value of $5 million.

These investments are highly concentrated and involve substantial risks. Accordingly, the Company's financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the timing, magnitude and performance of these investments

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