Russ Krull

GMAC's Deal with Sheila Bair

My thought would be many bond holders of GM and Chrysler probably relied on gov't support for safety.


On Oct 29 02:07 PM user396040 wrote:

> Anyone have any thoughts on GMAC bonds - they are still selling at
> a big discount and have a huge yield. Is there a case to be made
> that the government will simply not let GMAC go under and that therefore
> the bonds are underpriced? I try to be non-ideological when I have
> my investor's hat on, so I am more interested in whether it is safe
> to rely on the government support of GMAC as opposed to the philosophical
> (and admittedly interesting) question of whether government support
> of GMAC is a good idea from a public policy perspective.

Wells Fargo Earnings: First Leak in the Dam?

Actually, earnings were boosted by gains on mortgage servicing hedges (+$3.6B). What Mr. Bove didn't say is that the gains on the hedges were partially countered by MSR losses (-$2.1B). In other words, Wells' hedge did exactly what it was supposed to do.

WFC loan losses have been accelerating, but so has the loss reserve build. One bright spot - loans 90 days past due but still accruing decreased qtr over qtr. Time will tell if that actually leads to a reduction in losses.

There are serious issues with bank balance sheets and I don't think the current share prices reflect all those risks. But not all the news is doom and gloom.

Long WFC, but underweight.

Six Double Digit Dividend Stocks Increasing Their Yields

Hatteras invests in gov't backed mortgage securities, so there's about as close to zero default risk as you can get. They leverage the portfolio, borrowing short term and buying adjustable securities. The rate adjustments on the assets are typically longer term than the borrowing, so an upturn in short rates would be a problem for them.
As long as the fed keeps short rates near zero, HTS business model will generate healthy cash flows.

No position in HTS. It's just one of those stocks I wish I'd bought when I first learned about it and it was a lot cheaper.


On Sep 25 09:38 AM Senan wrote:

> The top 2 are property related outfits. How in the current climate
> are they increasing dividends? If they do have extra cash, would
> it not be better employed reducing debt. Maybe they have no debt
> I don't know...I;ll have to dig deeper...

Citigroup Makes a Good Move: Preparing to Buy Out Uncle Sam

Linus,
The WSJ article isn't very clear whether proceeds from the prospective share issue would be used to purchase UST's common stock or the remaining preferred. This statement "Citigroup could use proceeds from a stock sale to redeem some of the preferred stock the Treasury is holding" indicates new capital would be used to retire preferred stock.

If the plan is to have UST divest some of the C common, wouldn't it be a lot simpler for Treasury to just auction the common rather than have C issue shares, then turn around and buy shares from Treasury? Same result, but fewer transactions.

Nice summary of a poorly written WSJ article.

Bank of America Should Pay Back the 5 Percent TARP Shares First

Two points:

1. Lewis has been saying he wants to pay back TARP for several months. All those statements lack a key piece of information - where is he going to get the money to do it? The WSJ report missed that little detail as well. I'll believe BAC is buying back TARP preferred when they cut the check.

2. Did your analysis consider that the rate on the 5% preferred jumps to 9% in four more years? If BAC can't start paying back for another year or so and has to pay the shares back gradually out of earnings (likely), the taxpayer could be better off if they pay the 8% preferred (with no rate jump) back first.

Bankslaughter

"With bankslaughter, when the bank blows up – even if it is a decade later – a criminal investigation traces back to determine whether crucial decisions were reckless."

Sorry, this is a horrible idea.
How would you like to make business decisions knowing that you could be charged with a crime based on future standards and knowledge that are unknowns at the time you make the decision?
I see no problem with some kind of criminal banking (or any other business) malpractice. But, it needs to be something where people know the rules at the time they're making decisions. Not based on some future, unknown standard of practice.

Progress on Auctioning TARP Warrants

"Treasury is already looking for outside experts to help run the auctions."

Package the warrants in 100 share lots and auction them on TreasuryDirect. If they can't do that, E-bay.

Auction the Warrants: Follow-Up

While the purchase agreements between Treasury and the banks do spell out a process for valuing the warrants, I haven't found anything that precludes Treasury from selling at least half the warrants anytime they want.

One key provision that's been missed in some evaluations of the warrants is that banks can eliminate half the warrants by raising capital at least equal to the preferred stock purchase amount.

Even in the case of a bank that hasn't finished raising that much capital, Treasury is in a weak negotiating position for the second half of the warrants. All a bank would need to do is buy back half, issue shares to meet the capital raising threshold, then do a stock repurchase so they reverse the stock dilution. Treasury could be faced with a choice between accepting a nominal offer for half the warrant or getting nothing for it.

If a TARPed bank hasn't raised capital by the end of 2009, Treasury gets the full warrant. Until then, Treasury only has clear rights to half the shares in the warrants.

Auction the TARP Warrants and Everyone Wins

The securities purchase agreements include a provision that eliminates half the shares in the warrants if the banks raise private capital equal or greater to the TARP investment prior to the end of 2009, so the gov't could only auction half the warrants before that.

I'd recommend selling the warrants in an open auction through TreasuryDirect with minimum lot sizes small enough to let everyone in on the bidding process. If they can't do that, put 'em on E-bay.
caps.fool.com/Blogs/Vi...

Warrant Sales Could Cost U.S. $10B

"The alternative, suggested by Wilson and others, would be for Treasury to auction off the warrants; if the bids were too low, it could create a trust,"

Why even mess with a trust? Just auction off the warrants. Saves Treasury from having to do or pay for a valuation determining a floor price or going through whatever hoops would be required for the gov't to create a trust. If the bids were too low it would imply that whoever determined the floor price got it wrong.

Wells Fargo Is Broke: Poor Forecasting Slays Another Giant

Care to clarify how pointing out that the author ignored the capital raise makes me a hack?


On May 12 10:18 AM BSexposer wrote:

> "You seem to be forgetting the $8.6 billion WFC just raised in an
> equity offering."
>
> LOL - yet another HACK on Seeking Alpha. What a surprise.

Wells Fargo Is Broke: Poor Forecasting Slays Another Giant

"On that day they will no doubt continue to state that they will come up with an additional $13.7 billion through earnings."

You seem to be forgetting the $8.6 billion WFC just raised in an equity offering. The remaining $5.1 billion through earnings should be a piece of cake with borrowing costs near zero. The FT article said they would fill the gap with earnings - it didn't say they would fill the entire gap with earnings.

Wells Fargo Earnings: What's Real, What's Not?

"..so, let's split the difference and say it is 53% of $95 billion. That is roughly $50 billion"

I don't believe you can apply the default rate directly to the value of the loans to get a write-off value. Even in default, a mortgage is worth more than zero since the property securing the loan has some value.

Lets assume the average defaulted loan balance is 150% of the underlying property value. That puts the average loss on a loan default at 1/3 of the asset value. That would put the loan losses from your 53% default rate at $16.8 billion.

Disclosure - long WFC.

GE Dilution Questioned

BS Detector - You are correct, I need to get coffee before posting. GE gets $3 billion now from Buffett for the preferred, $3 billion from Buffett if and when he chooses to exercise the warrants and $12 billion from the secondary when it closes.

GE Dilution Questioned

Good question Gary.
Assuming this deal was insurance against the short term credit paper market locking up, time would have been a critical factor. The Buffett deal puts $3 billion in hand immediately and another $3 billion on tap from the warrants with a phone call to Omaha.