JasonC

Next Victim, Please!

Sorry to keep banging this post with updates, but it ought be to considered the key story of the day, and kudos to Mr. Jansen for focusing on it early.

The high rates I gave earlier are for the short term debts. Lower prices still are available for longer dated Wachovia paper, and the absolute price may be far more important than the calculated yield, either in bankruptcy or in total profit terms in the event of a full recovery.

Long date WB paper is available at 30 cents in modest size. There are many more issues at 50 or into the mid 50s with terms as short at 3 years or as long as 10.

One reason distressed bank debt is trading so poorly in the terms received by Wa Mu bond holders. Basically they will get 10 cents on the dollar on average - though senior issues could end up anywhere between 20 and 50 cents, depending on how the remnants of the JPM buyout are awarded. The FDIC let JPM take the deposit liabilities and substantially all of the assets, other than holding company cash. Even so it needed to raise $10 billion in stock to cover the write downs it is going to take on the asset side of the acquired sheet.

But the result is that much bank debt now looks like preferred stock in recover terms, the "senior" bonds looking like subordinated - because the depositor's senior position is going to be favored by regulators ruthlessly, in the event of failure.

Trade with care therefore, and eyes open.