| From: - with a K | 11/1/2007 11:57:30 AM | | | | | | Setting fundamentals aside for a moment, RDN looks to me like panic selling. There's a lot of emotion in the chart, the "get out at any price" kind of selling. There's 20 straight weeks of selling. Fund managers won't want to have to report holding RDN or anything else within a whiff of the mortgage problems. Surely a lot of weak hands are being shaken out. Surely there's some crowd following here, everyone headed for the exits at the same time. Wall Street NEVER does that and they're ALWAYS right, right? ;>)
Perhaps this is the final selling capitulation, or maybe it will dribble down further. But RDN is down some 75% for the year.
Given time, "this too shall pass."
Five year weekly chart - Ugly or Opportunity?
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| To: - with a K who wrote (28772) | 11/1/2007 12:23:04 PM | | From: Madharry | | | | | technicals aside there was a good column about rdn in barrons which made me consider it a good spec. and i too stress the word spec. I may average into rdn though. i like ccrt and dfs also. i also hold a bunch of uranium stocks which seem to be waking up amid uuu and cameco's problems, so no reason to let go of them. |
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| To: rllee who wrote (28774) | 11/1/2007 4:27:50 PM | | From: Madharry | | | | | my buy on rdn was reversed for technical reasons. i think that one must be careful about what is a loss for financial purposes and what is a loss for tax purposes. you could be right. i didnt listen to the conference call in its entirety. Having had the experience of losing a bucket full of money on RAS despite listening to conference calls. i will say that ras didnt go out of their way to say that they had extended credit to mortgage lenders. they lumped it into the category of loans to builders. So despite all the fancy diagrams it was difficult for me and many of the questioners to come way with a feeling of confidence after the presentation . one of the answers that stuck in my craw was that they were rated AA by the rating agencies and they would not be rated so highly unless the agencies were confident in their ability to survive a severe downturn. Im thinking where have I heard that before? given the hits the financials are taking today, im not rushing in to scoop up any more bargains til december, and i continue to hold spy and xlf puts to protect part of my portfolio. |
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| To: Paul Senior who wrote (28372) | 11/2/2007 12:56:09 AM | | From: Spekulatius | | | | | Bought back into EBAY today - the stock is more than 4$ down since i sold. Financials are looking ugly today. I still own some C - Ouch! did some very nice swingtrades with WF recently, which helps offset those losses. i have limited my exposure to financials quite a bit which helps quite a bit on days like today. |
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| To: Spekulatius who wrote (28776) | 11/2/2007 1:35:08 AM | | From: Paul Senior | | | | Not sure what I'll do with my stub WF position.
finance.yahoo.com
Company announced exposure and loss with USA CDO and subprime loans. According to the WSJ, "Woori Bank was among major clients of Merrill Lynch & Co., which had aggressively expanded in the CDO business."
The size of today's announcement MAY indicate that WF's writedowns of these USA entities might be complete.
Aside: Of course I don't know what's involved with all the MER and WF deals, but my guess is if these Koreans are smart and/or disgusted with their being suckered into making these CDO bets, in future, they won't be so quick to be dealing with Merrill Lynch salesmen. |
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| To: Paul Senior who wrote (28777) | 11/2/2007 6:02:00 AM | | From: Madharry | | | | from wsj online:
Deals With Hedge Funds
May Be Helping Merrill
Delay Mortgage Losses
By SUSAN PULLIAM
November 2, 2007; Page A1
Merrill Lynch & Co., in a bid to slash its exposure to risky mortgage-backed securities, has engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses, people close to the situation said.
The transactions are among the issues likely to be examined by the Securities and Exchange Commission. The SEC is looking into how the Wall Street firm has been valuing, or "marking," its mortgage securities and how it has disclosed its positions to investors, a person familiar with the probe said. Regulators are scrutinizing whether Merrill knew its mortgage-related problem was bigger than what it indicated to investors throughout the summer.
SCRAMBLING BULL
• The Issue: Merrill Lynch & Co. has been off-loading some of its mortgage-related assets to hedge funds as part of an effort to cap its exposures.
• Backdrop: Merrill's mortgage assets fueled a $7.9 billion third-quarter write-down, leading to the forced retirement on Tuesday of Chief Executive Stan O'Neal.
• Regulatory Question: Did some of Merrill's recent mortgage asset sales effectively postpone the reckoning for some write-downs?In one deal, a hedge fund bought $1 billion in commercial paper issued by a Merrill-related entity containing mortgages, a person close to the situation said. In exchange, the hedge fund had the right to sell back the commercial paper to Merrill itself after one year for a guaranteed minimum return, this person said.
While the Merrill-related entity's assets and liabilities weren't on Merrill's own balance sheet, Merrill might have been required to take a write-down if the entity was unable to sell the commercial paper to other investors and suffered losses, the person said. The deal delayed that risk for a year, the person said.
In a statement, a Merrill Lynch spokeswoman said, "We don't comment on specific transactions and we are confident in the appropriateness of our marks."
At issue with any hedge-fund deals is whether there was an attempt by Merrill to sweep problems under the rug through private transactions kept out of view from investors. Some previous scandals, such as the collapse of Enron Corp. and the troubles of Japan's financial system in the 1990s, involved efforts to hide problems through off-balance-sheet transactions.
Ground Zero
Merrill has become ground zero of mortgage problems in the U.S. Last week, the firm announced a $7.9 billion write-down fueled by mortgage-related problems -- one of the largest known Wall Street losses in history -- after projecting just a few weeks earlier that the write-down would be $4.5 billion. Merrill also took a $463 million write-down, net of fees, for deal-related lending commitments, bringing the firm's total third-quarter write-down to $8.4 billion.
A few days after the announcement, it ousted Stan O'Neal, its chief executive. Some analysts and others say they expect Merrill to take additional write-downs of roughly $4 billion in the fourth quarter.
The rapid widening of Merrill's losses has led investors to wonder whether other banks and brokerages have a good grasp of their exposure to bad debt. Bank shares fell sharply yesterday, contributing to a 2.6% fall in the Dow Jones Industrial Average. Merrill's shares fell $3.83, or 5.8%, to $62.19 in 4 p.m. trading on the New York Stock Exchange.
Merrill's deals have attracted the interest of some mortgage investors and specialists.
Making the Rounds
"Merrill has been making the rounds asking hedge funds to engage in one-year off-balance-sheet credit facilities," Janet Tavakoli, who consults for investors about derivatives, told clients in a recent note. "One fund claimed that Merrill was offering a floor return (set buy-back price)," she said in the note, "so this risk would return to Merrill." Ms. Tavakoli said such transactions would explain how Merrill's mortgage-related exposure dropped in the third quarter.
In recent weeks, Merrill has been scrambling to line up hedge funds to take as much as $5 billion in mortgage-related securities, people close to the situation said, part of what Merrill executives refer to as a "mitigation strategy." Under the strategy, which started earlier this year, Merrill has tried several means of lowering the risk of its exposure to mortgage-backed securities, these people say.
In accounting for such transactions, "the general guiding principle is whether the benefits and risks of ownership were transferred," says Charles Niemeier, former chief accountant for the SEC's enforcement division and now a director of the Public Company Accounting Oversight Board. Legal questions can arise if the seller retains some exposure to the risk of the assets losing value, and if the deal is designed to disguise the picture of a business's financial health.
FROM THE ARCHIVE
• U.S. Investors Face an Age of Murky Pricing
10/12/07Jay Gould, a securities lawyer at Pillsbury Winthrop Shaw Pittman LLP, says if a firm is unloading securities from its books "without a real commercial purpose other than to create a value for pricing purposes, that can be a problem."
Other big securities firms with mortgage-related losses have arranged similar deals with hedge funds. As disclosed in a recent page-one article in The Wall Street Journal, Bear Stearns Cos. sold $1 billion of risky mortgage loans to a hedge fund under a one-year pact known as a "mandatory auction call." Bear Stearns agreed to participate in an auction for the loans that provided the hedge fund with a guaranteed minimum return.
Three big U.S. banks are assembling a group of financial institutions to create an investment pool to buy some mortgage-related securities from "structured investment vehicles" that are being forced to sell. That effort, which is backed by the Treasury Department, has also led some investors to question whether the goal is to delay the point at which banks recognize losses on troubled assets. The banks say their aim is to forestall forced selling of the assets.
In mid-July, before the credit crunch worsened, Merrill reported better-than-expected earnings with little impact from exposure to mortgage-backed securities. Asked about the firm's mortgage position on a call with analysts, Merrill Chief Financial Officer Jeff Edwards said: "Proactive aggressive risk management has put us in an exceptionally good position." Two weeks later, Mr. O'Neal personally sent an email to Merrill employees assuring them the firm had such risks well in hand.
Source of Problems
One source of problems was the First Franklin mortgage company, which Merrill bought in December 2006. First Franklin catered to subprime, or less credit-worthy, borrowers. Subprime loans have fallen sharply in value this year due to rising default rates.
Another source was Merrill's underwriting of collateralized debt obligations, which are securities backed by pools of assets including mortgages. Merrill ranked No. 1 in the area from 2004 through 2006.
By the end of June 2007, Merrill had CDO exposure of $32.1 billion and a subprime-mortgage exposure of $8.8 billion, totaling $40.9 billion. Much of the CDO exposure was in triple-A rated "super senior" slices. These were supposed to enjoy strong protection against defaults, but they began to decline steeply in price in late July.
By the end of September, Merrill says it reduced such positions through sales, hedges and write-downs to $15.2 billion of CDOs and $5.7 billion of subprime mortgages, a total of $20.9 billion. The write-downs totaled $6.9 billion for CDOs and $1 billion for subprime mortgages.
( I wonder how long this has been going on and whether these hedge funds have been shorting merill and citi.
Now merill is acting like enron great. I wonder if it might not be a bad idea to have a couple of weeks of cash lying around just in case the government has to declare an extended bank holiday. ) |
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| To: Madharry who wrote (28695) | 11/2/2007 6:52:05 AM | | From: Madharry | | | | interesting article from august about cfc here:
(what i found especially interesting is that the CEO in the past 20 years has sold over $400 million of stock. what he had retained was worth $29million as of the date of the article, i also hear that cfc is giving great cd rates on for 9 months. I just dont the rules when the fdic takes over a bank. do they guaranty the interest too or just the principal?
nytimes.com |
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| To: Madharry who wrote (28778) | 11/2/2007 8:14:02 AM | | From: Mark Marcellus | | | | In one deal, a hedge fund bought $1 billion in commercial paper issued by a Merrill-related entity containing mortgages, a person close to the situation said. In exchange, the hedge fund had the right to sell back the commercial paper to Merrill itself after one year for a guaranteed minimum return, this person said.
That sounds startlingly similar to the Enron barge deal. I guess being able to win on appeal is the standard for acceptable practices on Wall Street. |
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