Stress Test — or Reality Check?
Are US banks marking their SIVs at a 33% discount? Is this metric part of the ‘stress test’?
Consider:
“Whistlejacket Capital Ltd., the defaulted structured investment vehicle, sold more than $2.5 billion of its assets at an average discount of 33 percent, according to three people with knowledge of the matter.
Receivers at Deloitte & Touche LLP sold 54 percent of the SIV’s $5 billion investments at an auction yesterday, said the people, who declined to be identified because the full results weren’t disclosed. The average price was 67.1 percent of face value for securities that included bank bonds and mortgage- backed debt, Deloitte said in a statement today.
Whistlejacket, set up by London-based Standard Chartered Plc, defaulted in February 2008 when investors stopped buying the short-term debt that SIVs relied on to fund higher-yielding assets. The proportion of assets sold at Whistlejacket’s auction was more than double the share investors liquidated in July at a sale for Cheyne Finance Plc, the first SIV to auction assets.”
No wonder so many banks are against Mark-to-Market — the real market is way below them (Note and it apears the 33% discount is for a combination of good and toxic assets).
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Source:
Whistlejacket Failed SIV Sells Assets at 33% Discount
Neil Unmack
Bloomberg, April 30 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRnd9hscQaW8&
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May 1st, 2009 at 1:56 pm
the 1000s of Names, and their Domiciles, of those SIVs should be made Public.
that they get to hide behind the ‘non-Material’-cloak, is, obviously, BS.
May 1st, 2009 at 2:20 pm
Are US banks marking their SIVs at a 33% discount? Is this metric part of the ‘stress test’?
No, and no. They are marked to fantasy, and the so-called “stress test” is not at all a test of any real stressors.
The false spring has, however, arrived, with green shoots everywhere.
May 1st, 2009 at 2:23 pm
The game is one of delay, kick the can, the old Dean Smith Four Corners Offense, with hopes that they can spur the consumer to be confident enough to buy things they don’t need on easy and plentiful credit again. They’re just buying time. That’s all. It amounts to a Hail Mary Pass that, even if works, only pushes the real problems down the road and makes them bigger for all of us to deal with someday.
May 1st, 2009 at 2:48 pm
33%!!!
My in depth and expert analysis had placed it at only 29%.
Holy Shit! These bastards exceeded my expectations.
I’m going to buy the hell out of them.
May 1st, 2009 at 2:55 pm
Stress Test results delayed until next Thursday (5/7):
http://www.forbes.com/feeds/ap/2009/05/01/ap6367173.html
May 1st, 2009 at 2:59 pm
With treasury yields ramping up it seems as if the “greater good”, as defined by the Fed, would be to have the stock market take a dive, driving the folks back into the flight to safety trade. The rally has done it’s job, allowing banks, REITs (and assorted others) to issue more stock to suckers, building capital and reducing debt, respectively.
Whattya think? Could the hand of govt try to reverse this trend? They can go back to the Jan-Feb tactics, talking down the market, and reverse the memo to the press to talk up green shoots. I’m not sure I believe in this conspiracy theory or not, but it is enticing.
The market is definitely vulnerable. I can’t imagine there are that many truly strong hands on the bull side at this level. The speculative top is ripe for a hit.
May 1st, 2009 at 3:00 pm
@Onlooker: The feds can’t afford for mortgage rates to creep back up over 5%. I think you may be onto something there.
May 1st, 2009 at 3:11 pm
Transor Z-
delayed so they can figure out a way to sell the news without it effecting the banks share prices-
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
you see is not that Citi is undercapitalized and will need support from American taxpayers indefinitely- it is that Citi has special characteristics which make it especially positioned to take advantage of temporary government assistance so that business and borrower’s can benefit-
the spin machine will definitely be in overdrive
May 1st, 2009 at 3:14 pm
I know specifically what is on my personal balance sheet. Likewise I can assume that other people know what is on their balance sheets. However, as an outside investor I don’t know what is on the balance sheet of a public financial institution. I only know what they tell me. The only true way to know what is on those balance sheets and the probable market value of such items would be to examine them all yourself one by one.
May 1st, 2009 at 3:19 pm
Well with the kicking of this can down the road. Looks like the market is kicking the can till at least Monday as well.
May 1st, 2009 at 3:22 pm
@sfharris81: That’s very much what Steve Eisman did. He and his colleagues went to personally view the residential RE markets underlying MBS/CDOs, drew his own conclusions and shorted the market.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?page=2#page=2
May 1st, 2009 at 3:27 pm
Really good (although sobering in it’s reality) read from David Rosenberg via Zero Hedge, if you haven’t seen it. Telling it like it is, in all it’s ugliness. But dealing with reality is what is finally needed, not more self delusion.
http://zerohedge.blogspot.com/2009/05/shooting-shoots.html
May 1st, 2009 at 3:51 pm
I wonder how much Goldman Sachs stands to lose over this. Can’t wait till GS gets whats coming to it in terms of SHORT selling. $73? anyone? $47? any takers?
May 1st, 2009 at 3:55 pm
Revlon (REV) is up 10% today.
Traders know about the heavy government buying of lipstick for the stress test pig.
May 1st, 2009 at 3:57 pm
I just came across some interesting comments siting a quote from rep. Brad Sherman.
Rep. Sherman just said that he fears the stress tests will be used as a way to convert the TARP preferred stock into common. First run up the stock prices, then release the stress tests results that show they need more capital so we will convert the TARP common. Now convert the preferred a higher prices.
Hmmm… possible.
May 1st, 2009 at 3:59 pm
Wow, quite a pump in the final 3 minutes. The new law is the market can never go down again. Ever.
May 1st, 2009 at 4:11 pm
@Onlooker: Thanks for the link. David Rosenberg is terrific. Interesting that an analyst/economist of his stature is just as baffled/conflicted understanding what the market is saying as 99% of the commenters here.
Here’s one of many take-aways I got:
Tax rates will inevitably rise, as they are already doing at the state and local government level.
Here in Massachusetts, the legislature just passed a 1.25% sales tax increase.
http://www.boston.com/news/local/massachusetts/articles/2009/04/28/house_oks_hike_in_mass_sales_tax/
Thinking that local governments have one main mechanism for increasing tax revenue: property taxes.
IMO this is a huge developing story that isn’t getting much play with all the focus on what the federal gov’t is doing.
May 1st, 2009 at 4:35 pm
What was the bid on the other 46%?
May 1st, 2009 at 5:12 pm
For some of the assets involved a mere 33% discount sounds like a remarkably small discount. Would have been nice with a specific list of prices for the different types of assets. They only sold 54% of their holdings, did they try to sell it all, and then keept the 44% that they could not get a good bid on. Bloomberg could have given a little more information and made that piece a lot more informative.
May 1st, 2009 at 5:17 pm
China has ‘canceled US credit card’: lawmaker”
http://bit.ly/PQdmP
Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.
Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had “very legitimate” concerns about its investments.
“It would appear, quietly and with deference and politeness, that China has canceled America’s credit card,” Kirk told the Committee of 100, a Chinese-American group.
“I’m not sure too many people on Capitol Hill realize that this is now happening,” he said.
Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the US Federal Reserve due to absence of foreign investors.
“There will come a time where the lack of Chinese participation may have a significant impact,” Kirk said.
**************************************
Fear not we have BB and Obama’s stellar economic team coming to the rescue
May 1st, 2009 at 5:19 pm
Transor Z makes a good point that “tax rates will inevitably rise” at the state and local government level . . . and that it is a huge developing story.
Unfortunately, few government legislators have ‘real-world’ experience in a free market economy. Their typical question to financial crises is to question, “what services does the public want to cut or be reduced?” IMO, any dumb person could ask that question. In the real world, corporations spend hundreds of millions of dollars annually on consultants, in order to reduce redundant work functions and improving productivity. At the very least, they reduce staff by 12% to 18% . . . with no degradation in service or quality.
One way to eliminate government tax increases is for government workers to join the ranks of Americans: ‘defined contribution retirement plans’, no retirement medical benefits, and the right to fire employees for gross misconduct.
It’s time for government employees to become Americans . . . like the rest of us.
May 1st, 2009 at 5:32 pm
Meanwhile, speaking of stress, this one’s a fairly sizable failure……what’s up with Georgia? Are they just going state to state? They seem to have the most failures thus far, by far.
http://www.calculatedriskblog.com/2009/05/bank-failure-30-silverton-bank-national.html
The FDIC estimates that the cost to the Deposit Insurance Fund will be $1.3 billion. Silverton Bank is the 30th bank to fail in the nation this year and the sixth in Georgia. The last FDIC-insured institution to fail in the state was American Southern Bank, Kennesaw, on April 24
May 1st, 2009 at 5:42 pm
Gee, I wonder if the REITS and their friends were tipped off early on this move, hence my SRS pounding? It looks like there is nothing the feds won’t backstop at this point. How is this even possible without any dire unintended consequences down the road? And note that it’s still not enough for these guys. They want the older securities backstopped as well and will probably get it soon enough. It’s getting close to the time where Mannwich take his ball and goes home.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDiy_Zpv2vZY&refer=home
May 1st, 2009 at 6:25 pm
I haven’t been posting too much…if I did, it would just be the same thing over and over anyway…this is another datapoint on how overbought the market is…analyze it as you wish.
http://stockcharts.com/h-sc/ui?s=$BPNDX&p=D&yr=3&mn=0&dy=0&id=p52576604621
May 1st, 2009 at 6:49 pm
@Steve Barry – agree with the markets being overbought, the only issue with overbought conditions is they can stay that way longer than you would like at times… Market needs a catalyst (one way or the other). Perhaps stress test thursday or jobs friday can ignite a pullback, finally.. The scary part is of course that most seem to understand that markets are overbought and vulnerable so it’s hard to get the expected move!!
Here is someone making a compelling case for the recession to end by the end of this summer.. http://moneyneversleepsblog.blogspot.com/2009/05/forecaster-predicts-recession-will-end.html
Props for making a bold call, I’m assuming most around here would call bullshit on that one…
May 1st, 2009 at 7:22 pm
SB-
thanks for the chart- definitely overbought
May 1st, 2009 at 9:19 pm
Bottom coming?…yes, built on solid fundamentals of 370% total credit to GDP. …and how can I forget, negative OPERATING earnings for the S&P last quarter…you know, usually the best quarter of the year. Seems like a boom coming.
May 2nd, 2009 at 7:31 am
Just the fact that they were pushing for all kinds of ways of not having to report the depressed values was proof enough for me that it was REAL bad.
Interestingly in Canada, where supposedly we’re now the worldwide Kings of banking, bankers are sighing in relied because we too will be dropping the mark-to-market rule. Now, please tell me why it would even be an issue if their loans were clean and performing?
In my 18 years in this business, I am still amazed by the sheer number of people who don’t see the evidence when it is staring them in the face.
May 2nd, 2009 at 8:43 am
Whistlejacket’s assets included bonds issued by Citigroup Inc. and UBS AG, as well as securities pooling home loans made by U.K. lender Bradford & Bingley Plc and Morgan Stanley, according to lists of securities seen by Bloomberg News.
Come on Bloomie, give us the details!
May 2nd, 2009 at 9:33 am
Dimon says the crisis is 75-80% over …oh, wait he said that a year ago when the Dow was 12.6.
http://www.nypost.com/seven/04172008/business/dimon_does_it_106847.htm
May 8th, 2009 at 7:17 am
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