Friday, February 20, 2009
Noted with Amusement
by Ken Houghton
He is, however, appearing at the "WaMu Theatre at Qwest Field Events Centre" in Seattle. Hope it's more fun for him and them than it is for WaMu shareholders.
Leonard Cohen, who was born and raised just above Murray Hill Park (or, as Google calls it, Parc King George), has no Montreal dates scheduled for his current tour.
He is, however, appearing at the "WaMu Theatre at Qwest Field Events Centre" in Seattle. Hope it's more fun for him and them than it is for WaMu shareholders.
Labels: banking, bankruptcy, pop music
Tuesday, March 25, 2008
The Moral Hazard Contagion Spreads
by Ken Houghton
Yes, the plural of anecdote is not data, but the timing here is not coincident.
More later.
UPDATE: I see cactus at AngryBear is thinking the same way, though rather more like an economist than a taxpayer.
Tanta notes that Wells Fargo is begging, which they weren't doing when the BSC price was $2/share.
Yes, the plural of anecdote is not data, but the timing here is not coincident.
More later.
UPDATE: I see cactus at AngryBear is thinking the same way, though rather more like an economist than a taxpayer.
Labels: bankruptcy, High Finance, Moral Hazard, The Old Firm
Tuesday, January 15, 2008
Best Line of the Day
by Ken Houghton
You see, I did what I always do with presentations: looked at the numbers. So I looked at page 16 and saw that Commercial Business revenues were down 21% YOY, and Net Income for same was down 15%.
Then a coworker pointed to the text on the right-side:
"Margin compression" apparently translates into English as: "Our business model doesn't work here."*
*I welcome any alternative description of the phrase that explains an 18% rise in deposits and a 21% decline in revenue.
I wish I could write business documents as well as the person who prepared Page 16 of Citibank's presentation today (h/t CR).
You see, I did what I always do with presentations: looked at the numbers. So I looked at page 16 and saw that Commercial Business revenues were down 21% YOY, and Net Income for same was down 15%.
Then a coworker pointed to the text on the right-side:
Commercial Business
– Average loans up 10%, deposits up 18%
– Margin compression
"Margin compression" apparently translates into English as: "Our business model doesn't work here."*
*I welcome any alternative description of the phrase that explains an 18% rise in deposits and a 21% decline in revenue.
Labels: banking, bankruptcy, High Finance, mortgage
Monday, November 19, 2007
How Many Foreclosures Fit on the Head of a Writedown?
by Ken Houghton
With the help of the now-free-if-you-Digg-It (h/t Felix) WSJ, let us see if we can rationalize some numbers.
There is a projection of 2 million (2E6) foreclosures (corrected, thank you Anonymous here) in the mortgage market over the next few years. Since most of those seem to be described as "subprime," it is reasonable to assume that they will mostly be non-Jumbo, Fannie/Freddie-eligible mortgages. That currently means their value (of the mortgage that is, not the house) is capped at $417,000. (4.17E5).
Now 4.17 x 2 = 8.34, so we are talking—absolute worst case—$8.34E11, or $834 billion. And that's if the home and the land are all worth zero, everyone took a maximum mortgage, and all two million foreclosures (corrected; see above) happen. Over the next several years.
I think we can agree that the above should be the worst-case scenario. (Even if the properties are all on Lon Gisland, that should still leave at least 50% of the value intact.)
Now, it's entirely possible that the WSJ and I have missed a few firms. But I believe most of the large ones, including Swiss Re today (h/t Calculated Risk) are represented below:
By my (and Excel's) math, assuming the Absolute Worst Case Scenario being Discussed, just under 7.8% of the Total Possible Value of the pending foreclosures (ibid.) has already been written off.
Now, I'll readily concede that some of those writeoffs may have been excessive, though Tanta makes the reasonable case (while b*tch-sl*pp*ng a deserving Peter Eavis) that there isn't much of a range of GAAP options. Some, though, may have just been the tip of the iceberg. (FYI, I have tried to keep CDO/CDS writeoffs out of the calculations.) So if we start restricting the model (assume that not all loans were for the maximum amount, or that there is residual value in the property and/or loan after foreclosure), that just-under-8% starts looking more and more as if a large share of the losses are already accounted for, with the worst yet to come.
(Please, those of you who are solvent, hit the Calculated Risk tip jar.)
So the most reasonable assumption (Entia non sunt multiplicanda praeter necessitatem) is that one of the inputs to the model is incorrect.
Note that the "model" has only two inputs to reach that $834B maximum:
If we believe what the banks are doing, and not what they may be saying, then that Goldman Sachs projection about the effect on collateral securities such as CDOs may look optimistic.
Unless I'm missing something, which is entirely possible. Anyone?
UPDATE: Yves Smith at Naked Capitalism corrects some of my data errors and delves a bit deeper. (See also Tom's comment.)
With the help of the now-free-if-you-Digg-It (h/t Felix) WSJ, let us see if we can rationalize some numbers.
There is a projection of 2 million (2E6) foreclosures (corrected, thank you Anonymous here) in the mortgage market over the next few years. Since most of those seem to be described as "subprime," it is reasonable to assume that they will mostly be non-Jumbo, Fannie/Freddie-eligible mortgages. That currently means their value (of the mortgage that is, not the house) is capped at $417,000. (4.17E5).
Now 4.17 x 2 = 8.34, so we are talking—absolute worst case—$8.34E11, or $834 billion. And that's if the home and the land are all worth zero, everyone took a maximum mortgage, and all two million foreclosures (corrected; see above) happen. Over the next several years.
I think we can agree that the above should be the worst-case scenario. (Even if the properties are all on Lon Gisland, that should still leave at least 50% of the value intact.)
Now, it's entirely possible that the WSJ and I have missed a few firms. But I believe most of the large ones, including Swiss Re today (h/t Calculated Risk) are represented below:
By my (and Excel's) math, assuming the Absolute Worst Case Scenario being Discussed, just under 7.8% of the Total Possible Value of the pending foreclosures (ibid.) has already been written off.
Now, I'll readily concede that some of those writeoffs may have been excessive, though Tanta makes the reasonable case (while b*tch-sl*pp*ng a deserving Peter Eavis) that there isn't much of a range of GAAP options. Some, though, may have just been the tip of the iceberg. (FYI, I have tried to keep CDO/CDS writeoffs out of the calculations.) So if we start restricting the model (assume that not all loans were for the maximum amount, or that there is residual value in the property and/or loan after foreclosure), that just-under-8% starts looking more and more as if a large share of the losses are already accounted for, with the worst yet to come.
(Please, those of you who are solvent, hit the Calculated Risk tip jar.)
So the most reasonable assumption (Entia non sunt multiplicanda praeter necessitatem) is that one of the inputs to the model is incorrect.
Note that the "model" has only two inputs to reach that $834B maximum:
- The maximum amount a GSE such as Fannie covered since 2006 is certain, and it was never higher than that for Single-Family mortgages.
- So that leaves the 2,000,000 expected housing foreclosures in the next few years. If you think the worst is yet to come, and you expect that the write-downs are not going to cover the entirety of the problem (some of those MBSes are stuffed into Jim Hamilton's pension fund (link added), for instance—and probably yours and mine, too), then this is the likely candidate for change.
If we believe what the banks are doing, and not what they may be saying, then that Goldman Sachs projection about the effect on collateral securities such as CDOs may look optimistic.
Unless I'm missing something, which is entirely possible. Anyone?
Labels: bankruptcy, credit, mortgage, subprime
