Archive - Mar 2009

And the rating agency continues its review. Seems Moody's is mostly worried about the Wyeth deal (downgrade to A1 certainty upon closure) and upcoming patent expirations:

Moody's affirmed Pfizer's Prime-1 short-term rating. This rating action reflects some deterioration in Pfizer's stand-alone credit quality based primarily on the approaching Lipitor patent expiration. Moody's had already signaled this as a credit risk factor prior to the Wyeth merger announcement (discussed below), with a negative outlook on Pfizer's ratings since October 19, 2007.

And people thought Jerome Kerviel's blow up was spectacular. In an interesting piece out on abcnews, more light is being shed on AIG's small financial products London office which even AIG now acknowledges was ground zero for roughly $500 billion in losses, as well as the person who ran it, Joseph Cassano.

And people thought Jerome Kerviel's blow up was spectacular. In an interesting piece out on abcnews, more light is being shed on AIG's small financial products London office which even AIG now acknowledges was ground zero for roughly $500 billion in losses, as well as the person who ran it, Joseph Cassano.

Yesterday, smallish Pennsylvania-based E&P company Penn Virginia (PVA) provided a financial liquidity update hoping to sway investor concerns arising from an increasingly cloudier liquidity picture. Judging by today's stock action, the company failed.

Lately more and more investors have been asking the same question: why are traditional metrics of market stress and credit supply not indicative of what the market is doing? In particular, they look at the VIX index as well as 3 month LIBOR, which, last time around exploded when the market reached its post-Lehman lows in November. Why should it be different now, when the market reached a 12 year low last week and financial company CDS levels hit all time wides, yet both the VIX and LIBOR have barely budged?

In prepared testimony to the House Oversight and Government Reform panel, TARP head honcho Neel Kashkari says he is sorry to have had to steal from taxpayers to save his appointee's former employer, but says it just had to happen otherwise, said employer would likely have to shutter (j/k) and taxpayers would be even worse off than if they were not all doomed to hyperinflation in the next 2-10 years.

The carnage in homebuilders continues. Hovnainan posted a $2.29 loss, substantially worse than the consensus estimate of -$1.56 after "joblessness climbed and prospective buyers waited for prices to quit falling." Paul Puryear, director of real estate research at Raymond James had some additional choice words: "A couple of builders are on the critical list, Hovnanian being one. The No. 1 driver of household formation is job growth and job growth is negative.

Looks like Zero Hedge has at least one reader. After the NRUC story was published (and contrary to some amusing opinions, Zero Hedge is not a hedge fund nor is talking its book... we would love that to be the case seeing the reaction in NRUC CDS plus the name Zero Hedged Capital sounds oddly attractive), first Goldman picked up on it, now Gimme Creddit seems to be chiming in.

• Hedge fund investors pull $11 billion in February (Bloomberg)
• Bankers rushing to the exits (WSJ)
• Greenspan refuses to take blame for housing bubble (Reuters)
• UBS has $18 billion loss for 2008, cautious on outlook (Bloomberg)

Madoff to plead guilty (Reuters)
LIBOR creep says credit markets risk freezing on distrust of policymaking (Bloomberg)
The Atlantic stimulus rift continues to grow (FT)

Redemptions are not the only thing frozen in the world of hedge funds. Seems real-estate transactions have followed suit. Only 17 single-family houses were sold in Greenwich in February 2009 compared to 75 last year. Perhaps the main factor is the resistance of sellers to lower the asking price, which had a median decline of only 2% to $1,762,500.

Net notional purchasing of protection dropped from $131.5 billion net in the prior week to a mere $12 billion last week, with a net contract increase of only 4,615 contracts compared to 30,348 in the prior week. The rerisking in consumer services has surprisingly continued at an accelerated pace with healthcare also seeing a significant net outflow in CDS notionals. Technicals suggest the consumer services space is due for a substantial widening in spread.

Good read on the purposefully leaked Citi memo today from Financial Times. The Brits make a good point about Citi's so called bumper revenues, which a) are not bumper at all based on historical standards and b) are to be expected as increased revenues always accompany volatile markets, especially in f/x and cash equities. The main thing Citi did not provide info on is the impact of writedowns, which one can bet their bottom dollar will be large to quite large.

From Robert Savage of GS.

Market rumors swirling that GE has asked existing lenders of GECC's $21.5 billion revolving credit facility which matures 2012 to amend terms of the agreement, which would allow GE, currently a guarantor on the facility, to become a borrower instead. And unlike the GGP forbearance request, lenders have said GECC has so far not contemplated any amendment fees or pricing changes.