Archive - Mar 2009

Vik is freaking out again ergo leaked memos... This time it is potential employee defections and bonus refunds... And some not so good news for distress causing people.

To: All Citi Colleagues

From: Vikram Pandit

Date: March 20, 2009

Re: Washington Update

It has been confirmed that Chris Sullivan, (curiously still with a green light on his Bloomberg profile) is taking the Ironclad parked in the dodecatuple secret bottom basement of 32 Old Slip, and will sail the East River all the way up to Boston where he will be joining Fidelity as president of its bond fund. Sullivan is moving on up in the world, not just in a purely magnetic north sense, as at Fidelity he will oversee more than $170 billion in bond assets.

When I wrote about this issue a week ago, I thought I was going to be called out for prognosticating gloom and doom as usual...Well, no such luck, in fact quite the opposite. Sheila Bair came out with some very scary words for depositors everywhere:

One-time potential auto czar and now merely actual auto cheerleader, Steve Rattner, said GM may need "'considerably' more government aid than their request for as much as $21.6 billion."

GM, which recently was beaming after it had said everything is cool and no more cash will be needed in the short-term must have finally figured out how to scroll down on the excel-based P&L and seen all those red cells.

One-time potential auto czar and now merely actual auto cheerleader, Steve Rattner, said GM may need "'considerably' more government aid than their request for as much as $21.6 billion."

GM, which recently was beaming after it had said everything is cool and no more cash will be needed in the short-term must have finally figured out how to scroll down on the excel-based P&L and seen all those red cells.

ISDA just announced it will publish a protocol for the Rouse Company's (read General Growth Partners) CDS auction protocol. Yet another consequence of the Monday default on over $2 billion in debt. At this point I don't see how a successful forbearance makes little sense as the CDS has been officially triggered.

Simon Property Group's new "A3/A-" bond issue, which is pricing at a 10.875% yield just got upsized from $500 million to $650 million. Just like the marginal buyers of the MGM 13s of 13 are now very sorry, we smell something quite comparable happening here oh so soon.

In a nutshell - Goldman had bought billions in AIG CDS in the 2004 to 2006 timeframe. Whether this was predicated by their expectation that subprime would blow up, or their very early understanding just how bad things at AIG were, one will never know, especially not the SEC. However, one look at the CDS chart below shows what prevailing levels for AIG's CDS was in that time frame. As one can see, AIG 5 yr CDS traded in a range of 4 bps to 52.50 bps between October 1, 2004 (only goes back so far) and December 31, 2006.

In a nutshell - Goldman had bought billions in AIG CDS in the 2004 to 2006 timeframe. Whether this was predicated by their expectation that subprime would blow up, or their very early understanding just how bad things at AIG were, one will never know, especially not the SEC. However, one look at the CDS chart below shows what prevailing levels for AIG's CDS was in that time frame. As one can see, AIG 5 yr CDS traded in a range of 4 bps to 52.50 bps between October 1, 2004 (only goes back so far) and December 31, 2006.

Some of the Q&A. FT, Bloomberg and WSJ are ripping David Viniar apart:

Q. How did you treat mark to market dispute and did you do anything in response to noticing improprieties with AIG's marking methodology?

"We believe the value of some positions was lower than they believed. Our response to their weakness was to scale down our trade." [Here comes the MTM can of whoopas at AIG and elsewhere.]

Q. Was it GS's collateral calls that pushed AIG over the edge and does GS feel guilty?

And if you are long any tranche of CMBS deals GCCFC 2004-GG1 and LB-UBS Commercial Mortgage Trust 2004-C4, you may want to freak out too. S&P just announced that it is monitoring these two loans "after learning that the loans for three General Growth Properties Inc. (GGP)-related malls that serve as collateral for the transactions were transferred to their respective special servicers on March 18, 2009, due to maturity defaults.

Last night S&P downgraded MGM from B- to CCC. Didn't take much more than an impending default to stir the rating agency. S&P analyst Ben Bubeck discovered what even Kirk Kerkorian has known for years (and being 90+ years old, these things are expected to take some time).

REIT Simon Property Group, which yesterday announced it was raising $500 million in bonds, will price these notes to yield 10.875%. And this is an A3/A- issue!

Black River Asset Management, which according to Hedge Fund Alert "runs many funds and at one time had $10 billion under management, [and] was hit with a slew of redemptions requests last year," has employed a spin on the reverse auction process utilized by other formerly reputable funds such as Golden Tree. The Cargill affiliate, trying to appease a wave of March 31 redemptions, has told investors to submit the largest discount they are willing to accept for their shares.

In addition to the $261 million loan BWIC reported yesterday by Debtwire, another $233 million BWIC, this time in IG bonds has hit the market. Traders have only until 11 am this morning to submit lowball bids. While loan BWICs over the past month have been increasing rapidly, bond and especially investment grade bonds have not seen wholesale blue light specials yet.