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Big Deals and Big Balls on Wall Street - The "Pony" Trade
I
have access to the super secret technology (made in China) that allows
one to listen in on selected cell phone conversations. I pulled this
one out of the air yesterday. Using names would be unfair, so I will
just use initials. PD is Prop Desk. BB is Big Boss.
PD: Hi BB, sorry to bother you, but there is something that I wanted to discuss and it has a short fuse. Where are you?
BB: I am down in Argentina. Muffy and I are here doing a little shopping.
PD: Well, that sounds like fun. What are you shopping for?
BB:
Polo ponies, lots of them. The recession killed the market for these
horses. You can buy a decent pony now for under $500,000. I am buying
all of them that I can find.
PD: Corner the market on ponies huh? Sounds like a good plan. What are you going to do with them?
BB:
There are several big shopping malls in NJ that are going belly up this
fall. My intention is to buy one, gut it and convert it into the first
ever completely indoor polo field. I have always wanted one of those.
PD:
Well good for you. That sounds like a swell idea. I have an idea that
will pay for the horses and mall and a bunch left over. I wanted to run
it by you.
BB: I am all ears when it comes to making money. What’s the play this time?
PD:
Our guys in D.C. have been speaking with Timmy G. about their position
in Citi. As you know Treasury owns 7.7 billion shares of common. Their
cost basis is $3.25 and it closed Friday at 5.23. Apparently the FDIC
is just about broke and needs more cash so they are looking to raise
$14- 15 billion to plug what is being called the ‘Sheila Gap’. We are
in discussion with them about a secondary for 4 billion shares. It
would be the biggest deal ever.
BB:
A secondary that would float 40% more shares sounds like a lotta risk.
Who are you going to do that with? Merrill has no buying power, Morgan
Stanley has no balls. Who is going to take that much stock?
PD:
Well that is why I am calling. The plan is to do it all alone. A "bought
deal" for the whole thing. Timmy is concerned that a transaction of this size
would cause market disruptions so they have put the condition on the
deal that we have to do a buy and hold for three months. That works to
our advantage. Because they insist on our keeping the stock they have
agreed to sell it to us deep in the hole. They are willing to sell the
4b shares at $3.75.That way they get $14b and book a gain of $1.5b
BB:
Well that sounds interesting, but it is still a lot of risk. Three
months is a long time. This will impact our VAR, and we will get more
flack from that. Let’s face it, C is a piece of crap and the stock does
not belong above $2. So what is the plan to manage the risk?
PD: We think we have that covered. The whole firm is involved at this point. Here is the plan:
The
stock loan department has 2.5b shares available for lending. They have
withheld these shares for the last ten days. We did that to get a
better bid under the stock by making shorting harder. With the 2.5b
shares available to us we can sell short the borrowed stock at the
current level. We think we can get at least 2.5b shares out the door
before the deal is announced. So that way we can eliminate more than
half the risk and realize a gain on the 2.5b of $5billion. If we apply
that to the remaining unsold shares our average cost goes down to 40
cents. We can’t lose money at that price.
BB: Well it’s getting interesting, but how are you going to get 2.5b shares out the door by midweek?
PD:
That is where it gets interesting. We have been working with the quant
guys on the HFT desk. They have an interesting plan that I think will
work:
The HFT guys are going to run their programs in reverse
for a few days. The plan is to put bids and offers in the market for C
stock that will cause the other HFT traders to execute transactions and
automatically make money in the process. We think that if we put $20 mm
of gains in their pocket over a few days they will ramp up their
activity and take ever bigger positions. Between 1pm and 3 pm on the
third day the Algo boys reverse the programming and start selling. The
rest of the HFT world will have no clue what is going on and will take
the paper assuming the high bids will be there. We think we can push
out 1.5b shares before they even know what is going on.
As for
the other 1b shares the guys on the trading desk have come up with a
idea. Apparently there are over 1mm day traders out there taking
positions in C stock. These guys are lining ups bids and offers on the
SOES System. The plan is to feed blocks to the day traders below
market. The trading desk will be bidding above those levels for smaller
amounts so the greed factor of the day traders will allow them to keep
buying big while they are selling small. All that is required is to get
100,000 day traders to take 10,000 shares each. This could cost us $10mm
but we think we can push out the 1b shares in the morning of the third
day. The trading desk is in touch with most of the idiot day traders,
so there does not appear to be much of a problem there as well.
So by 3 pm we have pushed out 2.5b shares on to the street.
BB:
Isn’t this going to cause a large order imbalance by the end of the
day? When the stock collapses by 4 pm there will be hell to pay.
PD:
We have that covered too. The research guys are going to issue a report
on C at 3pm. They will come out with a ‘Trading buy’ recommendation for
C. That will bring in a bunch of others from the buy side. We think
that FIDO and the other big guys will buy like crazy from 3- 4. The
price might even move up in the last hour. At 4 pm The Treasury
announces that the shares have been placed and locked up for two
months. We can put out a statement, “We believe in Citi”.
BB:
But all of this will result in an explosion of volume. To get this done
like you describe it would require back-to-back days of over 5b shares
trading hands. Won’t that get the SEC looking into all of this? We
wouldn't want that.
PD:
We have that covered too. Timmy has leaned on the SEC and they have
folded. Mary Schapiro will make a statement after the close, “The
transaction is a reflection of the strength and durability of our
capital markets. America can be proud of its financial institutions.”
BB: Jesus, it sounds like you have all the bases covered. How much money do you think we can make on this?
PD: We are thinking $6-8 billion. It could go higher.
BB: Well that is a lot of ponies. So giddy up and get that deal printed!
»
- advertisements -
Bloody brilliant sardonic humor. My Sunday morning funnies have been elevated to a whole new level. It's going to be tough to top this, Bruce, but I know you have it in you. Thanks so much!
Your apologies are accepted.
Where there i smoke there is usually a fire!
Is it coincidence that s&p upgraded C to $6.50 over the weekend?
Rest easy - Obama is no 'radical'! The only radical he is is 'radical right'!
The rules dont apply to those at the top.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Anon 52917:
Look at the locators. Comedy. Obviously you are not laughing. Sorry for that.
Did you think I really had that super secret technology?
This is the equivalent of a Wall Street hack trying to do stand up comedy.
Here is another secret conversation for you. This is between Tim Geithner and Maynard Keynes. He has been dead for 60 years..
http://seekingalpha.com/article/129664-tim-geithner-and-the-ghost-of-may...
BK
The very fact that this COULD actually happen makes it all the more hilarious (and frightening). It reminds me of people in prison who have nothing to do all day every day but figure out ways to escape, and they come up with incredible schemes. Just like these guy who have nothing to do all day every day but come up with..... well I guess we'll just have to stay tuned for the real life version!
haha this article is awesome "Morgan Stanley has no balls" <--- rofl
Obviously loosely(?) fact-based humor guys- lighten up. Love the ZH shirt- got it in record time. But did you really have to bang us for mandatory overnight shipping on top of the Euro pricing? It's a price I'm glad to pay as I've been charged nothing for the best investigative reporting around. Go ZH!
why doesn't the govt cause Citi to file a shelf registration and then feed the shares out a few billion at a time as overnight conditions allow. i'm sure this development would thrill john paulson. he's soooo smug.
cool story hansel
i am a long time zerohedge fan from the good old blog format days. and yet....
i cannot for a second take this seriously. cell phone monitoring equipment is HIGHLY illegal. if you posted a conversation using this technology , your whole website could get shut down. at the very least, you will be getting a visit from the nsa. if not also the fbi. you're not stupid, so you probably know this, which is why this conversation is not legitimate. if you are stupid, well than that's nice, but this would implicate the worthiness of not only this conversation but many other posts on this website. finally there's a third possibility which is that this is deliberatley false planted infromation to push your agenda.
Good lord - it's time to make the posting question harder again. Satire, anyone?
rotflmao... the previous commentary posts are funnier than the 'conversation' itself...
They are private credit monopolies which prey upon the people of the United States for the benefit of themselves.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
gents, it is time for the humor caps.
“The transaction is a reflection of the strength and durability of our capital markets. America can be proud of its financial institutions.”
TD - Are we going with sideways, inside out & backwards or flipped bill? [:
This is not a real conversation - read the dialouge. No one talks like that. Does that sound really like a conversation two people would have (outside of a bad movie script)? I'm surprised there's not a disclaimer or something at the end saying its some sort of fiction playing on the ridiculous trading volume of C, et al.
this seems like a screenplay for a movie. Is this real conversation?
if this is real, this is seriously fucked up. the country is going to hell all together.
no kidding
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
They are ripping our faces off.
Ah F.I.A.S.C.O. reference......put me down for 10,000 C @ market.....BUY BUY BUY
An instant classic.
The Sheila Gap - nice!
I still think sheila gape would be more appropo.
that is not a pretty thought
http://www.opensalon.com/blog/dean_petkanas/2009/03/21/supercalifragilis...
http://www.opensalon.com/blog/dean_petkanas/2009/03/21/supercalifragilis...
Holy Shit!....it must be badass to be able to set this kind of shit up from all angles. I am all together pissed off that this is possible and jealous at the same time.
Is this a true story? If so, this post almost ensures that it won't happen....
OUTFRIGGINSTANDING read, Mr. Krasting. Giddy up indeed.
"MARK IT ZERO, DUDE"
Another piece of brilliant investigativey journalism. Keep it up guys.