• Sprott Money
    03/26/2015 - 11:56
    Take the S&P Index and multiply by the US dollar index. This removes most of the currency variation. Do the same with silver. The chart of silver times the dollar looks very much like silver...


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Quantifying CDO Litigation Risk For The Less-Than-Godly Banks

Now that the attention of the investment community once again turns to regulatory risk, analysts will instead focus on who may be most at risk for comparable CDO-related overtures by the SEC. The table below presents CDO league tables for top CDO underwriters in the 2006 and 2007 period. By and far Merrill Lynch and Citi appear to be most at risk (from Credit Suisse). In a separate report Credit Suisse confirmed that based on deals with "salient" characteristics to Abacus, the firm once again sees Merrill/BofA as the most likely to suffer the wrath of the SEC. The other two firms that fill out the top three list for the 2005-2008 period with "comparable deals" are UBS AG which ranked second with $15.8 billion, and JPMorgan Chase & Co. was third with $9.9 billion, primarily due to its purchase of Bear which despite being one of the biggest underwriters of CDO, passed on the Paulson proposed deal structure citing "ethical concerns", as we reported yesterday.

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The Full Abacus CDO Pitchbook

  • ABACUS 2007-AC1 is a $2 billion notional synthetic CDO (the “Transaction”) referencing a portfolio (the “Reference Portfolio”) consisting of RMBS obligations.
  • ACA Management, LLC (“ACA”) will be acting as Portfolio Selection Agent in this Transaction.
  • ACA currently manages 22 outstanding CDOs with underlying portfolios consisting of $15.7 billion of assets
  • The 360 WARF target Reference Portfolio selected by ACA consists of 90 Baa2-rated mid-prime and subprime RMBS bonds issued over the past 18 months.
  • The CDO tranches amortize principal using a full sequential amortization sequence, avoiding any reduction in the relative subordination of the CDO tranches.
  • The CDO tranches will have a projected average life(2) of 3.9 to 4.9 years, which is shorter than the average life of most traditional ABS CDOs executed in the current market environment.
  • The CDO tranches do not bear any available funds cap risk and other related interest shortfall risks.
  • Goldman Sachs’ market-leading ABACUS program currently has $5.1 billion in outstanding CLNs with strong secondary trading desk support.
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New York Fed Discloses CDO Holdings Of Maiden Lane Portfolios

In a surprising move, the FRBNY has just released the holdings of Maiden Lane I, II and III. Some preliminary observations: ML 1, in addition to holding a boatload of CDOs, has quite a few Residential whole loans, a variety of single names CDS, of which the bulk is CMBX, AMBAC, MBIA, PMI, CDS on Commercial Real Estate, CDS on Munis, CDS on non-agency RMBS, CDS on Non-residential ABS, some treasuries, and just under $3 billion in Interest Rate Swaps. ML 2, as noted, contains $35 billion of Non-Agency MBS. It also contains $280 million in cash, held with a Goldman Sachs account. (GOLDMAN SACHS FIN SQ GOVT FS). ML 3 consists of a variety of CDOs whose notional value is given as $56 billion. Once again, the Fed parks its cash of $383 million in this account with Goldman Sachs.

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Guest Post: Goldman's Abacus CDO (And Other CDOs), AIG, And Global Systemic Risk

"I have been a big critic of the systemic risk posed by excessive leverage, problematic CDOs and the credit derivatives written against them. But I did not specifically criticize Goldman’s deals until it became an issue of public interest when AIG blew up. Goldman may not have to answer to sophisticated investors, but it should answer for its role in the systemic risk posed by AIG’s near collapse, its role in the way in which AIG was bailed out, and the fact that the U.S. taxpayer had to bail out the global financial system along with a number of Goldman’s trading partners." - Janet Tavakoli

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Reminder: CIT Is Most Widely Held Euro CDO Reference Obligor, Held By 1,053 CDOs, 66% Of Total

Who wants to bet how many of these are marked to market?

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Has TPG Credit Uncovered A Loophole To Raid CDO Assets?

Bloomberg highlights an interesting development out of CDO land, where TPG Credit is in the process of attempting to raid quality assets in a TRuPs CDO at the rip off price of 5 cents on the dollar, while bribing the first loss tranche: the CDO equity holders, with a moderate take out fee. If this is a broad loophole in which the equity tranche, which in most cases is out of the money since even the highest-rated slices are trading at 40-50 cents on the dollar in most CDOs, can determine the fate of CDO dispositions, expect many other funds to join TPG in raiding any and all good assets making up comparable CDOs. As there is roughly $650 billion in CDOs outstanding, they have quite an extensive selection to pick and choose from.

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AIG's 10(b) 5 Fraud, And Goldman's CDO Collateral Calls

Recently uncovered critical documents disclosing details about AIG's CDO portfolio and collateral calls, indicate that during a December 5th conference call with Investors, Joe Cassano, famous for singlehandedly destroying capitalism and forcing most financial companies to be subsidized by US taxpayers in perpetuity, as well as then CEO Martin Sullivan, effectively commited 10(b) 5 fraud by misrepresenting material company conditions.

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