Comments on: What Hath Merrill Wrought? Tally of Likely Fallout from CDO Writedown Rises (Updated)

By: Anonymous

Anonymous — Mon, 04 Aug 2008 01:57:00 +0000

A follow up naive question-different anonymous. Could it be possible that Merrill has made private, under the table deals with smaller companies to take the fall for them? Loan them the money to buy their debt and then go bankrupt?

“No matter how cynical I get, I can’t keep up!!” LT

By: Anonymous

Anonymous — Wed, 30 Jul 2008 17:00:00 +0000

thanks so much for the wealth of info, GY!
ok, here’s a naive question– would MER have been netting that right to claim losses at the maximum $3.7bill(less the $1bill writedown at some point) against a $2.7billion CDO holding to get a 0 exposure or are there haircuts on these things?

By: Ginger Yellow

Ginger Yellow — Wed, 30 Jul 2008 16:48:00 +0000

Unfortunately I don’t, but I’m trying to find out. What I do know is that a few months back their expected loss was $429m and it had “substantially” increased by June 30, but I don’t have a precise figure. I think it’s safe to say that it was higher than $500m, and I suspect it was lower than $1bn, but I don’t know yet.

By: Bill

Bill — Wed, 30 Jul 2008 16:36:00 +0000

“Well, it’s important to remember that XL only “owed” what Merrill claimed for. They haven’t claimed anything – they only had a right to claim for losses up to a maximum of $3.7bn.”

I was admittedly being very imprecise in my language. What I meant was that MER valued the contract at 2.5bb, but was carrying it at 1bb because of XL’s impaired credit. They were willing to tear it up for 500mm losing another 500mm to their mark.

Any ideas of what XL was carrying the same liability at? Was their mark 1bb and they just made 500mm by commuting at 500mm? Or were they carrying it at 250mm in which case they just lost 250mm to their marks?

By: Ginger Yellow

Ginger Yellow — Wed, 30 Jul 2008 15:30:00 +0000

Anonymous – no. XL had tried to terminate the CDS on $3.7bn notional of CDOs, claiming breach (anticipatory breach, technically) of contract. Merrill sued to keep the protection in force, saying it had not and would not breach. Merrill won, so the contracts remained in force. Merrill has made no claims under the CDS yet (or at least not by the time the judge gave his opinion in July).

“how much do we have to worry about on the claims on the outstanding $50trillion CDS market?”

Depends on what you mean. There are many, many angles. My thoughts on monoline commutation are above (in brief, of course). But that’s hardly the only issue.

By: Anonymous

Anonymous — Wed, 30 Jul 2008 15:04:00 +0000

ginger@9:51. wasn’t MER claiming the $3.75billion in the lawsuit but through commutation accepted lower?

how much do we have to worry about on the claims on the outstanding $50trillion CDS market?

By: Stuart

Stuart — Wed, 30 Jul 2008 14:41:00 +0000

I for one am sick and tired of the fudging. The true colors of the financial leadership have been shown, and they are shown to exemplify corruption and deceit as if they were modeled as measures of best practice. Sick and tired of regulators aiding and abetting the fudging and now FASB deferring rules aimed at stemming the fudging because pigmen lead banks cannot handle the truth. Thain was clearly lying, MER clearly fudging the books, again, like so many others. This latest fiasco is just another bullet in the whole nine yards to drive home why we should be sick of it all. No confidence left whatsoever in the political or financial leadership of this country. Now come along CNBC, time to pump why all this means it’s a great time to buy stocks. Time for another Paris Hilton story to lead off the 6:00 news, as that’s what’s important. How far we have fallen.

By: bobn

bobn — Wed, 30 Jul 2008 14:36:00 +0000

IMI, the write-down orgy this will inspire at Citi is what Citi was trying to avoid with Super-SIV last year – had that come about, Merrill would have sold to super-SIV at wildly inflated prices.

Let the price discovery begin – time for heads to roll and blood to flow on Wall Street.

By: Anonymous

Anonymous — Wed, 30 Jul 2008 14:27:00 +0000

FNM and FRE own no CDOs. They own MBS’s- but no CDOs. They’ve got their issues, but CDOs are not one of them.

By: Ginger Yellow

Ginger Yellow — Wed, 30 Jul 2008 13:51:00 +0000

Well, it’s important to remember that XL only “owed” what Merrill claimed for. They haven’t claimed anything – they only had a right to claim for losses up to a maximum of $3.7bn.