I have been trying to sell a busted emerging markets loan. I called up Merrill about it, because they have been known to broker trades from time to time. My salesman at Merrill called me back. Of course, he had no leads on the loan in question, but he went on to ask me if we had other emerging markets distressed loans we wanted to sell. Why? Well, he told me, the guy in charge of distressed loans in the region in question (let’s call him “Joe”) is looking for paper. Again, why? Joe, my salesperson proceeded to tell me, has been allocated $500 million to build prop positions in distressed emerging market loans. Now, not 10 minutes earlier, the tapes were snapping with the news that Bank of America is thirty-someodd billion short of capital in the stress-test adverse scenario. Band of America has received generous helpings of capital from the TARP and may wind up with more. What the heck is Merrill Lynch doing giving $500 million to some guy, no doubt with a 10% deal, to punt on distressed loans? And not merely distressed loans, distressed loans to foreign borrowers! How does this fit with the goals of the TARP? Wasn’t the idea to stabilize the banking system, thereby protecting depositors and other creditors, and making sure credit would continue to be available for US households and corporates. How does it possibly serve a public purpose to have taxpayer money gambled on foreign loans by a guy on a deal?
What’s more, the reason the salesperson was asking if we have more loans to sell was because he probably thought we were a forced seller. Now, think of the irony if that were the case. A hedge fund that received no government support and is now facing all sorts of new regulation anyway needs to sell loans to pay redemptions; ML/BAC, having run itself into near insolvency doesn’t have to pay back depositors or other creditors early, because the government has provided a backstop, and moreover has gotten so much capital from the taxpayers (including the managers of said hedge fund!) that it can afford to allocate $500 million to building new speculative positions in distressed loans.
What the fuck?
It looks like the week of bodies floating to the surface and drifting into the harbor. GMAC is only the latest. This is also only the beginning. Should GMAC become the government’s plaything, with the goal of returning lending to the state it was, will we just see an extended bubble? Before long every element of lending will be in centralized hands. America! Fuck yeah!
U.S. Treasury Secretary Timothy Geithner said on Friday that the Obama administration will provide “substantial support” to troubled lender GMAC, a vital provider of financing for the domestic auto industry.
“We’re going to provide substantial support to GMAC,” Geithner said in an interview with Reuters Television. “It’s likely, again, that GMAC will need to take additional capital from the government and we’ll be prepared to provide that.”
The Treasury and U.S. banking regulators said on Thursday that GMAC needs to raise $11.5 billion to fill a capital hole it could face if the economy were to deteriorate further.
After news reports several weeks ago that BofA would increase base salaries for investment bankers by as much as 70%, the bank put the plan on ice because of the negative press the plans garnered. Nonetheless, senior management in the Investment Bank and in Personnel have continually communicated their intention to push forward with a meaningful increase in base pay. Rumors of a pending salary increase continued and yesterday bankers checked Personnel Online and noticed a significant increase in base pay, seemingly indicating BAC had actually come through for once. Not so!
Apparently, personnel accidentally added the new salary to the old salary, instead of replacing the old salary with the new one.* For example, an Associate saw his base go from $95k to $205k (instead of the $110k it was supposed to); a VP saw his base go from $150k to $350k (instead of the $200k it was supposed to). After ~2hrs of jubilation, bankers got a note from Personnel apologizing for the error, and folks resumed not working.
*The new one being a modest increase in base pay that is in-line with a typical year-over-year increase in base pay, but not a significant increase that would signal a new approach to comp structure.
Fight the good fight, be prepared to lose. It was, no doubt, going to be an expensive and painful slog. We might add, though we love rooting for the underdog (except for Spitz, of course) the deck was stacked. All that pain for very little gain:
Chrysler LLC’s secured lenders that opposed the automaker’s bankruptcy sale of assets to a company run by Fiat SpA are dropping their fight in the bankruptcy court case, a lawyer representing the group said.
The group, calling itself Chrysler’s Non-TARP lenders, doesn’t plan to defend earlier objections and may withdraw them formally, said Tom Lauria, the White & Case attorney representing the group.
“After a great deal of soul-searching and quite frankly agony, they concluded they just don’t have critical mass to withstand the enormous pressure and machinery of the U.S. government,” he said.
With the core group of objectors stepping aside, Chrysler’s path toward an alliance with Fiat may have become smoother. The Auburn Hills, Michigan-based automaker is scheduled to have an auction completed May 27 where Fiat is the lead bidder.
Listen ladies, it’s a beautiful day and I don’t want to be here anymore than you do. I gave you Charlie Gasparino’s vagina, now you give me something. I want you to take three to watch this clip, get off book and then go recite the monologue that just might get you the career advancement you’ve been looking for to someone higher on the food chain, without warning or explanation. Then walk out of the room or bathroom stall you kicked open to get the job done, and tell me how it went.
For those of you slow on the uptake, the lines I’m talking about are this:
You stupid fucking cunt. You, I’m talking to you shithead. You just cost me six thousand dollars. What are you going to do about it? What are you going to do about it…asshole? Who ever told you that you could work with MEN? I don’t care whose nephew you are or whose dick you’re sucking on. You’re done….you fairy!
Something to keep in mind next time you want to tell the guy who sits next to you “I wouldn’t fuck AIG with Charlie Gasparino’s vagina,” Mr. Frank. From the firm’s 10Q, per Michelle Leder:
To date, this scrutiny and extensive commentary has adversely affected AIG by damaging AIG’s business, reputation and brand among current and potential customers, agents and other distributors of AIG products and services, thereby reducing sales of AIG products and services, and resulting in an increase in AIG policyholder surrenders and non-renewals of AIG policies. This scrutiny and commentary has also undermined employee morale and AIG’s ability to motivate and retain its employees. If this level of scrutiny and criticism continues or increases, AIG’s business may be further adversely affected and its ability to retain and motivate employees further harmed.
Oh, and retired chairman Edmund S.W. Tse is still getting office space, administrative support, a car and driver, hotel accommodations, club memberships, and first class travel between Hong Kong and New York. No big! AIG: Blame The Negative Publicity [footnoted.org]
Back when rates looked cheap, it became habit to sell financing and swaps and the like to municipalities (perhaps not the brightest municipalities) for infrastructure projects. Now that the terms of the related debt are blowing up badly, states like Alabama want their money bank, and JP Morgan on a platter.
The potential sanctions by the U.S. Securities and Exchange Commission, disclosed yesterday in two sentences of a 162-page quarterly regulatory filing, relate to a series of bond and interest-rate swap sales in 2002 and 2003 for sewers in Jefferson County, which covers about 1,125 square miles including Birmingham, the state’s largest city with more than 240,000 residents.
Since credit markets seized up in 2007, Jefferson County’s annual sewer debt payment more than doubled. At least seven former JPMorgan bankers are under scrutiny in a Justice Department criminal antitrust investigation of the sale of unregulated derivatives to local governments across the U.S., federal regulatory records show.
We suspect this will be but the first of these, as the big banks shamelessly pursued business in this area and there are a lot of deals that have blown up badly since municipalities signed on the dotted line. JPMorgan May Face SEC Charges Over Alabama Bond Deals [Bloomberg]
If shareholder Evelyn Davis has anything to say about it, yes! Goldman’s annual investor meeting is under way and Davis, who Dealbreaker has previously documented attends these things with the sole purposeof looking to score somea that hot chairman ass,* took the mic to offer the following in Friedman’s general direction. (If you’re not familiar with E-Dav, we suggest you take two to listen to this clip in order to better understand how soil-himself-terrifying the delivery was for Even Stephen.)
Mr. Friedman, pack-up your bags and go! You should leave right now, never to be seen again. You are a disgrace to Goldman Sachs. Why don’t you take your bag and get the hell out of here.
Unsurprisingly the GSE is still a sink hole that cash is proving difficult to fill. Instead of growing out of the training wheels, the increased burden of debt has bent the brackets, cracked the frame and flattened both tires:
Fannie Mae’s first-quarter loss ballooned on surging credit losses as the company and the Treasury Department reached agreement on a deal that doubled the government’s support level to $200 billion.
The deal, which Fannie said in a filing with the Securities and Exchange Commission was reached Wednesday, has been keeping the company afloat while under conservatorship as credit losses exploded.
Fannie requested another $19 billion Wednesday, which if approved through a preferred-stock purchase would put the total given by the government at $35.2 billion. The stock pays a 10% yield.
This is amusing considering the GSEs are being used as a tool to spike lending and, one is expected to believe, reflate the economy. Expect another large and splashy collapse into a muddy puddle and more than skinned knees this time. Fannie’s Loss Swells; Treasury to Bolster Support [The Wall Street Journal]
ECONOMISTS aren’t known as sex symbols, but Nouriel “Dr. Doom” Roubini of NYU’s Stern School of Business “was mobbed by a swarm of young women” the other day at the PEN/New York Review of Books seminar on the economy, at the Metropolitan Museum of Art. Photographer Marina Garnier reports Roubini, who predicted the economic crisis in 2006, “gave his card to all who wanted it.” Such adulation was not bestowed on George Soros, Bill Bradley and Niall Ferguson, who was booed when he slammed growing federal deficits, saying, “Well, if you want the Soviet system to come back . .
Professor Love [Page Six]
Related: Dr. Doom’s tips for entertaining: “Fun people and beautiful girls,” Roubini said, grinning. “I look for ten girls to one guy.” His friend Bill Clinton, he added, is a fan of this ratio.
