Tags: cds, David Einhorn, Greece, Greenlight Capital, short selling
Bloomberg reported today that, back in July, David Einhorn and some other people decided that (1) betting against European sovereign debt was, and would remain, a good idea, but (2) doing it in CDS form was kind of dumb, so (3) they’d switch to doing it in physical form, by borrowing and shorting the debt. Here’s what Einhorn had to say in his July investor letter:
The letter touched on two risks tied to credit swaps on European sovereign debt, including regulators’ attempts to fashion a Greek bailout in a way that prevented the contracts from paying out. The second risk was the possibility that banks that wrote billions of dollars in credit swaps on sovereign debt might not be able to make good on their obligations should a country such as Greece actually default.
Let’s talk about that first reason for a minute because I think it’s sort of illuminating. The problem is that Europe was in July, and is now, and wow that’s depressing, trying to cobble together a “voluntary” debt exchange where holders of Greek debt happily hand it in to Greece and get back a thing with a 50% face value haircut that is also a piece of crap. If you’re a European bank who owns Greek bonds and CDS to hedge them, and you feel pressured to accept that deal, then you feel like the “insurance” you bought on your bonds should “pay out,” I suppose, though that’s all fairly hypothetical. If on the other hand you’re David Einhorn and you bought CDS and then Greece haircuts its debt, you feel like your bet against Greek debt has been vindicated so it should pay out. But it doesn’t, says ISDA, because the exchange was voluntary and there was no “credit event” under the rules governing your CDS. Read more »
Tags: all in all not bad for 18 months of "work", David Einhorn, hard work, letters to investors, loans that were secured by portable toilets and bowling balls, portable toilets, real estate, she works hard for the money, SJB Escrow Corp, Stephen Ross
Real-estate developer Stephen Ross and his partners spent more than a year digging into U.S. banks, including more than 100 with loans to local bakeries, gas stations and amusement parks. They hoped to spend about $1.1 billion buying or investing in lenders. But the deeper they went, the worse things looked. As a result, Related Cos., the New York firm in which Mr. Ross is chief executive, gave back the money it raised from roughly 150 investors, including hedge-fund manager David Einhorn. The firm did find several investments it was interested in but was outbid. In a prospectus, SJB had told potential investors: “We believe the environment presents a significant opportunity for SJB to consummate an attractive acquisition of one or more institutions, whereas the current weakness in the banking sector and a potential long duration of any recovery create a favorable long-term environment to build a successful commercial bank.” Terms of the pool required SJB to invest the money within 18 months [but]…with the clock ticking on its 18-month deadline, Messrs. Ross, Blau and Beal sent a letter to investors Aug. 18 informing them that the fund would be liquidated. Investors received roughly 97 cents on the dollar after expenses. Mr. Blau, Related’s president, had led the effort to find potential investments for the fund [and] in many cases, didn’t liked what he saw, including loans that were secured by portable toilets and bowling balls. “It was a lot of work, and it was hard to make the numbers work,” he said. [WSJ]
Tags: baseball, David Einhorn, fools, hedge fund managers, JK...JK I'm serious, The Mets
In a statement, the Mets said, “After months of negotiations, the parties were unable to reach agreement, and the Mets ownership has decided to explore other options.” [NYT, earlier]