• 03 Dec 2012 at 3:44 PM

Greece Sells Low, Buys High

Here is a thing that might be worth considering about this here Greek bond buyback:

That’s the entire history of the shortest-dated of bonds targeted for a buyback at, you might notice, their all-time high price.1 Various people have various reactions to this but one reaction that no one can have is of the variety of “well, I paid more than that to buy it, so I’m not selling it to you for less, since I live in a non-mark-to-market dreamworld.” Nobody paid more to buy these bonds than Greece is planning to.2

At least, not in money. Some people paid for these bonds in suffering; others – most others – paid for them in the form of old Greek bonds, which once upon a time were, I guess, worth 100 cents on the dollar. Later, they weren’t. Eventually they were rounded up in a restructuring where every €1,000 of old bonds got exchanged into €315 face amount of new bonds, €150 face amount of let’s say par-ish EFSF notes, and €315 face amount of Greek GDP-linked securities which were worth around nothing. The total package was worth around €210-250, depending on what day you looked at it, which if you do the math assuming the EFSF bonds were worth par and the GDP warrants zero, gets you a value for those new bonds of €60-100, or 19 to 32 cents on the dollar of face amount.3 Read more »

  • 11 Sep 2012 at 11:34 AM

How Much Did The Government Make On AIG, Anyway?

AIG priced a giant stock offering last night at $32.50, making the government rich. A really really simple question you could ask about AIG is “how’s the government doing?” and I Googled around for the answer yesterday and got increasingly frustrated, then angry, then drunk. Why can’t someone tell me that? The answer has to do I think with competing interests and secrecy and embarrassment and innumeracy both real and tactical, and I could write a book about it but won’t.1 Instead, I will just tell you how the government is doing on AIG, and then you will know.2

  • The government has gotten back $12.3 $15 billion more than it put into AIG so far, plus it has about $10bn $8 billion worth of AIG shares left over. (This is what the government says too, to within rounding error.) [Update: revised for greenshoe exercise.]
  • So, great!
  • Its IRR is 3.2% 3.9%, or 5.7% if you assume it sold the remaining AIG shares today (which: it didn’t).
  • If you assume the government’s cost of capital for the bailout was 3.04%, or roughly 5-year Treasury rates as of the time they signed on to this almost 5-year bailout, then the government’s made an economic profit (returns in excess of cost of capital) of $600 million $3 billion, or $9.9 billion including the remaining AIG shares.
  • If you assume the appropriate discount rate for the bailout was 12%, or roughly what AIG’s initial Fed credit facility paid, then the government has undercharged AIG by about $26.3 $24.6 billion, or $19.7 billion including the remaining shares.
  • Neither is a good assumption.3
  • The end.

Here’s a chart:

Here is the math. Here is a footnote with sources, caveats, instructions for correcting errors, etc.4 Read more »

  • 16 Aug 2012 at 3:32 PM

Let’s Spot A High Yield Bubble!

The Times and the Journal today are pretty excited by the new high yield bubble and I guess? What is the deal with high-yield yields being not as high as high-yield yields have been in the past, yield-wise? The answer may be giddiness:*

“In a yield-starved world, high-yield bonds are right now the only game in town,” said Les Levi, a managing director at the investment bank North Sea Partners. “The market is giddy.”

How giddy? 5.375% giddy, that’s how giddy:

The $700 million bond Nuance Communications sold last week looks like a textbook high yield deal, except it doesn’t have the yield. … Underwriter Barclays managed to squeeze 5.375% yield out of the fund managers who bought the eight-year deal. That’s almost half the 9.55% average of Barclays US Corporate high yield index since 2002 and is right above the 5.1% average yield of the bank’s investment grade bond index over the same time period. The average interest rate – or coupon – on new junk bonds over the past 30 years has been 11%, according to Thomson Reuters. …

But the top determinant of high yield bond performance, the default rate, is headed the other way. The trailing twelve-month default rate rose to 2.7% in July from 2% at the end of 2011, according to Standard & Poor’s. The rating agency expects defaults to hit 3.7% by this time next year, within hailing distance of the 4.5% 30-year average for speculative-grade bonds.

Because I was bored I went and modeled that Nuance deal in a stupid way. Here is my model. Read more »

Have you ever wanted to bring the same methodical organization and analytical rigor to your dating life that you bring to your work product? Did you think to yourself, “Excel, of course,” and proceed to create a spreadsheet that included not simply the names, phone numbers, and photos of the people you were either in the early stages of dating or had in the “pipeline” but the last time you communicated, the last time (if ever) you saw each other, and your initial thoughts on said person? A document that did not allow you to input a number in the “age” column but had you instead choose one from a drop-down list (18-30), just as it constrained you from entering a value of less than 7.0 in the “appearance” field, lest you attempt to veer off course with someone underage, old, or not up to an acceptable level of hotness? Did you tell a person included in said document about its existence and did you proceed to send it to her, hoping it wouldn’t “backfire”? At least one financial services professional knows what that’s about. Read more »

Rebecca Rickwood is a 15 year-old girl living in the UK whose name should make you quake in fear. What about a 15 year-old girl could you possibly have to be afraid of? How about the fact that she could whip up a spreadsheet in the time it takes you to fill out your first cell, and could have your job and the jobs of 50 of your colleagues if she wanted? Read more »

Paul Greenwood is a hedge fund manager who is probably going to go to jail for defrauding clients in a Ponzi scheme, which he pleaded guilty to a few weeks back. For that he does not deserve your sympathy or pity. What he did was wrong. But he’s also a man who today is having the one thing he cared about most in this world taken away from him. The only thing he cared about. The thing he loved most. Naturally, I refer to his prized Teddy Bear collection. Read more »

Training the Street will teach anyone willing to fork over the $6,000 tuition for a five-day “core skills” workshop. But most of the firm’s classes in financial accounting, corporate valuation, and merger/buyout analysis are packed with new hires from firms like Goldman Sachs, Morgan Stanley, Citigroup, and Deutsche Bank. Every year, more than 20,000 young financiers participate in a program Training the Street founder Scott Rostan calls “banker boot camp.” Savelyeva’s first assignment: Take a sloppy, ill-formatted spreadsheet and clean it up as quickly as possible. As the class raced to align numbers and reformat cells, she mentioned that the record belonged to an analyst at the investment firm Moelis & Co., who finished in 35 seconds last year. I was still trying to change font sizes when Savelyeva called a halt to the contest after seven minutes. “Remember, guys: Instead of typing out the sum function, you can just hit alt-equals and press enter,” said Savelyeva, leading the group through a five-year projection of amortization expenses for the handbag manufacturer Coach, Inc. “We’re saving time here! This should bring some joy to your hearts!” [Daily Intel]

First off, Greg doesn’t want to be famous and he says he’s “looking forward to being anonymous again.” The be-sideburned trader (in Greg Zuckerman’s The Greatest Trade Ever his ‘burns are described as “unusually long and thick” and in Michael Lewis’s The Big Short as those of a “1970s porn star”) announced this desire in a recent profile with which he not only cooperated but sat for on two separated occasions and spoke on the record, the genius of which is yet to reveal itself. Second, those hilarious “I’m short your house” shirts he had made back in ’06 when he was one of the few making hugely bearish bets on the housing market? He didn’t come up with that tag-line. “It’s juvenile. It’s funny in March of ’06 when everybody calls you Chicken Little. It’s not funny now,” he told the Observer. “It wasn’t my idea—that’s a fact, on my kids’ lives. … I definitely did not, on my kids lives. Somebody gave it to me.” Third, to those who think Lippmann comes off as “dickish” in Zuckerman and Lewis’s narratives, that’s just plain wrong. Read more »