What Vintage Was That?
My last Merrill post until the next big writedown (or investigation / indictment):
The Merrill sale involved "U.S. super senior ABS CDO, the majority of which comprises older vintage collateral – 2005 and earlier."
2 0 0 5 !
How many "Vintages" might we have left? 2 0 0 6, 2 0 0 7?
I am curious as to how much more junk is throughout the financial system.
~~~
What Say Ye?
Tuesday, July 29, 2008 | 09:08 PM | Permalink
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I assume by collateral they mean mortgages, and not RMBS that went into the CDOs.
Posted by: Barry Ritholtz | Jul 29, 2008 9:09:52 PM
the answer is the same as how many licks does it take to get to the center of a tootsie roll pop? we have no idea how much garbage they've packaged, repackaged, priced, repriced, recategorized, resold. nothing would surprise me at this point.
Posted by: Richard | Jul 29, 2008 9:13:16 PM
If I had to quantify it, I'd say it's at least a buttload.
Posted by: Marcus Aurelius | Jul 29, 2008 9:14:53 PM
I understand that Merrill financed this effort to move these pigs off their Balance Sheet. Where did they get the Billions to do this? Seems to me they just put this junk, or the liability for it, back "on the books"? What am I missing?
Posted by: wayne brewster | Jul 29, 2008 9:33:33 PM
barry:
where do you see it was of 2005 vintage.
if true, then CDOs from later years are worthless
~~~
BR: Its verbatim from the press release:
"On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier."
Posted by: sammy | Jul 29, 2008 9:45:03 PM
Barry,
The way that I read the following sentence from the linked article, it appears that the remaining $8.8 billion, not the assets sold, is from 2005 and earlier (implying that they sold the trashiest of the trash)
"On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier."
~~~
BR: The lawyer in mean strips out the modifying clause, and looks at what the date is actually describing.
A translation from inartful legal speak into English is: "This sale of vintage 2005 paper reduces Merrill Lynch’s CDO long exposure from $19.9 billion to $8.8 billion . . ."
Posted by: MK15 | Jul 29, 2008 9:48:43 PM
10 cents on the dollar seems to be the new bottom. Can't wait for the Olympics to end, then things ought to start to get interesting!
Posted by: Dickeylee | Jul 29, 2008 9:52:25 PM
Seriously, don't you guys realize there is a woot off going on right now - isn't that more important than another bank write down.
And on reflection, maybe thats the creative solution Paulson / Bernanke really need to set up for these crappy CDOs. A big US financial market woot off, who knows what will be in the final bag of crap!
Posted by: Bob Abouey | Jul 29, 2008 9:56:11 PM
WTF?
I don't really get into the "news" of the day...100% pure technical trader....SP500 bounced perfectly off of 61.8% retrace at 1235, in case you still don't believe in technicals....
BUT, I must say this....
Bob "I only know what I hear" Pisani was reporting today that it was 2006 and later paper that they were dumping. He even pointed out that the older stuff they had should be performing better.
Complete MISREPORTING. When I heard that from him....I even said to myself...."Well, that's NOT HUGELY BEARISH...they dumped the most toxic stuff at $.22....OK."
But, shit. If this was 2005 and earlier....and they had to sell that shit at .22 with 75% loan....then WTF is up with the 2006 and newer garbage.
Can't wait for the commercial loan portfolios to start coming under some "contained stress."
Mervyns and Bennigan's went tits up today....so that must be the bottom, right?
Remember: in modern times, economic DEPRESSIONs usually begin with a real estate bust.
- AT
Posted by: Andy Tabbo | Jul 29, 2008 9:57:05 PM
MK 15:
That was my reading of it too. They kept the stuff from 2005 and earlier which was perceived to be of higher quality before lending standards had been discarded completely.
Posted by: John | Jul 29, 2008 9:58:36 PM
i'm not expert on CDOs and tranche jargon, but i thought 'super senior' was the 'AAA' rated tranche, the stuff that was supposedly so safe that they garned the great rating and that anyone (pension funds, 401ks, money markets, other investment vehicles that cant [knowingly] invest in super risky stuff) can buy. they sold THAT for 5 cents on the dollar? holy sheeeeet...
Posted by: jhunt | Jul 29, 2008 10:00:09 PM
my read of the press release is that the "2005 and earlier" stuff is what they have left after the sale; it's the vintage of what they sold that's less clear
Posted by: dan p | Jul 29, 2008 10:03:07 PM
Sorry for the earlier rant...just sort of disgusted with U.S. banks right now....
As i read the press release, it seems impossible to know what was sold. They clearly kept 8bn of some 2005 and older stuff, but it's supposedly hedged anyway....so they won't gain from any upside if those loans are actually good.
I'm guessing they "hedged" when things were really bad....
So, basically, MER has realized probably 20-30bn in loss on "super senior" debt obligations that totaled about $40bn....freaking brilliant.
- AT
Posted by: Andy Tabbo | Jul 29, 2008 10:08:20 PM
The real news today is this. Looks like the cat got out of the bag a little early.
SEC Extends Emergency Short-Sale Order Thru August 12Last update: 7/29/2008 9:27:08 PM
By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Emergency restrictions on short-sales in 17 Wall Street firms and housing-finance giants Fannie Mae (FNM) and Freddie Mac (FRE), due to expire just before midnight Tuesday, have been extended through August 12, the Securities and Exchange Commission announced. The SEC issued the emergency order on July 15, citing concerns that rumor-mongering could spark "sudden and excessive fluctuations" in stock prices and disrupt the fair and orderly functioning of U.S. markets. The SEC said once the order expires on August 12, it "will not be further extended." If regulators want to continue the short-selling restrictions for the stocks, they would need to do so through rulemaking. The lengthy federal rulemaking process could be accelerated by issuing interim final rules that are effective immediately but still subject to public comment and possible revisions in the future. Expanding the restrictions to other stocks could be next...
Posted by: Jim | Jul 29, 2008 10:10:02 PM
Barry why do you ask such things. You know whats coming.
Posted by: Noah | Jul 29, 2008 10:10:34 PM
Just looking at the previous home sales chart new low levels now reached its possible to draw a trend line from 1982 to 1991 to 2008 and join the bottoms. 1991 to 2008 makes the current level a 17 year low. Thats pretty low.
It is of course wise to consider all possible scenarios. Could this be the low point for house sales volume? What would the effect be of a recovery in volume and a stabilization in prices be for the troubled banks?
Consider that house prices have been declining now for 3 years. The cost of building houses has not declined. Keep an eye on that inventory I say.
Posted by: Simon | Jul 29, 2008 10:11:11 PM
I would speculate the remaining vintage was exchanged for some Federal Reserve alphabet soup.
Posted by: bored | Jul 29, 2008 10:14:21 PM
The 2005 numbr I saw on Bloomberg. If the 2005's are close to worthless, then 2006, 2007 will fare better for a while, on paper anyway.
The toxic loans written in 2005 are resetting , and loss of equity value is hurting them from the peak in 2005.
I think the 2006, 2007 vintages will in time be just as bad.
I want to know more about their monoline XL Capital .
Posted by: Wenzi | Jul 29, 2008 10:15:10 PM
How much more junk ?
uh, wild guess, all of it ?
If you can't sell it, you don't need a CPA to tell you that the value is exactly $0.00
Posted by: sysin3 | Jul 29, 2008 10:21:13 PM
Barry,
How can you be asking "factonista" questions at a time like this? We just witnessed the greatest comeback since Lazarus! You don't investigate or indict miracles, you rejoice. Only geeks ask questions like, "how much longer did he live after resurrection?"
Alright, alright, maybe what we witnessed in the financials today was more like a zombie movie than a divine experience, but that's not important either.
I like to think of myself as a "zombie-half-alive" kind of guy.
Posted by: mark mchugh | Jul 29, 2008 10:24:05 PM
Love you Barry, but reading the press release, you clearly misread - they are touting the fact that the majority of their remaining collateral is pre- 2005 vintage.
"On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier."
Still, I think the better approach would have been cdo.woot.com - one day, one vintage, no returns!
~~~
BR: Put aside my legal linguistical skills, and think about which years are resetting in great numbers and defaulting.
The progression is chronological, and the earlier years go bad before the later years.
Recall that both House prices and volume peaked in 2005...
Posted by: Bob Abouey | Jul 29, 2008 10:34:04 PM
how much more junk is throughout the financial system?
as bryan ferry might say..."more than this"
Posted by: brion | Jul 29, 2008 10:54:24 PM
We'll know the answer in 3-5 years.
Posted by: Movie Guy | Jul 29, 2008 10:54:53 PM
Only about 5 trillion more to go, we need to force the theives and liars to come clean with the level 3 assets
Then after they come clean with the level 3 assets we'll reset just in time to get sunk with the alt A, option arm and commercial real estate mess.
This will go on so long that most investors will either throw in the towel or they will get cleaned.
Posted by: easy$ | Jul 29, 2008 11:00:40 PM
Thain said there are no more write offs coming, and we all know he is always truthful. MER stock is up, new issue coming. Time to load up. BUY, BUY, BUY!
Posted by: anonymous | Jul 29, 2008 11:21:06 PM
