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From Bloomberg: Fed's Bear Stearns Losses Dominated by Commercial Mortgages, Report Shows

The biggest losses in the $25.7 billion portfolio of Bear Stearns assets as of the end of last year came from commercial and residential mortgages. The Fed released the report in Washington today. The central bank agreed in March 2008 to buy the assets so JPMorgan Chase & Co. would acquire Bear Stearns and avert the broker’s bankruptcy.

The Fed wrote down the value of commercial mortgage holdings by 28 percent to $5.6 billion and residential loans by 38 percent to $937 million as of Dec. 31, the central bank said in a report today.

The Senate voted 96-2 earlier this month to urge greater disclosure by the Fed, including on the collateral taken on in the bailouts of Bear Stearns and American International Group Inc.

Now that's what I call a writedown. They wrote down those commercial assets by 28% BEFORE the 2nd largest holder of commercial real estate filed for bankruptcy. Be awared that I have probably peformed more analysis on GGP than GGP itself. Many of GGP's properties are underwater, and they are bankrupt. This means that those mortgages are going to take HUGE haircuts, and some of those non-recourse loans (there were a lot) will literally get beheaded. 28% just won' t do it. Let's be conservative and just apply this haircut to Goldman's numbers, though.

Q4-08

Off balance sheet hit to assets

     

 

Off balance sheet (VIE) RE assets

The hit to be taken if one applied the gov's writedown to VIE/on balance sheet assets

GS's share of the losses (#)

GS's share of the losses, %

Mortgage CDOs

 $   13,061,000,000

 $               3,657,080,000

 $    1,645,686,000

45%

Real estate

 $   26,898,000,000

 $               7,531,440,000

 $       979,087,200

13%

 

       

Mortgage and other asset-backed loans and securities

 On balance sheet

     

 

 $   22,393,000,000

 $               6,270,040,000

 $    6,270,040,000

100%

Totals

 $   62,352,000,000

 $              17,458,560,000

 $    8,894,813,200

 
         
   

Goldmans Tangible equity

 $  57,923,000,000

 
   

Sans writedowns before bankruptcy

 $  49,028,186,800

 
   

Percent difference

15.36%

 
         

Off balance sheet hit to assets

38%

   

 

Off balance sheet (VIE) RE assets

The hit to be taken if one applied this year's potentil losses to VIE assets (38% markdown - conservative)

GS's share of the losses (#)

GS's share of the losses, %

Mortgage CDOs

 $   13,061,000,000

 $               4,963,180,000

 $    2,233,431,000

45%

Real estate

 $   26,898,000,000

 $              10,221,240,000

 $    1,328,761,200

13%

 

       

Mortgage and other asset-backed loans and securities

 On balance sheet

     

 

 $   22,393,000,000

 $               8,509,340,000

 $    8,509,340,000

100%

Totals

 $   62,352,000,000

 $              23,693,760,000

 $  12,071,532,200

 
         
   

Goldmans Tangible equity

 $  57,923,000,000

 
   

Sans writedowns before bankruptcy

 $  45,851,467,800

 
   

Percent difference

20.84%

 

  So looking forward just a little bit, Goldman has lost 20% of its equity, and that is just on real estate exposure. But wait, I just heard that the government is serious about pushing the auto manufacturers into bankruptcy. GM's 8.375 percent notes due in 2033 fell less than 1 cent on the dollar on Tuesday before last (and probably lower now) to 9 cents, yielding more than 91 percent, according to MarketAxess data. Goldman has another $59.5 BILLION dollars of exposure to corporate loans, and I am sure a decent direct exposure to GM an Chrysler. Just imagine a 91% writedown to just a small portion of that and a 30% writedown to 80% of the balance. If you see what I see, then you see Goldman's equity quickly approaching zero! The bankruptcies are just getting started, and we are just in the first few innings of the commercial real estate downturn. Hey, we are not even halfway through the residential real estate downturn. Is this enough to kill a big bank? Ask the CEOs of Bear Stearns or Lehman, or better yet ask the CEO's of Goldman and Morgan Stanley why they had to rush to get a bank charter expedited. Did they really intend to give away toasters with free savings accounts???

Well, we know that we aren't playing on a level playing field, don't we?

 


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