Friday, 22 October 2010 03:04

Four Facts That BANG JP Morgan That You Just Won't Hear From The Sell Side!!!

The full 3rd quarter forensic analysis and valuation update for JP Morgan is now available for all subscribers: File Icon JPM 3Q 2010 Forensic Update. The download is a much more detailed version of the (not so) quick overview I posted the day after earnings that reveals some very interesting points. All in all, the JPM quarter was quite bad, considerably worse than the media appears to be making it out to be. I have taken the liberty to include some of the highlights of interest in this blog post. While the hardcore actionable stuff is reserved for clients, I feel there are a few topics of discussion that demand public attention. I would like anybody who reads this to go to their local broker (or prime broker) and get a copy of their JP Morgan quarterly research opinion and update - regardless of the source(s). If the four issues that I have discussed in this blog post are NOT PRESENT in your (prime) broker's report(s), I respectfully request that you do yourself a favor - subscribe to BoomBustBlog.com and download the report linked above, which includes valuation as well. I will be offering an extra download for professional and institutional subscribers interested in granular, detailed loan, charge-off and derivative holdings in the near future.

FACT ONE: First and Foremost, JP Morgan has been DESTROYING Shareholder Value for TWO Years Running, and I Don't See It Getting Much Better Any Time Soon! That Two Years Is Exclusive Of The Devastating 2008 Market Crash!

Getting back to the issue of Wall Street's sell side analysis, the biggest problem I have with them (outside of rampant conflicts of interest, which is probably not the fault of the individual analysts) is the abject reliance on accounting figures to measure and value an economic entity such as a business as an ongoing concern. Let' be frank here, accountants, albeit probably quite smart, don't necessarily make the world's best investors. As a matter of fact, practically every accountant I know comes to me for my investment opinion and I make a horrible accountant. Try and try as I might, I can only think of one accountant that has ever excelled at investing over time (not to disparage accountants, of course, with all respect due). Granted, this man is probably a damn genius, and he knows how to identify quality when he sees it - having created Canada's largest independent brokerage and independently its premier asset management firm with ~$6 billion under management - including the innovative physical gold trust. He has said, and I quote from Crain’s New York:

His work is so detailed, so accurate, it’s among the best in the world,” says Eric Sprott, CEO of Sprott Asset Management, a Toronto firm that manages about $5 billion and subscribes to Mr. Middleton’s research.

Yeah, I know that was cheesy, but I couldn't help myself :-) . Back to the matter at hand, accountants have not been - and currently are not, trained in the economic realities of corporate valuation. They are trained to tabulate business operations data. There is a marked and distinct difference. That difference is as stark as night and day for investors, yet despite this stark difference, Wall Street still reports corporate performance metrics strictly in accounting terms, and the media (both mainstream and the more specialized financial media) simply follow suit.

Hence we hear much about easily manipulable and manageable accounting earnings, revenues, operating margins, earnings per share, etc. These measures are highly flawed in a variety of ways, with the primary flaw being that they do not account for the efforts both required and undertaken to achieve them. Basically, they measure JUST HALF (and coincidentally, the positive half may I add) of the risk/reward equation that should be at the root of every investors move. Long story short, they do not account for, nor do they EVEN RESPECT, the cost of capital. This concept ties in closely with Chairman Bernanke's current course of action as well as the ZIRP discussion later on this missive demonstrates (capital offered at zero cost causes reckless abandonment of risk management principles which eventually causes crashes - yes, more crashes). Acknowledgment of the cost of capital enforces a certain discipline on both corporate management and investors/traders. Without respect for such, it is much too easy to create and portray a scenario that is all too rosy, since we are only looking at rewards but never bother to glance at the risks taken to achieve said rewards. I reviewed this concept in detail as it relates to bonuses and compensation on Wall Street in The Solution to the Goldman (and by Extension, the Securities Industry) Compensation Dilemma.

Net revenues, net profits, and earnings per share are totally oblivious to what took to generate them. As a result, anyone who adheres solely to these metrics is probably oblivious as well to what it takes to generate these measures. It's really simple, put more money into the machine to get more money out - damn the risks taken, or the cost of the monies used. This has been the bane of Wall Street for well over a decade, is the direct and sole reason for this current crisis, and is the reason why bonuses based upon revenue generation alone engender systemic risk. Just sell more, do more, to get a bigger bonus. It doesn't matter what you sell or who you sell it to, as long as it blows up AFTER the bonus is paid. This short term-ism is now so deeply ingrained within the investor psyche as to allow companies' to rampantly destroy economic shareholder value with the abject blessing of the shareholders, with cheer leading by the analysts - as long as those accounting earnings per share keep rolling in higher and higher!

Ignoring the cost of capital inflates returns by default, because those returns were never costed in the first place. The problem is, ignoring something does not make it go away. Capital does have a cost whether you acknowledge it or not, and if you ignore that cost you may skate for awhile but eventually it will come back to reassert itself, and often with a vengeance towards the wayward investor. On that note, here is JPM's return on average equity - and here's JPM's return on average equity less the cost of said equity. It's negative, very, very negative!!!

 

FACT TWO: ZIRP is Literally Starving JP Morgan

Even as the Fed tries to reduce the cost of debt capital to damn near zero, bad things are still happening to those this exercise was meant to save. Why??? Because the responsible world wants capital to have a cost, for if it does, it enforces discipline upon those who use it - whether they acknowledge that cost or not (here's to you Wall Street).

In regards to JP Morgan and despite zero interest rate policy (ZIRP), fed funds as a proportion of interest bearing assets have increased due to lower risk appetite. The proportion of fed funds to interest bearing assets have increased to 12% as of end September 2010 from 7.7% as of end March 2009 while proportion of loans have declined to 35.8% from 38.9% in the corresponding period. Lower interest rates together with a higher proportion of lower interest bearing assets have taken a toll on banks spreads and net interest margin.

 

ZIRP, low demand, plus the slow investment banking environment is what forced a disgorging of reserves and provisions by management. In a catch 22, ZIRP is not so slowly starving the patient it was intended to save. This is analogous to the use of chemotherapy in treating cancer. The treatment needs to eradicate the disease in confined period of time or the patience is at risk at succumbing to the treatment, itself.

 

FACT THREE: The JP Morgan Foreclosure Pipeline is Not Only Packed Tight, It Is Progressively Getting Much Worse As The Time To Foreclosure Extends AND the Delinquency Rate Continues to Climb At The Same Time That Real Economic Housing Sales Value Is At An All Time Low As Well - and Getting Worse!!!

Future Losses Are Mounting at an Incredible Pace Yet JPM is reducing provisions due to improving credit metrics. See JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!! and JP Morgan’s Analysts Agree with BoomBustBlog Research on the State of JPM (a Year Too Late) but Contradict CEO Jamie Dimon’s Conference Call Statements

JP Morgan’s average delinquency at foreclosure is 448 days (with Florida and New York having a record 678 days and 792 days of delinquency at foreclosure). Average delinquency for the industry is about 478 days and is increasing consistently since the start of the crisis.  During 2009 the average days from delinquent to foreclosure process was 223 days while as of August 2010 average days from delinquent to foreclosure process is 478 days. A very important, yet often under appreciated fact is that although serious delinquencies are still climbing, the lengthening of foreclosure process has resulted in these loans still being classified as delinquent. The difference between delinquency rates and foreclosure rates has increased to 5.3% (9.8% delinquency rate vs 4.6% foreclosure rate) in August 2010 from 3.6% in March 2002 (5.1% delinquency rate vs 1.5% foreclosure rate). As the difference between delinquencies and foreclosure rates normalizes, and shadow inventory overhang moves to further depress real estate prices, real estate related write-downs could further balloon. So, you see, the marginal improvements in credit metrics that JP Morgan's management has used to justify the releasing of provisions (which also just so happened to have padded a weak quarter of accounting earnings) is really kicking the can of reckoning down the road...

 

Add to this the difficulty in getting rid of the properties once they are foreclosed upon and you will find that the big banks such as JP Morgan (or after looking at these numbers, particularly JPM (although I suspect BAC and certain others are worse off) will become the nations largest distressed residential housing REITs!!!

 


 




 

 

FACT FOUR: JP Morgan's Derivatives Portfolio Is STILL VASTLY Inferior To That of Bear Stearns AND Lehman Brothers Just Before They Collapsed!!!

The oft used chart below was created in the 4th quarter of last year.

Click graph to enlarge

image001.png

Here is an update as of Q2 2010 regarding JPM's net derivative exposure...

As you can see, the AAA holdings have been trending down significantly, replaced by materially lower rated assets.

Cute graphics above, eh? When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM's derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 36.9% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008). We all know what happened to Bear Stearns and Lehman Brothers, don't we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know  who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail – unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated - and we all know how prescient those rating have been. Then again, who would you put your faith in, the big ratings agencies or your favorite blogger? Hey, if it acts like a duck, walks like a duck, and quacks like a duck, is it a Swan??? I'll leave the rest up for my readers to decide. On that note, below is a chronological reconstruction of the Bear Stearns/Lehman fiasco from the BoomBustBlog perspective...

Hey, Big Wall Street Bank Execs Always Tell the Truth When They're in Trouble, RIIIIGHT????

Here's more of Alan Schwartz lying on TV in March of 2008

Meredith Whitney downgraded Bear Stearns today Friday, March 14th, 2008: "Yep, she did it. The ratings agencies are considering a downgrade. I thought it was a joke when I first heard it. Let's just imagine that I used these wise sources as an info source to make my money! The ratings agencies and sell sides are jokes that I can no longer laugh at."

It's a good thing no one listened to that damn blogger who has the gall to charge money for his research and opinion. We had to listen to him bitch and moan for 2 months before... Is this the Breaking of the Bear? (January 2008)"

Bear Stearns is in Real trouble

Bear Stearns will soon be, if not already, in a fight for its life... the biggest issues don’t seem all that prevalent in the media though. Bear Stearns is in a real financial bind due to the assets that it specialized in, and it is not in it by itself, either. For some reason, the Street consistently underestimates the severity of this real estate crash. If you look throughout my blog, it appears as if I have an outstanding track record. I would love to take the credit as superior intelligence, but the reality of the matter is that I just respect the severity of the current housing downturn – something that it appears many analysts, pundits, speculators, and investors have yet to do with aplomb. With a primary value driver linked to the biggest drag on the US economy for the last century or so, Bear Stearn’s excessive reliance on highly “modeled” and real asset/mortgage backed products in its portfolio may potentially be its undoing. This is exacerbated significantly by leverage, lack of transparency, and products that are relatively illiquid, even when the mortgage days were good."

Notice how the worse case scenario is economic insolvency - as in less than ZERO!

Book Value, Schmook Value – How Marking to Market Will Break the Bear’s Back

...  I can say that when I do watch it I hear a lot of perma-bulls stating that this and that stock is cheap because it is trading at or below its book value. They then go on to quote the historical significance of this event, yada, yada, yada. This is then picked up by a bunch of other individual investors, media pundits and other “professionals,” and it appears that rampant buying ensues. I don’t know how much of it is momentum trading versus actual investors really believing they are buying on the fundamentals, but the buying pressure is certainly there. They then lose their money as the stock they thought was cheap, actually gets a lot cheaper, bringing their investment down the crapper with it. What happened in this scenario? These investors bought accounting numbers instead of true economic book value. Anything outside of simple widget manufacturers are bound to have some twists and turns to ascertain actual book value, actual marketable book value that is. This is what the investor is interested in, the ECONOMIC market value of book, not what the accounting ledger says. After all, you are paying economic dollars to buy this book value in the market, so you want to be able to ascertain marketable book value, I hope it sounds simplistic, because the premise behind it is quite simple – How much is this stuff really worth?. The implementation may be a different matter, though. I set out to ascertain the true book value of Bear Stearns, and the following is the path that I took.

Then he had the nerve to come back with Bear Stearn’s Bear Market – revisited Friday, February 22nd, 2008

So, who was right?

The Bust that Broke the Bear’s Back? Monday, March 10th, 2008: My ruminations on Bear Stearns look to come into their own…

It looks as if the prudent should start debating the ability of Bear Stearns to remain a going concern Thursday, March 13th, 2008

Despite the Federal Reserve’s efforts Wall Street fears a big US bank is in trouble Thursday, March 13th, 2008: While I can't know for sure which IB it may be, my studies tell me it is either the Bear with the Broken Back or the Riskiest Bank on the Street, and that's where I'm concentrating my bets…

From the London Business Times: Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive. The name on most people's lips was Bear Stearns. [Hey, it pays to read the boombustblog.com. ...] “The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn't flush with cash and needed funds in a hurry,” Simon Maughan, an analyst with MF Global in London, said. Bear Stearn's new CEO states unequivocally that his balance sheet hasn't changed since November and that they have $17 billion of cushion. [He did not outright say that they were in good shape though. My concern was looking forward. They are a significant counterparty risk (along with Morgan Stanley) and they have significant illiquid level 2 and 3 assets as a percentage of tangible equity. In addition, 17 billion is not much considering the leverage and amount of illiquid assets held by this bank.]

And what happens after the fact? Yes, I can turn bullish as well...

Joe Lewis on the Bear Stearns buyout Monday, March 17th, 2008: The problem with the deal is that it is too low, and too favorable for Morgan. It is literally guaranteed to drive angst from the other side. Whenever you do a deal, you always make sure the other side gets to walk away with something.  If you don’t you always risk the deal falling though unnecessarily. $2 is a slap in the face to employees who have lost a life savings and have the power to block the deal. At the very least, by the building at market price and get the company for free!

BSC calls are almost free and the JP Morgan Deal is not signed in stone Monday, March 17th, 2008

This is going to be an exciting, and scary morning Monday, March 17th, 2008

As I anticipated, Bear Stearns is not a done deal Tuesday, March 18th, 2008

 

Reggie Turns Bearish on Lehman in February, before anyone had a clue!!!

  1. Is Lehman really a lemming in disguise? Thursday, February 21st, 2008
  2. Web chatter on Lehman Brothers Sunday, March 16th, 2008: It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?” I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now.
  3. I just got this email on Lehman from my clearing desk Monday, March 17th, 2008 by Reggie Middleton

Like I said above, it's not as if upper management of these Wall Street banks would ever mislead us, RIGHT????

Erin Callan, CFO of Lehman Brothers Lying giving an interview on TV in March and again in June of 2008.

Even if the big Wall Street banks would lie to us, we have expert analysts at hot shot, white shoe firms such as Goldman Sachs, who of course not only are "Doing God's Work" but also happen to be the smartest of the smart and the "bestest" of the best, RIIIGHT!!!??? Below we have both Erin from Lehman AND Goldman lying on TV in a single screen shot. Ain't a picture worth a thousand words???

We even had the inscrutable Meredith Whitney say "To suggest that Lehman Brothers is going out of business is a real stretch!" (She OBVIOUSLY DOESN'T READ THE BOOMBUST) as well as Erin Callan, the CFO of this big Wall Street bank on TV lying interviewing again...

But that damn blogger guy Reggie Middleton put his "put parade"short combo on Lehman right about that time, and had all of these additional negative things to say...

Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008

May 2008: I never got a chance to perform a full forensic analysis of Lehman, but did put a fair size short on them a few months back due to their “smoke and mirrors” PR (oops), I mean financial reporting. There were just too many inconsistencies, and too much exposure. I was familiar with the game that some I banks play, for I did get a chance to do a deep dive on Morgan Stanley, and did not like what I found. As usual, I am significantly short those companies that I issue negative reports on, MS and LEH included. I urge all who have an economic interest in these companies to read through the PDF’s below and my MS updated report linked later on in this post. In January, it was worth reviewing “Is this the Breaking of the Bear?”, for just two months later we all know what happened. I came across this speech by David Eihorn and he has clearly delineated not only all of the financial shenanigans that I mentioned in my blog, but a few more as well. Very well articulated and researched.

So, who was right? The Ivy league, ivory tower boys doing God's work or that blogger with the smart ass mouth from Brooklyn?

Please click the graph to enlarge to print quality size.

image006.png

 

Learn more about BoomBustBlog here: Who is Reggie Middleton!!!

A very interesting question, ,

More Reggie Middleton on JP Morgan

The full JPM Q2 review can be downloaded by subscribers (click here to subscribe) here: File Icon JPM 2Q10 review

Subscribers should also review our forensic valuation reports, which have (thus far) proven to be right on the money in terms of JP Morgan:

The JP Morgan Professional Level Forensic Report (subscription only)

The JP Morgan Retail Level Forensic Report (subscription only)

Those that don’t subscribe still have a lot of BoomBustBlog JPM opinion and analysis to chew on, including a free, condensed (but still about 15 pages) version of the forensic analysis above. You can find it below this pretty graphic from “An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less Roses Than the Maintream Media Presents“…

  1. An Independent Look into JP Morgan (subscription content free preview!)
  2. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 – JP Morgan
  3. Is JP Morgan Taking Realistic Marks On Its WaMu Portfolio Purchase? Doubtful!
  4. Anecdotal observations from the JP Morgan Q2-09 conference call
  5. Reggie Middleton on JP Morgan’s Q309 results
  6. Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results

 

I included this sidebar for those of you who have not followed me in the past. You can save some time and just review , but this is probably a lot more entertaining! I took the time to pour through my blog’s archives, and…

Hey, Big Wall Street Bank Execs Always Tell the Truth When They’re in Trouble, RIIIIGHT????

Here’s more of Alan Schwartz lying on TV in March of 2008

Meredith Whitney downgraded Bear Stearns today Friday, March 14th, 2008: “Yep, she did it. The ratings agencies are considering a downgrade. I thought it was a joke when I first heard it. Let’s just imagine that I used these wise sources as an info source to make my money! The ratings agencies and sell sides are jokes that I can no longer laugh at.”

It’s a good thing no one listened to that damn blogger who has the gall to charge money for his research and opinion. We had to listen to him bitch and moan for 2 months before… Is this the Breaking of the Bear? (January 2008)”

Bear Stearns is in Real trouble

Bear Stearns will soon be, if not already, in a fight for its life… the biggest issues don’t seem all that prevalent in the media though. Bear Stearns is in a real financial bind due to the assets that it specialized in, and it is not in it by itself, either. For some reason, the Street consistently underestimates the severity of this real estate crash. If you look throughout my blog, it appears as if I have an outstanding track record. I would love to take the credit as superior intelligence, but the reality of the matter is that I just respect the severity of the current housing downturn – something that it appears many analysts, pundits, speculators, and investors have yet to do with aplomb. With a primary value driver linked to the biggest drag on the US economy for the last century or so, Bear Stearn’s excessive reliance on highly “modeled” and real asset/mortgage backed products in its portfolio may potentially be its undoing. This is exacerbated significantly by leverage, lack of transparency, and products that are relatively illiquid, even when the mortgage days were good.”

Notice how the worse case scenario is economic insolvency – as in less than ZERO!

Book Value, Schmook Value – How Marking to Market Will Break the Bear’s Back

…  I can say that when I do watch it I hear a lot of perma-bulls stating that this and that stock is cheap because it is trading at or below its book value. They then go on to quote the historical significance of this event, yada, yada, yada. This is then picked up by a bunch of other individual investors, media pundits and other “professionals,” and it appears that rampant buying ensues. I don’t know how much of it is momentum trading versus actual investors really believing they are buying on the fundamentals, but the buying pressure is certainly there. They then lose their money as the stock they thought was cheap, actually gets a lot cheaper, bringing their investment down the crapper with it. What happened in this scenario? These investors bought accounting numbers instead of true economic book value. Anything outside of simple widget manufacturers are bound to have some twists and turns to ascertain actual book value, actual marketable book value that is. This is what the investor is interested in, the ECONOMIC market value of book, not what the accounting ledger says. After all, you are paying economic dollars to buy this book value in the market, so you want to be able to ascertain marketable book value, I hope it sounds simplistic, because the premise behind it is quite simple – How much is this stuff really worth?. The implementation may be a different matter, though. I set out to ascertain the true book value of Bear Stearns, and the following is the path that I took.

Then he had the nerve to come back with Bear Stearn’s Bear Market – revisited Friday, February 22nd, 2008

So, who was right?

The Bust that Broke the Bear’s Back? Monday, March 10th, 2008: My ruminations on Bear Stearns look to come into their own…

It looks as if the prudent should start debating the ability of Bear Stearns to remain a going concern Thursday, March 13th, 2008

Despite the Federal Reserve’s efforts Wall Street fears a big US bank is in trouble Thursday, March 13th, 2008: While I can’t know for sure which IB it may be, my studies tell me it is either the Bear with the Broken Back or the Riskiest Bank on the Street, and that’s where I’m concentrating my bets…

From the London Business Times: Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed’s unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive. The name on most people’s lips was Bear Stearns. [Hey, it pays to read the boombustblog.com. ...] “The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn’t flush with cash and needed funds in a hurry,” Simon Maughan, an analyst with MF Global in London, said. Bear Stearn’s new CEO states unequivocally that his balance sheet hasn’t changed since November and that they have $17 billion of cushion. [He did not outright say that they were in good shape though. My concern was looking forward. They are a significant counterparty risk (along with Morgan Stanley) and they have significant illiquid level 2 and 3 assets as a percentage of tangible equity. In addition, 17 billion is not much considering the leverage and amount of illiquid assets held by this bank.]

And what happens after the fact? Yes, I can turn bullish as well…

Joe Lewis on the Bear Stearns buyout Monday, March 17th, 2008: The problem with the deal is that it is too low, and too favorable for Morgan. It is literally guaranteed to drive angst from the other side. Whenever you do a deal, you always make sure the other side gets to walk away with something.  If you don’t you always risk the deal falling though unnecessarily. $2 is a slap in the face to employees who have lost a life savings and have the power to block the deal. At the very least, by the building at market price and get the company for free!

BSC calls are almost free and the JP Morgan Deal is not signed in stone Monday, March 17th, 2008

This is going to be an exciting, and scary morning Monday, March 17th, 2008

As I anticipated, Bear Stearns is not a done deal Tuesday, March 18th, 2008

 

Reggie Turns Bearish on Lehman in February, before anyone had a clue!!!

  1. Is Lehman really a lemming in disguise? Thursday, February 21st, 2008
  2. Web chatter on Lehman Brothers Sunday, March 16th, 2008: It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?” I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now.
  3. I just got this email on Lehman from my clearing desk Monday, March 17th, 2008 by Reggie Middleton

Like I said above, it’s not as if upper management of these Wall Street banks would ever mislead us, RIGHT????

Erin Callan, CFO of Lehman Brothers Lying giving an interview on TV in March and again in June of 2008.

Even if the big Wall Street banks would lie to us, we have expert analysts at hot shot, white shoe firms such as Goldman Sachs, who of course not only are “Doing God’s Work” but also happen to be the smartest of the smart and the “bestest” of the best, RIIIGHT!!!??? Below we have both Erin from Lehman AND Goldman lying on TV in a single screen shot. Ain’t a picture worth a thousand words???

We even had the inscrutable Meredith Whitney say “To suggest that Lehman Brothers is going out of business is a real stretch!” (She OBVIOUSLY DOESN’T READ THE BOOMBUST) as well as Erin Callan, the CFO of this big Wall Street bank on TV lying interviewing again…

But that damn blogger guy Reggie Middleton put his “put parade”short combo on Lehman right about that time, and had all of these additional negative things to say…

Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008

May 2008: I never got a chance to perform a full forensic analysis of Lehman, but did put a fair size short on them a few months back due to their “smoke and mirrors” PR (oops), I mean financial reporting. There were just too many inconsistencies, and too much exposure. I was familiar with the game that some I banks play, for I did get a chance to do a deep dive on Morgan Stanley, and did not like what I found. As usual, I am significantly short those companies that I issue negative reports on, MS and LEH included. I urge all who have an economic interest in these companies to read through the PDF’s below and my MS updated report linked later on in this post. In January, it was worth reviewing “Is this the Breaking of the Bear?”, for just two months later we all know what happened. I came across this speech by David Eihorn and he has clearly delineated not only all of the financial shenanigans that I mentioned in my blog, but a few more as well. Very well articulated and researched.

So, who was right? The Ivy league, ivory tower boys doing God’s work or that blogger with the smart ass mouth from Brooklyn?

Please click the graph to enlarge to print quality size.

image006.png

 

Learn more about BoomBustBlog here: Who is Reggie Middleton!!!

 

 

Last modified on Thursday, 11 August 2011 06:57

6 comments

  • Comment Link Andrew Macpherson Monday, 25 October 2010 10:09 posted by Andrew Macpherson

    Could you forward me this attorneys info, I have a mortage that has been shuffled between banks, and now supposedly resides with BoA, but they refuse to produce a note, so I am considering stopping paying, and creating a loan escrow account to see if I can take my home back from these criminals free and clear.
    Honestly I feel it is time for us the people to rise up against the bankster fraudsters who have broken our country and corrupted our politics.

    Report
  • Comment Link John Ryskamp Sunday, 24 October 2010 22:17 posted by John Ryskamp

    I said on another posting of yours that homeowners would be dragged in fraudclosure, and the legality of their title would be challenged. Below, from Naked Capitalism, shows you how this is starting to occur.

    What will happen next is that homeowners will stop paying property taxes, and sue any government entity which tries to move against them. They will allege that these government entities were conspirators in fraudclosure. By the way, they are right.




    A mortgage securitzation lawyer, via e-mail, went through some of the ways this might play out:

    It’s clear the parties intended a transfer. But it appears that they did not document the transfer. Based on the agreement, they described how the transfer should take place and then didn’t do it, apparently. Unfortunately, while this might have been the intention of the parties, they can’t produce any real, documented evidence that this mortgage is owned by the trust. I’ve provided affidavits that state that the requirements for a mortgage to be part of the trust are clear in the documents, that mortgages can’t be added to the trust after start up (as servicers have tried to argue), and that I see no evidence that this trust owns this loan.

    On one hand, the problem is easily cured – the party who is the documented owner of the loan could foreclose (the original lender). The problem with this is that the proceeds of the foreclosed property, including the recoveries intended to reimburse the servicer for advances, would have no mechanism for getting back into the trust.

    If the original lender foreclosed, took title and liquidated the loan, accountants would have an issue with how the proceeds could possibly end up back with the trust. The result would be a total loss for the trust for that loan.

    The servicer’s attorneys have no desire to go this route – it terrifies them.

    The servicer’s attorney’s could argue for some sort of documentary exception – that a mistake was made and the intention was for the trust to own the mortgage – an appeal to equity or fairness. Unfortunately, in many cases, they already submitted an affidavit stating that they had proper title and full right to foreclose in the name of the trust. So going this route would expose them to perjury.

    The appeal to equity or fairness, given the intent of the parties to the trust and the relatively minimal harm to the borrower, seems like a logical route – except that a number of judges would argue that fairness might dictate a fair outcome for the borrower, such as a real modification. And you still have the issue of the possible damages and legal expenses for a wrongful foreclosure action.

    The big argument people make against this approach is that the borrower is just a deadbeat who has failed to pay their mortgage, so there’s no reason why the borrower should be entitled to some sort of gain or benefit. While this may be true, real estate law is pretty clear – the party holding title is the one who should foreclose. Otherwise, someone else could come along after the improper foreclosure and be the actual title holder and sue the borrower for foreclosure and loan repayment again. The borrower is entitled to protection against this.

    Most people assume that the parties followed the terms of the trust agreement – it’s so basic and fundamental to all MBS. It is hard to grasp that they screwed this up. As a result, it takes some work to pull through everything and see what actually happened. Without the mortgage documents showing the current title, combined with the affidavits from the foreclosure attorney, I wouldn’t have believed it myself.

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  • Comment Link Domarius Raines Saturday, 23 October 2010 21:37 posted by Domarius Raines

    Excellent analysis on JP and I concur with your assessment but what is the chance of them getting bailed out by our beautiful government? Second, if the situation does play out as you suspect, how long before the implosion 6 months? a year? put options would work well with this investment play....-)

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  • Comment Link NDbadger Saturday, 23 October 2010 11:04 posted by NDbadger

    BAC looks even worse.

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  • Comment Link John Ryskamp Friday, 22 October 2010 12:57 posted by John Ryskamp

    "A very important, yet often under appreciated fact is that although serious delinquencies are still climbing, the lengthening of foreclosure process has resulted in these loans still being classified as delinquent."

    You need a clearly defined third category for these mortgages which are far beyond delinquent but yet to be foreclosed on. Since the reason is politics, I suggest you call mortgages "monetized mortgages," as opposed to "delinquent mortgages" and "foreclosed mortgages."

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  • Comment Link Cplus Friday, 22 October 2010 08:21 posted by Cplus

    Impressive analysis!

    Beyond even the standards of your pre-collapse work on Lehman and Bear.

    My only note of caution is that the stakes in the game have changed materially since the 2008 collapse. What is now in the crosshairs is the global financial structure, sovereign debt worldwide, every currency and the role of the dollar as a reserve currency. How this story unfolds will have more impact on the share price of JPM than the financial reality that the company is an economic disaster, as is every other sizable financial company worldwide.

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