December 04, 2021

Login to your account

Username *
Password *
Remember Me

Create an account

Fields marked with an asterisk (*) are required.
Name *
Username *
Password *
Verify password *
Email *
Verify email *
Captcha *

item

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

On March 26, EU endorsed the proposal of extending aid to Greece (in case it faces shortage of funds to meet the refinancing and new debt requirements) wherein each euro nation would provide loans to Greece at bend over market rates based on its stake in the European Central Bank. EU would provide more than half the loans and the IMF would provide the rest. The official estimates for the size of the planned assistance have not been disclosed since it would depend on Greece's actual need. Erik Nielsen, Chief European Economist at GS, estimates Greece will need an 18-month package of as much as €25 billion, with the IMF providing about €10 billion of that. The French newspaper Le Figaro reports that German officials are estimating the total assistance of nearly €22 billion.

Taking advantage of the positive market response to the announcement of EU-IMF taking up the role of the lender of last resort, the government issued 7-year bond with no premium over the market rates. However, the euphoria was short-lived. The 7-year bonds which were issued at yield of 6.0% were trading at 6.27%, the next day. The sentiment was also weakened by the poor response to the surprise auction of 12-year bonds which attracted demand or order book of just €390 million against the offered amount of €1 billion. Judging by the fashion in which the market has accepted Greek debt as of late, even after announcement of EU/IMG support, it is quite feasible that the EU's offering of market rate loans is akin to shoveling money down a black hole in terms of market valuation. 

Greece's order book has been shrinking and reflects the waning market demand for Greek bonds. The 7 year bond auction received orders of just €6 billion, 20% higher than the offered amount of €5 billion. This compared with orders of nearly €15 billion for the auction of €6 billion of 10 year bonds on March 4 and orders of nearly €25 billion for auction of €5 billion of five year bond on January 25. 

According to the government estimates, it needs to raise nearly €53 billion in 2010 to meet its refinancing needs as well as fund its negative primary balance and interest expenditure. Out of this, the government has so far issued bonds of only €18.5 billion through: 

  • €8 billion of five-year notes on Jan. 26 at yield of 5.93% (381
    basis points more than benchmark German debt of similar maturity)
  • €5 billion of 10-year bonds on March 4 at yield of 6.44% (325
    basis points more than German debt of similar maturity)
  • €5 billion of 7-year bonds on March 29 at yield of 6.0% (310 basis
    points more than German debt of similar maturity, immediately
    traded underwater)
  • €390 million of 12-year bonds on March 30 at yield of 5.9% (auction
    effectively failed)
  • The next round of short term refinancing requirement consists of about
    €12 billion in April and about €8.5 billion in May.

Market Reaction

While the initial reaction to the EU-IMF assistance announcement was positive in the Greek government debt market and sovereign CDS market, the optimism is receding. The yield on Greek 10-year bond dropped to 6.20% (spread of 305 basis points over German 10 year bond) on March 26 from 6.44% (spread of 337 basis points over German 10 year bond) on March 22. However over the last three days, the yield is again trending upwards and is trading at 6.52% on March 30 (spread of 343 basis points over German 10 year bond). The 5 year Greek sovereign CDS spread dropped to 295 basis points on March 26 from 341 basis points on March 22. However, the same has been lately drifting up again and reached 333 basis points on March 30.

 Increased interest burden - According to the data compiled by Bloomberg and Credit Agricole, Greece may pay about €13 billion more in interest on the debt it raises in 2010 than it would have if yields had stayed at their pre-crisis levels relative to Germany's. Interest on the three bonds it sold this year will amount to €7.7 billion over the life of the securities, compared with €3.8 billion if they had sold them at the average extra yield, or spread, over German debt that prevailed between 2000 and 2008, the data show. Greece will incur a further €18.9 billion of interest on this year's remaining issuance, compared with €9.4 billion before the crisis began.

We have (correctly) assumed such under our Greek public finances projections of last month and have already built the increased interest expense due to increased spreads against government expectations of decline in interest rates. Subscribers, see Greece Public Finances Projections .I also recommends the Greek Banking Fundamental Tear Sheet for a list of affected banks and pro subscribers should reference Banks exposed to Central and Eastern Europe. 

Conclusions - The sustainability of Greece's public finances is seriously hindered by the piling government debt and widening fiscal deficits which were a result of poor fiscal policies. While Greece has announced drastic fiscal consolidation measures, serious concerns float around the implementation (after which, they will still have to content with internal deflation and increased social unrest). The Greek government's loss of credibility in the markets is reflected in the rising sovereign spreads and dwindling credit availability. Further, Greece competes for funds with other distressed sovereigns scrabbling to fund their fiscal deficits and refinancing requirements. Greece is walking the tight rope of arranging funds from the market to sustain its public finances and has one of the highest probabilities of failure. 

Tied together with the common currency, the EU has been forced to provide assistance to Greece. Although the assistance would be invoked only when Greece fails to garner funds from the market, the implications of the assistance package will be the increased contagion effect of Greek's sovereign risk to other EU countries (some of which are already struggling with their domestic issues). The EU nations will be forced to accumulate debt on their books to finance Greece's requirements at a time when EU nations debt are already approaching historical proportions. Greece's rescue would send strong signals about how the sovereign risk of a member can be perceived as the risk of the EU, which has failed to maintain oversight and regulation of the members' public finance policies and has become jointly responsible for the poor governance in a member country. Greece is not the only EU country in trouble and the rescue can set a wrong precedent that can literally redefine the concept of moral hazard in Euroland! If this short term solution to the Greek crisis is applied to other troubled nations, sovereign debt accumulation in the region would be become a serious concern that would haunt the region for many years to come. Germany and, to a much lesser extent, France (as of very recently) have been, therefore, resisting the idea of putting the entire burden of Greece's rescue on EU and have proposed IMF collaboration. 

 EU-IMF assistance would entail a series of strong conditions for fiscal consolidation through reduced public expenditure, increased taxation etc. which will have deeper macro-economic impacts and undermine economic recovery for Greece.

For the complete Pan-European Sovereign Debt Crisis series, see: 

  1. The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? – illustrates the potential for the domino effect
  3. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  4. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!
  5. The Beginning of the Endgame is Coming???
  6. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  7. Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!
  8. Germany Finally Comes Out and Says, “We’re Not Touching Greece” – Well, Sort of…
  9. The Greece and the Greek Banks Get the Word “First” Etched on the Side of Their Domino
  10. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis
  11. Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest?
  12. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

This is the 2nd to last installment in my Pan-European Sovereign Debt Crisis series. After covering western and southern Europe, we are moving eastward. Before we go any further, be sure you have caught up on the previous portions:

  1. Can China Control the "Side-Effects" of its Stimulus-Led Growth? Let's Look at the Facts - Explains the potential fallout of the excessive fiscal stimulus in China. While not European, it is quite likely to kick off the daisy chain effect.
  2. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  3. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  4. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  5. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

Austria, Belgium and Sweden, while apparently healthy from a cursory perspective, have between one quarter to one half of their GDPs exposed to central and eastern European countries facing a full blown Depression!

These exposed countries are surrounded by much larger (GDP-wise and geo-politically) countries who have severe structural fiscal deficiencies and excessive debt as a proportion to their GDPs, not to mention being highly "OVERBANKED" (a term that I have coined).

So as to quiet those pundits who feel I am being sensationalist, let's take this step by step.

Depression (Wikipedia): In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen as part of a normal business cycle.

Considered a rare and extreme form of recession, a depression is characterized by its length, and by abnormal increases in unemployment, falls in the availability of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation, financial crisis and bank failures are also common elements of a depression.

There is no widely agreed definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.[1] Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output).[2] Another proposed definition of depression includes two general rules: 1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or more years.[3][4]

Before we go on, let's graphically what a depression would look like in this modern day and age...

A depression is characterized by its length, and by abnormal
increases in unemployment.

Price deflation, financial
crisis and bank failures are
also common elements of a depression.

A depression is characterized by ... shrinking output and investment
... reduced amounts of trade and commerce.

... as well as highly volatile relative currency value fluctuations,
mostly devaluations.

A former premier has called for a 30% devaluation and a
sitting minister said in June that there should be a "debate."
Meanwhile, chief executive of SEB, Sweden’s number two bank, says total
loan losses would ultimately be little different if the Baltics stayed
the course or devalued now – though rapid devaluation might be tougher
to deal with. (Lex/FT.com)

The global slowdown coupled with the unprecedented financial crisis has
uncovered significant vulnerabilities that can currently be witnessed in
the Central and Eastern Europe in the form of structural imbalances and
growing foreign indebtedness. Not surprisingly, the region, which until
a couple of years back was forecasted to be one of the most profitable
investment avenues, now stands out as the hardest hit with many
countries such as Hungary, the Ukraine, Latvia, and Romania forced to
seek IMF and foreign aid and bail-outs. Heavy reliance on exports and
foreign capital (especially from Western Europe), which fed the economic
growth in the pre-crisis period, has backfired when peak global demand
dried up and the liquidity crunch hit the global financial system.

Countries in this region are highly dependent on foreign trade, with
exports accounting for more than 50% of GDP for many countries. Sharp
declines in exports have triggered a series of internal predicaments
including rampant and rising unemployment as well as declines in
domestic demand that exacerbate trade account imbalances through
declines in imports. However, the problems for these countries have been
aggravated by huge foreign indebtedness and the resultant interest and
income payments that put additional pressure on the balance of payments.
While currency depreciation could have provided some much needed
respite (although that can be seriously debated), for countries like
Latvia, Estonia, Lithuania, Bulgaria and Ukraine which have a fixed
currency peg to Euro, the option is not available. As a result, Latvia,
Lithuania and Estonia have witnessed double digit negative real growth
in GDP and are witnessing structural issues of deflationary pressures
(owing to price and wage cuts) and very high unemployment levels. Click
any graphic to enlarge...

Source: IMF, European Commission

Notably, except for Hungary with a public debt-to-GDP of nearly
80%, government debt is within manageable limits for most of the
countries in the region. This is most likely due to the fact that these
countries did not have an overdeveloped banking system that required
bailing out.

This relative benefit was not without its costs, though. Without heavily
developed banking sectors of their own, these countries turned towards
outside banking institutions for their financing needs. The major
financial risk, therefore, surrounding this region is the high foreign
debt to private sector. Foreign banks (mainly western European banks)
play a major role in the CEE region and account for approximately 60-80%
of total bank assets in most CEE countries. While significant leverage
was built up through massive foreign lending to the private sector in
this region during the pre-crisis period, the same has now become a
major source of external imbalance and financial risk. Claims of the
foreign banks exceed 100% of GDP for countries like Estonia, Latvia,
Lithuania, Hungary and Croatia. Loans denominated in foreign currency
amount to nearly 90% of the total lending in Latvia, 85% in Estonia and
65% in Lithuania. While on one hand, the high reliance on foreign
lending puts a lot of pressure on the current account balance and
balance of payments, the increased financial risk of a pull back of
foreign capital can seriously jeopardize growth in these countries.
Deleveraging and de-risking by the foreign banks through reducing their
exposure to these countries as well as curtailing lending will certainly
hamper the prospects of recovery for these sovereign entities. The
simultaneous PIIGS crisis in Western Europe adds to the pressures on
Western European banking sector, providing an added impetus to hasten
the de-risking process.

Further, for countries like Estonia, Latvia, Lithuania, Bulgaria and
Ukraine which have a fixed currency peg, high foreign debt restricts the
possibility of devaluation of currency as the devaluation will lead to
increased debt and interest burdens and shall add to the pending and
inevitable slate of defaults. Thus, these countries are deferring the
devaluation of their currency and are following the painful internal
adjustment process of contraction in domestic demand to counter the high
current account imbalances. This is, in turn, impacting the loan
performance leading to the inevitable increase in defaults. Research by
Danske Bank in early 2009 estimates that under an adverse scenario, loan
losses can reach 30% in Baltic countries (Estonia, Latvia, Lithuania),
Bulgaria, Ukraine and Romania while loan losses in other CEE countries
will range between 10-20%.

It should be made clear that the current PIIGS/Greece developments
have caused the Euro to slide aggressively anyway, thereby applying the
unwanted currency devaluation to the distressed CEE countries. From an
academic perspective it appears as if the outstanding (non-euro
denominated) debt service just got that much more difficult.

Source: Bank for international settlements, IMF

Austria, Sweden and Belgium stand out at the top the list of western
European countries having relatively outsized exposure to CEE nations.
Total CEE exposure of the banks in Austria stands at 53.4% of the GDP of
Austria while it is 22.8% and 20.4% for Swedish banks and Belgium
banks, respectively. Major Austrian and Swedish banks have high exposure
to high risk countries like Croatia, Hungary, Romania and Ukraine and
Baltic countries (Estonia, Latvia, Lithuania). Professional
and institutional subscribers can download the 30 page
Austrian/Swedish/Greek bank exposure and comparative valuation tear
sheet to view the stats and our opinions on who the highest risk banks
are. Yes, the highly levered Greek banks have significant CEE exposure
as well, as if they don't have enough problems of their own.

There are several banks included in the study that:

  • have ADRs
  • have credit exposure to high sovereign risk nations including
    amounts to 762% and higher of the total tangible equity with the total
    non-performing and sub-standard (but performing) exposure standing at
    96% of the tangible equity.
  • have Texas Ratios approaching nearly 100%
  • have NPAs growing nearly 500%
  • have leverage rations of over 80x
  • are trading at BV multiples that apparently ignore the potential
  • credit contagion, etc.

My next and final post on the Pan-European Sovereign debt crisis will
attempt to tie all of the pieces together along with middle-eastern and
Asian risks to illustrate a road map of the various stress points in
global sovereign debt and related bank exposure.While I am not saying
any particular country will bring about the end of the world as we know
it, there are simply too many risks and contingent crashes waiting to
happen, all inter-connected, levered and amplified across dozens of
borders and financial systems to simply assume that not one country will
falter. That faltering could very well be the first domino to fall
among many...

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

This is part 2 of the Municipal Bond Market and the Asset Securitization Crisis, continuing the primer listed as number 5 in the series below. It is to provide a background for the increase in stress and pressure in the monoline industry, which I believe has a strong chance of creating a CDS domino effect throughout the investment banks and other insurers. For more info on the risks and threats of the CDS market see Counterparty risk analyses – counterparty failure will open up another Pandora’s box. See "I know who's holding the $119 billion dollar bag" for a listing of the most likely candidates to suffer, as well as Banks, Brokers, & Bullsh1+ part and Banks, Brokers, & Bullsh1+ part 2 for my take on the general risks in the investment banking industry today. Reggie Middleton on the Street's Riskiest Bank - Update drills down on one of my short positions to reveal why I am bearish on Morgan Stanley - way before the sell side started yelling sell may I add, very similar to the contrarian position taken in Bear Stearns late last year.

The following municipal bond portion of the asset securitization crisis is also a tie-in to the prospects of the monoline insurance industry. The latest of my monoline analyses is the Assured Guaranty Report. You can also peruse the work I did on MBIA and Ambac starting from the inception of my short position in these companies last year, which turned to be nearly as profitable as the Bear Stearns short (see Is this the Breaking of the Bear?) instituted late last year as well, and based on the same investment thesis. A quick background of my older musings on the monoline industry:

  1. A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton
  2. Tie-in to the Halloween Story
  3. Welcome to the World of Dr. FrankenFinance!
  4. Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion
  5. Follow up to the Ambac Analysis
  6. Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibility
  7. More tidbits on the monolines
  8. What does Brittany Spears, Snow White and MBIA have in Common?
  9. Moody's Affirms Ratings of Ambac and MBIA & Loses any Credibility They May Have Had Left
  10. My Analyst's Comments on MBIA/Ambac/Moody's Post
  11. As was warned in this blog, the S&P downgrade of a monoline insurer reverberated losses throughout Wall Street and Main Street

Thus far in the Asset Securitization Crisis Series, we have:

  1. Intro: The great housing bull run – creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble – A comparison with the same during the S&L crisis
  2. Securitization – dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble – declining home prices and rising foreclosure
  3. Counterparty risk analyses – counterparty failure will open up another Pandora’s box
  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue
  5. Municipal bond market and the securitization crisis – part I
  6. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
  7. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  8. More on the banking backdrop, we've never had so many loans!
  9. More HELOCs, 2nd lien loans, and rose colored glasses

Municipal Bond Defaults

Further building on the municipal bond default analysis Part 1, we have calculated the likely default amount on the municipal bonds issued in the last four years (2004 to 2007). We have assigned default rates on the municipal bonds for various states on the basis of property price decline and the decline in the building permits witnessed in each state. In this analysis, we have also considered defaults on the general obligation bonds (GO bonds) as the macroeconomic conditions have deteriorated and could result in increased stress on municipalities. Although historically, the GO bonds have defaulted rarely (the contribution to total default by Municipal bonds is 3.54% for GO bonds and the remaining 96.46% defaults is on Revenue bonds), declining property prices and rising foreclosures are likely to have a negative impact on municipalities’ revenues in the form of taxes.

 

Since we have maintained from the beginning that this crisis is far worse than any crisis that the US economy has witnessed for close to half a century, our underlying assumption while calculating the default probabilities by GO and Revenue bonds has been a premium over historical default rates on the munis for the period 1979-97. This premium is dependent on the degree of decline in housing prices, building permits and the broader infrastructure investment. In the case of Revenue bonds, the multiple has been considered higher as compared to GO bonds since historically; Revenue bonds have defaulted more than the GO bonds.

 

House price decline

Building permits decline

Premium over historical defaults forRevenue bonds

Premium over historical defaults forGO bonds

-5%

-10%

1x

1x

-10%

-20%

2x

1.5x

-15%

-30%

3x

2.0x

> -15%

> -30%

4x

2.5x

 

We have calculated the likely defaults on municipal bonds issued since the year 2004 since this is the period where most US state and local governments had prepared budgets based on the existing real estate boom. In addition, the prevailing low interest rate environment was very conducive for muni bond issuance. However, with the collapse of the housing market, property values went down and increasing numbers of homeowners applied for the property revaluation to reduce their property tax burdens. This increased the burden on the respective municipalities, as homeowners, in an attempt to mitigate the increase of their financial obligations obtained during the housing boom equity spending spree, cut corners by any means necessary. Construction permits and the associated fee income dropped precipitously, further constricting the bloated budgets of municipalities who, like the fabled subprime refinancing, SUV driving 1st time homeowner binged on easy equity-sourced cash.

Additional strains in the revenue sourcing for municipalities are the rampant foreclosure rate increases and the actual volumes of foreclosures. Up until the event of actual foreclosure, property taxes are usually not paid, further hampering the cash flows of municipalities that relied on these funds. It gets worse. Even after foreclosure, and even on behalf of the municipality, the back taxes cannot be monetized and actually paid until the property is sold. Many auctions in high foreclosure areas are seeing properties with no bid at the upset price. This portends very bad things for the banks, the municipalities and the insurers who wrote insurance to cover them!

 

These developments are likely to have a severe negative impact on the tax inflow for the state and local governments which forms the basis of our underlying assumptions. According to our estimates, on the total municipal bond issuance of US$1.6 trillion in the year 2004-07, the potential losses due to defaults will be US$22.8 billion or a default rate of 1.44% with Revenue bonds contributing majority of the default amount of US$22.5 billion while GO bonds account for US$304 million. This indicates a default rate of 2.12% for the Revenue bonds and 0.06% for GO bonds.

 

Multi family housing and healthcare led the defaults in municipal bonds

Historically, housing and healthcare sectors have been the biggest contributor to municipal defaults (after the industrial development bonds which account for 24% of defaults). In housing, the multifamily segment has recorded maximum losses accounting for 19.3% of total defaults while single family accounts for 1.1%. In the healthcare sector, hospitals and nursing homes accounted for majority of defaults of 7.5% and 7.1%, respectively.

 

Default rates in municipal bonds have varied significantly across the subsectors. The defaults in the tax-backed, water/sewer, and other plain vanilla municipal bonds has been significantly low. According to Fitch Ratings (the only of the big ratings agencies that can garner even the slightest modicum of respect these days), the cumulative default rates on such bonds have been less than 0.26%. However, default rates in municipal bonds issued on behalf of corporations or municipal entities were significantly higher. Historically, the cumulative default rates were 14.9% for industrial development bonds, 4.9% for multifamily housing, and 2.6% for health care.

 

Industrial development bonds, multifamily housing and healthcare sector’s accounted for 8% of total bond issuance and 56% of total defaults while education and general purpose sectors accounted for 46% of issuance and 13% of defaults.

 

Multifamily housing defaults

Multifamily housing defaults peaked in 1991 as the US economy went into recession and then again in 1998 the defaults soared as the economy faced stress during that period with the collapse of LTCM and the subsequent dotcom bubble burst. This denotes difficult market conditions manifested as defaults, as witnessed in 1991 when multifamily defaults soared. The current housing market scenario featuring historically severe declining home prices and home sales and rising foreclosure rates portends an equally historic hit to the multifamily housing segment that could witness a surge in defaults that this country has not seen thus far.

 

Multi family housing defaults (by year of default)

Year

No. of Defaults

DefaultedAmount

(US$ million)

Avg. Time to Default

Rated entity

Non-Rated entity

1990

13

94

60

2

11

1991

33

1,359

55

24

9

1992

17

200

66

11

6

1993

17

85

67

3

14

1994

5

41

82

2

3

1995

5

33

88

1

4

1996

9

39

97

2

7

1997

10

44

64

0

10

1998

26

102

55

6

20

1999

18

52

56

0

18

Totals

153

2,050

63

51

102

 

 

In the multifamily housing segment, default rates increased significantly and were extremely high for the period 1987-90, i.e. at the time of the S&L crisis when real estate lending was reckless due to declining lending standards by banks and other financial institutions. The default rate peaked in 1988 in the eleven year period reviewed to 4.31%, followed by 3.41% in 1989. However, the overall default rate for multifamily housing sector is 1.11% for the 11 year period (1987-1997).

 

Multifamily housing default rates by year of issuance (1987-1997)

Issuance year

No. of defaults

Total issues

Default rate (by no of issues)

Defaulted amount (US$ million)

Total amount issued (US$ million

Default rate by amount

1987

7

182

3.85%

50

2,961

1.70%

1988

14

202

6.93%

137

3,180

4.31%

1989

16

237

6.75%

106

3,110

3.41%

1990

8

240

3.33%

64

3,062

2.09%

1991

2

277

0.72%

23

3,561

0.63%

1992

6

400

1.50%

33

5,733

0.58%

1993

13

517

2.51%

68

6,614

1.03%

1994

7

501

1.40%

16

4,930

0.33%

1995

9

603

1.49%

27

6,132

0.44%

1996

10

607

1.65%

35

6,638

0.52%

1997

5

606

0.83%

9

5,412

0.17%

Total

97

4372

2.22%

568

51,333

1.11%


Defaults in healthcare

In the healthcare sector nursing homes accounted for majority of defaults at approximately 49%, followed by the retirement sector (29%) and hospitals (12%) based on the number of defaulted issues. However, on the basis of default dollar amount, retirement and hospitals take the lead over the nursing subsector.

 

Healthcare sector default break up

Subsector

number of defaults

default amount

Default rate(%) based on number

Default rate(%) based on amount

Nursing

116

454

48.5%

22.8%

Retirement

70

568

29.3%

28.5%

Hospitals

29

546

12.1%

27.4%

Other

24

426

10.0%

21.4%

Total

239

1,994

100.0%

100.0%

 

Total Health care sector number of defaults and default amounts

Year

No. of Defaults

Defaulted Amounts US$ million

Avg. Time to Default

Rated entity

Non-rated entity

1990

40

299

51

3

37

1991

31

128

67

4

27

1992

18

224

56

5

13

1993

18

220

57

0

18

1994

8

33

52

1

7

1995

13

40

70

0

13

1996

17

218

77

3

14

1997

17

112

77

0

17

1998

18

152

47

0

18

1999

59

567

48

8

51

Total

239

1,994

58

24

215

 

The healthcare sector has witnessed significant stress during the 1990-91 period resulting in increased number of defaults owing to recession in the US. The bond defaults of the Graduate Health System accounts and the Michigan Healthcare Corporation resulted in higher defaults in 1990 period.The healthcare sector again witnessed increased strain in 1999 driven by increased failures on the part of nursing homes and hospitals. In May 1999, Greater Southeast Healthcare System filed for bankruptcy protection and suspended payments on its $46 million of outstanding bonds. In addition, the bonds issued for Graduate Health System in the Philadelphia-area accounted for $155.94 million of the defaulted amount in 1999. The healthcare sector witnessed significant strain across all its subsectors which saw the default amount rose to very high levels of US$567 million.

 

Decline in building permits

Significant decline in building permits has been witnessed in California, Florida, Alaska, Arizona, Georgia, Nevada, Michigan, Minnesota, Ohio and Oklahoma in the last few years. Most of the US states are witnessing the decline in building permits as the construction sector strives to stay afloat in the midst of what predict to be the worst US housing crisis, period. Up until March 2008, the building permits have declined at a rate significantly higher than that witnessed in earlier years with states such as Arizona, California, District of Columbia, Florida, Georgia, Idaho, Illinois, Kentucky, Massachusetts, Michigan and Minnesota witnessing 50% or more declines in building permits. The building permits have declined at a CAGR of 19.5% in the US in the last two years (2005-2007). In the state of California, Riverside, San Bernardino, Ontario, Sacramento and Yuba City are witnessing significant decline in building permits. In Arizona, Phoenix, Mesa Scottsdale and Tucson are the areas with significant decline in building permits. In Florida, Orlando, Punta Gorda, Sarasota, Brandenton, Venice and Cape Coral are the areas witnessing decline in construction activities. To make matters worse, declining property prices in these states are likely to hit the states’ finances. According to S&P Case-Shiller index, property prices declined 2.6% in February 2008 from a month earlier, after a 2.4% decline in January 2008.

 

* 2008 (A) building permits represent the YTD March 2008 annualized figure.

 

Building permits change

States

YTD2008

2007

2006

2005

2004

Alabama

-28%

-19%

5%

12%

23%

Alaska

-50%

-38%

-5%

-8%

-11%

Arizona

-55%

-24%

-28%

0%

21%

Arkansas

-24%

-21%

-23%

13%

7%

California

-49%

-31%

-22%

-1%

8%

Colorado

-30%

-23%

-16%

-1%

18%

Connecticut

-10%

-16%

-22%

0%

13%

Delaware

-30%

-19%

-21%

4%

1%

District of Columbia

-82%

-9%

-26%

48%

36%

Florida

-44%

-50%

-29%

12%

20%

Georgia

-52%

-30%

-5%

1%

12%

Guam

         

Hawaii

-51%

-7%

-23%

9%

24%

Idaho

-51%

-29%

-21%

19%

20%

Illinois

-55%

-27%

-12%

12%

-4%

Indiana

-40%

-18%

-24%

-2%

0%

Iowa

-32%

-16%

-20%

3%

2%

Kansas

-6%

-22%

4%

6%

-12%

Kentucky

-47%

-10%

-21%

-6%

11%

Louisiana

-6%

-18%

26%

-1%

3%

Maine

-39%

-19%

-19%

2%

11%

Maryland

-24%

-20%

-23%

10%

-8%

Massachusetts

-50%

-22%

-20%

9%

11%

Michigan

-44%

-39%

-36%

-17%

1%

Minnesota

-48%

-32%

-28%

-13%

0%

Mississippi

-28%

1%

24%

-8%

21%

Missouri

-36%

-26%

-12%

1%

12%

Montana

-39%

-9%

-5%

-3%

32%

Nebraska

6%

-8%

-17%

-9%

6%

Nevada

-49%

-31%

-17%

7%

3%

New Hampshire

-23%

-20%

-25%

-12%

0%

New Jersey

-8%

-26%

-11%

7%

9%

New Mexico

-27%

-32%

-4%

13%

-9%

New York

-39%

-1%

-12%

16%

8%

North Carolina

-30%

-14%

2%

5%

17%

North Dakota

3%

-5%

-13%

0%

8%

Ohio

-37%

-21%

-28%

-8%

-3%

Oklahoma

-26%

-7%

-14%

8%

14%

Oregon

-49%

-21%

-14%

14%

9%

Pennsylvania

-25%

-14%

-12%

-10%

5%

Puerto Rico

         

Rhode Island

-56%

-18%

-16%

12%

11%

South Carolina

-36%

-20%

-6%

25%

13%

South Dakota

-38%

-4%

-7%

-3%

17%

Tennessee

-37%

-19%

-1%

4%

19%

Texas

-19%

-18%

3%

12%

7%

Utah

-54%

-22%

-7%

15%

8%

Vermont

-38%

-22%

-10%

-19%

26%

Virginia

-12%

-20%

-22%

-3%

13%

Virgin Islands

         

Washington

-41%

-5%

-6%

6%

17%

West Virginia

1%

-15%

-8%

7%

11%

Wisconsin

-33%

-20%

-23%

-12%

-2%

Wyoming

-29%

29%

-12%

21%

18%

 

Looking at this through a graphic representation puts things into perspective. Notice how far below the zero line this graph is in just one year!

 

Decline in property prices led by California, Florida and Nevada

The property prices in the US continue to witness significant decline since reaching record levels in 2005. The distressed home owner, having leveraged his or her appreciated home value during the peak of a bubble combined with deteriorating mortgage credit quality (increased Alt-A and subprime mortgages), has increased the intensity of the current crisis. The decline in US home sales has dwarfed the previous housing declines as conditions continue to worsen, depicted by declining building permits and home prices. Rising housing inventories, increased foreclosure, declining home prices, and the correction in home sales volumes are likely to make matters much worse.

 

US home prices continued thier downward foray as reported by Office of Federal Housing Enterprise Oversight (OFHEO) through a reported decline of 1.7% in 1Q 2008 as compared to 4Q 2007. The fall surpassed the 1.4% sequential decline witnessed in 4Q 2007. The OFHEO’s Index recorded its largest y-o-y decline in the last 17 years with a drop of 3.1% in 1Q 2008. California, Nevada and Florida witnessed the steepest y-o-y declines in home prices. The states of California, Nevada, Florida, California led the fall depreciating by 10.6% followed by Nevada 10.3%, Florida 8.1%. The metropolitan areas witnessing steepest decline are Merced (down 24.7%), followed by Stockton (down 21.5%) and Modesto (down 21.0%), all in California. According to the OFHEO, 43 states witnessed price decline in 1Q 2008 wherein in the prices fell by more than 3% in eight states and more than 8% in two states, namely California and Florida. California, which derives 22% of state revenue, including both state and local government from property taxes continues to witnessing significant decline in building permits and housing prices. It is worth noting that California was one of the states that created significant budget bloat during the boom times of the RE bubble, which serves to further exacerbate the problems at hand.

Decline in housing starts and home sales (existing and new)

Housing starts as well as the existing and new home sales have declined significantly since the beginning of 2005 across the country with the West and Midwest states the most severely affected.

 

New home sales (% change)

Year

North EAST

MID WEST

SOUTH

WEST

2004

       

2005

-2%

-2%

14%

3%

2006

-22%

-21%

-12%

-25%

2007

3%

-27%

-26%

-32%

 

Existing home sales (% change)

Year

North EAST

MID WEST

SOUTH

WEST

2004

       

2005

2%

2%

6%

3%

2006

-6%

-7%

-4%

-17%

2007

-8%

-10%

-13%

-20%

 

 

In addition the annual housing starts have declined significantly across the country. In 2007, the overall US housing starts have declined 24.8%, followed by a 12.9% fall in 2006.

 

Total Annual Starts

2002

2003

2004

2005

2006

2007

United States

1705

1848

1956

2068

1801

1355

% increase/(decrease)

6.4%

8.4%

5.8%

5.7%

-12.9%

-24.8%

Northeast

159

163

176

190

167

143

% increase/(decrease)

6.7%

2.5%

8.0%

8.0%

-12.1%

-14.4%

Midwest

350

374

355

358

279

210

% increase/(decrease)

6.1%

6.9%

-5.1%

0.8%

-22.1%

-24.7%

South

781

838

908

996

911

682

% increase/(decrease)

6.7%

7.3%

8.4%

9.7%

-8.5%

-25.1%

East

416

473

516

525

444

320

% increase/(decrease)

6.4%

13.7%

9.1%

1.7%

-15.4%

-27.9%

 

These statistics fully support my assertion that as the current market situation continues to worsen, the potential losses and defaults on municipal bonds could be – and probably will be, much higher than estimated by the majority. This portends considerably more stress than anticipated by the stress testing models employed by the monolines and the rating agencies that rate them. It is not as if I have had much confidence in their predictive ability to gauge risk, considering how bad they have performed in the mortgage sector over the last two years and the public admittance of software glitches and algorithms that assumed perpetual house price appreciation (that is housing prices that go up forever without even one downturn, not to mention a protracted downturn). This analysis should be read against the backdrop of:

The Asset Securitization Crisis Series

The Commercial Real Estate Crash Series

the Assured Guaranty Analysis

and the Riskiest Bank on the Street Update.

Next in this series is an overview of leverage and risk of the 32 Banks in Deep Doo-Doo.

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

I have identified 32 banks that are $@%%. It's really as simple as that. I have been publishing the research that I used to build my investment thesis. Thus far we have:

  1. Intro: The great housing bull run – creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble – A comparison with the same during the S&L crisis
  2. Securitization – dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble – declining home prices and rising foreclosure
  3. Counterparty risk analyses – counterparty failure will open up another Pandora’s box
  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue
  5. Municipal bond market and the securitization crisis – part I
  6. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital PNC addendum Posts One and Two
  7. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  8. More on the banking backdrop, we've never had so many loans!

 

I am almost prepared to start listing more of my commercial banking shorts, but before I do I want to delve even further into the educational realm so there is no doubt as to why I am as bearish as I am. For those who can't wait to see my ultimate shorts, I will give you the complete list of what I call the "Deep Doo-Doo Banks". These are the banks that are steeped pretty deep in it. Are you ready? Can you handle the pressure? Okay, here we go!

Wells Fargo - Popular Inc - SunTrust - KeyCorp - Synovus Financial Corp - Marshall & Ilsley - Associated Banc - First Charter - M&T Bank Corp - Huntington Bancshares - BB&T Corp - JPM Chase - U.S. Bancorp - Bank of America - Capital One - Nara Bancorp - Sandy Spring Bancorp - PNC - Harleysville National - CVB Financial - Glacier Bancorp - First Horizon - National City Corp - WAMU - Countrywide - Regions Financial Corp - Citigroup - Wachovia Corp - Zions Bancorp - TriCo Bancshares - Fifth Third Bancorp - Sovereign Bancorp

Now, I already release some of my work on one of the banks, chosen due to paper thin capitalization - along with a different view on leverage. Keep in mind, for the purposes of this blog, I'm just a resourceful individual investor - albeit one that is very lucky to date (this post was before Bear Stearns dropped 98%). Therefore, no one, and I really mean no one, should be taking my opinions on this blog as investment advice. It is not intended as such and should not be percieved as such.

Before we focus on which banks I am shorting, let's explore the current banking environment. I aimed my team at banks that have high concentrations in risky products, risky geographic areas and low tangible and regulatory capital. There were a lot to choose from. So, to narrow down the list, I had everybody enter the 12 step program - after reading my tutorials above, of course.

2nd lien products in high LTV states that have rapidly declining housing values proffer the opportunity for 100% losses with no recoveries.

>

Above is a list of states and the home equity and 2nd lien defaults for said states. For those who don't know, 2nd lien loans (of which include HELOCS, piggy backs, home equity loans, etc.) are 2nd in line when it comes to liquidation rights under foreclosure. If the loan was made with a high LTV (let's say 90% combined LTV, with the first loan made at 85% LTV), in an area that has even a modest (these days, anyway) decline in value of 10% year over year, then you effectively have a 100% loan with not equity. Every dollar after this that the house drops is a permanent loss from the bank's loan. Factor in the costs of deed transfer, mortgage tax, utilities, upkeep, brokers commissions and legal fees (about 7.5%), and the bank now get's nothing, even if it can move at auction. When I say nothing, I mean nothing. Not just an NPA on its books, but absolutely not way to recover any value from the home. I can hear the blog readers now saying, "Well, what are the chances of that happening?". Stay tuned, and we will assuredely find out.

The graph above shows a subsection of my 32 bank Deep Doo-Doo list who sport:

  1. HELOC portfolio exposures with high average LTVs that increase the risk of the whole portfolio
  2. HELOC portfolio exposures with full 100% LTVs or close to it consisting of a very large portion of the total portfolio
  3. HELOC exposures with very high, but not quite 90% LTVs consisting of a large portion of the total portfolio

 

For those that really wondered whether the scenario that I outline above could really take place - well, wonder no more! We have a whole smorgasbord of banks in that position. The key is, which of these bank have loans in the aforementioned areas detailed in the first graph. I know you know that I know the answer to that question. I'm even going to tell you for free, but before we go there let's cover some additional background material. I want you to pay particularly close attention to who is leading the pack in high LTV concentrations. I was short this bank and WaMu since last year, and have since covered both short positions in the single digits are close to it. As a rule, I rarely ride a stock past $10 on the way down because zero is but so far away and the risk/reward ration is rarely justifiable (the two monolines that I have covered in detail are an exception to this rule). In this case, I covered both too early, particularly Countrywide. The moral to the story here is that many of these banks are not too far behind Countrywide, with the largest difference between CFC and them being CFC's piss poor public relations ability. WaMu is right there too, as well as some big name banks with some big name investors behind them. I will end my bank series with a full scale forensic report of my number one short in the sector and I am sure it will shock many of you who like to buy into brand names.

In order to determine how likely the aforementioned event is, let's create a metric by which Reggie Middleton measures risk. This metric will be units of risky or non-performing assets as a percentage of statutory equity. This, of course, can be refined by removing goodwill, Bullsh1t, and the various accounting pollutants to plain old economic earnings, but less just start with this. When applying Reggie's Risk Metric to the graphs above, we can identify more banks.

Looking at risk from this perspective, we not only see who has no clothes on when the tide goes out, but also how well (un)endowed they are in addition.

Please keep in mind that some loans and banking products are much riskier than others. Due to this, I have culled what I believe to be the riskiest products to short list the banks. We have already addressed 2nd lien loans. There is also construction and development (C&D) loans that are still on the books that are by far, much riskier than the conventional commercial loans - which are risky assets themselves in this environment. An off the cuff, anecdotal assumption would be that 20% of these loans will be in default in many areas, with greater numbers the newer the vintage. For a category such as high rise condos, they are usually 24 month, interest only, 20-30 year amortization. The intent is to have them refinanced into permanent loans upon construction completion, which is difficult for projects such as condos. Construction costs have spiked, supply is up and demand is down. Those banks with high LTV C&D loans (ex. Corus Bank) and any 2nd lien loans over 90 LTV should be high on the short list. One to four family properties are also quite risky, for amateur (and not so amateur, actually) investors bought buildings without a firm (or even loose) understanding of cash flows, cap rates, and rental yields - aided and abetted by the banks which apparently missed out on the cash flow valuation memo as well. Well, those who overshot the predictions of rent rolls, undershot the estimation of expenses, or took out volatile ARM products ended up not only underwater, but with negative cash flow as well. It is much easier to walk away from an investment property than it is to do so from your home. As you can see from the graph below, my assertions seem to be ringing true. The rate of change in delinquencies in these are SKYROCKETING!

I am going to cut this short here, and will continue this series in 24 hours or so. I have quite a bit of information, so the series will be at least 4 or 5 additional parts. I also need to post my homebuilder updates (remember I broke the secret on the industry's secretive JV accounting) and Muni default ->CDS failure connection research as well. So much to do, so little time. I do hope you guys appreciate this, for I don't know where else to find it on the net. As if this disclaimer is necessary: I am short, or in the process of accumulating bearish positions in most if not all of the companies detailed in this article. See you in 24 (or so) on the boombustblog.com.

 

 

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

Before I get started, I want all to realize that this is not Goldman bashing piece. I think it is a [relatively] well run company, but its PR machine appears to be from Kindergarten land, and the aura of invincibility that it enjoys(ed?) is highly undeserved, as a consequence its historical "aura-based" premium is absolutely unjustified. Case in point...

On December 8th of last year, I penned "Reggie Middleton vs Goldman Sachs, Round 1"wherein I challenged all to take a critical look at exactly how much money was lost by Goldman Sachs' clients. Well, here comes round 2, which is directed at Goldman (over)valuation.

Three months ago I explicitly warned my readers and subscribers about how outrageously priced Goldman Sachs was: Get Your Federally Insured Hedge Fund Here, Twice the Price Sale Going on Now! Monday, 19 October 2009.. Goldman was closed at $186.10 that day.

Although GS' had beaten street expectations (which everyone at BoomBustblog.com should recognized as the game that it is), the company's share price has significantly run ahead off its fundamentals. Since December 2008, the company's tangible book value per share has increased by a modest 3.2% while its share price has increased by a whopping 92.1% with its Price-to-Tangible Book value per share ratio currently standing at 1.77x compared with 1.45x in 2Q09 and 0.45x in 4Q08.  Based on closing price as of October 18, 2009, GS' price-to-tangible book value per share is at 1.99x while average price-to-tangible book value per of its peers stood is 1.55x,implying a premium of 28% for the Goldman Sachs brand name. As I said, an expensive, federally insured, publicly traded hedge fund with a strong lobby arm and an even stronger brand management department.

Readers should take into consideration that this is the exact same argument that I posed a year and a half ago when I first shorted Goldman Sachs at $185! Where is it trading today? $186.43. This is after it had to be rescued by the government for fear of collapse!

Let's revisit history with an excerpt from Saturday, 05 July 2008, it's deja vu all over again...

I rode Goldman down to the $100 to $75 band, but it eventually bottomed somewhere around $50. Now it's right back where it started from, pre-bailout. Does it deserve to be there??? Inquiring minds want to know...

I consequently wrote "It appears as if the patina on Goldman's Stock is fading..." wherein I stated on the 15th of December (Goldman traded at $162.70):

"The amount of public resentment, potential for political backlash (yes, even Goldman can get stabbed in the back when a sacrificial lamb is needed), surfacing compensation issues (remember, on the Street, compensation is everything - there really is no company loyalty) and unwarranted premium added to this company's share price over the last few quarters appear to be culminating into another potential collapse in the company's share price. This is not investment advice, simply an anecdotal opinion.

I believe the Goldman premium will be reduced, along with its transient above market earnings potential/advantage (when the edge that it has is assimilated into the market). It probably cannot maintain its trading record for more than a few quarters (98% profitable days of trading out of a month is statistically impossible, but that is a story for another day), and its other value drivers still don' t look very promising. Last but not least, there is the matter of all of that trash still on the balance sheet. If the market's euphoric bear rally breaks, which it looks like it may (finally), then Goldman will break along with it. It has a long way to fall if it does."

Well, here we are on Jan 30th, 2010. Goldman's last closing price was $148.72, down 20% and primed to test their 52 week lows. Let's take a closer look at Goldman's last quarter then remind subscribers why they pay for my services. After all, just like in 2008, not one was talking about shorting the indestructible, government protected, almighty, infallible, uber-bailed out Goldman at their highs besides me (twice).

Reggie on Goldman's Q4 2009

My blog subscribers can download the full quarterly review and opinio here:  This reveiew has an updated valuation componet for Goldman, takng into consideration what we feel the stock is worth now, and also what could potentially happen if the market continues to slide further and signficantly. See

Non-subscribers (which, you all should be subscribers, but I'll forgive you for now), take note of this excerpt and screen shot from the subscription report.

With trading revenues dictating the overall profitability of investment banks like Goldman Sachs, important concerns are being raised about the business models of investment banks which are highly dependent on the trading income (highly volatile under current conditions) to sustain their profitability. Trading revenues (nearly 64% of the total net revenues in FY09) form a substantial portion of Goldman’s revenue stream and movements in this income stream determines the Company’s total revenues overall profitability. In 2009, trading revenues amount to nearly 63.9% of the total net revenues while the impact on earnings is magnified with the total trading revenues amounting to 145.6% of the total pre-tax income.

Comparing with the peers, the trading revenues accounts for highest percentage of total revenues in case of GS. The Company’s trading revenues are largely driven by the activity levels as well as spreads, both of which are market determined and decided by general macro-economic conditions. With nothing more uncertain than the macro-economic conditions and markets in US, this income stream is becoming increasingly volatile under the current circumstances. The future sustainability of this income is further dented by Obama’s recent policy announcements to curb proprietary trading (trading with no client related transaction involved and primarily done to earn profits by assuming greater trading risk). The administration is working out increased restriction on the risk-taking involved in earning prop trading revenues. The government is also planning to put restrictions on hedge funds and private equity transactions which will directly impact the revenues from Principal Investments of Goldman Sachs. Thus, apart from the risk of regulatory move that can seriously clamp down the trading revenues, the risk of deterioration in the general market condition, increase in volatility or a serious dislocation like the one witnessed in 2008 seriously undermine the future profitability of GS.

Click to enlarge full screen.

This multiple summary and graphs above also explains how Obama effectively cut the compensation GS, and to the lesser extent, othe banks employees. They are getting stock at the peak of a banking bubble - particularly after the most recent run up. I know I have heard pundits and analysts across the media saying that employees are getting discounted stock, but it is stock discounted off of a bubble at a time when banks are about to become worth a lot less - that is unless they find a way to do something else that is very productive contributory to growth (other than theirs) to replace extant yet dwindling revenue streams. Just take a look at the facts and figures above. They don't lie!

So, what is GS if you strip it of its government protected, name branded hedge fund status. Well, my subscribers already know. Let' take a peak into one of their subscription documents Goldman Sachs Stress Test Professional2009-04-20 10:06:454.04 Mb- 131 pages). I believe many with short term memory actually forgot what got this bank into trouble in the first place, and exactly how it created the perception that it got out of trouble. The (Off) Balance Sheet!!!

Contrary to popular belief, it does not appear that Goldman is a superior risk manager as compared to the rest of the Street. They may the same mistakes and had to accept the same bailouts. They are apparently well connected though, because they have one of the riskiest balance sheet compositions around yet managed to get themselves insured and protected by the FDIC like a real bank. This bank's portfolio looked quite scary at the height of the bubble.

You know what most people don't realize is that it looks quite scary now as well.

If one were to strip out the revenues from prop trading, it would leave bards some balance sheet issue. Again, I query, should virtual hedge funds that pay out half of revenue as compensation trade at such high premiums to the rest of the market? I don't think so, and I have put my money behind the idea that the market will not think so in the near future either.

 

More of Reggie on Goldman Sachs

Free research and opinion

§ As Reality hits, the Masters of the Universe are starting to look like regular bank employees

Reggie Middleton's Goldman Sach's Stress Test: Breaking Ranks with the Crowd Once Again!

Who is the Newest Riskiest Bank on the Street?

More remium Stuff!

Cron Job Starts