Displaying items by tag: Investment Banks

A while back, I posted a piece aptly named “Doesn’t Morgan Stanley Read My Blog?”, wherein I lamented on the fact that I made very clear in 2007 that anyone who bought the Sam Zell/Blackstone flips were guaranteed to lose money. It was literally etched in stone for anyone with an objective view and a calculator. I actually believe it was a miracle that Blackstone didn’t lose their shirt. Well, guess who bought those buildings on behalf of their clients as they raked in the fees (see ). You guessed it. None other than Morgan Stanley. This purchase was a 100% equity loss. The entire client fund apparently lost about 61% of the shareholder’s money. See this WSJ article: Morgan Stanley Property Fund Faces $5.4 Billion Loss.

Well, Morgan Stanley's profitable (from a fee perspective) Real Estate division is in the news again. Bloomberg reports, Paulson Group Said to Seize Some CNL Hotels From Morgan Stanley:

Published in BoomBustBlog

This is part three of my opinion and analysis on Goldman's apparent ramp up of Facebook shares in the face of, and in direct contravention to, SEC rules to the contrary. See Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private! and Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure. For the first two installments. Here I will outline the actual costs as reportedly explained in the fund marketing material, and next I will illustrate the ramp ups in actual valuation, as compared to the  private equity vehicle mechanics that can prevent Goldman from taking a loss, as was illustrated in the previous piece. Before I go on, here a few interesting tidbits from the mainstream news flow:

Bloomberg: Goldman Sachs May Sell, Hedge Facebook Stake Without Warning to Investors

Goldman Sachs Group Inc. clients considering whether to buy shares in closely held Facebook Inc. should take heed: Wall Street’s most profitable securities firm could unload its own holdings without letting them know. In the last sentence of a one-page investment profile sent to private wealth clients, the firm explains: “GS Group may at any time further reduce its exposure to its investment in Facebook (through hedging arrangements, sales or otherwise), without notice to the fund or investors in the fund.”... “There may be conflicts of interest relating to the underlying investments of the fund and Goldman Sachs,” according to the Facebook offering document’s disclosures section. Material in the documents “is not guaranteed as to accuracy or completeness.”

The phrasing in bold is all an astute investor needs to know in order to come to the conclusion that Goldman itself should be treated as an adversarial trading partner. For those with shorter term memories, Bloomberg assists with the reminisce...

Published in BoomBustBlog

Yesterday, I attempted to pull the wool from some of the more complacent eyes of news media consumers by outlining the potential goals for Goldman's half billion "investment" in Facebook while at the same time pondering the market for a different type of media concern. A media concern that is heavy on the analysis and investigation, yet light on the political correctness and conflicts of interest (see Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!). I definitely don't want to be condescending, but there is obviously (at least to me) a need for such an entity amongst the mainstream rags for as I read through the comment sections of the articles written on the topic, I see such naivete as, "Wow!!! If Goldman is putting their money in this, it must be serious!" I say do myself, "It's a damn shame if that is actually a real person's viewpoint and not a Goldman equity underwriting employee".

You see, this is not about Goldman's attempt to create capital gains through investment, its about their attempt to create income through commissions, fees and spreads.

Published in BoomBustBlog

I have been hinting that I plan on taking on partners to build BoomBustBlog into a larger, more prominent media concern. 2011 will be the year that I make this happen, for I see significant opportunity in the media and mobile space as traditional media companies continue to make colossal blunders, all the while destroying brand, equity and shareholder value. At the same time, younger, nimbler, more agile companies are running circles around their more extant brethren due primarily to a superior grasp of the new media model and a dearth of legacy costs and mindset to drag them down.  On that note, let's look at one of the more interesting mainstream media stories of the day...

According to the NY TImes, Goldman Invests in Facebook at $50 Billion Valuation. This investment (along with a reinvestment of $50 million by Digital Sky Technologies (the Russian investment firm that previously invested half a billion dollars) offers Facebook the financial firepower to compete with public companies in hiring, acquisitions, etc., while having the benefit of thinking long term in it investment strategy (like Google has), without suffering the short term-itis that is prevalent in the expectations of the "show me the money, now", quarterly demands of Wall Street analysts.

That is not the most interesting part of the story though. The Facebook stock has more liquidity than some public company stocks, and  the post money valuation of Facebook is now greater than much more established public companies such as eBay, Yahoo and even Time Warner. Hey, it gets a lot more interesting than that. This is where the snarky, smart ass, yet highly analytical nature of BoomBustBlog parts with the reporting of those big MSM rags. I am not going to comment on Facebook's prospects, at least in this particular missive, although I do believe that the young Zuckenberg is a capable and visionary CEO and his company has a lot of potential, there is a waft of bubbliciousness in the air reminiscent of the year 2000. Why do I say this? Well, the capital injection that so duly empowers Facebook is basically an uncapitalized bonus pool for Goldman Sachs. You see, it is highly unlikely that Goldman is actually materially investing in Facebook, particularly at these valuations (is facebook really worth more than Time Warner and eBay, after the private market liquidity discount?). What Goldman is doing is employing its financial engineers to allow its HNW investors to sidestep and circumvent the laws of the land as feebly enforced by the SEC. Its not as if this is a secret, it was published in the NY Times!!! Basically, Goldman has created a spit in the face of the SEC, Facebook hedge fund. See below...

Published in BoomBustBlog

Primarily Dealer Credit Facility

Note: Paying subscribers may download the fully scrubbed model containing all of the date output by the Fed regarding the PDCF as an Excel pivot table here, Primarily Dealer Credit Facility Analysis. Those who are interested in subscribing to our research should click here.

Yesterday, I illustrated how the Fed buried TARP 2.0 amongst a spreadsheet dump of over 70,000 trades and what amounted to probably a million cells of spreadsheet data distributed among a plethora files, see Buried Deep Within The Files That The Federal Reserve Released On Thier MBS Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!. Today, we will review another one of those files, dealing with the lending program that the Fed instituted for its Primary Dealer banks.

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One of my interns made an interesting observation after going over the Feds recent data dump of bailout info.  It reads as follows:

Some quick observations from the data on MBS purchases:

- 8558/10007 MBS purchases by the Fed were done at par or a premium.  These are only agency MBS too.

- A majority of the Maiden Lane holdings were agency MBS

- It looks like the safety net put under AIG was done to protect the agencies.  If all those agency guaranteed MBS had to be liquidated, all that AAA paper would have gone down as the biggest sucker bet in the modern history of financial markets

- I have yet to find any equity collateral data for BAC, C, and AIG.  AIG is what is important here though, because I have no doubt they are writing some of these CDS on European sovereigns, and I'm sure they are undercapitalized yet again, which means if they pledged equity to the Fed, that could destroy a part of the balance sheet and simultaneously blow up the CDS market since none of the sellers are capitalized adequately.  I'm digressing, but I bet CDS will get moved to an exchange, because there are going to be a lot of buyers (both hedgers and speculators) who get burnt by undercapitalized counterparties.

There is a sharp drawdown coming in both MBS and sovereign CDS land if the accounting numbers and the institutional investment sheeple get even a whiff of reality. I am working on the Spain haircut numbers (and yes, Spain will have to restructure in some form or fashion, be it maturity extension, coupon reduction, haircut - or a combination of the three) and anyone who has read my work has seen the housing numbers and opinion - as well as my historical accuracy. For those who have not been reading me or don't subscribe, there's a related reading list at the bottom of this post, such as

  1. The 3rd Quarter in Review, and More Importantly How the Shadow Inventory System in the US is Disguising the Equivalent of a Dozen Ambac Bankruptcies! Wednesday, November 10th, 2010
  2. Banks, Monolines, and Ratings Agencies As The Three Card Monte (Wall)Street Hustlers! Its a Sucker’s Bet, Who’s Going to Fall for it in QE2? Tuesday, November 9th, 2010

On that note, here is a snapshot the results of our digging into the monoline exposure.

Published in BoomBustBlog

We have an updated view of Ambac's bankruptcy effects on the investment banking industry- actually, two banks in particular. All paying subscribers are urged to download the summary - File Icon Investment Bank Exposure to monolines. Professional and institutional subscribers should download the accompanying addendum which actually illustrates the hundreds of insured securities in inventory of the banks in question, complete with CUSIP numbers: File Icon Ambac-MBIA Insured Model

I have taken the liberty to summarize parts of the subscription report for BoomBustBlog readers who don't subscribe. While I will not reveal the most exposed banks, I will show how this is far from a non-event for the investment banking industry, and more to the point - how the post "The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008!" will be even more prophetic than Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billionn in Equity. After all, the smart money should view , particularly since

The Fallout of the Ambac Bankruptcy and Its Likely Effects On the US Investment Banking and Broker/Dealer Industry

The majority of the exposure at risk is that of AMBAC towards the investment banks, which is significantly (as of 2008) the US taxpayer through the government’s backing of the Maiden Lane assets as part of sterilized sale of Bear Stearns to JP Morgan. That is, the securities referenced in the accompanying subscription model and $31bn exposure referred to therein are the securities that were issued by investment banks, sold to other investors and backed by AMBAC and MBIA. If the investment banks offerings were to default (and given that there is no protection due to AMBAC bankruptcy), there would be loss to the holders of these securities that relied on AMBAC’s protection. This is not direct exposure to the investment bankss, but I do believe there is material indirect exposure due the very distinct possibility that the banks are now open to greater warranties and representations clause risks, as well as the impetus for investors to go after the banks directly as a result of (now uninsured) losses as a result of the purchase of these securities – many of which would most assuredly fail to pass the sniff test!

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Summary: Morgan Stanley is also extending its abysmal track record in CRE with the 97% in Revel. The bank took an effective loss for the common shareholders, even when backing out the DVA effect (which is a non-cash charge) as long as you normalize one time items. There is plenty more pain in RE to come, and Morgan's track record is horrendous at the same time expenses are rising with talent fleeing.

The Morgan Stanley Q3 2010 forensic report and updated valuation is now available for download to all subscribers - File Icon Morgan Stanley Q3 2010 Analysis and Updated Valuation. I will be exporting strategic portions of the model for pro and institutional subscribers over the next few days which will allow a forensic view of the balance sheet holdings. Below is an excerpt of the report, as well as some links to the mainstream media's reporting of Morgan Stanley's quarterly results to allow subscribers to discern the difference in both our approaches and results.

Mainstream Media's Reporting of Morgan Stanley's Q3

The BoomBustBlog Way

I have taken the liberty to excerpt a few paragraphs for those that don't subscribe in order for you to ascertain the difference between reported news and analysis. Feel free to click on any page to enlarge to print quality size.

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It is interesting to see what the analysts on the Street have to say about the companies that I have have commented on in the recent past. Let's traipse through a summary of opinion...

Research Analyst
Company Opinion (10/22/10 – 10/25/10)
Thomson Reuters hold Buy buy hold
Ativo Research sell Strong sell Strong sell Strong Sell
Columbine capital Services Inc. Neutral Sell sell sell
Value Line 4(below Average) 3(AVG. Performer) 3(AVG. Performer) 4(Below Average)
Ford Equity Research Neutral Stong Buy Neutral Strong buy
S&P 3 Star 5 star 3 Star 4 Star
Meredith Whitney advisers hold hold hold
Barclays Capital overweight Equal Weight overweight overweight
Wells Fargo outperform outperform Market Perform
J.P.Morgan overweight overweight overweight
Deutsche Bank buy Buy
Jefferies & company buy
PiperJaffray overweight
Stifel Nicolaus Buy

Here are a few excerpts from the various reports...

Comments from various analyst for JPM

Published in BoomBustBlog

It has come to my attention that several banks have actually blocked rank and file level access to my blog through their intranet. That, my dear friends, is asinine, and does nothing but engender distrust. While I admit I can be rather flamboyant in my writings, I am nonetheless quite fair. In addition, my opinions are analytically driven, by design. Thus, if you have a differing opinion all you really need to do is challenge me with the facts. One of us will be proven to be right, or at the very least it will be shown to all how we came to our conclusions. I have absolutely no problem admitting when I am wrong or have made a mistake. I have been right long enough and often enough that I have plenty of emotional and even egotistical room for error. I know fully that no one is perfect, and while I would much rather catch any error first, before a third party does it (particularly a dissenting third party) I know that things don't always happen that way.

A commenter had a very intelligent dissent against my Goldman Sachs post on Zero Hedge the other day. While cogent, eloquent and very lengthy, it was still wrong but it definitely exemplified what a bank (or any other entity) should do when they feel that I am not in the right. Of course, if you put yourself out there, there is always the risk that you can be proven wrong as well. Believe it or not, and contrary to what you marketing and PR advisers may tell you - it is alright. As a matter of fact, it is actually good sometimes. You see, to many of the people that matter, it is not only acceptable, it is expected that you will not be right all of the time. Anybody who is right all of the time should be held up to a much higher level of scrutiny. Just ask Bernie Madoff. The true test of character and fortitude is to be able to publicly admit when you have made a boo-boo, and be willing to do something about it. That goes a lot farther in my eyes, than abject perfection. This is a lesson that the global and national banking industry in the US has yet to learn.

On that note, let's go over a few emails that I have received recently...

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