Lehman Merrill Lynch AIG Fannie Freddie WaMu Madoff Citibank saga
- Thread starter Stefan Zota
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No, you don't need a membership to download that. It's under the big banner The Impact of the Subprime Crisis.
The link you mentioned points to an article in the Subscriber section.
By the way, I'm on a trial with them. You can request a trial here
https://secure.creditflux.com/subscribe/sample.aspx
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That paints it better...but then what about Citi? 40 billion in write downs? Whats its market cap such that it isn't getting utterly annihilated, and after absorbing Wachovia, which posted another 40?
I just want to get a clear numerical picture after the fact...Merrill looked obviously doomed, though it's interesting that it got sold at $29 a share while Lehman got annihilated for one fifth of that.
Looking at the numbers and looking at the results...even considering market cap (did ML really have 5x the market cap of Lehman?)
Bleh...these basic finance courses at Lehigh are so watered down for the business students that it's hard to get anything answered -_-...
But at least there's a course opening up on the 15th (sort of unofficial) that goes into depth about the crisis. I just want to learn all about it so I could see the next one coming and make a killing off of all the sheep walking off a cliff (and prevent my own team from doing so).
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Just ask the Google. I find a market cap today for Citi of 122.52 billion.
doug reich
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I was trying to look up historical market caps, which means you need share to know their share issuance; it's a little harder. (Although you should be able to get that on a quarterly basis from the 10Q, which may be good enough for comparison).
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doug reich
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... if you drink piss beer.
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First, what the writedowns don't tell you is the quality of assets that are still on the balance sheet (or the off balance sheet items). Lehman Brothers went bankrupt because it became apparent that they could not fund their current short-term obligations.
The result of this fall out of confidence was nobody was willing to accept their commercial paper, and they certainly did not have the cash to meet these obligations. Lehman became insolvent and went bankrupt.
So why did Lehman go bankrupt and the rest of the pack didn't? Well, that relates to the confidence that counterparties had in the quality of Lehman Brothers assets. It was well known that they had an extremely aggressive agenda towards subprime lending and CDO and many of those assets were still on their books, despite the writedowns. Nobody trusts the value of these assets anymore and hence nobody was willing to accept commercial paper, secured or unsecured.
As a side note Ilya - I wouldn't complain about your finance classes being so watered down that you can't learn any of this. I have never taken a finance course in my life. I learned this stuff by reading newspapers and textbooks, all of which you have access to.
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And by the way Doug - I do. I could probably build two cars.
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You quants don't cease to amaze me. Honestly. At least there's a headlines-discussion econ course starting soon taught by a former Lehman trader (he quit quite a while back...he's a part time professor now).
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And the roller-coaster continues, MS down around 18% ...
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(Reuters) – Merrill Lynch & Co Chief Executive John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered company's compensation committee is resisting his request, the Wall Street Journal said, citing people familiar with the situation.
The compensation committee has not reached a decision, but is leaning toward denying Thain and other senior executives bonuses for this year, the people told the paper.
Merrill could not be immediately reached for comment.
Shareholders on Friday approved Bank of America Corp's takeover of Merrill, a deal fraught with risk but one that would create a banking giant with a leading position in almost every major area of the financial system.
Merrill was arguably saved from extinction when it agreed to merge on September 15, an hour before Lehman Brothers Holdings Inc filed for bankruptcy. The fear was that Merrill could be next if shareholders and trading partners fled, as many did at Lehman and the former Bear Stearns Cos.
Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill's compensation committee agree with Thain that the takeover is in shareholders' best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.
Committee members are also weighing the fact that other Wall Street firms, including Goldman Sachs Group Inc, which did better than Merrill this year, are not giving out bonuses to top executives, the paper said.
Thain, who became Merrill's chief executive after losses in mortgage-related investments led to the October 2007 ouster of Stanley O'Neal, has also run NYSE Euronext, after a long career at Goldman.
After the Bank of America-Merrill deal is completed, he will run the merged company's global banking, securities and wealth management businesses. Thain will not be joining Bank of America's board.
The compensation committee has not reached a decision, but is leaning toward denying Thain and other senior executives bonuses for this year, the people told the paper.
Merrill could not be immediately reached for comment.
Shareholders on Friday approved Bank of America Corp's takeover of Merrill, a deal fraught with risk but one that would create a banking giant with a leading position in almost every major area of the financial system.
Merrill was arguably saved from extinction when it agreed to merge on September 15, an hour before Lehman Brothers Holdings Inc filed for bankruptcy. The fear was that Merrill could be next if shareholders and trading partners fled, as many did at Lehman and the former Bear Stearns Cos.
Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill's compensation committee agree with Thain that the takeover is in shareholders' best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.
Committee members are also weighing the fact that other Wall Street firms, including Goldman Sachs Group Inc, which did better than Merrill this year, are not giving out bonuses to top executives, the paper said.
Thain, who became Merrill's chief executive after losses in mortgage-related investments led to the October 2007 ouster of Stanley O'Neal, has also run NYSE Euronext, after a long career at Goldman.
After the Bank of America-Merrill deal is completed, he will run the merged company's global banking, securities and wealth management businesses. Thain will not be joining Bank of America's board.
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Merrill's Thain, Morgan Stanley's Mack Will Forgo Bonuses - WSJ.com
An hour after Mack forgo the second year bonus, Thain gave up!
An hour after Mack forgo the second year bonus, Thain gave up!
Dave Haan
aka nnyhav
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Funny that this thread should come to life the day that the Bank of Int'l Settlements released their fourth quarter saga ...
(the special report on repo also deserves attention, as it's where the funding is)
(the special report on repo also deserves attention, as it's where the funding is)
Sanket Patel
i do stuff
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Morgan Stanley's bonus overhaul outlined Monday applies clawbacks both more broadly and more aggressively than a similar plan unveiled by UBS three weeks ago.
The new Morgan Stanley program starts with this year's bonuses and covers all bonus-eligible employees. In contrast, the UBS reforms begin next year and is limited to corporate executives, division leaders and designated "risk takers" who trade significant amounts of the bank's capital.
"In 2008 and beyond, for all bonus-eligible employees, we are making part of the year-end bonus deferral a cash award subject to a clawback provision that could be triggered if the individual engages in conduct detrimental to the Firm," Morgan Stanley Chief Executive John Mack wrote in a memo to employees, published in the New York Times. "The clawback could be triggered if an individual, for example, caused the need for a restatement of results, a significant financial loss or other reputational harm to the Firm or one of its businesses."
As in UBS's new "bonus/malus" system, Morgan Stanley will divide each affected employee's year-end compensation into a current cash payout, a deferred cash component subject to clawback over three years, and an equity component that also vests over three years. The bank also said this year's bonuses won't include any stock options.
Said to Affect 7,000 Employees
Also similar to UBS, Morgan Stanley said its new bonus system aims to tie compensation more closely "to multi-year performance and each employee’s contribution to the Firm’s sustainable profitability."
The Times says 7,000 Morgan Stanley employees will be subject to the bonus clawback provisions. The UBS plan's scope is narrower. Although the Swiss bank has yet to define exactly who will be affected, it has said the current variable compensation system won't change "for the majority of employees." The Times of London, without stating a source, said the bonus overhaul would cover 2,000 of UBS's 80,000 employees.
The ball now passes to other global investment houses, who face ongoing pressure from lawmakers and the public to show they won't reward executives or employees for taking excessive risks or generating profits that later prove illusory.
Mack's memo also disclosed that 2008 year-end pay for Morgan Stanley's 14-person operating committee will average 75 percent below last year, and the broader management committee will be paid 65 percent less than last year on average. Mack and co-presidents James Gorman and Waliid Chammah will "forgo" any bonuses for 2008.
Decisions about year-end compensation for all Morgan Stanley employees will be finalized "in the coming weeks," the memo says. Predictably, its adds that the entire bonus pool "will be down dramatically this year, reflecting the difficult market conditions, stock price performance and our full-year revenues in this challenging environment."
Copy of the memo from John Mack http://dealbook.blogs.nytimes.com/2...cutives-forego-bonuses-as-program-is-changed/
Analysis of this plan by NY Times This Bonus Season, Wall St. Tries a Little Restraint - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
The new Morgan Stanley program starts with this year's bonuses and covers all bonus-eligible employees. In contrast, the UBS reforms begin next year and is limited to corporate executives, division leaders and designated "risk takers" who trade significant amounts of the bank's capital.
"In 2008 and beyond, for all bonus-eligible employees, we are making part of the year-end bonus deferral a cash award subject to a clawback provision that could be triggered if the individual engages in conduct detrimental to the Firm," Morgan Stanley Chief Executive John Mack wrote in a memo to employees, published in the New York Times. "The clawback could be triggered if an individual, for example, caused the need for a restatement of results, a significant financial loss or other reputational harm to the Firm or one of its businesses."
As in UBS's new "bonus/malus" system, Morgan Stanley will divide each affected employee's year-end compensation into a current cash payout, a deferred cash component subject to clawback over three years, and an equity component that also vests over three years. The bank also said this year's bonuses won't include any stock options.
Said to Affect 7,000 Employees
Also similar to UBS, Morgan Stanley said its new bonus system aims to tie compensation more closely "to multi-year performance and each employee’s contribution to the Firm’s sustainable profitability."
The Times says 7,000 Morgan Stanley employees will be subject to the bonus clawback provisions. The UBS plan's scope is narrower. Although the Swiss bank has yet to define exactly who will be affected, it has said the current variable compensation system won't change "for the majority of employees." The Times of London, without stating a source, said the bonus overhaul would cover 2,000 of UBS's 80,000 employees.
The ball now passes to other global investment houses, who face ongoing pressure from lawmakers and the public to show they won't reward executives or employees for taking excessive risks or generating profits that later prove illusory.
Mack's memo also disclosed that 2008 year-end pay for Morgan Stanley's 14-person operating committee will average 75 percent below last year, and the broader management committee will be paid 65 percent less than last year on average. Mack and co-presidents James Gorman and Waliid Chammah will "forgo" any bonuses for 2008.
Decisions about year-end compensation for all Morgan Stanley employees will be finalized "in the coming weeks," the memo says. Predictably, its adds that the entire bonus pool "will be down dramatically this year, reflecting the difficult market conditions, stock price performance and our full-year revenues in this challenging environment."
Copy of the memo from John Mack http://dealbook.blogs.nytimes.com/2...cutives-forego-bonuses-as-program-is-changed/
Analysis of this plan by NY Times This Bonus Season, Wall St. Tries a Little Restraint - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
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AIG Faces $10 Billion in Losses on Bad Bets
AIG Faces $10 Billion in Losses on Bad Bets
By SERENA NG, CARRICK MOLLENKAMP and MICHAEL SICONOLFI
American International Group Inc. owes Wall Street's biggest firms about $10 billion for speculative trades that have soured, according to people familiar with the matter, underscoring the challenges the insurer faces as it seeks to recover under a U.S. government rescue plan.
The details of the trades go beyond what AIG has explained to investors about the nature of its risk-taking operations, which led to the firm's near-collapse in September. In the past, AIG has said that its trades involved helping financial institutions and counterparties insure their securities holdings. The speculative trades, engineered by the insurer's financial-products unit, represent the first sign that AIG may have been gambling with its own capital.
The soured trades and the amount lost on them haven't been explicitly detailed before. In a recent quarterly filing, AIG does note exposure to speculative bets without going into detail. An AIG spokesman characterizes the trades not as speculative bets but as "credit protection instruments." He said that exposure has been fully disclosed and amounts to less than $10 billion of AIG's $71.6 billion exposure to derivative contracts on debt pools known as collateralized debt obligations as of Sept. 30.
AIG's financial-products unit, operating more like a Wall Street trading firm than a conservative insurer selling protection against defaults on seemingly low-risk securities, put billions of dollars of the company's money at risk through speculative bets on the direction of pools of mortgage assets and corporate debt. AIG now finds itself in a position of having to raise funds to pay off its partners.
The fresh $10 billion bill is particularly challenging because the terms of the current $150 billion rescue package for AIG don't cover those debts. The structure of the soured deals raises questions about how the insurer will raise the funds to pay the debts. The Federal Reserve, which lent AIG billions of dollars to stay afloat, has no immediate plans to help AIG pay off the speculative trades.
The outstanding $10 billion bill is in addition to the tens of billions of taxpayer money that AIG has paid out over the past 16 months in collateral to Goldman Sachs Group Inc. and other trading partners on trades called credit-default swaps. These instruments required AIG to insure trading partners, known on Wall Street as counterparties, against any losses in their holdings of securities backed by pools of mortgages and other assets. With the value of those mortgage holdings plunging in the past year and increasing the risk of default, AIG has been required to put up additional collateral -- often cash payments.
AIG's problem: The rescue plan calls for a company funded largely by the Federal Reserve to buy about $65 billion in troubled CDO securities underlying the credit-default swaps that AIG had written, so as to free AIG from its obligations under those contracts. But there are no actual securities backing the speculative positions that the insurer is losing money on. Instead, these bets were made on the performance of pools of mortgage assets and corporate debt, and AIG now finds itself in a position of having to raise funds to pay off its partners because those assets have fallen significantly in value.
The Fed first stepped in to rescue AIG in mid-September with an $85 billion loan when the collateral demands from banks and losses from other investments threatened to send the firm into bankruptcy court. A bankruptcy filing would have created losses and problems for financial institutions and policyholders all over the world that were relying AIG to insure them against the unexpected.
By November, AIG had used up a large chunk of the government money it had borrowed to meet counterparties' collateral calls and began to look like it would have difficulty repaying the loan. On Nov. 10 the government stepped in again with a revised bailout package. This time, the Treasury said it would pump $40 billion of capital into AIG in exchange for interest payments and proceeds of any asset sales, while the Fed agreed to lend as much as $30 billion to finance the purchases of AIG-insured CDOs at market prices.
The $10 billion in other IOUs stems from market wagers that weren't contracts to protect securities held by banks or other investors against default. Rather, they are from AIG's exposures to speculative investments, which were essentially bets on the performance of bundles of derivatives linked to subprime mortgages, commercial real-estate bonds and corporate bonds.
These bets aren't covered by the pool to buy troubled securities, and many of these bets have lost value during the past few weeks, triggering more collateral calls from its counterparties. Some of AIG's speculative bets were tied to a group of collateralized debt obligations named "Abacus," created by Goldman Sachs.
The Abacus deals were investment portfolios designed to track the values of derivatives linked to billions of dollars in residential mortgage debt. In what amounted to a side bet on the value of these holdings, AIG agreed to pay Goldman if the mortgage debt declined in value and would receive money if it rose.
As part of the revamped bailout package, the Fed and AIG formed a new company, Maiden Lane III, to purchase CDOs with a principal value of $65 billion on which AIG had written credit-default-swap protection. These CDOs currently are worth less than half their original values and had been responsible for the bulk of AIG's troubles and collateral payments through early November.
Fed officials believed that purchasing the underlying securities from AIG's counterparties would relieve the insurer of the financial stress if it had to continue making collateral payments. The plan has resulted in banks in North America and Europe emerging as winners: They have kept the collateral they previously received from AIG and received the rest of the securities' value in the form of cash from Maiden Lane III.
The government's rescue of AIG helped prevent many of its policyholders and counterparties from incurring immediate losses on those traditional insurance contracts. It also has been a double boon to banks and financial institutions that specifically bought protection on now shaky mortgage securities and are effectively being made whole on those positions by AIG and the Federal Reserve.
Some $19 billion of those payouts were made to two dozen counterparties just between the time AIG first received federal government assistance in mid-September and early November when the government had to step in again, according to a confidential document and people familiar with the matter. Nearly three-quarters of that went to French bank Société Générale SA, Goldman, Deutsche Bank AG, Crédit Agricole SA's Calyon investment-banking unit, and Merrill Lynch & Co. Société Générale, Calyon and Merrill declined to comment. A Goldman spokesman says the firm's exposure to AIG is "immaterial" and its positions are supported by collateral.
As of Nov. 25, Maiden Lane III had acquired CDOs with an original value of $46.1 billion from AIG's counterparties and had entered into agreements to purchase $7.4 billion more. It is still in talks over $11.2 billion.
Write to Serena Ng at serena.ng@wsj.com and Carrick Mollenkamp at carrick.mollenkamp@wsj.com
AIG Faces $10 Billion in Losses on Bad Bets
By SERENA NG, CARRICK MOLLENKAMP and MICHAEL SICONOLFI
American International Group Inc. owes Wall Street's biggest firms about $10 billion for speculative trades that have soured, according to people familiar with the matter, underscoring the challenges the insurer faces as it seeks to recover under a U.S. government rescue plan.
The details of the trades go beyond what AIG has explained to investors about the nature of its risk-taking operations, which led to the firm's near-collapse in September. In the past, AIG has said that its trades involved helping financial institutions and counterparties insure their securities holdings. The speculative trades, engineered by the insurer's financial-products unit, represent the first sign that AIG may have been gambling with its own capital.
The soured trades and the amount lost on them haven't been explicitly detailed before. In a recent quarterly filing, AIG does note exposure to speculative bets without going into detail. An AIG spokesman characterizes the trades not as speculative bets but as "credit protection instruments." He said that exposure has been fully disclosed and amounts to less than $10 billion of AIG's $71.6 billion exposure to derivative contracts on debt pools known as collateralized debt obligations as of Sept. 30.
AIG's financial-products unit, operating more like a Wall Street trading firm than a conservative insurer selling protection against defaults on seemingly low-risk securities, put billions of dollars of the company's money at risk through speculative bets on the direction of pools of mortgage assets and corporate debt. AIG now finds itself in a position of having to raise funds to pay off its partners.
The fresh $10 billion bill is particularly challenging because the terms of the current $150 billion rescue package for AIG don't cover those debts. The structure of the soured deals raises questions about how the insurer will raise the funds to pay the debts. The Federal Reserve, which lent AIG billions of dollars to stay afloat, has no immediate plans to help AIG pay off the speculative trades.
The outstanding $10 billion bill is in addition to the tens of billions of taxpayer money that AIG has paid out over the past 16 months in collateral to Goldman Sachs Group Inc. and other trading partners on trades called credit-default swaps. These instruments required AIG to insure trading partners, known on Wall Street as counterparties, against any losses in their holdings of securities backed by pools of mortgages and other assets. With the value of those mortgage holdings plunging in the past year and increasing the risk of default, AIG has been required to put up additional collateral -- often cash payments.
AIG's problem: The rescue plan calls for a company funded largely by the Federal Reserve to buy about $65 billion in troubled CDO securities underlying the credit-default swaps that AIG had written, so as to free AIG from its obligations under those contracts. But there are no actual securities backing the speculative positions that the insurer is losing money on. Instead, these bets were made on the performance of pools of mortgage assets and corporate debt, and AIG now finds itself in a position of having to raise funds to pay off its partners because those assets have fallen significantly in value.
The Fed first stepped in to rescue AIG in mid-September with an $85 billion loan when the collateral demands from banks and losses from other investments threatened to send the firm into bankruptcy court. A bankruptcy filing would have created losses and problems for financial institutions and policyholders all over the world that were relying AIG to insure them against the unexpected.
By November, AIG had used up a large chunk of the government money it had borrowed to meet counterparties' collateral calls and began to look like it would have difficulty repaying the loan. On Nov. 10 the government stepped in again with a revised bailout package. This time, the Treasury said it would pump $40 billion of capital into AIG in exchange for interest payments and proceeds of any asset sales, while the Fed agreed to lend as much as $30 billion to finance the purchases of AIG-insured CDOs at market prices.
The $10 billion in other IOUs stems from market wagers that weren't contracts to protect securities held by banks or other investors against default. Rather, they are from AIG's exposures to speculative investments, which were essentially bets on the performance of bundles of derivatives linked to subprime mortgages, commercial real-estate bonds and corporate bonds.
These bets aren't covered by the pool to buy troubled securities, and many of these bets have lost value during the past few weeks, triggering more collateral calls from its counterparties. Some of AIG's speculative bets were tied to a group of collateralized debt obligations named "Abacus," created by Goldman Sachs.
The Abacus deals were investment portfolios designed to track the values of derivatives linked to billions of dollars in residential mortgage debt. In what amounted to a side bet on the value of these holdings, AIG agreed to pay Goldman if the mortgage debt declined in value and would receive money if it rose.
As part of the revamped bailout package, the Fed and AIG formed a new company, Maiden Lane III, to purchase CDOs with a principal value of $65 billion on which AIG had written credit-default-swap protection. These CDOs currently are worth less than half their original values and had been responsible for the bulk of AIG's troubles and collateral payments through early November.
Fed officials believed that purchasing the underlying securities from AIG's counterparties would relieve the insurer of the financial stress if it had to continue making collateral payments. The plan has resulted in banks in North America and Europe emerging as winners: They have kept the collateral they previously received from AIG and received the rest of the securities' value in the form of cash from Maiden Lane III.
The government's rescue of AIG helped prevent many of its policyholders and counterparties from incurring immediate losses on those traditional insurance contracts. It also has been a double boon to banks and financial institutions that specifically bought protection on now shaky mortgage securities and are effectively being made whole on those positions by AIG and the Federal Reserve.
Some $19 billion of those payouts were made to two dozen counterparties just between the time AIG first received federal government assistance in mid-September and early November when the government had to step in again, according to a confidential document and people familiar with the matter. Nearly three-quarters of that went to French bank Société Générale SA, Goldman, Deutsche Bank AG, Crédit Agricole SA's Calyon investment-banking unit, and Merrill Lynch & Co. Société Générale, Calyon and Merrill declined to comment. A Goldman spokesman says the firm's exposure to AIG is "immaterial" and its positions are supported by collateral.
As of Nov. 25, Maiden Lane III had acquired CDOs with an original value of $46.1 billion from AIG's counterparties and had entered into agreements to purchase $7.4 billion more. It is still in talks over $11.2 billion.
Write to Serena Ng at serena.ng@wsj.com and Carrick Mollenkamp at carrick.mollenkamp@wsj.com
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Merrill Lynch's average employee bonus is set to drop 50 percent compared with last year. And Merrill's top five executive asked the board's compensation committee not to pay them any bonus for 2008