Beyond Fannie, Freddie: Three More Problem Children?
By Bennet Sedacca Aug 21, 2008 2:00 pm
Assessing the health of WaMu, Lehman Brothers and Regions Financial.
1. Regions Financial (RF): The company needs to raise $2 billion, says Sanford Bernstein. What are their options for doing so?
They can sell debt. The problem here is that I believe you couldn't sell debt if you wanted. The last reported trade in RF paper was 2 weeks ago, nearly +700 to the 30 year or close to 12%. The company's preferred trades at 10%. And the stock is now a 'single digit midget' near $8 a share. So, as I see it, if you could get a deal done, shareholders could get a 50% haircut.
2. Washington Mutual (WM): WaMu trades as if it's in deep trouble. Its bonds trade in the 20% range and no way can they issue a preferred.
3. Lehman Brothers (LEH): This is my favorite and sits as my 'most likely to fail' problem child. Its stock is now on its way to being a single digit midget and just stuck investors with 143,000,000 shares at $28 a share in June of this year. I don't believe many folks are willing to buy more at $12. Also, its preferred stock trades are a not awe-inspiring 16%.
As the markets obsess over FRE/FNM, in my opinion there are many other shoes waiting to drop, and while S&P futures continue to trade with an unnatural bid, all things considered, we have not 2 but at least 5 entities on the brink.
And to be frank, I feel the actual number is likely much higher.
I remain cautious and am concerned about the possibility the system could come unglued if we get simultaneous failures. I believe the Federal Reserve, the Treasury, and the next President will have the fight of their lives on their hands.
Risks are extremely high.
No positions in stocks mentioned.
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2008-08-21 14:06:01
Let me add one more
Just so you can stay awake tonight just like me.
The government has to sell bonds to finance debt. All these bailouts, if they hit more or less at once (GSEs + FDIC + LEH) could absorb all the government's existing cash reserves, forcing them to sell bonds.
What if no one bought those bonds at the interest rates offered?
First, the bailouts don't happen and we get to deal with that.
Second, the panic brought on by the idea that there were more bonds for sale than the market could absorb would be a sight to see. From a safe distance, like Pluto.
The government has to sell bonds to finance debt. All these bailouts, if they hit more or less at once (GSEs + FDIC + LEH) could absorb all the government's existing cash reserves, forcing them to sell bonds.
What if no one bought those bonds at the interest rates offered?
First, the bailouts don't happen and we get to deal with that.
Second, the panic brought on by the idea that there were more bonds for sale than the market could absorb would be a sight to see. From a safe distance, like Pluto.
2008-08-21 14:06:04
Let me add one more
Just so you can stay awake tonight just like me.
The government has to sell bonds to finance debt. All these bailouts, if they hit more or less at once (GSEs + FDIC + LEH) could absorb all the government's existing cash reserves, forcing them to sell bonds.
What if no one bought those bonds at the interest rates offered?
First, the bailouts don't happen and we get to deal with that.
Second, the panic brought on by the idea that there were more bonds for sale than the market could absorb would be a sight to see. From a safe distance, like Pluto.
The government has to sell bonds to finance debt. All these bailouts, if they hit more or less at once (GSEs + FDIC + LEH) could absorb all the government's existing cash reserves, forcing them to sell bonds.
What if no one bought those bonds at the interest rates offered?
First, the bailouts don't happen and we get to deal with that.
Second, the panic brought on by the idea that there were more bonds for sale than the market could absorb would be a sight to see. From a safe distance, like Pluto.
2008-08-21 14:26:34
Let me add one more
I have heard this all before. In fact, it is giving me a sense of deja vu.
2008-08-21 15:04:21
Let me add one more
My apologies, I don't know how I did that. It was not my intention to post the same thing twice.
My apologies, I don't know how I did that. It was not my intention to post the same thing twice.
My apologies, I don't know how I did that. It was not my intention to post the same thing twice.
2008-08-21 16:20:47
You are all invited to the party
Bennet,
Another great round of articles.
I think this debt unwind will be one of those nice parties where they serve lots of drinks. At one corner of the table we have some new shareholders of the banks who will buy some new shares. Then at another corner we have investors from the oil states, some from China, some from Japan. As the party continues they will all put in some money for the drinks, food. But while all the great talk goes on, they will all leave the table one by one. Finally at the end of the evening, only you are left. No one seems to be coming back. And then right on schedule, you get the large bill. And you are the taxpayer.
This is the classic party scam where the last one will get the big check. The other investors will eventually get their money back, as they will by ownership in the institutions. But the taxpayer likely never will.
But who knows, these are extraordinary times. Maybe the taxpayer will eventually own some of these banks, or combined banks.
First National United States Bank of Dubai?
Lehman WaMu? (sounds like leaping wahoo)
Why not, we deserve it.
Another great round of articles.
I think this debt unwind will be one of those nice parties where they serve lots of drinks. At one corner of the table we have some new shareholders of the banks who will buy some new shares. Then at another corner we have investors from the oil states, some from China, some from Japan. As the party continues they will all put in some money for the drinks, food. But while all the great talk goes on, they will all leave the table one by one. Finally at the end of the evening, only you are left. No one seems to be coming back. And then right on schedule, you get the large bill. And you are the taxpayer.
This is the classic party scam where the last one will get the big check. The other investors will eventually get their money back, as they will by ownership in the institutions. But the taxpayer likely never will.
But who knows, these are extraordinary times. Maybe the taxpayer will eventually own some of these banks, or combined banks.
First National United States Bank of Dubai?
Lehman WaMu? (sounds like leaping wahoo)
Why not, we deserve it.
2008-08-22 00:19:50
So what is a poor girl to do.
I understand there's extreme risk out there.
That's the easy call.
What exactly is someone supposed to do when you suggest that their govt's guarantee and backing of savings accounts is suspect?
Shall I withdraw all funds from FDIC insured accounts and buy gold bars?
I'd hate to pull my IRA funds and pay the penalty (though it seems my Uncle could use the scratch).
It would be informative to describe what YOU are doing to protect yourself, given your dire view of our porspects.
That's the easy call.
What exactly is someone supposed to do when you suggest that their govt's guarantee and backing of savings accounts is suspect?
Shall I withdraw all funds from FDIC insured accounts and buy gold bars?
I'd hate to pull my IRA funds and pay the penalty (though it seems my Uncle could use the scratch).
It would be informative to describe what YOU are doing to protect yourself, given your dire view of our porspects.
2008-08-22 00:21:30
So what is a poor girl to do.
That last word should have been 'prospects' but on second thought, 'poorspects' has a nice ring to it.
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