Etrade, era un broker e ha voluto fare dei mutui - gz
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By: GZ on Venerdì 19 Ottobre 2007 03:35
Qualcuno ha un conto di trading con E-Trade ?
Questo trimestre hanno perso $58 million o $0.14 per azione perchè si sono messi a fare mutui oltre ai broker. Prova a leggere la discussione con gli analisti di due giorno fa su quello che succede ai mutui e derivati su mutui che hanno sul gozzo.
Anche se una persona normale non ne capisce, prova solo a scorrere questa roba :
i) si parla di bonds o diavolerie travestite da bonds classificate come AA, non "junk" tipo BBB e si parla di "marcarle" nel bilancio a 50 centesimi o 25 centesimi sul dollaro, perdite dal 50 al 75%.
ii) non le hanno ancora vendute, le "segnano" a questi valori ma hanno paura di venderle
iii) tutti i mutui dove la gente ha messo dentro anche Home Equity Loans, cioè dove dopo aver comprato con il mutuo hanno aggiunto un debito sul valore della casa, finiscono in pignoramenti
"...Specifically the ABS portfolio and the second lien were marked through the A tranche, in the case of CDOs, to about $0.53 and about $0.28 for the second lien.
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Your first question comes from Rich Repetto - Sandler O’Neill.
Rich Repetto - Sandler O’Neill
The question has to do with the ABS portfolio and the 197 impairment. I’m just trying to understand how they were performing? I know you sold at $0.50 on the dollar. I know that wasn’t the plan. I know you want to accelerate the transition and get out of this situation as quick as you can, but I’m just trying to see, that CDOs and second liens is over $600 million from the last disclosure. I’m just trying to get more color on the background on the writedown.
Mitchell Caplan
Happy to do it. First of all, let me be clear. We did not sell, so this loss is unrealized loss. It’s an impairment running through the P&L. We did not actually sell the securities. If you remember when we last spoke and when we were on the road, we were specifically circling up as an area of concern with respect to our overall securities portfolio the ABS. We felt extremely uncomfortable obviously with our AAAs, in our agency, and so what we really looked at in particular against the entire backdrop of the $3 billion in ABS CDOs, and even in the asset-backed securities portfolio, was the CDO composition as well the second lien composition.
What we had done is, as you know, the market is fluid. It’s challenging; it keeps moving. We’re constantly in a position where we’re re-evaluating and refining the forecast. When you looked at that and we came back, we made the determination, that we needed obviously to have certain writedowns, but more importantly that we did not want to continue to hold these securities to recovery.
As a result of designating them or changing our intent as a management team given all these other facts and circumstances I just described, it doesn’t matter whether the securities are cash flowing. What happens is you impair them at that point at market value. So what we did in working with our team internally is if there’s a mark that’s readily available, you use it. If there’s not a mark that’s readily available, you use market valuation.
What Rob spoke to was that across the board they were marked to less than $0.50 on the dollar, and that is across both the CDOs and the second liens. There is a specific breakdown for each of them. Rob, do you remember?
Robert Simmons
Specifically the ABS portfolio and the second lien were marked through the A tranche, in the case of CDOs, to about $0.53 and about $0.28 for the second lien.
Mitchell Caplan
Fundamentally, Rich as a result of recognizing the fluidity of the market, recognizing that we weren’t going to be in a place where we were going to see these charge-offs starting to come through and that we did have the flexibility as a management team to make the decision to no longer hold these to recovery, it allowed us to move the impairment forward, effectively, to the benefit of future quarters.
Operator
Your next question comes from Mike Vinciquerra - BMO Capital Markets.
Mike Vinciquerra - BMO Capital Markets
Just to clarify that, Mitch, I just wanted to make sure: so you haven’t sold them but you intend to sell them? Or have you sold them since the end of the quarter? I’m not quite clear on it.
Mitchell Caplan
Okay, perfect question. We have not yet sold them. I think one of the things we have talked about very clearly over and over again is the success that we are experiencing in the retail franchise, the engagement we are seeing with our customer, the important of showing our business model whether it’s through the engagement of the customer, our capital ratios, our excess liquidity protection as well as where we are in terms of overall capital.
So recognizing that, we understood that one of the things that was imperative and we talked about in the last call was this transformation from the balance sheet as it currently stands, to one that is really almost exclusively driven by retail; getting to an 80% or 85% retail balance sheet both on the asset and liability side.
There a number of ways to do that. Obviously one is to delever so as you have prepayments just to allow the balance sheet to shrink, particularly with your securities. Another would be to sell them.
Given what we were seeing in the market place, our view was that we no longer wanted to hold these securities in the ABS portfolio around CDO and second lien to maturity, given that there would clearly be writedowns. We believed that the best thing to do was to change our intent to hold them to recovery, designate them as no longer held fro recovery. The accounting impact of that is an immediate impairment. We talked about the impairment and that is how they are currently marked.
We will take advantage as the market firms of selling them and if we could sell them in the ranges that they’re marked at it is certainly an opportunity that we would take advantage of to help speed up this transformation.
One of the things that we as a management team realize is that the incredible success we are seeing in retail is being overshadowed by this very volatile and uncertain credit market, and the faster that we can make that transformation the more important it is for us.
Mike Vinciquerra - BMO Capital Markets
Following up a little bit, when you guys were on the road recently, you were talking about if you had to mark your entire ABS portfolio to market, I think you were saying $400 million to $450 million seemed like a reasonable market if you went ahead and sold everything today. Can you update us as to where that might have stood at September 30 when you did your analysis?
Mitchell Caplan
I’m happy to do it. So the current mark on the entire ABS portfolio today, negative mark, would be $268 million. Of that $268 million, $137 million relates to below AA and a $131 million relates to AA and AAA, as well as the fact the $268 million is in fact a pre-tax rather than an after-tax number. So when you think about the breakdown, I guess the risk is really in our minds going forward around the $137 million that relates to anything below AA in the ABS portfolio on a pre-tax basis.
Rob anything you want to add?
Robert Simmons
No, other than obviously there still is the risk that other rating agency downgrades could move other AA bonds into a category that they would become at risk. But again, it’s very difficult to forecast this market. As we look at the current mark of the ABS book as Mitch mentioned, that $268 million was roughly half of that being AA or higher. We feel like we’re in a reasonably good place this quarter.
Operator
Your next question comes from Matt Snowling - FBR Capital Markets.
Matt Snowling - FBR Capital Markets
Can you give us a little bit explanation as to what happened to the OCI accounts?
Mitchell Caplan
To the OCI? Absolutely.
Matt Snowling - FBR Capital Markets
Yes, there’s a $144 million drop somewhere?
Robert Simmons
OCI this quarter was about $483 million as you can see on the balance sheet there. Just to give you a quick sense of the composition of that, obviously that’s on an after-tax basis so all these numbers that I’ll talk about will be comparable on an after-tax basis. The MBS component of the agency, the AAA component of the $483 million is about $315 million of that. So, roughly 62% of the OCI balance you see relates to our MBS portfolio; the $268 million that relates to the ABS portfolio that Mitch just went through, on an after-tax basis that would represent about $169 million of that $483 million balance.
So again, half of that would relate to securities that are AA and above. So you can see the vast majority of the mark in OCI relates to a combination of MBS agency paper and ABS that’s AA or higher rated.
Matt Snowling - FBR Capital Markets
And $315 million from the MBS portfolio, I would have thought that would have gone the other way given where rates are coming down, or is that just spreads widening?
Mitchell Caplan
Spreads widening, my friend.
Operator
Your next question comes from Roger Freeman - Lehman Brothers.
Roger Freeman - Lehman Brothers
The thing that struck me is just looking at the supplemental disclosures, it looks like there was another 15% deterioration in the delinquencies in the HELOC portfolio from August to September. It went from 349 to 404, and it looks like the 80% to 90% CLTV tranche there actually were the highest increase. , Mitch, can you talk a little bit to that and just put that in the context of the 25% incremental deterioration you were expecting this year and plus another 25% next year, the trend line doesn’t look encouraging.
Mitchell Caplan
Happy to do it. As you see the increase there, remember that we were on the road we were talking about two things affecting the overall value. One would be a 25% increase in August by the end of this year and an additional 25% next year. The other thing we talked about is seeing the recovery value drop from our model, 80 to 70 by the end of the year although we are currently running at 85.
If you look at the increase in September, the increase is the largest, as you pointed out, in the HELOC in the 80 to 90 and 90 to 100, so the areas that while we were on the road and the last time that we did the call that we circled up.
I think we are still comfortable by and large with the range of about 25% growth rate given that we are continuing to see recovery rates pretty consistent at about 85%. So it may be a little higher on one and a little lower on the other. As you go into next year, and we’re still of the belief there will be another drop from 70 to 60 and another increase of 25%.
I think the most important takeaway, however, is that if you noticed in the guidance that Rob just gave, he talked about the bank business and what he thought it would earn, and then he said in an effort to be prudent, considering another $0.10 of possible credit securitization which could come from either securities impairments or some of these trend lines that you have seen; notwithstanding the fact that what we’re currently seeing, I think we’re reasonably comfortable with what we have set. But again, it’s a market in flux, and that was the identification of the additional $-.10 or $65 million. All of that by the way is pre-tax.
Roger Freeman - Lehman Brothers
My follow-up is then on the CDOs. Again, it looks like you marked down the ABS CDOs, according to the supplemental disclosures, just about $100 million. As you point out, it’s all in the below AA category. But then Mitch, you also said that the mark on that would be $137 million. Can you reconcile that difference? It looks like it is not fully marked to where you could sell the stuff at. Is that a fair assessment?
Robert Simmons
Let me clarify. When you’re talking about the mark on the ABS portfolio of $268 million, about half of that relates to AA or above; so about half of that obviously is in that A or below category. The marks that we took, specifically to the ABS CDO book and the second lien book, were the marks we talked about earlier. We marked them not to zero, but we marked for instance the ABS CDO book to about $0.53 on the dollar and the second lien book to about $0.28 on the dollar.
