ABCP: Perimeter Financial Spats With Montreal Accord Banks

Last week Perimeter Financial announced plans to allow investors to start trading the $35B frown ABCP papers in Canada. Yesterday, its CEO lashed out at the banks that instituted a trading moratorium, calling them "self-serving and paternalistic." He says the Pan-Canadian Committee is looking after their own interests and ignoring everyone else (is he surprised?).

A day earlier, committee chair Purdy Crawford criticized Perimeter's bid to kick start the trading, calling it an attempt to exploit desperate, cash-strapped investors, he suggested their motivation was to "induce panic in the market in order to acquire ABCP at distressed prices."

The Montreal Accord approach has sparked controversy among small investors who bought the paper as a short-term investment and can't afford to keep it on their books. The Montreal Accord banks want to switch this paper into longer term notes. This was clearly never the intent of the investors.

Interestingly, Perimeter's major shareholders include National Bank Financial and pension giant Caisse de dépôt et placement du Québec, both key backers of the Montreal proposal. Perimeter's CEO says Perimeter's owners supports its bid to bring liquidity back to the ABCP market.

There does not seem to be any angels in this company. Shark-infested waters indeed.

Source FP.

Detailed Fed Funds Injections Since 2006

Much is being said these days on financial entertainment TV and publications about the huge Fed injections. In particular, every Thursday we hear about some huge numbers that is now a new record. These "injections" are in the form of TOMOs and POMOs (temporary and permanent open market operations). Reality is that these numbers are nothing out of the ordinary - so far. The table below shows the total amount of funds actually added since 2006.

The table shows the amounts added for each month of 2007, the total for 2006, the total for 2007, the totals since Jan 2006, and since May 2007.

The total amount "injected" since Jan 2006 until today is $1B.
The total amount "injected" since 2007 until today is $7B.

Up to Nov 19 2007 In $B USD Date Total Total Total Net Add Submitted Accepted Maturing Jan 07 only 1277.83 176.00 184.75 -8.75 Feb 07 only 1184.42 193.75 180.50 13.25 Mar 07 only 1282.64 228.25 240.25 -12.00 Apr 07 only 1066.00 167.75 149.50 18.25 May 07 only 1140.55 167.00 182.75 -15.75 Jun 07 only 1161.70 177.75 188.25 -10.50 Jul 07 only 1238.35 185.00 180.00 5.00 Aug 07 only 1598.49 209.00 200.75 8.25 Sep 07 only 1220.82 236.50 230.25 6.25 Oct 07 only 1905.18 268.75 265.00 3.75 Nov 07 only 1035.90 190.00 190.75 -0.75 2006 only 13239.47 2125.50 2131.50 -6.00 Since Jan 2006 27351.36 4325.25 4324.25 1.00 Since Jan 2007 14111.89 2199.75 2192.75 7.00

Data is obtained from the Federal Reserve web site as well as from the "Slosh" report.

'Liquidity Puts' Allowed Banks To Remove CDO Debt From Their Balance Sheets

A NYTimes article explains how big banks were selling "liquidity puts" in order to be able to sell their CDOs and take the debt out of their balance sheets.

In essence they were selling the loans and presumably the risk associated with them (passing the buck). However, they were also selling the puts, or the right to the buyer to sell them back to the big banks. The problem is, big banks took the debt out of their balance sheets and thus claimed huge profits. Doesn't this sound like an Enron-like scheme? Problem is... these things are now worthless.

If you never heard of "liquidity puts" you are in good (or bad?) company. Robert E. Rubin, chairman of Citigroup, had never heard of them until this summer.

NYTimes link: http://tinyurl.com/ytnuzw

$75B SIV Backup Plan Will Not Distinguish Between Assets

The agreement reached last week makes several changes that simplify earlier proposals. SIVs will no longer have to get the approval of at least 75 percent of their investors if they want to participate in the fund. In addition, the backup fund will not distinguish between assets it buys from each SIV, it will assign the same risk level to all their troubled securities.

In other words, the assets dumped there are all high risk and worthless, why would anyone bother putting anything of value in there? This allows the big banks to keep worthless investments off the balance sheets and still satisfy FASB 157.

The $75B SIV rescue plan. http://www.gata.org/node/5715

U.S. $75B Bailout Plan to Go Ahead, a Machiavellian Scheme?

Bank of America, Citigroup Inc. and JPMorgan Chase & Co. reached an agreement Friday to go ahead with their $75B bailout/backup plan to allow illiquid ABCP-related investments to trade. Unlike the Canadian plan, which seemed designed to make the participating banks a good profit, the U.S. plan is suspected to have been designed to give some value to currently "unvaluable" investments. You see, FASB 157 comes into effect this November 15th, unless some powerful lobbyists succeed in delaying its implementation. FASB 157 forces financial institutions to value these level 3 investments.

Level 3 investments are typically worthless derivatives, CDOs, SIVs, etc, leveraged out of sub-prime mortgages. They are worth nil, or close to, but cannot be truly valued because nobody wants to buy them. By creating this $75B backup plan, the banks can trade these worthless instruments between them, but assigning them any value they want, so they don't have to report huge losses. So simple... and Machiavellian at the same time.

ABCP to Start Trading Wednesday - Watch Out Below

Perimeter Financial will defy the terms of the Montreal Accord and start trading $35-billion of frozen debt. As soon as trading starts new prices will be set and owners of the paper will likely be forced to write down the value of their papers at a discounted price. Small resource companies and wealthy individuals that have made these terrible investments by holding ABCP never signed on to the Montreal Accord. Perimeter is giving these parties an exit. Some of these investors will dump their ABCP and then sue the banks that sold it to them.

The Caisse would be forced to take a $1.8-billion writedown if trading is at say 85c on the dollar (quite a a high figure actually).

The trusts eligible for trading next Wednesday are the ones mentioned here in past months: Apollo Trust, Aurora Trust, Comet Trust, Gemini Trust, Planet Trust, Rocket Trust, Slate Trust, Ironstone Trust, MMAI Trust, Silverstone Trust, Structured Asset Trust, Structured Investment Trust III, Skeena Capital Trust, Aria Trust, Encore Trust, Newshore Canadian Trust, Opus Trust, Symphony Trust, Apsley Trust, Devonshire Trust, White Hall Trust and Selkirk Funding Trust.

The Value of Merril's, Citi's, and UBS' Written-Off debt

What is the value on the dollar of the current CDOs that are being written off by some major banks such as Merril, Citi and UBS?

Merrill Lynch analysts calculate that mid-quality debt is now trading at 40 cents in the dollar. But Merrill Lynch itself has only written this type of debt down to 63 cents in the dollar, while UBS is still assuming this debt is worth 90 cents.

"Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct," Merrill says." Source: FT

40c/63c/90c on the dollar? That still seems too high, who would buy that stuff? And how much are the other banks holding or hiding?

It should not take too long to find out.

Altamira is No More

I have discussed the issues at Altamira here before on a couple of occasions. I was wondering when the lay-offs would start after a couple of their mutual funds were caught invested in illiquid ABCP vehicles. This week I received a letter from them in which they tell me that Altamira will be merged with the National Bank, ceasing to exist as an independent entity. You have to wonder really how deep the troubles with ABCP are in these banks. We know that the so-called bail-out plan is in deep trouble. I have also read and heard rumours (BNN) that BMO has somewhere between $20B and $40B in ABCP investments off the balance sheet that will soon have to come back into the balance sheet.

So, I am sure like many investors, I am looking for another place where to move all my mutual funds to. It is really sad because Altamira used to provide excellent service when it was a independent company. My past experiences with the National Bank have been less than stellar, I am certainly not looking forward to giving them my money. I also have accounts at Altamira Securities, which is nothing but trouble besides outrageous commissions and fees. I have lent them enough money with my 5-year market-linked GIC which has returned something like 0.5% yearly in 3 years! Fool me once, shame on you...

So, I am looking for a place where to move all my funds with both Altamira Investments and Altamira Securitities.