VIE Conduits On the Verge
Add another nightmare to the alphabet soup...
We have nattered before about these Enron like off book entities or conduits, that are very similar to SIV's.
Today, guarantor MBIA's baseless AAA rating reaffirmed by Moody's, Why?
VIE's or variable interest entities allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets.
In a regulatory filing on Jan. 29... Goldman, which hasn't had any writedowns said...
it may incur as much as $11.1 billion of losses from the instruments. The threat is $18.9 billion of CDOs in VIEs...
Lehman Bros whose suffering has been minimal is getting off lite...
they guaranteed $6.1 billion of investors' money in VIEs and $1.4 billion of clients' secured financing as of Nov. 30th.
Merrill Lynch has $22.6 billion in VIEs and worse yet, Sillybank AKA Citigroup has $320 billion in significant unconsolidated VIEs, according to a Feb. 22 filing.
If the guarantors (Ambac, MBIA) lose their AAA financial-strength ratings...
Wall Street firms may be forced to return VIE assets to their books, recording the declining value as losses.
Worse yet... if the guarantors, as planned, separate the muni bond and asset backed businesses, the ratings on the asset backed VIE's would plunge...
Either way, massive writedowns ensue as the industry's VIEs, also known as conduits,
had $784 billion in commercial paper outstanding as of last week,
The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets. DOH!!!
Hattip to Bloomberg
We have nattered before about these Enron like off book entities or conduits, that are very similar to SIV's.
Today, guarantor MBIA's baseless AAA rating reaffirmed by Moody's, Why?
VIE's or variable interest entities allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets.
In a regulatory filing on Jan. 29... Goldman, which hasn't had any writedowns said...
it may incur as much as $11.1 billion of losses from the instruments. The threat is $18.9 billion of CDOs in VIEs...
Lehman Bros whose suffering has been minimal is getting off lite...
they guaranteed $6.1 billion of investors' money in VIEs and $1.4 billion of clients' secured financing as of Nov. 30th.
Merrill Lynch has $22.6 billion in VIEs and worse yet, Sillybank AKA Citigroup has $320 billion in significant unconsolidated VIEs, according to a Feb. 22 filing.
If the guarantors (Ambac, MBIA) lose their AAA financial-strength ratings...
Wall Street firms may be forced to return VIE assets to their books, recording the declining value as losses.
Worse yet... if the guarantors, as planned, separate the muni bond and asset backed businesses, the ratings on the asset backed VIE's would plunge...
Either way, massive writedowns ensue as the industry's VIEs, also known as conduits,
had $784 billion in commercial paper outstanding as of last week,
The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets. DOH!!!
Hattip to Bloomberg
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