Tuesday, January 6, 2009

Bankster 'Sweet'stakes


IndyMac goes for only 1.3 billion in cash to a group of investors including: buyout investor J. Christopher Flowers, of J.C. Flowers & Co., LLC ; hedge fund operator John Paulson of Paulson Investment Company, Inc. and the financial funds Stone Point Capital; George Soros' SSP Offshore LLC; Silar MCF-I LLC; and MSD Capital, which manages capital for Michael Dell and family. The buyers are operating as a thrift holding company controlled by IMB Management Holdings and have applied for a federal holding company charter and plan to turn IndyMac from a mutual savings bank to a stock-held institution.

For 1.3 billion in cash, the lucky winners in this bankster 'sweet'stakes get over 100 branches and a $158 billion mortgage-servicing portfolio.

But that's not all.

The Federales will assume the first 20% of losses on Indymac's assets. The Federales will then pony up 80% of the losses for the next 10% of losses, and then 95% of losses on the reminder of the portfolio.

But that's not all.

The assets that the Federales will take the first 20% of the losses against? We can't be told what those assets are until after the deal closes. Hmmmmm... why is that you wonder?

WSJ reports: 'The FDIC's term sheet says it's transferring to the new bank $16 billion of loans, $6.9 billion of securities as well as other assets -- far more than $13.9 billion(the declared 'value' of the deal). This suggests big write-downs will occur at the time of the deal to get the new bank's assets down to $13.9 billion. Such write-downs would help the buyers. Substantial losses would effectively be taken on the assets before the buyers own them.'

When OTS closed IndyMac in July their estimated assets were worth more than $32 billion.

So in summary $32 billion in July becomes $22.9 billion and 'other assets' by January and the lucky winners get the Federales to backstop up to ((.20+.08+(.95*.7=.665)) =94.5 % of total losses.

But wait that's not all.

The lucky winners have to continue a loan-modification program that is being severely criticized by the Street because it is the only one that has been fairly successful.

Per the FDIC:
Mortgages Eligible for Modification — 46,500
Total Modification Offers Mailed to date — 32,274
Total Completed Modifications (Verified Income) to date — 8,512
Total Additional Verbal Acceptances of Offers to date — 9,480

And in return for this citizen-friendly narrative? Well, they get to use IndyMac as a Berkshire Hathaway styled acquisition vehicle and perform the full faith and credit insured carry trade for as far as their imagination takes them.

Oh but wait that's not all! As previously stated, there are a bunch of writedowns happening at the time of this deal and it bears repeating such write-downs would help the buyers. Substantial losses would effectively be taken on the assets before the buyers own them.

Here's why it bears repeating:

January 6, 2009
Wall Street Journal

'The main business tax cuts proposed by President-elect Barack Obama are likely to be a windfall for two industries particularly tied to the current economic meltdown: Wall Street investment banks and home builders.

Under the proposal being crafted by the incoming Obama administration and congressional Democrats, companies would be able to use their so-called tax losses to offset taxable U.S. profits earned in the past five years.

Typically, companies can carry back such losses only two years. The Obama proposals likely would mean that companies with enormous losses from last year and this year could use the losses to help wipe out tax obligations from the previous five years and receive sizable tax-refund checks from the Treasury Department.'

It's so very good to be a bankster!

No comments: