God Bless Bank of America is the obligor on some of those credit default swaps and the last we thing we need is to add that liability to BOA’s woes.

       Further, triggering the CDS’s could be disasterous for those insurers holding billions of dollars of swaps- Think AIG on steroids. We could have another global crisis on our hands.

      The private holders of the bonds should stop whining and go back to the barbershop for their haircut. As long as the haircut is voluntary, there is no “default” and the CDS’s are not triggered.

      The hedge funds bought the bonds at 25% of face value figuring that a 50% haircut would still given them 100% profit. They should not complain if the profit is reduced to about 6 to 8% because the bond holders take a greater than 50% haircut.


-- Modified on 1/24/2012 2:15:02 PM

If this happens, BOA pays 100% of the face value of the bond and is subrogated to or has a security interest in the bond itself –but the bond is going to be worth only a small percentage of the face value BOA has paid, if that.


      The 5 US banks that write swaps have guaranteed about 500 billion in swaps for the PIGS so this is not an insignificant amount.

      Now BOA apparently has hedged its CDS portfolio by buying swaps and other derivatives itself. But I do not see any way it would make a profit if a default occurs. Certainly the market agrees that a default is bad – BOA stock usually sinks each time there is talk of a CDS trigger.

I wish you were right but I do not see it.

in fact is one of the top performing DOW stocks this year.

     But they sure are not going to make a profit if they have pay out on their and ML's credit default swaps.

   Now if you want to check out a company that is doomed, at least as far as shareholders are concerned, see Kodak. Were you sleeping on that one?

Greek debt SNAFU. I have joked about the Greek bonds, I think on the sports board but I do actually own a small slice  of them thru a NY hedge fund. I got them on a bet that I could make money on them and I'm about to lose the bet.

But here is the deal:

They are offering the following per 1,000 Euros, 150 in cash, 350 in 30 year bonds at 3.5% fixed coupon. Plus some kind of extra coupon based of an improving Greek GDP.

This extra coupon is so complicated it can't be determined prior to issue of the bonds. Therefore there is no way to calculate the Net Present Value of the Bonds. Which means they are not marketable, you would not be able to sell them.

Now here is the neat thing. The ECB owns Greek Bonds. No one knows what they paid for them, how much they own, when they bought them but; they are not included in the write-down.

Germany and France is forcing the private holders to take write offs  while holding the EU member countries and ECB which all hold Greek bonds out of the write downs. In short they want someone else other than EU member countries and the European Central Bank to bail them out of the Greek debt. Oh, buy the way the US Treasury and State Department (I get the feeling thru financial gossip) is pressuring for a settlement short of the CDS settlement. Our Government at work.

Holders were informally polled a few day ago on our preference. I said walk away and trip the CDS's. Better to have a tax loss than 35% you have to hold 30 years.

It looks like the US market has priced a default in. And to tell the truth I think the Greeks would be better off with a default and I think the Greek gov. now believes the same.

and I would probably agree with your other statements as to any bonds BOA may hold.

But your reasoning simply does not apply to the credit default swaps. In your earlier post you stated


"They have already written the loss off and reported it in 2010 and 2011. There bankers for god sakes, not ditch diggers."

     I do not see how this could be true as to BOA’s liability on a credit default swap. A CDS is not a bond which is overdue – it is an insurance-like obligation where the bank has to pay only if there is a default as defined by the swap.

      There has not been such a default yet. If the bondholders voluntarily agree to a haircut, there is no default and the CDS obligations are not triggered. If the government defaults on the bonds –ie. we will not pay bonds at all – that does trigger the swaps.

    Until the swaps are triggered, there is no “loss” BOA can write off or deduct from their taxes. And the actual loss could not be calculated anyway until some value is placed on its security – the bond itself.

      Now BOA does set aside “reserves” to pay for probable losses. That may be what you are thinking of.

I love these explainations...

http://www.youtube.com/watch?v=aKpE0HqJtow

"God Bless Bank of America", yea right. First off if there is a default BofA and most banks in the US, if not all, will actually show a profit. Why do you think the head negotiator isn't from Citi, Chase or BofA. If they had a lot on the line they would be managing the negotiation and have already made a deal.
 
They have already written the loss off and reported it in 2010 and 2011. There bankers for god sakes, not ditch diggers.

Therefore, if the ICC declares a default they will be able to a profit from funds received on the 15% cash and clear there hedges reducing their balance sheets.

It's the European banks that are the big obligor's of the credit default swaps. That's the point, duh. France and Germany want the private holders to take the loss to save their banks and kick the can down the road.

Over 88% of the CDS on this trounce of the Greek Debt is already collateralized. So take whatever inflated figure you think the CDS are and reduce it by 88%.

Now try to keep up. The IMF according to the latest reports is requesting the ECB take write offs on their Greek bonds.  
 

Nope. Aint no pointe. Greek will default latuh this yeare. S&P wille downegrade em to junke status. Greek wille get kicked outta the EC n Euro. Rest of the EC will spiralle downewards in a dominoes effecte. Europea nations will plunge into recessione.

It aint gonna be a pretty pictures.

-- Modified on 1/24/2012 12:31:02 PM

But it doesn't even matter...

I present Mari as more proof of the awakening that's going on..LOL

Look at it this way mari, you still got time to get the vasoline...

Just kidding..

I'm sorry bud, and I know you know now that you should not, have doubled down..

That shit you was smokin musta been tony the tiger great..

IMHO you should Get out now and eat the loss, or lose your shirt..




-- Modified on 1/24/2012 1:56:07 PM

yea, I heard about that...

Kodak AND hostess


Mari, just keep your shirt, ok, bud.. lol

and american airlines, that's a big one...That will have a domino effect on other companies

-- Modified on 1/24/2012 2:14:09 PM

There is a difference. If someone owes you $100 and they are past due you can write it off to bad debts if you are a business. It lowers you income in the quarter you write it off and you pay less taxes for that quarter. Has no effect on future quarters as profits and losses. Simple accounting 101.

Now low and behold the debt is paid at some point down the road. It is shown as income (usually extraordinary income). Guess what you show, not earned $100. That's what I said:  " First off if there is a default BofA and most banks in the US if not all will actually show a profit." See the word S H O W.

US banks have written off the Greek debt they hold and for those that haven't are holding it for future write offs against earnings to lower their tax liability.

This stuff is all held in the banks "prop trading desk investments". They make money and lose money just like day traders. Has very little effect on things like core capital, deposits, liquidity, Basil I,II or III requirements or for that matter whether they are going broke or not.

I did make this statement:

"Over 88% of the CDS on this trounce of the Greek Debt is already collateralized. So take whatever inflated figure you think the CDS are and reduce it by 88%."

Late reporting was 90% collateralized.

Just like the bonds they are already covered by money, marbles or chalk. In the case of banks it is usually chalk.

It called "Like in Kind" so they have either laid off the bet (CDS) with another underwriter, purchased CDS themselves cutting their loss or pledged Bonds (Italian or French bonds) to cover. Doubt they pledge bonds.

There are ways the banks could even make money. That's why top bond traders make 4 or 5 million a year in salary.

It's true, someone will make money and someone will lose if and when there is a default. But as I said, Jamie Diamond and those boys aren't ditch diggers.

If they had a lot on the line they would be in Greece doing the wheeling and dealing. They aren't, they are at Davos in a 5 star hotel drinking Single Malt and 50 year old Brandy.

The most recent write off of the Greek debt is 65%. I think it's probably a good number.

Per 1000 Euros they are offering 150 cash and 350 30 year 3.5% bonds. Net market value of this offer is about 65% write off. Which means on the immediate market the bonds are probably about 320 to 340 Euros per 1000 face value.

So if they (Germany, France and the ECB) really want to solve the Greek problem here is what they can do.

Buy the Bonds for 320 to 350 Euros per 1000 and immediately mark them paid in full.

Perfectly legal, won't cost that much, no CDS triggered defaults, lowers Greek debt to what they consider sustainable, allows the Greek debt held by the EU banks and ECB to remain secure without further write downs, and the whole problem goes away.

Point is: They want someone else to make the payment to solve their problem.  They have been this way before WWI and haven't learned a damn thing.