PrefBlog

The FDIC will now be separating good assets from bad when disposing of failed banks:

“FDIC staff has referred to a ‘good bank/bad bank’ model described as the sale of the failing bank’s better assets wrapped with loss-share coverage to another bank and the sale of the ‘bad’ assets,” into a limited liability company, spokesman Andrew Gray said today in an e-mail statement, adding the agency now plans to proceed with such sales.

Potential bidders may be interested in higher risks in the failed lender’s bad loans, while the agency auctions the remaining assets in combination with an agreement to share any losses with the buyer, he said.
…
Gray said loss-sharing arrangements and structured transactions “are proven ways to maximize bidder interest and value.”

I missed this when it was fresh … CalPERS is suing the rating agencies:

The California Public Employees’ Retirement System said in a lawsuit filed last week in California Superior Court in San Francisco that it might lose more than $1 billion from structured investment vehicles, or SIVs, that received top grades from Moody’s Investors Service Inc, Standard & Poor’s and Fitch Inc.
…
By giving these securities their highest ratings, the agencies “made negligent misrepresentations” to the pension fund, Calpers said. Such ratings, which typically accompany investments with almost no risk of loss, “proved to be wildly inaccurate and unreasonably high.”

In other words, CalPERS CEO Anne Stausboll, who ” oversees 2,300 employees, a budget of more than $332 million” in the course of managing USD 176.1-billion in assets, is grossly incompetent and should be fired. Taking $1-billion exposure in SIV’s without even a cursory due-diligence? She – and presumably a host of others at CalPERS – should be in jeopardy of not just getting fired, but of losing their licenses.

The target firms have noted that they were not responsible for CalPERS investment decisions – if Stausboll wants to abnegate fiduciary responsibility, she must at the very least pay for it.

ZeroHedge has some commentary as well as a copy of the lawsuit.

And … that’s it for another month! Quite a good month for preferreds, with CPD up about 3.33%. My fund, Malachite Aggressive Preferred Fund, will have outperformed CPD by a significant margin … but Assiduous Readers will have to wait until I post the performance review sometime within the next week.

Volume continued high to close the month, with FixedResets again being mostly elbowed out of the Volume Highlights table by PerpetualDiscounts. PerpetualDiscounts had a gain of almost 15bp on the day to close with a yield of 6.06%, equivalent to 8.48% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 6.3%, so the pre-tax interest-equivalent spread ends the month at about 218bp; basically unchanged from the 215bp spread reported on July 29.

This entry was posted on Friday, July 31st, 2009 at 7:28 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.