Wednesday, April 23, 2008

Michael Callan: The Artful Dodger

Now that National City (NCC 5.96) raised $7 billion, Merrill Lynch decided to sue them. And Merrill Lynch, who's own artful dodger CEO, John Thain, who two weeks ago said they wouldn't have to raise any more capital, just raised $9 billion; $2 billion in a preferred, and $1.5 and $5.5 billion tranches of notes. Why the capital raise? Just take a look at this beauty:

Why is Merrill suing National City? Because AmBac, the monoline "insurer" of which Callan is the CEO, now doesn't want to pay the guarantees that it guaranteed ostensibly because they don't have the money. What do you expect when a stock goes from 90 to 3. A triple AAA rating? But the ratings agency is another story!

Merrill Lynch bought First Franklin, the sub-prime slush fund of National City for $1.3 billion a year and a half ago. when problems were readily apparent in sub-prime land. But apparently not to Merrill Lynch!

Merrill had this to say at the time of the merger:
"These leading mortgage origination and servicing franchises will add scale to our platform and create meaningful synergies with our securitization and trading operations," said Dow Kim, president of Merrill Lynch's Global Markets & Investment Banking Group. "This transaction accelerates our vertical integration in mortgages, complementing the three other acquisitions we have made in this area and enhancing our ability to drive growth and returns. We look forward to working with the experienced teams at these companies to serve their clients and leverage our broad range of mortgage products and services."

These companies will be included in Merrill Lynch's global mortgage platform, which is a division of the Firm's Global Structured Finance & Investments (GSFI) Group.

"This acquisition, and the origination platforms in particular, fills an important gap for us domestically providing a significant presence in both the wholesale and online retail channels," said Michael Blum, managing director and head of Merrill Lynch's GSFI Group. "Home Loan Services adds scale to our existing servicing platform and allows us to enhance our special servicing and risk management of mortgage products. In addition, we believe the acquisition will complement our existing third party client business, which has grown significantly in the past few years."

Now Ambac doesn't want to pay it's guarantees; specifically those with First Franklin, of whicjh Merrill acquired, and Bear Stearns, whose obligations our Fed guaranteed.

Here's that story:
CHICAGO -(Dow Jones)- Bond insurer Ambac Financial Group Inc. (ABK) has hired legal and forensic experts to examine 17 of its financial guarantee transactions covering residential mortgage-backed securities as performance deteriorates.

During its first quarter earnings conference call Wednesday, David Wallis, Ambac's chief risk officer, said the company is examining transactions that have performed much worse than expected.

Wallis suggested that one prime candidate for legal scrutiny is a deal with Bear Stearns Co. (BSC) it closed in April 2007. Another is a transaction with First Franklin.

Now last month, Merrill sued defunct Security Capital Assurance for $3.1 billion to recoup CDO losses of which they'll never get.

They'll have better luck collecting the $78 million that the Nasser family stuck Merrill Lynch with, when they sold naked puts on Bear Stearns stock before it collapsed, of which the shorts used that information to raid MF Global, saying they were stuck with the losses.

So now Merrill Lynch, which bought First Franklin from Nat City, now sues National City, to indemnify it for it's losses from the unit they bought from them hoping that they might find some of the cash that investors just gave to Nat City!

National City Corp. said Tuesday Merrill Lynch wants the company to indemnify it for losses relating to loans at Merrill's First Franklin Mortgage Company unit, which it bought from National City in 2006.

In an 8-K filing Monday, National City said it received a letter from First Franklin on April 10 alleging that National City had "breached certain representations or warranties contained in the purchase agreement." The misrepresentations caused First Franklin to incur losses associated with its repurchase of loans, National City said.

And AmBac, now wants to get out of it's worthless guarantees, so they can guarantee someone else's bonds with their worthless guarantee!

The only guarantee that is triple AAA, is that Ambac eventually will be bankrupt, and all these investment banks will be suing each other for money that they don't have!


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