Saturday, October 4, 2008

Maiden Lane: Mark-to-Myth?

Bear Stearns troubled assets, bought by the Federal Reserve from JP Morgan for $29 billion, has been a picture of stability. Remember Jamie Dimon, said that on the good assets from Bear that they kept, they would need a 6% haircut. Why didn't the Fed's assets fall then? Because they are re-valued quarterly. More on this story a couple of months ago here:

The NY Post Friday, had a story on Maiden Lane. Here's what they said:

The US Federal Reserve may lose as much as $6 billion on a portfolio of mortgage-backed assets it took over from Bear Stearns Cos., according to Bank of America Corp. analysts.

The Fed will announce on Oct. 23 its quarterly estimate of the fair value of Maiden Lane LLC's $30 billion of holdings that JPMorgan Chase considered too risky when it acquired Bear Stearns in March, Bank of America analysts Jeffrey Rosenberg and Hans Mikkelsen wrote in a client note. The central bank valued the assets at $29 billion as of June 30, according to the report.

"With the worsening in mortgage markets since last quarter, we estimate a range of $2 billion to $6 billion of unrealized losses," the New York-based analysts wrote.

About half the portfolio is backed by commercial mortgages and half by residential loans.
So these assets have declined at least $2 to $6 billion? Let's look at the Federal Reserve and see what they say. Here's the latest H.4.1, and here is the line item for Maiden Lane.

Net portfolio holdings of Maiden Lane LLC (6) 29,413

$29.4 billion. Up $40 million from last week. Maiden Lane picked up it's weekly $40 million dividend. This asset is revalued quarterly. Here's when Maiden Lane was first put on in July, and reflected in the H.4.1 statement: See note 2.

2. Information on Principal Accounts of Maiden Lane LLC
Jul 2, 2008

Net portfolio holdings of Maiden Lane LLC (1) 28,893

1. Fair value. Fair value reflects an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Revalued quarterly. This table reflects valuations as of June 26, 2008.

Note: On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize repayment of the credit extended and to minimize disruption to financial markets. Payments by Maiden Lane LLC from the proceeds of the net portfolio holdings will be made in the following order: operating expenses of the LLC, principal due to the FRBNY, interest due to the FRBNY, principal due to JPMorgan Chase & Co., and interest due to JPMorgan Chase & Co. Any remaining funds will be paid to the FRBNY.

The release on October 23 will give us Bernanke's assessment of what these assets are worth. Anyone guessing the over/under on that?

Remember when Bernanke was testifying before Congress about the Bear Stearns assets that they took on their balance sheet, he replied, with the same words as when he talks about the FDIC fund. "The taxpayer hasn't lost a penny!"

On the link at the top of the page, their was a story on postponing rules that would force off balance sheet items on banks books. And here's how the IRS now makes it profitable from a tax perspective, for another bank to acquire another bank's written down assets.

With these new rules, the taxpayers won't lose a penny, and neither will the IRS get one!

And we have the banker, that never wears a "mac" in the pouring rain. Very strange.

Penny Lane!

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