I have been receiving a lot of feedback on the Ambac article and the MBIA one as well. Many want more in terms of clarification, assumptions, additional calculations, data, etc. I just want to remind all that this is a blog on my commentary and thoughts on the markets and my investments. My primary occupation is investing, not blogging. I disseminate my research and opinions to provoke discussion and I love to blog on these topics, but I have limited bandwidth to return emails. I do not want the lack of answers to email questions to appear as if I am avoiding them, it is just that after a certain level of volume it distracts me from my day job. Please keep the emails coming, just be aware that I may not be able to answer all of them. That being said, I will present some additional data from my Ambac research, and am considering posting a what-if scenario of Ambac insuring E-trade (I am sure that will garner some interest). After that, we will be moving on to the commercial real estate, investment banking and consumer finance sectors where I am arranging additional bearish positions and will blog on them. I will, of course, enjoy and entertain discourse on these or related topics.
As for Ambac, my analysts have incorporated explicitly discernible calculations on subordination into the valuation model. However, like I’ve mentioned in the comments of the last Ambac post, the default probabilities that we had assigned earlier were after considering an implied 20% subordination into Ambac’s portfolio. In the latest version of the Ambac valuation model, we are explicitly showing the calculation of default rates before as well as after subordination. Please note that even in the riskiest form of collaterals (e.g. ABS CDO Mezzanine), the worst case default probability after adjusting for the given subordination level in our model is 70% compared to Bank of America’s assumption of 100% (which is plausible in some products). In the base case scenario, the average default probability we assumed (after subordination) was 25%. This again highlights that we have been conservative in our assumptions over default rates and potential losses that Ambac could incur. For an anecdotal example of the implications of foreclosure recovery rates in housing markets like CA and FL, see my last post. My findings are actually on par with that guy that writes the well followed Accrued Interest credit blog (very smart guy who came to almost the exact level of losses I did), Bill Ackman from Pershing Capital (prescient guy who got me started following these companies and also believes them to be insolvent soon), and UBS. So, not withstanding my flair for dramatic writing, I do have company in these loss estimates. Be aware that ABK has not opened up its books to any of us, or at least not to me - so everything is pretty much just best guesses based upon publicly available information. Well, now that I have finished handing out compliments...
You can download the 40 page sample Ambac valuation model here, which details the defaults before and after subordination for several categories, as well as providing for proforma financials and relative book valuation. Be aware that this is the third (and probably final) time I have increased the amount of documentation in support of the Ambac post, and we have gone from what I thought was originally a lengthy and well documented post to two lengthy posts, two downloaded pdf files, and about 70 pages of supporting documentation. My day job beckons... In summary:
Has subordination been taken Into consideration?
Yes, it has. To make it clear, it has been broken down so the calculations can be followed without the spreadsheet that made them.
Before Subordination
Subprime RMBS
8% Other RMBS
8% ABS CDO High Grade
8% ABS CDO Mezzanine
31% CDO Other
13% Other ABS
13%
Average default probabilities (By Collateral) After Subordination
Subprime RMBS
6% Other RMBS
6% ABS CDO High Grade
6% ABS CDO Mezzanine
25% CDO Other
10% Other ABS
10%
Hopefully this will help in clarifying the doubts over subordination.
After running explicit contract by contract subordination calculations, the results remain the same as before (with the blanket subordination assumption) except the structured finance portfolio, where the potential losses have marginally come down to $3.9 billion (exactly same as that arrived at by Accrued Interest and UBS) after adjusting for contract wide subordination from the earlier levels of $4.2 billion. There has been no change in the potential losses in the Subprime RMBS and the Consumer Finance portfolio losses from the earlier levels. So, in essence, roughly a 3.75% difference in overall loss calculated after going through each contract with an explicit subordination calculation for each one. Thus, we stand by the original calculations, as clarified by this most recent one.
Default levels are not too aggressive and recovery rates are not understated
Higher recovery rates could’ve been possible if the credit crunch, real asset depression/recession and turmoil we’re currently witnessing was not as bad as it is today & trending downward. E*trade received anywhere between 11 cents to 27 cents on the dollar from the sale of its $3.1 billion portfolio of prime and investment grade asset-backed securities. 73% of E-trades 74 cent haircut MBS sale was backed by prime mortgages with an average 720 FICO score - more than 50% of that was AA or better (reports are that most of it was AAA). Some say it was a distressed sale and not reflective of normal economic activity. I say that it was normal economic activity for this environment and those assets. You cannot just ignore market transactions and paper them over with guesstimate opinions on price and models. That is what got us here in the first place in terms of structured finance. Lennar (the world's largest builder) sold a large chunk of their land and CIP inventory at about 50 cents on the dollar, after taking over a billion dollars in write downs on their entire inventory. Several big builders are going bankrupt over the next 8 quarters (a few have already), and many small builders have already crossed the line: of of which will dump many billion dollars of distressed properties on an already distressed housing market that is getting hundreds of thousands of homes added through foreclosure, driving prices down and supplies up even farther. Prices are dropping like dead flies across the country and homebuilders and banks pushing REOs are competing to drive prices down even further, reducing the collateral behind much of this structured (and unstructured) stuff (collateral which was significantly overstated by overly optimistic if not fraudulent appraising practices). The macro environment for these assets are getting worse, not better (see A note on mortgages, overly optimistic recovery rates and recent events...). Take a look at Centex's mortgage origination performance as far back as September, and imagine what it is now (this was BEFORE the mortgage crunch hit to prevent refinancing to recapitalize). The builders are (at least were) some of the largest non-bank mortgage underwriters in the country (little known secret) and they were quite aggressive in pushing loans to move inventory that normally would not have been easy to sell (severe understatement). As they sell off these tens of billions of dollars of loans to be included in CDOs and pools, they are poisoning these vehicles even further. These fluctuations in the macro environment is what the Boom, Bust, Bling Blog is about, and I think I know what I am talking about on this topic. In addition, factoring in what could be the losses compared to the actual default rates at this point of time would be cumbersome and this will involve making some unrealistic assumptions. If anyone want to take a stab at it for the community, feel free to have a go at it, send it to me and I will publish it & give you full credit. I may try incorporating more into the valuation after getting some clarity on the subprime rate freeze (which could decrease if not prevent the rate of foreclosures, although I definitely doubt so - )..
No assumptions were given and the post was too wordy
Yes, I actually received this one as a complaint. The original writeup on Ambac was fairly descriptive while explaining the assumptions. For example, Ambac’s consumer finance insured included Countrywide, GMAC, Indymac, Greenpoint Mortgage and Accredited Mortgage Loan amongst others who are in a financial mess and very close to bankruptcy. This is why I was considerably bearish on this group of insureds with sloppy underwriting standards. The Ambac piece was written as a post in my blog, and if you follow my blow my views on the macro environment, the real asset recession/depression and the financial markets have been made quite clear. The latest model has assumptions for quarterly and annual drivers, as well.
The duration of 5 years is inapplicable
The loss tail analysis was given a broad duration of 5 years since I instructed my analysts to consider the financial guaranty business a short tail casualty line, which it is, and many CDOs have a maturity of around 5 years. Pricing software allows selection of maturities from 1 month to a maximum of 5 years, but the average maturity is five years, such as in Australian CDO squareds, It is quite true that this can vary depending on the insured product, and yes, we can adjust the model to vary duration based on individual contract/product/tranche, but as I said earlier, this is a blog of my thoughts on the macro environment, the market and my own investments, and not a paid analysis. The majority of Ambac's losses are expected in structure products (CDOs) where a 5 year duration is most appropriate. For those who have no idea what this is about, here is a good primer that also gives the perspective of recent history. This is not the first time the CDO market hit bumps, the junk bond correction earlier in the decade tripped them up as well. A more complex essay is here (where of course they default maturity to 5 years). Back on topic - I truly believe that I have published an unprecedented amount of work on this topic (for a free blog) as it is. Can it be more accurate? All analyses can be more accurate! Does it convey a meaningfully accurate message? We think it does, and I have put my money behind it, as I have on practically every stock, security or real asset that I have blogged on. Thus far, my track record has been pretty good (knock on wood:-). In addition, I am confident the default rates used by the model are overly conservative. If anyone is truly interested in a more granular analysis, I may be willing to disseminate my own, more detailed proprietary research on a more formal basis.
The charge to capital is overstated due to exclusion of unearned premiums as claims paying capacity
Regarding reinsurance and charges to equity, we worked under the assumption that the company would be reinsuring some of the risks from its books (as mentioned by Ambac’s CFO in the recent conference organized by the Bank of America). Therefore, we did not consider unearned premiums as an additional claim paying capacity that the company will have since it is difficult to estimate how much will be reinsured and what will be the company’s earnings on ceding the premiums. However, we believe that considering the current negative sentiment over monoliners, reinsurers will get a very favorable deal on their part on assuming risk from Ambac’s books. Nevertheless, if one were to take unearned premiums into account, the charge against Ambac’s equity would be lesser by approximately $2.5 billion, which still leaves them in a bind in nearly all scenarios calculated.
You can download the 40 page sample Ambac valuation model here, which details the defaults before and after subordination for several categories, as well as providing for proforma financials and relative book valuation. Be aware that this is the third (and probably final) time I have increased the amount of documentation in support of the Ambac post, and we have gone from what I thought was originally a lengthy and well documented post to two lengthy posts, two downloaded pdf files, and about 70 pages of supporting documentation. My day job beckons... In summary:
Has subordination been taken Into consideration?
Yes, it has. To make it clearer, it has been broken down so the calculations can be followed without the spreadsheet that made them.
Before Subordination
Subprime RMBS
8% Other RMBS
8% ABS CDO High Grade
8% ABS CDO Mezzanine
31% CDO Other
13% Other ABS
13%
Average default probabilities (By Collateral) After Subordination
Subprime RMBS
6% Other RMBS
6% ABS CDO High Grade
6% ABS CDO Mezzanine
25% CDO Other
10% Other ABS
10%
Hopefully this will help in clarifying the doubts over subordination.
After running explicit contract by contract subordination calculations, the results remain the same as before (with the blanket subordination assumption) except the structured finance portfolio, where the potential losses have marginally come down to $3.9 billion (exactly same as that arrived at by Accrued Interest and UBS) after adjusting for contract wide subordination from the earlier levels of $4.2 billion. There has been no change in the potential losses in the Subprime RMBS and the Consumer Finance portfolio losses from the earlier levels. So, in essence, roughly a 3.75% difference in overall loss calculated after going through each contract with an explicit subordination calculation for each one. Thus, we stand by the original calculations, as clarified by this most recent one.
Default levels are not too aggressive and recovery rates are not understated
In terms of the simpler products and vanilla bonds, higher
recovery rates may have been possible if the credit crunch, real asset
depression/recession and turmoil we’re currently witnessing was not as
bad as it is today & trending downward. E*trade received anywhere
between 11 cents to 27 cents on the dollar from the sale of its $3.1
billion portfolio of prime and investment grade asset-backed
securities. 73% of E-trades 74 cent haircut MBS sale was backed by prime mortgages
with an average 720 FICO score - more than 50% of that was AA or better (reports are that most of it was AAA).
Some say it was a distressed sale and not reflective of normal economic
activity. I say that it was normal economic activity for this
environment and those assets. You cannot just ignore market
transactions and paper them over with guesstimate opinions on price and
models, especially when they are the only market transactions to observe. That is what got us here in the first place in terms of
structured finance. Lennar (the world's largest builder) sold a large chunk
of their land and CIP inventory at about 50 cents on the dollar, after
taking over a billion dollars in write downs on their entire inventory.
Several big builders are going bankrupt over the next 8 quarters (a few
have already), and many small builders have already crossed the line:
of of which will dump many billion dollars of distressed properties on
an already distressed housing market that is getting hundreds of
thousands of homes added through foreclosure, driving prices down and
supplies up even farther. Prices are dropping like dead flies across
the country and homebuilders and banks pushing REOs are competing to drive prices down
even further, reducing the collateral behind much of this structured
(and unstructured) stuff (collateral which was significantly overstated
by overly optimistic if not fraudulent appraising practices).
One big point that I failed to make in the first posting that was also the most obvious and significant in terms of loss and recovery is that the structured products (ex. MBS trusts, CDOs and CDO squareds), in lieu of the actual vanilla mortgages, already have all of the underlying assets pledged to investors - thus there is nothing to reclaim for the insurer in the case of default. You see, just as easily as I overlooked this explanation in a blog post, the monoline insurers seem to have overlooked it when attempting to fit their municipal risk business model around derivative corporate finance. Small boo boo on my part, a very big boo boo on theirs. The macro environment for these assets and the underlying collateral they are written on, once removed, are getting much worse, not better (see A note on mortgages, overly optimistic recovery rates and recent events...).
Take a look at Centex's mortgage origination performance as far back as September, and imagine what it is now (this was BEFORE the mortgage crunch hit to prevent refinancing to recapitalize). The builders are (at least were) some of the largest non-bank mortgage underwriters in the country (little known secret) and they were quite aggressive in pushing loans to move inventory that normally would not have been easy to sell (severe understatement). As they sell off these tens of billions of dollars of loans to be included in CDOs and pools, they are poisoning these vehicles even further. These fluctuations in the macro environment is what the Boom, Bust, Bling Blog is about, and I think I know what I am talking about on this topic. In addition, factoring in what could be the losses compared to the actual default rates at this point of time would be cumbersome and this will involve making some unrealistic assumptions. If anyone want to take a stab at it for the community, feel free to have a go at it, send it to me and I will publish it & give you full credit. I may try incorporating more into the valuation after getting some clarity on the subprime rate freeze (which could decrease if not prevent the rate of foreclosures, although I definitely doubt so.
Ample assumptions were given
The original writeup on Ambac was fairly descriptive while explaining the assumptions. For example, Ambac’s consumer finance insured included Countrywide, GMAC, Indymac, Greenpoint Mortgage and Accredited Mortgage Loan amongst others who are in a financial mess and very close to bankruptcy. This is why I was considerably bearish on this group of insureds with sloppy underwriting standards. The Ambac piece was written as a post in my blog, and if you follow my blow my views on the macro environment, the real asset recession/depression and the financial markets have been made quite clear. The latest model has assumptions for quarterly and annual drivers included for public consumption now, as well.
The duration of 5 years is quite applicable
The loss tail analysis was for 5 years since I instructed my analysts to consider the financial guaranty business a short tail casualty line, which it is, and many CDOs have a maturity of around 5 years. Pricing software allows selection of maturities from 1 month to a maximum of 5 years, but the average maturity is five years, such as in Australian CDO squareds, It is quite true that this can vary depending on the insured product, and yes, we can adjust the model to vary duration based on individual contract/product/tranche, but as I said earlier, this is a blog of my thoughts on the macro environment, the market and my own investments, and not a paid analysis. The majority of Ambac's losses are expected in structured products (CDOs) where a 5 year duration is most appropriate. For those who have no idea what this is about, here is a good primer that also gives the perspective of recent history. This is not the first time the CDO market hit bumps, the junk bond correction earlier in the decade tripped them up as well. A more complex essay is here (where of course they default maturity to 5 years). Back on topic - I truly believe that I have published an unprecedented amount of work on this topic (for a free blog) as it is. Can it be more accurate? All analyses can be more accurate! Does it convey a meaningfully accurate message? We think it does, and I have put my money behind it, as I have on practically every stock, security or real asset that I have blogged on. Thus far, my track record has been pretty good (knock on wood:-). In addition, I am confident the default rates used by the model are overly conservative. If anyone is truly interested in a more granular analysis, I may be willing to disseminate my own, more detailed proprietary research on a more formal basis.
The charge to capital is overstated due to exclusion of unearned premiums as claims paying capacity
Regarding reinsurance and charges to equity, we worked under the assumption that the company would be reinsuring some of the risks from its books (as mentioned by Ambac’s CFO in the recent conference organized by the Bank of America). Therefore, we did not consider unearned premiums as an additional claim paying capacity that the company will have since it is difficult to estimate how much will be reinsured and what will be the company’s earnings on ceding the premiums. However, we believe that considering the current negative sentiment over monoliners, reinsurers will get a very favorable deal on their part on assuming risk from Ambac’s books. Nevertheless, if one were to take unearned premiums into account, the charge against Ambac’s equity would be lesser by approximately $2.5 billion, which still leaves them in a bind in nearly all scenarios calculated.
Reggie,
You probably already went through this Structured Finance CDO Ratings Review presentation by Fitch. Fitch is claiming better than expected performance of BB CDOs
In case you haven't the slides are available at
http://www.fitchratings.com/subprime
Replay Information:
U.S./Canada: +1-800-642-1687
International: +1-706-645-9291
Replay ID: 25810543
Posted by: Arun | December 05, 2007 at 04:23 AM
Thanks, I'll have the guys take a look at it. As an aside, Fitch's credibility (& their 2 competitors) is pretty much shot, for they said expected performance for much of this stuff was investment grade about a year or two ago, and look where we are now.
Posted by: Reggie | December 05, 2007 at 05:05 AM
First of all, I want to say that I think you have put together a fantastic blog. It's the best I have seen and I really enjoy reading it. Now to issues related to Ambac and other bond insurers.
Putting aside the question of default losses, a week or so ago I began to think about what it might cost to acquire the types of instruments insured by the bond insurers, particularly Ambac. My (very limited) understanding is that there is not much of a market for these types of instruments, so the analysis is far from clear-cut.
However, taking a stab, I guessed that the type of assets in Ambac's insured portfolio might be acquired for prices in the following approximate ranges relative to the outstanding face amount of the securities: consumer asset-backed ($69.2B) - 80 cents on the dollar; 2nd lien and sub-prime ($18.8B + $8.8B) - 75 cents; ABS CDO >25% MBS - 60 cents; high-yield ABS CDO - 80 cents. This brings up the first question: are these approximate valuations in the ball park? Too high? Too low?
If it were possible to acquire the assets discussed above at these prices, my math suggests that the break-even point for the investment in them (assuming they are held to maturity) occurs at principal and interest losses around $35B, about six times Ambac's equity capital. Principal and interest losses equal to 5% of face value, or roughly $8B, just enough to exhaust Ambac's equity capital + net unearned premium reserve, would imply a windfall on these assets (5% losses versus a 25% discount on face value). This brings up question 2: does your math basically agree with mine?
The general conclusion is that there appears to be a huge disconnect between the risk that is priced into market valuations of asset-backed securities and the valuations of that risk on the bond insurers' balance sheets. Do you agree?
If this is correct, it would seem plausible that certain investors (e.g., hedge funds, perhaps your fund, etc.) could capitalize on this disconnect by simultaneously acquiring the types of assets insured by the bond insurers and shorting the bond insurers' shares.
Naked shorting of the largest bond insurers stikes me as dangerous, for a number of reasons. First, I believe that the Fed can exert a very strong influence on bond insurers' exposure to loss, and that the bond insurers factor into the Fed's delicate attempt to balance the risk of a collapse in asset values against the risk of loosening monetary policy and possibly re-ignited the trend toward extreme financial leverage that has gotten us into the current mess. Ambac and MBIA bankruptcies would, in my view, greatly increase the risk of a collapse in asset values, something that the Fed will attempt to avert at all cost.
Moreover, if one considers the principal and interest losses to US investors in fixed income securities associated with widespread bankruptcies of bond insurers, the numbers become frightening ($500B+ based on my back-of-the-envelope math - do you agree?). Even though some industry analysts (e.g., Goldman Sachs, Deutsche Bank) have projected losses approaching this magnitude, the Fed has in effect endorsed a $150B estimate, and will likely attempt to navigate monetary policy to something around this level, a level the bond insurers could weather.
In addition, it is also in the rating agencies' interests to prop the bond insurers up, as they have so far. If losses are moderate, the rating agencies could affirm AAA ratings, allowing them to write out of the current hole, even though everyone expects ultimate losses to be large enough to more than justify a downgrade (perhaps multiple downgrades).
Now on to a completely separate question that was raised by one respondent (could have bee me). It is my understanding that the UEPR (less deferred acquisition expenses and prepaid reinsurance premiums) translates into additional claim paying ability. If part of this amount were ceded to reinsurers, it would obviously decrease the unearned premium reserve, but the reinsurance would increase the amount available to fund losses by a larger amount. How much additional "capital" the reinsurance provides would depend on the terms of the reinsurance deal.
Somewhat to my surprise, it is my understanding that there is some appetite in the reinsurance industry to at least seriously consider a deal. If I find the time, I may share some information on my limited knowledge of the types of deals floating around (if this piques your interest, e-mail me and let me know). Regardless of the reinsurance market details, thinking about this leads me down a different tangent.
For companies as large as Ambac and MBIA, unless they come up with something extremely creative that does not involve insurance industry capital(not likely in my opinion), they really only have one place to shop, Berkshire. Others that come to mind include Swiss Re -- too conservative and is already in the mess, Munich Re -- too conservative, AIG -- already in the mess, and burned bridges by fighting a guaranteed film finance deal several years back, brokered market -- limited appetite for this magnitude, plus many are partly owned by hedge funds that can take on the risk at much better economics in the capital markets).
I have a hard time imagining that Berkshire would touch this exposure except with extremely onerous terms. Even though there is a slight chance (not very likely) that Ajit Jain (who runs reinsurance at Berkshire) might have be interested, Berkshire's more likely gameplan would be to purchase a bond insurer with a solid management team and minimal exposure (e.g., FSA), capitalize on the perceived risk in MBIA and Ambac's portfolios in the short term, and if the time comes that Ambac and/or MBIA are downgraded, take the their entire books (excluding the crap).
Not only does this seem more like Berkshire's style, but I also believe that it is much more in Berkshire's interest. Rather than risking $2B (or more) for a chance to make say $600M on a reinsurance deal plus a little more if Berkshire gets a cut of the going forward business, this would allow Berkshire to create a behemoth bond insurer with a creme de la creme portfolio that benefits from greatly reduced competition and greatly increased credit spreads viz higher premiums. Would it be unrealistic to conjecture that this franchise would be worth in excess of $10B if Ambac and MBIA are downgraded? If you want to talk about bling, there's your bling!
Posted by: Mark | December 05, 2007 at 02:42 PM
Looks like Moody's must read your blog :)
MBIA Shares Drop After Moody's Says Capital in Doubt
http://bloomberg.com/apps/news?pid=20601087&sid=aV9H1COF7V8g&refer=home
Posted by: JQ | December 05, 2007 at 03:28 PM
@ JQ
I wonder if they just started reading it a weak and a half ago:-)
@Mark
You get the award for the longest blog post comment I have ever seen. You bring up some damn good points, though. I will have to address this later in order to give it a legitimate reply since it is 3:41 am and I have had a long night. I find it hard to believe you know little about the business though.
Posted by: Reggie | December 06, 2007 at 03:45 AM
Reggie,
You are not one to complain about long posts. Only kidding, this is great stuff so I hope you keep it coming. I can't believe you put up two additional posts last night. After Googling your name last night and watching the video, I am also now aware that you are able to slam dunk over people:)
It was probably evident, but the ideas thrown out toward the end of the post were shots from the hip, and were not meticulously reasoned. It might not be practical for Berkshire to acquire FSA from Dexia (though a significant investment seems very plausible). Nevertheless, Berkshire, hedge funds, etc. are likely pump money into the bond insurance business (either by investing in the "winners," starting a new entity, or both) if MBIA and/or Ambac are downgraded.
It would be great to hear your response to some of the comments I posted if you get the chance to provide them.
Posted by: Mark | December 06, 2007 at 11:19 AM
@ mark
Read the latest Pershing report below. You may be closer to the mark than you think on the acquisition trail:
http://pershingsquare.valueinvestingcongress.com/files/How%20to%20Save%20the%20Bond%20Insurers.pdf
Posted by: Reggie | December 06, 2007 at 06:30 PM
Thanks for the link. 145 slides with no fluff is a lot to get through. A handful of comments follow.
It is nothing short of insane to apply a AAA rating to the insurance subs of these companies. In addition, the amount of debt on MBIA's balance sheet makes the idea of investing in MBIA even crazier.
The title is a bit misleading because it does not outline much of a solution -- the presentation suggests that the entire industry is about to implode. "Spectacular explosions at MBIA and Ambac lead to doom for the bond insurance industry" might be a better title.
The analysis appears to ignore a number of exposures (including stinky stuff like consumer asset backed for Ambac). Is this correct or am I missing something? If these would be additive then it obviously makes things look uglier.
The loss calculations in the presentation rely heavily on market valuations, which can be a very poor barometer. Does it make sense to rely on market valuations as the market runs like hell from the same crap they lined up to buy in the first place?
Posted by: Mark | December 06, 2007 at 11:40 PM
I'll be honest with you. I didn't get past slide 55 yet. So much to do, so little. Time. As for market valuations... honestly, at the end of the day, it is the marktet that is the sole indicator of an asset's value. You can have your opinions and models all you want, but someday you may have to sell your asset, and that is when the reality starts to sink in. You know the old saying, "The market can remain irrational longer than you can remain solvent".
Posted by: Reggie | December 06, 2007 at 11:56 PM
In a previous post, I threw out some wild guesstimates for the cost to purchase assets similar to those in Ambac's portfolio. Were these prices even remotely realistic? Here they are: consumer asset-backed - 80 cents on the dollar; 2nd lien and sub-prime - 75 cents; ABS CDO >25% MBS - 60 cents [probably too low]; high-yield ABS CDO - 80 cents.
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Posted by: ferragamo shoes | March 14, 2011 at 11:47 PM
I have limited bandwidth to return emails. I do not want the lack of answers to email questions to appear as if I am avoiding them, it is just that after a certain level of volume it distracts me from my day job.
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I do have company in these loss estimates.
Posted by: quail hill | July 12, 2011 at 09:06 PM
This again highlights that we have been conservative in our assumptions over default rates and potential losses that Ambac could incur. For an anecdotal example of the implications of foreclosure recovery rates in housing markets like CA and FL, see my last post. My findings are actually on par with that guy that writes the well followed Accrued Interest credit blog (very smart guy who came to almost the exact level of losses I did), Bill Ackman from Pershing Capital (prescient guy who got me started following these companies and also believes them to be insolvent soon), and UBS.
Posted by: mission viejo chiropractor | July 15, 2011 at 09:25 PM
My primary occupation is investing, not blogging. I disseminate my research and opinions to provoke discussion and I love to blog on these topics, but I have limited bandwidth to return emails.
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