Countrywide Financial Corp Ex Q4

Morgagae banking segment revenue: 250 mil writedown: 400 mil pre-tax NI: -400 to -600 mil --net writedown 690, pipeline 41.5 bil MSRs retained interest impairment: writedown -30% in Q2, -40% in Q3 to 0.9, at most another 300 mil (-30% writedown) servicing earnings before valuation of retained interst: 600 mil impairment of credit sensitive retained interest: -300 mil pre-tax earning = 300 mil other drivers: 1.prepayment factor is not high 2.more portfoilio are filing for bankruptcy, driving up servicing fees Banking revenue: 550 mil provision: 256 mil (2x of net charge off) pre-tax earning : 200 mil other factors: 100 mil recoery Capital Mkt --trading asset valuation writedown -6% (300 mil / 4907 mil) pretax earning = -100 mil Insurance pre tax earning : 100 mil ----- -200 to 100 mil

FOMC 25 bps cut

--The commitee judges that after this action, the upside risks to inflation roughly balance the downside risks to growth --Q3 GDP showed economy expanded more than forecast comments --housing slump and weakness in job market are deflationary events, upside risk to inflation is still limited --delinquency rates will increase due to ARM rate reseting and dropping prices --To stablized (not to forestall) housing market, Fed will cut at least 50 bps by the end of Q1 2008

GPD Q3 2007

--Gross domestic product grew at an annual rate of 3.9 percentin the quarter, the most since the first three months of 2006,compared with a 3.8 percent pace in the prior quarter

UBS Q3 2007

Overall --715 mil, 49 c/share, $1.07 /share last year. Credit Metrics --total writedown 4.7 bil (4.4 securities vs 0.26 bil leveraged loans), 11% equity CDO/VIE securities --gross loss 5.6 bil (net writedown 4.4 bil) FI securities --writedown for subprime assets 1.5 bil - 2 bil francs --subprime exposure at the end of Q3: a.16.8 bil RMBS, b.1.8 CDO, c.20.2 super senior --a.$16.8 bil RMBS subprime (AAA tranche) --b.1.8 bil CDO retained interest after securitization in warehouse lines (dominantly AAA) --c.among 20.2 bil exposure: net writedown 1.65 bil valuation between 0.7 and 1 (AAA tranche) ----3.7 bil high-grade ABS paper ----2.7 bil 12% loss protection ----13.2 bil is mezzanine ABS CDO (5% to 10% not RMBS collateral); 1.65 largely from mezzanine; some writedown 30% --> gross writedown ratio around 12% Leverage loan --gross writedown $400 mil (net writedown 260 mil) on 12.9 bil loans, 3% (less than JPM) Capital adequcy --ALL/NPL: 41 - 48 Capital --Tier 1 ratio 10.2% Evaluation --stock fell 80 centimes to 61.35 frances --5y CDS 41 bps --AA/Aa1: 10y cash 122 bps comments: --mark down less than peers --interest income is raltive stable and trending up

brokers Q3 hedging status

Merrill Lynch --$4 bil derivative assets (embed in contractual obligations) --$1 tril asset and $400 bil financial instruments --1%, much lower compared to BSC Goldman Sachs --87 bil derivative contracts (where credit deritive at most 36 bil) --1 tril total assets and 669 bil financial assets --at least 10% Morgan Stanley --64 bil derivative assets (credit at most 26 bil) --1.2 tril asset and 416 bil financial instrument owned --at least 10% Lehman Brother --35.7 bil derivative assets (credit NM) --660 bil and 282 bil fin instruments --at least 10%

Bear Stearns Q3 2007

Overall Credit Metric retained interest as of Q3 2007: non agency Mortgage and Asseted backed securites: 6.7 bil agency Mortgage and Asseted backed securites: 2.9 bil (8 bil investment grade, 6.2 bil are AAA) --> nearly 4 bil non AAA retained interset, apply 25% write-down ratio $1 bil VIE CDO: 2.5 bil, max loss 0.44 bil mortgage securitizations: 37.3 bil, max loss 1.27 bil total inventory --50 bil mortgage and Asset backed inventory, --subprime mortage loans of $1.4 bil reprenting 2007 vintage production, and .7 bil investment grade subprime securities and .33 bil below investment grade retained interest FI segment data Q3 07 revenue : 117 mil Q2 06 revenue : 1 bil companied claimed to write-down net $700 mil related to mortgage inventory and leveraged finance (250 mil net writedown for leveraged loan). -> only 450 mil net write-down for mortgage and CDOs. --Q2 derivatives $11.27 bil where $10.375 bil represents "derivative financial instruments" (swaps, futures, options), credit derivative is around 0.9 bil --Q3 derivatives $14.206 where $12.094 bil "derivative financial instruments" --cash flow in finance is puny, so we arrive credit derivative value increasd from 0.9 bil to 2.1 bil --> credit derivative contributed 1.2 bil --so we arrive that gross write-down is around 1.65 bil pipeline of leveraged loan 7.6 bil, down from 20.8 bil Q2, marked down 250 mil, 3% Hedging *** --14.2 bil derivative/ 400 bil asset , 141 bil financial instruments others information --level 3 derivative gain (realized and unrealized) is 450 mil Comments: --high hedging ratio compared to Merrill Lynch

BSC liquidity as of Q3 07

Assets 397 bil other assets -9 VIE/SPE -41 Regulatory capital -13 = 334 Lability 384 LT debt - (65 - 14) = -51 == 333 excess liquidity = 1 bil comments -- almost no excess liquidity and it can only count on credit facility or security issuance to raise fund.

Fixed Income strategy as of 10 29 2007

--Treasury subsector a.bet on yield curve slope: buy 10- short 2, now 57 bps, will be above 80 in 6 months (historical high 300 in July/25/2003): Fed wil cut interest at least 25 bps (expect 50 bps) by the end of year; lower interest rate will reduce 2y yield and drive up 10y yield due to the inflation concern --Brokerage subsector long list Merrill lynch a.really convervative portfoilio repricing relative to other rivals (senior AAA high grade 20%, GS and MS <= 6%) b.liquidity is not a concern (excess liquidyt 20 bil and credit facilities 30 bil) c.management shakout represents positive outlook d.bond evaluation is attractive 177 bps (AA- bond, A+ company) stategy: buy ML and short BSC short list a.level --Bank sector long Countrywide Financial a.quite convervative in provision b.bond evaluation is attractive 9y bond 500 bps and 5y CDS 380, 10y CDS 300 bps c.positive guidance for 4th quarter d.liquity is not a issue e.there are investors stand by to support the company

Merrill lynch CEO's missteps

--He didn't much engage in debate, kept his own counsel and had little use for the kind of strong-willed subordinates who might have helped him steer clear of the subprime troubles that brought him down. --purged his rivals and allies after gaining power --unilateral decision to ask Wachovia to buy Merrill --roll his eys at the mention of Mr. McCann --give even close allies a cold shoulder --outster in July 2006 of three seasoned bond executives led by Jeffrey Kronthal --stuck with 32.1 bil of CDOs and 8.8 bil of subprime mortgage securities

daily market review as 10/29/2007

--Sixty-five percent of the S&P 301 members that reported quarterly earnings so far topped analysts'forecasts. --Merrill Lynch CEO Stan O'Neal is resigning: write-off 7.9 bil, uncomfortable with indpendent people views, charge for purging rivals and allies after gaining power, the final straw was his unilateral decision to ask Wachovia to buy Merrill.

Countrywide Financial Corp. CFC Q3 2007

Overall --1st quarterly loss in 25 years, 1.2 bil or 2.85 diluated EPS --expect to be profitable Q4 07 --valuation adjustment -1 bil, credit loss (future expectation and charge-off) 1.9 bl Credit Metrics Loan Origination --impairment 690 mil, 30.8 bil exposure, 2% --realized and unrealized loss 1 bil --mortgage origination decreased from 123 bil to 90 bil MSRs --credit sensitive retained interest: writedown 690 mil, exposure (carry value) 0.9 bil, writedown ratio around 40% Bank and Warehouse lending --earning: -389 mil --provision: 784 mil, net charge-off: 126 mil, Pro/LCO: 6.5 --allowance: 1.1 bil, loan portfolio: 79 bil, 1.5% --Allowance/NPL: 78.67% vs 49.86% --ALL/LCO: alomst 10, historic high Delinquencies --Prime home equity loans total 5.76%, rising from 4.56% Q2 --conventional 1st lien 4.41% (90 days 1.44%), rising from 3.35% (90 days 1.02%) Liquidity --FHLB funding 51.1 bil, secured borrowing capacity 12 bil, ABCP facility with Park Monaco 10.4 bil, 6.3 bil of new whole loan/securities --33.6 bil highly reliable liquidiyt to fund op without tapping debt mkt Evaluation --share --BBB 9y bond 504 bps (highest 570 bps 10/25), 5y CDS 377 bps (10y 308, dropped 140 bps in a day) Ratings --SP ratings services lowered the long-term counterparty credit rating on CFC from A- to BBB+ --Countrywide Home loans Inc. from A to BBB+ --Countrywide Bank fsb from A to A- comments: --the company overreserve loan loss, relatively conservative, long its bond and buy 10y CDS or just simply long the bond

daily mkt review Oct 25 2007

Oil --Oil reached another record high, $92/barrel, inflation adjusted $101. Drivers: geoplitical issues (sanction against iran), drop in U.S inventory, and weakness in dollar Credit Market --At least 40 reports downgrading or considering downgrading billions of dollars in CDOs were issued Friday, though the agency declined to estimate the value of downgraded CDOs. --Moodys cut the ratings of CDOs backed by $33.4 bil subprimes that are downgraded early this month. The rating firms have already downgraded more than $50 billion worth of mortgage-backed securities in the past few months. Moodys expect more ratings cut in the coming week. Companies --Countrywide, which swung to its first quarterly loss in more than two decades, has spent recent months ensnared in the credit crunch. But the company said it anticipates being profitable in the fourth quarter and in 2008, and investors sent its beaten-down stock soaring by 32%.

Mer Q3 liquidity analysis

liquid asset --Excess Liquidity 81 bil and Unencumbered Assets 130 bil as of Q2 2007 Credit facility --unsecured 4 bil, 1 bil used, until 2010 --two secured facilities (7.5 and 7 bil) with two financial institutions. These facilities expire in May 2008 and December 2007. --secured credit facilities with two financial institutions that totaled $11.75 billion at June 29, 2007 and December 29, 2006. The secured facilities may be collateralized by government obligations eligible for pledging. liquid assets --take a glance from from balance sheet, assets 1076 bil take off the following items Loans, notes, and mortgages 73,465 Separate accounts assets 12,605 Equipment and facilities 2,713 Goodwill and other intangible assets 3,644 Other assets 9,326 60 bil of iliquid trading assets regulatory cash 18,000 == 880,000 bil liquid assets coming liabilit Securities financing transactions 378,695 Short-term borrowings 20,064 Deposits 82,000 (quite conservative) Trading 120,424 Obligation to return securities received as collateral 48,048 other payable 138,375 Liabilities of insurance subsidiaries 2,7000 Separate accounts liabilities 12,605 refinancing Long-term borrowings 60,000 (actually 55 bil) = 858 comments: --excess liquididity 20, if assume 20% depoits will be withdrawn there will be around 80 bil excess liquidity --exceess liquidity plus around 30 bil credit facility enable the company to withstand up to 10 bil earning loss.

insurers no immune to subprime

--many of them are bond insurers, such as American insurance group (AIG) and Ambac Financial Group --AIG CDS rose to 59 bps, up 20 bps. Put options are active

financial sector Q3 as of 10 25 2007

--WS financial institutions have written down around $30 bil of mortgages and loans --110 mortgage companies closed or filed for bankruptcies executives casualties UBS CEO PEter Wuffli Bear Stearns Co-president Warren Spector Credit Suisse Group co-CEO John Mach, contract not renewed

Merrill lynch CEO's job at risk

--Merrill Lynch CEO Stan O'Neal discussed with Wachovia for a merger without consulting board of directors, triggering the board of directors and putting his job at risk --Board discussed possible candidates, including Blackrock CEO and Euronext CEO --The firm may have to write down its holdings by $4 billionin the fourth quarter, on top of the $7.9 billion charge itdisclosed Oct. 24, according to CIBC World Markets. Stan O'Neal Mishaps --acquired First Frankline for 1.3 bil in December 2006, at the peak of real-estate, the tenth largest subprime lender in 2006 with $27.7 bil of loans

daily mkt review Oct 24 2007

--single family house sales increased 4.8% MoM, lifted by demand in the West. It recovered temporarily from the August plunge, revised to 11 year lowest.

financial instrument classification

trading assets - CDOs, Securitization warehouse, inventory hold for sale - loan commitments Hold to maturity - consumer loan, unsecuritized credit analysis: allowance and provision

Countrywide Financial Corp, further leg down

--Defaults on so-called ``option ARM'' home loans made by Countrywide are running above industry norms, the Wall Street Journal reported. --An analysis carried out for the newspaper by UBS AG shows that 3.55 percent of the option ARMs Countrywide granted last year and then packaged into securities were at least 60 days overdue. The option-ARM delinquency rate for mortgage lenders as a whole is 2.56 percent, the newspaper said. --Countrywide fell 57 cents, or 3.8 percent, to $14.48

daily market review as 10/24/2007

--ML reported the 1st quarterly loss since 2001, 2.3 bil, downgraded by S&P to AA- to A+ --Sept monthly exisiting home sales 5.04 mil, lowerest since 99.

Merrill lynch Q3 2007

Overall --EPS -$2.82 share (2.3 bil), $3.17 per share last year, est -$0.5 per share --net revenue 0.577 bil decreased 94% from 9.8 bil last year --One time after tax charge 1.1 bil due to the merger of ML investment mgr and BlackRock Credit Metrics (AAA) capital market/FICC (50% revenue) --CDO/subprime: write-down $7.9 bil in FICC business, larger than 4.5 bil disclosed at pre-release. a.ABS/CDO exposure 15.2 bi Q3 07, 32.1 bil Q2 07, writedown $6.9 bil, >30% *** high grade 8.3 Q3 07, 16 bil Q2 (est), writedown 1.9 bil, ratio 20% *** mezzanine 5.3 Q3 07, 10 bil Q2 (est), writedown 3.1 bil, 40% *** CDO-squared 0.6 Q3, 1.2 bil Q2(est), writedown 0.8 bil, 50% *** retained interest 1 bil Q3, 2 bil Q2(est), writedown 1.1, 50% b.Subprime exposure 5.7 bil Q3 07, 8.8 bil Q2 07, writedown $1 bil, >= 10% --This exposure consists of residential whole loans, warehouse lending, residential mortgage-backed security positions, and residual --lending commitments writedown $967 mil gross, 463 mil net. Exposure 31 bil at the end of Q3 07, 53 bil Q2 207. -3% --Others Evaluation --10y spread increased 10 bps to 177 bps --5y CDS increased 5 pbs to 95 bps, 7y 84.5 (arbitrage strategy, buy 7y and sell 5y) Market comments: --loss since 2001 --it spent 1.3 bil purchasing First Franklin Financial Corp, a home lending company. It will write off 0.1 bil --downgraded the same day by SP from AA- to A+, Moody and Fitch Peer Group BSC --CDO/CLO/VIE: 2.5 bil consolidated, 6% of total VIE. max exposure to loss from CDOs and CLOs was 437 mil --Level 3: onl,uy loss -255 mil out of 9.5 bil lvl 3 asset? < too low --Evaluation: A+, 10y 194 bps, 5y CDS 102 GS --CDO/CLO. 1.71 bil loss, exposure (unconsolidated 65.5 bil where CDOs/CLOs 32.9 bil) < 6% --Level 3, loss of cas hinstruments 1.6 out of 45 bil <6%, hedging impressive as MS --leveraged loan 6.8 bil, included in 45 bil level 3. --Evaluation: AA-, 10y 142 bps, 5y CDS 55 bps MS (benefit from heding 7 bil offset 1.9 bil loss in Level III asset, Fair value disclosures) --Q3 2007 Level III begin 35.3 bil of corproate and other debt, loss -1.8 bil 6% --VIE/CDO: exp 41.5 bil unconsolidaed (26.6 bil credit and real estate, Morgage and ABS 6.3 bil), max exposure to loss 20.9 bil (18.9 bil credit and real estate, 1.7 bil structued transactions, 0.249 bil morgtgage an ABS) --Retained Interest: 6.2 bil (noninvestment-grade 3.1 bil) --loan commitments : 726 mil mark down of leveaged loan commitments, exposure 104 bil (43 bil non investment grade) < 2% ratio 214 mil of mar down of CD --Evaluation: AA-, 10y 148 bps, 5y CDS 59.5 LEH --level 3. a.Mortgage and MBS, unreliazed .829 bil out of 12 bil, 7% b.derivate performance 542 mil out of 1.3, far less impressive than MS and GS c.corporate debt 3.6 bil, no unrealized loss? --Evaluation: A+, 10y cash 191 bps, 5y CDS 98.8 bps Comments --BSC questionable disclosure in level 3 asset looks like it is overstating the asset value, short --MS, GS, conservative disclosure and appropriate hedging

finance sector

Mortgage -- continue to drag down the economy -- $1 tril subprime mortgage by the end of 2008, 16% delinquency rate, 30% loss rate, $50 bil loss Loan commitments --huge pipeline of leverage loan commitments in the next two quarters, $300 bil by Nov, marked down by 5%, $15 bil SIV --focused on a few banks, Citi 80 bil Comments: --it will take at least another quarter to straighten out these issues. The sector will recover by the end of Q1 2008 questions a.asset classifications (CDO is trading or hold for sale) - unrealized gain b.Agency or 30 y mortgage

Consumer bankruptcy filings

--Consumer bankruptcy filings increased almost 23% from a year earlier -- representing nearly 69,000 people -- according to the American Bankruptcy Institute (ABI), a nonprofit research group whose members include bankruptcy attorneys, judges and lenders. Overall, consumer bankruptcy filings were up 44.76% during the first nine months of this year. --increasing number of homeowners filed for Chapter 13, instead of Chapt 7 which lowered from 70% to 60% share --one virtue: allow homeowner with regular income and who stays current with new bills to strech out these overdue pay over the course of chapter 13 plan that usually runs 3-5 years. --unique about proposed legislation: bankruptcy court can set the rate and principal amount can reset to the fair value, in the favor of homeowners at the expense of secondary market.

housing market

--The biggest U.S. mortgage lender, said it will change the terms on $16 billion of adjustable-rate mortgages. --Countrywide said about 52,000 customers with subprime loanscan refinance into prime or government-backed mortgages, whichusually have lower rates, through next year, the Calabasas,California-based company said today in a statement. --Neumann Homes Inc.will file for bankruptcy, becoming the second-largesthomebuilder to seek Chapter 11 protection from its creditors. --2Y Trea Notes gained after Countrywide Financial Corp.,

TD Ameritrade Holding Corp. Q4 2007

Overall --The best-performing U.S brokerage --Q4 eps 33 c, 56% increase, --drivers: a.uncertainty about US economy spurred trading, trading revenue rose 37% to 226 mi b.cost cutting of $200 m following the company's 2006 purchase of TD Waterhouse c.it voided consumer loans that cut into earnings at rival E0Trade Fin Corp. as borrowers defaulted Credit Metrics --$303 bil of client assets, up 16% Mkt Comments --E*Trade's effort to triple loans outstanidng in the quarte contributed to a losss of 58.5 mil Comments: --lower margin, high competition from Fedelity and BAC

S&P 500 Q3 earning update as of 10/23/2007

--The 145 members of the S&P 500 that reported third-quarter results through yesterday posted an average profit gain of 1.2percent, beating the 0.6 percent decline estimated by analystsin a Bloomberg survey on Oct. 19.

American express Q3 2007

Overall --third largest US credit-card network --EPS 90 c/share, climbed 10%, higher than est 85 c --income form continuous op, 15% --drivers: billed business, more people replace cash and check with cards and tend to make more transactions, now 40% and would-be 56% in 2010 --international: Income from the U.S. card business was up 6% to $592 million, while that from its international-card services unit soared 32% to $140 million. --its clientele tends to be more affluent than those of rivals a.Spending by card members outside the U.S. surged 23% to $47.3 billion b.US 13% to $115.2 billion Credit metrics --provision increased to $638, 44% increase, --Cardmember provision 579 mil, 41% higher while world carmemver lending loans increased 32% to 50.5 bil, conservative --Net write-off rate, 4.1% vs 3.8% one year ago. --Alloance/NPL, all decreased across three segments (cardmember rece: 97% to 91%, owned: 106% to 97%, managed 101% to 97%) Evaluation --stock fell 24 c to $56.87 in 4pm, it gained 1.7 to 58.57 in Germany --A+, 10y increased 20 bps to 142 bps over one week, lower than 3m peak 160 bps. --5y CDS 43 bps, peak 63 bps Market comments: comments: --net charge-off increased, NPL increased, but ALL/NPL or ALL/LCO decreased. AXP tend to underreserve for loan losses, smoothing their income.

daily mkt review Oct 22 2007

--stock mkt rebounded. Nasdaq jumped 1%(Apple reported strong earning in Q3), pushing up other indexes --Oild price dipped from 100 to 87.5

banks commercial loans increases

--Since midsummer, bank lending to businesses has risen at the fastest rate in more than 30 years, providing a cushion for the economy as lenders cut back on mortgages and other forms of loans. --Commercial banks in the U.S. have a total net worth (assets minus liabilities) of $1.1 trillion, or 11.9% of total assets, well above levels considered to be healthy. --Nationwide, commercial and industrial lending -- the critical loans that fund corporate activities like share buybacks and plant expansion -- has risen at an astounding 52% annual rate since late July, and overall U.S. bank balance sheets have increased at a 22% annual rate, according to Federal Reserve data. -- For commercial and industrial lending, it is the fastest growth rate for an 11-week period in more than 30 years. --Regional banks, in particular, have had significant increases in lending. Fifth Third Bancorp, for example, said commercial-and-industrial lending rose 7% in the third quarter from a year earlier, even as other loan growth slowed.

LBO loan commitments as of Sept 12 07

1.Bank of America 39.4 bil 2.Citigroup 33.1 3.JPMorgan Chase 32.7 4.Credit Suisse Group 30.2 5.Deutsche Bank 25 6.Goldman Saches Group 23.8 7.Lehman Brothers 23.2 8.Morgan Stanley 20.9 9.Merrill Lynch 15.6 10.Royal Bank of Scotland Group 13

analysis of Countrywide Financial 2005

Balance Sheet 1. Asset Generic liquid instruments --cash --securities purchased under aggreements to resell broker deal division --trading securities $11 bil banking and warehouse lending division --loans held for investment (maturity) $70.1 mortgage banking division --Mortgage Servicing Rights (MSR) $12.6 --Morgage loans and MBS held for sale $36.8 --investments in other financial instruments $11.5 a. including hedging instruments $0.8 (footnotes) b. senior retained securities and othe rsecurities $7.9 c. residual, subordinated or risky retained securities $2.7 notes: MSR: principal is sold or securitized to third parties or when MSRs are purchased from third parties. 2. Liabilities Mortgage bank raised fund through securities market and banks division borrow from Securitie market --notes payable $76.2 bil --securities sold under agreements to repurchase and fed funds purchase $34.2 --deposits $39.5 3.Leverage mortgage banks are typically less leveraged than thrifts CFC: 15:1 debt to equity for mortgage orgination and 3:1 for mortgage servicing Thrits: 40: 1

residential mortgage backed securities market

--$5.4 tril in June 2006, larger than $4.8 tril US Treasury securities market. --$7.9 tril one to four family residential mortgages were outstanding, with about 56% held in the form of MBS. --approximately 8% of mortages outstanding are government insured, 17% in 1990. --in 2003, subprime mortgages constituted about 27% of the number of residential mortgages outstanding but only 9% of the dollar amount of mortgage origination.

second mortgage holder

--second mortgage holder couldn't forclose on dead beats unless the first mortgage holder also foreclosed. Because to foreclose on a second mortgage, you have to repay the first mortgage in full, and there was no money set aside to do that. So second mortgage holder get bagged. --If the first mortgage foreclosed, there was likely to bve little or nothing left for second mortgage holder.

daily mkt review Oct 19 2007

--major index tanked 2.5%, marked the 20th anniversary of 1987 crash feuled by uninspring earning reports, high oil prices, and concerns over housing market --the full impact of subprime market has yet to be revealed --the pain has spread beyond financial markets (Honeywell and Caterpillar)

financial sector Q3

--More than one-third of the 92 financial companies in the S&P500 have reported third-quarter results. Their 17 percent averageprofit drop is the biggest since Bloomberg began trackingquarterly earnings growth in the third quarter of 1997. Financialfirms account for about 19 percent of the S&P 500's value andproduced 27 percent of the index's profits last quarter,according to Bloomberg data. --The S&P 500 Financials Index hasdropped 9.9 percent this year. ``Right now financial stocks are like radioactive waste,''

Asset Backed Commerial Paper market

--the market contraced --the rates investors charge issuers dropped

Wachovia WB Q3 2007

Overall --EPS 89 cents/share, fell 10% to 1.69 bil, lower than est 1.04 --drivers: valuation losses of 1.3 bil --CEO Kennedy Thomson spent more than 30 bil in the past two years buying mortgage lender Golden West Financial Corp. (25 bil) and A.G Edwards brokeraage firm. Asset Quality --provision for credit loess $408 mil (108 06) --NIM 2.92 (3.03 06), trending down --net charge-offs rose 3 bps to 0.19% --Tier 1 capital ratio 7.2%, trending down Evaluation Comments

Capital One COF Q3 2007

Overall (BBB+) --The largest independent credit card issuer --EPS -0.21, lowered due to the shutdown of Greenpoint Mortgage (82 mil), higher than est consumer credit metric --net charge-off rate 4.13%, highest in one year, trending upward --30+ delinquencies rate 4.46%, highest in one year, trending upward. Yet national lending delinquenies rate is 4.7% in Sep. Evaluation --10y bond 170 bps, dropped 70 bps compared end of Aug. relative High historical. comments: --allowance ratio is trending down while delinquency rate is inching upward, bizarre, short the

JPM Q3 2007

Overall --EPS $0.97, up 5% due to cost cutting, retail finance(18% rev growth), card service(double digit earning growth) Asset quality --Leverage loans write -down gross 2 bil , total exposure 40.6 bil, -5%, higher than LCDX (-1%) and other players (around -2-3%) --CDO/SIV mark-down net 339 mil, total portfolio 6.8 bil, -5%, relatively good compared to other players ( --allowance for credit loss (provision $227 mil) for investment banking $1.6 bil of portfolio out of 62 bil (1.8%) --Tier 1 capital ratio 8.4%, stable and higher than required 6.5% and C(dropped to 7%) Evaluation --10y bond trade at 120 bps, 50 bps lower than highest, relatively historic high Comments: --long

daily eco review Oct 17 2007

--housing starts dropped to the lowest in 14 years, 1.191 mil. It will boost the chance of lowering an interest rate cut. --crude oil price approached 90, historic high, on the vote by Turish lawmakers to use military force against Kurdish rebels in northern Iraq --SP downgraded $23.35 billion of securities backed by pools of home loans that are extended to borroers in the first six months of 2007. Housing market has yet to bottom out.

Consumer Credit is in crisis?

--Capital One will shed some light --In September, COF's delinquencies were 4.4% higher than one year ago. Credit-card loss rate rose to 3.6%, the 4th consecutive monthly increase, up from 2.2% in June, thought still below the historical average of 5%

BAC Q3 2007

Overall --NI declined 32% to 3.7 bil, driven by losses in Global Corporate and Investment Banking --Kenneth D.Lewis vowed to root out problems. Credi metrics --In Global Corporate and Investment Banking a.Capital Markets and Advisory Sevices posted -184 mil, where Credit and Structure Products posted -717 mil net losss, compared with NI 298 mil a year earlier. (Credit Products -607 mil revenue loss after hedging, SP (CDOs) -527 mil) --leveraged loan write-downs 247 mil (commercial banking, should be good) --loan losses provision 2.03 bil, 74% jump relative to one year ago --nonperforming asset 3.37 bil (100% increase). Evaluation --AA 10y 110 bps, peak 160, relativey fair Market events and Comments: --the bank has spent 675 mil in the past two years to grow in investment banking. Bad market bets plunged its trading account, underming it effort to build a investment-banking powerhouse. --job cuts are looming for 20k employees --two months ago, it invested 2 bil in CFC --investment banking: no big exposure to CDO or Mortgage, should steeer clear of the hist that bruised Citi and ML. Other businesses in investment bank weren't able to pick up the slack. Equity halved. Underwriting and Merging fees fell. Comments:

3Q regional banks

--the deterioating housing market crimped regional banks profits and is likely to keep squeezing them until next year. --Wells Fargo: loan -loss provision surged 46% from a year early to $892, due to problems in home equity loans. Mortgage operations benefited from a 1.2 bil gain in hedging.

the more hedge the better

--there is a richer menu of tools fo investors to hedge their portfolio --still there remains the opportunity of the same cascadign effet as the selllers move to protect themselves

what is indicative of the economy trend in consumer sector

--discretionary consumer spending is indicative --it includess clothing, sporting goods, furniture, department stores.

another 1987 crash is coming?

-- an interesting comparison between 1987 and 2007 http://online.wsj.com/article/SB119239926667758592.html?mod=hps_us_inside_today

it might be a solution to banks' liquidity issues

The plan, which has been in the works for three weeks, is aimed at helping bank-affiliated investment vehicles that issued tens of billions of dollars in short-term debt, including commercial paper. According to the people familiar with the situation, the plan would be to create a "super conduit" that would issue short-term debt and serve as a buyer of assets currently held by so-called SIVs. These assets include securities tied to U.S. mortgages as well as debt pools called collateralized mortgage obligations.

U.S. Investors Face An Age of Murky Pricing

--"less than half" securities are traded on exchange. more on OTC --The growing uncertainty over what assets are really worth could wreak havoc on the efforts of both individuals and money managers to invest rationally. During this summer's confusion over bond valuations, for example, it was especially difficult to know whether to buy or sell. Investors forced to fly blind sometimes resort to panic selling, which can produce wild swings in the markets. --Over the years, nonexchange-traded investments have produced plenty of pain for investors. Some go-go mutual funds dabbled disastrously in illiquid investments in the late 1960s and early 1970s; a 19 94 meltdown in the mortgage-securities market toppled Wall Street titan Kidder Peabody; and giant hedge fund Long-Term Capital Management collapsed in 1998 after bad bets on opaque bond markets. http://online.wsj.com/article/SB119214581308956665.html?mod=todays_us_page_one

The United States of Subprime

--The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when conventional lending slowed and subprime lending accelerated, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. --High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash. --Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities --High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations. --The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American banking system -- and now are bringing deepening financial woe. --The Journal's analysis indicates that some major subprime lenders, such as Washington Mutual Inc.'s Long Beach Mortgage unit, began scaling back or tightening their standards a year or more ago. But commercial banks and thrifts filled the void, helping to sustain real-estate markets that might otherwise have begun cooling. --Higher-income home buyers began using such loans for larger purchases. Among borrowers characterized in the data as white with annual income of at least $300,000, the number of high-rate loans jumped 74% last year, the numbers show. The average high-rate loan grew 10% to $158,000 last year, compared with a 1% rise in the average size of all home loans. The 2006 data include records from 8,886 lenders nationwide, which generate an estimated 80% of U.S. home mortgages.

surge in oil prices

--top $83 per gallon in Sep, only $56 per gallon in May --reasons: non-OPEC supply is disappointment, technical issues related to old equipments, OPEC supply hasn't brought it online

MER Q3 asset quality analysis

CDO and Securitization --$4.5 bil net write down --VIE max loss exposure $8 bil --Securitization --a.seuritized around $128 bil asset, RMortgage 70% securitization revenue --b.Retained interest $10.3 bil Q3 2007 vs $6.8 bil Q4 06. --c.SPE credit quality is 4% default rate for mortgages --market says full year 2006 and year to date 2007, Merrill issued $53.5 bil CDO/CLO in 06 and 42.6 bil in 07, Citi is next $31.8 --analyze, max loss vs actual write down, total exposure Loan Commitments --write-down of $967 mil gross loss, related to all corproate and financial sponsor, non-investment grade lending commitments. These commitments totaled $31 Q3 07 ves $53 bil Q2 07. --gross loss 3.1% relative to loan commitments, less than other brokers (avg 5% according to creditsights) --nearly $200 bil, where non-investment grade $25.5 bil --use LCDX as a proxy for asset quality...LCDX was fiarly stable, -1% for December

SPE vs VIE

SPE entity --has special purpose and it can only engage in specified and restricted business --equity holders of SPEvoting rights often are of little or no importance --primary bearers of risks and rewards are not their equity holders but parties with contractual relationships with them. --consolidation: controlling financial interest - ownership of a majority voting equity interest VIE --majority of SPEs are VIE because equity holders lack contro rights --no restrictions on business activies --consolidation is not based on equity voting rights (equity, risky debt or beneficial interstest of the eqntity, guarantees of entity's assets, ...

Citigroup Q2 2007

Morgage exposure --retained interet 11.3 bil Leverage loan commitments (lack of detailed exposure) --57 bil in Q3 2007 vs 69 bil in Q2 07 (from company statement) -- $1.4 bil write-down (-2% haircut) CDO (in VIE) --max exposure to loss is $117 bil at 06/2007 vs 109 end of 06, where CDOs $75 bil vs $52 bil in in Q2 06 ($23 bil increase) --subprime business exposure (from creditsights and company teleconference in Q2) is $13 bil, mark down by $1 bil (-8% haircut) Trading Consumer Credit --2.6 bil loss Q3, 2.7 bil in Q2, only 2 total in 2006