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October 1, 2009 at 6:39 PM #463519October 1, 2009 at 7:41 PM #462713
davelj
Participant[quote=ucodegen]
Countrywide – even with the servicing business – had negative value.
Incorrect, use DCF and you’ll see it. Also remember that BofA paid the like of $0.02 for $1.00 worth of SFR mortgages.. so guess how low the foreclosure price of the property could go before BofA really loses money? A discount of 50% on the price of the property will not bother BofA that much, since their price that they paid was an 80% discount.[/quote]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know). “BofA paid the like of $0.02 for $1.00 worth of SFR mortgages?” Huh? BofA paid $4.1 billion for Countrywide. Countrywide was levered 13-1 at the time of the acquisition. That means if the assets on Countrywide’s balance sheet (mostly loans) turned out to be worth 8% less than their book value at the time of the acquisition, you start into negative territory. Now, the servicing business is worth something. What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now. My point is that if you believe that BofA bought a bunch of loans at 2 (or 20) cents on the dollar, you don’t know a single thing about bank balance sheets and acquisitions. And less about the Countrywide acquisition.
[quote=ucodegen]
As far as MAC clauses are concerned, if you do proper due diligence in the first place – which wasn’t done in either case – then the MAC clause is irrelevant.
This is also incorrect. You are not necessarily allowed to see and audit the books of a company before you start acquisition. It is considered proprietary and inside info. There is a phase during acquisition that an independent auditor goes through the books after declaring the intent to acquire… a relative of mine used to do that type of auditing until about 4 years ago.[/quote]
What? The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced). Independent auditor? Huh? Look, I have no idea what you’re talking about. I’ve performed due diligence in over 20 proposed bank acquisitions. (Granted, MUCH MUCH smaller than Countrywide – to be clear.) It’s part of what I do for a living. You don’t hire an “independent auditor” to do the loan due diligence, you hire a “loan review firm” of your own choosing that answers to you, the acquirer.
I gotta tell ya… it seems pretty clear to me that you don’t have any idea whatsoever as to what you’re talking about. I’m sorry, but there’s no other way to put it.
October 1, 2009 at 7:41 PM #462907Participant[quote=ucodegen]
Countrywide – even with the servicing business – had negative value.
Incorrect, use DCF and you’ll see it. Also remember that BofA paid the like of $0.02 for $1.00 worth of SFR mortgages.. so guess how low the foreclosure price of the property could go before BofA really loses money? A discount of 50% on the price of the property will not bother BofA that much, since their price that they paid was an 80% discount.[/quote]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know). “BofA paid the like of $0.02 for $1.00 worth of SFR mortgages?” Huh? BofA paid $4.1 billion for Countrywide. Countrywide was levered 13-1 at the time of the acquisition. That means if the assets on Countrywide’s balance sheet (mostly loans) turned out to be worth 8% less than their book value at the time of the acquisition, you start into negative territory. Now, the servicing business is worth something. What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now. My point is that if you believe that BofA bought a bunch of loans at 2 (or 20) cents on the dollar, you don’t know a single thing about bank balance sheets and acquisitions. And less about the Countrywide acquisition.
[quote=ucodegen]
As far as MAC clauses are concerned, if you do proper due diligence in the first place – which wasn’t done in either case – then the MAC clause is irrelevant.
This is also incorrect. You are not necessarily allowed to see and audit the books of a company before you start acquisition. It is considered proprietary and inside info. There is a phase during acquisition that an independent auditor goes through the books after declaring the intent to acquire… a relative of mine used to do that type of auditing until about 4 years ago.[/quote]
What? The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced). Independent auditor? Huh? Look, I have no idea what you’re talking about. I’ve performed due diligence in over 20 proposed bank acquisitions. (Granted, MUCH MUCH smaller than Countrywide – to be clear.) It’s part of what I do for a living. You don’t hire an “independent auditor” to do the loan due diligence, you hire a “loan review firm” of your own choosing that answers to you, the acquirer.
I gotta tell ya… it seems pretty clear to me that you don’t have any idea whatsoever as to what you’re talking about. I’m sorry, but there’s no other way to put it.
October 1, 2009 at 7:41 PM #463251Participant[quote=ucodegen]
Countrywide – even with the servicing business – had negative value.
Incorrect, use DCF and you’ll see it. Also remember that BofA paid the like of $0.02 for $1.00 worth of SFR mortgages.. so guess how low the foreclosure price of the property could go before BofA really loses money? A discount of 50% on the price of the property will not bother BofA that much, since their price that they paid was an 80% discount.[/quote]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know). “BofA paid the like of $0.02 for $1.00 worth of SFR mortgages?” Huh? BofA paid $4.1 billion for Countrywide. Countrywide was levered 13-1 at the time of the acquisition. That means if the assets on Countrywide’s balance sheet (mostly loans) turned out to be worth 8% less than their book value at the time of the acquisition, you start into negative territory. Now, the servicing business is worth something. What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now. My point is that if you believe that BofA bought a bunch of loans at 2 (or 20) cents on the dollar, you don’t know a single thing about bank balance sheets and acquisitions. And less about the Countrywide acquisition.
[quote=ucodegen]
As far as MAC clauses are concerned, if you do proper due diligence in the first place – which wasn’t done in either case – then the MAC clause is irrelevant.
This is also incorrect. You are not necessarily allowed to see and audit the books of a company before you start acquisition. It is considered proprietary and inside info. There is a phase during acquisition that an independent auditor goes through the books after declaring the intent to acquire… a relative of mine used to do that type of auditing until about 4 years ago.[/quote]
What? The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced). Independent auditor? Huh? Look, I have no idea what you’re talking about. I’ve performed due diligence in over 20 proposed bank acquisitions. (Granted, MUCH MUCH smaller than Countrywide – to be clear.) It’s part of what I do for a living. You don’t hire an “independent auditor” to do the loan due diligence, you hire a “loan review firm” of your own choosing that answers to you, the acquirer.
I gotta tell ya… it seems pretty clear to me that you don’t have any idea whatsoever as to what you’re talking about. I’m sorry, but there’s no other way to put it.
October 1, 2009 at 7:41 PM #463323Participant[quote=ucodegen]
Countrywide – even with the servicing business – had negative value.
Incorrect, use DCF and you’ll see it. Also remember that BofA paid the like of $0.02 for $1.00 worth of SFR mortgages.. so guess how low the foreclosure price of the property could go before BofA really loses money? A discount of 50% on the price of the property will not bother BofA that much, since their price that they paid was an 80% discount.[/quote]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know). “BofA paid the like of $0.02 for $1.00 worth of SFR mortgages?” Huh? BofA paid $4.1 billion for Countrywide. Countrywide was levered 13-1 at the time of the acquisition. That means if the assets on Countrywide’s balance sheet (mostly loans) turned out to be worth 8% less than their book value at the time of the acquisition, you start into negative territory. Now, the servicing business is worth something. What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now. My point is that if you believe that BofA bought a bunch of loans at 2 (or 20) cents on the dollar, you don’t know a single thing about bank balance sheets and acquisitions. And less about the Countrywide acquisition.
[quote=ucodegen]
As far as MAC clauses are concerned, if you do proper due diligence in the first place – which wasn’t done in either case – then the MAC clause is irrelevant.
This is also incorrect. You are not necessarily allowed to see and audit the books of a company before you start acquisition. It is considered proprietary and inside info. There is a phase during acquisition that an independent auditor goes through the books after declaring the intent to acquire… a relative of mine used to do that type of auditing until about 4 years ago.[/quote]
What? The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced). Independent auditor? Huh? Look, I have no idea what you’re talking about. I’ve performed due diligence in over 20 proposed bank acquisitions. (Granted, MUCH MUCH smaller than Countrywide – to be clear.) It’s part of what I do for a living. You don’t hire an “independent auditor” to do the loan due diligence, you hire a “loan review firm” of your own choosing that answers to you, the acquirer.
I gotta tell ya… it seems pretty clear to me that you don’t have any idea whatsoever as to what you’re talking about. I’m sorry, but there’s no other way to put it.
October 1, 2009 at 7:41 PM #463529Participant[quote=ucodegen]
Countrywide – even with the servicing business – had negative value.
Incorrect, use DCF and you’ll see it. Also remember that BofA paid the like of $0.02 for $1.00 worth of SFR mortgages.. so guess how low the foreclosure price of the property could go before BofA really loses money? A discount of 50% on the price of the property will not bother BofA that much, since their price that they paid was an 80% discount.[/quote]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know). “BofA paid the like of $0.02 for $1.00 worth of SFR mortgages?” Huh? BofA paid $4.1 billion for Countrywide. Countrywide was levered 13-1 at the time of the acquisition. That means if the assets on Countrywide’s balance sheet (mostly loans) turned out to be worth 8% less than their book value at the time of the acquisition, you start into negative territory. Now, the servicing business is worth something. What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now. My point is that if you believe that BofA bought a bunch of loans at 2 (or 20) cents on the dollar, you don’t know a single thing about bank balance sheets and acquisitions. And less about the Countrywide acquisition.
[quote=ucodegen]
As far as MAC clauses are concerned, if you do proper due diligence in the first place – which wasn’t done in either case – then the MAC clause is irrelevant.
This is also incorrect. You are not necessarily allowed to see and audit the books of a company before you start acquisition. It is considered proprietary and inside info. There is a phase during acquisition that an independent auditor goes through the books after declaring the intent to acquire… a relative of mine used to do that type of auditing until about 4 years ago.[/quote]
What? The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced). Independent auditor? Huh? Look, I have no idea what you’re talking about. I’ve performed due diligence in over 20 proposed bank acquisitions. (Granted, MUCH MUCH smaller than Countrywide – to be clear.) It’s part of what I do for a living. You don’t hire an “independent auditor” to do the loan due diligence, you hire a “loan review firm” of your own choosing that answers to you, the acquirer.
I gotta tell ya… it seems pretty clear to me that you don’t have any idea whatsoever as to what you’re talking about. I’m sorry, but there’s no other way to put it.
October 1, 2009 at 9:09 PM #462733ucodegen
ParticipantUse DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized.
The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced).
My point exactly;
1) AFTER the acquisition process has started.
2) AFTER the transaction has been announced.
3) BEFORE the proposed closing date – for ‘material’ reasons.You may have done ‘due diligence’ on bank transactions, but I can virtually guarantee you that a final audit is completed BEFORE the proposed closing date, and part of the reason for the final audit is make sure there are no ‘material’ reasons… and what was seen during the diligence phase was what is really behind the books.
If you think I am insinuating that Merrill Lynch mis-represented their books during the due-diligence phase, you are damn right! That is what defines a ‘material’ reason! The audit differs from the articles presented during due-diligence… there is a ‘material’ discrepancy. If what was presented during due diligence was the same as what the auditors came up with, then the material clause could not be invoked.
October 1, 2009 at 9:09 PM #462927ParticipantUse DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized.
The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced).
My point exactly;
1) AFTER the acquisition process has started.
2) AFTER the transaction has been announced.
3) BEFORE the proposed closing date – for ‘material’ reasons.You may have done ‘due diligence’ on bank transactions, but I can virtually guarantee you that a final audit is completed BEFORE the proposed closing date, and part of the reason for the final audit is make sure there are no ‘material’ reasons… and what was seen during the diligence phase was what is really behind the books.
If you think I am insinuating that Merrill Lynch mis-represented their books during the due-diligence phase, you are damn right! That is what defines a ‘material’ reason! The audit differs from the articles presented during due-diligence… there is a ‘material’ discrepancy. If what was presented during due diligence was the same as what the auditors came up with, then the material clause could not be invoked.
October 1, 2009 at 9:09 PM #463271ParticipantUse DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized.
The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced).
My point exactly;
1) AFTER the acquisition process has started.
2) AFTER the transaction has been announced.
3) BEFORE the proposed closing date – for ‘material’ reasons.You may have done ‘due diligence’ on bank transactions, but I can virtually guarantee you that a final audit is completed BEFORE the proposed closing date, and part of the reason for the final audit is make sure there are no ‘material’ reasons… and what was seen during the diligence phase was what is really behind the books.
If you think I am insinuating that Merrill Lynch mis-represented their books during the due-diligence phase, you are damn right! That is what defines a ‘material’ reason! The audit differs from the articles presented during due-diligence… there is a ‘material’ discrepancy. If what was presented during due diligence was the same as what the auditors came up with, then the material clause could not be invoked.
October 1, 2009 at 9:09 PM #463343ParticipantUse DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized.
The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced).
My point exactly;
1) AFTER the acquisition process has started.
2) AFTER the transaction has been announced.
3) BEFORE the proposed closing date – for ‘material’ reasons.You may have done ‘due diligence’ on bank transactions, but I can virtually guarantee you that a final audit is completed BEFORE the proposed closing date, and part of the reason for the final audit is make sure there are no ‘material’ reasons… and what was seen during the diligence phase was what is really behind the books.
If you think I am insinuating that Merrill Lynch mis-represented their books during the due-diligence phase, you are damn right! That is what defines a ‘material’ reason! The audit differs from the articles presented during due-diligence… there is a ‘material’ discrepancy. If what was presented during due diligence was the same as what the auditors came up with, then the material clause could not be invoked.
October 1, 2009 at 9:09 PM #463549ParticipantUse DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized.
The MAC clause is invoked – if it’s invoked at all – AFTER the acquisition process has started, the transaction has been announced, and BEFORE the proposed closing date (because something “material” shows up after due diligence has been completed and the transaction has been announced).
My point exactly;
1) AFTER the acquisition process has started.
2) AFTER the transaction has been announced.
3) BEFORE the proposed closing date – for ‘material’ reasons.You may have done ‘due diligence’ on bank transactions, but I can virtually guarantee you that a final audit is completed BEFORE the proposed closing date, and part of the reason for the final audit is make sure there are no ‘material’ reasons… and what was seen during the diligence phase was what is really behind the books.
If you think I am insinuating that Merrill Lynch mis-represented their books during the due-diligence phase, you are damn right! That is what defines a ‘material’ reason! The audit differs from the articles presented during due-diligence… there is a ‘material’ discrepancy. If what was presented during due diligence was the same as what the auditors came up with, then the material clause could not be invoked.
October 1, 2009 at 9:47 PM #462748Participant[quote=ucodegen]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.[/quote]
OK, “bound” those cash flows and explain to me how there’s any equity left in a company that’s levered 13-1 in which the assets are worth less than 92% of their book value. Please show me the math as to how that works out. That’s a rhetorical request.
[quote=ucodegen]
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized. [/quote]
Servicing. Yeah, you just collect fees. It’s all candy and cake. Simplest business in the world. Do you know anyone who actually works in the serving industry? Servicing SUCKS right now. Why? Because servicing contracts are fixed fee contracts over long periods of time. When you’re collecting your 50 bps and delinquencies are 1%, yes, life is very good for servicers. When deliquencies are 5% and more and you have to hire a boatload more servicers to handle the extra workload – but you’re working on a fixed-fee contract – guess what? You’re losing money. And the only way to pretend that you’re making money is to revalue the servicing rights, which is just an accounting gimmick. One day servicing will be a decent business again. That day is a LONG way away.
I think there was some confusion regarding MAC clauses. I’ll assume that you understand that part, although your response in a previous post makes me wonder.
Countrywide was a horrible acquisition. BofA dramatically overpaid. I don’t know anyone in the business who doesn’t think so. Ken Lewis and a few sell-side shills are the only folks who are trying to spin Countrywide as a victory. Countrywide is one of the two reasons that Ken is being forced out. The second, and greater reason, is Merrill. That made a bad situation worse.
I’m not an expert on BofA. Then again, no one on the planet is, including the folks who work there. And that’s the problem. BofA is a giant black hole of risk that is unanalyzable. (Much like Merrill Lynch was. And how perfect… now they’re married.) No one can possibly understand that company enough to rationally invest money in it. Speculate? Absolutely. Invest? No way. Ask Warren Buffett… he’s only down 70% on his BofA position. In his defense, however, he purchased the stock before the Countrywide and Merrill acquisitions.
October 1, 2009 at 9:47 PM #462942Participant[quote=ucodegen]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.[/quote]
OK, “bound” those cash flows and explain to me how there’s any equity left in a company that’s levered 13-1 in which the assets are worth less than 92% of their book value. Please show me the math as to how that works out. That’s a rhetorical request.
[quote=ucodegen]
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized. [/quote]
Servicing. Yeah, you just collect fees. It’s all candy and cake. Simplest business in the world. Do you know anyone who actually works in the serving industry? Servicing SUCKS right now. Why? Because servicing contracts are fixed fee contracts over long periods of time. When you’re collecting your 50 bps and delinquencies are 1%, yes, life is very good for servicers. When deliquencies are 5% and more and you have to hire a boatload more servicers to handle the extra workload – but you’re working on a fixed-fee contract – guess what? You’re losing money. And the only way to pretend that you’re making money is to revalue the servicing rights, which is just an accounting gimmick. One day servicing will be a decent business again. That day is a LONG way away.
I think there was some confusion regarding MAC clauses. I’ll assume that you understand that part, although your response in a previous post makes me wonder.
Countrywide was a horrible acquisition. BofA dramatically overpaid. I don’t know anyone in the business who doesn’t think so. Ken Lewis and a few sell-side shills are the only folks who are trying to spin Countrywide as a victory. Countrywide is one of the two reasons that Ken is being forced out. The second, and greater reason, is Merrill. That made a bad situation worse.
I’m not an expert on BofA. Then again, no one on the planet is, including the folks who work there. And that’s the problem. BofA is a giant black hole of risk that is unanalyzable. (Much like Merrill Lynch was. And how perfect… now they’re married.) No one can possibly understand that company enough to rationally invest money in it. Speculate? Absolutely. Invest? No way. Ask Warren Buffett… he’s only down 70% on his BofA position. In his defense, however, he purchased the stock before the Countrywide and Merrill acquisitions.
October 1, 2009 at 9:47 PM #463286Participant[quote=ucodegen]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.[/quote]
OK, “bound” those cash flows and explain to me how there’s any equity left in a company that’s levered 13-1 in which the assets are worth less than 92% of their book value. Please show me the math as to how that works out. That’s a rhetorical request.
[quote=ucodegen]
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized. [/quote]
Servicing. Yeah, you just collect fees. It’s all candy and cake. Simplest business in the world. Do you know anyone who actually works in the serving industry? Servicing SUCKS right now. Why? Because servicing contracts are fixed fee contracts over long periods of time. When you’re collecting your 50 bps and delinquencies are 1%, yes, life is very good for servicers. When deliquencies are 5% and more and you have to hire a boatload more servicers to handle the extra workload – but you’re working on a fixed-fee contract – guess what? You’re losing money. And the only way to pretend that you’re making money is to revalue the servicing rights, which is just an accounting gimmick. One day servicing will be a decent business again. That day is a LONG way away.
I think there was some confusion regarding MAC clauses. I’ll assume that you understand that part, although your response in a previous post makes me wonder.
Countrywide was a horrible acquisition. BofA dramatically overpaid. I don’t know anyone in the business who doesn’t think so. Ken Lewis and a few sell-side shills are the only folks who are trying to spin Countrywide as a victory. Countrywide is one of the two reasons that Ken is being forced out. The second, and greater reason, is Merrill. That made a bad situation worse.
I’m not an expert on BofA. Then again, no one on the planet is, including the folks who work there. And that’s the problem. BofA is a giant black hole of risk that is unanalyzable. (Much like Merrill Lynch was. And how perfect… now they’re married.) No one can possibly understand that company enough to rationally invest money in it. Speculate? Absolutely. Invest? No way. Ask Warren Buffett… he’s only down 70% on his BofA position. In his defense, however, he purchased the stock before the Countrywide and Merrill acquisitions.
October 1, 2009 at 9:47 PM #463358Participant[quote=ucodegen]
Use DCF? Use DCF… yes, that’s a good idea but for the fact that… we don’t know yet what the CF (cash flow, that is) is going to be (although I’m sure BofA likes to pretend that they know).
You don’t know the exact cash flow on the loans, but you can bound them. You can’t predict the future 100%, but you can get an approximate idea, best worse case as well as probabilities of both.[/quote]
OK, “bound” those cash flows and explain to me how there’s any equity left in a company that’s levered 13-1 in which the assets are worth less than 92% of their book value. Please show me the math as to how that works out. That’s a rhetorical request.
[quote=ucodegen]
What, I don’t know… but not nearly as much as it used to be because SFR servicing is a money losing business right now.
No its not, it is probably the only winning business right now. You have virtually no liability and you collect fees on the passthrough. If you are servicing SFR mortgages, you don’t necessarily own them.. they are likely securitized. [/quote]
Servicing. Yeah, you just collect fees. It’s all candy and cake. Simplest business in the world. Do you know anyone who actually works in the serving industry? Servicing SUCKS right now. Why? Because servicing contracts are fixed fee contracts over long periods of time. When you’re collecting your 50 bps and delinquencies are 1%, yes, life is very good for servicers. When deliquencies are 5% and more and you have to hire a boatload more servicers to handle the extra workload – but you’re working on a fixed-fee contract – guess what? You’re losing money. And the only way to pretend that you’re making money is to revalue the servicing rights, which is just an accounting gimmick. One day servicing will be a decent business again. That day is a LONG way away.
I think there was some confusion regarding MAC clauses. I’ll assume that you understand that part, although your response in a previous post makes me wonder.
Countrywide was a horrible acquisition. BofA dramatically overpaid. I don’t know anyone in the business who doesn’t think so. Ken Lewis and a few sell-side shills are the only folks who are trying to spin Countrywide as a victory. Countrywide is one of the two reasons that Ken is being forced out. The second, and greater reason, is Merrill. That made a bad situation worse.
I’m not an expert on BofA. Then again, no one on the planet is, including the folks who work there. And that’s the problem. BofA is a giant black hole of risk that is unanalyzable. (Much like Merrill Lynch was. And how perfect… now they’re married.) No one can possibly understand that company enough to rationally invest money in it. Speculate? Absolutely. Invest? No way. Ask Warren Buffett… he’s only down 70% on his BofA position. In his defense, however, he purchased the stock before the Countrywide and Merrill acquisitions.
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