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Finding $13m on the floor
Jan. 12th, 2008 02:07 pmI haven't been able to find a mention of this on 2+2, which puzzles me (then again, life's too short to really look that hard). Here is part of a regulatory statement released by Neteller yesterday:
So, there's $13m sitting in a trust that, if it isn't claimed by the end of January, becomes, I guess, some kind of orphan asset. That's about 16% of the total funds.
One can hypothesize various reasons why some of this cash might not have been claimed (an eagerness to avoid the attentions of the IRS being one of them), but it's still surprisingly high.
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Continuing the financial theme, I see that a nationalization of Northern Rock (as propounded by several of the worthy contributors to this blog -- including me -- on the grounds that everything else was worse) is looking increasingly likely, with a statement due next week from Alistair "Leave It To The Last Minute" Darling. Lex in this morning's FT comes up with a slightly new angle on this that neatly sums up the situation. Northern Rock's mortgage book is yielding 6%. No-one in the world (apart from governments) at the moment would lend to Northern Rock at 6%. Not even the Bank of England. Conclusion: there is no business model unless things are liikely to change.
Nationalization contains the implicit assumption that things are irredeemably bad at the moment but that, at some time in the future, things are likely to change.
However, Lex also spotted something that I had missed when discussing the Northern Rock share price. Although the equity is "worth" fuck-all, there are political factors at stake. One being that the hedge funds that have bought Northern Rock shares at an overvalued price can, in effect, hold a gun to the government's head over this and can demand an even more overvalued price when the government buys the equity from them. "To avoid litigation, the state might have to pay a premium to shareholders, whose equity is worth just 0.3% of assets" Cunning stunts from the hedge funds guys here and I take my hat off to them. As Lex goes on to say, "Distasteful and regrettable as that may be, it is also the grown-up choice".
In other words, paying off the hedge fund investors at a cost of less than £100m is cheap in the context of a bank with £100bn in assets and a desire to avoid a legal process that would drag lots of players (including the government) through the public mud.
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All of this is just a fucking raindrop in the global monsoon. In four years it will be possible to buy an apartment in Las Vegas for little more than an average week's winings online if multi-tabling at $600 buy-in NL. Anyone who thought that the Las Vegas property market was a one-way blue-sky ticket is either looking rather silly or very broke at the moment. I await the news that Tom McEvoy got into property right at the top.
The "real" news is that Citibank, which has already sold off $7.5bn of itself to Dubai (lucky that the US is keeping out of the hands of anything Arab-related ... eh?) is now going to sell of $9bn of itself to China and another $5bn to the Kuwait Investment Authority and others. George Bush gave a speech last night on how history will say that the US were the winners in the war in Iraq. He made no mention of the Citibank situation.
The subprime fuck-up is bad news for the dollar because it gives Chinese money somewhere else to go apart from T-Bonds. And the interest rate is a lot higher. For 25 years the US has been borrowing money at a low interest rate simply by using the printing presses. Now it is selling itself off, and the pound of flesh will be more like a kilo.
Meanwhile, Bank Of America (which is actually mainly the old Nationsbank), which "rescued" Countrywide Mortgage with a cash injection a few months ago, has seen the value of that investment fall by 70%. So, what does it do? It buys the whole company. Not quite what the guy who liked Remington would have done, I suspect.
As I've said before, there will be big winners out of this as well as big losers. Conservative companies during the times when credit spreads were minimal looked staid at the time, but look less so now. Anyone or anything or any institution that is cash rich, in a business that generates lots of free cashflow in bad times as well as good, should be clapping their hands with glee. Financial institutions might have to retrench, meaning that their yield will have to fall, but that doesn't make them worthless. Only a few institutions (the ones that relied solely on the credit markets for their funding) are up shit creek without a business model. If you can get money into Citibank on an 11% coupon (or get hold of the equity on an expected 11% pa yield over, say, 20 years), then you are going to look back on 2006/07 (and possibly 08) as one of the great times in history. "Man, they were just giving it away....".
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As part of the arrangements with the USAO, the Group implemented the
Distribution Plan to return approximately US$ 94 million of funds owed to US
customers. The Group has to date repaid approximately US$ 81 million of this amount.
So, there's $13m sitting in a trust that, if it isn't claimed by the end of January, becomes, I guess, some kind of orphan asset. That's about 16% of the total funds.
One can hypothesize various reasons why some of this cash might not have been claimed (an eagerness to avoid the attentions of the IRS being one of them), but it's still surprisingly high.
++++++++
Continuing the financial theme, I see that a nationalization of Northern Rock (as propounded by several of the worthy contributors to this blog -- including me -- on the grounds that everything else was worse) is looking increasingly likely, with a statement due next week from Alistair "Leave It To The Last Minute" Darling. Lex in this morning's FT comes up with a slightly new angle on this that neatly sums up the situation. Northern Rock's mortgage book is yielding 6%. No-one in the world (apart from governments) at the moment would lend to Northern Rock at 6%. Not even the Bank of England. Conclusion: there is no business model unless things are liikely to change.
Nationalization contains the implicit assumption that things are irredeemably bad at the moment but that, at some time in the future, things are likely to change.
However, Lex also spotted something that I had missed when discussing the Northern Rock share price. Although the equity is "worth" fuck-all, there are political factors at stake. One being that the hedge funds that have bought Northern Rock shares at an overvalued price can, in effect, hold a gun to the government's head over this and can demand an even more overvalued price when the government buys the equity from them. "To avoid litigation, the state might have to pay a premium to shareholders, whose equity is worth just 0.3% of assets" Cunning stunts from the hedge funds guys here and I take my hat off to them. As Lex goes on to say, "Distasteful and regrettable as that may be, it is also the grown-up choice".
In other words, paying off the hedge fund investors at a cost of less than £100m is cheap in the context of a bank with £100bn in assets and a desire to avoid a legal process that would drag lots of players (including the government) through the public mud.
++++++++
All of this is just a fucking raindrop in the global monsoon. In four years it will be possible to buy an apartment in Las Vegas for little more than an average week's winings online if multi-tabling at $600 buy-in NL. Anyone who thought that the Las Vegas property market was a one-way blue-sky ticket is either looking rather silly or very broke at the moment. I await the news that Tom McEvoy got into property right at the top.
The "real" news is that Citibank, which has already sold off $7.5bn of itself to Dubai (lucky that the US is keeping out of the hands of anything Arab-related ... eh?) is now going to sell of $9bn of itself to China and another $5bn to the Kuwait Investment Authority and others. George Bush gave a speech last night on how history will say that the US were the winners in the war in Iraq. He made no mention of the Citibank situation.
The subprime fuck-up is bad news for the dollar because it gives Chinese money somewhere else to go apart from T-Bonds. And the interest rate is a lot higher. For 25 years the US has been borrowing money at a low interest rate simply by using the printing presses. Now it is selling itself off, and the pound of flesh will be more like a kilo.
Meanwhile, Bank Of America (which is actually mainly the old Nationsbank), which "rescued" Countrywide Mortgage with a cash injection a few months ago, has seen the value of that investment fall by 70%. So, what does it do? It buys the whole company. Not quite what the guy who liked Remington would have done, I suspect.
As I've said before, there will be big winners out of this as well as big losers. Conservative companies during the times when credit spreads were minimal looked staid at the time, but look less so now. Anyone or anything or any institution that is cash rich, in a business that generates lots of free cashflow in bad times as well as good, should be clapping their hands with glee. Financial institutions might have to retrench, meaning that their yield will have to fall, but that doesn't make them worthless. Only a few institutions (the ones that relied solely on the credit markets for their funding) are up shit creek without a business model. If you can get money into Citibank on an 11% coupon (or get hold of the equity on an expected 11% pa yield over, say, 20 years), then you are going to look back on 2006/07 (and possibly 08) as one of the great times in history. "Man, they were just giving it away....".
++++++++
