tag:blogger.com,1999:blog-30643134.post7793082330975693841..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: Sir, monolines coming into our sector!Accrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-30643134.post-74664442568018962642008-07-18T07:02:00.000-05:002008-07-18T07:02:00.000-05:00Yeah I wanted to get to the FSA investment portfol...Yeah I wanted to get to the FSA investment portfolio and haven't gotten to it. Obviously Dexia is trying to show they will fully support FSA without pledging any capital immediately.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-6769117800918068512008-07-17T19:26:00.000-05:002008-07-17T19:26:00.000-05:00You stated that FSA’s investment portfolio doesn’t...You stated that FSA’s investment portfolio doesn’t look rosy. Now that Dexia is providing FSA with a $5 billion line of credit shouldn’t that offset the weakness in the investment portfolio? Wouldn’t the line of credit ensure that FSA’s capital exceeds the amount necessary to maintain the rating agencies' AAA for now.Tony Towershttps://www.blogger.com/profile/06557074208330101375noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-65464705487529764512008-07-06T19:57:00.000-05:002008-07-06T19:57:00.000-05:00I'm with you on the "FSA failing" versus "talking ...I'm with you on the "FSA failing" versus "talking his way to a quick profit" front. I'm faily certain that Dexia neither implicitly nor implicitly guarantees FSA, and the ratings agencies probably demanded a very rigid separation beteen the FSA and Dexia credit. That said, Dexia is the banker to much of local government in France and Belgium, the monoline is an extension of this franchise (though FSA's European book is much smaller than its US one), and its failure strikes me, at least, as unlikely.Gringcorphttps://www.blogger.com/profile/09254777209701028458noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-31392193375404008992008-07-02T10:33:00.000-05:002008-07-02T10:33:00.000-05:00Actually thinking more about the Dexia vs. FSA arg...Actually thinking more about the Dexia vs. FSA argument... I can imagine a progression of logic like this...<BR/><BR/>1) I think Dexia is weak, but not close to failing.<BR/><BR/>2) The market may perceive Dexia as too big to fail, putting a limit on how far the CDS will widen.<BR/><BR/>3) Subsidiary FSA benefits from an implied backing from Dexia, which in reality is not absolute.<BR/><BR/>4) If Dexia were to sell FSA (to help raise capital) or else allow it to fall below AAA, the CDS would widen. <BR/><BR/>5) Therefore long FSA CDS is a better bet than long Dexia. <BR/><BR/>Now I don't follow Dexia closely, so I don't have an opinion about Dexia being weak or not. But if I did have that view, the short FSA starts making more sense. <BR/><BR/>My strong suspicion is that Ackman is really just talking his position, knowing that if he advances a half-way reasonable case against FSA the CDS will widen no matter what. That's why long FSA CDS makes more sense than long Dexia.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-16488922947299278982008-07-02T08:57:00.000-05:002008-07-02T08:57:00.000-05:00AI-That's a good point. But "cheaper" may not equ...AI-<BR/><BR/>That's a good point. But "cheaper" may not equal more profitable.<BR/><BR/>It's hard to discern why someone makes a trade, but I suspect it was "simpler" to have a go at FSA, even though it costs more.<BR/><BR/>Bill Ackman had to carry his shorts against Ambac/ MBIA for what, years?<BR/><BR/>He might be getting tired of that nonsense.<BR/><BR/>The point about FSA being a proxy for Dexia pivots not on whether Dex "will" support FSA, but "can" it do so, in my mind. To the extent he made an up and down analysis, that would be the critical point (to me).<BR/><BR/>Truly, it may have been cheaper and ultimately more profitable to go w/ Dexia, it just seems more complicated and drawn out.<BR/><BR/>FSA=Dexia is probably just a semantic argument that popped in my head, but, glad you challenged me on it b/c it forced me to think about why it was there in the first place.<BR/><BR/>Touche!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-65323365753555406302008-07-01T16:30:00.000-05:002008-07-01T16:30:00.000-05:00As Ackbar... err, I mean Ackman would undoubtedly ...As Ackbar... err, I mean Ackman would undoubtedly say, "It's a trap!"Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-44748514096579699792008-07-01T10:10:00.000-05:002008-07-01T10:10:00.000-05:00In addition to FSB, other FSA debentures are FSE a...In addition to FSB, other FSA debentures are FSE and FSF. All are rated AA by S&P and Aa2 by Moody's.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-42020175889658310862008-07-01T07:16:00.000-05:002008-07-01T07:16:00.000-05:00If he wanted to bet against Dexia, why not bet aga...If he wanted to bet against Dexia, why not bet against Dexia? CDS there is around 500bps tighter, so the bet is much cheaper.<BR/><BR/>He is implicitly betting that Dexia won't support FSA, because if they do, then obviously FSA and Dexia CDS should converge.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-3248678002893224492008-06-30T22:51:00.000-05:002008-06-30T22:51:00.000-05:00A position against FSA CDS is analogous to a bet a...A position against FSA CDS is analogous to a bet against Dexia, albeit tangentially so (and much simpler).<BR/><BR/>Ultimately, that's the analysis that determines this trade.<BR/><BR/>Whether Ackman took this perspective or simply wanted to 'flex' his new found muscles in market credibilty for a quick 200 basis points, no idea.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-11784749091180528622008-06-30T22:43:00.000-05:002008-06-30T22:43:00.000-05:00Ticker symbol on one of FSA's bonds is FSB.Ticker symbol on one of FSA's bonds is FSB.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-39933281606760661512008-06-30T14:28:00.000-05:002008-06-30T14:28:00.000-05:00Ackman's real argument is against the invesment po...Ackman's real argument is against the invesment portfolio... let's wait and see what your results are...<BR/><BR/>I still think Ackman is going to be wrong on his assertion (i.e. FSA going to default) but he'll make money (likely by exiting after spreads widen--assuming that's possible)...Sivaram Vhttps://www.blogger.com/profile/06361276466660862882noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-64347378879549052042008-06-30T11:54:00.000-05:002008-06-30T11:54:00.000-05:00Ackman's gains on his long FSA CDS position probab...Ackman's gains on his long FSA CDS position probably depended in part on how good his reading of Dexia's willingness to support FSA was. I don't think he needed a default to make some pretty good gains, though. Presumably this is what people are talking about when they complain about the CDS market being illiquid and less-than-transparent, though it's hardly Ackman's fault that monolines' books are not that well understood, and that he has such an ability to move his targets. I'm not sure whether anyone this side of Boone Pickens gets so much bang from talking their book.Gringcorphttps://www.blogger.com/profile/09254777209701028458noreply@blogger.com