Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Tuesday, July 29, 2008

More Shoes Drop in Financials

Merrill Lynch Announces Substantial Sale of U.S. ABS CDOs, Exposure Reduction of $11.1 Billion
As a result of the transactions announced today, the company expects to record a pre-tax write-down in the third quarter of 2008 of approximately $5.7 billion. This write-down is comprised of a $4.4 billion loss associated with the sale of CDOs, a $0.5 billion net loss on the termination of hedges with XL Capital Assurance and an approximately $0.8 billion maximum loss related to the potential settlement of other CDO hedges with certain monoline counterparties.

XX Sean's note -- you've got to be fracking kidding me. Merrill just reported earnings on the 17th, but at that time, did not disclose this $5.7 billion write-down. How is that possibly legal? Anyway, it's another shoe dropping in financials. Maybe we should ask the gang on CNBC if financials are a good buy now.

What's next? Well ...

Goldman Sachs cuts estimate on Washington Mutual
A Goldman Sachs Group Inc. analyst cut his full-year estimate on Washington Mutual Inc. on Monday, citing the thrift's "severe" credit challenges and expectations that the bank will remain unprofitable through 2009.

... Or ...

Wachovia Falls on Downgrade, CFO Exit
Wachovia dropped nearly 10% Friday after an analyst downgrade and news its CFO was leaving. Robert Patten of Morgan Keegan slapped a sell rating on the Charlotte, N.C.-based bank following its miserable second-quarter earnings results and concern that the company might have to raise more capital.

... Or ...

Fannie and Freddie: It's Worse Than You Think
Forget everything you've read about how woefully undercapitalized Fannie Mae and Freddie Mac are. The situation is much worse. Unlike other companies, the two government-chartered mortgage financiers publish quarterly fair-value balance sheets showing what the real-world values of their assets and liabilities supposedly are. By this measure, both companies' net- asset values are much lower than what the government lets them show as capital, or what the accounting rules let them report as shareholder equity.


Check out my new gold and energy blog at