Friday, November 9, 2007

The Entity Is Getting Lawyered Up

But first, a bit of backround from the WSJ's MarketBeat blog:
(This is the straight scoopage, worth the price of admission)

...The truth about this CDO nonsense is that at this moment, the last thing the banks holding the paper want is the sudden appearance of an efficient market. Which is why the announcement from Standard & Poor’s that a CDO managed by State Street Global was being forced to liquidate its holdings should scare the heck out of them.

In a sense, what’s kept the lid on these losses is that nobody knows just what these various pieces of paper are worth, and many of the financial services firms held the paper in part because they felt the market would recover to a point that would satisfy whatever “mark to model” or “mark to myth” they were doing. After all, Merrill Lynch’s once-CEO Stan O’Neal
wouldn’t comment on the firm’s earnings conference call as to whether their CDO exposure had been marked down to a level that could “clear the market.” Because when no price exists, the price is whatever you want it to be — but if a liquidation has begun, investors can no longer can keep up the charade of paying no attention to the man behind the curtain, hence the desire by these big banks to create a presumably shape-shifting form that would eat up these assets without showing any details, sort of like the Blob. S&P said the trustee of the CDO, called Carina CDO, “has not informed us when the collateral will be liquidated, we believe the liquidation process has begun.” State Street is down 2.7% today, and it doesn’t even own assets in the CDO, it merely acts as a manager. –With Aparajita Saha-Bubna of Dow Jones Newswires

And from DealBreaker:

Rumors of the death of the Entity have been greatly exaggerated. They are bringing in the lawyers...

Top US securitisation practice Sidley Austin has secured a high-profile instruction to advise alongside rival Mayer Brown on the cutting-edge $80bn (£38bn) ‘superfund’ designed to restore confidence in the credit markets, as firms look to secure roles on the process.

The fund, created by Citi, Bank of America and JP Morgan Chase, was announced at the end of last month and aims to halt a further drop in market prices by offering to buy assets from structured investment vehicles (SIVs), helping them to avoid dumping securities.

Sidley edges in to advise on $80bn ‘superfund’ creation []