Saturday, November 9, 2019

FT Alphaville's Markets Live: The Great Financial Crisis, Day 1

Continuing our look at some of the more memorable sessions in Markets Live's storied history.
PM is Paul Murphy, NH is Neil Hume

Markets live transcript 8 Sep 2008
Live markets commentary from
PM Hi there
PM Welcome to Markets Suspended.
PM As you can image, Alphaville HQ has been a picture of tranquillity this morning.
PM The only noteworthy things that have happened is that the US treasury has launched the biggest bailout in history and the London Stock Exchange is broken.
PM Neil and I are keeping out heads down. And we think some of the readers should as well.
NH You know that there’s a real chance that someone has come on here during one of our regular glitches – and then they’ve gone and traded on the SETS order book or something – and they’ve infected the WHOLE London stock exchange system.
PM random pic for you
NH some questions below about this morning's outage
NH including will there be an auction to get things going again
NH and when will that be
NH we don't know
NH but the LSE has set up an incident website
NH which suggests things could be getting going soon
connectivity will be enabled yet) All order book stocks have now been placed in a continuous auction phase and quote driven markets in a non mandatory period.
NH we are in an auction now
NH update on the incident site
NH Bryce has posted it below
NH FTSE 100 still being shown by the LSE as up 199.5 points at 5,440.2.
PM But you can use the City Index price to right here -- FTSE rooing bet quoted at 5492
PM that is effectively the Footsie future
PM Anyway, along with the rest of the market we have thrown our tin hats into the air this morning.
PM Celebrating the smashing news that the US government has had to put $100bn a piece behind each of Fannie Mac and Freddie Mae.
NH It’s the other way around.
PM What do you mean? How could they put anything behind the government? They’re bust.
NH NO – its Fannie Mae and Freddie Mac.
PM Fecked and Fooked , for short.
NH Oooooooh. Nice one.
PM oh, i dont know actually
NH going back to Fred and Fran
NH I think we should put up some research for the readers
NH who's done some good stuff??
PM I will start with Goldman Sachs
US Treasury places GSEs into conservatorship The US Treasury announced it has placed both Fannie Mae and Freddie Mac into conservatorship due to safety and soundness concerns. Specifically, the GSEs will suspend all dividends for existing common and preferred stock. The Treasury will also invest $1 billion upfront in senior preferred stock into each GSE with potentially further investments to cover future negative equity positions (from a GAAP standpoint). The Treasury has committed to covering negative equity positions with periodic senior preferred stock investments up to $100 billion per GSE. The senior preferred stock will be senior to all existing common and preferred stock, and carry a 10% coupon rate paid quarterly. In addition, the Treasury immediately receives warrants equivalent to a 79.9% ownership stake in each GSE going forward, and is entitled to a quarterly “fee” starting in 2010. The details regarding the fee are yet to be determined.....
And in a dandy little bit of ironic foreshadowing, considering what was to transpire one week later, they turn to another investment bank's thinking on Fannie and Freddie:
PM And Lehman
11:12 am
Investment Conclusion The Treasury and FHFA have decided to put both GSEs into conservatorship. The action was taken "after examining all options available, and determining that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection". The Treasury will own 79.9% of the each company through new warrants, and will buy senior preferred stock as needed to maintain GAAP equity ratios. Our preliminary estimate of the dilution to equity holders is shown in Figure 1. We roughly estimate the warrants would reduce estimated year end 2008 core common book value per share from $19 to $4 per share at Fannie Mae, and from $21 to $6 per share at Freddie Mac. We still estimate the companies will return to profitability in 2010, but now estimate 2010 EPS of only $0.23 for FNM and $0.53 for FRE. To account for the substantial dilution and risk to future dilution from additional regulatory action, we are cutting our price-targets for both stocks to $4 and downgrading to our rating to 2-Equal weight....

And more to come

FT Alphaville's Markets Live: The Great Financial Crisis, Day 0
FT Alphaville's Markets Live: The Fall Of Northern Rock
FT Alphaville's Markets Live: The Missing Early Transcripts