Level 3

Level two and three assets on the rise

Jim Kim — Wed, 19 Nov 2008 11:17:18 -0500

Financial Week reports that top banks are reporting a rise in level three assets. Which just might presage another round of bitter valuation haircuts. Citi, for example, has said that level three assets, at the end of September, were $157 billion up from about $133 billion at the end of last year. JPMorgan Chase reported $119 billion in level three assets, compared with $71 billion at the end of 2007. Level two assets are also on the rise and all this means the fair value debate will be crackling for a while longer. One analyst was quoted: "We're living in a 2.5 world." The decision by Treasury not to use TARP funds to buy securities plays into this situation. So the best hope may be vulture-like funds, but who knows how much toxic stuff they'll swallow.

For more:
- here's the Financial Week article
- here's some background from FierceSarbox

Level three assets to rise?

Jim Kim — Fri, 07 Nov 2008 13:10:01 -0500

Once banks started writing off lots of toxic debt, some thought we'd see a significant decline in level three assets, but that may not necessarily materialize as a trend. JPMorgan said in an SEC filing, for example, that its level three assets are on the rise. The increase reflected transfer of CLOs backed by illiquid debt and issues related to the WaMu deal. the good news is that there were some big offsets in the form of $15.8 billion of sales and markdowns of residential mortgages, leveraged loans and transfers of leveraged loans to level two status. But there were some ominous signs in the release, notably indications that defaults on consumer debt (including home equity and credit card debts) are likely to increase, the Financial Times notes. The charge off rate, 5 percent now, may hit 7 percent by the end of 2009.

For more:
- here's the Financial Times item

Is fair-value accounting just?

Jim Kim — Thu, 26 Jun 2008 14:35:52 -0400

In the wake of the Enron crisis, "fair-value accounting" seemed like a good idea. It was designed to create reporting uniformity and make it harder to play games. But it's turning out poorly for Wall Street in the on-going credit crunch. "Rather than making things clearer, the fair-value accounting rules only point to the futility of pricing assets every day in highly volatile markets when the credit markets are frozen solid," Forbes reports. All the while, the problem of risky assets continues to mount. Wall Street still has not fully dealt with Level 3 assets. But you have to ask: What is the alternative? Can we afford to go back in time? The SEC will convene at a conference on this vexing issue July 9. For now, the pain--and possibly more writedowns--will continue.

For more:
- here's the Forbes article

Is Thain setting himself up?

Mon, 12 May 2008 06:59:54 -0400

John Thain has not been shy about telling the world that Merrill Lynch is well-capitalized and will not be raising funds anytime soon. At least one money manager, via Seeking Alpha, thinks this is a mistake. It would be better to hedge your bets, especially when your level 3 assets are creeping higher, when you just posted a big loss and when everyone thinks the next few quarters will be tough. I have argued that Thain has generally been good for Merrill Lynch, and he's received some decent press. But it's fair to say that the firm is not out of the woods yet. We'll see how it plays out. If Merrill Lynch does end up raising capital, there will be some I-told-you-so's passed around.

For more:
- here's the Seeking Alpha article

ALSO NOTED: More on Merrill Lynch's level 3 assets; JPMorgan to build energy business with Bear assets; and much more...

Fri, 09 May 2008 06:59:50 -0400

Company News:
> More on Merrill's level 3 assets. Article
> JPMorgan to build energy business with Bear assets. Article
> Why Fannie rallied. Article
> Nasdaq earnings soar thanks to OMX buyout. Article
> Vote on Bear Stearns sale nearing. Article
> Credit Suisse analyst upgrades Wachovia. Article
> AIG Posts huge loss, will raise capital. Article

Industry News:
> Abu Dhabi bank invests in Malaysian lender. Article

And Finally... Mother's Day in touch economic times. Article

ALSO NOTED: Mayo: Lehman still under some pressure; Citigroup forms alternatives group; and much more...

Wed, 07 May 2008 06:59:50 -0400

Company News:
> When to bail on a money manager. Article
> Amex to slash staff? Article
> Citigroup forms alternatives group. Article
> Legg Mason joins crowd, will raise $1 billion. Article
> Wachovia's loss doubles. Article
> State Street office in Poland could employ 1,000. Article
> Mayo: Lehman still under some pressure. Article
> NYSE profits triple. Article
> Level 3 assets at Merill rise. Article

Industry News:
> Oil prices blast higher. Article

Regulatory News:
> Mortgage probe intensifies. Article
> Merrill cooperating with auction rate probe. Article

And Finally... 10 ways to avoid travel cancellation fees. Article

ALSO NOTED: Merrill to return to profitability soon?; Rising level 3 assets to explode at top banks?; and much more...

Tue, 22 Apr 2008 06:59:50 -0400

Company News:
> Goldman Sachs underwriting for RBS. Article
> National City to raise $7 billion. Article
> Union calls for Citi break up. Article
> J.C. Flowers drops Provident bid. Article
> Analysts bearish on MF Global. Article
> Jefferies misses estimates, sells shares. Article
> Citigroup analyst: Merrill to return to profitability soon. Article

Industry News:
> PR news: Wall Street Journal editor expected to resign. Article
> Rising level 3 assets to explode at top banks? Article
> PE firms eyeing financial services. Article
> Trader snap up puts on top banks. Article

And Finally... A teacher's lessons for business execs. Article

Goldman Sachs'level 3 capital rises

Thu, 10 Apr 2008 06:59:58 -0400

Is this an omen? Goldman Sachs, which has weathered the storm as well as any bank, has reported a big rise in its Level 3 assets. The AP notes such assets rose to $82.32 billion in the first quarter from $54.71 billion at the end of the fourth quarter. It accounted for 11 percent of total assets in the first quarter, compared with 8 percent in the fourth quarter. Asset-backed securities accounted for much of the rise. Other banks also saw such assets increase, but not as much. So what to make of all this? Well, this doesn't mean the assets are at risk of being written down. But at some point, you would hope they would rise in value. If the markets re-inflate a bit, the bank might find itself in an enviable position.

For more:
- here's the AP article

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A turning point? Editor's Corner
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