What Vintage Was That?

My last Merrill post until the next big writedown (or investigation / indictment):

The Merrill sale involved "U.S. super senior ABS CDO, the majority of which comprises older vintage collateral 2005 and earlier."

2 0 0 5 !

How many "Vintages" might we have left?  2 0 0 6,  2 0 0 7

I am curious as to how much more junk is throughout the financial system.


What Say Ye?

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What's been said:

Discussions found on the web:
  1. Barry Ritholtz commented on Jul 29

    I assume by collateral they mean mortgages, and not RMBS that went into the CDOs.

  2. Richard commented on Jul 29

    the answer is the same as how many licks does it take to get to the center of a tootsie roll pop? we have no idea how much garbage they’ve packaged, repackaged, priced, repriced, recategorized, resold. nothing would surprise me at this point.

  3. Marcus Aurelius commented on Jul 29

    If I had to quantify it, I’d say it’s at least a buttload.

  4. Marcus Aurelius commented on Jul 29

    If I had to quantify it, I’d say it’s at least a buttload.

  5. Marcus Aurelius commented on Jul 29

    If I had to quantify it, I’d say it’s at least a buttload.

  6. Marcus Aurelius commented on Jul 29

    If I had to quantify it, I’d say it’s at least a buttload.

  7. wayne brewster commented on Jul 29

    I understand that Merrill financed this effort to move these pigs off their Balance Sheet. Where did they get the Billions to do this? Seems to me they just put this junk, or the liability for it, back “on the books”? What am I missing?

  8. sammy commented on Jul 29

    where do you see it was of 2005 vintage.
    if true, then CDOs from later years are worthless

    BR: Its verbatim from the press release:

    “On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier.”

  9. MK15 commented on Jul 29

    The way that I read the following sentence from the linked article, it appears that the remaining $8.8 billion, not the assets sold, is from 2005 and earlier (implying that they sold the trashiest of the trash)

    “On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier.”

    BR: The lawyer in mean strips out the modifying clause, and looks at what the date is actually describing.

    A translation from inartful legal speak into English is: “This sale of vintage 2005 paper reduces Merrill Lynch’s CDO long exposure from $19.9 billion to $8.8 billion . . .”

  10. Dickeylee commented on Jul 29

    10 cents on the dollar seems to be the new bottom. Can’t wait for the Olympics to end, then things ought to start to get interesting!

  11. Bob Abouey commented on Jul 29

    Seriously, don’t you guys realize there is a woot off going on right now – isn’t that more important than another bank write down.

    And on reflection, maybe thats the creative solution Paulson / Bernanke really need to set up for these crappy CDOs. A big US financial market woot off, who knows what will be in the final bag of crap!

  12. Andy Tabbo commented on Jul 29


    I don’t really get into the “news” of the day…100% pure technical trader….SP500 bounced perfectly off of 61.8% retrace at 1235, in case you still don’t believe in technicals….

    BUT, I must say this….

    Bob “I only know what I hear” Pisani was reporting today that it was 2006 and later paper that they were dumping. He even pointed out that the older stuff they had should be performing better.

    Complete MISREPORTING. When I heard that from him….I even said to myself….”Well, that’s NOT HUGELY BEARISH…they dumped the most toxic stuff at $.22….OK.”

    But, shit. If this was 2005 and earlier….and they had to sell that shit at .22 with 75% loan….then WTF is up with the 2006 and newer garbage.

    Can’t wait for the commercial loan portfolios to start coming under some “contained stress.”

    Mervyns and Bennigan’s went tits up today….so that must be the bottom, right?

    Remember: in modern times, economic DEPRESSIONs usually begin with a real estate bust.

    – AT

  13. John commented on Jul 29

    MK 15:
    That was my reading of it too. They kept the stuff from 2005 and earlier which was perceived to be of higher quality before lending standards had been discarded completely.

  14. jhunt commented on Jul 29

    i’m not expert on CDOs and tranche jargon, but i thought ‘super senior’ was the ‘AAA’ rated tranche, the stuff that was supposedly so safe that they garned the great rating and that anyone (pension funds, 401ks, money markets, other investment vehicles that cant [knowingly] invest in super risky stuff) can buy. they sold THAT for 5 cents on the dollar? holy sheeeeet…

  15. dan p commented on Jul 29

    my read of the press release is that the “2005 and earlier” stuff is what they have left after the sale; it’s the vintage of what they sold that’s less clear

  16. Andy Tabbo commented on Jul 29

    Sorry for the earlier rant…just sort of disgusted with U.S. banks right now….

    As i read the press release, it seems impossible to know what was sold. They clearly kept 8bn of some 2005 and older stuff, but it’s supposedly hedged anyway….so they won’t gain from any upside if those loans are actually good.

    I’m guessing they “hedged” when things were really bad….

    So, basically, MER has realized probably 20-30bn in loss on “super senior” debt obligations that totaled about $40bn….freaking brilliant.

    – AT

  17. Jim commented on Jul 29

    The real news today is this. Looks like the cat got out of the bag a little early.

    SEC Extends Emergency Short-Sale Order Thru August 12Last update: 7/29/2008 9:27:08 PM
    By Judith Burns
    WASHINGTON (Dow Jones)–Emergency restrictions on short-sales in 17 Wall Street firms and housing-finance giants Fannie Mae (FNM) and Freddie Mac (FRE), due to expire just before midnight Tuesday, have been extended through August 12, the Securities and Exchange Commission announced. The SEC issued the emergency order on July 15, citing concerns that rumor-mongering could spark “sudden and excessive fluctuations” in stock prices and disrupt the fair and orderly functioning of U.S. markets. The SEC said once the order expires on August 12, it “will not be further extended.” If regulators want to continue the short-selling restrictions for the stocks, they would need to do so through rulemaking. The lengthy federal rulemaking process could be accelerated by issuing interim final rules that are effective immediately but still subject to public comment and possible revisions in the future. Expanding the restrictions to other stocks could be next…

  18. Noah commented on Jul 29

    Barry why do you ask such things. You know whats coming.

  19. Simon commented on Jul 29

    Just looking at the previous home sales chart new low levels now reached its possible to draw a trend line from 1982 to 1991 to 2008 and join the bottoms. 1991 to 2008 makes the current level a 17 year low. Thats pretty low.

    It is of course wise to consider all possible scenarios. Could this be the low point for house sales volume? What would the effect be of a recovery in volume and a stabilization in prices be for the troubled banks?

    Consider that house prices have been declining now for 3 years. The cost of building houses has not declined. Keep an eye on that inventory I say.

  20. bored commented on Jul 29

    I would speculate the remaining vintage was exchanged for some Federal Reserve alphabet soup.

  21. Wenzi commented on Jul 29

    The 2005 numbr I saw on Bloomberg. If the 2005’s are close to worthless, then 2006, 2007 will fare better for a while, on paper anyway.

    The toxic loans written in 2005 are resetting , and loss of equity value is hurting them from the peak in 2005.

    I think the 2006, 2007 vintages will in time be just as bad.

    I want to know more about their monoline XL Capital .

  22. sysin3 commented on Jul 29

    How much more junk ?

    uh, wild guess, all of it ?

    If you can’t sell it, you don’t need a CPA to tell you that the value is exactly $0.00

  23. mark mchugh commented on Jul 29


    How can you be asking “factonista” questions at a time like this? We just witnessed the greatest comeback since Lazarus! You don’t investigate or indict miracles, you rejoice. Only geeks ask questions like, “how much longer did he live after resurrection?”

    Alright, alright, maybe what we witnessed in the financials today was more like a zombie movie than a divine experience, but that’s not important either.

    I like to think of myself as a “zombie-half-alive” kind of guy.

  24. Bob Abouey commented on Jul 29

    Love you Barry, but reading the press release, you clearly misread – they are touting the fact that the majority of their remaining collateral is pre- 2005 vintage.

    “On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier.”

    Still, I think the better approach would have been cdo.woot.com – one day, one vintage, no returns!

    BR: Put aside my legal linguistical skills, and think about which years are resetting in great numbers and defaulting.

    The progression is chronological, and the earlier years go bad before the later years.

    Recall that both House prices and volume peaked in 2005…

  25. brion commented on Jul 29

    how much more junk is throughout the financial system?

    as bryan ferry might say…”more than this”

  26. Movie Guy commented on Jul 29

    We’ll know the answer in 3-5 years.

  27. easy$ commented on Jul 29

    Only about 5 trillion more to go, we need to force the theives and liars to come clean with the level 3 assets

    Then after they come clean with the level 3 assets we’ll reset just in time to get sunk with the alt A, option arm and commercial real estate mess.

    This will go on so long that most investors will either throw in the towel or they will get cleaned.

  28. anonymous commented on Jul 29

    Thain said there are no more write offs coming, and we all know he is always truthful. MER stock is up, new issue coming. Time to load up. BUY, BUY, BUY!

  29. johnnyvee commented on Jul 29

    “Vintage” It seems you almost know what you are talking about. There really are no 2007 Vintage. The wheels were already off the wagon by then and few toxic waste was being issued. The 2006 & 2005 Vintage will be going bad from now until next year. It depends on the product. But that is probably it. While some may argue that the housing is about half way to the bottom, this is no relief because it is always the bottom half that really really really hurts.

  30. Stuart commented on Jul 29

    It doesn’t matter. You saw the way MER was pumped today as a indication the bottom was in for financials. The only thing that matters is what the financial “gods” want you to believe… The more banks lose, the bigger the XLF rally. These are not free markets. At the helm of these markets, the drivers know what the results are, set their actions to counter what one rationally would think would occur, a big tank down. Financials are the untouchables now. Look at the efforts to delays the FASB rules over off-balance sheet assets and debt. Major effort now to defer this. Standard MO. If these fraudsters can’t win by following the rules, simple, change the rules. The new motto of the markets by the makers is simple. Lie, lie about everything. Lie about anything. sorry for the rant, but that’s just the way it is.

  31. Mr Mortgage commented on Jul 30

    In addition, 2005 were some of the best bubble year vintages. They got progressively worse in 2006-2007. This is because not only did underwriting standards weaken but house values continued to soar until 2007 meaning the 2005 vintages while still underwater contain collateral much closer to today’s values than 2006-2007…less negative equity.

  32. JP commented on Jul 30

    From the release:

    On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier.

    Parsing the above sentence:

    1. The exposure to super-senior debt is reduced by about $11B.

    2. the majority of the exposure for super-senior is 2005 and earlier

    3. the exposure to less than super-senior debt receives no comment, and might in fact be a whopper of a number.

    It is #3 that concerns me the most: because if they had to sweeten the pot with seller-financing at 22 cents per dollar for super-senior debt, then mere senior debt was damn near worthless.

  33. Ed commented on Jul 30

    Endgame may be checkmate though…it’s just a question about when the dust settles how much capital has been destroyed and at what point is it safe…the losses get taken, the market turns over its ownership and a bottom is created…so in a way all these things are putting a bottom in by the changing ownership- this is the key point I think….even ahead of the stock price or other asset’s putting lows in….the issue is WHEN? if you look at the $870bn in cdo’s created in 2007 alone and take an 80% haircut that’s nearly $700bn in losses…just for 2007 and just for cdo’s…there’s a lot of other bad assets out there and certainly ib’s are not the only holders too, but even so that doesn’t seem to say we should be expecting the end yet…even at 20c though or 10c more realistically there is value- basically you’re trading the underlying assets now assuming 80% default rates- you’re buying or selling houses in florida or stockton and paying 20c…hence for deep pockets some investments DO make sense, but given not only the ongoing pressure on these assets in the markets, credit problems and unremitting economic stress such activities appear extremely precipitous- and most acutely when considering that all of these discussions relate most directly to CAPITAL destruction and the fallout from such impairment but when considering DEBT and leverage levels which must eventually implode (check out the chart yesterday showing debt/gdp on naked capitalism)) the menace of a real bust-out casts a very wide shadow. Last if we think of Merrill, and the reasons for the capital raising and Temasek’s ongoing involvement- castigated by many as chasing good money after bad- in fact when viewed from a dilutive perspective they are maintaining their proportion of ownership- this is the critical point, and speaks to the changing ownership position mentioned above. Why would Thain come out so soon after releasing the terrible q2 results with more bad news, knowing the cost to his reputation and credibility and the firm if he didn’t HAVE to? If we assume these measures were forced, then the implications aren’t favorable. What did Merrill see, or what caused them to take such drastic action? I think the NAB story a couple days ago where they valued their CDO holdings at 10c – besides or because of the link with Merrill- was the real catalyst- if Merrill delayed and others beat them to the punch in calling the emperor out for not wearing anything the risks were greater of delay- in all ways (monetarily, reputationally, and opportunistically for example)…thus the relief today may not be relief when the markets realize that Merrill is simply early to the table at the second round of devaluations perhaps… E.W.L.

  34. Steve Barry commented on Jul 30

    So Case Shiller came out today…record annual drops. Yet on Kudlow, they tried to say month to month drop is slowing. Seems that, if they had their wish, the national price index would stabilize here…around 70% above LT inflation adjusted average price. Is it more pathetic or more idiotic to try to stabilize housing here?

  35. Eric commented on Jul 30

    Barry, do you mean to suggest that there is a deep, murky mess in our financial system caused by an incompetent government, an irresponsible Fed and reckless Wall Street shenanigans — and that the full ramifications of the mess are not yet known?

  36. Mike in NOLa commented on Jul 30

    You know you’re bad when you hit the Cramer hall of shame:

    “Cramer also took a moment to add Merrill Lynch CEO John Thain to the Mad Money Wall of Shame. Since taking the helm at MER, Thain’s been less than straight with investors, Cramer said, and the CEO was just as untrustworthy while at NYSE Euronext.”

  37. Hank Jestor commented on Jul 30

    What I want to know is where are the Junior Traunch write downs from hedge funds and whoever else was stupid enough(greedy) to purchase them. If the Super Seniors have taken this type of hit….the juniors get nothing.

  38. Wayne commented on Jul 30

    The MAJORITY of the $8.8 Billion is 2005 or earlier – does not rule out that $4.3 Billion could be from 06 & 07 – there’s another $4 billion to write down…….

  39. VennData commented on Jul 30

    Lone Star might not have wanted the 2006-plus since there’s more data for the older tranches, therefore they can justify their analysis.

    The timing of sales is what we’re learning here. So in summer of 2009 they’ll be able to price 2006, 2010 they’ll price 2007, etc.

    I don’t think this means per se that newer vintages would be worse, unless we had an inkling – we do – that the underwriting deteriorated over time.

    Bottom-callers need to realize there is a statistical component to this that they can not talk away – not to be confused with “walk away.”

  40. Greg0658 commented on Jul 30

    point to facts (again, u know this stuff)
    1>loans are generated to buy a real thing
    2>value of thing (post this period) depends on the thing
    3>your claim to this thing depends on if your stay in the fund
    4>your claim to the things profits is reduced by the wages of the fund holding the thing
    5>your claim to the thing profits is reduced by the leagl proceedings of the other claimants to partial holdings of the thing
    6>your profit extraction from that thing above depends on a buyer of this Scene in the future

    best wishes
    to many people making to many problems
    Disaster Capitalism is a sin
    best wishes (what a mess)

  41. jc commented on Jul 30

    I’d love to know the terms of the Texas loan, if it’s a below mkt (ML subsidized)rate then the sale is actually less than the stated price. I bet both the texas and Bloomberg sales were sweetened with low subsidized rates to save a little ML face.

  42. Joe Baressi commented on Jul 30

    It is very difficult to say what portion of the debt is junk.

    As real estate prices fall, an ever-increasing portion of mortgages become “underwater,” i.e., the outstanding mortgage balance is greater than the value of the underlying collateral.

    In such situations, more and more homeowners, or commercial real estate owners, have an “incentive” to stop making their mortgage payments.

    And so, more and more of the debt becomes “junk” over time.

  43. JC commented on Jul 30

    Until and unless ML provides a table of remaining CDOs/Mortgage backed securities showing the vintages, the nominal and the current book values then anybody buying MER is buying a pig in a poke.

  44. JC commented on Jul 30

    How can mortgage backed securities be worth only 5-22% of any vintage? Home values in some areas are off 20-30 maybe 40% from peak in some areas but not 80-95%.

    The Texas group prides itself on foreclosures (and presumably evictions)if you look at their website.

    There have been articles written about double counting of mortgages and inability of banks to prove ownership, “perfect” the title. I think that must be a big part of the valuation collapse in these bundles.

    I think a lot of these defaulting homeowners will end up with free houses if they hold their ground and say “prove it fucko”!

  45. JC commented on Jul 30

    Texas pays 5%-22% of nominal value to ML for primo mortgage bundles and FHA pays 85% of current appraised value.Is everybody on the same planet?

  46. Charles McChesney commented on Jul 30

    Something I have not seen discussed is how far underwater a mortgage need to be to have the mortgagee default?

    It seems to me the idea of default or ceasing to pay an underwater mortgage is assumed by the pundits to happen at the instant the home is worth less than the balance owed on the mortgage. However, we are dealing with human beings, who are known to NOT act rationally. So if the homeowner is really living in the home, wants to avoid the stigma and hassle of bankruptcy and avoid the annoyance and effort involved in relocating to a rental dwelling, then there is an economic barrier to throwing in the towel and giving up on paying for the home he is living in, assuming he can afford to make the payments. My guess is that the level where the continued payment on a mortgage becomes hopeless is when the home value declines to 75-80% of the mortgage principal amount. After all, the homeowner is probably not planning to move for 3-5 years and the property could recover much of its value in that time period. The mortgage principal will also decrease somewhat in the ensuing time period.

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