David Viniar: That’s a complicated question to answer because it depends on exactly what the rules were. There are parts of the bank holding company regulations that include things like how many of your assets, what percentage you have to lend into your local community and so if it totally changed our business model then it might change things a lot. If it didn’t and it was just a question of having deposits using some of it to do certain things but largely operating the business the way we operate it today, I don’t think it would change things very much.
Meredith Whitney (Oppenheimer): When you look at the company’s ability to raise capital in the equity market significantly diminished and now more assets being put on the market to raise capital, does that change what you had anticipated in terms of capitulation sales?
David Viniar: Not really. They’ve still been slower than we thought. We thought that we would have seen more troubled assets for sale than we have seen. I don’t think anything has changed there.
Guy Moszkowski (Merrill Lynch): How has the CMBS exposure evolved in the quarter?
David Viniar: Our total commercial real estate exposure was $16.6 billion at the end of the second quarter, $14.7 billion at the end of the third quarter. If you take out CMBS which are more trading assets, you were $15.2 billion at the end of the second quarter and $12.4 billion at the end of the third quarter and the great majority of those reductions were sales. You heard what the losses were; now those were net, there were some gains on some of the hedges but the majority of those reductions were sales.
Guy Moszkowski (Merrill Lynch): There was a comment in the press release about how in credit products you had weak negative investment results. Can you comment on that?
David Viniar: It was not in the principal investments; we will do a variety of things including sometimes buying distressed debt for which you get equity when companies recover. Sometimes we’ll actually make small equity investments because given the size of companies, you’ll invest all across a capital structure but quite often sometimes these distressed investments or these small investments will turn into equity and then its still within our credit business because that’s how its managed given the size of the companies and sometimes whether they’re private or public, sometimes they’ll go public after you make that investment and you get equity and then we just mark it to market and sometimes even in private form we mark them to market.
Hence it’s those investments within the credit business that start off smaller and sometimes get big and that’s a good thing that didn’t do well as asset values declined and it’s all within the credit business.
Guy Moszkowski (Merrill Lynch): The level three assets came down by $9 billion or $10 billion depending on which particular measure you used. Confirm that most of that is just a reduction in leverage finance?
David Viniar: That was part of it and it was other types of leverage—level three assets as well but the leverage finance assets were the biggest driver of that.
Analyst (Morgan Stanley): Excluding the limitations on using the deposit base in the US to help fund the broker, are there some opportunities in Europe to grow the deposits to help with some long-term funding for the broker?
David Viniar: There are different rules in Europe than in the United States. We have a bank in the United States, it has mid-$20 billion type of deposits which makes it like the 50th largest bank in the United States. We have a bank in Ireland that has about $10 billion of deposit we use. Thus we have them and we use them; it’s just now our basic business model. There are some advantages, we have some of them and we use them where we can but it doesn’t fit with most of our business model.
Mike Mayo (Deutsche Bank): You increased headcount by 3% this quarter. Are there any changes in overall staffing?
David Viniar: We increased it by about 3% in the quarter. We will be up on the year if you exclude the acquisition of Litton, very low single-digits, a couple of percent and as far as next year, we’re literally going through the budgeting process right now and trying to figure out what we should do.
Mike Mayo (Deutsche Bank): There is a discussion about joining up with a bank at some point given the roles the way they stand today. Would it be extremely unlikely that you would join up with a bank?
David Viniar: We think that the business model that we have right now is working quite well and that our performance is good. We think it is not about the model but it is about the performance of the company and the model that we are in has helped us and allowed us to perform as well as we have and we’d like to continue that.
Roger Freeman (Lehman Brothers): Can you tell us what the structured debt marks were in the quarter?
David Viniar: They were gains and they were less then $200 million, somewhere in the range of $175 million.
Roger Freeman (Lehman Brothers): Can you give us average marks on Alt-A and commercial?
David Viniar: On Alt-A, the weighted average mark at the end of the quarter was around 50.
Doug Sipkin (Wachovia): It’s an incredibly challenging environment, like nothing we’ve ever seen but moving along to other pieces of the business, do you get the sense that that’s going to start to show up with all this capacity coming out all the way down to even underwriting where there’s going to start to be more pricing power with the remaining firms?
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