William Tanona (Goldman Sachs): In terms of the hedge ineffectiveness the last couple of quarters you have seen some hedge ineffectiveness on the ABS CDOs and even though you have written things down we have still seen the overall value increase after those write-downs because of the ineffectiveness, what exactly are you using to hedge that portfolio and is there maturities on those things and we have to start thinking about the gross exposure more and more as time goes on with that hedging?
John Thain: There are three kinds of hedges; there are the hedges with high credit quality counter parties like big insurance companies. I will use the gross side that number is about on the long side about $8 billion. Then they are the hedges with the mono lines which although some are better then other ones, the hedges still create the credit value adjustments. Then the third pieces there are some complicated structured hedges which is the main thing that became ineffective and the reason was because there was a complicated structured hedge that had a collateralization provision in it but the mark-to-market loss exceeded the collateral and so basically we do not get credit for it after that amount.
William Tanona (Goldman Sachs): What is the value of those complicated hedges?
John Thain: The easiest answer to that number is the $1.3 billion that we show in our table on exhibit six. That is what is causing the increase in the net exposure.
William Tanona (Goldman Sachs): You were a big underwriter in both cash and synthetic CDOs. What did you invest the underlying cash collateral in the synthetic CDOs and what type of instruments and how are those reported on the financial statements?
John Thain: I did not create any of these CDOs. It is specific on the deals because whenever there is one of the synthetics there will be a whole series of requirements as to what the collateral has to look like. In general, when you create a synthetic it will have a whole bunch of criteria about what the collateral has to look like, it had to satisfy a whole series of rating agency test, it had all diversification requirements in it and it is not going to be easy or not useful to answer your question generically because my guess is that it will be totally dependent on each individual security.
David Trone (Fox-Pitt, Kelton): You gave us the book value answer with respect to your 1Q08 comment. Could you tell us the carrying value on those two properties?
Nelson Chai: On Bloomberg and FDS it is effectively zero.
David Trone (Fox-Pitt, Kelton): How should we think about the tax treatment under the circumstances?
John Thain: We are not going to help you on the tax rate.
David Trone (Fox-Pitt, Kelton): What is the tangible equity?
Nelson Chai: It was zero on Bloomberg and it is about $500 million on FDS.
David Trone (Fox-Pitt, Kelton): On the auction rates, we have seen some other retail oriented institutions step up and help customers how do you think about that?
John Thain: We have been helping our customers. We have been helping them mostly by getting the issuers to refinance them. We started off with about 22 billion inside of our system. The last time I checked were we down to about 13 billion so we have already gotten over 40% of them refinanced. Everybody got all their money back. We are going to continue to do that.
David Trone (Fox-Pitt, Kelton): You mentioned on the commercial real estate sales you had no write-downs. Can you give more color on how that came to pass?
John Thain: They were good assets and we could sell them where we carried them.
Jeffery Harte (Sandler O’Neill): On the capital side, shortly after you announced your earnings Moody’s down graded your senior long-term debt, does that one notch down grade have some kind of an impact on the amount of collateral you will have to post?
John Thain: No, none. By the way they also made our ratings stable which was a good thing.
Jeffery Harte (Sandler O’Neill): What are you doing in the retail side to keep morale up when the stock prices coming down and losses are building?
John Thain: I have for instance a global town hall session tomorrow morning to answer questions for the entire employee base. Our employee base understands that these losses are all coming from legacy positions that the current management team and they had nothing to do with. The fact that our core franchise is so strong, the fact that we can earn $7.5 billion in revenues and almost $2 billion pre-tax that is what motivates them because that is what they are contributing and these legacy assets and legacy losses we have to deal with.
|
More:
