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whodat broker?
generic, i called scottrade and he said that the stock price would be zero in price and amount. and the "stock" would be done but in my account there is a stock amount with an "#" after it as citbq. he said this is the place holder for the shares that are pending to cvr's. he did not know the price or time frame the cvr's are appended to. he said i needn't do anything. that when the time comes cit will inform the cvr holders of the change and the stock that is showing in the account will then be changed pending the change in circumstance whether it be payout, total cancellation, or percentage of common stock given. they were pretty clueless. i still dont know what price we have to hit to trigger the cvr's and if it has to trade at that price for the whole 60 days or once it hits the trigger price then it converts for us. do you know?
Morons sent boilerplate reply to my CITBQ question. I'm not holding any CITGQ.
On 12/11/09 1:42 PM Message Center Client Services wrote:
Thank you for your inquiry. The company CIT GROUP INC is exiting bankruptcy as the creditors to the company have accepted the company's plan of reorganization and the company has emerged from bankruptcy effective 12/11/2009. According to a press release from the company, the Company¿s existing common and preferred stock, along with all non-reinstated debt, will be canceled effective upon consummation of the Plan. While we have not yet received an official indication, it is not expected that common shareholders of CIT GROUP INC (CITGQ) will receive a distribution as part of this emergence from bankruptcy. For further inquiry, we recommend contacting the investor relations department of the company at 1-866-54CITIR (542-4847) or investor.relations@cit.com.
Sincerely,
Derek Whitehill
Apex Reorganization and Safekeeping, TD AMERITRADE
Division of TD AMERITRADE, Inc.
your scenario isn't good because
it is very possible there will have 600 millions shares Total
so 45 $ will make the total at 27 billions dollars for CIT
71 $ 42 billions dollars for cit
so the CVR work differently but i don't understand how that work
but if there is total 600 millions shares we are already at
close to 18 billions dollars so CVR get value since 11 billions
but for which total of share ?
actually 200 millions but ihub say 400 millions shares and i have seen very possible 600 millions
so for the CVR it can't be 71 $ with 600 millions shares
sorry I'm not a tax expert. i couldn't even guess.
the citbq shares were extinquished. so can we show this stock as a loss? it does not show up in my gainskeeper at all. i know we get cvr's. but the initial investment should be a writeoff right?
Note: Today's SEC filing doesn't say the preferreds were "cancelled"
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 15
CERTIFICATION AND NOTICE OF TERMINATION OF REGISTRATION UNDER
SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR SUSPENSION OF
DUTY TO FILE REPORTS UNDER SECTIONS 13 AND 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 001-31369
CIT GROUP INC.
(Exact name of registrant as specified in its charter)
505 Fifth Avenue
New York, New York 10017
(212) 771-0505
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Common Stock, par value $0.01 per share (See Note 1 Below)
6.350% Non-Cumulative Preferred Stock, Series A
Non-Cumulative Preferred Stock, Series B
8.75% Non-Cumulative Perpetual Convertible Preferred Stock, Series C
Equity Units
(Title of each class of securities covered by this Form)
Common Stock, par value $0.01 per share (See Note 2 Below)
(Titles of all other classes of securities for which a duty to file reports under section 13(a) or 15(d) remains)
Please place an X in the box(es) to designate the appropriate rule provision(s) relied upon to terminate or suspend the duty to file reports:
Rule 12g-4(a)(1) x
Rule 12g-4(a)(2) o
Rule 12h-3(b)(1)(i) x
Rule 12h-3(b)(1)(ii) o
Rule 15d-6 o
Approximate number of holders of record as of the certification or notice date: None
Note 1: This certification and notice relates to Common Stock originally registered on Form 8-A, filed on June 26, 2002, and subsequently registered from time to time prior to December 8, 2009, CUSIP No. 125581108 (the “Old Common Stock”). On December 8, 2009, the United States Bankruptcy Court for the Southern District of New York confirmed the Modified Second
Amended Prepackaged Plan of Reorganization of CIT Group Inc. (the “Company”) and CIT Group Funding Company of Delaware LLC (the “Prepackaged Plan”). As of the effective time of the Prepackaged Plan, the Old Common Stock was canceled.
Note 2: Common Stock registered on Form 8-A filed December 9, 2009, CUSIP No. 125581801 (the “New Common Stock”). The New Common Stock was authorized pursuant to the Third Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on December 8, 2009.
Pursuant to the requirements of the Securities Exchange Act of 1934 CIT GROUP INC. has caused this certification/notice to be signed on its behalf by the undersigned duly authorized person.
Date: December 10, 2009 By: /s/ James P. Shanahan
Name: James P. Shanahan
Title: Senior Vice President & Chief Compliance Officer
http://www.sec.gov/Archives/edgar/data/1171825/000095012309069765/y02707ge15v12g.htm
I'm not bright enough to understand all the details there, but at the moment, it might be important to let your broker know that you have a preferred stock in your account that has been on the Daily List as "Deleted" -- it can be reinstated, if there is only an error -- it may not be today.
But the important thing is that your broker does not wipe the position from your account. Make sure you have a record of contacting them.
I'm sure there are bigger fish dealing with their back office staff to sort all that out, but a the retail level, he who yells loudest gets the most attention...
EVERYONE should email their broker, IMO.
I hit upon the price 28 $. With the rest I'm not that optimistic, this is like the bankruptcy of Conseco in 2003. It seems ICANH got Cit and that has made free.
- $45 before senior CVRs start to be paid.
- $55 before our CVRs start to be paid.
- $71 and we have full ($25) payment.
the new cit quotation is 28 $ for total 11 billions dollars
what's about CVR ?
Following that yahoo thread I just posted I see where the poster was questioned about his calculations and he admitted his mistake. Now his numbers come closer to my very rough ones earlier.
Very interesting thread though.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=te&bn=54976&tid=4041&mid=-1&tof=40&rt=2&frt=2&off=1#-1
>>>>>>>>>>>>>>>>>>>>>>>>>>
The key piece of info I missed is on page A-8 here:
http://www.kccllc.net/documents/0916565/...
The new P/CE ratio is now assumed to be 1 when they talk about expected recovery percentages, and CEV is set to the "predetermined" $8B value:
NewBonds + (PctNewCommon * New_PCE_Ratio * New_CEV) = PctRecovery * Owed
21.25B + (0.91 * 1 * 8B) = 0.944 * 30.21B
Which, of course, works out. Now to continue:
P/CE for start of senior CVRs payout:
21.25B + (0.91 * PCE_Ratio * 8B) = 1.0 * 30.21B; PCE_Ratio = 1.23
The market cap is 1.23 times the common equity, so $9.84B. At roughly 1.25 P/CE, senior and junior CVRs are paid out (0.075 * 1.25 * 8B) + (0.015 * 1.25 * 8B) = $900M. So 1.1B is left to pay out in CVRs, which is 1.1/9.84 = 11% increase, so my guess is a 1.36 P/CE ratio is needed before we start to see payout.
Our $3B+ of payout will now significantly dilute the ~$10.9B common equity at 1.36 P/CE. Around 1.7 P/CE should see a full recovery.
Now, as far as how to judge what the market will do in the 60 days of active trading before the "market evaluation" takes place... it is hard to guess. CIT, at one time, traded above a 1.8 P/CE ratio. That was in the days of good sized "goodwill" and intangibles; the new books are very clean, and over $12B of asset "write downs" have occurred. But on the other hand, it just had a bankruptcy and there will be a massive dilution if it trades high. The question still is: are the odds better than 1 in 80, as the current share price dictates the perceived value is?
companys should not have the rite to screw the investors like this. i think this is a scam by the big players to get rid of us small investors.
Something from Yahoo from a poster you seems to understand the CVRs very well.
Here are some thoughts of mine in regards to CVR "Value".
If you want to follow this, all the information is available here:
http://www.kccllc.net/citgroup
First, the raw data:
Class 8-11 is owed $30.21B. They receive $21.25B (70%) in new bonds, and 91% of the new common shares. They are expected to have a 94.4% recovery when "New Common Interests are Valued at mid-point of Common Equity Value". They do not receive CVRs.
Class 12 is owed $1.2B. It receives 7.5% of the new common shares. It is expected to get 50% recovery when "New Common Interests are Valued at mid-point of Common Equity Value". It receives senior CVRs.
Class 13 is owed $779M. It receives 1.5% of the new common shares. It is expect to get 15.4% recovery when "New Common Interests are Valued at mid-point of Common Equity Value". It receives junior CVRs.
Class 15 (us) is owed $3.16B (although series C is convertable now), and will only receive CVRs.
Now, on to the math part. First, what is this "Common Equity Value" that is mentioned in the docs? To calculate the "CEV" of the new CIT, we can use the formula:
NewBonds + (PctNewCommon * MidPoint * CEV) = PctRecovery * Owed
Now go through all classes:
For class 8-11:
NewBonds + (PctNewCommon * MidPoint * CEV) = PctRecovery * Owed
21.25B + (0.91 * 0.5 * CEV) = 0.944 * 30.21B
Doing some math, CEV = $15.95B
Class 12: (0.075 * 0.5 * CEV) = 0.5 * 1.2B. CEV = 16B.
Class 13: (0.015 * 0.5 * CEV) = 0.154 * 0.779B. CEV = 16B
So they all seem to agree that CEV will be $16B in the new CIT.
Now the "MidPoint" (0.5) represents a ratio, sort of like the P/B ratio. It makes sense to call it the "Price to Common Equity Ratio" or P/CE for short. The question is: what is the P/CE when the CVRs start to be paid out?
CVRs are to be paid out when class 8-11 receives 100% return. So:
21.25B + (0.91 * PCE_Ratio * 16B) = 1.00 * 30.21B
which gives a PCE_Ratio of 0.615.
This is where it gets complicated, as CVRs first go to class 12 to make them whole, and then to class 13 to make them whole, and then finally to us. But they already have common shares. So first, what is left over once P/CE is already at 0.615?
(0.075 * 0.615 * 16B) + (0.015 * 0.615 * 16B) = $885M. So they need roughly 1.98B - 885M = ~1.1B in addition to make them whole (minus the relatively small increase caused by their existing stock as P/CE rises). This 1.1B represents around 7% of the 16B CEV, so around 0.68 P/CE is when we will start to see a payout.
What is the P/CE when we are paid in full? We are owed $3.16B, so the percentage is 3.16/16 = 19.8%. So roughly 20% above 68%, we are paid out in full. So the magic P/CE is around 88% or 0.88.
Now what are some common P/CE ratios out there?
Looking over BAC's latest filing, it shows $128B in common equity, with a market cap of $137B, so their P/CE is 1.07.
Citigroup shows $140B in common equity in their last filing, with a $94B market cap resulting in a P/CE of 0.67.
Looking at CIT in the past:
June 08 had a market cap of ~$2B, $5B in CE, so P/CE was 0.4.
Dec 07 had a cap of ~$5B, $6.4B in CE, so P/CE was 0.78.
June 07 had a cap of ~$10B, $6.8B in CE, so P/CE was 1.47.
So this is where the valuation of "risk vs reward" comes in. The question is: what are the chances that 60 days after CIT emerges from bankruptcy, their stock is trading above 0.68 P/CE, and hopefully above 0.88 P/CE? That is really subjective, but say I thought it was a 10% chance. This would mean I value the stock at around $2.5.
http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_C/threadview?m=tm&bn=54976&tid=4041&mid=4041&tof=40&off=1
I emailed broker reorganization department.
I understand CIT Group Bankruptcy has been executed, and that the OTCBB shows that the common and preferred shares are DELETED...
...HOWEVER... According to the PLAN OF BANKRUPTCY filed with the courts, CIT Preferred shareholders are entitled to CONTINGENT VALUE RIGHTS that will be determined in 60 days after settlement of certain debts.
Can you please check with Nasdaq and MAKE SURE these PREFERRED CITBQ shares I have in my account were NOT DELETED IN ERROR!
ALSO: Please route this message to an experienced staff person who has handled bankruptcy and preferred shares.
Thank you.
FOR YOUR REFERENCE:
www.otcbb.com/asp/dailylist_detail.asp?d=12/10/2009&mkt_ctg=ALL
SECURITY DELETIONS
Updated Symbol Company Name Effective Date Unit of
Trade Comments
08:59 CITBQ CIT Group Inc (DEL) Preferred Series A 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITDQ CIT Group Inc (DEL) Non Cumulative Perp Pfd Conv Ser C 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITEQ CIT Group Inc (DEL) Equity Units 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITGQ CIT Group Inc (DEL) Common Stock 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITQO CIT Group Inc (DEL) Preferred Series B 12/10/2009 100 Plan of Bankruptcy Effective **
FROM CIT BANKRUPTCY FILINGS:
"...60 days after the company emerges from BK, that will be the 'Measurement Date'. If on that date, the value of the common stock (in the market) is high enough that the unsecured senior debtholders get more than 30% of par from the common they receive in the BK, there will be 'excess value' created.
That 'excess value' will then be allocated via CVR to the Senior subdebt, then once they get 100% of par, to the Junior subdebt...then once THEY get 100% of par, it will allocate shares to the preferred CVR..."
Technically they had to as the symbols did not represent the new underlying holdings. Yesterday I held preferreds shares of a company in BK. Today I hold CVRs in a company that has exited BK. With as many that there is with CVRs I hope they find a way to assign them a new symbol so they can be traded. If not, all we can do is wait.
OTCBB says they are all deleted. I did not expect that...
SECURITY DELETIONS
Updated Symbol Company Name Effective Date Unit of Trade Comments
08:59 CITBQ CIT Group Inc (DEL) Preferred Series A 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITDQ CIT Group Inc (DEL) Non Cumulative Perp Pfd Conv Ser C 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITEQ CIT Group Inc (DEL) Equity Units 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITGQ CIT Group Inc (DEL) Common Stock 12/10/2009 100 Plan of Bankruptcy Effective **
08:59 CITQO CIT Group Inc (DEL) Preferred Series B 12/10/2009 100 Plan of Bankruptcy Effective **
http://www.otcbb.com/asp/dailylist_detail.asp?d=12/10/2009&mkt_ctg=ALL
Someone asked me how many shares are outstanding: 14M
Issued and outstanding:
Series A 14,000,000 with a
liquidation preference of $25
per share
http://www.businesswire.com/portal/site/cit/index.jsp?ndmViewId=news_view&ndmConfigId=1007677&newsId=20070621006160&newsLang=en
The media says "preferred's" will be canceled, but it does not mention anything about CVR. Does anyone think the preferred will still be trading until 60 days after the new company gets traded, at which point we either get zero or something???
yes, that's why I bought this POS, thanks.
Generic, Remember this post of mine?
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=43304629&txt2find=cvr|value
Best I can come up with.
the preferreds won't be cancelled for 2 months, then.
the old common goes EOD Wed.
they wiped 10 billion off their books. and the bondholders got the store.
how could the CVRs NOT play out?
CVR's
CVR's *are* defined.
60 days after the company emerges from BK, that will be the 'Measurement Date'. If on that date, the value of the common stock (in the market) is high enough that the unsecured senior debtholders get more than 30% of par from the common they receive in the BK, there will be 'excess value' created.
That 'excess value' will then be allocated via CVR to the Senior subdebt, then once they get 100% of par, to the Junior subdebt...then once THEY get 100% of par, it will allocate shares to the preferred CVR.
I was thinking of getting some 'when issued' shares before for a trade.
I was thinking of getting some 'when issued' shares before for a trade.
there are alomst 100 items in the court docket.
the link is here.
i could never find clear language about the CVRs to even remotely understand their value.
the only thing i could find is that it just depends on future value of several tranches of debt.
Actually, I have stopped looking at CIT Group a few days after it filed BK and couple of flips. I did not have a chance to look through everything because of work. I have been swamped since it is near the end of the year.
So we would have to look at the reorg plan to see if there is any mention of it.
Sorry, I could not help you further. I am work right now.
the new shares are rolling out thursday
Sorry. I own a few Z's. Maybe I come out with enough to cover some of my losses on the A's. I have no iade how to value the CVR's. Looks like everyone else's CVR's get paid in full before we get anything. I would feel much better about getting something if financials were doing better but there is now so much talk about them having to raise more capital that it could weigh on the new CIT shares.
Heard anything about CIT when issued shares?
ah, so you have studied the filings. what are these mythical CVRs worth? anything?
from what I can tell, it depends on asset values in the future...
Z's has an interest and partial ownership in bonds. eom
the Z shares are up
thanks for your thoughtful analysis
Yes. We are screwed!!
Thanks for the link. Nothing new.
find anything in the filings you could make use of?
http://www.kccllc.net/citgroup
why would to common have any value? Do you have some information on the CVR?
Seven things added to docket today. Still nothing material.
This is the key section:
H. Allocation Of Contingent Value Rights 30
1. CVR Distributions 31
2. Termination 32
3. Disbursing Agent 32
4. Status and Availability of New Common Interests 32
5. Agreements of CVR Holders 32
6. Contingent Nature of CVRs 32
Four things on docket added today
12/7/2009 0916565-230 0179 Declaration of James W. Kilman Jr. in Support of Confirmation of Modified Second Amended Prepackaged Reorganization Plan of CIT Group Inc. and CIT Group Funding Company of Delaware LLC 46 k
12/7/2009 0916565-229 0178 Declaration of Robert J. Duffy in Support of Confirmation of Modified Second Amended Reorganization Plan of CIT Group Inc. and CIT Group Funding Company of Delaware LLC 88 k
12/7/2009 0916565-228 0177 Notice of Non-Material Modifications to Modified Second Amended Prepackaged Reorganization Plan of CIT Group Inc. and CIT Group Funding Company of Delaware LLC 115 k
12/7/2009 0916565-227 0176 Notice of Filing of Revised Proposed Confirmation Order 321 k
http://www.kccllc.net/citgroup
the court date is tomorrow, so there's not much time left.
the only question is what the CVRs (Contingent Value Rights) are worth
have you scanned the court documents?
they are free here:
http://www.kccllc.net/citgroup
Cit Group Restructuring Resources Page:
http://cit.com/about-cit/restructuring/index.htm
give it time
remember this is in par with the Gov prefered so if they give in to these government shares then we will also get something?
CIT Group’s New Reorganization Plan Adds Management Incentives
By Tiffany Kary and Linda Sandler
Nov. 28 (Bloomberg) -- CIT Group Inc., the bankrupt 101- year-old commercial lender, filed an amended reorganization that calls for management incentives and slight changes to creditors’ recoveries.
The amended plan, filed Nov. 25 in U.S. Bankruptcy Court in Manhattan, provides for noteholders to appoint three of the company’s 13 board members and for non-debtor subsidiaries to give cash collateral to lenders to secure the obligations of CIT’s Chinese units. Several classes of creditors will have their recoveries changed by fractions of a percent, according to court papers. Some noteholders will be paid interest accrued before the bankruptcy.
CIT creditors voted earlier to accept the company’s prepackaged bankruptcy plan. The changes filed Nov. 25 will be reviewed by U.S. Bankruptcy Judge Allan Gropper at a Dec. 8 hearing to consider confirmation of the bankruptcy plan.
“The debtors reserve the right to make further changes” to the plan, CIT lawyers said in court filings.
The changes include a clause requiring holders of Canadian senior unsecured notes that voted for the plan to dismiss lawsuits against CIT’s Delaware funding unit.
When the company exits bankruptcy, it will have 13 directors, including five from the current board. Four will be nominated by a steering committee and three will be nominees from noteholders owning more than 1 percent of CIT’s bonds. CIT’s chief executive officer will be the 13th director.
CEO Jeffrey Peek has said he will leave at the end of the year. His replacement hasn’t been announced.
Incentive Program
The incentive plan calls for awards of as much as $10 million a year for eligible individuals and might consist of stock options, restricted stock and other equity instruments. People eligible for the plan include officers, employees, directors, consultants, advisers and independent contractors, CIT said.
“The purposes of the plan are to promote the long-term success of the company and its subsidiaries and to increase stockholder value by providing eligible individuals with incentives to contribute to the long-term growth and profitability of the company,” lawyers for CIT wrote.
CIT filed for bankruptcy on Nov. 1, blaming losses on subprime mortgages and tightening credit markets. CIT listed assets of $71 billion and debt of $64.9 billion. The government probably won’t recover much, if any, of the $2.3 billion in taxpayer money used in a bailout of CIT, and shareholders will be wiped out, according to CIT’s plan.
The lender, which funds about 1 million businesses, plans to exit court protection next month. None of CIT’s operating units, including CIT Bank, were included in the filing.
The final two classes of creditors that voted on CIT’s turnaround plan, holders of Canadian senior unsecured notes and senior unsecured notes maturing after 2018, both supported the prepackaged bankruptcy, CIT said Nov. 19.
The case is In re CIT Group Inc., 09-16565, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).
To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net.
Last Updated: November 28, 2009 00:01 EST
Nov. 23 (Bloomberg) -- CIT Group Inc., the bankrupt 101- year-old commercial lender, won court approval to borrow as much as $500 million to issue letters of credit that guarantee its debts.
U.S. Bankruptcy Judge Allan Gropper in Manhattan today granted CIT’s request to approve the loan from a group of lenders led by Bank of America Corp. Gropper allowed CIT to borrow $125 million on an interim basis earlier this month.
CIT’s existing $750 million letter of credit facility isn’t sufficient because it expires in May 2010 and the group of 27 banks that extended the loan won’t extend its maturity, according to court papers. Also, the company has borrowed all of the $3 billion available under a senior loan package.
CIT filed for bankruptcy Nov. 1, blaming losses on subprime mortgages and tightening credit markets. CIT listed $71 billion in assets and $64.9 billion in debt. The government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to a bailout of CIT, and shareholders will be wiped out, according to CIT’s plan.
No Opposition
Gropper also approved New York-based CIT’s retention of law firms and consultants including Sullivan & Cromwell LLP and Evercore Partners Inc. None of CIT’s requests were opposed by creditors.
The lender, which funds about 1 million businesses, plans to exit court protection next month. None of CIT’s operating units, including CIT Bank, were included in the filing.
All of the classes of CIT’s creditors that voted have accepted the company’s prepackaged bankruptcy plan, lawyer Gregg Galardi of Skadden Arps Slate Meagher & Flom LLP told Gropper.
The final two classes of creditors that voted on CIT’s turnaround plan, holders of Canadian senior unsecured notes and senior unsecured notes maturing after 2018, both supported the prepackaged bankruptcy, CIT said Nov. 19.
The case is In re CIT Group Inc., 09-16565, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).
To contact the reporter on this story: Christopher Scinta in New York bankruptcy court at cscinta@bloomberg.net.
Last Updated: November 23, 2009 16:41 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=avf0y8j9gDa8&pos=4
Final results are in
CIT Auction Results, 20th November 2009
CDS
Final Results of the CIT CDS Auction, 20th November 2009
http://www.creditfixings.com/information/affiliations/fixings/auctions/2009/citgrp/results.shtml
---
News coverage:
CIT Group CDS valued at 68.12 pct in auction
Fri Nov 20, 2009 2:05pm EST
NEW YORK, Nov 20 (Reuters) - Sellers of protection on CIT Group's (CITGQ.PK) bonds will pay buyers 31.88 percent the insurance they sold, after an auction was held on Friday to set a value for the company's credit default swaps.
CDSs on CIT's bonds are worth 68.12 cents on the dollar, said auction administrators Creditex and Markit.
The auction is the largest the CDS market has seen to date, with net volumes of more than $6 billion outstanding on the company's debt. Payments on the contracts were triggered when CIT earlier this month filed for a prepackaged bankruptcy. (Reporting by Karen Brettell; Editing by Theodore d'Afflisio)
http://www.reuters.com/article/marketsNews/idCNN2023686620091120?rpc=44
re: CDS and Markit Group -- I feel all slimy at the moment after reading this... but do consider the source...
Posted by: THE WOOGSTER
Date: Tuesday, November 17, 2009 8:14:39 PM
#msg-43668125
The Markit Group: A Black-Box Company that Devastated Markets
Posted on 17 November 2009 by Mark Mitchell
,,,,,,,,,,,So perhaps it is not surprising that a lot of long-shot rolls paid off quite nicely,,,,,,,,,,,,,,,,,,,
Although much attention has been directed at the contribution made by credit default swaps to the financial crisis, most discussion has focused on the companies, such as American International Group, that posted big losses because they sold these instruments without sufficient due diligence.
Another line of inquiry has not been pursued, however, though it is of equal, and perhaps greater, significance. That line of inquiry concerns the way in which the prices of credit default swaps effect the perceived value of all forms of debt — corporate bonds, commercial mortgages, home mortgages, and collateralized debt obligations — and as a result, the ability of hedge funds manipulators to use credit default swaps to enhance their bear raids on public companies.
If short sellers can manipulate the price of credit default swaps, they can disrupt those companies whose debt is insured by the credit default swaps whose prices are manipulated. The game plan runs as follows: find a company that relies on a layer of debt that is both permanent, and which rolls over frequently (most financial firms fit this description). Short sell that company’s stock. Then manipulate the price of the CDS upwards, preferably into a spike, as you spread the news of the skyrocketing CDS price (perhaps with the cooperation of compliant journalists at, say, CNBC).
Because the CDS is, in essence, an insurance policy on the debt of the company, the spiking CDS pricing will cause the company’s lenders to panic and cut off access to credit. As this happens, the company’s stock will nosedive, thereby cutting off access to equity capital. Thus suddenly deprived of credit and equity, the firm collapses, and the hedge fund collects on its short bets.
Moreover, credit default swap prices are the primary inputs for important indices (such as the CMBX and the ABX) measuring the movement of the overall market for commercial and home mortgages. In the months leading up to the financial crisis of 2008, short sellers pointed to these indices in order to argue that investment banks – most notably Bear Stearns and Lehman Brothers – had overvalued the mortgage debt and property on their books. Meanwhile, several hedge funds made billions in profits betting that those indexes would drop.
It should therefore be a matter of some concern that credit default swap “prices” and the indexes derived from them are determined almost entirely by a little company with zero transparency and, it appears probable, a high exposure to influence from market manipulators. The company is called Markit Group, and there is every reason to believe that its CDS-driven indices (the CMBX, the ABX, and several others) are inaccurate, while the credit default swap “prices” that they publish and which rock the market are in fact nowhere close to the prices at which credit default swaps actually trade.
Last year, the media reported that New York Attorney General Andrew Cuomo had sent subpoenas to Markit Group as part of an investigation into possible manipulation of credit default swap prices by short sellers. This investigation, like Mr. Cuomo’s other investigations into market manipulation, have yielded no prosecutions.
The Department of Justice is reportedly investigating Markit Group for anti-trust violations. This investigation (which is reportedly focused on how Markit Group packages and sells its information) seems to acknowledge that Market Group has near-monopolistic control of information about credit default swap prices. However, if the press reports are correct, the DOJ has not considered the possible appeal of this monopolistic control to market manipulators.
Meanwhile, Henry Hu, the director of the Securities and Exchange Commission’s division of risk, has said that it has been nearly impossible for the SEC to conduct investigations into any matter concerning credit default swaps because the commission does not have access to any data on the trading of CDSs. In itself, this is a shocking admission. It is all the more shocking when one considers that the necessary data exists and might be in the hands of the Markit Group – a black box company based in London.
A thorough investigation of Markit Group is urgently required.
Here is what we know so far:
?Markit Group was co-founded by Rony Grushka, Lance Uggla, and Kevin Gould. Prior to founding Markit Group, Mr. Grushka’s main line of business was investing in Bulgarian property developments. He recently resigned from the board of Orchid Developments Group, an Israeli-invested company based in Sophia, Bulgaria. Messrs. Uggla and Gould formerly worked for Toronto-Dominion Bank in Canada.
?Markit Group’s founders also include four hedge funds. However, Markit Group refuses to disclose the names of those hedge funds. In response to an inquiry, a Markit Group spokesman said it was “corporate policy” to keep the names of the hedge funds secret, but he would not say why Markit Group had such a policy. It seems worth knowing whether those hedge funds have any influence over Markit Group’s published information or indexes, and whether those hedge funds are trading on that information. It would also be worth knowing whether those hedge funds or affiliated hedge funds have engaged in short selling of public companies whose debt and stock prices were profoundly affected by the information that Markit Group published.
?Goldman Sachs, JP Morgan and several other investment banks also have ownership stakes in Markit Group. The investment banks received their stakes in exchange for providing trading data to Markit Group. It would be worth knowing whether these investment banks engaged in short selling ahead of Markit Group’s published indexes and price quotations.
?Markit Group is secretive about how it creates its indexes. In early 2008, the Wall Street Journal noted that the CMBX simply “doesn’t make sense” and that Markit Group’s indexes “might be exaggerating the amount of distress” in the home and commercial mortgage markets. In 2008, the average prediction for defaults on commercial mortgages was 2%. The CMBX implied that the default rate could be four times that level.
?When short seller David Einhorn initiated his famous public attack on Lehman Brothers, one of his central arguments was that the CMBX (the index that was likely “exaggerating the amount of distress”) proved that Lehman had overvalued the commercial mortgages on its books.
?In March 2008, the Commercial Mortgage Securities Association sent a letter to Markit Group asking it disclose basic information about how the CMBX index is created and its daily trading volume. “The volatility in the CMBX index, caused by short sellers, distorts the true picture of the value of commercial-mortgage-backed securities,” the group said in a statement.
?Markit Group is equally secretive about how it derives its “prices” for credit default swaps. A spokesman for the company spent close to one hour talking to Deep Capture. He did his job well and sounded like he was trying to be helpful. But he told us as little as possible.
?However, in the course of this conversation, we did learn that Markit Group’s “prices” are not actual, traded prices. They are mere quotations. The Markit Group has what it calls “contributors” – hedge funds and broker-dealers that provide it with information. Markit Group has a grand total of 22 “contributors.” Deep Capture asked Markit Group’s spokesman for the names of these “contributors.” The spokesman said he would try to find out the names and call back later. He never called back.
?The 22 “contributors” provide Markit Group with quotations, and these quotations become the Markit Group’s “price.” In other words, the “contributors” can quote any price for a CDS that they choose, regardless of whether anyone is actually willing to buy the CDS at that price. Markit Group looks at these quotations. Then it somehow decides which quotations make the most sense. Then it publishes information that purports to represent the actual market price of that CDS. This process is certainly unscientific. And it is ripe for abuse.
?Consider, for example, the Markit Group “price” for CDSs insuring the debt of company X. The Markit Group price strongly suggests that company X is going to default on its debt in the immediate future. Short sellers eagerly point to the Markit Group CDS “price” as evidence that company X is doomed. Panic ensues, and suddenly, company X really is doomed. But the fact is, nobody ever bought a company X CDS at the price quoted by Markit Group. Rather, that panic-inducing “price” was, in effect, pulled out of a hat. Who pulled it out of a hat? That is matter of immense importance. There are two possible scenarios:
?The first possible scenario is that the
22 “contributors” report their quotations in good faith. They should be sending the actual traded price, not just a quotation, but assume they are just doing what was asked of them. From these quotations, Markit Group somehow decides what the “price” should be. It is possible that this decision is based on some secret formula (which would be worrisome); or it is possible that Markit Group executives sit around a table debating what the price should be and take a shot in the dark (which would be even more worrisome); or it is possible that Markit Group deliberately chooses the most horrifying price possible in order to assist the short sellers who are affiliated with its owners (which would be a matter for the authorities).
?The second possible scenario is that Markit Group acts in good faith (if not scientifically), but one or more of the 22 “contributors” or their affiliates has an interest in seeing company X fail. If just one of those “contributors” sends in an astronomically high quotation, that could be enough. Markit Group factors the absurd quotation into its posted “price” and it suddenly becomes possible to convince the world that company X is about to default on its debt. Panic ensues, the firm’s layer of debt dries up, the stock price plunges, and perhaps the “contributor” or its affiliate make a lot of money.
?As Deep Capture understands it, CDS quotations suggested by the 22 “contributors” also help determine the movement of the CMBX and ABX indexes. The movement of these indexes did serious damage to the American economy in multiple ways. The indexes prompted write downs at most of the major banks and mortgage companies. They were ammunition for short sellers, like David Einhorn, who claimed that companies had cooked their books by not writing down to the rock bottom prices suggested by the Markit Group indexes. They helped precipitate the decline in prices of mortgage securities, and contributed mightily to the panic that spread across the markets. A lot of people made a lot of money as result of those indexes moving downward. So, it is rather important to know more about how those indexes are formulated, and if they can be driven by the same people who are making directional bets on their movements.
Conclusion: Ten years ago, there was no such thing as a credit default swap. Six years ago, a very small number of investors traded credit default swaps as hedges against the long-shot possibility of corporate defaults. Nobody looked to credit default swaps as reliable indicators of corporate well-being.
Then, suddenly, there were over $60 trillion in credit default swaps outstanding. That is, over the course of a few years, somebody had made over $60 trillion (many times the gross domestic product) in long shot bets that borrowers would default on their debt. As this derivative risk marbled through the system, the trading in credit default swaps was completely opaque. Nobody knew who bought them, who sold them, or at what price.
But starting in 2001, we knew the “prices” of CDSs. We knew the “prices” because two Canadians, a developer of Bulgarian real estate, and four mysterious hedge funds had founded a small, black-box company in London. That company, the Markit Group, achieved near-monopolistic power to publicize the “prices” through its magic process of aggregating quotation information provided by 22 hedge funds and broker-dealers who could well have been betting on the downstream effects of sudden price changes.
These “prices” were not prices in any meaningful sense of the term. But, suddenly, these “prices” became perhaps the single most important indicator of corporate well-being. Assuming that those four hedge funds and the 22 “contributors” (or hedge funds affiliated with them) bet against public companies, it seems more than possible that short-sellers got to run the craps table, call the dice, and place bets, all at the same time.
So perhaps it is not surprising that a lot of long-shot rolls paid off quite nicely
Results are due to be published according to the following timetable:
Initial Bidding Period 9:45 - 10:00 EDT
Results of Initial Bidding Period 10:30 EDT << Completed
Subsequent Bidding Period 12:45 - 13:00 EDT
Final Results 14:00 EDT
For the results of the auction please see the CIT Auction Results
http://www.creditfixings.com/information/affiliations/fixings/auctions/2009/citgrp/index.shtml
Initial Results of the CIT Auction, 20th November 2009
CDS
Inside Market Midpoint: 70.25
Net Open Interest: $728.98 million to sell
Adjustment Amounts
No adjustment amounts
Below are the participating bidders for the CIT CDS auction.
Participating Bidders
Banc of America Securities LLC
Barclays Bank PLC
BNP Paribas
Citigroup Global Markets Inc.
Credit Suisse International
Deutsche Bank AG
Goldman Sachs & Co.
HSBC Bank USA, National Association
J.P. Morgan Securities, Inc.
Morgan Stanley & Co. Incorporated
Nomura International PLC
The Royal Bank of Scotland PLC
UBS Securities LLC
Back to 2009 Auctions
http://www.creditfixings.com/information/affiliations/fixings/auctions/2009/citgrp/results.shtml
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Cit Grp. Pfd A (CIT-A)
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