Habayeb, Elias

Yale University

Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents Browse by Media Type 1-1-2011 AIG Email re BET Valuation for Multi Sector CDO Book Elias Habayeb Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation Habayeb, Elias, "AIG Email re BET Valuation for Multi Sector CDO Book" (2011). YPFS Documents. 4137. https://elischolar.library.yale.edu/ypfs-documents/4137 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. From: Sent: To: Subject: aabayeb, Elias 0)/1112008 07:0) :37 PM Herzog, David RE: BET Valuations for Multi-Sector COO book .. Based on the 'alest run of the actuarial model, we have about $48·million in exposure below the super senior attachment point, but il appeals thaI we still do not expect 10 incur an~ economic losses. Are you on 'the ground - I am in Ihe office From: Herzog, David Sent: friday, January 11, 2008 7:00 PM To: Habayeb, Elias Subject: Re: BET Valuations for Multi-Sector COO book What arc the updated views in terms of "Economic Losses· on the book? __ Original Message -From: Habayeb, Elias To: Bensinger, Steven Cc: Lewis, Robert (AlG Enterprise rusle Mgmt): Dooley, William: Herzog, David Sent: Fri Jan II 07:31 :22 2008 Subject: Fw: BET Valuations for Multi-5ector CDO book Steve, Joe provided us witb a peak into tbe preliminary valuations for the super senior credit derivatives as of year cud. ""hicb are surprisingly large. Their preliminaIy estimates for the cumulative mark to market loss assuming he is able to get folks comfortable with tbe basis adjustment between lbe spread on a bond versus a credit deriv-.llive is S2.8 billion (we bad previously announced a cUlJlulative mark of $1.5 billion as of november 30). The Sl.8 billion estimate assumes a 7% basis adjustment which he thinks is appropriate. If the basis adjusunent is nOI factored in, then the OImulative mark to market loss is $5.8 billion. While folks agree in principle tbm a basis adjustment is appropriale, the questi'on is whetller there is empirical data to support it in a market thai lacks trading. loe and bis tearn arc pulling togetber the suppon which they think is adequate for our, pwc and kpmg's review. The difference between these new estimales and what we published in november is nol simply the marks fOI December. nlCY also include a revision of Ihe earlier estimates based on the a"aila6miy of more data and changes 10 the modelling. However. be does not bave a break down of what relales to pre december" december, and is nOl planning on doing so at this time. The valuations being done as of December are meanl 10 be more refined than what W3S previously done. First, A1G-FP is collecting more information than what was available 10 it in the third quaner. As ofQ3. Ule best Page: 1 of 4 II 00146702-000001 independent data they had were the JPM spreads which were spreads on generic assets. Since tben, they identified a new soun::e: or data. which is fTom the CDO collateral managers. The COO colllltercll m'lnllgers are providing· them with indications on the majority of Ille reference obligations in tlle underlying collateral pools. Second, AlG-FP has made more changes to Ille BET and implemented an indcpedent validation·metbod too. Also these marks aTe limited to Ille multi-sector CDO. Based on my conversation n'ith him just now, they are not done with the valuations and they have more work to do. Beyond Illc chain of emails here and a couple more that IlIad with him in the past 12 hours, we don't llave any more information. ~ wiJI be in wilton on monday to go through these valuations. Joe thinks that is the earliest he can share information with us beyond Ihese emails. He also asked to keep these estimates among us until they are done with their work. Please let me /mow jf you want to discuss . • - Original Message --from: C3ssano@aigfpc.com <Cassano@aigfpc.colD> To: e1ias.habayeb@aig.com <elios.hobayeb@oig.com>; Williaru.Dooley@aig.com <William.Dooley@ais.com> Cc: Micottis@aigfpc.com <Miconis@ai~c.com>; Bridgwater@aigfpc.com <Bridgwater@aigfpc.com>; Fomer@aigfpc.com <Fomer@aigfpc.com> Sent: Fori Jan 11 04 :55:35 2008 . Subject: RE: BET Valuations for Multi-Sector CDO book The change in value can be ascribed to a wide array of events, the market is one factor and an important one, there were also more downgrades during the period to underlying reference coDateraJ that causes a greater than market value chaDge . We have also gained greater precision in OUT efforts to get more data from the managers and hence are less rdiant on matrix pricing .We llave also continued to add enhancements, rc6nements to many aspects of data collection and modeling. While the numbers in October and November were approximations and estimates the values used ,the data inputs and tlle modeling hll''C all been improved through lime From: Habayeb, Elias (mailto:Elias.Habavc:b@.aig.com) Sent: Friday, January II, 200& )2:57 AM To: Cassano. Joseph; Dooley, William Cc: Micottis, Pierre; Bridgwater, James; Forster, Andrew Subject: RE: BET Valuations for Multi-Sector COO book Joe, I understand that thcsc are preliminary and subject to cbange. However, is Ille diffaa:ncc between the marks below Dnd the SI .15B for Oct and Nov driven by events in December? Or do these marks also reflect a revision of the previously published Oct and I or Nov marks'/ Page: 2 of 4· 00146702-000002 .-, , ( ..... \ '. Elias From: Cassano@lligfpc.com Irnailto:Cassano@aigfpc.com) Sene Thursday, January 10, 2008 6:5.9 PM . To: William.Doolcy@aig.com; e}ias.habaycb@aig..com Cc: Micottis@aigfpe.com; Bridgwala@aigfpc.com; Forster@aigfpc.com Subject: FW: BET Valuations for Multi-Sector COO book lnll:mal only ,For disucusion only, preliminary estimates only ,all numbers are SUbject to change. Below please fmd our currenlcstimales oflhe vallie of the super scniorbook as oflbe end of December. nlese are life to date valuation estimates. To gil'e these DumbcJs context as 10 lhe cluInge from'lhe last estimates and marks we have taken or supplied in the past you nC¢ to deduct the appoximalely $1.5 billion we have already reporteq ($350 million booked for 3rd quaner) and the S1.]5 b;Jlion of estimates as ofNovemeber.(S5S0 million estimate' in the 3rd quarter Q for Oclober and the SSOO 10 S600 miJIi~n estimate at Ihe end ofNovemher.) As you will' ~ the valuation adjustmenl varies signifitmltly depending upon tile cash vs. syntlletic baisis percentage charge you apply. Based upon the documentation we have from the markel we see the basis anywhere between SilO pd. up front. What we are showing here is what tJle value is if , first we apply no baisis 10 tbe results of using the cash prices only from the BET modd; second, we show what the life to date \'ailmtion adjustment would be depending on applying varying percenatge of cash basis add on spread :While we believe it is very reaSonable and conservalive 10 use the mid market ofth~ indications we have received i.e. 70/ .. we recognise that we must support and document Ouf conclusion. We an: in 1he prot:eSS of pUlling that documentation together. We also believe there can bC no argument to the use of the minimum of S% as the charge for tbe cash vs synthetic basis. For clarity and completncss ) am supplying the range of outcomes to you, . For illustration and the avoidance of doubt; if it is agreed tIlat tJlC cash S)-ntbctic basis add 011 is 1% then \lIe cllllllge from the estimates and bookings to dIlte is approx $.1.3 billion resulting in a totDI market valuation adjustment of S2.8 billion for the 4th quarter. Please keep in mind Ihese numbers are stiJl preliminary and aTe subject to adjustment os we continue to comb through the data. The team will be continuing 10 review the data and results of the modeling tommoror", and all numbers are subject to cbange • .-. Page: 30f 4 00146702-000003 Cash-Synthetic Basis Add-On Value of Multi-Sect OJ COO book, inc CasllDow Diversion benefits 0% -5,8] 1,375,582 5% -3,584,839,025 6% -3,]68,738,365 7% -2,793;560,33) Ioe Page: 4 of 4 00146702-000004 

AIG Email re BET Valuation for Multi Sector CDO Book

https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=5185&context=ypfs-documents

AIG Email re BET Valuation for Multi Sector CDO Book

Abstract

Similar works

Full text

Available Versions

Yale University