Question-and-Answer Session
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Operator
(Operator Instructions) Your first question comes from Betsy Graseck - Morgan Stanley.
Betsy Graseck - Morgan Stanley
Couple of questions on the portfolio, I just wondered if you could give us a little bit more detail as to what didn’t make the cut and why those securities didn’t make the cuts and I understand that you took the lowest quality and restructured or sold, but help us understand why certain assets didn’t make the cuts to get restructured?
Todd Gibbons
Sure, Betsy. It’s Todd. When we looked at the most troubled part of the portfolio, which frankly is the non-agency RMBS portfolio, what we did is we looked at every single security that we own and we looked at the every underlying loan within each of those securities and we categorize them as either, red, yellow, or green. If they were red, we thought that discount rate was relatively low, meaning the market price was relatively high, given the potential under a stress case for further deterioration in those particular loans. So those we classified as let’s consider those for sale.
If they were yellow, the potential for loss was lower and the discount rate was relatively higher given the quality of the securities. So we said, let’s retain those, but we’ll mark them to market and put them in this low com, and which gives us the opportunity to restructure them going forward and recover what we’ll think is a significant component of that loss. If we thought there was a very low probability even under the most stressed case of potential losses on the security, we marked them on green and we just left them where they were.
Bob Kelly
What I would say to Betsy is we used Amherst securities to really decompose this portfolio security-by-security, they spent weeks on us and I think most people would view them as being pretty conservative in their outlook for the value of the securities. So they’re very good firm and they’re pretty tough.
Betsy Graseck - Morgan Stanley
So if I’m looking at your page nine, where you indicate you’ve got about $53 billion in the portfolio with roughly $20 billion on the ?watch list?. Are you saying all of that $20 billion in the watch list is all green?
Todd Gibbons
Betsy, there’s about $5.5 billion of those that meet the yellow criteria that I just mentioned, but prior to the mark, those were at $8.5 billion. So we marked them down to $5.5 billion. So we’re carrying them at market value.
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