Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of Arun Kumar - J.P. Morgan.
Arun Kumar - J.P. Morgan
The theme among several of your peers in the industry has been recoveries, commutations, and so on. While you have been able to commute a fair amount of the CDOs that you’re wrapped, I wondered if you could give us any progress on the recovery efforts going forward. I know that has been an area of emphasis over the past several quarters, if you will. If you could just tell us where you stand in terms of recoveries, dialogue with the institutions that put those structures together, and also if you could give a little bit of color on expectations for future commutations. I know you said it’s going to be fairly difficult, but given the financial condition of the firm, I would think that it’s probably not going to be all that difficult to get commutations down the road, at probably even better terms than what you have achieved so far.
David Wallis
Obviously, we intend across all aspects of our business to actively pursue in our eyes wrongdoings, so we have obviously launched litigation with respect to certain of our exposures, and if we think that bad things are being done, we will continue to do that, but I don’t want to go into those sorts of comments any further than that. Let’s say that we continue to enforce our rights. With respect to commutation discussions, as I briefly indicated at the end of my script, it’s a balance. Yes, it’s risk reduction, but also obviously it’s large cash out the door, and whilst we still have considerable claims paying resource, you have to balance the risk reduction as against the cash out the door and the alternative uses for that cash. What we’ve done is we know what we’re happy with. We’ve analyzed it carefully. To take your point, in terms of being cognizant of others’ views of ourselves as perhaps encapsulated in our CDO spread, but we’re certainly not in a position and are not willing to just commute. I think it’s obvious to all that we can’t commute our way out of this, so to speak, so we need to be very selective and very disciplined in any conversations that we have, and I think candidly we’ll find commutations increasingly difficult as we have alternative uses for that cash.
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