8:54: Okay, someone please please dial in because the hold music sounds so damn familiar but I can't figure out what it is and it is killing me.

9:00: I'm still on hold

9:02: Yes, Stairway to Heaven! And still holding

9:04 Michael Peace (?) takes the mic "this is very positive...we've worked hard with congress...it'll be good...Neil from the treasury will go over how the warrants works and exec comp"

9:05 Broad discretion for the treasury

9:06 Neil takes the mic
You might've heard the headline number: seeking 700 bn. for residential and commercial assets. (yes, we're aware). "we sought broad authority and flexibility"

- They might use the authority for "other instruments"

- Let us be clear: "targeted at financial system NOT failing institutions, though there are some institutions in that system that are, you know, failing."


9:08: Any institution that has a "meaningful presence in the US" should be allowed to participate. Congress said they wanted: oversight, tax payer protection. OUR highest priority: "making sure it works"...it needs to attract companies to participate...warrants, exec comp were highly negotiated...we think we have enough flexibility to have a system that works.

- On warrants: tax payers should benefit
- Differentiates between "Market purchases" and "Direct purchases"
- Direct purchases: failing institutions that the treasury needs to help. "think bear stearns. think AIG"...we'll be very aggressive...In future cases, we'd do the same thing...nothing new here. We'll take as many or as few warrants as the treasury wants.
- Market purchases: institutions sell assets voluntarily. For companies that sell mor than 100 mm into this fund, they must give them warrants. Treasury had "broad discretion" to determine amount...For companies that sell more than 100 mm into this fund, they must then give warrants. Ex: if a company sells 200 mm, the first 100 will not have warrants associated, the second would.

- Unclear if bill gives them different powers in each situation or if they are just saying they will use "broad discretion" differently...Notes: "We don't want just failing institutions to participate, we want healthy institutions!"

- Executive Comp: people were "very emotional" both dems and republicans...we don't want to reward failure...in a direct deal, regarding exec comp, like aig, we'd prob fire management, get rid of golden parachutes. We feel this is appropriate.

- In market mechanism, the threshold is how many assets were put in the fund
- If they sell more than 300mm, then there is exec comp interference by us
- On a go-forward basis, for a 2 year authority, the firm cannot enter into new contracts with a "top 5 employee" that provides for a golden parachute. Existing contracts will not be touched.
- Tax provision: firms can deduct up to a million RIGHT NOW. if you contribute to the fund, that'll be reduced to 500k.

- If there's a loss after 5 years, the gov't can attempt to recoup losses; would go to the entire industry and not just participants...analysis will be done, sent to president, then sent to congress for approval, though no real method in place at the moment

"WE'RE GOING TO HAVE TO BE NIMBLE...WE MIGHT HAVE TO PIVOT."

9:20: mic goes to Bob Hoyt (sp?)
5 principle mechanisms for oversight
1. a board
2. a "significant role by" General Accountability office
3. Special "inspector general"
4. Congressional oversight panel of experts that will receive reports and conduct analysis
5. ample section on "reporting" on assets purchased, auction mechanisms, and how various "other purposes" are working

700 billion will come in tranches:
- 250 bn comes immediately

- when secretary determines he needs more, he'll go ask congress for the next 100 bn (no time limit here on when Paulson can ask...could ask the day after he gets the 250 bn)

-when the secretary determines he needs more after that, he'll go back to congress, and they'll consider for 15 days (no time limit here on when Paulson can ask...could ask they day after he gets the 350 bn)

Questions!

Q: Glenn Schorr, UBS: How do you incentivize if you cant come to clearing price that isn't too putative?
A: Our objective is not to get everyone to participate so...we won't be paying too much...I can envision a firm taking a loss, because we're giving them cash that they can redeploy. We're soliciting ideas from all over the place.

Q: Guy Moszkowski, Merrill Lynch: Is your goal with the pricing mechanism to inject as much liquidity and capital or is it to force recognition of losses and consolidation so we can see who will survive and who will die.
A: Hard to say either of those extremes. It's a balancing act.

Some guy from Treasury says he wants people to focus on legislation, not implementation. One of his colleagues says he thinks that's a "very good idea."

Q: Mike Mayo, Deutsche Bank: Do banks have the option to purchase insurance or sell assets or does the option remain solely with the treasury once banks decided to participate?
A: Yes banks have the option to choose what program to participate in.
Q: Will insurance premiums be stretched out?
A: We don't know
Q: Will the Treasury still get equity stake in companies that chose insurance? Can the Treasury decide whether or not to let companies participate?
A. The Treasury will consider "long-term viability" of the firm. For the most part, we want to help the healthy banks get healthier as opposed to healing the failing banks.

Q: Eric Something, FSI: Will warrants for insurance programs be at similar ratios to asset purchases?
A: Yes.

Q: Mike Holt, Boston Company: when will the treasury start purchasing these assets? Wednesday? A couple weeks?
A: A few weeks, several weeks, once Congress passes bill
Q: But some people will fail before that?
A: We understand.

Q: Didn't catch the name, Davis Polk: When you decide to buy non,residential/commercial assets, do you have to ask for approval?
A: No, just consult with fed chair and send a note to congress


Q: Jeff, didn't catch firm name: Is there any way to ensure the purchased dollars are actually re-lent back into the system? will that be mandated?
A: No provision for that
Q: Can you add that?
A: We're always open and considering.


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