The following is an interesting letter that I received from one of my many astute subscribers. He brings up the valid point that once management is allowed to exercise imprudently wide discretion in terms of disclosure (and by extension, opinion on valuations), then investing in the US public equity markets becomes essentially a widespread, electronic form of Vegas slot machines. Keep this in mind as I prepare to release my findings on JP Morgan (see the questions I raised about their derivative exposure here: (Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?) to subscribers, with a few freebies and tidbits to the general public as well.

Letter from a concerned reader (I haven't' disclosed his name, but he is free to reveal himself in the comments if he wants to):

Reggie:

Based on some recent research, it is clear that a small loan for $225 million from Goldman Sachs was the proximate cause of GGP's bankruptcy.

Here it is. Goldman made the loan on 10-8-2008 with GGP pledging various Columbia, MD properties as collateral. The collateral was released on May 15, 2009. I pieced this puzzle together from the Q 4 10-K referencing the $225 m Goldman loan (GGP Q4_10k 08/09/2009,14:10 65.99 Kb), a 2-4-2009 WSJ article discussing the loan (Loan Deadline Passes for General Growth - WSJ.com), the Q2 2009 10-k cash flow statment (GGP_Q2_10k_cashflow 08/09/2009,14:09 480.58 Kb) showing the funding of the DIP loan and the takeout of the Goldman loan evidenced by the deeds of trusts (GGP Goldman Deed of Trust 2009-09-08 14:03:23 2.08 Mb) and releases of the collateral (Goldman GGP Release 2009-09-08 14:06:07 63.08 Kb). In addition, the forbearance agreement reached in April 2009 required GGP to disclose the terms of Goldman loan agreement.

Reggie, the inescapable conclusion is that this loan was the time bomb that blew up GGP. How else can one explain their takeout with the DIP facility. This loan has never been disclosed.

Frankly, this is post-mortem non-actionable intelligence. For me this Goldman loan deal is an excellent example of excessive management discretion in defining a "material definitive" event. In this case, management deemed that a $225 million loan was "immaterial" and elected not to disclose the terms of the deal.

Six months later, the loan comes due with the lender apparently threatening Armageddon, successfully I might add, with the loan getting taken out in May with funds from the DIP line.

Also, attached, please find a copy of a letter from the SEC regarding the Bucksbaum Trust loans to the officers to cover margin calls (SEC_letter_re:_o d_loans 08/09/2009,14:20 19.74 Kb). So far, I have not located their reply. For those that haven't been following the blog for long, we found evidence of these issues over a year and a half ago, and plainly stated our concerns years before the lawuits were even considered. See "We did find some surprises, and my blog readers chimed in with their expertise and opinions..."

This failure to disclose is a real issue. How can anyone make informed investment decisions when management is withholding critical agreements that impact directly on the solvency of the Company.

I would like everyone to keep that last thought in mind as we parse through JP Morgan's (the so-called "most respected commercial bank on the street") deep dive next week.

GGP analyses

• Will the commercial real estate market fall? Of course it will.
• Do you remember when I said Commercial Real Estate was sure to fall?
• The Commercial Real Estate Crash Cometh, and I know who is leading the way!
• Generally Negative Growth in General Growth Properties - GGP Part II
• General Growth Properties & the Commercial Real Estate Crash, pt III - The Story Gets Worse
• More on GGP: A Granular View of Insider Selling and Lease Rate Growth
• GGP part 5 - The Comprehensive Analysis is finally here
• My Response to the GGP Press Release, which seems to respond to blogs...
• For those who were wondering what sparked that silly press release from GGP...
• GGP: Foreclosure vs Asset Sale
• GGP Refinancing Sensitvity Analysis
• GGP part 7 - Share value under the foreclosure analysis
• GGP part 8 - The Final Anaysis: fire sale of prime properties
• Analysis of GGP's recent Q1 results
• GGP Conference Call
• Reader's legal observation on GGP
• GGP Can't Afford its Dividend
• Press release announcing new equity financing - something that I didn't explicitly model in my own analysis, but after reviewing information without the benefit of official documentation, there were no surprise nonetheless...
• We did find some surprises, and my blog readers chimed in with their expertise and opinions...

Goldman Sach's Research:

Subscribe
Goldman Sachs Stress Test Retail 2009-04-20 10:08:06 720.25 Kb - 17 pages
Goldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 Mb - 131 pages

Free research and opinion

• Reggie Middleton on Goldman Sachs' fourth quarter, 2008 results
• Goldman and Morgan losses in the news, about 11 months late
• Blog vs. Broker, whom do you trust!
• Monkey business on Goldman Superheroes
• Reggie Middleton asks, "Do you guys know who you're messin' with?"
• Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis
• Reggie Middleton on Goldman Sachs Q3 2008
• As Reality hits, the Masters of the Universe are starting to look like regular bank employees

Premium Stuff!

• Goldman Sachs - strategic investment and public offering 2008-09-26 02:29:15 895.36 Kb
• Goldman Sachs Report June 21, 2008 2008-10-20 16:48:01 361.18 Kb
• Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Professional 2008-12-18 10:12:37 267.49 Kb
• Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Retail 2008-10-20 15:45:05 348.99 Kb
• GS ABS Inventory 2008-02-25 06:48:56 1.22 Mb