Since the Federal Reserve Bank of New York finished purchasing $1.25 trillion in mortgage backed securities in March 2010, it has continued to support those markets with billions in so-called dollar rolls. Even as this is not well known, what is less well known is that the advisor to the Fed's other MBS portfolio also continues to actively trade the account. The annual turnover appears to be 12%. One has to ask what the purpose of this turnover is, given it was sold to the public as a portfolio simply being wound down. Just what has BlackRock been selling off and who is buying the discards? (Could it be the Fed itself?) Is this a case of getting stronger paper into the portfolio for the benefit of JPMorgan Chase, run by President Obama’s "Favorite Banker", Jamie Dimon? Will an easily overlooked disclosure in the portfolio’s audit allow a $1.264 billion windfall payment to JP Morgan in the coming weeks? Nothing can be known for sure unless the Federal Reserve provides further data. But the trading in the portfolio and its valuation is very suspicious. Below is some background followed by a forensic analysis of what is known to date, with a discussion of what further data needs to be provided by the Fed to gain a full understanding of what BlackRock is attempting to accomplish with the unusually heavy trading in Maiden Lane.
On the wings of the US housing boom, Bear Stearns had become the second-largest underwriter of US mortgage bonds, but from the summer of 2007 through March 2008, it quickly devolved into fire sale fodder as the subprime market imploded. It was eventually sold for $10 a share (down from $159 per share) to JP Morgan Chase (JPMC). In testimony before the Senate Banking Committee, bank president Jamie Dimon said his firm was “acquiring some $360 billion of Bear Stearns assets and liabilities.” However, they “could not and would not have assumed the substantial risks of acquiring Bear Stearns without the $30 billion facility provided by the Fed.” Maiden Lane LLC was to be this facility, financed on June 26, 2008 with a $28.8 billion senior loan from the New York Fed and a $1.15 billion subordinate loan from JPMC. The loans would purchase part of the Bear Stearns portfolio and be managed by BlackRock Financial Management, Inc. as Investment Manager. JPMC’s losses would be limited to its $1.15 billion contribution. The loans would each have a ten year term, with the Fed scheduled to be paid back starting as soon as June 26, 2010. The NY Fed was also granted certain discretionary options with respect to the timing of the payback which will be explored later.
This unprecedented intervention by the Federal Reserve was fiercely contested, and Chairman Bernanke was brought before the Senate Committee on Banking, to explain post facto that:
The sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence…The purpose of our action, as with our other recent actions--including our provision of liquidity to financial firms and our reductions in the federal funds rate target--was, as best as possible, to improve the functioning of financial markets and to limit any adverse effects of financial turmoil on the broader economy.
Despite that what the Fed attempted to avert became a new chapter in history and economic text books, it would be reasonable to infer that the new facility would be purposed with the orderly wind down of certain Bear Stearns assets after liquidity later improved. Indeed, on March 24, 2008 the NY Fed published a summary of terms, which referenced BlackRock only to the extent that it had “been retained by the New York Fed to manage and liquidate the assets.” The accompanying press release said that “BlackRock Financial Management, Inc. will manage the portfolio under guidelines established by the New York Fed designed to minimize disruption to financial markets and maximize recovery value.” As will be demonstrated, rather than merely referring to opportunistic liquidation, “maximize recovery value” would come to mean aggressive opportunistic purchasing of new assets as well.
In addition, the summary provided the repayment order as follows:
Repayment of the loans will begin on the second anniversary of the loan, unless the Reserve Bank determines to begin payments earlier. Payments from the liquidation of the assets in the LLC will be made in the following order (each category must be fully paid before proceeding to the next lower category):
to pay the necessary operating expenses of the LLC incurred in managing and liquidating the assets as of the repayment date;
to repay the entire $29 billion principal due to the New York Fed;
to pay all interest due to the New York Fed on its loan;
to repay the entire $1 billion subordinated note due to JPMorgan Chase;
to pay all interest due to JPMorgan Chase on its subordinated note;
to pay any other non-operating expenses of the LLC, if any.
Any remaining funds resulting from the liquidation of the assets will be paid to the New York Fed.
The two important points thus far are: (1) the portfolio would be used to wind down certain Bear Stearns assets and (2), JPMC is lower on the repayment ladder than the American taxpayer, inasmuch as the NY Fed can be said to represent such.
In the meantime, things did not go well for the Maiden Lane portfolio. Though Dimon denied before the Senate that the riskiest assets had been placed in the facility, as Janet Tavakoli wrote on February 18, 2010:
The assets included financing in the process of being restructured for Hilton Hotels and financing for Extended Stay, a hotel operator that is in bankruptcy. Since June 2008, the Maiden Lane I portfolio deteriorated further, and the Fed's reported value had fallen from the original $30 billion (including JPMorgan's $1 billion "cushion") to $27.1 billion at the end of 2009. If Jamie Dimon didn't give the Fed his riskiest assets, then he must have taken on some interesting risk in that original $360 billion from Bear Stearns.
Approximately ten months after Maiden Lane’s June 26, 2008 inception, in April 2009, the NY Fed published for the first time detailed disclosure of its portfolio composition in the form of the 2008 Maiden Lane audit and a summary web page. Long after BlackRock had commenced management of the portfolio, the public became privy to the fact that its investment directive was not only to liquidate, but to remain fully invested—specifically, to re-invest any wound down securities for a period of at least two years. From the web page:
During the period from June 26, 2008 (the Closing Date) to the second anniversary of the Closing Date (Accumulation Period), any proceeds realized on the Asset Portfolio (including interest proceeds and proceeds from maturity or liquidation of the Asset Portfolio) after payment of certain fees and expenses and any payments made pursuant to the derivative contracts will be deposited into a reserve account (Reserve Account) and reinvested in certain eligible investments.
BlackRock Financial Management Inc. (Investment Manager) has been retained by the New York Fed to manage the assets held in the ML LLC portfolio.
The Investment Manager’s primary objective in managing the ML LLC portfolio is to pay off the Senior Loan, including principal and interest, while refraining from investment actions that would disturb general financial market conditions.
The Investment Manager may purchase new assets in pursuit of the objective noted above. Eligible assets for reinvestment must be dollar-denominated and must fall within one of the following two categories:
All U.S. Treasury securities
Agency securities (MBS and debentures)
New York Fed, at its sole discretion, may add permissible categories for reinvestment.
Additionally, the Investment Manager may enter into OTC and exchange-traded derivatives solely for the purpose of hedging interest rate risk. Derivative contracts that would create new exposures to equities, commodities, foreign currency-denominated assets or sub-investment grade assets are expressly prohibited.
Agency securities are the mortgage backed securities and debt of the various housing related enterprises that enjoy a direct or indirect guarantee by the US Treasury, such as Fannie Mae, Freddie Mac and Ginnie Mae. While certainly not immune from toxicity, there is a well established, relatively liquid (during normal times) market for their instruments. They are also sold under a prospectus and therefore registered with the Securities and Exchange Commission. Contrasted with the extremely illiquid loan portfolio and non-Agency (private label) MBS, it makes sense that if there were to be trading allowed, it would be in Agency MBS and, of course, US Treasurys.
Maiden Lane Holdings Analysis
In April and May, 2010, the NY Fed released detailed reports of Maiden Lane holdings as of January 31, 2010 and March 31, 2010, respectively. As the Current Principal Balance (CPB) and CUSIP were provided for each security held, an algorithm was applied to match the unique CUSIP for each Agency MBS for both report dates to reveal changes in the holdings over the two month period, specifically looking for: (1) changes in CPB, (2) acquisition of new securities, and (3) elimination of securities from the portfolio. With most MBS, as prepayments and defaults occur over time, CPB will decline into the final payout. However, depending on the structure of the MBS and market conditions, it can stay the same or rise. It is important to note that CPB does not give information about a security’s fair value.
Composition of Maiden Lane LLC Holdings
January 31, 20101
March 31, 2010
Total Assets in Maiden Lane2
Federal Agency & GSE MBS Assets3
Agency MBS ($) as % of Total Assets ($)
Number of Agency MBS Securities
1 Rounded to thousands for this reporting date
2 Current Principal Balance or Notional Amount (e.g., swaps and hedges)
3 Current Principal Balance
Source: Detailed ML holdings Federal Reserve Bank of New York
While total assets and Agency MBS decreased over the period, the number of issues of Agency MBS increased sufficiently to keep the percentage of the Agency MBS portion of the portfolio nearly constant with respect to total assets over the period.
Changes in Current Principal Balance of Maiden Lane LLC Holdings of Federal Agency & GSE MBSfrom January 31, 2010 to March 31, 2010
Beginning Agency MBS Assets
Agency MBS with CPB Lower1
Agency MBS with CPB Unchanged2
Agency MBS with CPB Higher
Newly Acquired Agency MBS
Agency MBS that was Liquidated or Received Final Payment
Ending Agency MBS Assets
1 Current Principal Balance (CPB)
2 Differences of less than $1,000 are considered unchanged because January 31, 2010 figures are rounded to the nearest thousand
Source: Detailed ML holdings Federal Reserve Bank of New York
Additions of new Agency MBS total 1.96% of Agency MBS assets as of the beginning of the period, which suggests that the total turnover for this part of the portfolio in the first two years ended June 26, 2010 could be 23.52%, or $7.512 billion. Some of the newly acquired securities were for forward delivery, such as FNMA 10-45 (CUSIP 31398PMD8) for $100 million, so the portfolio composition could conceivably change even after the two year accumulation period as forward contracts are settled.
Six months after Maiden Lane’s inception, the NY Fed began its $1.25 trillion Agency MBS purchasing program in January, 2010, and continued through March 31, 2010. Detailed holdings of these assets, which are managed by the NY Fed in its System Open Market Account (SOMA) are similarly disclosed weekly at par, or face value. An analysis was performed of the SOMA’s assets over the same two month period. Though little crossover between the SOMA and Maiden Lane disclosed assets was found, it would be necessary to obtain detailed holdings since inception to determine whether or not BlackRock possibly sold Maiden Lane assets to the NY Fed, especially since the January 31 to March 31 period was one in which the Fed was winding down Agency MBS purchases.
A similar analysis was also performed of the Maiden Lane residential mortgage backed securities (RMBS) portfolio. According to the NY Fed’s website, BlackRock was constrained to investing proceeds only in US Treasury securities and Agency MBS and debentures, and was expressly prohibited from creating any new exposure to sub-investment grade securities. Though the NY Fed retained sole discretion to add permissible categories for reinvestment, no disclosure has been made indicating that it did so.
It was curious then to find that four new RMBS appeared in Maiden Lane over the two month period, totaling $9.430 million. One in particular stands out as it is was underwritten by JP Morgan Securities Inc. and Countrywide Securities. Namely, $5.000 million of one Class M-8 (CUSIP 46626LBA7) of J. P. Morgan Acquisition Corp. 2005-FLD1, originally issued via a prospectus supplement dated July 29, 2005 in gross amount of $15.247 million, which was downgraded to CCC (junk status) by Standard & Poors on July 23, 2008. The other tree non-Agency MBS were ATRIUM V 2006-5 (CUSIP 04963WAJ5), CARRINGTON MTG LN 2006-NC5 (144539AN3), and CARRINGTON MTG LN 2006-NC5 (CUSIP 144539AM5).
Because JPMC is not only a subordinate debt holder of Maiden Lane, but also involved in its hedging transactions, there was a potential violation of section 23A of the Federal Reserve Act and the Board’s Regulation W. As such, it was granted an exemption by letter dated June 26, 2008 from the Board of Governors. The exemption was qualified as follows:
This determination is specifically conditioned on compliance by JPMC and JPMC Bank with all the commitments and representations made in connection with the request. These commitments and representations are deemed to be conditions imposed in writing by the Board in connection with granting the request and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific facts and circumstances of the existing and proposed relationships among JPMC, JPMC Bank, and Maiden Lane. Any material change in those facts and circumstances or any failure by JPMC or JPMC Bank to observe any of its commitments or representations may result in a revocation of the exemption.
While the $5 million RMBS purchase constitutes an immaterial portion of the Maiden Lane portfolio, it is material that, in the limited public disclosures released to date, there is not only an apparent violation of the original terms of the facility, but a glaring potential conflict of interest. In light of this, a review of the June 26, 2008 exemption letter may be in order.
The question remains: why all this trading by BlackRock for a relatively insignificant taxpayer asset, and why all these recent data releases by the NY Fed?
To answer, one must return to the updated terms page for Maiden Lane published in April, 2009, where for the first time there is disclosed an interesting statement about the repayment of the loans:
At the sole discretion of the New York Fed, repayment of the Senior Loan could commence during the Accumulation Period [sic prior to June 26, 2010], but only so long as the ML LLC pays in full the outstanding principal amount of the Subordinate Loan plus any accrued and unpaid interest.
It appears to be a backhanded escape clause that would allow JPMC to be repaid ahead of the NY Fed. No mention is made of any qualifications to ensure that the NY Fed would have a chance at future recovery. Additionally, the use of the term “commence” means it was not contemplated for both parties to be repaid in full ahead of time. Delving into the 2008 Maiden Lane audit for clarification, there are a few more details:
Repayment on the Senior Loan may only begin prior to the second anniversary of the closing date of the Loans if the Subordinated Loan has been paid in full. Repayment of the Loans will only occur after payment in full of closing costs for the LLC, operating expenses, and maintenance of a reserve account for loan commitments.
The only preconditions to early JPMC payout ahead of the NY Fed seem to be payment of certain immaterial expenses and a reserve account for loan commitments. Whether these loan commitments refer to the NY Fed’s loan to Maiden Lane of $28.8 billion, or to loan assets of the portfolio, or to something entirely different, is unclear. In the 2009 audit, there is even less disclosure:
Repayment of the Loans will begin solely at the discretion of FRBNY and will be made pursuant to the order of priority described in Note 4 except that repayment of the Senior Loan may begin prior to the second anniversary of the closing date of the Loans only if the Subordinated Loan is first paid in full.
What is found is a troubling Subsequent Events note at the end:
On April 8, 2010, an agreement was reached to modify approximately $4.1 billion of commercial mortgage and mezzanine loans held in the LLC’s investment portfolio. These loans, which represent the LLC’s largest investment based on unpaid principal balance, are reported as hospitality loans in the table in Note 6 that discloses the concentration of unpaid principal balances in the LLC’s investment portfolio. The key provisions of the modification include the discounted payoff of certain mezzanine loans, the conversion of the most junior mezzanine loans to preferred equity, an extension of the final maturity date of the remaining loans from 2013 to 2015, and an increase in interest rates and fees. Management is evaluating the impact of the modification and does not believe it will result in an adverse effect to the consolidated financial statements of the LLC.
These loan modifications include those of the famous Red Roof Inn, which Congressman Alan Grayson recently highlighted. As ZeroHedge commented:
The  properties [held by the Red Roof Inn] are part of the 131 Red Roof hotels which special servicers Centerline and LNR Partners are "working out" in restructuring $368 million of debt. As Debtwire reports: "The securitized debt backing the properties held within four CMBS trusts, represents a portion of the total USD 775 million senior mortgage. A good portion of the remaining USD 407 million in debt, held on lenders' balance sheets and intended for later securitization, landed with the Federal Reserve via Bear Stearns. The Fed holds $444 million in Red Roof Inn debt, which appears to be a mix of mortgage and mezzanine debt, through its Maiden Lane I vehicle." And here is why you should not trust any updates of Maiden Lane I from the Fed: "This month [April 2009], the appraisal reduction amount on the Bear Stearns loan was upped from $64.5 million to $102.3 million, according to Trepp, which amounts to a roughly 40% reduction in loan balance."
Despite Maiden Lane management’s cleverly worded claims to the contrary in the 2009 footnote, it is likely that these loan modifications will result in a material adverse valuation of Maiden Lane.
Measurement of fair value has garnered much attention in the media as accounting gimmicks have allowed banks to postpone losses and keep them off their balance sheets. Investments are hierarchically categorized, with Level 1 representing actual market prices, Level 2 reflecting market prices for similar instruments, and Level 3 using only financial models. Who performs the valuations for Maiden Lane? According to the 2009 audit notes:
The LLC values its investments on the basis of last available bid prices or current market quotations provided by dealers or pricing services selected under the supervision of the Investment Manager. To determine the value of a particular investment, pricing services may use certain information with respect to market transactions in such investment or comparable investments, various relationships observed in the market between investments, quotations from dealers, and pricing metrics and calculated yield measures based on valuation methodologies commonly employed in the market for such investments. Financial futures contracts traded on exchanges are valued at their last sale price. The fair value of swap agreements is provided by JPMC as calculation agent, subject to review by the Investment Manager.
Market quotations may not represent fair value in certain instances in which the Investment Manager and the LLC believe that facts and circumstances applicable to an issuer, a seller or a purchaser, or the market for a particular investment cause such market quotations to not reflect the fair value of an investment. In such cases, the Investment Manager applies proprietary valuation models that use collateral performance scenarios and pricing metrics derived from the reported performance of bonds with similar characteristics as well as available market data to determine fair value.
In certain cases where there is limited activity for particular investments or where current market quotations are not believed to reflect the fair value of a security, valuation is based on inputs from model-based techniques that use estimates of assumptions that market participants would use in pricing the investments. To the extent that such estimates of assumptions are not observable, the investments are classified within Level 3 of the valuation hierarchy. For instance, in valuing certain debt securities and whole mortgage loans, the determination of fair value is based on proprietary valuation models when external price information is not available. Key inputs to the model may include market spread data for each credit rating, collateral type, collateral value, and other relevant contractual features.
Below shows the composition of the Maiden Lane portfolio based on the NY Fed’s unaudited quarterly data provided on its website.
Two things stand out. First, throughout the entire period, net assets from Agency MBS grew, from $15.654 billion to $18.794, a 20.1% increase. Second, Other Liabilities, the only liabilities category disclosed, steadily shrunk from its March 31, 2009 nadir of $(5.505) billion to $(1.173) billion, a 78.7% reduction. Concurrently, Swap Contracts shrank from $2.454 billion to $0.903 billion. Because the Other Liabilities line contains collateral posted to Maiden Lane by swap counterparties, these two categories net somewhat. If Swap Contracts are netted with Other Liabilities and added to the contribution of the increase in Agency MBS, there is a $5.367 billion increase over the period, or 229.6% of the increase in fair value. Clearly, swaps and Agency MBS have been most influential with respect to fair value.
The below table is excerpted from the 2009 audit and depicts the fair value hierarchy of Maiden Lane in more detail.
Not all the lines agree with the NY Fed’s unaudited table, but it is possible this is a result of categorization. What is important is to recognize that nearly all Agency MBS is categorized as Level 2, and nearly everything else in Maiden Lane is categorized as Level 3.
As market prices only exist for Level 1 assets, or approximately 1% of the portfolio, BlackRock is therefore final arbiter of the fair value prices for the remaining 99%. While 71% of the assets are Level 2, the remaining (without getting into the complexities of the Netting category) are completely model based and thus, more opaque.
Peter Wallison comments on the fallacy of fair value accounting in this week’s Institutional Risk Analytics Newsletter. However, we can test the BlackRock model’s performance directly by examining the Federal Reserve’s H.4.1 release. It discloses the factors that affect reserve balances, namely its assets and liabilities. Inasmuch as it has a claim on Maiden Lane’s portfolio holdings, the Fed discloses Maiden Lane as an asset at fair value. According to the footnote:
…Fair value reflects an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Revalued quarterly. This table reflects valuations as of March 31, 2010. Any assets purchased after this valuation date are initially recorded at cost until their estimated fair value as of the purchase date becomes available.
Below is a graph of Maiden Lane’s fair value since the week of its June 26, 2008 inception, through May 26, 2010.
Most striking are the smooth rises followed by abrupt drops from inception into mid-May 2009, after which the drops become less severe, finally becoming large gains in February and April, 2010. These sudden changes are consistent with the quarterly valuation cycle, and typically occur about four weeks after the end of each quarter. This is the time when existing assets are revalued and newly purchased assets intra-quarter are valued for the first time.
The intra-quarter changes are not simple linear extrapolation, as there were some (but few) declines intra-quarter. Nor has there ever been an intra-quarter net decline from beginning to end. Also note that, during the week containing the flash crash of May 6, there was virtually no disruption to the model’s estimation of the portfolio’s fair value, despite massive interest rate and currency market dislocations, which affected all derivative classes.
Thus, one can conclude that intra-quarter reports of fair value are solely the result of a model (1) based nominally, at best, on market prices, (2) that has a positive bias, and (3) that is unable to predict changes to quarterly valuations. Removing the 7 weeks in which revaluations took place, the BlackRock model for Maiden Lane disclosed an average rate of return of 0.15%, with 94.6% positive returns, and only 1.02% annualized standard deviation. For reference purposes, according to a study by Bernard (no relation) and Boyle, Bernard Madoff’s Fairfield Sentry fund had monthly returns that were 92.33% positive with an annualized standard deviation of 2.45%. Similar suspicious metrics were part of the evidence Harry Markopolos presented to the Securities and Exchange Commission in his November 7, 2005 memo “The World’s Largest Hedge Fund is a Fraud.”
Annualized volatility of the quarterly results for Maiden Lane (thus eliminating intra-quarter fluctuations) is still a very low 8.02%, all the more remarkable when one considers that these were the very securities that brought Bear Stearns to the brink of bankruptcy and blew out many similar portfolios during the same period.
In his April 19, 2010 article for Institutional Risk Analytics, Alan Boyce of Soros Fund Management detailed the Federal Reserve’s mammoth exposure to interest rate fluctuations vis a vis its $1.25 trillion purchases of Agency MBS held in the System Open Market Account (SOMA), which is managed by the NY Fed. He calculated its risk exposure as $1.071 billion for each basis point move (0.01%) in interest rates, meaning, “if rates go up by 50bp, the FRB and Treasury would expect to lose $54 billion.” This begs the question of why bother to manage a $30 billion portfolio when a multi trillion dollar behemoth sits next door completely unhedged.
While it would be necessary to obtain all agreements related to the formation, acquisition and management of Maiden Lane LLC to determine exactly what occurred, a reasonable guess would be as follows. Maiden Lane’s substantial losses in the wake of the Lehman collapse in the Fall of 2008 made it unlikely the portfolio would ever regain its value and allow it to repay the $1.15 billion loan plus accrued interest to JPMC. In January, 2009, the New York Fed began its purchasing program of Agency MBS, and over the next fifteen months would purchase a total of $1.25 trillion of such securities. BlackRock would aggressively trade the very same classes of derivatives during this time, taking advantage of the Federal Reserve’s support of the MBS market and perhaps trading directly with the NY Fed. In April, 2009, the NY Fed would post the 2008 Maiden Lane audit and a disclosure to its website that allowed JPMC an early payout of its $1.15 billion loan plus accrued interest ahead of the NY Fed. Over the next year, BlackRock would methodically trade and value the Maiden Lane portfolio higher.
The two year early payout window for JPMC of June 26, 2010 is quickly approaching; however, the last quarterly valuation is as of March 31, 2010. Though mortgage backed securities have largely rallied throughout May on a flight to quality basis (being putatively government insured), Maiden Lane’s commercial mortgage loan portfolio has likely taken further hits since the April 2010 write downs, especially since it has 83.1% hospitality exposure. The second quarter 2010 revaluation will not be released until the end of July, 2010—itself largely based on mark-to-model accounting.
Accordingly, the NY Fed should be circumspect as it considers whether or not to repay JPMC prior to the next revaluation inasmuch as Maiden Lane was, by BlackRock’s own numbers, $2.519 billion underwater with respect to the total loan principal and accrued interest as of March 31, 2010. Should such payment be made and the second quarter revaluation reveal that Maiden is now in the black—thus, perhaps justifying the payout retroactively--the exposure to Level 3 assets would probably not be adequately measured by BlackRock’s model to provide enough of a cushion against future deterioration in its $4 billion commercial loan portfolio. An early payout to JPMC is a bet on the health of commercial real estate loans made to the hospitality industry at a time when underwriting standards were at a multi-decade low. The latest April write downs will not be the last.
Finally, while it is remotely possible that Maiden Lane is simply the best hedged and managed portfolio of modern times, it is important to recall that its purpose was to wind down and recover as much as could be expected for the taxpayers, with JP Morgan Chase taking the first $1.15 billion in losses. If Maiden Lane is eventually able to pay back the NY Fed and JPMC in full, it will be the result of BlackRock’s MBS trading, which was directly and/or indirectly subsidized by the Fed through its MBS purchase program. As the Fed’s $1.25 trillion in MBS assets are only reported at par and were acquired to support the market (meaning bought high and sold low), it would be difficult to justify a payback of any amount to JPMC until the Federal Reserve can demonstrate it has liquidated all of its MBS holdings without a loss.