Delayed rally in FMD

The press seemed to put a negative spin on the FMD report in the morning. Forbes online even said something to the effect that FMD "warned" that credit spread widening would hurt their business. Umm, yeah, spread widening hurts margins but that doesn't mean that they can't grow earnings significantly in the coming quarters. Margins are certainly a very important part of the earnings equation, but so is volume which absolutely surging.

Management said on the call that there would be "60 bp of revenue impairment for each 10 bp of spread impairment." In other words, for every 17 bp of spread impairment, securitazation margins fall by 1%. Here are the yields on the tranches from the last securatization:

Class A-1 Notes (AAA): one month LIBOR plus .04%
Class A-2 Notes (AAA): one month LIBOR plus .13%
Class A-3 Notes (AAA): one month LIBOR plus .23%
Class A-4 Notes (AAA): one month LIBOR plus .29%
Class A-IO (AAA): 6.7%
Class B (AA) : one month LIBOR plus .39%
Class C (A) : one month LIBOR plus .65%
Class D (BBB): one month LIBOR plus 1.35%

As far as I can tell, it's only the BBB tranche that has significantly widened, but it's only about 5% of volume and I'm convinced that at worst this credit scare just pushes those cash earnings out into future quarters.