To Our Clients, Colleagues and Friends:    

· P M I lost $274 million for the quarter, but the good news is that the company wrote off the final $103 million in FGIC, and the carrying value of the holding is now zero. We think things will start looking better in a quarter or two.

· Ever wonder what happens when banks fail?  Well, here’s  a pretty good summary: Over the weekend, the OCC shut down ANB Bank and cut a deal with Pulaski Bank to take it over.
(a) Pulaski took over $213 million in FDIC-insured deposits (i.e. those under $100,000) and paid a minuscule 1.091% premium for them, (b) they assume only $2 million in loans, and (c) for the difference in loans that they didn’t take, they got cash.  This was all done over the weekend, with the branches closing Friday as ANB and opening on Monday as Pulaski branches.  What a sweet deal for Pulaski, getting all those deposits and no nasty loans, just cash.

· Ten years ago today, Frank Sinatra died. We happened to be walking along Columbus Avenue on the Upper West Side of New York that evening, and it was the eeriest thing.  Every bar, every restaurant, every boutique had its doors and windows open, and every single one was tuned to the same station playing his songs.  We walked for what seemed like miles listening to his music pour out onto the sidewalks. We wonder if young people ever play his music for that last, slow dance of the evening.

· Michael Jackson’s Neverland Ranch just missed a foreclosure auction last week.  The Ranch was  bought at the last minute by Colony Capital for $20 million, whoever they are.  Interestingly, the lender was Fortress Investment Group.  We wonder what rate they charged.

· At the Bank of America, California & Florida account for 40% of home equity balances, and these two states alone were responsible for 52% of 1^st quarter delinquencies & 62% of net charge offs. Having said that, charge offs were surprisingly low. Smart bank that they are, they say that they like HELOCS  and will start growing them once things settle down.  We like that. We think the BofA is a great bank.

· Are you possibly reading this at breakfast?  Here’s what Winston Churchill had to say about the morning meal.   “ My wife and I tried to have breakfast together once forty years ago, and it was so disagreeable, we decided to never try it again.”  Funny. 

· Travel-tip: Many years ago there was a rock band called the Mothers of Invention, with a scraggly leader named Frank Zappa.  While they received only brief fame in the U.S. , they apparently caught someone’s attention in Lithuania .  The capital, Vilnius , like most East Europeans capitals, has very few public statues.  The reasons is that until 1991 or so, most were statues of Lenin, Marx or Stalin, but they all got torn down in the various revolutions. Well, when you’re walking from Vilnius Banka to the KGB Museum , you see a statue and you realize it’s the first one you’ve seen in days.  So you look up, and it’s a huge statue of Frank Zappa!  How bizarre.  We never did learn what his statue was doing there.

· We are noticing that many clients are playing offense again.  Playing of defense may have been necessary the past 6-9 months, but we like the spirit of those who are adding retail branches, recruiting loan officers, and aggressively growing their business.  For most retail shops, there are few better uses of the CEO’s time and energy than in recruiting top loan agents whose shops may be closing or hurting.
At some point, lenders playing too much defense look a lot like they’re shell-shocked.  Get out there and take your story to the legions of loan officers who are looking for a solid place to work.  They won’t come to you.  You need to woo them.  We see good recruiters succeeding at this every day.  If you’re the CEO, you should be setting aside several hours a day to recruiting good talent to your company.  It may be one of the best uses of your time.

· On May 13,  1912, a small dinner for four was held in Paris :  The four were Marcel Proust, Pablo Picasso, Stravinsky, and James Joyce.   What an interesting group!  By the way, if you could have dinner with anyone in history, who would that be?   

· Who will be the candidates for Vice-President?  One idea goes all the way back to the Democratic ticket of 1956.  With Adlai Stevenson at the top of the ticket, the Democrats shrewdly nominated Senator Estes Kefauver.  Their theory was apparently that if, God forbid, something were to happen to Adlai, the nation would still be led by someone with a funny name.  

· A good example of how maintaining high liquidity can allow you to take advantage of opportunities.  Redwood Trust says that since the beginning of the 2^nd quarter,  it has invested $84 million in highly rated securities which it purchased at 72 cents on the dollar. You’re not only getting a higher yield, but when individual loans backing the securities pay off, you make a nice 28 point gain (100 – 72).

Our Thought for the Day:  Two years ago it was almost impossible to recruit good people.  Now is the time to do it.  Target specific people, and have a plan for winning them over.  But don’t take a shotgun approach. Have specific targets, and as in everything, have a specific plan.

Joe Garrett and Corky Watt  -  Garrett, Watts & Co.