A panoply of drama today. First UBS. $14B. That’s quite a lot. As Bloomberg reports: The Zurich-based bank announced today a net loss of 12.5 billion Swiss francs ($11.4 billion) for the fourth quarter [...] The bank increased markdowns directly linked to the subprime market to about $12 billion from the $10 billion it forecast [...]
Some interesting things concerning the Shock Gen event: Margin. As Alea points out, the margin on Shock Gen’s positions would have been about 4.9B euro. Didn’t they notice they were funding a few billion euros more margin than they thought they were? If they thought the offsetting position was with a client, didn’t they call [...]
The end of some of the CPDOs nears. I did hint earlier that a yield of Libor + 200 implied that they were not AAA securities, and indeed it turns out that, once again, straightforward beta rather than alpha was the cause of the return. Anyway, Bloomberg reports: ABN Amro Holding NV clients face 90 [...]
The Treasury select committee report on Northern rock has some criticism for a range of targets from Alistair Darling, through the board of the bank itself, to FSA. While none of it boils down to ‘hang them from the nearest telegraph pole’, FSA in particular comes in for considerable censure.According to the FT: Sweeping new [...]
If a model sucks today, the strong likelihood is that it will suck tomorrow. VAR sucks. Let’s reprise the case. VAR is procyclical. As markets rise, volatilities and correlations tend to fall so the VAR for a position goes down, encouraging over-leverage. When they crash, VAR goes up, encouraging firms to cut at the worst [...]
I have blogged before on the idiocies of PFI – how Gordon Brown has a reputation for economic prudence given he facilitated this is beyond my ken – but the latest news is even more extraordinary. Not only are we paying more for our infrastructure than we should, but now the very future of an [...]
The columns of the FT have been reverberating with comments on banker’s pay recently (see here, here, here and here) with a predictably strident reaction from the blogosphere (see, if you must, here, here and here). One issue here that hasn’t received attention, though, is the wonderful effect of diversification for managers. Suppose you are [...]
Following on from my musings earlier in the week that it was the (perhaps false) hope of a monoline bailout that caused the market recovery, possibly together with a bounce back after the negative price impact of Soc Gen’s liquidation of its rogue trader position, let us turn to the result of a downgrade of [...]
Soc Gen has discovered there is less behind those nice sturdy vault doors than they thought. 4.9B Euros less, approximately, according to Bloomberg, thanks to the activities of a rogue trader, Jérôme Kerviel. They are raising 5.5B Euros of fresh capital. The similarities with Barings border on the eerie. The trades were in equity index [...]
Bank of America that is. BofA is marketing $13B of securities according to Bloomberg: The sale will be split between $5 billion to $6 billion of perpetual securities that may yield 8 percent, and $6 billion to $7 billion of convertibles that may yield 7.25 percent to 7.75 percent, said the person [familiar with the [...]
Did the rate cut work? No. Did the bailout of the monolines work? Yes. The week so far in pictures (respectively the Dow, Dax and FTSE).It seems that worries about losses to banks on wrapped bonds, the closure of the muni market, and yet more structured finance write downs were more pressing than rates. Update. [...]
Lots of CDO sales people and traders do… Here is the latest CDO issuance data.Source SIFMA via Alea.
Before 1990 defaults on Hong Kong credit cards were very rare. It seems that then the holders viewed paying back their debt as a matter of face, and they would borrow from family or friends rather than default on an obligation to a bank. Between 1990 and 2000 the default frequency slowly rose, and now [...]
Times to treasure. Fitch downgraded Ambac on Friday and the firm subsequently posted a $3.2B loss. This is the beginning of the end for the monolines, and the roughly $2T of bonds they have wrapped. The knock on effects in the muni market will be huge. Then we had some equity market action: the DAX [...]
It seems my earlier skepticism about the level of the Baltic Dry Index was justified:
The FT points out what is perhaps obvious, that volatility of equity indices is rising. I hadn’t appreciated the size of the issue, though, until I saw this: Wednesday’s intra-day whipsaw of 632 points on the Dow Jones Industrial Average is the fifth largest on record (the top four all occurred during the tech bubble [...]
The headline is Merrill Posts Record Loss on $16.7 Billion Writedown. Let’s take the Merrill earnings release and pull it apart a bit. Specifically, consider the CDO positions. A first glance, the position seems fairly benign.But now consider the footnotes: (2) Primarily consists of principal amortization for U.S. super senior ABS CDO net exposures, as [...]
From Naked Capitalism: Annual Premium as a Percent of Exposure: MBIA 18 basis points Ambac 21 basis points Leverage (Net Debt Service Outstanding/Statutory Capital) MBIA 147X Ambac 143X That speaks for itself I think. Update. The testing times continue for the monolines. From Bloomberg: New York-based Ambac dropped as much as 65 percent and Armonk, [...]
Do you remember when prime card backed ABS was the best kind of ABS money could buy? I do… but it isn’t any longer.
The FT has an article on the failure of SCC, a Dublin-based credit derivatives product company or CDPC. SCC was only twenty five times leveraged, a relatively low level compared with some of the other CDPCs. But it did have a small absolute level of capital, $200M, and no rating. What is interesting is why [...]
14%, according to Reuters.
Equity Private is posting again. That is the cause for some celebration. Her creativity have obviously been refreshed by an absence from the blogosphere (what an ugly word) and she has some acerbic gems at the moment. My favourites: My own disposition is towards limited market efficiency–prices reflect all sufficiently scrutinized information, subject to sufficiently [...]
There has been a lot written recently on the Japanese scenario – of the U.S. falling into a deflationary spiral with a banking system that can’t function due to the weight of non-performing assets. This ranges from rumour (step forward Naked Capitalism) through calls to action (a nice Bloomberg article by William Pesek) to doom [...]
A river of money that is. Writing in the FT, Raghuram Rajan comments on recent bonus decisions: Banks have recently been acknowledging enormous losses, yet those losses are barely reflected in employee compensation. For example, Morgan Stanley announced a $9.4bn charge-off in the fourth quarter and at the same time increased its bonus pool by [...]
Bloomberg reports that MBIA is falling again: MBIA Inc., the giant bond insurer hobbled by the collapse of the subprime market, will cut its dividend 62 percent and raise $1 billion in a sale of notes to boost capital and preserve its AAA credit rating. The Armonk, New York-based company has declined 81 percent on [...]
One of the few resonant sentences in the new Basel Accord – a document which mostly reads as if it were written by a committee (as it was) – concerns commercial real estate: In view of the experience in numerous countries that commercial property lending has been a recurring cause of troubled assets in the [...]
Further to the discussion on Saturday, here are some more thoughts on risks in pensions and who should bear them. Pensions are complicated things. Consider a typical defined benefit scheme. Here the pensioner has a right to a certain level of pension – often index linked – and the employer has an obligation to provide [...]
The key question with any private sector involvement in public projects is whether the extra return shareholders rightly demand is compensated by increases in efficiency. Often the answer to that is no, which is why PFI makes so little sense – especially when you remember that there is rather little risk transfer to the private [...]
Here’s what an actuary used to do. Look at the markets. Assume the future will continue to be like the average of the past. Take massive amounts of hugely long dated risk on that basis. Unsurprisingly that strategy didn’t work that well which is why we have a pensions crisis (as I discussed earlier: see [...]
In the financial markets there is nothing really new. Some vaguely good news: The ABCP market has expanded a little, for the first time since August 2007; The 3m swap spread has come in a little; and Despite all the talk, a major monoline has not yet defaulted or even lost its AAA. Meanwhile the [...]
