UBS, the agencies, and other drama

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 […]

Soc Gen offers 0% on balance transfers up to €50B

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 […]

CPDO: Endgame

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 […]

False positives and false negatives

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 […]

‘Sucks’ is an invariant

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 […]

Tanking PFI

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 […]

One more thought on pay…

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 […]

How big might the hole be?

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 Shock

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 […]

The cost of capital, America edition

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 […]

Just in the nick of time

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. […]

Need a job in structured finance?

Lots of CDO sales people and traders do… Here is the latest CDO issuance data.Source SIFMA via Alea.

Social Mores and Default Frequency

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 […]

Monday a bad choice of day to be away from the market

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 […]

Baltic Dried

It seems my earlier skepticism about the level of the Baltic Dry Index was justified:

Volatility smolatility

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 […]

Prising apart the Merrill writedown

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 […]

Caught in the net

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, […]

Gold cards glisten no more

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 ABCs of counterparty credit

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 […]