Every so often, a commentator either states `Bank A is insolvent’ or suggests that it might be. Wikipedia’s article on Citigroup, for instance, states (at least as I write this) During the most recent tax-payer funded rescue, by November 2008, Citigroup was insolvent What exactly might this mean, and how can we judge if claims [...]
‘Be careful what you wish for’ might be a good motto for some participants in the CDS markets, given the recent auction results. To recap a rather complex story, in what was known as the small bang, the industry has recently moved to settling CDS contracts after a credit event using one or more auctions. [...]
The markets are all over the place today. That spells opportunity. For me the glaringly good one is Greek sovereign CDS: as Ibex Salad pointed out in a comment on my previous post on spread widening, from a fundamental perspective, this looks like money for old rope. Yes, spreads could widen further, so don’t buy [...]
Reuters reports: Half of the losses suffered by banks could still be hidden in their balance sheets, more so in Europe than in the United States, the International Monetary Fund’s chief, Dominique Strauss-Kahn, was quoted as saying on Tuesday. That is what is possible with accrual accounting, as practiced in Europe. Viva fair value.
The BBC has come up with a very nice programme proposition: success in contemporary art as an exploit for reality TV. (Those of you who have access to BBC iplayer can see the show here; a review is here.) School of Saatchi has twelve artist contestants struggling for favour with the unseen collector, Mr. Charles [...]
In two pictures, both appropriately enough from the Big Picture. First the good news: the S&P Case-Schiller national house price indices are up again: The bad news, from First American Core Logic, is that despite recent price rises roughly a quarter of home owners are still underwater on their mortgages: In both cases click for [...]
FT alphaville picks up some research from Paribas on sovereign CDS spreads. The claim is that spread widening in the peripheral EU countries are being driven by ECB policy: The ECB signalled on Friday that it would soon start retracting some of the liquidity provisions it put in place last year, in a bid to [...]
Here is an interesting idea. The FDIC are suggesting that if a large systemically important institution is put into receivership by the FDIC and there are not enough assets to cover the cost of unwinding it to the government, all secured claims would be automatically converted into unsecured loans with a haircut of up to [...]
CRE prices are off roughly 40% in both the US and the UK. Delinquency rates are rising, and office rents, even in prestige areas, are falling rapidly. Deutsche Bank has turned into a casino operator (yes, yes, I know some of you think that this is not news). John Carney has a nice summary of [...]
It is an interesting sign of the times when the BBC feels that it is OK to show a banker being shot by an anti capitalist in a prime time show. Now this is fiction, of course, but I can’t help but think that this story line would not have been considered two years ago. [...]
There has been a lot of discussion recently about the SIGTARP report on the AIG bailout. See for instance here for Krugman, here for Naked Capitalism, and here for the Big Picture. At first I shared this outrage: Geithner undoubtedly underplayed his hand, and showed his usual snivelling obeiscance to the banks. But does it, [...]
See the sun! Ignore the muddy puddle. That’s the regulators’ way, according to a great post at Interfluidity: In good times, regulators have every incentive to take banks at their optimistic word on asset valuations, and therefore on bank capitalization. It is almost impossible for bank regulators to be “tough” in good times, for the [...]
Capital is protection against loss: the more capital you have, the more losses you can withstand without being insolvent. So far so obvious. One popular way of thinking about this is to think of the value of a firm’s assets as varying: the firm is insolvent if the value of their assets falls beneath the [...]
‘To frag’ is video game speak for to kill within the game. To efrag, in contrast, is to cravenly bend to the interests of German, French and Italian banks, or so it seems. From risk.net: In a move that leaves the reform of financial instruments accounting under a Brussels-shaped cloud, the key European Commission advisory [...]
From Bloomberg, via Naked Capitalism: Goldman Sachs Group Inc. paid off at face value some junior-ranking slices of two collateralized debt obligations at the potential expense of more-senior classes that now are likely to default, according to Fitch Ratings. This seems very bad – usually the note holders are prepaid strictly in order, either senior [...]
One more thought about contingent convertibles. Clearly as designed having one of these convert is a really bad sign: they are designed to convert only in event of severe stress. Indeed the Lloyds structure was tweaked to go from converting at a Basel ratio of 6% to 5%, in order to make conversion less likely. [...]
More goodies from from Piergiorgio Alessandri and Andrew G Haldane: Hedge funds started this crisis in the doghouse. Yet they are the dog that has not barked. Their industrial structure may explain why. Unlike banking, the hedge fund sector does not comprise a small number of large players, but rather a large number of relatively [...]
It has come to my attention that I may be in violation of HR 666, the Finance Bloggers being rude about Goldman Sachs Act, due to an absence of sufficiently snide posts about the vampire squid. In mitigation, then, here’s something from Cassandra Does Tokyo which amused me: Goldman Sachs is 100% categorically against abortion. [...]
The FT’s headline is Investment banking drives Barclays, and it’s accurate as far as it goes. Barclays uses retail bank deposits and credit rating to fund Lehman businesses would however be even more accurate. This is very much the model I discussed in I hate banking, just like the banks do. And it is profitable: [...]
My apologies for the chart overload of late: this is the last one for a while, I promise. But it is a good one. Taken from the Turner Review (discussed previously here), it shows the very long term trend in capital adequacy for UK banks calculated by various authorities. The hint from FSA is clear: [...]
Gordon comes out with a bombshell – or at least supports an idea that, despite its obvious and considerable merits, has not been mainstream. If there is one thing you could do to transform your legacy, improve the economy and enhance financial stability, it is to get agreement on a Tobin tax. Go Gordon go.
Consider this chart: To me, this does not suggest credit spreads searching for direction. The direction is clear: spreads have been trending down for the last six months. Could the wall of leveraged money hitting asset markets send them lower still? Sure. Will rising defaults hurt at some point? Sure. And don’t be misled by [...]
I often enjoy the lists in Canadian literary magazine McSweeney’s. Here from Mike Richardson-Bryan is a fine example, Airlines of Last Resort. It may have been slightly modified in transcription… Icarus Air Obstructed Airways Air Maintenance-Is-Optional Vengeful God Airlines British Airways
Chart of the day, on a Friday morning. This is as of the end of October, so we may be higher by the end of the day. Source: thechartstore.com via Calculated Risk.
In typically breathless style, Zero Hedge picks up a recent survey by reported Finextra.com of quantitative analysts: A staggering two thirds of quantitative analysts think their supervisors do not understand the work they do Now these numbers are likely to be distorted, firstly because the survey was done by a training provider, and secondly because [...]
If you have followed the story of the London 2012 Olympics at all, you will know that costs have risen enormously, a democratic mandate and scrutiny has been conspicuous by its absence, and the legacy of all of this public expense remains highly uncertain. To counter the cynicism of those of us who are actually [...]
All consultants have some subjects they spend a little too long on. Things they think should be better known or more popular than they are; things they thing are cute; things that amuse them. For me, contingent capital is one of those topics. The idea that you can keep capital levels low, and ROE high, [...]
As a postscript to my earlier post Never mind the quality, feel the funding, it is worth referencing an article by Nouriel Roubini in today’s FT. He calls the current situation the mother of all carry trades, since firms are borrowing in dollars to invest in risky assets, and implies that they have negative funding [...]
A nice article from FT alphaville reporting a publication by Moody’s: In the current market conditions, it is common for notes issued by a structured finance issuer to be acquired by the related originator and used as collateral under a central bank repo. As the sole noteholder, an originator may direct the trustee and issuer [...]
