Wednesday, September 05, 2007

Australian Central Bank to Buy Mortgage-Backed Debt

Lots of mistrust out there..... And when you talk about as the Ft calls it "Enron-esque characteristics" with off balance sheet vehicles like SIV / conduits in the ABCP market this should be no surprise....

Jede Menge Misstrauen am Markt vorhanden..... Und das sollte auch vorhanden sein wenn man sich die wie die FT es schön ausdrückt "Enron-esque characteristics" der Zweckgemeinschaften ansieht die ausserhalb der Bilanz geführt werden. Fragt hier in Deutschland bei der IKB und in Sachsen nach.

Sept. 6 (Bloomberg) -- Australia's central bank said it will buy debt backed by home loans to add cash to the financial system, after the U.S. subprime credit rout eroded demand for asset-backed securities and drove up interest rates.

> Looks like Bloomberg is overstating it. If you read the official press release Reserve Bank Of Australia DOMESTIC MARKET DEALING ARRANGEMENTS they are not buying RMBS they are taking it as collateral. But nevertheless they have widened the possible funding options....

> Sieht so aus als wenn Bloomberg hier etwas zu dick aufgetragen hat. Wenn man die offizielle Pressemitteilung Reserve Bank Of Australia DOMESTIC MARKET DEALING ARRANGEMENTS als Maßstab nimmt, werden die Papiere nicht direkt erworben sondern wie auch von der Fed & Co lediglich als Sicherheit herangezogen. Bleibt aber trotzdem festzuhalten das die Notenbank die Möglichkeiten der Geldbeschaffung erheblich ausgeweitet hat....

The rate banks charge each other for three-month loans fell 15 basis points from yesterday's 11-year high of 7.06 percent after the Reserve Bank of Australia said in a statement today it will buy top-rated bonds linked to mortgage payments. Asset- backed commercial paper and bank bills are also eligible for purchase.

The move increases funds available to banks and supports the market for asset-backed debt in Australia, where credit markets have been roiled by losses related to debt backed by loans to U.S. homeowners. National Australia Bank Ltd., the nation's largest lender, yesterday said an affiliate had been unable to refinance A$6 billion ($4.9 billion) of loans.

> The FT has this to say Bad pennies roll back to NAB?

NAB’s chief financial officer Michael Ullmer will tell a UBS investment conference in London that the bank expects to see about A$11bn of these assets migrate to its balance sheet by the end of September

And, quoting directly from the Cheery PR Guide to Complex Financial Crises, a spokesman told the newswire:

So whilst this wasn’t a predicted event, it isn’t an event that causes us any concern.

All the assets are rated AA- or higher and the impact on NAB’s core capital ratios will be minimal, the spokesman added.

We aren’t concerned about the credit quality of the assets coming on board because they are subject to our normal credit processes and of course we have done a lot of work to diversify our funding over the years so we are in a strong funding position.

Good pennies, in other words, rather than bad pennies rolling back. Honest (End FT)

Australia's lenders depend more on capital markets for funds than other banks in the Asia-Pacific, Moody's Investors Service said in a report. Australia & New Zealand Banking Group Ltd., the third-largest lender, said Aug. 30 profit margins on its loans have narrowed as much as 25 basis points.

`Helps the Markets'
The Reserve Bank yesterday left the overnight cash rate unchanged at an 11-year high of 6.5 percent. Central banks typically buy government securities in so-called repurchase agreements, or repos, for a set period to bring money market rates closer to their targets. At maturity, the securities and the cash are returned to the central bank.

The spread for three-month Australian dollar Libor over the RBA's benchmark rate touched 56 basis points yesterday, the widest since February 2000. It has averaged 12 basis points in the past five years. A basis point is 0.01 percentage point.

Refinancing Trouble
National Australia Bank moved funding for A$6 billion of loans onto its balance sheet after the unit holding some assets was unable to refinance in the short-term debt market, the Melbourne-based bank told investors in London yesterday.

The rate banks charge each other to borrow in dollar for three months in Singapore rose for a ninth day to 5.7775 percent, the highest since Jan. 3, 2001. A similar benchmark in Hong Kong rose to 4.972 percent, the highest since April 6, 2001.

``The higher cost of funding in the interbank market reflects the banks' reluctance to lend because nobody knows the extent of the subprime problem out there,'' said Joseph Tan, strategist at Fortis Bank SA in Singapore.

The Bank of Japan refrained from adjusting funds in the financial system today. In Japan, the rate for overnight call loans between commercial banks and other financial institutions in Japan rose to 0.49 percent as of 12:13 p.m. in Tokyo from 0.42 percent yesterday, according to brokerage company Tokyo Tanshi Co. That's still below the BOJ's target of 0.5 percent.

Yields on three-month U.S. asset-backed commercial paper rose on Sept. 4 to 6.16 percent, the highest in more than six years, according to data compiled by Bloomberg. In Australia, margins lenders have to pay on the securities have risen up to 20 times the level of a month ago to as much as 40 basis points.

While the Australian dollar Libor rate rose 54 basis points from the end of July until yesterday, the dollar Libor rate climbed 36 basis points to a seven-year high of 5.72 percent

Bloomberg has some details on the impact on the important core capital

Moving loans onto National Australia's balance sheet will reduce core capital by 0.15 percent

Australia & New Zealand Banking Group Ltd., the nation's third-largest bank, has moved A$2.5 billion of loans back onto its balance sheet, and may shift the remaining A$2.1 billion by the end of this fiscal year, spokesman Paul Edwards said today. That will reduce its core capital ratio by as much as 20 basis points

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Blogger jmf said...

ECB Offers Extra Cash to Banks to Soothe Volatile Money Market

Sept. 6 (Bloomberg) -- The European Central Bank said it will offer extra cash to banks to soothe volatile credit markets, just hours before it is due to decide on interest rates.

The ECB called for bids in a one-day refinancing operation tender with a 4 percent minimum bid rate. Bids must be submitted by 9:35 a.m. Frankfurt time. The ECB did not specify an intended volume.

12:26 AM  
Blogger jmf said...

European Central Bank: $715 million borrowed at 5%

The European Central Bank said that 526 million euros ($715 million) was borrowed at its marginal lending facility, which is akin to the Federal Reserve's discount window, at 5%. The ECB separately conducted a one-day tender.

1:23 AM  
Blogger jmf said...

For AstraZeneca at least, the cost of money is going up

It was difficult to know immediately if a move by drug group AstraZeneca to tap the bond markets for $6.9bn to replace its commercial paper programme was opportunistic or done in something of an emergency.

Back in the Spring, AZ agreed to buy MedImmune, the American biotech, for just over $15bn - a move that triggered credit rating downgrades. The deal clearly needed to be properly financed, on a long-term basis.

But at first glance the company’s cost of funds seems to have jumped sharply, while it still appears to have a heap of troublesome CP to refinance.

Using Citigroup, Deutsche Bank, Goldman Sachs, HSBC and JP Morgan, AZ has issued four new tranches of paper — $2.75bn worth of 30 year notes at 6.45 per cent, $1.75bn in 10 year notes at 5.9 per cent, $1.75 of 5 year notes at 5.4 per cent, and then a tail of 2 year floating paper at 30 bps over 3m $ Libor.

That compares with a reported weighted average of 5.4 per cent attached to its previous $13bn CP programme.

When or whether the rest of AZ’s CP will be refinanced was not immediately clear - the implication being that the drug company is simply in the same position as any entity holding a hung LBO bridge loan.

Still, in a statement, after this latest bond issue, chief executive David Brennan was able to declare himself “delighted” by investors’ reception.

In private he would probably have used the word “relieved.”

1:26 AM  
Blogger jmf said...

European Central Bank injects $57.4 billion in tender

The European Central Bank on Thursday allocated 42.24 billion euros ($57.4 billion) in a one-day tender. It provided the funds at an average rate of 4.13%.

Banks have requested 91 billion euros.

The move brought the overnight rate at which banks lend to each other down to 4%, which, heading into the interest-rate decision due later on Thursday, is the ECB's base rate

1:51 AM  
Blogger jmf said...

StanChart loses its head of risk — cue the gossips

...barely a week has passed since there was intense speculation (quickly denied) that StanChart might have to bail out an £8.4bn SIV called Whistlejacket.

2:36 AM  
Blogger jmf said...

BOE and the ECB both left rates unchanged.

Especially the action from the ECB is very disappointing!

I can smell fear....

Got gold ?....... :-)

4:53 AM  
Anonymous Anonymous said...

CPDOs Rated AAA May Risk Default, CreditSights Says

Sept. 6 (Bloomberg) -- Credit derivatives awarded the top ratings by Moody's Investors Service and Standard & Poor's may be as vulnerable to default as high-risk, high-yield bonds, according to independent research firm CreditSights Inc.

Constant proportion debt obligations use credit-default swaps to speculate that a group of companies with investment- grade ratings will be able to repay their debt.

Yet another derivative...unglaublich. Must be hard to rate something you may not fully understand, or for something so new there is no market history to go by.

Financial engineering indeed.


6:07 AM  
Anonymous Anonymous said...

And the action by the ACB seems like a bailout to me -- making a market in paper no one else wants, without being too concerned about selling it on later.


6:08 AM  
Blogger jmf said...

Moin Eh,

Credit derivatives - At the risky end of finance / Economist

But those are just the straightforward recipes. The ever-inventive financial sector has taken the ingredients and cooked up a bewildering alphabet soup. A CDO2 invests in other CDOs.

CPDOs are constant proportion debt obligations which can borrow up to 15 times their capital to insure an index of bonds (such as the iTRAXX) against default; the result is a highly geared structure that pays up to two percentage points above cash rates and yet is given an AAA rating.

Let them crash!

6:18 AM  
Blogger jmf said...

Lee Adler

I think the Boomberg article on the Oz central bank “buying” high quality mortgage backed paper is a little misleading. Our Aussie posters on’s message boards mentioned it last night. The central bank is actually only accepting them as repo collateral, which is no different than what the Fed does. They aren’t actually “buying” the paper. A repo is really a loan against that paper as collateral, quite different from an outright purchase.

That makes sense to me.

6:45 AM  
Blogger jmf said...

from the Reserve Bank Of Australia

8:18 AM  
Anonymous Anonymous said...

A lovely lofted backhand slice from the ECB.....

12:16 PM  

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