Tuesday, December 18, 2007

SIV liquidity problems: The next wave looms

Another reason to strenghten the balance sheets or we soon will see more news like this or this Santa Claude at the ECB. It looks like Santa Claude will have to return more than once a year.....

Ein weiterer Grund um die Bilanzen so schnell wie möglich zu stärken oder wir werden un s bald an Meldungen wie diese und diese Santa Claude at the ECB gewöhnen müssen. Santa Claude wird wohl demnächst öfter als einmal jährlich erscheinen müsen.....

FT Alphaville Funding problems for the structured investment vehicles at the heart of this year’s liquidity troubles are far from over, despite the move by a number of banks to step in to support their vehicles, reports the FT’s Paul Davies on Tuesday.

January will bring the start of a second wave of liquidity problems for SIVs as the vast majority of medium-term funding starts to come due for repayment, according to a report from Dresdner Kleinwort analysts to be published on Wednesday.

SIVs rely on cheap, short-term debt to fund investments in longer-term, higher-yielding securities. This cheap debt has come from both the very short-term commercial paper markets and from the slightly longer maturity, medium-term note (MTN) markets. CP funding has long dried up and much of what was sold has matured.

So far, SIVs have primarily felt the impact of collapsed CP issuance, Domenico Picone at DrK told the FT. Outstanding MTN for the 30 SIVs currently stands at $181bn, which will be the next liquidity challenge they face, he added.

This represents almost 65 per cent of the value of the SIV sector in mid-October, and it is likely that SIVs have shrunk a great deal more since then.

According to the DrK analysts’ calculations, two-thirds of all MTN funding for SIVs comes due for repayment by the end of next September. Almost $40bn is to be repaid from January to March alone.

> Yves from Naked Capitalism nails it

No wonder banks are hoarding cash.....

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6 Comments:

Blogger jmf said...


Money Market Rates Tumble as ECB Injects Record $500 Billion


The cost of borrowing euros fell the most ever as the European Central Bank injected an unprecedented $500 billion into the banking system to ease gridlock in the credit market.

The amount banks charge each other for two-week loans in euros dropped a record 50 basis points to 4.45 percent, after climbing 83 basis points in the past two weeks, the European Banking Federation said today. That's 45 basis points more than the ECB's benchmark interest rate.

The decline is the first sign attempts by policy makers to revive interbank lending are succeeding. Central banks, led by the Federal Reserve, are seeking to restore confidence to money markets after the collapse of the U.S. subprime-mortgage market. The ECB loaned 348.6 billion euros ($501.5 billion) for two weeks at a marginal rate of 4.21 percent today.

``These are strong-arm tactics intended to show the market that they're seriously committed to breaking the deadlock,'' said Marc Ostwald, a fixed-income strategist at Insinger De Beaufort SA in London. ``The ECB is helping to bankroll banks out of a problem that they themselves created.''

The ECB said bids at today's auction were received from 390 banks and ranged from 4 percent to 4.45 percent. The central bank first offered extra cash on Aug. 9, when it lent an unprecedented 95 billion euros in emergency funding. Banks borrowed 2.435 billion euros ($3.5 billion) at 5 percent yesterday, the most since Sept. 26, the ECB also said today.

The three-month euro borrowing rate fell 7 basis points to 4.88 percent, down from near a seven-year high, the EBF said.

The Euribor rate is based on a 360-day counting method for the year. The EBF represents the interests of 4,500 banks in 24 member states of the European Union and in Iceland, Norway and Switzerland.

3:57 AM  
Blogger Edgar said...

$500 billion? Is that all? What a bunch of pansies! Little girlie men bankers, that's what I say. BTW, when do I get ::my:: check?

6:23 AM  
Blogger jmf said...

Moin Edgar,

amazing isn´t it....

Things really must be ugly....

The press release from Goldman is so short of any disclosure that if they don´t provide more details during the call the stock and the market will sell off from the very strong pre opening indication

6:28 AM  
Anonymous eh said...

"Maybe this is the sign we've all been waiting for that a peak in Libor has been reached," said Patrick Jacq, a fixed-income strategist at BNP Paribas SA in Paris. "It's a definite sign of an improvement in the market."

I don't think "the market" had anything to do with this. As I understand it, the problem was that banks were reluctant to lend to each other. So now the ECB has stepped in to say it will lend all the money needed.

8:07 AM  
Blogger Edgar said...

The only thing this will do is serve to remind me that Europe actually has $500 billion laying around. This is exactly what the maggots over here were hoping would happen, that Europe and China would be forced to cover losses from reserves. Doesn't anyone get angry when they get screwed anymore?

10:45 AM  
Anonymous Worried said...

interesting video that discusses mainly the ECB action

http://www.papereconomy.com/BNN.aspx?id=477

1:35 AM  

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