Wednesday, December 19, 2007

Merry Christmas / Frohe Weihnachten

I´ll be taking a few days of over the holidays and the new year and wish every reader & their families a merry christmas and all the best for 2008

Ich werde mir über die Feiertage mal eine Auszeit gönnen und wünsche allen Lesern & deren Familien ein besinnliches Weihnachtsfest und alles Gute für das Jahr 2008.







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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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Monday, December 17, 2007

More Greenspan Bashing

Compare this with the exclusive view from Greenspan Alan Greenspan explains the roots of the mortgage crisis If you can stand more from Greenspan click here or watch the following video

Vergleicht das mit den doch bedenklichen Aussagen von Greenspan......Alan Greenspan explains the roots of the mortgage crisis Wenn Ihr noch mehr von Greenspan vertragen könnt klickt bitte hier oder seht einfach das folgende Video



Fed Shrugged as Subprime Crisis Spread NYT

bigger / größer

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"Honey, I Shrunk The Company" Centro Properties Down 76 Per Cent

Another one in the series Honey, I Shrunk The Company"....

Ein weiterer Kandidat aus der Serie Honey, I Shrunk The Company".....

Flashback March 2007
Centro Properties of Australia is set to become the fifth-largest operator of shopping centres in the US after agreeing to buy New Plan Excel Realty Trust for $3.7bn in cash. The deal is the biggest acquisition to date by an Australian real estate investment trust in the US. Including debt, it amounts to $6.2bn. Centro said it would finance the takeover by issuing new shares worth A$1.25bn in both the company and the trust, as well as raising a further A$750m from fund inflows and hybrid financing. JPMorgan Chase will underwrite the share offering.
Shopping for subprime victims, down under FT Alphaville
Anyone still needing to be convinced that synthetic financial strife has real world consequences could look down under on Monday - to Centro Properties, the Australian shopping mall operator. A cut in its 2008 earnings forecast of 13.6 per cent caused a 76 per cent plunge in its share price - bringing Centro’s market cap down from A$4.82bn to A$1.15bn.

Bloomberg

Centro Properties Group, the owner of 700 U.S. shopping malls, slumped 76 percent in Sydney trading and said it's struggling to refinance debt because of the collapse in the U.S. subprime housing market.

With A$26.6bn of property on its books, the company is having to face up to sharply higher financing costs and is already looking at selling its US acquisitions to private equity buyers, although no names were mentioned. As recently as March it paid US$6.2bn to acquire New Plan Excel Realty Trust.

Taken from todays Centro Presentation



Centro said it had won an extension for all of its maturing debt - but only up until February 15. Refinancing talk continuing in the meantime. Chairman Brian Healey said:

Tightened credit conditions have…had the effect that negotiation of a comprehensive refinancing package of these short-term facilities has not yet occurred.“It has become clear that to secure longer term financing in the current illiquid credit market, Centro will need to reduce its gearing level significantly.

Last week, Merrill Lynch said that it had doubts about Centro’s business model and rating agency Standard & Poor’s put the group on credit watch, causing a temporary suspension of Centro’s shares.

> I assume they will have to update their statement on securitisation ( and others) from their euphoric annual 2007 review

> Sieht ganz so aus als wenn die Aussagen zum Verbriefungsmodell in dem rückblickend mehr als amüsanten Rückblick für das Jahr 2007 nicht mehr ganz aktuell sind

The 2007 financial year has seen retail property continue to deliver strong total returns to investors.”
Brian Healey, Chairman

The benefits of using a CMBS funding arrangement compared to traditional
bank debt are:

It is more flexible;
• It involves less administration; and
• It has more generous loan covenants.

OUCH!
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Sunday, December 16, 2007

Canadian asset bail-out falters

No wonder the Bank of Canada is making some changes for their collateral..... Nice to see that so far they havn´t included cdo´s (so far).

Da wundert es wenig das die Bank of Canada einige heftige Änderungen Ihrer Bestimmungen in die Wege leitet.... Schön zu sehen das zumindest CDO´s noch noch nicht enthalten sind.

By the end of March 2008, the Bank will expand the list of eligible securities to include certain types of Canadian dollar-denominated ABCP that meet the following general criteria: are bank-sponsored, are covered by a liquidity provision that meets global standards, and are backed by traditional assets of an acceptable credit quality. In addition, higher standards of disclosure and additional credit ratings will be required. Asset-backed commercial paper backed by collateralized debt obligations and other highly-structured assets will not be considered at this time.

FT Alphaville
A panel seeking to restructure Canada’s frozen asset-backed commercial paper market is struggling to persuade more than a dozen Canadian and foreign banks to provide billions of dollars in back-up funding for the securities. The committee, headed by Purdy Crawford, a prominent corporate director, failed to meet Friday’s deadline for an agreement on restructuring terms, or to provide details of the assets held in 21 frozen trusts, or conduits.

One trust has been restructured.

David Dodge, Bank of Canada governor, warned last week that a meltdown of the highly-leveraged trusts could have a severe knock-on effect in global financial markets, affecting assets worth up to C$250bn ($246bn).

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A Little Acid Test for Fed "Liquidity" / Hussman

Another attempt from Hussman to put things into perspective. While i agree in general what he has to say this time i´m a little more critical. I have the feeling that the latest Fed plan could be the beginning of a larger operation with "subprime" transparency and questionable collateral. But i´m with him that no matter what the Fed will do they have zero chance to stop the trainwreck that is hitting the US economy.

Ein weiter Versuch von Hussman die letzten Ereignisse ins Verhälrnis zu rücken. Auch wenn ich im allgemeinen mit Ihm übereinstimme bin ich diesesmal doch etwas kritischer. Ich habe so das leichte "Bauchgefühl" das die letzte Fedinnovation durchaus das Zeug dazu hat bei "Erfolg" wesentlich größerer Volumina zu beinhalten. Hinzu kommt das die Transparenz praktisch verschwunden ist und nachweisbar extrem fragwürdige Sicherheiten akzeptiert werden. Das ändert nichts an der Fesstelleung das egal was die Fed noch auf die Beine stellt der Verfall der US Wirtschaft nicht zu stoppen ist.



A Little Acid Test for Fed "Liquidity"
As usual, that's not to say that Fed actions provide more than psychological effects and a sort of “square dance call” for short-term rates anyway (which market rates often ignore, or precede). Still, inflation and dollar risk does complicate things a bit for the Fed, which is now forced to finance its predictable repos with great fanfare, as if they actually matter.

Case in point is the ridiculously over-hyped “term auction facility” announced last week. According to that announcement, the Fed plans to auction about $40 billion of “liquidity” this week: $20 billion on Monday December 17th, which will be a 28-day repo, and another $20 billion on December 20th.

If you've been following my weekly comments about Fed repos at all in recent weeks, you can figure out that there are currently $53 billion of repos outstanding (as of Friday), fully $39 billion that mature next week. And wouldn't you know it, the Fed is going to be “injecting” $40 billion next week too.

Acid Test
So here's a little acid-test of whether the Fed will actually be providing new “liquidity,” or whether it's just trying to brew up a tempest with what's already in that little teapot. Watch the NY Fed's listings of open market operations:

If the Fed is actually adding liquidity, you'll see not only the two $20 billion repos on the 17th and 20th, but additional repos to replace the $39 billion that are coming due this week ($5 billion mature on Tuesday the 18th, and fully $34 billion are set to mature on Thursday the 20th). If the Fed does nothing but those two $20 billion longer-dated repos, all it will have done is to change the maturity of its outstanding repos, without changing the amount.

Now, that's not to say I believe that even if the Fed does temporarily buy $40 billion of government securities for 28 days, before selling them back out, it will do much for the solvency of the $12.7 trillion U.S. banking system, much less exotic CDOs and mortgage-backed securities. As I've emphasized in recent weeks, if you track all those daily and weekly rollovers and figure out the total quantity of Fed repos outstanding at any given time, you'll find that the Fed has only injected $18 billion in “liquidity” since March

If investors think the Fed buying up a few billion of Treasury and agency debt means a hill of beans, they might do well to remember that the U.S. government is running up annual deficits in the hundreds of billions. In fact, the U.S. Treasury will float tens of billions of new debt in December alone (most of which will be sopped up by foreigners, who have increased their holdings of Treasuries by well over $200 billion in the past year). This will be mixed in with refinancings.

Last week, for example, the Treasury auctioned $21 billion in 3-month bills and $20 billion in 6-month bills. In doing so, the Treasury offset every bit of the Federal Reserve's actions this week, even if it turns out that the $40 billion “term auction facility” represents new liquidity and not just rollovers. Why aren't investors just as interested in that? When the Fed does open market operations, all it's doing is buying up (temporarily or permanently) a tiny fraction of U.S. Treasury debt and replacing it with currency and bank reserves. But every time the Federal government issues more debt to finance its deficits, the new issuance cancels out any beneficial increase in liquidity the Fed could possibly provide.

So it's difficult to understand why investors would get all excited about the Fed temporarily buying up a few billion in government securities, when we've got a Federal government that's simultaneously and permanently issuing and then constantly rolling over many, many times that amount. It‘s an escape into dreamland to believe that Fed actions have any chance at all of providing more “liquidity” when the Federal government's deficits suck up in a matter of weeks every bit of liquidity that the Fed has provided in a year. These Fed actions are nothing but marginal tinkering around the edges of the global financial system, and investors are starting to catch on.

Still, it's fun to watch when you understand what's going on. In fact, there will be all kinds of interesting things we'll get to watch next week. For instance, the Fed does its first $20 billion auction on Monday, but only about $5 billion of expiring repos come due that day – the other $34 billion come due on Thursday. So between Monday and Thursday, we'll observe at least a temporary jump of $15 billion in Fed repos outstanding. There's a good chance that during that 3-day overlap, the actual Fed Funds rate will creep below the current target of 4.25%. If that happens, you can bet that some analysts will incorrectly conclude that the Fed is doing some sort of “stealth easing.” But it will be nothing more than a 3-day timing overlap between maturing and new repos.

More interesting is to watch what happens on Thursday. That's when we get $34 billion of repos coming due. If the Fed does little more than $20 billion through its “term auction facility,” that will put the total for the week at $40 billion, versus $39 billion expiring, and it will be clear that this whole maneuver is simply a way for the Fed to temporarily refinance its expiring repos using a slightly longer 28-day maturity, rather than any effort to actually increase the amount of reserves.

In any event, banking conditions aren't likely to change even if $40 billion in additional 28-day repos actually materialize. Indeed, a Bloomberg report noted “A Fed official told reporters that the U.S. central bank's efforts won't add net liquidity to the banking system. The plans are aimed at buttressing so-called term funding markets, such as for one-month loans, rather than overnight cash.” Should be interesting.

Finally, it's worth repeating that the total amount of outstanding repos has increased by only $18 billion since March, nearly all of which has been drawn out as currency in circulation. Most likely, the Fed will enter a “permanent” open market operation on the order of $10-20 billion at some point in the coming weeks to formalize that increase in outstanding currency. That move will probably be met by ridiculously over-hyped reporting as well. But it's entirely predictable.

In short, Wall Street analysts aren't paying attention to the data if they believe that the Fed is "pumping" hundreds of billions into the economy to provide some kind of “safety net” for the banking system or the mortgage market. Is it really too much to ask that they make some attempt to understand the subject about which they opine incessantly?

As for the Fed itself, it's a great gift to offer people hope, but a great disservice to offer people false hope, and I think that's what the Fed is doing. What's going on in the mortgage market is not a crisis of confidence that we can talk ourselves out of – it's a problem of structural insolvency, where many borrowers literally don't have the means to service their debt over the long-term, because many of them were counting on rising home prices over the short-term. By acting as if a few billion in repos will substantially change this equation, the Fed is raising hopes, and setting the markets and the economy up for disappointment that will be far worse as a result. Bernanke would be better off admitting that the Fed has no chance of providing meaningful “liquidity” when the Federal government is issuing Treasuries at ten times the rate the Fed can absorb them. At that point, Americans would see better that the resources we need to invest, compete and become a financially sound nation are being hoarded by the Federal government and sent up in flames.

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Friday, December 14, 2007

Hedge-Fund Guy Is Up SIV Creek Without a Paddle: Mark Gilbert

Marc Gilbert rocks! Click here to read more from him. Hilarious!

Marc Gilbert ist einfach genial. Klickt hier um weiter Episoden von ihm zu lesen. Einfach köstlich!


(Bloomberg) Dear investor, we'd like to update you on this year's performance of our hedge fund, Short-Term Capital Mismanagement LLP.

Actually, we'd prefer not to. We'd rather disappear. We read somewhere that Panama is a really nice place to retire to, but our lawyer says that would be a bad idea. So here goes.

This has been without doubt the most turbulent period we have experienced in our 15 minutes of multistrategy, multiasset- class, Bentley-driving hedge-fund manager fame.

Our Widows & Orphans Enhanced Money-Market Fund is under investigation by the Federal Trade Commission. It seems our use of the word ``enhanced'' is deemed incompatible with ``real sorry we gambled that dollar you gave us for safekeeping on collateralized-debt obligations and ended up losing a cent or seven. Or 20. We're not entirely sure yet.''

Our Structured Investment Vehicle has burst its tires and looks like it was designed by a teenager on acid after seeing one too many documentaries about Frank Gehry. Our off-balance sheet conduits have maxed out their MasterCards and every time we try to value them, we are reminded that some things in life really are priceless. Our only investment that made money in December was our long position in Led Zeppelin concert tickets.

Nevertheless, we are proud, nay, ecstatic, nay, absolutely flabbergasted to report that our fund is still sashaying on the dance floor, which looks less and less like a ballroom and more like the aftermath of a frat party.

Kayaking to Panama
Admittedly, we broke a heel an hour ago, the rip in our tutu threatens to reveal more about us than money ever can, and the sick, dizzy feeling has nothing to do with the seventh banana daiquiri and everything to do with yearend money-market rates. We can still hear music, though, even if it does sound increasingly like a funeral march.

Frankly, there have been times when we've considered leaving a pile of clothes on the beach, climbing into a shiny red kayak and paddling away for five years. Did we mention what a nice retirement destination Panama is? It's just a shame that we lost the paddle when we headed up SIV creek all those months ago.

You know the saying ``pay peanuts, get monkeys''? It isn't true. We have been paying our traders peanuts since the fund's inception, and it turns out that the annual rate of nut inflation is killing us at 11.5 percent given how low our investment returns have been.

Memory Chimps
So we're shifting to bananas to hire some real chimps. Not just any chimps, though. Memory chimps. You may have seen some on television recently, thrashing college kids in memory tests. Hell, these chimps can buy and sell and eat a banana simultaneously, whereas Bob, our recently departed mortgage-bond trader, couldn't even walk and chew gum at the same time without blowing the P&L on some cockamamie subprime-debt security.

We figure these 5-year-old chimps might have a better chance of remembering stuff like Russia's default or the savings-and- loan crisis or the collapse of Long-Term Capital Management, from their financial-market history classes. They can't be any worse than the monkeys who decided to bet on the creditworthiness of U.S. bond insurers last month.

Still, we remain optimistic about the coming year. That's mostly because while Santa Claus only pops down the chimney once a year with his sack of presents, Helicopter Ben Bernanke flies by every six weeks and showers us with bags of cash in the form of lower interest rates.

Under Ben's Umbrella
God bless the policy makers at the Federal Reserve. As Grammy-nominee Rihanna would undoubtedly have sung if she only knew of our plight, ``They're gonna cut their rates forever, now that it's raining more than ever, so we can stand under Ben's umbrella, ella, ella, eh, eh eh.''

Not like those monetary fascists at the European Central Bank. Just because inflation is running at a six-year high and money-supply growth is the fastest in almost three decades, they didn't just close the lending window, they slammed it shut on our grasping hands. How can they contemplate an interest-rate increase at a time like this?

Finally, a cautionary tale. It is customary at this festive time of year for our schedule to be even busier than usual, as our brokers escort us to the finest establishments in town and ply us with drink in gratitude for this year's business and in anticipation of the trades that will flow their way next year.

Oddly, the telephone hasn't rung and the mailbox is bereft of embossed invitations. It seems our relationship managers are too busy schmoozing their new clients in Dubai and Singapore and Shanghai and Abu Dhabi to bother with their old hedge-fund customers.

Fine. Don't come crying to us, Mr. Hokey-Cokey Bank, when the combination of a plummeting share price and a devalued dollar makes your institution a takeover target for some Sovereign Wealth Fund turbocharged by petrodollars.

Yours, Hedge-Fund Guy.
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Thursday, December 13, 2007

Citigroup Rescues SIVs With $58 Billion Debt; Ratings Get Cut

Finally...... This is for sure the end of the Superfund. But it will be hard even for the spin-masters from Wall Street to spin this as a sign of strength. But they will try hard for sure....... When you view news like this it should be clear that it maybe just took too long to implement the superfund. Another motivation is that the market could stigmatized the participation when other banks are able to consolidate their SIV´s on their balance sheet. Next step will to cut or eliminate the dividend.... Overall i think this are good news.

Endlich........Das ist mit Sicherheit das Ende der von Anfang an wahnwitzigen Idee des sog. Superfonds. Es dürfte selbst den Spinerprobten von Wall Street schwerfallen das als ein Zeichen der Stärke hinzustellen. Auch wenn das heute sicher krampfhaft probiert werden wird.....Nach Meldungen wie diesen sieht es vielmehr danach aus als wenn der Citigroup einfach die Zeit davon gelaufen ist. Eine weiter Motivation ist sicherlich auch das jede Partizipation mit einem Makel versehen wäre. Wie sonst soll die Citigroup erklären das es die Bilanzen anderen Banken erlauben die Risiken zu schultern und Sie selber anscheinend nicht dazu in der Lage sind. Nächster längst überfälliger Schritt dürfte die Streichung oder Kürzung der Dividende sein.... Insgesamt sicher gute News um die Verunsicherung etwas zu mindern


Dec. 14 (Bloomberg ) -- Citigroup Inc. will take over seven troubled investment funds and assume $58 billion of debt to avoid forced asset sales that would further erode confidence in capital markets. Moody's Investors Service lowered the bank's credit ratings.

The biggest U.S. bank by assets will rescue the so-called structured investment vehicles, or SIVs, taking responsibility for their $49 billion of assets, the New York-based company said in a statement late yesterday.

Citigroup follows HSBC, Societe Generale SA and West LB in bailing out SIVs to avert fire sales of assets. The funds, which sell short-term debt and invest the proceeds in higher-yielding securities, cut their holdings by more than 25 percent since August to $298 billion, according to Moody's. The decline may reduce the urgency for a bailout sponsored by the U.S. Treasury, Citigroup, Bank of America Corp. and JPMorgan Chase & Co.

``That was really the last major outstanding piece of the SIV problem,'' said Peter Crane, founder of Crane Data LLC, the Westborough, Massachusetts-based publisher of Money Fund Intelligence. ``The SIV problem is very close to resolution.''

Moody's lowered Citigroup's credit rating to Aa3, the fourth-highest level, from Aa2 late yesterday. The bank will probably ``take sizable writedowns'' for securities backed by home mortgages and collateralized debt obligations, Moody's Senior Vice President Sean Jones said in a statement.

``Citigroup's weak earnings should prohibit the bank from rapidly restoring weak capital ratios,'' which may lead to further downgrades, Jones said.

Biggest Threats
SIVs emerged in August as one of the biggest threats to capital markets that were rocked by record high defaults on subprime mortgages. Financial institutions have since reported more than $70 billion of losses and writedowns. Citigroup invented SIVs in 1998 and was the biggest manager of the funds.

The average net asset values of SIVs tumbled to 55 percent from 71 percent a month ago and 102 percent in June, according to Moody's. The net asset value is the amount that would be left for investors if a fund had to sell holdings and repay debt. Moody's said Nov. 30 that it may cut the credit ratings on $105 billion of SIV debt.

Concerns about asset values contributed to the sudden increase in corporate borrowing costs by driving investors away from all but the safest government bonds. The amount of U.S. asset-backed commercial paper that SIVs rely on to finance investments fell about 34 percent since August, to $791 billion this week, the lowest since October 2005, the Federal Reserve in Washington said yesterday.

The decision to bring the SIVs onto the balance sheet marks a turnaround for Citigroup. In a Nov. 5 regulatory filing, the company said it ``will not take actions that will require the company to consolidate the SIVs.''

Wiping Away Sins
``After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs,'' Vikram Pandit, who was named chief executive officer on Dec. 11, said in the statement.

Citigroup has reduced the assets of the SIVs from $87 billion in August. Last month, the company provided $7.6 billion of financing after the SIVs were unable to repay maturing debt. The disclosure in a filing with the U.S. Securities and Exchange Commission came a day after the company announced as much as $11 billion of writedowns on debt linked to subprime mortgages and the resignation of Chief Executive Officer Charles O. ``Chuck'' Prince III.

Sixty percent of the assets in Citigroup's SIVs are debt owed by financial institutions. Another 13 percent is in mortgage-backed bonds and collateralized debt obligations, which are securities created by packaging bonds and loans. The company said 54 percent have Aaa ratings by Moody's and 43 percent are ranked Aa. The rest is rated A.

The debt Citigroup is assuming consists of $10 billion in commercial paper that matures in an average of 2.4 months. The other $48 billion is in medium-term notes that come due in 10.1 months on average.
Tier 1 Capital
Citigroup didn't give details of how it will finance the assets other than to say it will provide a ``support facility'' that will be in place early next year.

Taking on the SIV assets will reduce the capital ratio that regulators monitor to gauge the bank's ability to withstand losses on bad loans. The so-called Tier 1 ratio will drop by 0.16 percentage point from 7.32 percent as of Sept. 30, according to the company's statement. Citigroup expects the ratio to return to its target level of 7.5 percent by the end of the second quarter of 2008.

Citigroup got a $7.5 billion cash infusion last month by selling a 4.9 percent stake to the ruling family of Abu Dhabi after the bank's capital ratio fell below the company's target.

CIBC World Markets analyst Meredith Whitney says the bank still needs to raise $30 billion more, and may have to cut its dividend.

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Executive confidence "Doom and gloom" / Economist

Keep this in mind when you hear that some parts of the world are decoupling from the US..... Sounds almost too good to be true....
Diesen Chart sollte man sich vor Augen halten wenn wie so oft vom abkoppeln einzelner Märkte von den schwachen USA gesprochen wird. Wäre fast zu schön um wahr zu sein....
WHAT holiday cheer? The latest quarterly poll of chief financial officers conducted by Duke University, Tilburg University and CFO magazine, a sister publication of The Economist, makes for grim reading. Of the 1,275 finance chiefs quizzed, those in Europe and America were more gloomy about their regional economies than ever before, with pessimists far outnumbering optimists. A third of companies in both regions, from a wide range of industries, said that they were directly affected by the recent credit-market turmoil. Optimism is relatively higher in Asia.
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Wednesday, December 12, 2007

Sachsen LB " Bailout Is Equal to 25 Percent Of State´s Annual Budget"

Scandal after scandal is creeping up in the German banking province. After the $ 7 billion IKB bailout the Sachsen LB saga is highlighting how far things have gone. But what do you expect when a bank with a € 68 billion balance sheet has off balance sheet vehicles including lots of toxic paper ... And the next possible baliout is already in the making... UPDATE: Guarantee "only" € 2,75 billion, bringing the percentage down to 16 of the budget . And when you put the the purchase price of roughly € 300 million in perspective with the core capital of € 1.5 billion ( latest available figure) the real loss for the Saxony taxpayer is getting worse. Der Spiegel is reporting that the entire risk associated with the SachsenLB which is shouldered somehow via state owned entities is a whopping € 17.5 billion. Here the Bloomberg Version LBBW, SachsenLB Agree on Risks, Pave Way for Takeover

Ein Skandal folgt dem nächsten in der deutschen Bankenprovinz. Nach der staatlichen IKB Infusion von knappen 7 Mrd. $ durch die KfW dürfte bei der Sachsen LB die Fortsetzung folgen. Was soll man auch anderes erwarten wenn es zugelassen wird das eine Bank mit einer Bilanzsumme von 68 Mrd € ausserbilanzliche Verpflichtungen inklusiver Mrd. an Schrottpapieren eingeht . Selbstverständlich ohne von der Aufsicht Bafin belästigt zu werden..... Der nächste mögliche Baliout dürfe uns bald aus dem Westen der Republick drohen.... Update Wie ein sächsischer Regierungssprecher am Donnerstag mitteilte, übernimmt Sachsen eine Landesbürgschaft von 2,75 Mrd. Euro. Wenn man jetzt den Kaufpreise von knapp über 300 Mio € ins Verhältnis zu dem Kernkaital von 1,5 Mrd € ins Verhältnis setzt wird schnell deutlich das der Steuerzahler noch erheblich hat mehr bluten müssen..... Der Spiegel Insgesamt ist das Rettungspaket deutlich größer als die Bürgschaft des Freistaats Sachsen. Finanzkreisen zufolge werden Gesamtrisiken von rund 17,5 Milliarden Euro abgesichert. Diese Risiken sollten in ein neu zu gründendes Vehikel gepackt werden, sagten mehrere mit der Angelegenheit vertraute Personen der Nachrichtenagentur Reuters. Möglicherweise entstehende Verluste von bis zu 2,75 Milliarden Euro werde das Land Sachsen tragen, darüber hinausgehende Verluste von bis zu 6,4 Milliarden Euro übernehme die LBBW. In der nachgelagerten Haftung stünden die anderen Landesbanken mit rund 8,5 Milliarden Euro, hieß es. Die beteiligten Banken lehnten einen Kommentar ab.


The state of Sachsen is forced to guarantee close to € 4.3 billion to complete the fire sale of their state owned ( through several enteties) Sachsen LB to LBBW (another Landesbank). LBBW is threatening to cancel an earlier agreement to buy the troubled Sachsen LB after they have discovered that the losses from the Irish off balance sheet vehicle are far greater than expected. The amount is is equal to 25 percent of Sachsen annual budget! If Sachsen is forced to pay the "claim" the debt per person would increase from € 1000 to € 4.800.

Der Landesbank droht die Schließung / FAZ
Freistaat soll mit einem Viertel des Haushalts bürgen
Die LBBW hat fragwürdige Engagements der Bank und ihrer irischen Tochtergesellschaft Sachsen LB Europe in Höhe von etwa 43 Milliarden Euro ermittelt. Wegen Fehlspekulationen am amerikanischen Immobilienmarkt fürchtet man hier Ausfälle in bisher unbekannter Höhe. Die LBBW will die Sachsen LB deshalb nur übernehmen (hier das Posting von der ursprünglichen Vereinbarung aus dem August), wenn der Freistaat Sachsen für die möglichen Ausfälle in Höhe von mindestens 10 Prozent oder 4,3 Milliarden Euro bürgt. Das entspricht mehr als einem Viertel des sächsischen Landeshaushalts. Träte die Zahlungspflicht ein, würde sich die Pro-Kopf-Verschuldung des kleinen Bundeslandes um etwa 1000 Euro auf 4800 Euro erhöhen.


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Fed, ECB, Central Banks Coordinate to Add Liquidity

Another attempt to unwind the liquidity issue. They will have a problem if this won´t work......When i look at the collateral that they are accepting i can smell a rat......

Ein neuer und koordinierter Ansatz um die Liquiditätskrise zu lösen. Sicherlich die bisher mit Abstand vielversprechenste Idee. Sollte selbst diese Herangehensweise nicht helfen haben die Zentralbanken wohl ein Problem.......Wenn ich mir die neuen Kriterien für die zu hinterlegenden Papiere angucke kann man schon auf den Gedanken kommen das hier alle guten Vorsätze über Bord geworfen worden sind.......

Fear at the Fed from Floyd Norris NYT (hat tip to Calculated Risk)
...The Fed will lend money to banks based on almost any asset they own, even ones that are not liquid at all. That will include some of the more exotic loans and securities out there.

How much will the Fed lend against illiquid assets? It has a public list, already in use in discount window lending. You will note that it allows the lending of up to 85 percent of the face value of AAA-rated collateralized mortgage obligations, if there is no observable market value. There are some C.M.O.’s out there that have not yet been downgraded but that might not bring that much in a sale.

I’d love to see which assets are pledged, and how much the Fed lends against them. But the Fed won’t disclose those facts. Nor will it let us know which banks borrow using the new facility.

The Fed's New Auction System Minyanville´s Mr. Practical via Mish

So the Fed is considering a “new auction system”. Essentially, what the Fed is doing is taking the stigma away from the discount window--the Fed will lend directly to banks and the banks don’t have to tell anybody. Theoretically, the Fed could make these quiet loans for indefinite periods, thus giving banks more permanent capital (it’s really credit, but banks call it capital).

Waldman

...this is a bailout,. Nearly all government bailouts take the form of subsidized loans, extending credit at low rates to counterparties or against collateral for which the market would have demanded a high premium. That is precisely what the TAF will do. The Fed's press release claims, of course, that loans will only be available to "sound" banks, and that they will be "fully collateralized". But no one who can get the same deal from private markets will use this facility. The need for the program arises because private markets are skeptical about the soundness of counterparties and the quality of the assets they have to offer as collateral. The Fed hints at this when it mentions the "wide variety of collateral" that can be used to secure loans. You can bet that whatever it is private lenders are eschewing will be pledged as collateral to the Fed under TAF. The Fed is going to bear private risk that the market refuses to. That is a bailout.

Felix Salmon

to give you an idea of what the Fed will lend, consider a AAA-rated subprime-backed CDO – the kind of thing which is causing billions of dollars in losses all over the financial system. If the CDO has a market price, the Fed will lend up to 98% of that price if it's a short-term CDO, up to 96% if it's medium-term, and up to 93% if it's long-term.

But what if the CDO is completely illiquid, and you can't find a price for it at all? No worries, the Fed will still accept it as collateral, and lend up to 85% of par value. (There's an interesting thought experiment here: what happens if a long-term CDO has a market value of, say, 90 cents on the dollar? In that case, an illiquid version of that CDO would actually be worth more to the Fed than the liquid version.)

Do keep on looking down that list, though: it turns out that banks can even put up as collateral subprime credit-card receivables – they don't even need a AAA rating.

Yves from Naked Capitalism Maybe the Real Reason for the Central Bank (Especially the Fed's) Actions Wednesday has also a very good summary

Yyes von Naked Capitalism hat mit Maybe the Real Reason for the Central Bank (Especially the Fed's) Actions Wednesday ein weitere erstklassige Zusammenfassung an den Start gebracht

Now the roundtrip to the official press releases.

Nun zu den offiziellen Presseerklärungen

BOE
The total size of reserves offered in the operations on 18 December and on 15 January will be raised from £2.85 billion to £11.35 billion, of which £10bn will be offered at the 3-month maturity.

The Bank will accept a wider range of high quality securities as collateral against funds advanced at the 3-month maturity. The additional categories of eligible collateral are:

  • Bonds issued by sovereigns rated Aa3/AA- or above (in addition to those currently eligible), subject to settlement constraints.
  • Bonds issued by G10 government agencies guaranteed by national governments, rated AAA.
  • Conventional debt security issues of the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Corporation and the Federal Home Loan Banking system, rated AAA.
  • AAA-rated tranches of UK, US and EEA asset-backed securities (ABS) backed by credit cards; and AAA-rated tranches of UK and EEA prime residential mortgage-backed securities (RMBS).
  • Covered bonds rated AAA.

BOC Part 1 & BOC
Expansion of List of Securities Eligible as Collateral for Use Under Bank of Canada Standing Liquidity Facility

Under its Standing Liquidity Facility (SLF), the Bank of Canada is prepared to provide liquidity on a daily basis to financial institutions that participate directly in the payments systems operated by the Canadian Payments Association. Loans made by the Bank of Canada must be fully collateralized.

In the context of the ongoing review of the Bank of Canada's collateral policy, begun in the spring of 2007, the Bank has decided to broaden the range of securities acceptable as collateral for use under the SLF to include (i) certain types of asset-backed commercial paper (ABCP) sponsored by banks and (ii) U.S. Treasuries.

By the end of March 2008, the Bank will expand the list of eligible securities to include certain types of Canadian dollar-denominated ABCP that meet the following general criteria: are bank-sponsored, are covered by a liquidity provision that meets global standards, and are backed by traditional assets of an acceptable credit quality. In addition, higher standards of disclosure and additional credit ratings will be required. Asset-backed commercial paper backed by collateralized debt obligations and other highly-structured assets will not be considered at this time.

Over the next two months, the Bank will consult with financial institutions and other interested parties on the terms and conditions that will apply to ABCP as collateral. By the end of March 2008, the Bank will announce the terms and conditions regarding the use of ABCP as collateral, including the margins that will be applied. The arrangements for accepting U.S. Treasuries as collateral are expected to be completed by mid-2008.

Fed

Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window. All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program will be eligible to participate in TAF auctions. All advances must be fully collateralized. By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.

Alternative Instruments for Open Marketand Discount Window Operations / Fed Page 43

Acceptable discount window collateral generally can best be described as any asset that can confidently be liquidated within a reasonable period of time at the value at which it is accepted.As a general rule, the greater the level of risk associated with a certain type of underlying collateral, the lower the (lendable) valuation assigned to the collateral. Accurately measured, the margins or haircuts used in the valuation process should reflect the true relative risks of the various asset types, and they should contribute to relative asset price neutrality across the broad spectrum of assets deemed eligible for collateral.

Each TAF auction will be for a fixed amount, with the rate determined by the auction process (subject to a minimum bid rate). The first TAF auction of $20 billion is scheduled for Monday, December 17, with settlement on Thursday, December 20; this auction will provide 28-day term funds, maturing Thursday, January 17, 2008. The second auction of up to $20 billion is scheduled for Thursday, December 20, with settlement on Thursday, December 27; this auction will provide 35-day funds, maturing Thursday, January 31, 2008. The third and fourth auctions will be held on January 14 and 28, with settlement on the following Thursdays. The amounts of those auctions will be determined in January. The Federal Reserve may conduct additional auctions in subsequent months, depending in part on evolving market conditions.

ECB

The Eurosystem shall conduct two US dollar liquidity-providing operations, in connection with the US dollar Term Auction Facility, against ECB-eligible collateral for a maturity of 28 and 35 days ECB Eligibility Criteria Collateral The submission of bids will take place on 17 and 20 December 2007 for settlement on 20 and 27 December 2007, respectively. The operational details can be obtained from the ECB’s website (www.ecb.europa.eu). The US dollars will be provided by the Federal Reserve to the ECB, up to $20 billion, by means of a temporary reciprocal currency arrangement (swap line).

SNB $ 4 billion

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Tuesday, December 11, 2007

An investment banking lexicon: The post-credit squeeze edition

After the as always way overrated Fed decision this guy has had probably a rough night........ I also thought that the hilarious piece about the credit crunch from FT Alphaville deserves a separate post. Barry Ritholtz rivals this post with Top 10 Things You May Not Have Known About the FOMC :-)

Nach der wie immer vollkommen überbewerteten Fed-Entscheidung dürfte dieser Typ heute Nacht etwas unruhiger geschlafen haben...... Ich habe mir gedacht das dieses mehr als amüsantes Werk von FT Alphaville über den Credit Crunch ein eigenen Post verdient. Barry Ritholtz fährt in Top 10 Things You May Not Have Known About the FOMC ähnlich lustige Geschütze auf :-)


Big hat tip to Connor and thanks to The New Yorker

An investment banking lexicon: The post-credit squeeze edition
Investment-speak is a universal language. From maximising shareholder value to full and fair offers, bankers are well versed in the art of keeping their clients happy.

But four months into the credit crisis and their words have taken on a new meaning. Here is an explanation.

SUBPRIME

Pre-squeeze: Poor cut of beef

Post-squeeze: On the national education curriculum

COVENANT-LITE

Pre-squeeze: Please pay back the money (no rush)

Post-squeeze: Please get approval for all expenses above £50

COMPETITIVE AUCTION

Pre-squeeze: 50 buy-out firms submit first-round bids

Post-squeeze: The Malaysians are looking

EMI

Pre-squeeze: Coveted transaction

Post-squeeze: Distressed debt play

STAN O’NEAL

Pre-squeeze: $50m for successfully delivering shareholder value

Post-squeeze: $50m for destroying shareholder value

DEBT AVAILABLE FOR BUY-OUT

Pre-squeeze: $10bn

Post-squeeze: Z$300,000bn

ATTRACTIVE INVESTMENT OPPORTUNITY

Pre-squeeze: Growing faster than the competition

Post-squeeze: Not falling quite as quickly as the competition

INFRASTRUCTURE

Pre-squeeze: Goldman launches billion-dollar fund

Post-squeeze: Heathrow queues get longer

MULTIPLES

Pre-squeeze: 8 x pro forma ebitda

Post-squeeze: 4 x historic earnings

DUE DILIGENCE

Pre-squeeze: There is a hole in the pension book

Post-squeeze: Due diligence to look diligent

BANK’S CHRISTMAS PARTY

Pre-squeeze: Bollinger, Château Lafite, Nobu catering

Post-squeeze: Glass of Chianti, dry roasted peanuts

PIPELINE IS FULL

Pre-squeeze: Real deals by stretched bankers

Post-squeeze: Stretched deals by virtualbankers

EMERGING MARKETS

Pre-squeeze: Risky, high-yield play

Post-squeeze: Safe haven

STRATEGIC REVIEW

Pre-squeeze: We will take the highest offer

Post-squeeze: Fire sale

For more funny stuff click here. Nice to see that the Pentagon isn´t effected by the ongoing credit crunch. They made Enron & Co look like amateurs.....

Für mehr Spaßiges bitte hier klicken. Schön zu sehen das zumindest das Pentagon von der anhaltenden Kreditkrise nicht weiter betroffen ist. Dagegen sind Enron & Co die reinsten Waisenknaben....

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I Want My Buyback Back "Washington Mutual Edition"

Today this news is making headlines

Heute kommt diese Schlagzeile über die Ticker

WaMu to Raise $2.5 Billion in Additional Capital, Reduce Dividend, Resize Home Loans Business and Cut Expenses to Fortify Capital Base

Flashback January 2007

On Jan. 3, 2007, the company entered into an accelerated share repurchase agreement with a dealer, buying back $2.7 billion of its common stock ( Stock close to $ 40 now $ 19)
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Monday, December 10, 2007

China Inflation Surges to 11-Year High

Beijing, we have a problem...... It looks like the officials now have to pay the price for all the baby steps during the past years. Thanks to Russ Winter for this interesting chart that could signal some "trouble" for the powerful....

Peking, wir haben ein Problem....... Es sieht immer mehr danach aus als wenn nun der Preis für die laxe Einstellung und den damit verbundenen Babysteps zu zahlen ist. Dank an Russ Winter für den interessanten Chart der noch zu einem ernsten Problem für die "Mächtigen" werden könnte..... Hier die deutsche Version vom Spiegel Lebensmittelpreise in China steigen um über 18 Prozent

Dec. 11 (Bloomberg ) -- China's inflation accelerated at the quickest pace in 11 years and the trade surplus swelled, adding pressure on the central bank to raise interest rates or let the currency appreciate faster to cool the economy.
Consumer prices rose 6.9 percent in November from a year earlier after climbing 6.5 percent in October, the statistics bureau said today. That was more than the 6.5 percent median estimate of 21 economists surveyed by Bloomberg News.

Surging food and fuel costs and a surplus that climbed to a record $238 billion in the first 11 months have prompted the government to name inflation and overheating as its biggest concerns. U.S. Treasury Secretary Henry Paulson, who's in Beijing for economic and trade talks, recommends currency appreciation as a remedy.

The central bank will respond with ``strict control on bank lending, further withdrawal of liquidity, one more rate hike before the end of this year and allow a faster pace of currency appreciation in 2008,'' said Liang Hong, a senior economist at Goldman Sachs Group Inc. in Hong Kong.

The yuan rose by the most in a month against the dollar on speculation rates will rise. The currency gained 0.18 percent to 7.3817 as of 10:55 a.m. in Shanghai from 7.3952 late yesterday. It reached 7.3770, the highest since a link to the U.S. currency ended in July 2005.

The yuan has gained 12 percent versus the dollar since the fixed exchange rate was scrapped. A stronger Chinese currency would lower import costs and slow money inflows by pushing up export prices.

Crackdown on Lending
The trade surplus rose 14.7 percent to $26.3 billion in November from a year earlier, the third-highest monthly total, the customs bureau said today. People's Bank of China Governor Zhou Xiaochuan said that the nation's currency policy will be used to help narrow the gap.

China has cracked down on bank lending and raised interest rates five times this year to curb inflation, asset bubbles and excessive investment leading to industrial overcapacity.

The one-year lending rate is at a nine-year high of 7.29 percent. The People's Bank of China last week ordered lenders to set aside more deposits as reserves for a 10th time this year.
Pork Prices Soar
Pork prices surged 56 percent in November from a year earlier on a pig shortage. Food makes up a third of the consumer price index and rising costs pose a threat to social stability, illustrated by a stampede last month at a cooking-oil sale that killed three people in the central city of Chongqing.

Overall, food climbed 18.2 percent. Non-food prices rose 1.4 percent, accelerating from a 1.1 percent gain in the previous month. Utility prices including water, electricity and gas rose 5.6 percent.

China's economy, the world's fourth largest, expanded 11.5 percent in the third quarter from a year earlier.
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Another Sign Of Weakness "Breast Implants" Minyanville

I assume things are not looking good when the motherland of breast implants is witnessing a "drop off" in sales. I´m not sure if this "indicator" has a long history or track record but compared to the quality of other "official" numbers it wouldn´t surprise me if this indicator is a better barometer for things to come ;-)

Die Dinge müssen wirklich nicht zum Besten stehen wenn in dem Mutterland der Implate das Geschäft plötzlich wegbricht. Evtl. sollte sich mal einer die Mühe machen den Zusammenhang zwischen Rezessionen und Implantaten zu ergründen. Eine schlechtere Datenqualität und Aussagekraft als andere "offizielle" Statistiken ist eh kaum möglich.... ;-)

Five Things You Need to Know / Minyanville

Double Entendre Opportunity Mysteriously Escapes
In the latest sign that consumer spending is slowing, the Wall Street Journal reports that plastic surgeons are seeing the hint of a slowdown in demand for breast implants.

  • Breast-implant maker Mentor Corp. (MNT) says its surgeon customers have noticed a drop in patient interest for the implants.
  • Since last November when the Food and Drug Administration approved the return on silicone implants to the cosmetic market after a 14-year partial ban, Mentor's sales have been strong, the Journal said.
  • But the company has detected some disturbing signs at the end of the third quarter. According to Mentor CEO Joshua Levine, some plastic surgeons are seeing a drop-off in patient consultations, which is "usually a little bit of a precursor to lighter surgical calendars maybe 45 to 60 days out."
  • "This whole mortgage credit crisis is making people think twice," Dr. J. Peter Rubin, a Pittsburgh plastic surgeon told the Wall Street Journal.
  • "It's something I've noticed and some colleagues have noticed as well."


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Sunday, December 09, 2007

Multiple Fire Sales At UBS After $ 10 Billion Write Down

Looks like the UBS comment from just a few weeks ago in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... that the write down´won´t be big was quite an understatement..... Will be fun to watch how long the term "maximum clarity" will be up to date this time ;-) . I´m pretty sure that the same survey about bonuses for the UBS will bring less "euphoric" results..... It´s about time to learn the new version of the Investment banking lexicon: The post-credit squeeze edition. HILARIOUS!

Sieht ganz so aus als wenn der Kommentar der UBS in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... das die Abschreibungen nicht "wesentlich" sein werden ein wenig untertrieben gewesen ist. Welch Überraschung..... Wird spannend zu sehen sein wie lange die Haltwertzeit der "maximum clarity" in diesem Falle vorhalten wird ;-) . Ich bin mir ziemlich sicher das die gleiche Umfrage zu Bonuszahlungen" für die UBS weniger "euphorische" Vorhersagen hergeben würde..... Höchste Zeit die für die neueste Version des Investment Banking Lexicon: The post-credit squeeze edition. Köstlich!

UBS to Sell Stakes After $10 Billion in Subprime Writedowns
UBS AG, Europe's largest bank by assets, said it will write down U.S. subprime investments by $10 billion and raise 13 billion francs ($11.5 billion) by selling stakes to investors in Singapore and the Middle East.

UBS expects a loss in the fourth quarter, and may have a loss for 2007, the Zurich-based company said in an e-mailed statement today.

Securities firms and banks had announced about $66 billion of losses and markdowns linked to the collapse of the U.S. subprime mortgage market this year. UBS reported its first loss in almost five years in the third quarter after the subprime contagion led to about $4.66 billion in markdowns on fixed-income securities and leveraged loans.

Besten Dank an Zeitenwende

UBS Press Release & Deutsche Version
UBS strengthens capital base and adjusts valuations
UBS has introduced measures to substantially strengthen its capital position, adding CHF 19.4 billion of BIS Tier 1 capital. These include an issue of CHF 13 billion of new capital. This has been placed with two strategic investors: Government of Singapore Investment Corporation Pte. Ltd. (GIC) ( see GIC Website) with CHF 11 billion, and an undisclosed strategic investor in the Middle East with CHF 2 billion.


> To be honest i´m surprised that Singapore has two vehicles and that GIC has assets over $ 300 billion. I´ve heard so for only from Temasek HoldingsUnocal) in relation with Singapore. It´s very impressive that such a small country with an estimated GDP of $ 140 billion, a population under 5 million and especially without a resource base has managed to accumulate close to $ 500 billion in Assets Singapore/Wikipedia. Chapeau!

> Ich bin ehrlich erstaunt das Singapur zwei staatlich kontrollierte Fonds zur Verfügung hat und das GIC mit über 300 Mrd $ so groß ist. Ich habe bisher im Zusammenhang mit Singapur immer nur den Namen Temasek Holdings gehört. Es ist beeindruckend wie es ein kleines Land mit unter 5 Mio Einwohnern, einen BSP von knappen 140 Mrd $ und vor allem ohne Rohstoffbasis schafft fast 500 Mrd $ in Staatsfonds zu pumpen Singapur/Wikipedia . Chapeau!

At the same time, UBS has revised key input parameters of the models that are used to estimate lifetime default and resulting losses for sub-prime mortgage pools. As a result of these revisions, UBS will write down its US sub-prime holdings by approximately a further USD 10 billion.

After these actions, UBS projects a strong BIS Tier 1 ratio of above 12%. ...

In response to continued deterioration in the US sub-prime mortgage securities market, partly driven by increased homeowner delinquencies but mainly fuelled by worsening market expectations of future developments, UBS has revised the assumptions and inputs used to value US sub-prime mortgage related positions. This will result in further writedowns of around USD 10 billion, primarily on CDO and "super senior"1 holdings. In light of continued deterioration in the sub-prime market, valuations of UBS's remaining sub-prime positions reflect the extreme loss projections implied by the prices achieved in the very limited number of observable market transactions in US sub-prime related securities and indices up to the end of November.

As the basis for its wealth and asset management business, UBS wishes to maintain a very strong capital base under all circumstances. Growth in net new money continues, with inflows in Global Wealth Management & Business Banking totalling about CHF 30 billion in October and November. It will therefore strengthen its capital position by issuing new capital in transactions with strategic investors, by selling treasury shares, and by replacing its 2007 cash dividend with a stock dividend.

> Must hurt to sell shares at fire sale prices that they have bought back for a better use of their capital. In Q2 the stock price was in a range of 70-80 Swiss Francs, today close to 50 Swiss Francs. And in total they are selling 36.4 million shares......... Well done!

> Muß sehr schmerzen die teuer zurückgekauften Aktien jetzt zu Schleuderpreisen zu verscherbeln. Ironischerweise sollten die Rückkäufe seinerzeit ja die effektivere Nutzung des Kapitals ermöglichen. Im 2. Quartal lag der Preis zwischen 70 und 80 Schweizer Franken, heute nahe 50...... Und insgesamt werden knapp über 36 Mio zuvor erworbene Aktien nahe Tiefstkursen vertickert...... Gut gemacht!

Strategic investors subscribe to issue of CHF 13 billion of new capital
UBS has reached agreements with two strategic investors – GIC and one other – to subscribe to an issue of CHF 13 billion of mandatory convertible notes. This is subject to the approval of UBS shareholders at an extraordinary general meeting (EGM) which will take place in mid-February 2008. GIC has committed to subscribe to CHF 11 billion and the other investor to CHF 2 billion. The notes will pay a coupon of 9% until conversion into ordinary shares, which must take place on or before a date approximately two years after issuance. The proceeds of the issue will count as Tier 1 capital for BIS capital adequacy purposes after EGM approval.

Sale of treasury shares
The Board of Directors of UBS has further approved the re-sale of 36.4 million treasury shares previously intended to be cancelled. UBS has received indications of interest in a share issue, is considering these and will place these shares over time. This will increase BIS Tier 1 capital by approximately CHF 2 billion.

Proposed replacement of 2007 cash dividend by stock dividend
The Board of Directors proposes to replace the 2007 cash dividend with a stock dividend, i.e. a bonus issue of new shares. This will boost Tier 1 capital by CHF 4.4 billion, of which approximately CHF 3.3 billion is a reversal of accrued dividend for the first nine months of the year and the balance is dividend that will now not accrue. This is subject to EGM approval.

In total, these three actions, when completed and approved, will strengthen UBS's regulatory Tier 1 capital by approximately CHF 19.4 billion. After completion, and taking into account the expected fourth quarter loss, the firm's BIS Tier 1 capital ratio will improve to above 12% from 10.6% at 30 September 2007.

Marcel Rohner, Group Chief Executive Officer, UBS, said: "Conditions in the US mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities. In the last several months, continued speculation about the ultimate value of our sub-prime holdings – which remains unknowable – has been distracting. In our judgement these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation. Together with the strengthening of our capital base this will allow us to concentrate on sustaining and developing our client businesses.

Information on GIC
GIC is a global investment management company established in 1981 to manage Singapore's foreign reserves. With a network of eight offices in key financial capitals around the world, GIC manages a broad diversified portfolio across countries and asset classes that includes equities, fixed income, foreign exchange, commodities, money markets, alternative investments, private equity, real estate and infrastructure investments.

More insights via FT Alphaville UBS boggles - $10bn of writedowns, $17bn in emergency capital


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Overbought in an Unfavorable Market Climate / Hussman

On his mission to inform and try to provide his much needed "anti spin" Hussman must feel very lonely. It´s amazing what nonsense you hear and read hour by hour on a daily basis from wall street finest. Thanks from Germany

Hussman muß sich auf seiner Mission ungefilterte Wahrheiten unters Volk zu bringen ziemlich einsam vorkommen. Es gibt meiner Meinung nach kaum einen der so beharrlich & gebetsmühlenartig seinen "Anti Spin" mit Fakten untermauert. Das ganze wird immer dann besonders gruselig wenn man sich die Kommentare der sog. anderen Experten vor Augen führt und diese Hussman´s Ausführungen gegenüber stellt. Besten Dank dafür aus Deutschland



Overbought in an Unfavorable Market Climate
Also, as I've frequently emphasized, monetary policy is not, and cannot be independent of fiscal policy. All the Fed does is to determine whether government liabilities take the form of Treasury bonds sold to the public, or currency and reserves held by the public directly or indirectly through the banking system. Monetary policy determines the mix (and even then only at the margin). Fiscal policy determines the total quantity of those government liabilities, most which are absorbed these days not by the Fed but by foreigners (in an amount many, many times what the Fed absorbs). If you want to worry about some entity that could have enormous impact on U.S. economic activity, ignore the Fed and focus on the real “maestros:” foreign purchasers of U.S. Treasuries, particularly China and Japan. ....

Again, the Federal Open Market Committee (FOMC) has “injected” only about $16 billion of “liquidity” into the U.S. banking system since March – all via short-term repos that are continually rolled over. Meanwhile, foreign investors (particularly China's central bank) have provided about $2 billion in fresh “liquidity” per day, mostly by purchasing U.S. securities (primarily Treasuries).

Liquidity and real investment
What has happened to this dough? This is the money that the U.S. uses to finance its own gross domestic investment (“real” investment such as factories, equipment, housing, etc). Indeed, all of the growth in U.S. gross domestic investment over the past decade has been financed by foreign capital inflows, since our government appears incapable of existing without spending away the domestic savings that would otherwise allow America to self-finance its growth*.

In the coming year or so, we'll probably see a narrowing of the massive trade and current account deficits that have accumulated in recent years. As I've noted before, every dollar of “improvement” we observe in the U.S. current account deficit is typically matched by a dollar of deterioration in gross domestic investment. That regularly happens during recessions, and it's likely to happen in this one (nothing in recent reports or market action materially changes the prospects of an oncoming U.S. economic downturn).

Recessions are generally due to a growing mismatch between what the economy produces and what is demanded. During those recessions, overinvestment stops, losses are taken, adjustments are made, and resources are reallocated, all of which help to eventually turn the economy around. It is these adjustments that require a long and variable lag. They are not primarily the result of “Fed liquidity.”

In any event, the overinvestment and excess inventory during this economic cycle has clearly been in the areas of housing, finance, and debt origination, so those are the areas that will bear the primary burden of adjustment. ....


Fast, furious, and prone to failure
As I noted last week, “The market has now cleared the oversold condition that it established a week ago. Stocks aren't overbought here, but overbought conditions in unfavorable Market Climates tend to be rare. The steepest bear market losses tend to follow immediately on the heels of such overbought conditions.”

Presently, the market has established just that profile. This is one of the very few situations in which I ever have a pointed view about likely market direction. Although the likely Fed rate cut (no opinion on 25 vs. 50) on Tuesday adds some uncertainty, and the market would most likely celebrate a 50-basis point cut, there is currently not much evidence that suggests that even such a rally would be sustained for long. In my view, the probable risks are skewed to the downside. I don't believe there is such a thing as the Fed getting “ahead of the curve.” LIBOR continues to be “sticky” in the face of multiple cuts in the Federal Funds rate, credit spreads continue to push toward new highs, and there is no reason to believe that minuscule volumes of Fed repos will have any effect in ameliorating credit risks.

Meanwhile, the Treasury “plan” to bail out homeowners (without bailing them out) is likely to be both very little and very late. Think of it as the equivalent of the FEMA response after hurricane Katrina. Barring an almost immediate freeze on foreclosures and interest rate resets, we are likely to observe a rash of delinquencies and the need for soaring loan loss reserves even over the next few months. All of this talk of Federal help feels good, but it will be next to impossible to coordinate Federal assistance quickly and equitably. On the other hand, freezing lenders ability to collect on bad loans will simply allow balance sheets to deteriorate without any actual financial solution to the problem

The problem is simple: people bought houses during a boom, at bubble prices that they couldn't actually afford. The money that was lent has already been dissipated to the sellers – the owners of the houses don't have it, and neither do the lenders. The excess money that homeowners can't actually afford to pay back will have to be written off institution by institution, lender by lender. Major loan losses are inevitable. To believe they are something less than inevitable is to stay at the party even as flames engulf the building, in hopes that water is on the way. The U.S. financial system is going to have a bad time with this – there will be major losses and major adjustments. Eventually we will work through it, but it is delusional to look for a bottom when the real losses haven't even started to emerge.

Thanks to Jim Borgman

Again, with regard to the stock market, my having any view at all relating to short-term market direction is very unusual, but I am particularly concerned because we now have overbought conditions in a negative Market Climate. The Fed may very well give the market an extra psychological boost next week with a 50 basis point cut, but a disappointing move or statement could prompt an unusually steep decline. As for market action, despite the standard “fast, furious” rebound from oversold conditions, there is no indication from the quality of market action that investors have adopted a robust willingness to speculate.

On the subject of multiple Fed rate cuts being bullish for stocks, it may be helpful to note that in those events that multiple Fed cuts helped the market, stocks had generally already experienced a bear market decline of 20-40% prior to the second rate cut, and the average P/E on the S&P 500 was typically below 14 and (generally less than 11). Stocks were largely poised to perform well anyway, generally by virtue of being sold off to depressed valuations. Even in the 1998 instance (which occurred at much richer valuations than previously), the S&P 500 had plunged about 20% prior to recovering.

Investors let mottos like “don't fight the Fed” and “it's a new economy” do their thinking for them in 2000-2002, while the S&P 500 lost half its value and the Nasdaq lost three-quarters. There's good reason to expect “motto-based investing” to be disappointing again. Keynes may have been right in saying “the market can remain irrational longer than you can remain solvent,” but provided you don't do things that endanger your solvency (like taking large net short positions), there's nothing wrong with avoiding risk in periods of market irrationality - particularly once market internals deteriorate measurably as they have now. Provably incorrect ideas are eventually proven incorrect. The beliefs that the Fed is “injecting massive liquidity” and that profit margins hold up despite economic softness are provably incorrect ideas.

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Friday, December 07, 2007

Reduced bonuses - and they mean you.../ No Wonder Nobody Saw This Coming......

Is there still anybody left who thinks investment banker are living in the real world. After reading this report about the folks in London it should be no surprise why nobody saw the obvious .......The coming round of layoffs will probably be a rude awakening for some of the guys...

Die nachfolgenden Selbsteinschätzung der Bänker aus London in Form der Gehaltsvorstellungen erklärt wohl auch warum kaum einer das aktuelle Debakel hat kommen sehen. Die sind wohl so weit von der Realität entfernt das die kommende Entlassungswelle die meisten wohl überraschen dürfte....

Rude Awakening


Reduced bonuses - and they mean you / FT Alphaville
Look you poor deluded souls out there. When the powers-that-be are spinning their line about it being a tough time in banking, or opining that next year may be difficult, they are in fact talking to you. When they say that everyone will have to play a role in getting through this challenging time, they are telling you that you’re going to get paid less. Not the bloke down the corridor, who left early last Thursday and whose timesheet regularly comes in shy of a three-figure working week. YOU.

We mention this because there is some evidence that people aren’t listening to the latest round of expectations management. Everyone just assumes they’re talking about the other guy.

CitiPanel, a specialist in survey of financial markets, conducted their survey of City financial types in November - well into the credit squeeze, the write-downs and the pruning of staff numbers by the big banks. So there is no excuse for this level of denial.

A whopping 63 per cent of respondents think their total compensation will rise for 2007 to 2008. Only 7 per cent admitted to believing it will fall (and they’re probably the ones in structured finance who are praying merely that they’ll hold onto a job at all).

Moreover, 42 per cent of the City workers surveyed are expecting a promotion - despite the fact that 56 per cent have already been promoted in the last two years. And yet 37 per cent are unaware of what is required internally to move up a grade in the organisation. But they’re rock stars though - they just know they are.

On the back of a bumper 2006, now set as the base level for 2007/08, almost a third of those surveyed are expecting a rise in total pay of 6 to 10 per cent.

Expect some dire predictions and sterner words from your glorious leaders to arrive very soon
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Thursday, December 06, 2007

Where is Debt Being Stuffed? Minyanville

Thanks Mr. Practical. On top of this i suggest to read the latest from Hussman An Irrelevant Fed: Thimbles of Water in a Forest Fire .

Besten Dank Mr. Practical. Ergänzend empfiehlt sich das letzte "Werk" von Hussman An Irrelevant Fed: Thimbles of Water in a Forest Fire

Thanks to Jim Borgman

Where is Debt Being Stuffed? Mr. Practical / Minyanville

As the markets seem to want to be relieved that global central banks have the “liquidity” problem under control, let us Minyans remind ourselves of the magnitude of the problem.

I have described just how central banks inject “liquidity” into the markets when they need it. Essentially central banks encourage debt creation, for people to borrow money, so that they buy things (consumption) to spur the economy. But due to too much debt, financial engineering has had to create new and better places to stuff more and more debt.

You may have seen this chart before. It shows the results of that financial engineering. Central banks can only affect the bottom two parts of the chart, high powered money and M3. M3 the Federal Reserve is growing as fast as it can in order to indirectly support the much larger problem of securitized debt and derivatives.


These two phenomenal pockets of debt are supported by asset prices: when asset prices (which act as collateral) decline, liquidity gets sucked out of the system. So the purpose of pumping new debt into the system is to keep nominal asset prices up to protect collateral values of the real problem of leverage in the system that the Fed cannot directly control. It takes more and more debt to do this because people are having huge problems servicing the debt they already have.

So we have two huge forces fighting each other right now: central banks desperately attempting to re-flate (create more debt) and the market grudgingly but purposefully attempting to deflate by paying back (which the bureaucrats are trying to help with) or more likely destroying (write-offs) that debt. We have extremely high volatility as these two forces fight it out.

Looking at the chart, which do you think will win?

>If you are still not convinced i urge you to read Straight Talk on the Mortgage Mess from an Insider via Herb Greenberg. One of the best i´ve seen in months. It looks like the "Hope Now Alliance" will become a running gag during the coming years.....

>Solltet Ihr immer noch Hoffnung haben das alles gut werden wird empfehle ich dringend Straight Talk on the Mortgage Mess from an Insider via Herb Greenberg zu lesen. Mit das Beste was ich in den letzten Monaten zu lesen bekommen habe. Es sieht so aus als wenn die "Hope Now Alliance" zum Running Gag in den nächsten Jahren werden dürfte......

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