U.S. Agrees To Citigroup Bailout

What a start to a week..... I´m running out of words .... Just a few points...... Reminds me of the UBS bailout ( see UBS Transferring $60 Billion in Dud Assets to Swiss National Bank, Raises $5.3 Billion ).....On top of this it is looking more and more like John Hempton was spot on (make sure you read his theory) .....Hat tip Naked Capitalism.... After the structure & terms of this bailout it will almost be impossible to deny any other enquiries ( GM...... )...... UPDATE: Official Term Sheet is out and has some slightly different numbers & details or read the Summary via FT Alphaville

Da mir anhand der tagtäglichen Ungeheuerlichkeiten bald die Worte fehlen möchte ich lediglich sagen das hier wohl Anleihen aus der Schweiz übernommen worden sind ( siehe UBS Transferring $60 Billion in Dud Assets to Swiss National Bank, Raises $5.3 Billion ).... Zudem empfehle ich dringend nachfolgenden Link von John Hempton zu lesen.... Was zum Zeitpunkt des Postings für viele noch ungeheuerlich erschien ist rückblickend fast als genial zu bezeichnen...... Beide Male geht der Dank an Naked Capitalism ... Die Struktur sowie die Bedingungen diese Bailouts achen es unmöglich überhaupt noch eine Anfrage weiterer Bailouts abzulehnen ( GM.... )..... UPDATE: Das offizielle Memo ist veröffentlicht und beinhaltet einige kleine Abweichungen hinsichtlich Summen und Bedingungen. Eine nette Zusammenfassung gibt es von FT Alphaville

WSJ Billions in Toxic Assets May Be Removed; New Phase for Government Bank Rescue

WASHINGTON – The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years

-- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.

In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.

Citigroup would also agree to work to modify -- if possible -- troubled mortgages held in the $300 billion pool, using standards created by the FDIC after the collapse of IndyMac Bank.

The government is not expected to require any management changes, as that was seen as potentially being too destabilizing.

Under terms of the agreement, the Treasury Department and FDIC will guarantee $306 billion of Citigroup loans and securities backed by residential and commercial real estate and other assets, which will remain on the bank's balance sheet. Citigroup will absorb the first $29 billion of losses, with the government stepping in after that as "protection against the possibility of unusually large losses."

> Make sure you read Citi of over-leveraging to put Citi´s loss absorbtion into perpective.......

> Empfehle einen Blick auf Citi of over-leveraging um zu erkennen das die Verlustsumme der Citi ein einziger Witz ist.....

Among the conditions that Citigroup agreed to is "an executive compensation plan, including bonuses, that rewards long-term performance and profitability, with appropriate limitations," according to the Treasury Department. Details on the company's compensation "must be submitted to, and approved by" the government. .....

The plan would essentially put the government in the position of insuring a slice of Citigroup's balance sheet.

Another possibility on the table was the creation of what is sometimes called a "bad bank" -- an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in weak assets, these people said.

In either case, taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

It was unclear Sunday night whether the government would take an additional equity stake in Citigroup in return for the support. Citigroup previously agreed to issue the government preferred shares in return for the $25 billion the bank received as one of the first nine companies to get capital infusions.

If the government sets up the bad-bank structure, the amount of financial support will be a key variable. If there is too little, investors might conclude that the bad assets will wipe it out, leaving the bank right where it was before.

In addition to $2 trillion in assets Citigroup has on its balance sheet, it has another $1.23 trillion in entities that aren't reflected there. Some of those assets are tied to mortgages, and investors have worried they could cause heavy losses if they are brought back on the company's books.

One rescue structure under consideration would resemble aspects of the $150 billion bailout plan the government struck with American International Group Inc. in November. Two vehicles, funded largely by as much as $52.5 billion in government money, were created to take on risks from some of AIG's souring assets, including exposure to credit derivatives. That deal also reduced interest costs on AIG's previously arranged $60 billion loan from the government.

In Citigroup's case, the government's arrangement likely will be able to accommodate only a sliver of the company's more than $3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such "hidden" assets helped trigger the nose-dive in Citigroup's stock last week. Among the off-balance-sheet assets are $667 billion in mortgage-related securities.

Citigroup has tried repeatedly to rid itself of its exposure to those assets. In late September, the company reached an agreement for a government-financed acquisition of Wachovia Corp. Under that planned deal, Citigroup and the government were going to divvy up the losses on $312 billion of assets, with Citigroup absorbing the first $30 billion in losses and the government shouldering the remainder.

Citigroup described that arrangement as intended to insulate it from Wachovia's risky mortgage assets. But Citigroup also would have been able to unload some of its own assets, according to people familiar with the matter.

Another Hidden Bailout......FASB Delays New Rules Off-The-Book Vehicles

"Enron-esque characteristics".......It looks like the "creativity"( see latest example Fed Loans to Failed Banks Made Easier by Fannie-Freddie Rescue ) of the Fed, Treasury & SEC aren´t enough to avoid the meltdown.....If the rules are not in your favour......... I´ll bet that this won´t be the last "delay"........ Got Gold?

Spontan fällt mir dazu die Bezeichnung "Enron-esque characteristics" ein..... Die zum Teil halsbrecherischen Aktionen der Notenbanken ( siehe gestriges Beispiel Fed Loans to Failed Banks Made Easier by Fannie-Freddie Rescue ) sowie des Finanzministeriums genügen anscheinend nicht mehr um den Gau in vielen Fällen zu verhindern. Schon nett anzusehen wie nach und nach all die Regeln die für eine wirksame Bilanzierung notwendig sind entsprechend der "Kassenlage" aufgeweicht werden. Jede Wette das dies nicht die letzte "Verlängerung" der Frist ist.....

Mal ganz davon abgesehen das alleine die Regel das man ohne weiteres ausserhalb der Bilanz riesige Summen an Verbindlichkeiten aufbauen kann der Traum eines jeden Banklobbyisten war zu einem Großteil der aktuellen Probleme geführt hat. Fragt mal bei der IKB, Sachsen LB, West LB usw. nach....... Got Gold?

FASB Delays New Rules On Off-the-Book Vehicles WSJ
Accounting-rule makers will delay by a year proposed changes that could force banks and other financial firms to take onto their books certain off-balance-sheet vehicles that played a central role in the credit crunch.

The Financial Accounting Standards Board initially decided that the rule changes should take effect starting next year for new structures that companies may want to keep off their books, but not until 2010 for existing ones. Following calls from companies and legislators that companies needed more time, the board on Wednesday agreed to make the changes for both new and existing structures effective in 2010.

If adopted, the rule changes could have a significant impact. Citigroup Inc. alone has more than $700 billion in assets in vehicles that it may have to bring back onto its books under the changes. The proposals also have sparked concern that Fannie Mae and Freddie Mac could have to consolidate trillions of dollars in mortgage assets, but the firms already account for these securities.

FASB Chairman Robert Herz said he was reluctant to delay the changes because many companies had abused existing standards to improperly keep vehicles off their books. The board initially tried to tighten the rules for off-balance-sheet vehicles in the wake of the Enron Corp. collapse earlier in the decade, but banks and others found ways around the rules.

Many observers believe that off-balance-sheet vehicles used by banks and others helped fuel the excesses of the housing boom. But Mr. Herz said he agreed to the delay after consulting with investors who said they would prefer a single start date for any rules change.

A delay raises the prospect that banks and others will have more time to try to beat back the proposed changes. The changes will be significant because they will make it more difficult, and in some cases more expensive, for banks and other financial firms to use off-balance-sheet vehicles to sell off, or securitize, assets.

FASB must still put out a draft of the proposed rules changes and, after a period of public comment, give final approval.

IKB Bailout Now Topping € 8 Billion

Another day, another frustrating event in the German banking sector. One day after the € 5 billion West LB fiasco the IKB is hitting the news once again with another € 2 billion risk that needs to be stuffed mainly through the state owned KfW ( already on the hook for € 5 billion and with close to 40 percent the major shareholder ). There are talks to get more money from commercial German banks ( so far € 500 Mio ) but i doubt that they will step in and provide this kind of incompetence any further. The situation has gotten so worse that the KfW / Pdf is in danger to run out of money to provide the German Mittelstand with financing...... Here is more on the IKB saga....

Ein neuer Tag und natürlich eine neue Hiobsbotschaft aus dem Reich der Inkompetenz. Ein paar Tahe nach dem 5 € Mrd West LB fiasco schickt sich die IKB an erneut 2 Mrd. € an Steuergeldern zu vereinnahmen um den längst fälligen Niedergang aufzuhalten. Wie bei den bereits bisher zugesagten Summen ist auch hier die KfW / Pdf und damit der Steuerzahler wohl für fast die gesamte Summe verantwortlich. Inzwischen ist die Lage aber selbst bei der KfW so angespannt das hier Finanzierungslücken im ursprünglichen Geschäft der KfW drohen. Bleibt zu hoffen das zumindest der deutsche Mittelstand nicht noch mehr darunter zu leiden hat das ein paar unfähige Herren bei IKB ( im Zusammenhang mit Aufsichtsrat und Aufsichtsbehörden ) im großen Stile wahnwitzige US Hypothekenfinanzierungen ermöglicht haben.......Hier ein paar ältere Posts zur IKB.

Dank an Hartgeld

Handelsblatt FRANKFURT. Die angeschlagene Mittelstandsbank IKB braucht erneut eine milliardenschwere Kapitalspritze, um das Überleben der Bank zu sichern und die Kapitalbasis zu stärken. „Die Situation ist kritisch“, sagte ein Insider. Es gehe um ein drittes Rettungspaket in Höhe von bis zu 1,75 Mrd. Euro.

Noch gebe es aber keine Einigung der Beteiligten: "Alles ist im Fluss." Am Mittwoch tagt Finanzkreisen zufolge der 37-köpfige Verwaltungsrat der KfW, die mit rund 38 Prozent der größte Anteilseigner der IKB ist.

Das neue Rettungspaket ist Finanzkreisen zufolge aktuell Gegenstand von Verhandlungen zwischen KfW, der mit knapp zwölf Prozent beteiligten Stiftung Industrieforschung sowie den privaten Banken, die im Bundesverband deutscher Banken (BdB) organisiert sind. Unklar sei aber, ob nicht auch der Bund einspringen müsse. So spreche die KfW auch mit der Regierung über eine mögliche Unterstützung. Grundsätzlich reiche das Eigenkapital der KfW zwar aus, um entsprechend ihrem Anteil die IKB erneut zu retten, hieß es. Seit der letzten Unterstützungsaktion nähere sich der Kapitalbedarf aber der Grenze, ab der es nicht mehr hundertprozentig auszuschließen sei, dass die IKB -Krise den Eigenkapitalanteil, mit dem die ERP-Mittelstandsprogramme abgesichert sind, berühren könnte. Der Bund solle sicherstellen, dass dies nicht passieren könne.

Vorsitzender des Verwaltungsrats der KfW ist seit Jahresbeginn Bundeswirtschaftsminister Michael Glos (CSU). Das Wirtschaftsministerium wollte sich auf Anfrage nicht zur neuerlichen IKB -Krise äußern. Auch IKB, BdB und KfW lehnten eine Stellungnahme ab.

Die IKB war wegen milliardenschwerer Engagements im US-Subprime-Markt in die Krise geraten und konnte im Juli vergangenen Jahres nur durch das Eingreifen der deutschen Kreditwirtschaft vor dem Zusammenbruch gerettet werden. Seither wurden der Düsseldorfer Bank Garantien über sechs Mrd. Euro gewährt, rund fünf davon trägt die staatliche KfW. Der BdB kommt auf etwa eine halbe Mrd. Euro, auch Sparkassen und Genossenschaftsbanken sind beteiligt. Diese hatte aber bereits nach der letzten Rettungsaktion klar gemacht, für weitere Hilfen nicht zur Verfügung zu stehen. Als privates Institut wäre bei einem Zusammenbruch der BdB rein formal - neben den Eigentümern - ohnehin in der Hauptverantwortung.

Finanzkreisen zufloge wäre eine Pleite der IKB mittlerweile günstiger, als die langwierige und aufwändige Rettung des Institut. Aus politischen Gründen sei dies jedoch nicht akzeptabel. "Es wäre ein sehr schlechtes Zeichen für die Märkte, wenn eine deutsche Bank pleite geht", sagte ein Insider.

€ 5 billion Taxpayer Baliout for West LB........€ 23 Billion "Outsourced" In Special Conduit......

Paulson, Bernanke, King & Co have every reason to be jealous....No sovereign wealth funds or orchestrated takeovers like CFC/BAC needed....We have the German taxpayer to bail this stupid bankers, the non existent boards & oversight out....Make sure you read the summary of German banking incompetence to get a grip how disastrous the situation is. I assume when you combine all the guarantees, fresh capital etc backed by the "German taxpayer" it would be easily enough to kick UBS from 3rd place in the ranking of the biggest write downs so far.....

Paulson, Bernanke, King & Co platzen sicher vor Neid.... Nur gut das wir keine Ölscheichs und Staatsfonds benötigen... Der deutsche Steuerzahler ist stets zu diensten um vollkommen amoklaufende Bänker, überforderte Aufsichtsräte und eine Bankenaufsicht die Ihren Namen nicht verdient hat rauszuhauen..... Wer sich das ganze Ausmaß ansehen möchte der sollte mal einen Blick auf die Zusammenfassung der Inkompetenz werfen. Ich vermute das wenn man alle von Staatsseite unterlegten Rettungspakete zusammenadiert es reichen sollte der in dieser traurigen Rangliste der UBS konkurrenz zu machen .

West LB

The owners of WestLB AG have reached an agreement to ring-fence substantial risks in the Bank´s structured portfolios. Securities with a nominal volume of roughly € 23 billion will be ring-fenced off the Bank´s balance sheet in a special purpose vehicle.

The financing of the special purpose vehicle will be secured by a guarantee from the owners of up to € 5 billion to cover any payment defaults. The owners will meet any possible losses from these securities portfolios in line with their shareholdings in WestLB up to an amount of € 2 billion, in compliance with their statement of January 20, 2008. Any further losses up to € 3 billion will be borne by the State of North Rhine-Westphalia

West LB

Die Eigentümer der WestLB AG haben beschlossen, die Bank von wesentlichen Risiken aus ihren strukturierten Portfolien zu befreien. Dazu werden die Papiere in einem Volumen von etwa nominal 23 Mrd. € in einer Zweckgesellschaft außerhalb der Bank gebündelt

Die Finanzierung der zu gründenden Zweckgesellschaft wird durch eine Garantie der Eigentümer für tatsächliche Zahlungsausfälle in Höhe von bis zu 5 Mrd. € bgesichert. Die Eigentümer tragen etwaige Verluste aus diesen Wertpapierportfolien entsprechend ihren Anteilen an der WestLB bis zur Höhe von 2 Mrd. € in Erfüllung ihrer Erklärung vom 20.1.2008. Darüber hinaus gehende Verluste von bis zu 3 Mrd. € werden vom Land NRW getragen

Quote December West LB related to the SIV / Zitat Dezember West LB

“We are also convinced that the assets that Kestrel and Harrier have could be more highly valued, but that the market is not ready for that.”

LOL!!!!

WestLB Owners Agree to Bailout as Bank Seeks a Merger Bloomberg

Steuerzahler muss für WestLB-Rettung bluten FT Deutschland

More German Bailouts Under Way ... West LB Needs At Least € 2 billion

What a surprise...... Düsseldorf seems to be the capital of banking incompetence in Germany. West LB & IKB two of the biggest casualties have their headquarter located there. Unlike in the US we don´t need the Petro or Sovereign Wealth Fund Dollars. We have the German taxpayer on the hook once again for the West LB who is in different ways owned through several state or municipal entities ( see West LB Factsheet ). If you add Sachsen LB to the bailout list we are easily at amounts that exceed € 10 billion taxpayers money and this exposure is still rising......

Welch Überraschung........ Düsseldorf ist unzweifelhalft die Hauptstadt in Sachen deutscher Bankeninkompetenz. Neben der West LB hat auch die IKB haben dort Ihren Hauptsitz. Während die US Banken um Petro $ und Staatsfons buhlen muß können sich diese Institute der Hilfe des deutschen Steuerzahlers sicher sein. Wenn man jetzt die Sachsen LB hinzuzieht bewegen wir uns jetzt schon locker im zweistelligen Mrdbereich an fehlgeleiteter Steuergelder die der Inkompetenz, dem Größenwahn einiger Provinzbänker und einer komplett überforderten Aufsicht (Aufsichtsrat, Bafin, Ministerium usw) geschuldet sind. Dummerweise ist das noch lange nicht das Ende der Fahnenstange.....

The entire debacle is becoming a real joke when you review their slogan when it comes to the problem sector SIV/conduits that is causing the largest part ( on top of trading losses, bad debt etc ) of the problem ( see WestLB, HSH Nordbank Bail Out $15 Billion of SIVs )...."Premier Structured Finance House - Our Core business" ....

Das ganze wird schon fast wieder komisch wenn man sich den Slogan der gerade den problembehafteten Sektor in den Worten der Wets LB beschreibt ( siehe WestLB, HSH Nordbank Bail Out $15 Billion of SIVs ) "Premier Structured Finance House - Our Core Business"

On top of this the biggest Landesbank the LBBW is also eating losses of around € 1.7 billion related to subprime and SIV/conduits. But they are at least strong enough to survive this without new capital.

Die Meldung das die LBBW ebenfalls 1,7 Mrd an Abschreibungen im Zusammenhang mit Ihrem Ausflug in die schöne neue Welt der ausserbilanzlichen Zweckgemeinschaften & US Hypotheken verloren hat sollte zumindest am Rande erwähnt werden. Immer verkraften die das ohne neue Hilfe des Steuerzahlers. Bleibt zu hoffen das dies auch zukünftig so bleiben wird

Quote December West LB related to the SIV / Zitat Dezember West LB

“We are also convinced that the assets that Kestrel and Harrier have could be more highly valued, but that the market is not ready for that.”

WestLB Expects EU1 Billion Loss for 2007, Will Raise Capital Bloomberg

West LB’s “non-permanent” writedowns FT Alphaville

WestLB ringt um frisches Kapital FT

Der West LB droht ein Milliardenverlust FAZ

Kapitalspritze und Stellenabbau Manager Magazin

German IKB Bailout Now Over $ 7 billion

We in Germany don´t need Abu Dhabi to provide $ 7 billion in capital. ....Here are the initial posts on the IKB scandal one, two & three . Together with the bailout for the Landesbank Sachsen the German taxpayer have provided way over $ 10 billion ......

Schön zu wissen das wir kein Scheichtum wie Abu Dhabi benötigen um eine deutsche Mittelstandsbank die sich sinniger weise hoffnungslos bei Subprime Immospekulationen in den USA verzockt hat rauszuhauen. Zur Vorgeschichte zu diesem Skandal siehe Teil 1 , 2 & 3 Wenn man die Summen für die Landesbank Sachsen hinzurechnet kommt der deutsche Steuerzahler locker für Schieflagen von über 10 mrd € auf........

The bailout from the IKB is (surprise surprise) much more expansive than originally estimated. The updated loss provision is now $ 8.5 billion! Over $ 7 billion is shouldered from the state owned KfW. It seems the higher provision was needed because the liquidation of the conduits isn´t going as smoothly as the naive "experts" have originally thought......Probably the same experts that have advised to invest in subprime.....

The KfW was usually created to help the backbone of the Germany economy called the Mitterstand ( small and midsized companies). The help for the IKB who originally had also the German Mittelstand as their core business is threatening the ability to fund the Mittelstand.

FT KfW said the outlook for Rhineland Funding, an investment vehicle launched by IKB, had deteriorated after it identified “crucial” new information about its risk exposure to the US subprime loan market.

Handelsblatt KfW gerät in den Sog der IKB-Krise

Die Rettung der Industriebank IKB ist weitaus teurer als bisher angenommen. Der Großaktionär, die staatseigene Förderbank KfW, muss weitere 2,3 Mrd. Euro an Risiken zurückstellen und kommt damit langsam an die Grenzen ihrer eigenen Tragfähigkeit

teurer als bisher angenommen. Der Großaktionär, die staatseigene Förderbank KfW, muss weitere 2,3 Mrd. Euro an Risiken zurückstellen und kommt damit langsam an die Grenzen ihrer eigenen Tragfähigkeit. KfW-Chefin Ingrid Matthäus-Maier informierte den Verwaltungsrat am Dienstag über die dramatisch gestiegenen Risiken aus der milliardenschweren Zweckgesellschaft Rhineland Funding, die die IKB aufgebaut hatte. Die IKB hatte sich am US-Markt für Hypothekenkredite verspekuliert.

Damit wächst das gesamte Rettungspaket für die IKB von 3,5 Mrd. Euro auf 5,8 Mrd. Euro. Den größten Anteil daran trägt mit bisher 4,8 Mrd. Euro die KfW, die 38 Prozent an der IKB hält. Doch mit den höheren Risiken ist der KfW-Fonds für allgemeine Bankrisiken von 5,3 Mrd. Euro so gut wie ausgeschöpft. Nach Informationen des Handelsblatts hat die KfW bereits beim Bund vorgefühlt, ob Garantien des Bundes vorstellbar seien.

Am Mittwoch trifft sich der Bankenpool, der die Rettung der IKB finanziert hat, zu einer weiteren Krisensitzung. An dem Treffen nehmen neben der KfW Vertreter der Verbände der Privatbanken, Sparkassen und Genossenschaftsbanken teil. Auch die Bundesbank, die Finanzaufsichtsbehörde BaFin sowie das Bundesfinanzministerium werden vertreten sein. Finanzkreisen zufolge sind die Bankenverbände weiterhin nicht bereit, sich an den zusätzlichen Risiken zu beteiligen

Zudem müssen bei solchen hochkomplexen Zweckgesellschaften in bestimmten Situationen Anlagen verkauft werden, obwohl die Preise dafür nicht vorteilhaft sind. Diese Auslöser für Zwangsverkäufe waren anscheinend im Sommer noch nicht in allen Einzelheiten bekannt. Die KfW spricht lediglich von „neuen wesentlichen bewertungsrelevanten Informationen“ bezüglich der abgeschirmten Risiken.

Die Düsseldorfer Mittelstandsbank IKB hatte sich mit zweien solcher milliardenschweren Zweckgesellschaften und eigenen Anlagen in verbriefte Anleihen verhoben. Parallel zu den neuen Milliardenrisiken, die die KfW bekanntgab, wird seit Tagen darüber spekuliert, dass die IKB selbst ebenfalls zusätzliche Kapitalhilfen von bis zu 400 Mill. Euro benötigt. Mehr Informationen dazu, ob das Rettungspaket für die Bank damit noch einmal größer wird, dürften spätestens am Freitag bekanntwerden, wenn die Mittelstandsbank ihre Quartalszahlen vorlegt

Das Finanzministerium wollte die höheren Risiken zunächst nicht kommentieren. Der Vorsitzende der Mittelstandsvereinigung der Union, Michael Fuchs, sagte: „Ich mache mir erhebliche Sorgen um eine adäquate Fortsetzung der Mittelstandsfinanzierung.“ Auf keinen Fall dürften die Milliarden des ERP-Sondervermögens, die die KfW in diesem Jahr übertragen bekommen hat, für die Risikoabdeckung verwendet werden.

Die explodierenden Risiken bei Rhineland Funding könnten aber auch für weitere Skepsis in der gesamten Bankenbranche sorgen. Braucht die KfW die Risikovorsorge in Höhe von 4,8 Mrd. Euro für Rhineland Funding wirklich in voller Höhe, hieße dies, dass mehr als die Hälfte ihrer Liquiditätslinie für die Zweckgesellschaft letztlich zum Verlust wurde. Viele Banken, die milliardenschwere Liquiditätslinien für Zweckgesellschaften eingegangen sind, spekulieren jedoch derzeit noch, dass diese kaum zu Verlusten führen. Die britische Großbank HSBC hatte sich in dieser Woche dazu entschieden, ihre beiden Zweckgesellschaften in die Bilanz zu nehmen und damit Liquidität und Zwischenfinanzierungen über 35 Mrd. Euro zu stellen.

HSBC Will Take on $45 Billion of Assets From Two SIVs

Finally .......If you take this event one step further you might ask why Citi & Co are not able to do the same and Paulson & Co is tring desperately to help and create the "Superfund"...... Maybe it has something to do with the strenth of their balance sheets...... UPDATE: Fire Sale At Citigroup...Citigroup to Get $7.5 Billion Infusion From Abu Dhabi

Endlich...... Im Umkehrschluß sollte man sich sehr wohl fragen warum Citi & Co es der HSBC nicht gleichtun und warum Paulson & Co so verzweifelt versucht den "Superfund" ins leben zu rufen....... Das liegt sicher nicht an den "starken" Bilanzstrukturen....... UPDATE: Fire Sale At Citigroup...Citigroup to Get $7.5 Billion Infusion From Abu Dhabi

Nov. 26 (Bloomberg) -- HSBC Holdings Plc, Europe's largest bank, will add $45 billion of assets to its balance sheet by consolidating two structured investment vehicles it manages.

The bank doesn't expect any ``material impact'' on its earnings or capital strength, it said today in a Regulatory News Service statement.

HSBC's decision comes as U.S. lenders led by Bank of America Corp. seek to persuade competitors to help finance an $80 billion bailout of other SIVs, companies that borrow short-term to invest in higher-yielding assets. HSBC will give investors in Cullinan Finance Ltd. and Asscher Finance Ltd. the chance to swap their holdings for securities issued by a new company, backed by loans from the London-based bank.

``HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher,'' Stuart Gulliver, HSBC's chief executive officer of corporate and investment banking in London, said in the statement.

SIVs borrow in the $836 billion asset-backed commercial paper market to buy longer-dated debt including bank bonds, mortgage-backed securities and collateralized debt obligations. Investors are shunning SIVs because the holdings are difficult to value now that trading has collapsed in some mortgage debt markets. That's stoking concern SIVs will sell assets at distressed prices, adding to turmoil in credit markets.

FT Alphaville The other problem is that declines in asset values have left these vehicles facing NAV or market value triggers that would put them into a restricted state of operation.

The latter seems to be the more immediate problem for HSBC. The bank says that both its SIVs are funded beyond the end of the year, with Asscher funded to April 2008.

In terms of their asset value, Asscher, back at launch in January, was intended to have about about 10 percent of its portfolio invested in triple-A cash CDOs, with about 40 percent in residential mortgage-backed securities. Not a great place to be.

Other SIVs have been hamstrung by declining NAVs. But, as we noted earlier this month, HSBC has kept its portfolio tests under wraps

Bank of America Takes Lead in Backing `SuperSIV' Fund The ``SuperSIV'' fund, backed by U.S. Treasury Secretary Henry Paulson, would buy assets from so-called structured investment vehicles, whose $300 billion of holdings include corporate and mortgage debt in danger of default.

Bank of America, Citigroup and JPMorgan, the three largest U.S. banks, want SuperSIV in place by year-end because some SIVs haven't been able to trade, people familiar with the fund said. BlackRock Inc., the biggest publicly traded U.S. money manager, probably will manage the fund, said a person with knowledge of the plan.

Loomis Sayles & Co. declined to invest after receiving one of 16 invitations for a personal meeting last week with current Fed Chairman Ben Bernanke, said Daniel Fuss, who oversees $22 billion as chief investment officer at the Boston-based firm.

``It's so nice to get a personal invitation to go to Washington and have a one-hour visit with Ben Bernanke,'' said Fuss, who decided participating wasn't worth the risk to his firm. ``Oh, boy, did I feel important for about 27 seconds, and then you smell a rat.''

BRAVO :-)

NAV SIVs

No wonder Paulson & Co are working overtime.......

Kein Wunder das Paulson & Co momentan sehr beschäftigt sind........

FT The point of M-LEC
Since SIVs were last in the limelight, things have not improved. In fact, asset prices in SIVs have continued to slide. Take a look at this graph, published by Fitch ratings in a note to clients:

Net Asset Value, or NAV, is a measure of the amount by which the market value of a SIVs portfolio exceeds the senior debt, divided by the capital - in other words, a measure of a SIVs underlying worth after leverage.

Not only does Fitch’s graph highlight that SIV’s fortunes have steadily worsened, it also points to a growing divide. Some SIVs are in a far worse NAV situation than others. Axon Financial, managed by TPC-Axon Capital Management, has a NAV currently at 35-40 per cent. Compare to AbAcAs Investments, managed by EBI/NSM. Its net asset value (NAV) is at around 100-105 per cent.

Even if funding briefly loosened up after August, SIV NAVs are still clearly troubled.

Citi - the prime mover behind M-LEC, is a case in point. While the bank could last week declare it had funding for all its SIV CP for the next year, it couldn’t rest on its laurels: The 3 Citi SIVs Fitch rates (in total there are 7) have seen NAVs slide pretty much in line with Fitch’s graph. On September 6, Beta’s NAV was 85.3 per cent, Five’s NAV was 81.6 per cent and Sedna’s NAV was 81 per cent. One month later, on October 8, Fitch puts Beta at 75-80 per cent, Five at 70-75 per cent and Sedna at 75-80 per cent. A decline of up to 10 per cent.

>Mish is asking in Enron Accounting at Citigroup

If a fire sale of those SIVs and conduits resulted in a 25% loss, Citigroup would have net tangible assets of $25.5 billion. If a fire sale of SIVs and conduits resulted in a 41% loss in those SIVs and conduits, Citigroup would have zero net tangible assets.

M-LEC is not only about restoring confidence and making the market more transparent. It’s about restoring asset values.

> Hellasious from Sudden Debt has a related post that is also painting a very bleak picture

> Hellasious von Sudden Debt hat ebenfalls ein Post zu diesem Thema das wenig Linderung verspricht

Hat Tip Eh

Cheyne SIV fails insolvency tests

I think lots of people are hoping that the ruling (see emphasized part of the post) won´t spread...... If you want to laugh or to shake your head in disbelief click here and read what S&P has to say about conduits and SIV just a few month ago.....

Ich kann mir sehr gut vorstellen das wohl einige den unterstrichenen Absatz basierend auf dem Richterspruch nicht sonderlich gerne sehen......Wenn Ihr ordentlich ablachen oder einfach nur fassungslos den Kopf schütteln wollt kann ich diesen Kommentar von S&P zum Thema "Conduits und SIV´s" empfehlen.....

Thanks to Jim Borgman

Cheyne Finance halts payment / FT
Cheyne Finance has become the first structured investment vehicle to stop repaying its short-term debt after the administrator of the troubled fund won court backing to declare it in breach of insolvency tests.


The move came as Cheyne Finance entered final negotiations with four banks bidding for its assets, which stood at $6.6bn (£3.2bn) at the start of last month.

The hold on repayments of the SIV’s commercial paper will hit short-term debt markets just as they had begun to show some signs of recovery from the ravages of the summer credit squeeze.

But Neville Kahn, a partner at Deloitte, the administrator, said the insolvency would not force it to sell assets at firesale prices and would make it easier to push through a sale.

“It will mean that we will get to a solution quicker,” he said. “We hope to have a recommended deal very shortly to communicate to creditors.”

The SIV still has $1.3bn of cash and could have continued to repay maturing commercial paper until at least the end of this month.

The administrator won backing from the High Court in a sealed judgment on Wednesday, said people present at the hearing.

However, the court’s interpretation of the insolvency test – using a balance sheet measure, in spite of the SIV’s cash pile – could prove controversial, as many SIVs would be insolvent if a similar measure was applied.

Mr Kahn refused to say which banks were bidding or at what prices, but said it was wrong to assume the holders of mezzanine debt – the lowest-rated tranche – would be wiped out.

That suggests holders of the top-rated commercial paper will be repaid in full, in spite of the insolvency.

Cheyne Finance, set up and managed by Cheyne Capital, the $12bn London hedge fund, is one of several vehicles either struggling to find new financial backers to support a restructuring or have triggered restrictions on their operations.

Two SIV-lites struggling to restructure have turned to Barclays for support, although Golden Key, set up by Swiss-run hedge fund Avendis, is in dispute with the bank about whether it has to repay a loan it drew down, reported to be worth $250m. Mainsail II, an SIV-lite run by London hedge fund Solent, had a rescue plan backed by Barclays turned down by investors.

In total, more than $42bn of assets in SIVs and SIV-lites are facing limits on their operations.

US banks take $280bn onto books

Despite all the orchestrated efforts around the globe from central banks, regulators, politicians etc. the party or orgy :-) is over. The cracks are so obvious that no matter what kind of "bailout" attempt will happen next the real economy will take a significant hit. The times of easy credit are over. I think the biggest fear now is that the creditors will overshoot to the other side. The fact that foreigners are less willing to finance US assets will intensify this trend. I also recommend the excellent piece from Brad Setser The US trade deficit is falling, but not as fast as the world’s demand for US debt.

Trotz der konzertierten weltweiten Aktionen von den Zentralbanken, Aufsichtsbehörden, Politikern etc sind die Zeichen nicht zu übersehen das die Party oder Orgie :-) zu Ende ist. Die Einschläge sind so massiv das ganz egal was noch an neuen "Bailout" Versuchen auf die Agenda kommt die reale Wirtschaft darunter zu leiden haben wird. Die Zeiten des einfachen Zugangs zum Kreditmarkt sind Geschichte. Die größte Sorge die momentan vorherrscht ist sicher das die Kreditgeber von einem Extrem ins andere wechseln und es den Zugang über Gebühr erschweren. Die Tatsache das ausgerechnet jetzt die Ausländer aufwachen und immer weniger US Anleihen erwerben wird diesen Trend nur noch verstärken. Zu diesem Thema solltet ihr ebenfalls die Meinung von Brad Setser lesen The US trade deficit is falling, but not as fast as the world’s demand for US debt.

Banks’ debts threaten growth / FT

Big US commercial banks have seen $280bn of new debt come on to their balance sheets since the credit squeeze, threatening to undermine economic growth by inhibiting their ability to make new loans.

The banks have been forced to take on to their books large amounts of commercial paper and leveraged loans after investor demand for such assets dried up in the summer.

David Rosenberg, economist at Merrill Lynch, said that this amount had risen to $280bn since the start of August.

He added that according to data from the Federal Reserve, large bank capital – represented by net assets – had declined by $40bn since the beginning of August. “This has never happened before over such a short timeframe and this is rather serious because such a steep and sudden compression in large-bank capital has the potential to create a negative lending environment,” he said.

If left unchecked, this could “significantly inhibit” economic growth, he added.

> via Minyanville The Bernanke Put Defined

"Access to a backstop source of liquidity in turn reduces the incentives of banks to limit the credit they provide to their customers and counterparties."

Read that statement carefully. It's the one key sentence in the entire speech.

The misunderstanding that is perpetuated is that the Fed by "providing liquidity" is not actually "providing credit."

What Bernanke's statement means is that, in reality, the two are synonymous.

European banks are facing similar pressures with many observers expressing concern at the ability of some smaller lenders to handle the potential strain on their balance sheets.

Fears over the effect of the credit squeeze on US bank balance sheets was one factor behind the US Treasury’s encouragement of the creation of a "super fund" to take on the assets of troubled investment vehicles.

The three top US banks – Citigroup, JPMorgan Chase and Bank of America – this week unveiled plans for a fund that would buy up to $100bn of mortgage-backed assets from structured investment vehicles.

Citigroup, which manages $80bn of assets in such vehicles, has bought some of the vehicles’ commercial paper.

On Monday, Citi said it was suspending share buy-backs because its capital ratios had weakened partly due to the large amount of commercial paper and leveraged loans it had taken on.

According to Moody’s, the credit rating agency, assets held by bank-sponsored special investment vehicles fell to $320bn from $395bn in July.

“The large banks have been forced to take commercial paper back on their balance sheets and as a result are choking on assets they did not plan on having – thereby tying up regulatory capital and in turn possibly leading to a reduction in credit extension,” said Mr Rosenberg.

He pointed out that 30 per cent of the growth in the debt that US households took on was backed by asset-backed investors.

Master Liquidity Enhancement Conduit / SIV & Conduit Bailout

It looks like the big players, the Treasury Department & the Fed have found a way to hold on to their off balance sheet addiction. Although the details are not clear yet i can´t help myself but whenever i hear "Big Banks" & Treasury Department and the Fed in one sentence it doesn´t smell like more transparency is on the way ....

Es sieht einmal mehr danach aus als wenn die großen Banken Hand in Hand mit dem Finanzministerium und der Fed Überstunden geschoben haben um auf jeden Fall zu verhindern das die bisherigen Off Balance Sheet Verbindlichkeiten in die eigene Bilanz aufgenommen werden müssen. Ich muß zugeben das immer wenn ich Banken, Finanzministerium und die Fed in einem Satz zu lesen bekomme es nicht zu Unrecht zu befürchten steht das die eh schon dürftige Transparenz noch mehr Schaden nimmt ...

And thanks to Aaron Krowne we know of some small print that is already in place to prop up these vehicles....

Und dank Aaron Krowne erfahren wir auch das die Fed bereits jetzt fleißig diese Konstruktionen ausserhalb der Bilanz auf eine Art und Weise fördert das es einem dem Atem verschlagen muß.......

Is The Fed Flushing Out The “Excess Credit” Demons?

With this in mind, those generally suspicious of the Fed might not be surprised to find out that the Bernanke bunch is busy suspending even more reserve requirements for many major banks amidst this credit crisis.

Specifically here I am referring to bank off-balance-sheet conduit subsidiaries (this is now how money market and similar vehicles are handled… which is a sketchy fact in and of itself). The Fed is apparently piling up exceptions to its regulation 23A, which normally mandates 10% reserves for such conduit entities.

The exceptions “temporarily” suspend these reserve requirements. They are open-ended. Hmmm.

One would think in a time of financial crisis that the monetary authorities would be increasing capitalization requirements. Not so in the bizarro-world of the US Fed — maintaining the con a little longer is top priority

Here the reports / Hier die Berichte

Citigroup, Bank of America Agree to Set Up $80 Billion CP Fund / Bloomberg

Banks to Start Fund to Protect Credit Market / NYT

Banks line up $75bn mortgage debt fund / FT

Rescue Readied By Banks Is Bet To Spur Market / WSJ

Here are other takes / Hier andere Meinungen

Mish Super SIVs - A Fraudulent Attempt at Concealment

Nacked Capitalism The Smoke and Mirrors SIV Rescue Plan

Zeitenwende Wall-Street plant Notfall-Fonds

Calculated Risk Musical SIVs

WSJ Deal Journal A Bailout for Citigroup?

Lee Adler The Worst Is Over ?

WSJ Opinion House of Paulson?

Paul Kasriel MLEC - Trying to Turn a Sows Ear into a Silk Purse?

Calculated Risk Institutional Risk Analytics on MLEC

Spin of the Week.....Citigroup’s SIV Overseers

Isn´t it refreshing when everybody is calling for more transparency the persons / institutions concerned are heading way too often in the opposite direction...... A big hat tip to the Financial Times that once more trumps the often superficial WSJ! Click on the headline to read the entire report.

Ist es nicht nett anzusehen wenn die ganze Welt nach mehr Transparenz im Finanzchaos sucht und sobald es ans Eingemachte geht die betroffenen Akteure "höchst fragwürdige" Auskünfte geben.... Einmal mehr großen Dank an die Financial Times die mal wieder deutlich die Nase vorm allzu oft oberflächlich berichtenden WSJ hat. Klickt wie üblich auf die Überschrift um den ganzen Bericht zu lesen.
In a letter seen by the WS Journal, Citigroup’s SIV overseers, Paul Stephens and Richard Burrows, said that:

Quite simply, portfolio quality is extremely high and we have no credit concerns about any of the constituent assets… SIVs remain robust and their asset portfolios are performing well.

But look at the filings with the London Stock Exchange, and you will see that Citi’s SIVs have seen declines in portfolio net asset value of 17-20 per cent in the past few months, which doesn’t quite sit comfortably with Stephens and Burrows assertion that “asset portfolios are performing well”.

Citi’s SIVs certainly do contain some very strong assets - their direct subprime exposure is accordingly, minimal, and a large chunk of their portfolios is rated highly. SIV managers are trying to stress the quality of their portfolios over their current values. But in a market such as this, that doesn’t necessarily matter, because a whole range of assets are suffering from contagion and fear.

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

IKB to Post Full-Year Loss of as Much as $954 Million

It looks like the IKB saga ( see part one & two) is coming to an end. Would be great to know what the costs for the German taxpayer for this bailout will be in the end. But we will have to wait until the state owned KfW will come up with more details on how much risk from the conduit they have taken in their own books. According toHandelsblatt & Wirtschaftswoche the KfW has set aside several billions ( worst case) to deal with the IKB mess. I´ll bet that 12 month from now the IKB will be sold. Let the takeover speculation begin......

Es sieht so aus als wenn die unschöne IKB Saga (siehe Teil 1 & 2 ) Ihrem vorläufigen Ende entgegengeht. Leider geht aus diesem Bericht nicht hervor wieviel das ganze Debakel den deutschen Steuerzahler durch das eingreifen der KfW gekostet hat und welche Risiken evtl. in die Bücher der KfW übernommen worden sind. Lt. Handelsblatt & Wirtschaftswoche hat die KfW bereits jetzt mehrere Mrd. € ("worst case") zurückgelegt um das IKB Schlamassel abzuwickeln. Ich wage mal den Ausblick das die IKB binnen der nächsten 12 Monate nicht mehr eigenständig sein wird und verkauft wird. . Ab heute dürfte die Übernahmespekulation hohe Wellen schlagen......
Sept. 3 (Bloomberg) -- IKB Deutsche Industriebank AG, the German bank being bailed out by the government, will post a full- year loss of as much as 700 million euros ($954 million) and stop investing in international securities after wrong-way bets on subprime loans.

IKB will book the loss for the 2007-2008 fiscal year, it said in a statement today. The shortfall stems from ``hidden accounting losses as well as further restructuring measures,'' the company said. For the year ended March 31, IKB earned 179.6 million euros.

The company has replaced top executives and delayed reporting results after losses on securities related to risky U.S. home loans almost caused it to collapse. Landesbank Sachsen Girozentrale, the German state-owned bank that got 17.3 billion euros in emergency funds last month, said Aug. 31 it may post a loss for 2007.

> The loss will be roughly 8 € a share..... Not insignificant when you compare this to the Stock price of 14 €.........

> Bei einem Börsenkurs von rund 14 Euro macht die Mittelstandsbank damit in diesem Jahr voraussichtlich fast acht Euro je Aktie miese

IKB's board ``is convinced that a comprehensive one-off balance sheet adjustment is required for a successful fresh start,'' according to the statement.

The bank will focus on ``core'' units, including domestic corporate finance, leasing and private equity, following a review of its business model, IKB said. Investments in ``international securities portfolios'' won't ``remain an integral part of the business model.''

Germany's state-owned KfW Group and banking associations have agreed to cover as much as 3.5 billion euros of potential losses at IKB. Fitch Ratings last month cut IKB's individual credit rating to ``F'' from ``C,'' saying the bank would have defaulted without the rescue by KfW.

IKB has enough money to cover its operations for the coming six months without having to raise new funds, it said today.

American Investment Banks "Shots In The Dark" Economist

I think that not even the best accounting magic can hide that the earnings and the balance sheet will take major hits down the road and have deteriorated significantly. There goes the low multiple....... This was always one of the main bull arguments, now they already had switch to book value (see comment further down), next......

Ich denke das nich einmal die größten Bilanzierungstricks verschleiern können das sich sowohl der Gewinnausblick als auch die Bilanzstruktur erheblich und wohl auch auf längere Sicht verschlechtert hat. Soviel zum niedrigen KGV das seit jeher als Kaufargument herangezogen worden ist. Nun wird bereits auf den niedrigen Buchwert hingewiesen (siehe Kommentar weiter unten), demnächst.......

Wall Street pays for its opacity

STOCKMARKET investors come in all shapes and sizes, but in the current turmoil they agree on one thing: if in doubt about a financial firm, shoot first and ask questions later.

> And when you have committed liquidity guarantees as shown in the table from the Handelsblatt to conduits/SIV´s it is no wonder that you dump the shares first.......

> Und wenn man Zweckgemeinschaften lt. dem Handelsblatt solch großzügige Liquiditätsgarantien gemacht hat würde ich auch schnellstmöglich meine Bankaktien auf den Markt schmeißen.......

> John M from Housing Doom has found this via Minyanville

Through the conduits’ convoluted structures, banks were able to “lend” huge amounts off-balance sheet and collect fees on no-capital-required lines of credit. No one - and I mean no one - ever expected these conduits to move from off-balance sheet back on-balance sheet and I don’t think the market yet understands the earnings, capital and liquidity impact of this migration.

If you figure you need anywhere from 6-8% capital per dollar of loans, then a move of $1.0 trln from off-balance sheet to on requires $60-80 bln in additional equity capital. I don’t know about you, but I don’t see this kind of free capital sitting around.

> Exellent find John M! Maybe we should forward this info to the rating agencies.... ;-)

> Nochmals besten Dank für diesen Fund an John M. Evtl- sollte man diese Erkenntnis an die Rating Agenguten weiterleiten....;-)

State Street, a big money manager, is the latest to stumble into the line of fire. Its shares slumped this week on unsubstantiated rumours that it faced big losses in asset-backed commercial paper.

> More details on State Street from Mish

But it is the investment banks that continue to take most of the bullets. They helped drag stockmarkets down on August 28th after Merrill Lynch downgraded a number of its peers, citing exposure to toxic credit, a day after Goldman Sachs had done the same. An unseemly squabble over jurisdiction in a bankruptcy case against two defunct Bear Stearns hedge funds ´probably didn't help to calm nerves. It hurts all the more to fall from a great height. Until a couple of months ago the investment banks were flying. Profit records were smashed quarter after quarter. Bonus pools looked more like lakes. Valuations climbed to three times book value, implying sustainable returns on equity of over 30%, when even 25% is rare in the industry.

As long as the money rolled in, no one seemed to mind that much of the business was cloaked in mystery.

Investment banks are now paying for that opacity, even though their management of risk has improved since the last credit crisis in 1998. They are suffering from their decision to do less moving and more storing of assets: they hold a lot more illiquid, hard-to-value paper these days, and have more capital tied up in lumpy private-equity deals. Worse, some of Wall Street's most lucrative recent creations, such as conduits and CDOs, are suddenly out of favour. This is part of what one analyst, Deutsche Bank's Mike Mayo, calls “dis-disintermediation”: the return of more traditional forms of finance, to the benefit of universal banks like Citigroup.....

Thanks to iTulip

All except Bear are still trading well above book value, the level at which they are generally considered cheap.

> Reminds me of the discussion from the "value" guys that came up with book value to measure the stock as dirt cheap... Until this sector turned to an impaired industry

> Die ganze Argumentation mit dem Buchwert erinnert mich sehr stark an dieselbe Diskussion mit den Homebuildern. Nachdem das KGV zu hoch war bzw. keine Gewinne mehr vorhanden waren kam plötzlich das Argument von sog. "Valueplayern" (LOL) das gemäß den Buchwerten die Aktien praktisch geschenkt sind.....Das war bevor der Sektor eine einzige Abschreibungsruine geworden ist......

Tellingly, while executives at other financial firms piled into their own shares in August, believing them oversold, there was scant buying among investment bankers.

The key now will be to reassure markets that the exotic assets on bank balance sheets are worth something. Investors are waiting with bated breath for Wall Street firms' third-quarter results, beginning in the second week of September. They may try to get as much bad news out as they can while sentiment is at rock bottom.

Mr Hintz sees it as an encouraging sign that none of the investment banks issuing bonds in the second half of August pointed to new “material” risks, as required when a company raises debt. This suggests that, while things are undoubtedly bad, the banks see no further nasty surprises in the short term.

bigger / größer

Thanks to Kevin Duffy / LewRockwell

The debate over how to value elaborate securities, less pressing in good times, is now taking centre stage. Most credit instruments have to be held at the value a buyer might pay for them, not cost. But judging that is more art than science. The Securities and Exchange Commission, the investment banks' regulator, is examining the issue following rumours that Merrill Lynch and Goldman Sachs were too optimistic in their marking. “This is a chance for the SEC to show leadership on a crucial issue. We desperately need an umpire to ensure consistency and restore confidence,” says one senior banker.

At least investment banks are in better shape than they were going into past crises. Their capital structures are more stable: they increased long-term funding by $200 billion in the past year alone, making them less vulnerable when capital markets dry up. They are also more diversified. They have piled into commodities trading and wealth management, which remain attractive. Their proprietary trading desks, once predominantly credit-focused, now trade lots of equities too. All except Bear Stearns now earn roughly half of their non-retail revenues outside America. ....

Peter Nerby of Moody's, a rating agency, points to two further advantages (though his rivals at Standard & Poor's are not so sanguine). The banks have become better at making money in tough times, he says. Thanks to hedging, trading volume and volatility are now bigger earnings drivers than the level or direction of markets.

> Really? Wasn´t it just 2 weeks ago that the Fed bends rules to help two big banks that had to step in for their brokerage affiliates.... And when you look at the leverage the guy from Moody´s is overly confident. The bond market has a much gloomier view on Goldman & Co

> Wirklich? Ist es nicht gerade ein paar Tage her das die Fed Ihre Grundsätze über Bord geworfen hat um 2 Investmentbanken vor dem Kollaps zu retten.....Der Anleihemarkt sieht die Lage von Goldman & Co weniger entspannt...... Second, good first-half results will help to bail Wall Street firms out, as half of their accrued bonus pools can be taken back to cover second-half losses. A generous pay structure can come in handy if markets falter at the right time of the year.

Bear and Lehman Brothers are likely to suffer more than the rest, partly because they are smaller and partly because they are more exposed to asset-backed nasties (see chart). If conditions worsen, they may even have to buy back securities peddled to clients, as they are obliged to make markets in some of them.

The tables may yet turn. Merrill, Goldman and Morgan Stanley are more exposed than Bear or Lehman to the $300 billion overhang of unsold debt from leveraged buy-outs. This week the bankers fought back, forcing Home Depot to cut the price on the sale of its supply division and the trio of private-equity buyers to swallow higher interest rates on the debt. A bigger test of nerves will come in the next couple of weeks, when buyers are sought for more than $20 billion of loans to finance the takeover of First Data, a transaction-processing group. Were that or another big upcoming deal to collapse, the investment banks could expect a hail of bullets.

> And with appetite for junk like this coming to a halt it is likely that they will have to hold far more toxiy loans than planned.....

> Und nachdem der Junkmarket praktisch zum erliegen gekommen ist ist es sehr wahrscheinlich das die Banken einige ungewollte Kredite in Ihrer Bilanz behalten müssen......

Eleven junk-rated borrowers have sold bonds since the beginning of July, compared with an average of 41 a month in the first half of the year, Bloomberg data show. Three found buyers in August.

Some of them are desperately trying to find a way out..... But with onlyJust three of the 40 biggest pending LBOs have an escape clause that lets the buyer back out if funding can't be arranged this could be very expensive

Einige von Ihnen versuchen bereits verzweifelt sich aus einigen Deals freizukaufen..... Da aber nur 3 der 40 Deals eine Klausel beinhalten das man vom Kredit zurücktreten kann könnte das eine extrem teure Geschichte werden.....