MBIA´s Fairytale Continues.....

And they still have an AAA rating...... If you want to have a good laugh click through the presentation MBIA´s Fairytale..... . There are so much low-lights that it is almost impossible to pick the best ones..... Warburg Pincus with their January investment at $ 31 must be proud of their due diligence...... :-). The counterparty risk is increasing.......

Schon sensationell das MBIA immer noch ein AAA Rating mit sich herumschleppt..... Kann jedem der ein bisschen ablachen möchte die nachfolgende Präsentation empfehlen. MBIA´s Märchenstunde........ . Dort sind etliche Tiefpunkte enthalten so das es unmöglich ist einzelne Punkte hervorzuheben..... Besonders glücklich muß wohl Warburg Pincus sein die groß zu $ 31 Ende Januer eingestiegen sind........ Das Risiko das eine Gegenpartei demnächst nicht in der Lage sein wird abgegebene Versprechen einzulösen dürfte demnächst explodieren........

MBIA Posts Loss of $2.4 Billion as CDO Slump Deepens Bloomberg

MBIA had insured bonds backed by home equity lines of credit and closed-end second loans totaling $21 billion at the end of 2007, according to the company.

MBIA: "Forensic experts reviewing loans" Calculated Risk

> Visit the presentation at page 38 for more details..... Funny to see that they were surprised that the " historical cumulative loss levels of 1-2%" is no longer in play......Clearly a sign that their own loss assumptions are superior to the fair value accounting....... Here comes a quote from MBIA from October 2007 MBIA / Denial "The Company believes that the “mark-to-market” loss does not reflect material credit impairment.".... A few billion in real losses later the confidence outside the rating agencies should be fading at light speed.......

> Mehr nette Details gibt es auf Seite 38 der Präsentation...... Besonders herzerfrischend ist das MBIA sich überrascht zeigt das die historisch niedrige Ausfallrate plötzlich nicht mehr zu gelten scheint..... Ein klares Anzeichen dafpür das man auch weiterhin locker auf die angeblich konservativen Modelle von MBIA vertrauen kann.....The Company believes that the “mark-to-market” loss does not reflect material credit impairment. Ich erinnere noch gerne an das MBIA Zitat aus dem Obktober 2007 MBIA / Denial "The Company believes that the “mark-to-market” loss does not reflect material credit impairment."..... Nach ein paar Mrd. realen Verlusten dürfte die Glaubwürdikeit ausserhalb der Ratingagenturen wohl ein wenig gelitten haben......

UPDATE via Calculated Risk / Bloomberg Moody's: Concerned about MBIA and Ambac

MBIA Inc. and Ambac Financial Group Inc. had ``meaningfully'' higher losses on home-equity loans and collateralized debt obligations than anticipated, raising concern about their Aaa status, Moody's Investors Service said. The first-quarter losses reported by the companies in the past two weeks elevate ``existing concerns about capitalization levels relative to the Aaa benchmark,'' Moody's, unit of Moody's Corp., said in a statement today.

Yves from Naked Capitalism sums it up nicely!

Moody's issued the weakest warning it could about the two big monolines. Most observers did not expect the bond insurers' last round of fundraising to carry them very far, and that view appears to be playing out on schedule. We may be moving towards a repeat the January-February drama, with the rating agencies saber rattling until the bond guarantors raise enough money to tide them over for another bit.

> I think we can call this an improvement...This time it took the agencies not years to react to the obvious (sarcasm off).....

> Ich denke man kann das als Verbesserung einstufen....Immerhin dazuert es jetzt nicht mehr Jahre um das Offensichtliche zu erkennen....Ich hoffe meine ironischenhen Bemerkungen werden nicht als echte Würdigung der Ratingagneturen verstanden.... :-)

A new monoline exposure for banks: CLO negative basis trades

Another day another problem for banks, "pirate equity" and financials...... It feels like more and more pillars of the "alchemy of finance" are crumbling down.....

Ein neuer Tag und mal wieder neue Probleme für Banken, "Pirate Equity" und Finanzwerte im allgemeinen.... Es sieht so aus als wenn immer mehr Pfeiler der "Finanzalchemie" beginnen wegzubrechen....

FT Alphaville Banks’ exposures through bond insurers, or monolines, is far from limited to mortgage-related MBS and muni bonds. There’s a third big exposure - to leveraged buyout loans - that banks will have to deal with if monolines hit the rocks.

Negative basis trades have been around for a while. A bank buys a bond - say it’s AAA - and then it takes out a CDS against that bond with a monoline. Since spreads in the CDS market for such tranches have been typically much lower than in the cash market, the bank pockets the difference.

But as well as banks’ much-dissected CDO exposures, there have been two other big markets for that kind of trade: on infrastructure bonds and - most interestingly - in structured finance, on CLOs (collateralised loan obligations) - CLOs being the vehicle of choice in which to park massive buyout loans.

Monolines, of course, are no longer in a position to be writing new contracts for banks to use as one half of their negative basis trades. The consequence of that has been that banks have stopped buying AAA tranches of CLOs. Unable to sell those, CLOs have faltered and banks in turn, have found themselves with lots of big buyout loans stuck on their books. No new financing is available for private equity deals.

According to Euroweek, 90 per cent of all CLO AAA-tranches have been bought and then wrapped in negative basis trades. Which begs a second question. What of all the AAA CLO and infrastructure paper that banks already have on their books? None of it, of course, shows up as exposures in filings because, net, there is no exposure. Assuming, of course, your CDS counterparty is safe. Err…

> Deutsche Bank was very optimistic in yesterdays call to unload all the € 21 bln loans with no losses. They argue that the quality of the loans is high and that it is and has always been the policy from Deusche to take 10 percent of the structured loans onto their books to signal that they have full confidence in their underwriting standarts. I think they are way too optimistic.....

> Die Deutsche Bank has sich gestern in der Analystenkonferenz extrem optimistisch gezeigt das sie die knapp 21 Mrd € an Unternehmenskrediten die sich in Folge des Private Equity Übernahmewahnsinns angehäuft haben ohne Verluste weiterreichen kann. Argumentiert wird das die Qualität hoch sei und das es seit jeher Politik der Deutcshen Bank ist jeweils 10 % der so strukturierten Verkäufe in die eigenen Bücher zu nehmen. Damit soll unterstrichen werden das man vollstest Vertrauen in die Kreditprüfung hat. Löblich...... Denke trotzdem das hier sicher noch einige gewaltige Abschreibungen kommen werden.

Even if monolines don’t crash and burn, banks will still have to make writedowns on these trades. As the value of the CDS written by the monoline decreases, so, too, will banks exposure to CLOs, and through them LBOs, have to increase. And higher exposures will also, of course, put pressure on capital.

And one final point: having set up one negative basis trade, it hasn’t been uncommon for banks to take out a CDS against the CDS counterparty in that trade. As Paul J Davies points out in today’s FT, through negative basis trades, banks’ monolines exposures have often been hedged with other monolines.

Update: The WSJ has an interesting number crunching piece on the state of the LBO industry - and the amounts banks are finding themselves stuck with.

Societe Generale reports $7.1 bln trading loss from "fraud"

ice internal risk management...... In the end this is probably good news. ( You know that times are really bad when an € 5.5 billion capital infusion at fire sale prices is been widely seen as good news.....) There were rumors crashing the stock and the entire sector that they would have a big write down. But this write down seems (at least that´s what i hope) to be company specific. And some still wonder why banks don´t trust each other.......Probably the most important part is that SocGen is starting to write down some insurance from monolines and from a total of € 550 mio and only € 50 mio is coming from ACA! ( watch page 10 on the presentation )

Nette Risikokontrolle..... Unterm Strich dürfte das aber trotzdem für eine große Erleichterung sorgen ( Der Umstand das eine massive Kaitalspritze von üver 5,5 Mrd € zu Ausverkaufspreisen als gute Nachricht angesehen wird sagt eigentlch schon alles aus...). Speziell in den letzten beiden Tagen hat das Gerücht um eine riesige Abschreibung den ganzen Sektor zerlegt. Das die Abschreibung jetzt größtenteils nur auf einen "Betrug" und damit hoffentlich nur isoliert zu betrachten ist sollte beruhigen. Relativ gesehen natürlich....Kein Wunder das die Banken sich gegenseitig nicht über den Weg trauen..... Ein interessanterter Aspekt ist das auch SocGen damit angefangen ist wertlose Versicherung der Monolines abzuschreiben ( von den 550 Mio stammen lediglich 50 Mio von ACA / Details auf Seite 10 der Präsentation) . Passend zum Thema hier ein Ranking vom Spiegel über die größten Fehlspekulanten Börsenschwindler, Seiltänzer, Hochstapler

You cannot make this up. FT Alphaville is reporting that Societe General has won the award for the " Best Equity Derivatives House" .....

Das ist wirklich kaum zu toppen. FT Alphaville berichtet das ausgerechnet Societe General den Preis fpr das "Beste Derivatehaus für Aktien" gewonnen hat.

“We managed the existing book very well because we decided some time before the crisis to be long volatility and be less sensitive to correlation, so the losses were minimal. We suffered on our statistical arbitrage trading activity, but that was just for one month, and minimal compared to some hedge funds or other banks. Overall, our trading activities will be approximately flat compared to last year, which is a good performance,”

Qutote: Christophe Mianne, SG CIB’s head of market activities, covering equity, derivatives, fixed income, currency and commodities in Paris

Make sure you read the Societe General Presentation for some more interesting details !

Empfehle die Societe General Präsentation für die mehr als interessanten Details zu lesen !

Live blogging the SocGen conference call via FT Alphaville

Marketwatch
French bank Societe Generale loss after an "exceptional fraud" committed by someone who usually trades plain-vanilla and European stock index futures.

It also said it was taking a 2.05 billion euro write-down, with 1.1 billion euros coming from U.S. residential property, 550 million euros coming from the U.S. bond insurers and 400 million euros in additional subprime-related risks. It will earn between 600 million and 800 million euros for the year.

The board rejected the resignation of CEO Daniel Bouton. It's going to issue 5.5 billion euros in preferred securities to J.P. Morgan and Morgan Stanley to boost its capital

The story is reminding of Nick Leeson & Barings

Erinnert mich irgendwie stark an Nick Leeson & Barings

Here is a good take from Barry Ritholtz Fed's Folly: Fooled by Flawed Futures? suggesting ( i think correctly ) that this poor trader has lead to the emergency cut

Hier eine wie ich finde zutrefende Einschätzung von Barry Ritholtz Fed's Folly: Fooled by Flawed Futures? der unterstellt das dieser durchgeknallte Trader es geschafft hat Bernanke zum größten Notzinsschritt seit Jahrzehnten zu bewegengrößten Notzinsschritt

Merrill Lynch & Financial Guarantors & Counterparty Risk....

Besides the $ 14.6 billion write down i want to highlight this topic in the release..... When watching MBIA, AMBAC & Co ( see Downgrades ahead: monolines still don’t have enough cash &MBIA, Ambac Tumble, Default Risk Soars After Losses ) i assume the next wave of massive write downs in almost every other bank balance sheet should be coming very soon.... This is to my knowledge the first release from a major institution that views lots of the insurance as "worthless". Unfortunatley they don´t say from wich company thy bought the guarantee ( maybe ACA ? / Update : It´s ACA) . I think we can thank the new CEO for coming clean on this issue. Other will have to follow ....

Neben den 14,6 Mrd Abschreibungen verbirgt sich u.a. auch die nachfolgende Passage in der Veröffentlichung von Merrill . Und das ist eine mit erheblichen Sprenpotential........ Wenn man sich den freien Fall von MBIA, AMBAC & Co ( siehe Downgrades ahead: monolines still don’t have enough cash & MBIA, Ambac Tumble, Default Risk Soars After Losses ) ansieht dürfte hier die nächste gigantische Abschreibungswelle in Stein gemeißelt sein. Der hierfür verantwortliche Versicherer ist ACA ... Das ist meinem Kennnisstand die erste große Bank die klipp und klar sagt das eiin Großteil der abgeschlosenen Absicherung im Prinzip wertlos ist. Ohne neuen CEO wäre das so deutlich sicher nicht gesagt worden. Denke das die anderen nun kaum glaubhaft einen anderen Standpunkt vetreten können.

Merrill Lynch Eranings Report Financial Guarantors:
During the fourth quarter, credit valuation adjustments related to the firm’s hedges with financial guarantors were negative $3.1 billion, including negative $2.6 billion related to U.S. super senior ABS CDOs.

These amounts reflect the write down of the firm’s current exposure to a non-investment grade counterparty from which the firm had purchased hedges covering a range of asset classes including U.S. super senior ABS CDOs. Please see attachment VIII for details of related exposures.

Live-Blogging the Merrill Earnings Call via the WSJ

Adding up Merrill’s $16.7bn writedowns FT Alphaville

Cramer on Monolines Is this really Cramer? This is one of the very rare times he makes sense....MUST SEE!

WSJ on Counterparty Risk

S&P: Bond Insurance Losses Likely Much Higher Calculated Risk