ECB: Record 442 billion Euros “Stimulus by Stealth”

HT to Alea for the excellent headline. After reading the latest ECB "Instability" Report....... & the almost irresistable conditions ( despite news like this ECB Tightens Rules On Liquidity Facilities & Adjustment of risk control measures for newly issued asset-backed securities and for uncovered bank bonds ) it is no surprise to see such a huge number. .......A no brainer...... I can imagine Trichet is already praying that this will work.....I have some serious doubts......Liquidity is & was not the issue..... Core problems ( impaired bank balance sheets, not enough creditworthy borrowers ) are still unsolved and are getting worse on a daily basis..... Update : Spanish banks to get €90 billion bailout

Dank an Alea für die sehr treffende Überschrift. Nachdem ich den letzten ECB "Instability" Report....... gelesen habe und wenn man die unwiderstehlichen Konditionen ( trotz leicht verschärfter Bedingungen / siehe ECB Tightens Rules On Liquidity Facilities & Adjustment of risk control measures for newly issued asset-backed securities and for uncovered bank bonds ) berücksichtigt dürfte die Höhe nicht wirklich überraschen. Eine echte Lizenz zum Gelddrucken.....Kann mir bildlich vorstellen wie Trichet & Co beten, das dieser Kraftakt endlich dazu führt, das die Kreditmärkte wieder wie gewünscht funktionieren ( Update Banken tragen Milliarden zurück zur EZB ).... Ich denke das auch dieser Versuch maximal etwas Linderung in Form von geringeren Spreads verschaffen wird..... Dummerweise ist mangelnde Liquidität nicht das Problem. Solange die Problematik der bilanztechnisch insolventen Banken nicht gelöst wird und man anerkennt das es im Angesicht einer lang anhaltenden Rezession einfach zu wenig kreditwürdige Unternehmen gibt, dürfte sich die Lage weiter verschlechtern. Wenn man so will handeln die Banken aus Ihrer Sicht ironischerweise momentan das erste Mal nach Jahren der "Trunkenheit" richtig. Tragisch aus deutscher Sicht ist vor allem das unser Bankensystem trotz fehlender eigener Blase dank der desaströsen Exzesse besonders der Landesbanken ( folgerichtig kommen die Sparkassen als Anteilseigner dank massivster Wertberichtigungen auf Ihre LB Anteile in ernste Schieflagen, was das besonders für den Mittelstand bedeutet kann man leicht erahnen..... ) eher einen bzw. den Spitzenplatz der Problemliste belegt..... Updadte: EZB pumpt Rekordbetrag in den Markt FTD & Spanish banks to get €90 billion bailout


ECB pumps €442bn into banking system FT
The European Central Bank on Wednesday pumped hundreds of billions of euros in one-year loans into the eurozone’s weakened banking system, making record amounts of emergency finance available in a bid to unlock credit markets and revive the region’s economies.

In a dramatic step dubbed “stimulus by stealth” in financial markets, the ECB lent €442.2bn for 12 months to more than 1,100 banks at its current benchmark interest rate of 1 per cent.

The high demand for the funds, in what was the ECB’s first ever auction for one-year loans, reflected a growing realisation by the banks that emergency funding may not be available again on such favour-able terms.

The central bank’s action could boost the eurozone’s recovery prospects by lowering market interest rates and creating more scope for banks to lend to the private sector.

The ECB action, which attracted 1,121 bidders – more than usual in ECB operations – had an immediate impact in driving down overnight and longer-term market interest rates, though the full effects are still to feed through.

Don Smith, economist at inter-dealer broker Icap, said: “The massive scale and undoubted success of this tender almost entirely reflects the cheapness of the funds on offer.”

The previous largest amount injected in a single ECB operation was €348.6bn in December 2007.

The economic impact will depend on whether demand for liquidity in future ECB market operations is reduced as a result of Wednesday’s action, as well as whether banks step up lending.

“They must pass it along,” Lorenzo Bini Smaghi, an ECB executive board member, said in Rome.

> "...must pass it along" This kind of rhetoric will only be working in China ( see Number Of The Day "Credit Explosion In China" & todays must see Borrowed in China from FT Alphaville ). Probably ( after FT Alphavilles update DEFINITELY ) the NPL from the not so distant future...... Smaghi probably one of the ECB members pressing for "quantitive easing" ( despite intense discussions among the ECB members so far almost non existent ).......

> "...must pass it along" Wird wohl ein Wunschgedanke bleiben..... In China sieht das momentan ganz anders aus ( siehe Number Of The Day "Credit Explosion In China" sowie die aktuellen Daten für Juni Borrowed in China WAHNSINN!). Da wird solchen Wünschen wenn Sie von der richtigen Stelle geäußert werden "bedingungslos" Folge geleistet. Die Chancen das es sich um die faulen Kredite von morgen handelt sind nicht zu unterschätzen ( nach dem Update von FT Alphaville eine "leichte" Untertreibung )...... Unschwer zu erkennen das Smaghi eher dem Camp innerhalb der EZB angehört die PRO "Quantitive Easing" ( bisher trotz intensiver Diskussionen praktisch kaum vorhanden ) sind......

WSJ

By promising a full allocation of all bids on Wednesday, the ECB has effectively passed responsibility for any easing of policy to the banks themselves, giving license to any institution that thinks it can lend the money profitably into the real economy.

AJ via Alea

“If I were a bank I would be gathering up all the furniture to use as collateral to take part.” said Erik Nielsen, European economist at Goldman Sachs.

AMEN!

"33 Great Ways To Save Money" .... UK Yellow Press On CPI / Credit Crunch

No Kidding! The piece from the SUN ( yellow press ) in the UK is no satire ! Things must be really ugly ....... I´m not sure if this is qualifying for a contrary indicator / cover story indicator ( like this one ) regarding the inflation debate but when you read the follwoing advice in relation with mayonnaise i assume we are nearer the CPI top than most peolple think.... On the other hand i´m very very confident that the same is not true for the credit crunch in the UK !

Kein Witz! Diese Geschichte in der SUN ( britische Gegenstück zur Bildzeitung ) ist in keiner Weise satirisch oder ironisch gemeint. Scheint momentan nicht nur wegen der verpaßten EM ziemlich ungemütlich zu sein.... :-) Ich bin mir nicht sicher ob diese Berichterstattung bereits ausreicht um als Kontraindikator ( siehe dieses Beispiel herzuhalten. Bei Betrachtung des nachfolgenden Vorschlages könnte man alledrings zu dem Schluß kommen das die Konsumentenpreisinflation demnächst Ihren Höhepunkt gesehen hat...... Für den gerade erst angefangegen Credit Crunch in UK gilt das allerdings auf keinen Fall. Hier hat der Spaß sicher gerade erst begonnen......

21. Mayonnaise is a fine hair conditioner, adding shine.

Give hairdressers the brush off if you want blonde highlights — just brush lemon juice into your barnet and let it dry in the sun.

I think it´s difficult for the BOE & other central banks to claim that are still in control over "inflation expectations" ( see Real Cost of Living Index (RCLI) is rising at 9.5 per cent. via Barry Ritholtz ) ........Disclosure : I´m with Mish´s definition on Inflation ( see Inflation: What the heck is it? )

Der ständige Hinweis das die Notenbänker immer noch Kontrolle über die Inflationserwartungen haben klingt allerding von Tat zu tag lächerlicher ( siehe auch Real Cost of Living Index (RCLI) is rising at 9.5 per cent. via Barry Ritholtz ) ..... Hinweis : Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? )

The SUN THE credit crunch is biting but you can ease the squeeze if you take a few simple steps.

Here Sun cheapskate TIM SPANTON shares his expertise, with 33 great ways to save money now that prices are rising at 3.3 per cent, the highest rate for more than ten years.

But be warned – there are some tips here even miserly Ebenezer Scrooge might be ashamed of taking up.

Remember, if you’re feeling the pinch, laughter is the best medicine – and it’s FREE.

1. Use banana skins to clean your shoes. The inside of the skins contains potassium, a key ingredient in commercial polishes.

Finish off with a soft cloth. Oils in the banana will even enrich the leather in your shoes and help them last longer.

2. Collect old slivers of soap and squeeze them together to make a new bar.

3. Never buy the first round in a pub. If you go drinking once a week and always get to the bar first you will end up buying dozens more rounds more a year than a person who always buys the fourth round.

This is because drinking sessions often end after an odd number of rounds. .....

8. Buy postage stamps in bulk, before the prices go up, which we all know they will. .....

14. Mix milk with equal amounts of water to go on your breakfast cereal. You will soon get used to it. The slight difference in taste is very small and soon won’t be detected at all.

15. Watch telly in bed in the dark. You’ll save on heating and lighting costs and if there’s a sexy show on, you might even get a bonus cuddle from your partner.

18. Get off a stop early if you commute by bus or Tube to save cash. ....

24. Buy Christmas presents in the sales after the holidays and keep for a year.

27. Shower instead of bathing. To save even more, shower with a friend.

>If you don´t believe me that this is not an ironic piece from the SUNn click the link and read the entire link... There are lots of suggestions that do make sense and are less "exotic".

> Wer mir nicht glaubt das dieser "Ratgeber" ernst gemeint ist sollte zur Kontrolle den kompletten Link lesen .... Dort finden sich in der Tat etliche Hinweise die hilfreich und weniger "skuril" sind.

UK : Egg/Citigroup Clamps Down On Riskier Credit Card Customers

Probably no coincidence that Citigroup is forced to make the move first and one of the largest US pawnbroker & payday lender is entering the market at the same time..... Once again their risk modeling wasn´t quite perferct...... How can you buy a UK credit card company close to a top in the UK housing market...... But i think it is very safe to say that others will have to follow ( not only in the UK ) Citi in this kind of tightening.....I suggest to read this Total UK personal debt statistic February 2008 from Credit Action to understand the magnitude of the mess especially in UK .

Sicher kein Zufall das ausgerechnet Citigroup den ersten Schritt machen muß und gleichzeitig das größte US Pfandleihaus & einer der größen "Kredithaie" in den UK Markt eintritt..... Es sieht so aus als wenn die mal wieder genau zum Top eine riskante Investition getätigt hätten.... In diesem Fall bin ich mir sicher das Citi mit diesem Schritt nicht lange alleine bleiben wird. Andere Anbieter ( auch länderübergreifend ) werden sich dieser Art der Kreditverknappung anschließen müssen.... Um einen Überblick über das Ausmaß gerade in UK zu bekommen empfehle ich einen Blick auf diese Übersicht Total UK personal debt statistic February 2008 von Credit Action zu werfen.

This quote sume it up / Dieses Zitat spricht Bände

"We can certainly understand the concerns, but even if people are up-to-date with repayments, they are people we decided we no longer wish to lend money to regardless of their status." Egg spokesman

Egg customer anger at credit move BBC
Angry customers of internet bank Egg have hit out at its decision to cancel their credit cards.

Egg says 161,000 cards belonging to people whose credit profiles have deteriorated since they signed up will stop working in 35 days' time.

But people who insist they have good records have been contacting the BBC to say they are on the list.

A spokesman for the bank said those affected were customers it no longer wanted to lend to "regardless of their current status".

Credit cards are being withdrawn from 7% of Egg's customers who it deems to pose an unacceptably "high risk".

This could include those who have missed repayments or exceeded their credit limit.

'Arbitrary action'
Cardholders will be able to continue making minimum monthly repayments on their balances but will not be able to spend any more after the deadline.

The move follows a "one-off" review after Egg was bought by US-based Citigroup for £575m last year.

The bank is not demanding immediate repayment of balances or making any changes to customers' terms and conditions or their interest rates. ....

Gillian Cox, of Farnham, Surrey, said she was "absolutely furious" to learn her credit card had been cancelled in what she described as an "unbelievable arbitrary action".

Mrs Cox said she and her husband are "retired, no mortgage, no debts" and "always paid the balance off in full each month".

She added that she had contacted credit reference agency Experian who said she was marked as having an excellent credit rating, "thus totally negating Egg's claim that this measure is about credit risk".

'Stop spending'
A spokesman for Egg said: "We are sorry some customers are upset after receiving notification we are ending their credit card arrangement, but they are people we do not feel it is appropriate to lend any money to."

He added: "The decision was taken after an extensive one-off review of our credit card book following acquisition by Citigroup."

Der Spiegel London - Die Internetbank Egg greift durch. Die britische Citigroup -Tochter will rund sieben Prozent ihrer zwei Millionen Kunden die Kreditkarte sperren. Offenbar haben es Egg und Mutterkonzern Citi mit der Angst zu tun bekommen - sie fürchten, die Risikokunden könnten sich übernehmen und ihre Darlehen nicht zurückzahlen können. Offiziell heißt es: Das Kreditrisiko der "riskanten" Kunden sei zu hoch.

Egg teilte zwar mit, der Schritt habe nichts mit der weltweiten Kreditkrise zu tun. Es handele sich bloß um eine "Neubewertung der Risiken", nachdem Egg im vergangenen Jahr von der Citigroup gekauft worden war. Die Maßnahme zeigt aber, dass Banken weltweit konservativer bei der Darlehensvergabe werden und hart gegen Risikokunden durchgreifen.

Die Egg-Mutter Citi hatte sich bei riskanten Kreditgeschäften so sehr verhoben, dass an den Finanzmärkten sogar zeitweise Insolvenzgerüchte zirkulierten. Citi hat im Zuge der Kreditkrise mehr als 18 Milliarden Dollar abschreiben müssen und damit einen Verlust im vierten Quartal von rund zehn Milliarden Dollar verbucht. Mit der Wahrheit über das Ausmaß der Krise rückte Citi nur scheibchenweise heraus. Egg will die Karten innerhalb von 35 Tagen sperren, die Kunden wurden bereits angeschrieben.

Housing Meltdown / Business Week Cover Story

You gotta give them credit for being one of the first major media outlets that had predicted some kind of trouble brewing in the housing market. Here are some examples of their earlier track record. If you don´t want to digg through the entire 5 page long lead story i suggest to skip through the slide shows ( see one example below ). I think that most of the stuff isn´t really news to reader of this blog but it is at least a good and short summary.

Man muß Business Week mal ausdrücklich ein dickes Lob aussprechen. Sie waren einer der ersten bedeutenden großen Medieninstitutionen die zeitig auf das kommende Unheil hingewiesen haben. Zum Beweis kann man hier einige Beispiele einsehen. Wenn Ihr keine Muße habt Euch durch den langen Leitartikel zu kämpfen empfehle ich alternativ sich durch die Slideshows zu klicken. Exemplarisch habe ich weiter unten ein Beispiel herausgepickt. Obwohl das Meiste dürfte den Lesern des Blogs nicht wirklich neu erscheinen so ergeben sich doch eine schöne Zusammenfassung und wagen einen wie ich finde einigermaßen realistischen Ausblick.

Housing Meltdown / Why home prices could drop 25% more on average before the market finally hits bottom Full Business Week Cover Story

Analyzing the Housing Crisis Slide Show

The 25% Dissolution Slide Show

Housing Prices Shed Gains Slide Show

Coast To Coast
A 20% decline in home prices would wipe out all of the home equity of two-thirds of all people who bought houses in the last year, Zillow.com estimates. The bars show the percentage of recent buyers in each market whose home equity would be wiped out by a further 20% price decline.

One Of The Last Covenant Lite LBO´s Is Already Hitting The Wall

Oh boy..... Seems to be not a smart move to do a LBO in the music industry......Shocking! But that the worst case is coming just 6 month after the deal is done shows you how incomptente the buyers & lenders have become...... Needless to say that the rating agencies are as always way behind the curve and are just starting to wake up ( see Moody’s names ‘aggressive’ buy-outs )

Was für ein Deal..... Sieht ganz so aus als wenn ein LBO in der Musikindustrie nicht die beste aller Ideen ist. Wirklich überraschend....... Der eigentliche Hammer ist das bereits nach 6 Monaten anscheinend alle Dämme brechen. Das zeigt recht deutlich wie vollkommen abgehoben der Käufer und die Kreditgeber auf dem Höhepunkt der Übernahmewelle gewesen sind. Überflüssig zu erwähnen das die Ratingagenturen wie zuletzt üblich im Tiefschlaf gewesen sind und erst langsam erwachen ( siehe Moody's outet aggressive Investoren )


EMI falters on £2bn Citi loan facility? FT Alphaville
This weekend, EMI gave, perhaps, a grim portent of things to come for leveraged buyouts.

By our reckoning, Monday’s £200m rights issue is, in fact, an “equity cure.”

This equity has probably been issued to meet a cash-flow shortfall - real or projected - on EMI’s £2bn loan facility with Citi, put in place this July when the record label was the object of an LBO from Terra Firma. The cure may be required to bolster faltering EBITDA to debt ratios tested by the loan facility.

Cause for around a third of its workforce - or around 1,700 jobs - to be slashed, as reported by the Mail on Sunday.

Other LBOs too, are likely to be feeling the pinch. What, we wonder, will be the impact on deals such as Alliance Boots - where the debt taken on board is an eye-watering £12bn.

The Citi facility for EMI was one of the last “covenant-lite” LBO financing deals to be pushed through. Under more common LBO financing terms, we suspect EMI would be looking at a default.

> Time to review An investment banking lexicon :The post-credit squeeze edition :-)

COVENANT-LITE
Pre-squeeze: Please pay back the money (no rush)
Post-squeeze: Please get approval for all expenses above £50

EMI
Pre-squeeze: Coveted transaction
Post-squeeze: Distressed debt play

This is not merely a subprime crisis / Münchau on Credit Default Swaps

I´m back from my 3 week vacation and it looks like i missed a lot of fun..... Thanks for all the mails during the past weeks. I´ll answer them this week.

It looks like more and more dominoes are falling at an accelerating pace. No wonder more and more people are waking up an are finally discovering Gold ..... Wolfgang Münchau from the FT has some good thoughts on one of the next shoes to drop

Melde mich nach einem dreiwöchigen Urlaub zurück und muß feststellen das ich wohl eine Menge Spaß verpaßt habe...... Dank an alle die gemailt haben. Ich werde diese im Laufe der Woche beantworten.

Es sieht so aus als wenn unübersehbar immer mehr Dominosteine kippen. So verwundert es wenig das endlich immer mehr Leute Gold für sich entdecken.....Wolfgang Münchau from The FT hat sich Gedanken zum nächsten drohenden "Unheil" gemacht.

This is not merely a subprime crisis

If this had been a mere subprime crisis, it would now be over. But it is not, and nor will it be over soon. The reason is that several other pockets of the credit market are also vulnerable. Credit cards are one such segment, similar in size to the subprime market. Another is credit default swaps, relatively modern financial instruments that allow bondholders to insure against default. Those who such sell such protection receive a quarterly premium, based on a percentage of the amount insured.

The CDS market is worth about $45,000bn (€30,500bn, £23,000bn). This is not an easy figure to imagine. It is more than three times the annual gross domestic product of the US. Economically, credit default swaps are insurance. But legally, they are not, which is why this market is largely unregulated.

Technically, they are swaps: two parties swap payments streams – one pays a regular premium for protection, the other pays up in case of default. At a time of low insolvency rates, many investors used to consider the selling of protection as a fairly risk-free way of generating a steady stream of income. But as insolvency rates go up, so will be the payment obligations under the CDS contracts. If insolvencies reach a certain level, one would expect some protection sellers to default on their obligations.

So the general health of this market crucially depends on the rate of insolvencies. This in turn depends on the economy. The US and Europe are the two largest CDS markets in the world. It is now widely recognised, including by the Federal Reserve, that the US economy is heading for a sharp downturn, possibly a recession. The eurozone, too, is heading for a downturn, but possibly not quite as sharp. ....

Today, the really important question is not whether the US can avoid a sharp downturn. It probably cannot. Far more important is the question of how long such a downturn or recession will last. An optimistic scenario would be a short and shallow downturn. A second-best scenario would be for a sharp, but still short, recession. .....

So what then would be the effects of these scenarios on the CDS market? Bill Gross of Pimco*, who runs the world’s largest bond fund, last week produced an interesting back-of-the-envelope calculation that received widespread publicity. He projected ( see his latest Investment Outlook ) that the losses from credit default swaps caused by a rise in bankruptcies could be $250bn or more – which would be similar to the expected total loss as a result of subprime.

This is how he arrived at this estimate. His calculation assumes that the corporate insolvency rate would return to a normal level of 1.25 per cent (measured as the default rate of all investment grade and junk debt outstanding). As the entire CDS market is worth about $45,000bn, $500bn in CDS insurance would be triggered under this assumption. The protection sellers would probably be able to recover some of this, so the net loss would come to about half of that. This estimate is very rough, of course. Most important, it is based on the assumption that the hypothetical US recession would not turn into a prolonged slump. In that case, one would expect corporate default rates not merely to return to trend, but to overshoot in the other direction.

So one could take that calculation as a starting point. A downturn lasting two years could easily trigger payments streams of a multiple of $250bn.

At this point we might be tempted to conclude that this all is irrelevant, since this is only insurance, which is a zero-sum financial game. The money is still there, only somebody else has got it. But in the light of the current liquidity conditions in financial markets, that would be a complacent view to take.

If protection sellers were to default en masse, so too could some protection buyers who erroneously assume that they are protected. Given that the CDS market is largely unregulated there is no guarantee of sufficient liquidity behind each contract.

It is not difficult at all to see how the CDS market has the potential to cause serious financial contagion. The subprime crisis came fairly close to destabilising the global financial system. A CDS crisis, under a pessimistic scenario, could produce a global financial meltdown.

This is not a prediction of what will happen, merely a contingent scenario. But it is contingent on an event – a nasty and long recession – that is not entirely improbable.

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.....

"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!

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).

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.

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

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....

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."

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......

UK Update & BOE Spin

Mid September Mervyn King, the governor of the Bank of England said this ...

Mitte September Tagen hatte Mervyn King, the governor of the Bank of England folgendes zu sagen .....

In an unusual public display of discord, the British central bank criticized other central banks yesterday for injecting cash into the financial system to help stabilize credit markets, saying that such a policy amounted to a bailout of investors who made bad decisions.

The main thrust of his written testimony to Parliament, however, was a sharp warning about “moral hazard” — a term used to describe the downside of policies that effectively rescue investors when their bets turn out wrong.

“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior,” Mr. King wrote. “That encourages excessive risk-taking and sows the seeds of a future crisis.”

Too bad that everything he has said has been proven dead wrong ( in the case of Northern Rock he flip flopped within 48 hours) and he often did the exact opposite of what he was proposing. Welcome to the world of "respectable" central bankers.......Now move on to todays headlines......

Zu dumm nur das er bereist wenige Wochen um im Fall von Northern Rock nach wenigen Tagen in allen Bereichen eingeknickt ist und das oftmals das genaue Gegenteil praktiziert hat. Willkommen im Club der "ehrenwerten" Zentralbänker............ Hier ein weiteres Beispiel Wolfgang Münchau: Entzauberung einer Zentralbank

Is Britain's economy heading for the perfect storm?

UK's Northern Rock could be nationalized: report

U.K. House Prices Fall the Most Since December 2006, HBOS Says

U.K. Consumer Confidence Falls Most Since 2004

Lenders 'must prepare for worst'

LTCM: Lessons Learned? via iTtulip!

I think i know the answer......Too bad that this time the problem is not "contained" to hedge funds......Big hat tip to Rajiv and iTulip for a reminder of this important history lesson of the fall from LTCM

Ich glaube die Antwort zu kenne......Dumm nur das heutzutage nicht nur die Hedge Fonds betroffen sind....Großes Kompliment an Rajiv und iTulip um uns dieses "Mißgeschick" mit dem Namen LTCM in Erinnerung zu rufen

WestLB, HSH Nordbank Bail Out $15 Billion of SIVs

Bring on the next state owned bailout.... At least West LB is gettig very close to some kind of bailout. HSH is doing much much better. Both HSH and West LB are in different ways owned through several state or municipal entities. Only 26 percent from HSH was sold last years to J.C. Flowers, a private equity firm. It is getting better. Düsseldorf seems to be the capital of incompetence in Germany. Düsseldorf is the headquarter from West LB & IKB which got a $ 7 billion ( and still counting) bailout earlier this year . I´ll bet that at the next carnival they will have something banking related on their trucks......

Der nächste bitte.......Bei der West LB ist wohl in ganz naher Zukunft in irgendeiner Weise "externe" Hilfe notwendig. Die HSH dürfte das locker wegstecken können. Sowohl die HSH Nordbank als auch die West LB haben mit Ausnahme von 26% der HSH in Weise direkte bzw indirekte ( Sparkassen) staatliche Eigentümer. Sieht ganz so aus als wenn Düsseldorf sich zur Hauptstadt der Inkompetenz in Sachen Banken gemausert hat. Neben der West LB hat auch die IKB ( biher $ 7 Mrd Bailout ...) Ihren Sitz in Düsseldorf. Ich tippe mal das beim nächsten Karnevalsumzug zumindest ein Wagen das Thema aufgreifen wird.....


WestLB, HSH Nordbank Bail Out $15 Billion of SIVs Bloomberg
WestLB AG, Germany's third-largest state-owned bank, and Hamburg-based HSH Nordbank AG provided financing to more than $15 billion of troubled investment funds to prevent a fire sale of their assets.

WestLB provided a credit line for its $11 billion structured investment vehicle called Harrier Finance to repay commercial paper, the Dusseldorf-based bank said in an e-mailed statement today. HSH Nordbank said it will provide backup funding to cover all commercial paper issued by its 3.3 billion- euro ($4.8 billion) Carrera Capital SIV, spokesman Reinhard Schmid said in an interview.

NYT
FRANKFURT, Dec. 3 — In an effort to limit fallout from the subprime lending crisis in the United States, the German bank WestLB said on Monday that it would guarantee full liquidity to several of its investment vehicles that had put money into asset-backed securities.

WestLB, based in Düsseldorf and one of the regional German banks, or Landesbanken, has two major programs, known as Harrier Finance Funding and Kestrel Funding, that borrow money by selling short-term commercial paper to investors. They then invest the proceeds in higher-yielding securities, including ones backed by American mortgages.

WestLB also has three other similar investment vehicles, known as conduits. All five will have the option of drawing up to 25 billion euros, or $36.6 billion, as the short-term paper comes due.

> Put this gigantic figure in comparison with the numbers from the balance sheet...... No wonder Libor rates are surging around the globe.....

> Nun setzt diese Wahnsinnssummen ins Verhältnis zur den Bilanzdaten....... Kein Wunder das sich Bänker untereinander nicht traeun und den Libor in die Stratosphäre schiessen lassen.....

“This will ensure that there is no compelled liquidation of the assets in the SIVs,” said Armin Kloss, a WestLB spokesman, referring to structured investment vehicles. “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 said in August that “less than 5 percent” of its investments was subprime-related, Mr. Kloss said. But trading in asset-backed securities has largely stopped, so a forced sale now would cost the bank dearly.

Like other banks and many politicians, WestLB is betting that the market will recover.

I suggest to read this from FT Alphaville related to the NAVRevenge of the SIV: still going down

Ich empfehle zu diesem Thema Revenge of the SIV: still going down vi FT Alphaville zu lesen.

HSH Nordbank, based in Hamburg, is taking a similar step to that of WestLB, covering all of the 3.3 billion euros that its vehicle, called Carrera Capital, has issued. The step has helped secure its stable credit ratings with Moody’s Investor Service and Standard & Poor’s.

“What we’re trying to do is avoid a write-down,” Reinhard Schmid, an HSH Nordbank spokesman, said. “We can do that with liquidity.”

Two German banks, IKB Deutsche Industriebank and Landesbank Sachsen, needed an outside rescue in August when their speculation in subprime-related securities went awry. But those problems far outstripped what much more stable banks like WestLB and HSH Nordbank are facing. IKB Deutsche and SachsenLB set up funds that were triple or quintuple the size of their capital on hand.

> I wouldn´t call West LB "stable".....

> Mir würde das Wort "stabil" im Zusammenhang mit der West LB nicht über die Lippen kommen.....

The British bank HSBC said last week that it would spend $35 billion to bring two vehicles it ran directly onto its books, effectively turning the bank into their guarantor of liquidity.

A similar principle underlies the so-"Superfund"— formally known as the Master Liquidity Enhancement Conduit — proposed by Citigroup, the largest sponsor of such vehicles in the world. Together with Bank of America and JPMorgan Chase, Citigroup is proposing that up to $80 billion be devoted to buying up mortgage-backed securities and holding them until the market relaxes.

Credit Quality in a Freefall

I assume that lthe majority of these distressed companies have bought back shares during the past few years....

Ich gehe jede Wette ein das die Mehrzahl der jetzt betroffenen Firmen in den letzten Jahren fleißig Aktien zurückgekauft haben.....

Credit Quality in a Freefall / CFO.com
The distressed-debt ratio quadruples in a month's time though some signs point to a light at the end of the tunnel.

Credit quality deteriorated steeply from mid-October to mid-November despite the recent actions by the Federal Reserve to stimulate credit markets.

As of Nov. 15, $36.2 billion worth of debt was in distressed issues, more than four times the $8.6 billion reported a month earlier, according to Standard & Poor's. Distressed debt as a percentage of total debt recorded its largest monthly increase in five years, more than doubling to 4.9 percent from 2.3 percent. The ratio was as low as 2.1 percent 12 months ago.

Distressed credits are defined as speculative-grade-rated issues that have option-adjusted spreads of more than 1,000 basis points relative to Treasuries.

Other metrics also suggest that the credit crunch continues to impact the overall credit markets. For example, the non-distressed speculative-grade bond spread widened to 502 basis points in mid-November from 392 basis points a month earlier, according to S&P.

In addition, the total number of rated companies with issues trading at distressed levels ballooned to 224, almost double the 120 in October, according to the report.

S&P noted that of the 224 companies on this month's distressed list, half had either negative outlooks or ratings on CreditWatch with negative implications. The outlooks on 39 percent of the companies were stable, 7 percent were positive, and 4 percent were developing.

Of the 52 companies listed at the 1,000 bps level, 27 were rated "B-" or lower, and 39 were on CreditWatch with negative implications or had negative outlooks.

Not surprisingly, financial issues are suffering the most. Of the $36.2 billion of distressed issues, finance companies had the largest exposure, constituting 45 percent of the total debt affected, according to S&P. Next came media and entertainment at just over 20 percent.

Brokerage and finance companies displayed the highest distress rates as a share of total speculative-grade-rated issues, at 20 percent and 13.6 percent, respectively.

Not all of the news was bad. S&P pointed out that the U.S. speculative-grade default rate — typically the last indicator of stress within a credit cycle — hit an all-time low of 0.98 percent at the end of October, down from a previous low of 1.13 percent in September.

"Though default risk is rising, this year's default count continues to be constrained in part because of limited refunding needs, as well as structural concessions that avert payment default," S&P said in its report.

Year to date, the U.S. has recorded 13 defaults. "The U.S. speculative-grade default rate remains suppressed and is likely to post a year-end 25-year low of close to 1 percent,” S&P predicted.

> This low defalut rates ratios will dramatically spike during the years to come....

> Diese paradisischen niedrigen Ausfallraten dürften für lange lange Zeit Geschichte sein.....