John Kay in the Financial Times offers a theory as to how seemingly intelligent people could design and peddle products that would come back to haunt them via massive writedowns and badly dented reputations: it’s the conformity, stupid. A lot of readers would probably differ; incentives like performance pressure and annual bonus schemes would seem […]
Read more...These days, showing a profit in the securities industry puts one in exclusive company. The Zurich-bank’s writedowns of $1.2 billion, which would be a shocker in any other era, are a cause for cheer now. However, the earnings came in somewhat short of estimates. From Bloomberg: Credit Suisse Group, Switzerland’s second-biggest bank, said fourth-quarter profit […]
Read more...Some have taken notice that investment banks are much more cavalier with other people’s money that they are with their own dough. We’ve gone further in earlier posts, saying that investment banks shouldn’t be public companies (scroll towards the end). A Bloomberg article points out the obvious: the Street has sustained losses unimaginable in the […]
Read more...A front-page Wall Street Journal story picks up on an alarm sounded over the weekend by the Financial Times, namely, that the leveraged loan market (the paper used to fund LBO deals) is in serious trouble. Investment banks are sitting on sizable unsold inventories that are declining in value, thus sure to lead to further […]
Read more...Don’t ask how I missed this story,, “Debt fears heighten in US and Europe,” in my early a.m. survey of the Financial Times; it’s the lead page one item in the print edition. As far as I can tell, the underlying news story, the dumping of leveraged loans at distressed prices, has not been picked […]
Read more...Bloomberg reports that Bear Stearns increased its short subprime position from $600 million in November to $1 billion. The story suggests that this hedge is to offset trading positions; there is no indication that the firm is “net short” as Goldman is. For those who might think there is something wrong with this strategy, consider: […]
Read more...There is an old saying, “Fool me once, shame on thee, fool me twice, shame on me.” We’ve said it was a mistake to assume that sovereign wealth funds would continue to write checks uncomplainingly to salvage our troubled financial institutions. They’ve already been through one round of fundraising and things are getting worse, not […]
Read more...The Wall Street Journal today says that even if the efforts to raise new funding for the troubled bond insurers are successful, they are unlikely to stave off a ratings downgrade. This story, based in part on reports coming from the rescue discussions led by New York state insurance superintendent Eric Dinallo, indicates that the […]
Read more...Readers may note we have a fair number of posts from the Financial Times today. The pink paper is having a good day, and conversely, in the US, Super Tuesday has taken pride of place in the news. Martin Wolf in today’s Financial Times argues that more aggressive reform of the financial sector is needed, […]
Read more...A very good, accessible article, “CDS market may create added risks,” by Satayjit Das appears in today’s Financial Times. We’ve sometimes discussed the fact that credit default swaps, which effectively are insurance policies against defaults, suffer from considerable counterparty risk. A policy is only as good as the entity that wrote it, and many of […]
Read more...In today’s post, “The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster,” the bearish and prescient professor Nouriel Roubini sets forth how a systemic financial crisis could play out. The most troubling thing about this piece is that it is quite plausible. Of Roubini’s twelve steps, the first eight are […]
Read more...Standard & Poor’s issued a research report today that stresses that bond insurer downgrades would hurt banks and in some cases could lead to reductions of their debt ratings. This report is in contrast to the comparatively cheery view of Morgan Stanley yesterday, that bond guarantor downgrades (presumably to AA; note further downgrades are possible) […]
Read more...Perhaps my memory is failing me, but the insistence by three major Wall Street firms, that utilities prove that their new coal-fired plants are economically viable, is at a minimum highly unusual (I’d say unprecedented). Normal Wall Street practice is simply “disclose and sell.” Under securities laws, if the issuer presents its financial situation and […]
Read more...The Financial Times reports that selling group discipline broke down on a $14 billion loan syndication for the acquisition of Harrah’s by Apollo Group and Texas Pacific Group. Buyers are unresponsive, a big problem for Wall Street, which is sitting on $150 billion of inventory that is already considerably underwater. Ironically, the interest rate cut […]
Read more...As reported in the Wall Street Journal, and cited on this blog, Merrill reimbursed Springfield, MA for losses on CDOs that were unsuitable investments (the city had made clear it only wanted low-risk products). As Bloomberg tells us, that was not sufficient to halt a suit by the Massachusetts sttorney general’s office which had been […]
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