28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 27AUG09:
Mini Crash 21SEP09 Predicted correctly:
Bailout=Bonuses
Demise of Bear Stearns
Demise of Lehman Bros.
Demise of AIG
Subprime would cause problems
Date of 2007 crash
CRAs were to blame
G20 riots were a party
Northern Rock run
Northern Rock Nationalization
HBOS and RBS demise
UBS really was Useless
Thankfully, your average Hedge Fund manager is nimble, flexible and has quick reactions. While the markets continue its head and shoulders formation, ready for the big rollercoast descent in October, hedgies are trimming positions and re-positioning themselves for the new volatile world.
And now it's the turn of the obese lumbering Investment Banks who are having to take drastic action too. But in their usual age old traditional way.
Cost cutting - two words Investment Bankers love to hear coming from the mouths of other CEO's but dislike intently if it's from their own. Well those two words are back with a vengeance.
Profit forecasts for IB's are threatened to be down 70%.
US Recession is imminent, according to a battle scarred Bond chief.
Basis finally dies.
Protectionism is back on the agenda.
BNP Paribas doesn't run Hedge Funds, apparently.
Inflows into Hedge Funds just keeps on coming.
RBS pre-empts its own demise.
Cocky Diamond Geezer keeps plugging at ABN AMRO.
Quotes of the day from tickerforum.org "Can we please bring Greenspan back...This Bernanke is a bigger pump monkey than Cramer...Holy Chit..." Justinjacob
"People don't stop paying their mortgages when their house is going up, but when it stops going up they start to wonder why the hell they're living off super noodles every night just to live in a house they could rent for half the monthly cost." Tom
[UPDATE: There has been a lot of gossip concerning some deep in the money call options on the S&P for a few weeks now and nobody has a clue what is going on (except those with the positions - is at a Hedge? A cover? A Naked Ambition? Laundering Money to another Counterparty? Part of a complex and wide box pair with little upside? Smart way to hide money? A Punt? Or an Error? ). All we know is that the Fed reports on the 18th Sept and these options expire on 21st Sept.
Mortage mess threatens to wipe 70% off banks' profits (financialnews-us) Investment banking pre-tax profits could plummet almost three-quarters in the second half of the year on the back of market volatility sparked by the sub-prime mortgage crisis, according to stress tests conducted by rating agency Standard & Poor's.
S&P analyzed the prospects for investment banking and trading revenues by comparing banks' performance in the second half of 1998 in the wake of the Russian debt crisis. The agency said in the report that aggregate net revenues from advisory, underwriting and trading could fall by 47% at the biggest firms between the first six months and the second half of this year, while profits could fall 70% before tax.
The potential drop represents the outlook for investment banking if events follow the same path as in the latter part of 1998 following the collapse of hedge fund Long Term Capital Management. S&P said: “Although not an exact rerun, the current environment resembles 1998 sufficiently that it seems a reasonable model for a stress test.”
S&P analyst Nick Hill said: "This time, rather than a sovereign default by Russia, it is rising delinquencies on US sub-prime mortgages that have sparked the bout of market volatility."
Nine years ago, net investment banking and trading revenues at the five biggest Wall Street broker-dealers, including Merrill Lynch, Morgan Stanley, Lehman Brothers, Bear Stearns and Goldman Sachs, slid 31% between the first and second halves of the year, but S&P warned the revenue fall could be even more severe this time, given banks' "potential markdowns on leveraged finance exposures and structured credit".
Fixed income trading is likely to be hardest hit, according to the rating agency, which estimated the business could endure a 75% fall in revenues across the industry. However, this would be less extreme than the 97% drop witnessed at the biggest Wall Street banks in 1998.
Debt underwriting revenues could halve on the back of banks' increased reliance on leveraged finance, while less private equity business could lower advisory revenues by 15%.
S&P, which cautioned that such an outcome is unlikely but not impossible, said equity trading revenues could be down just 18% and may “surprise on the upside, given the high volumes of trading”.
The ratings agency said: "This stress test is neither our central expectation nor a forecast but is indicative of the ability of investment banking businesses to withstand such scenarios."
Moody's, a rival ratings agency, also released a report today about the effect of leveraged loans on the health of the investment banks' finances, but concluded that the banks could still achieve "positive, albeit depressed, earnings and a respectable level of profitability."
Moody's said: "Firms maintain a strong cash capital and overall liquidity position to deal with the funding risks presented by the challenging conditions in leveraged loan distribution. Furthermore, they have sufficient earnings strength and diversification to be able to absorb the necessary mark-downs on the loan pipeline."
Fintag says With falling stock prices and a few token firings from the likes of Lehman and Bear Stearns in their "mortgage" businesses, now the accountants are looking at the useless fat that they can trim from those plush offices off Time Square and in Canary Wharf.
With all those options accruing to staff, we are looking at mass firings to ensure the Investment Banks don't hit book cost.
Mind you, thank goodness interest rates have increased and liquidity is hard to obtain otherwise the pirates would have a field day picking off and merging the banks.
Ah, yes I hear you cry. What about all the Sovereign Wealth Funds?
Having listened to the aspiring Democrats and David Cameron in the UK talking as if they were Ronald Reagan, it sounds to me like Governments are soon going to have to end this freedom of capital and labour thing.
Welcome back to protectionism. That will stop any nasty mergers of the banks that could be detrimental to a country's economic interest.
Not that the UK has anything to worry about because it sold off its Investment Banks a long time ago (sorry but I still see Barclays and HSBC as being retail banks).
Share falls weaken Barclays' bid (bbc) Barclays will continue its move for Dutch bank ABN Amro despite a slump in the UK firm's share price wiping billions off its bid, reports say.
Fears over its exposure to bad debt have sent Barclays' shares down about 16% since it made its sweetened offer.
That was then worth £45.4bn (67.5bn euros) but as its bid is made up chiefly of shares, the falls could hit its chance of sealing the takeover.
However sources close to the bank say they do not plan to abandon the bid.
Barclays' offer is now worth about 60bn euros, while a rival RBS-led group has made a 71bn euro, mostly cash bid.
Highly fragile
Shares in the UK bank suffered heavy falls after it emerged last week that Barclays may be sitting on hefty losses through its role in complicated investments, backed by once lucrative US home loans which are now largely worthless.
Its share price dropped to 588.75p on Tuesday, a 12-month low, though on Wednesday some of these losses were reversed, settling at 600p at the end of the day.
Uncertainty of the extent of the damage wreaked by the crisis in the US sub-prime housing sector has left global financial markets in a highly fragile state.
And news of the Barclays' investment structures had seen some investors fleeing.
Reports have suggested that Barclays' losses would be limited to no more than £75m, but the UK bank has not officially reassured the market and so fears have not been eased.
At the close of Wednesday's trading session, ABN's shares were 33.91 euros each, above the Barclays bid of 31.9 euros.
Bitter battle
When Barclays first approached ABN in April, its proposed offer was at a 33% premium to the ABN's share price before talks had commenced.
This was initially recommended by the ABN Amro board, but they withdrew their support at the end of July to "ensure a level playing field".
Barclays has been bitterly trying to fend off a rival bid to control ABN from a consortium led by Royal Bank of Scotland, which sweetened its offer last month, upping its cash element from 71% to 93% in an effort to win over shareholders.
Barclays declined to comment on its ABN plans on Wednesday, but its executives have insisted it is too early to rule on the outcome of the battle.
"What matters, in terms of the deal, is where our share price is in late September and early October, not in the dark days of August," Barclays President Bob Diamond told the Financial Times.
But some Barclays shareholders said they would not oppose a retreat from the Dutch bank if volatility in the stock market persists.
"I would be quite happy for them (the management) to recognise market conditions have changed and give up, rather than soldier on and wait for this miracle," one told Reuters.
Fintag says Given Barclays has a lot of subprime toxic exposure and its share price is falling, and with rumours that the rating agencies are looking hard at re-rating the group, it amazes me how it can still arrogantly think the ABN AMRO deal, the world's largest ever banking merger, will ever go ahead?
CHEAP AS CHIPS
Barclays leads table with £58m for executives (guardian) The total salary packages of the directors of the FTSE 100's 10 most expensive boardrooms reached a whopping £260m plus last year, according to the Guardian/RTF pay survey.
The list is dominated by Barclays where the total boardroom package came to £57.6m, more than twice that of its nearest challenger in the pay stakes, Reckitt Benckiser, the maker of Dettol and Strepsils.
However, Barclays was not the only bank to make the top 10. HSBC figures at number eight with a boardroom wage bill of just over £21m.
Article continues Overall the top 10 is a broader mix than last year when it was dominated by mining and financial services companies. This time round retail is represented by Tesco and manufacturing by engine maker, Rolls-Royce. Oil and gas exploration company, Cairn Energy rubs shoulders with one of the energy industry giants, BP, while industrial and support services company, Brambles Industries, sits in fifth place between Tesco and Cairn. Hedge fund Man Group just holds on to a top 10 slot.
At the bottom of the pay scale is the Chilean copper miner, Antofagasta, where the board's salary entitlement amounted to £1.7m, with Associated British Foods and Kelda, which owns Yorkshire Water, vying hard for second place.
One thing the low pay table shares with its counterpart for the big payers is a broad mix of companies.
Last year the list of the 10 lowest payers was dominated by the retail sector. This year, as well as mining, with Vedanta Resources joining Antofagasta; food and water and waste water services, the 10 least expensive boards include the directors of the power generators Drax and British Energy, British Airways, Rentokil Initial, with financial services represented by Bradford & Bingley and pharmaceuticals by Shire.
Fintag says Now I see why.
I guess you are wondering about my picture of Robert Diamond too?
Well Bobby must be onto a big bonus if the ABN AMRO deal goes through and because he is always showing off his yacht that parks up in the Canary Wharf mariner, it is time he looked a little less flash and more humble. He needs to become a man of the people because he is going to have to wield his sword and throw pink slips and P45s at many of his colleagues before the end of the year to keep his foundation pumped up.
Time to short luxury motor vehicles (especially now Ken Livingstone wants to charge USD50 a day to have a Ferrari sitting outside your house).
A swath of off-balance sheet vehicles run by banks and asset managers that buy bonds backed by mortgages and other debt are facing forced sales of assets to fund their short-term liquidity requirements.
Such vehicles have faced a dramatic funding crunch in the short-term commercial paper market after investors fled to safer instruments.
At the same time, the valueof their assets has fallen, as investors concerned over the US subprime crisis have also shunned asset-backed securities.
"By our estimates, somewhere around $43bn is the [face] value of the assets that those vehicles, which have publicly disclosed issues, might have to sell-off," said Tom Jenkins, banking and financials analyst at RBS.
This has raised worries that selling by structured investment vehicles (SIV) and their cousins, SIV-lites, could help depress the value of assets held by peers.
Analysts at Unicredit said the price declines due to the forced sales of assets could trigger sell-offs at other SIVs "in a domino-style action."
Rhinebridge, a $14bn SIV managed by Germany's troubled industrial bank IKB, has so far sold $176m of its assets to finance its debt requirements. Cheyne Finance, a vehicle managed by hedge fund Cheyne Capital, was forced to begin selling its $6.6bn portfolio after a downgrade by Standard & Poor's, the ratings agency.
Mr Jenkins said it was difficult to gauge what the market value of assets disposed of in a "firesale" would be.
RBS estimates the bulk of the assets held are AA or AAA rated, and the vehicles could recover up to 95 cents on the dollar. Riskier investments, such as those in the lower-rated tranches of a subprime-backed collateralised debt obligation, might attract less than half of that.
Fintag says And I wonder how much of this fire sale RBS will be contributing to?
Babylon Fund Continues Winning Streak (finalternatives) The Babylon Fund, an Iraqi-focused hedge fund, said it gained 3.8% in July enabling it to steer clear of “the general global financial meltdown seen lately.” Year to date, the fund is up some 8% through July.
“Of our direct Iraqi holdings, bond yields steered higher upon a combination of dried-up flow and risk aversion factors partly based upon the perceived weakened state of Mr. Maliki's government - whose success might be seen as being indirectly linked to the bond payment stream etc.,” according to Björn Englund, portfolio manager, in his latest investor letter.
“On the other hand, in the ISX stock market in Baghdad, prices rose strongly, as did value and volumes traded, as participants positioned themselves ahead of foreigners' entrance into the ISX, which was allowed as of August 1. Further, trading days rose to three sessions a week. In the FX markets the IQD also slowly appreciated, adding to previous trend, and thus fulfilling our expectations.
The $11.2 million Babylon fund invests in large-cap Iraqi and Iraqi-dependant securities. Its investment process is mainly top-down driven, with a mix of fundamental analysis and portfolio diversification characteristics. It charges fees of 2/20 with a $100,000 minimum investment requirement.
Fintag says With all the negative bashing that Hedgies are having to endure (and I am sure there will be much more later next week as the August NAV's come in - time to check out hf-implode.com) it is nice to see that the real professionals are doing well.
Cigars and champagne all round [Editor:Not cool in this new age of austerity and fear - how about sending them a nice card with a puppy dog on it?]
Quentin Fitzsimmons, head of government bonds at Threadneedle Investments, has slashed his forecast for US growth next year to 2% from 2.5%, after the S&P/Case & Schiller US National Home Price Index fell 3.2% in the last quarter compared to the same period last year.
He said: "You have to go back to the great depression in the 1930s to see a similar decline. The US residential real estate market is the elephant in the room for the global economy."
He added that property futures markets were forecasting a further decline in US real estate prices of up to 5% in the next year. With property twice as important to the average American as the stock market, the impact of a 10% decline in house prices would be equivalent to a 20% stock market crash, according to Fitzsimmons.
Adi Sorber, global equities portfolio manager at ABN Amro Asset Management, said he expected "worse to come" from the US property market, as low introductory mortgage rates were reset at higher levels over coming months.
Fitzsimmons said the language used in the latest release from the US Federal Reserve Open Markets Committee indicated the central bank was increasingly concerned, suggesting risks to economic growth had grown "appreciably".
"Central bankers don't use words like that unless they mean it," he said. While he expects interest rates to fall in the US, Fitzsimmons does not expect rapid or drastic action. "This will be pretty protracted, it is a 12 to 18 month game at least."
He added that the current market distress bore little similarity with the markets crisis of 1998, when Russia defaulted on its debt and the Long Term Capital Management hedge fund went bust. "This is about residential real estate which on the face of it is a much bigger problem more akin to the savings and loan crisis of the early 1990s."
Fintag says Don't remind me of the S&L crisis - those were dark days for many of us.
Clarification: BNP Paribas (ft) *BNP Paribas's suspended funds were not technically hedge funds, as stated in William Cohan's Comment article on August 28. An allusion to billions of losses encompassed a range of funds collectively.
Copyright The Financial Times Limited 2007
Fintag says Now why would BNP get the FT to do this?
What is a hedge fund anyway? Does this mean that the "closed for new business" funds were long only? If so why didn't they just get the FT to correct the term?
Still, I like the fact that BNP is still nursing billions of losses.
I see Credit Agricole's profits were looking healthy last quarter.
Of course being fired from a French bank, if you work in highly protected France, is near impossible - unless you work in the UK where we have little or no rights unless you are a pregnant lesbian women with one leg [Editor:No]
TAKE THAT
Hedge fund assets rise (reuters) Investors poured $41.1 billion (20.5 billion pounds) into hedge funds in the 2007 second quarter, which combined with performance gains, swelled industry assets to an estimated $1.67 trillion by the end of June, fund tracker Lipper TASS said on Tuesday.
The gains, which marked the second biggest quarterly inflow since 1994, came mostly before recent turmoil struck many hedge fund strategies due to market volatility due to the subprime lending market meltdown.
Still, the turmoil that escalated during the summer isn't having a significant impact on investors' resurgent appetite for hedge fund strategies, Lipper said.
"Today the big bulk of inflows are coming from institutional investors who have a longer-term horizon," said Ferenc Sanderson, senior hedge fund analyst for Lipper, a unit of Reuters Group. "The inflows may take a knock, but will still remain firm. There's no panic and running for the doors."
During previous periods of outflows, such as after the Long-Term Capital Management collapse in 1998, hedge fund investment was largely from high net worth investors, who tend to pull back quicker during market changes than institutions, said Sanderson.
The second quarter inflows, which were the second highest since the same period in 1994, came amid "relatively strong performance" for hedge funds of 5.19 percent by June 30, according to the Credit Suisse/Tremont Hedge Fund Index.
The aggregate hedge fund performance didn't exceed market indices for the period, however. The S&P 500, for instance, returned 6.28 percent, while the MSCI World TR returned 6.71 percent.
The biggest inflows, according to Lipper, were for long-short equity strategies, which gained $14.9 billion, followed by event-driven funds, which gained $12.2 billion. Multi-strategy funds gained $6.1 billion during the period.
Strategies that posted net outflows included global macro funds, which bet on world currencies and sovereign debt and were down by $848 million, and managed futures, which were down by 686.7 million, Lipper said.
Fintag says Hedge Funds are dead. Long live Hedge Funds.
As much as we are beaten with big sticks, the subscriptions just keep on coming ...
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