HEDGE FUND NEWS
@ Tue 02 October 2007 : GMT

FINTAG COMMENT

Dow hits new highs. Bankers lose jobs.

In this new dichotomy of insanity, rationality and timing lags, Citi and UBS shed unwanted human beings and spin the good news that all is well. Northern Rock turns to rubble as Hedgies and Pirates prepare to rip the beast apart. The inept UK government offers a USD70k savings indemnity - or is this genius at work since the UK citizens have negative savings ratios?

Cooper Hill and Cilantro die, but the fight continues in San Francisco whilst Perella Weinberg buys a Hedgie.

And the ECB is the new sweet shop we all want to visit.

Washington DC is humid and warm but not for much longer as we head to New York to have lunch with the Editor of dealbreaker.com. Or was that the WSJ?

USELESS BANK OF SWITZERLAND NEWS

Record close for New York shares >>> bbc

Jayhawk and Primarius Fightclub >>> finalternatives
It's hedge fund vs. hedge fund, as one group of San Francisco funds has sued another, Jayhawk Capital Management, for a variety of dirty deeds done at their detriment. Primarius Capital, the general partner for a quartet of hedge funds, has commenced an arbitration proceeding against Prairie Village, Kan.-based Jayhawk, three funds it manages and Kent McCarthy, Jayhawk's head and a Goldman Sachs veteran....

Nothern Rock slides on discount fears >>> ft
hares in embattled Northern Rock fell by more than a quarter on Monday amid fears that the bank would be sold at a knockdown price. A second hedge fund declared a stake in Northern Rock as Artemis, the £16bn Scottish fund manager, said it had built a 1.6 per cent holding in the bank over the past two weeks. DE Shaw, a large US hedge fund known for its quantitative, or computer-driven, trading, said it had a 1.42 per cent stake on Friday, although it had also sold short a small position. Philip Richards, RAB chief executive, has warned the government that if it allows Northern Rock shareholders to lose everything, the short-sellers will pick on a new bank in an attempt to panic depositors. Other investors declaring stakes under Takeover Panel rules included F&C Asset Management, which has 3.1 per cent; Resolution, the life assurer, which sold 2.5m shares to leave it with 3.4m, or 0.8 per cent; and Grantham, Mayo, Van Otterloo, the US fund manager, which owns slightly more than 1 per cent....

Two bank giants braced for $10bn hit from world turmoil >>> times
Two of the world's biggest banks announced a $10 billion (£4.8 billion) reversal in their fortunes yesterday as they gave warning of massive hits to their third-quarter results. Analysts and bankers said that further pain would be inflicted on the sector before the credit squeeze had run its course. Attention will next focus on Deutsche Bank, which will report on its third quarter on October 31. Brad Hintz, an analyst at Sanford C Bernstein, said: “The storm has hit everybody and we certainly haven't seen the last of it. There'll be plenty more banks giving profit warnings and making writedowns as their earnings days approach.” ....

Are the good times gone for good? >>> bbc

Tories squeeze non-doms those low paying tax payers who buy up properties in London and leave them empty >>>

Cooper Hill Shutters Hedge Fund, Blames Poor Performance >>> finalternatives
Credit-focused hedge funds are not the only ones feeling the heat in the current market environment: New York-based Cooper Hill Partners, a $300 million healthcare hedge fund shop, has decided to close its doors. Since inception more than 10 years ago, the firm's funds have trounced the Nasdaq Biotech Index and the Russell 1000 Healthcare Index, with annualized returns of 26.1% through August. But 2007 has not been kind: Through Sept. 11, the firm's CLSP, CLSP II and CLSP Overseas funds are down 10.9%, 10.8%, and 10.3% respectively year-to-date. All three funds are estimated to be down 1.5% in September....

New Star Seeks $400M For Real-Estate Hedge Fund >>> finalternatives
New Star Asset Management has high hopes for its new real estate hedge fund, saying it hopes to increase its assets eightfold. The British hedge fund manager launched the New Start Real Estate Hedge Fund today with US$50 million in commitments. But the firm said it sees a US$400 million fund in its mind's eye....

Perella Weinberg buys hedge fund >>> ft
Perella Weinberg Partners, the boutique investment bank based in New York and London, announced late on Monday that it acquired Xerion Capital Partners, a New York-based hedge fund group that specialises in distressed securities. The move, part of Perella Weinberg's efforts to build an asset management unit to complement its advisory business, is meant to capitalise on the current credit market environment which has reduced the cost of buying leveraged loans and securitised credit products. Terms of the deal will not be disclosed....

Hedge Hunter Effron Spurns Leverage in Overcoming Worst Mayhem >>> bloomberg
The summer of 2007 won't be a happy memory for many hedge fund firms. At least a dozen of them closed funds or halted redemptions when the credit markets seized up. Boston-based Sowood Capital Management LP, run by Jeff Larson, a former Harvard University endowment manager, lost $1.6 billion, or about 60 percent of its value, and is returning its remaining cash to investors. New York-based Goldman Sachs Group Inc.'s Global Alpha fund, meanwhile, lost 33 percent of its value in 2007 through Aug. 31....

Fed Fails to Restore Credit Market's Confidence, Pimco Says >>> bloomberg
``The reality is the fundamentals haven't gotten any better, and, if anything, they've gotten worse,'' said Mark Kiesel, an executive vice president at Newport Beach, California-based Pimco who oversees $85 billion in corporate bonds....

Cilantro Says Goodbye >>> dealbreaker

AND THE SHOW GOES ON

UBS and Citi write off billions on credit crisis (independent)
UBS and Citigroup published dire third-quarter results yesterday as write-downs caused by the credit crunch hit their earnings badly. But the banks' shares rallied as investors bet that the worst was over for the markets.

UBS, Switzerland's biggest bank, took the market by surprise by predicting a loss for the third quarter of up to SFr800m (£335m). The bank ousted the head of its investment bank as Marcel Rohner, the chief executive, took personal control of the business that was responsible for the losses.

Citigroup, the biggest US lender, said profit for the third quarter would fall by about 60 per cent as it wrote down the value of mortgage-backed securities and loans for leveraged buyouts.

UBS was an early casualty of the credit crunch when its Dillon Read Capital Management hedge fund imploded in May as losses mounted on securities linked to US sub-prime mortgages. The bank had opened the fund less than a year earlier, chasing high yields just as concern about defaults on the underlying mortgages started to mount.

Huw Jenkins, head of UBS's investment bank, has stepped down, and Mr Rohner will manage the business. UBS's finance director, Clive Standish, will leave and be replaced by the bank's vice-chairman, Marco Suter. UBS will cut 1,500 jobs at the investment bank before the end of the year. The bank declined to say where the cuts would take place.

The Swiss bank's downbeat trading statement in August had meant it was closely watched by invest-ors trying to gauge the extent of the damage done by the seizing up of the credit markets that had fuelled banks' profits for the past few years.

UBS shares fell heavily in early trading but recovered to close up as investors started to look to the future in the belief that the worst was over. Citigroup shares were were among the big-gest gainers yesterday in New York, up 2.3 per cent.

Citigroup said it lost about $1.3bn (£640m) in the third quarter on the value of sub-prime mortgage-backed securities that it had "warehoused" to be turned into collateralised debt obligations (CDOs). These opaque pools of assets caused unexpected losses for investors, and the market for them has dried up. The bank's biggest write-down was $1.4bn of leveraged finance loans.

"We expect to return to a normal earnings environment in the fourth quarter," Chuck Prince, Citigroup's chairman and chief executive, said. Mr Prince said Citigroup had also been damaged by investments in private equity, which it continued to make throughout the spring and early summer, despite warnings that risks were rising and returns could fall.

FIGHT CLUB

FT.com to offer more free content to see off WSJ threat (independent)
The Financial Times moved to see off the impending threat of Rupert Murdoch in the online business content sector yesterday by ditching its site's existing subscription model in favour of offering more free content.

The plan has been interpreted as a pre-emptive strike against rumours that Rupert Murdoch plans to make content on The Wall Street Journal's website free following his acquisition of the newspaper's owner, Dow Jones, earlier this year. The FT's decision also reflects the rising significance of online advertising, which is a potentially more lucrative source of revenue than subscription sales.

From mid-October, users of the FT.com website will be able to view 30 articles a month for free, a shift away from its previous policy of only allowing subscribers who paid either £100 or £200 a year access to most of the site's content. The unique model hopes to tempt more users into subscribing once they have used up their 30 free views a month.

The FT.com site has more than 100,000 subscribers, which adds up to £9m a year to the FT's revenue base, according to analysts. Usage of the site has grown substantially this year with unique users up more than 70 per cent. In contrast, the WSJ.com has nearly 1 million subscribers.

Yet with the WSJ.com rumoured to be ready to ditch its subscription-based model and The New York Times abandoning its paid-for content model last month, there was a certain amount of inevitability about the FT's move. One analyst, speaking off the record, said that once Mr Murdoch "lets the cat out of the bag, it will be difficult for anybody to put it back in there again".

EASY CREDIT BOARD

British banks gorge on ECB's cheap credit (telegraph)
British lenders are shunning the Bank of England and turning instead to the European Central Bank on a massive scale, taking advantage of much lower interest rates and guaranteed anonymity to weather the credit crunch.

EU sources say Britain's banks have been clamouring for money in Frankfurt, accounting for a substantial chunk of the €190bn (£132bn) lent last week in the ECB's variable tender operation. "It is fair to say they have been borrowing from the ECB on a very large scale. It's cheap, so why not," said one official.

The UK banks were also major subscribers at the €50bn issue of three-month loans on September 27 at 4.63pc, and the earlier tender of €75bn on September 13.

Hans Redeker, currency chief at BNP Paribas, said British reliance on ECB funds has become to big that it is leaving a clear footprint in the currency markets, forcing up sterling on the days following ECB tenders as the banks switch euros into pounds - typically Thursdays, Fridays, and Mondays.

"There's been a huge amount of borrowing. It is causing movements in the euro-sterling exchange rate that do not make any sense otherwise. It is why the pound shot up in early September when the liquidity crisis was in full swing and there was nothing to justify this," he said.

"The money markets may look as if they are functioning again in Britain, but in reality they are not," he said. Mr Redeker believes the key motive in going to Frankfurt is the certainty of secrecy, rather than the lower interest rate.

"Nobody wants to take up the Bank of England's three-month tender because of the stigma. They will be punished immediately by the markets," he said.

While the Bank of England says it will not publish names, there are concerns that the British press will unearth the story somehow. It is safer to stick to Frankfurt, where the ECB does not even reveal the nationality of banks coming to the window -- masking the picture.

The German press has reported that Barclays Capital in a major borrower at the ECB tenders. The bank has declined to comment.

Any British lender with a branch in the euro-zone can use the ECB facility, provided it meets the rules and offers the right collateral -- which includes mortgage-backed securities. The Bank of England was much more restrictive in the early phase of the credit crunch.