30SEP08:
31DEC08 INDICES:
FTSE100:3550
DOW30:7550
# HEDGE FUNDS:4425 30JUN08: Oil to be USD200 by 30OCT08 USA Inflation to be 7.5% by 30OCT08
...oops 23APR08:
Next Rights Issue:
HBOS...yes
All & Lec ...
...1 Nil. 17APR08: Oil to be USD127 by 30SEP08
...16MAY08 losing my touch 27FEB08:
2 Banks go bust by 30JUN08
BS down, Lehman (a bit late I know) 20NOV07: Northern Crock to be sold for 15p
Nationalized 01NOV07: Oil to be USD103 EOM
...peaked too soon 08OCT07:
SEC to fine Goldman for pricing issues
...still waiting 15JUN07: ML to buy-out BS
JPM got there first 06JUN07: The Big Crash: 17OCT07
...well it's here
After Bear Stearns risk management failures, the odds were for Merrill Lynch to buy them out. Its prime brokerage business and brand name were sufficient reasons along with a few nods from the US Treasury to keep away foreigners. Until yesterday, that was. Merrill has written off a chunk of its balance sheet and thousands of jobs are to go. The stock price has plummeted and Bear Stearns is effectively now in Chinese ownership. Now Merrills is looking vulnerable. Any Russian billionaires fancy a pop?
The volume-lite markets move along on a whim and a prayer (mantra: volume supports price, volume supports price...), Southampton Football Club is sniffed by hedgies, CSX says go away, and our beloved Facebook is Vista'd, OPEC is powerless, the USD enters new worthlessness territory (Bush's legacy - a weak USD and massive debt; looks like US tax will have to go up: good luck Clinton).
The Germans approve something and tax is the new black.
Banking giant's sub-prime losses 'staggering'; US property market falls worse than expected By Stephen Foley in New York Published: 25 October 2007
A $7.9bn write-down by the investment banking giant Merrill Lynch has reignited controversy over how big the losses from the mortgage market crisis might yet turn out to be.
The figure, disclosed in the bank's quarterly results statement yesterday, was $2.4bn higher than it had predicted less than three weeks earlier, but analysts left a conference call with management still unclear as to why it had ballooned.
The hit that Merrill has taken on mortgage-backed debts ec-lipses anything previously seen on Wall Street, and yesterday's confusion led investors to fear the worst may still not be over. It came as the latest US housing market data showed a worsening picture for home sales, and before news last night of up to 3,000 job cuts at Bank of America.
Merrill Lynch's chief executive Stan O'Neal said the company had changed its assumptions on the future performance of the global market for mortgage-backed debts, which has all but seized up since low-income Americans began defaulting on mortgages in record numbers.
Mr O'Neal has spent two years playing catch-up with other banks that had more established businesses trading mortgage-backed debts, including complex derivative products called collateralised debt obligations (CDOs), and the subsequent blow-up raised questions yesterday about his long-term future at the company. Analysts - and Mr O'Neal himself - said it was clear the expansion had been done by taking on too much risk.
"The bottom line is we got it wrong by being over-exposed to sub-prime mortgages," he said. "I am accountable for the mistakes as I am accountable for the performance of the firm overall and my job, our job, the leadership team's job, is to address where we went wrong."
However, he refused to say what proportion of the bank's mortgage-backed debts had been revalued to the depressed market rate, and which were still being valued using a mathematical model. And although he insisted that Merrill was giving far more information than its peers, he would not say what percentage of the value of the debt portfolio had been written off.
Jeff Harte, finance industry analyst at Sandler O'Neill, said the most alarming part of the results was how different they were from the numbers put out by the company at its profit warning on 5 October. "Management noted that it re-examined its remaining CDO positions, taking more conservative assumptions, with additional analysis and price verification," he told clients. "We find the concept of dramatic retroactive valuation changes particularly concerning from a risk management standpoint. When one position is not accurately marked, neither hedging strategies nor aggregating risk can be done effectively."
Fintag says Tell me, how did Goldman escape this sort of carnage? Yes, it is a bad trade but Merrill is fine. As the year end aproaches, the auditors are swinging their fair value accounting standards at the banks and Merrill took it on the chin. Is this the last? It depends on the markets. If they loosen up, then Christmukkah will be fine. If not, expect a few more large write offs.
The UK remains vulnerable to further fallout from the recent credit crunch that has gripped world markets, a Bank of England report warns.
The central bank said British sub-prime borrowers could encounter problems obtaining credit as banks face higher borrowing costs.
The impact of the credit crunch, which was so disastrous for Northern Rock, may not be fully apparent, it said.
The report also said share prices could slide after recent sharp gains.
Sub-prime mortgages are those sold to people with poor credit histories and thus a greater chance of defaulting.
'Further shocks'
"There have been signs of recovery in recent weeks but some markets are still illiquid and the financial system remains vulnerable to further shocks," said Sir John Gieve, the Bank of England's deputy governor.
It said problems could also surface in the commercial property sector, which accounts for 9% of UK bank lending.
Lenders have been tightening the terms of loans to build office space and shops.
The Bank of England said credit could also be tighter for highly indebted companies as well as individual borrowers with poor credit histories.
The bank also warned that the dollar may be vulnerable to further falls.
Overall UK banks have had to fund an estimated £147bn of mortgage-backed securities, company buyouts and other debt vehicles that previously would have been sold to other investors, the report said.
The credit crisis is far from over and British shareholders are at serious risk of becoming its next victims, the Bank of England warns.
A deeper downturn in the US and rising credit defaults could trigger further asset price falls
In an unexpectedly downbeat report on the state of the British financial system, the bank warns that the UK stock market is "particularly vulnerable" to a downturn.
Almost all British workers have money invested in shares - either directly or indirectly through their pensions and life assurance plans - and could lose out if share prices suffer a significant fall.
The bank warns that there is a significant risk of the City and Britain's financial system becoming embroiled in further turmoil as a result of the credit crisis gripping the world's money markets.
The "credit crunch", which has already caused a run on Northern Rock bank, is far from over, it says.
The alarming diagnosis comes as Alistair Darling, the Chancellor, faces tough questioning on Thursday from the Treasury select committee about the Government's handling of the Northern Rock crisis.
In its twice-yearly Financial Stability Report, the bank also signals that first-time buyers and buy-to-let landlords are the most at risk of defaulting on their mortgages and bankruptcy in the months ahead.
Fintag says What, stock prices can go down? Now that is silly.
No small number of individuals, including U.S. comptroller general David Walker, author Chalmers Johnson, and yours truly, have noted alarming parallels between the United States and the Roman empire before the fall. One that stands out is the vast amounts that were -- and are being -- spent on maintaining a military presence in nations far and wide. In "Iraq, Afghan Wars Could Cost US 2.4 Trillion: Report," AFP reports on the escalating costs of imperial overstretch.
The total cost, including debt servicing, of the US wars in Iraq and Afghanistan could reach 2.4 trillion dollars by 2017, a report by the Congressional Budget Office found Wednesday.
The report, by the body which provides non-partisan budget analysis for Congress, said higher estimates for spending for the wars could top out at 1.7 trillion dollars by the end of the next ten year period.
Under the most intense scenarios of US military activity, a further 705 billion dollars could be added to the cost by interest payments, assuming the wars continue to be largely financed by government borrowing, the report said.
The estimate contains estimated costs up to 2007 for military and diplomatic operations in Iraq and Afghanistan and other war on terror spending.
It also includes related spending on medical care and disability compensation for veterans, and survivors benefits.
To reach its final estimates, the budget office projected the total cost over the next 10 years under two scenarios, one evisaging a sharp drawdown of US troops abroad, the other under a more gradual drawdown.
"Total spending for US operations in Iraq and Afghanistan and other activities related to the war on terrorism would amount to between 1.2 trillion and 1.7 trillion for fiscal years 2001 to 2017," the report said.
For the first time, however, the CBO included debt servicing costs if past and future spending on the war were financed entirely by borrowing.
Under that assumption, interest costs for spending on the war on terror between 2001 and now and up to 2017 would be 415 billion dollars the report said.
A further 290 billion dollars would be added to the price of the wars, if higher end estimates of spending between now and 2017 are added, the report said.
Fintag says History is dead in the water. We never learn from our mistakes.
UNION OPPOSES INVESTMENT FUND'S EFFORTS TO SHAKE UP CSX
Not everyone is on board with The Children's Investment Fund's critique of the railroad operator CSX.
The Brotherhood of Locomotive Engineers and Trainmen, a union associated with the Teamsters, said last week that it opposes efforts by the hedge fund, known as TCI, to shake up CSX. The union charges that the investment fund is pushing for increased returns to shareholders at the expense of safety on the railroads — and assails a fellow union for supporting the hedge fund.
In its statement, the Brotherhood says that hedge funds often agitate for change solely to break a company up and says that is what the investment fund is doing with CSX.
“TCI this week called for the ouster of CSXT Chairman Michael Ward,” the union said in a statement. “The dispute apparently is over how CSX spends its money — TCI wants CSX earnings to be split among investors while CSX employs a more conservative approach, keeping cash on hand for capital improvements.”
But that's not exactly what the children's investment fund is advocating. The fund called for the separation of the positions of chairman and chief executive and has not called for Mr. Ward's ouster — not yet, anyway. And while it is calling for better returns for shareholders, it is doing so by asking the company to improve its operating costs. Among the fund's proposed remedies are tying executive compensation to returns on capital and a justification of CSX's three-year spending plan.
Microsoft, the software giant, has acquired a $240m (€168m) stake in social networking site Facebook as acquisitions of US technology companies have increased by 25%.
Microsoft is buying a 1.6% stake in Facebook's next round of financing at a $15bn valuation.
Mark Zuckerberg, the 23-year founder and chief executive of Facebook, launched the site in 2004 and opened the networking site up to users beyond its original college student base only a year ago. An average of 250,000 new users register every day.
Facebook's first $500,000 in funding came from Peter Thiel, founder and former chief executive of Paypal, the internet payments service in the summer of 2004.
Fintag says I thought eBay's acquisition of Skype was silly. This is even worse.
Please email me regards the next big social networking site.
The tidal wave of fund listings has turned to a trickle
The free-for-all is over and the slog now begins. In the past few years, many of Europe's biggest hedge fund managers have sold stakes to new owners or gone public. But investment bankers looking for deals are likely to find the going will get harder.
Of Europe's 20 largest hedge fund managers, six have sold minority stakes to investment banks or other hedge fund groups in the past four years, three have listed closed-end funds to raise capital, two are publicly listed, one completed a management buyout and bankers think another six, which are either wholly-owned by investment banks or private institutions, are unlikely to want to undertake deals.
A US investment banker in London said: “The first round of deals is now done. Everyone seems to have assumed there was going to be wave upon wave crashing on the shore, but it is likely to be another three years for the next generation of managers to become the size and shape where they want to do something.”
Corporate asset management adviser Putnam Lovell suggests dealflow is robust for the moment, with 2007 on course to be a record year for transactions in the sector. As of October 16, 184 deals have been conducted worldwide, representing $1.6 trillion (€1.1 trillion) of assets, compared with 191 deals and $2.6 trillion in assets last year. That figure was inflated by two deals, according to Putnam Lovell - the merger of Bank of New York with Mellon and BlackRock's acquisition of Merrill Lynch Investment Managers.
A survey by accountancy Ernst & Young last week found almost one in seven hedge fund managers wanted to raise capital for their business, either through a strategic stake or stock market listing....
Fintag says Get me out of here. But how? I must do this before next April to enjoy the 10% CGT taper relief. I'll give Putnam Lovell a call.
Brevan Howard news : financial news says Manager raises extra $130m for listed hedge fund.
independent says Bureaucracy burdens new businesses.
STANDARD CHARTERED'S WHISTLEJACKET SIV SHRINKS BY $2 BILLION
The assets of Whistlejacket Capital Ltd., a structured investment vehicle set up by London-based Standard Chartered Plc, fell by $2 billion since July.
Standard Chartered, which started Whistlejacket in 2002, is seeking funding outside the commercial paper market for the fund which has shrunk to just under $14 billion, according to Tim Baxter, the bank's London-based spokesman.
``We are looking at alternative sources of funding for Whistlejacket,'' Baxter today said in a phone interview. He declined to say if the SIV had issued commercial paper in recent weeks.
About 57 percent of the Whistlejacket SIV is invested in asset-backed debt, with the remainder in bonds sold by banks and financial companies, Moody's said in March. About 10 percent is invested in collateralized debt obligations, Moody's said.
Fintag says Ouch.
WHAT'S AILING THE DOLLAR? PART II: CURRENT ACCOUNT BALANCE
Pacific Alliance Group is adding a Greater China real estate strategy to its portfolio of alternative investment products. The $3.5 billion Hong Kong-based hedge fund and private equity manager is launching the Pacific Alliance China Land fund in November with a target of US$350 million.
The fund will invest across residential, commercial and industrial sectors targeting completed and semi-completed projects through forced sale and distressed situations, according to marketing materials obtained by FINalternatives. It will also take pre-IPO equity stakes in leading regional developers, followed by direct co-investment in selected real estate projects.
Approximately 60% of the fund's portfolio will be invested in what the firm deems as “second and third tier” cities and the remaining balance will be invested in more visible locales such as Hong Kong and Macau.
Fintag says Is China still an emerging market? If by 2008 it overtakes the USA, then will the USA be deemed an emerging market? or a failing market?
Citi Alternative Investments has named Jeffrey Gould to the newly-created role of global head of distribution. Gould joins the firm from quantitative hedge fund Renaissance Technologies, where he served as president of institutional management for two years.
Prior to his stint at Renaissance, Gould Was with mutual fund firm Putnam Investments for 17 years.
Earlier this month, the unit also added Don Callahan, who before joining Citi was with Credit Suisse.
CAI is the alternative investment unit of Citi. The group, which is led by Vikram Pandit, manages products across five asset classes including private equity, hedge funds, real estate, structured products and infrastructure.
Fintag says For anyone to leave Renaissance means they were either paid silly money by their new employer or weren't very good at their job. The fact Gould has joined Citi indicates the latter.
Acting as receiver for Cheyne Finance, Neville Kahn at accountants Deloitte & Touche scored a victory last week when the High Court ruled that the structured investment vehicle could declare itself insolvent.
The ruling - the first of its kind - meant that Cheyne Finance, formerly managed by hedge fund Cheyne Capital, could stop payments to holders of its commercial paper and medium-term notes.
It also allowed the entire SIV portfolio to be sold, as opposed to the piecemeal disposals seen elsewhere. Mr Kahn and his colleague Nick Dargan are now negotiating a refinancing package with RBS and have also been appointed to restructure Germany's IKB Rhinebridge...
Fintag says Not sure why I am reviewing this. What is the point?
Sisu Capital has emerged as the mystery bidder for Southampton Football Club. If the deal goes ahead, it could become the first hedge fund to own a British football club.
Southampton Leisure, owner of Southampton Football Club, is in discussions with Sisu over a bid valued at about £40m ($81.8m) for a majority stake in the business.
The offer for Southampton is Sisu's third attempt to buy a football club after it expressed an interest in Derby County and was outbid by Thaksin Shinawatra, the ex-Thai premier, last summer for Manchester City.
It also follows a string of other attempts by hedge funds to buy football clubs. These include Polygon, the US hedge fund that pulled out of takeover talks with Newcastle United last year, and Lansdowne Partners, which began building a stake in Arsenal in 2005 but is thought to have sold its stake last month.
Fintag says Unfortunately I am not allowed to discuss this story.
Southampton has a nice airport though.
MERKEL CABINET APPROVES HEDGE-FUND DISCLOSURE BILL
German Chancellor Angela Merkel's Cabinet approved a bill forcing hedge funds to disclose details of financing and timing in takeover bids for stock companies.
The government plans to curb ``undesirable economic'' activities by hedge funds, compelling them to reveal how they finance their bids and to specify their aims if they intend to raise stakes in stock companies beyond 10 percent, draft legislation shows.
Other transparency measures approved by the Cabinet in Berlin today strengthen the BaFin financial-market regulator and limit shareholders' right to anonymity. The bill will probably become law early in 2008, coinciding with corporate tax cuts and new tax breaks for venture capital investments.
Hedge funds ``use tricks to hijack control of companies --you don't know where you are with them until it may be too late,'' Rolf Hollander, management board chairman of CeWe Color Holding AG, Europe's largest independent photograph developer, said yesterday in an interview. ``Better transparency on stake-holder moves is vital for the health of companies, for workers, for all shareholders.''
Hollander said he wished the legislation had been in place earlier this year, when hedge funds tried to unseat CeWe executives and board supervisors.
Fintag says Imagine writing legislation for a business that your country doesn't do?
Now the EU has ripped apart the protection that VW had by the German law, I think its Government will be seeing a few more foreign hedge funds have a good snifter around this venerable auto mobile company.
We like VW but it could be run sooooo much better...
Investors put significantly less money into U.S. hedge funds in the third quarter, when credit market woes sparked heavy losses at many prominent portfolios. But demand did not dry up, as some analysts had predicted.
Pension funds, endowments and wealthy private investors added a net $45.2 billion to hedge funds in July, August and September, bringing the total assets under management in the loosely regulated industry to $1.8 trillion, data tracker Hedge Fund Research said Tuesday.
The net inflow was down from $58.6 billion in the second quarter and $60.2 billion in the first quarter. But analysts said the inflow was still sizable, suggesting the hedge fund industry remains popular with many investors.
Unnerved by heavy losses at funds operated by AQR Capital Management, Highbridge Capital Management, D.E. Shaw and Goldman, Sachs & Co., some investors signaled plans to rush for the exits in August.
During the third quarter, the average hedge fund posted a return of only 1.36%, down from 5.04% in the second quarter.
After trouble with U.S. sub-prime mortgages spilled into credit markets and pushed stocks lower, some analysts speculated that redemptions might leave the industry with its first quarterly outflows since the fourth quarter of 2005.
One reason outflows didn't materialize is that pension funds and endowments make long-term investing decisions and tend to react less to momentary weakness.
But investors allocated their money more cautiously, analysts said.
Fintag says Where Merrills failed, Hedgies succeed. Investment Banking is dead. It is no coincidence that JP Morgan and Goldman are Hedge Funds in all but name.
MINIMUM-TAX FIX MAY COST BUYOUT FIRMS, HEDGE FUNDS $48 BILLION
House Ways and Means Committee Chairman Charles Rangel said he will propose a $48 billion tax increase on executives of hedge funds and private-equity firms to help pay for curbing the alternative minimum tax this year.
The New York Democrat said the proposal would more than double the tax rate on so-called carried interest, the compensation that executives at buyout and venture-capital firms, as well as real estate and oil and gas partnerships, receive for managing investments. It also would require hedge- fund managers to pay tax on income they defer in offshore accounts, he said.
The so-called patch, which lawmakers must pass this year to forestall a tax increase on 21 million households, will set up a showdown between Democrats who want to offset the lost revenue with new levies and Republicans who oppose any increase. The carried-interest measure also will be part of a broader overhaul that contains a permanent repeal of the minimum tax, a tax-rate surcharge on wealthy households and a lower corporate rate.
Fintag says I am sure this is just the start. When a Government needs revenue it taxes the rich.
6 comments
anonymous said ...
Any American who has watched Merrill morph (Madonna-like) from one flavor to the next, jumping on every bandwagon that comes along (CDO only the most recent one) as its mediocre people try to figure out what they are good out and what culture they want to be, is completly unsurprised by this. Retail does not play with the big boys, period. Just look at Bank of America's attempt at Investment Banking. Or Wachovia's. Merrill has always been Retail, despite pretenses otherwise.
25 Oct 07 - 09:12 gmt
MrJacket said ...
There is a slight issue with your web site. Your daily video starts automatically. That's fine when I pull up your site for the first time each morning. However if I click to read any of the articles and then return to your web site the video starts to play again and I have to scroll to the top and shut it down - each time I leave and return to your homepage - or just mute the whole page. Can you fix this? Play on click. thanks your the first site I read each morning.
25 Oct 07 - 11:38 gmt
PureGuesswork said ...
Would that be the Jim Rogers who "predicted the coming commodity boom in 1999," as every article mentioning him in the financial press delights in telling us? Or the Jim Rogers who predicted the coming commodity boom in 1998? Or perhaps the one who predicted it in 1995. Or 1991. Or, in fact, every year since the late 1980's. It might be interesting to go back and check when he began his prediction of the dollar's demise.
25 Oct 07 - 11:57 gmt
Mrktwiz said ...
RE> For anyone to leave Renaissance means they were either paid silly money by their new employer or weren't very good at their job. The fact Gould has joined Citi indicates the latter.
I could not agree more; I used to work for Citi, and embarrassed to admit it. My best move was a hasty retreat from their.
25 Oct 07 - 17:35 gmt
Finbars Geek said ...
I am working to fix the video - we may just put a blank random picture there; please be patient it will go away ....
25 Oct 07 - 18:48 gmt
Geronimo -EastHampton Financial said ...
Does Goldman really grow 'Genius?' Or does Goldman dump its slack to Treasury? Was Paulson asleep at the wheel since he knows nothing about SIV's and had no idea what was going on with the mortgage business and how it would affect , excuse me, banks? And what about the other 'genius' former Sec of Treas that is now at Citibank? Whathappoened to his genius over there?
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Banking giant's sub-prime losses 'staggering'; US property market falls worse than expected
By Stephen Foley in New York
Published: 25 October 2007
A $7.9bn write-down by the investment banking giant Merrill Lynch has reignited controversy over how big the losses from the mortgage market crisis might yet turn out to be.
The figure, disclosed in the bank's quarterly results statement yesterday, was $2.4bn higher than it had predicted less than three weeks earlier, but analysts left a conference call with management still unclear as to why it had ballooned.
The hit that Merrill has taken on mortgage-backed debts ec-lipses anything previously seen on Wall Street, and yesterday's confusion led investors to fear the worst may still not be over. It came as the latest US housing market data showed a worsening picture for home sales, and before news last night of up to 3,000 job cuts at Bank of America.
Merrill Lynch's chief executive Stan O'Neal said the company had changed its assumptions on the future performance of the global market for mortgage-backed debts, which has all but seized up since low-income Americans began defaulting on mortgages in record numbers.
Mr O'Neal has spent two years playing catch-up with other banks that had more established businesses trading mortgage-backed debts, including complex derivative products called collateralised debt obligations (CDOs), and the subsequent blow-up raised questions yesterday about his long-term future at the company. Analysts - and Mr O'Neal himself - said it was clear the expansion had been done by taking on too much risk.
"The bottom line is we got it wrong by being over-exposed to sub-prime mortgages," he said. "I am accountable for the mistakes as I am accountable for the performance of the firm overall and my job, our job, the leadership team's job, is to address where we went wrong."
However, he refused to say what proportion of the bank's mortgage-backed debts had been revalued to the depressed market rate, and which were still being valued using a mathematical model. And although he insisted that Merrill was giving far more information than its peers, he would not say what percentage of the value of the debt portfolio had been written off.
Jeff Harte, finance industry analyst at Sandler O'Neill, said the most alarming part of the results was how different they were from the numbers put out by the company at its profit warning on 5 October. "Management noted that it re-examined its remaining CDO positions, taking more conservative assumptions, with additional analysis and price verification," he told clients. "We find the concept of dramatic retroactive valuation changes particularly concerning from a risk management standpoint. When one position is not accurately marked, neither hedging strategies nor aggregating risk can be done effectively."