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
Barclay's sue Bear Stearns for undervaluing their imploded hedge funds. Authorities continue to check whether the principal who ran these funds had withdrawn his own investment out before it crashed as he tries to set up a new hedge fund (unlikely to have the word Enhanced Leverage in the name). Bear Stearns loses prime brokerage clients too.
Morgan Stanley is snapped up by the Chinese Government who use it as an opportunity to dispose of some USD it so hates and gets about a 10% yield which implies Morgan Stanley is junk stock. Mack pretends to forgo his bonus whilst sitting on millions of stock options and a lucrative employment contract that pays him handsomely if the board fire him - maybe that is what he wants?
As banks sell out to foreigners, the end of Wall Street is nigh. Ratings agencies and the FSA show themselves to be useless once more and my Christmas party went well (which is why I left after the main course to the bar over the road ...)
BARCLAYS SUES BEAR STEARNS OVER COLLAPSED HEDGE FUNDS
Barclays has launched a $400m-plus legal action against Bear Stearns, accusing its Wall Street rival of fraud over the collapse of two hedge funds earlier this year.
The collapse of the funds in June was the first sign of the seriousness of the mortgage market crisis, but Barclays alleges that Bear Stearns was misrepresenting the health of its hedge fund business for more than nine months leading up to the disaster.
Barclays' possible losses on the funds, to which it advanced a string of multimillion-dollar loans, could amount to between $300m and $400m, and the company demanded compensation and damages in a lawsuit filed with a New York court last night.
The action adds to the legal problems swirling around Bear Stearns and the managers in charge of the two funds, whose collapse wiped out $20bn almost overnight. Last month, the US attorney in Massachusetts charged the company with improper trading activity, and it was reported earlier this week that Ralph Cioffi, the fund manager, was under investigation for moving $2m of his personal fortune out of one of the funds just a few weeks before its collapse.
Barclays' suit claims that Bear Stearns lured Barclays into supporting a highly leveraged fund for mortgage-related assets, in order to alleviate liquidity problems at an earlier fund that stretched back until at least September 2006. Mr Cioffi and another fund manager, Matthew Tannin, are named personally in the suit, alongside Bear Stearns and its subsidiaries.
Fintag says That scuppers my foretelling that Merrill will buy out Bear Stearns. I wonder if Merrill will join this litigation too?
Gloomy signals for the economy continued to mount yesterday as the Bank of England revealed that its Monetary Policy Committee voted unanimously for an interest-rate cut while fresh data pointed to a downturn on the high street and in the housing market.
In a sign of the Bank's concern about the economy, the MPC voted 9-0 for the quarter-point cut two weeks ago. The reduction was the first for more than two years, and the committee's first unanimous vote for a cut since the aftermath of the 9/11 attacks in 2001.
The MPC's minutes, published yesterday, said: "The worsening financial market turmoil, and the consequent tightening of credit conditions, had increased the downside risks to activity and inflation in the medium term."
The minutes fuelled expectations of another cut as soon as January as the Bank tries to keep the economy afloat in the face of a squeeze on lending by banks. The MPC has to weigh the risks of a severe slowdown against the threat of inflation if it makes the cost of money cheaper.
But the committee said it could "act pre-emptively" against tightening credit conditions without encouraging price rises and high wage demands.
Alan Clarke, UK economist at BNP Paribas, said: "Far and away the biggest concern is an undesirably sharp slowdown in the economy. This flags the possibility of a January rate cut."
The MPC's minutes coincided with downbeat news from the key retail sector.
The MPC considered a bigger cut at the meeting but decided against because of the risk of inflation.
Fintag says Strange times. The banks have a torrid 2007 and yet pay out the biggest bonuses ever. It seems to me that they are extracting value now because 2008 will be so bad that the banks can fire its workforce without feeling too guilty.
As I have said on this blog Barclay's is insolvent. I've been saying it and even arranged my hedge positions base on that hypothesis. Consider the USO OIL trade we are in right now for example. We are short the Barclay's oil ETF OIL with the stated intention to hedge long the USO, but only short OIL, precisely because of my fears of Barclay's insolvency. So, why is the Street's biggest criminal finally getting around to telling you this now (Link 1)? Because it's no longer of any use to you. Barclay's BCS will likely begin to recover sometime in the next week. Goldman could have downgraded BCS in February when the price per share was above 68, or again in April or July when it poked above 60, then failed signaling its full intention to do so both times (Link 2). Make no mistake about it Goldman was selling on all three occasions, but they keep you in the dark about it. Now when the share price is 20 points lower they downgrade, scarring out of your shares after sustained high volume selling has emptied the pool of longs (see the solid red volume block) and the stochastic turning up from nearly zero. This is as blatant as it is criminal. Goldman's golden criminals are out to steal your kids lunch money and your pension check. I just hope you don't own a Mutual fund.
Five months after being sued by the Federal Energy Regulatory Commission for market manipulation, collapsed hedge fund Amaranth Advisors and two former traders are firing back.
Echoing founder Nicholas Maounis' response to FERC's July action, in a Friday filing Amaranth challenged the agency's jurisdiction in the case. The hedge fund also complained that FERC's action, which seeks $200 million in fines for Amaranth, is “particularly unfair,” piling on a firm that's already been forced out of business.
Hunter, in his own filings, denied any wrongdoing. “There is no evidence or even allegation that Amaranth's trades were in any way fictitious or deceptive,” Hunter's memorandum charges. “They did not involve wash sales, matched orders, rigged prices or some other deceptive conduct. The market was not deceived as to who was buying or selling the futures, how many futures were actually traded or at what price. Hunter did not inject false information into the marketplace or fail to disclose any information he was obligated to disclose. He did not violate any New York Mercantile Exchange rule by selling futures during the closing range.”
What's more, “Hunter's trades did not actually cause any material effect on the market price of natural gas futures, and hence had no effect on the NYMEX settlement price. That fact not only disproves the Commission's claim; it negates the Commission's statutory jurisdiction.”
Fintag says These things take so much time.
BEAR STEARNS TO ACT OVER FALLING SHARE OF PRIME BROKERAGE MARKET
Bear Stearns' market share in the lucrative prime brokerage business has fallen sharply during the credit squeeze, an issue the bank is likely to address today as it announces what is expected to be its first quarterly loss.
Prime brokerage - which entails providing trading, lending and other services to high-paying hedge fund clients - is a critical business for Bear, which had long been a top-three player in the industry, behind Goldman Sachs and Morgan Stanley.
Bear's decline in prime brokerage began about three years ago and has been accelerated by its recent mortgage-related troubles, including the collapse of two hedge funds run by the bank's asset management division.
The troubles have raised questions about its financial stability.
Goldman Sachs and Morgan Stanley remain the market leaders in prime brokerage and Deutsche Bank has pushed into the number three spot. According to one industry analysis, Goldman and Morgan Stanley each generate about $2bn (£1bn) a year in revenue from prime brokerage, or 40 per cent of the total. Bear has about 5 per cent of annual prime brokerage revenue.
Deutsche is believed in recent months to have picked up several Bear US hedge fund clients
Fintag says Now that is a shame. I wonder why this is?
John Mack wants investors to know he feels their pain. But forget the bonus Mr Mack will forgo. The Morgan Stanley boss is lucky to hang on to his job after the bank disclosed a total writedown of $9.4bn for the quarter and its first ever loss. Yes, Morgan Stanley can point to other bits of the bank that are humming, such as wealth management. But so could Merrill Lynch, whose own mortgage writedown led to Stan O'Neal's departure.
As for the writedown, it is jaw-dropping, even by subprime standards. A dozen or so traders laid on a position to offset the cost of shorting subprime. Had things worked out, the short could have netted the bank at most about $2bn. Instead, it cost the bank more than $7bn, as the traders' correct hunch was overwhelmed by a deteriorating long position in top-rated collateralised debt obligation securities. How could that have happened?
Fintag says And the markets don't care. It appears that they believe in this quarter all the bad news will be revealed. UBS, Citi, DB et al have written off quite a bit and maybe this the end. Personally I don't think so.
China owns MS, Singapore owns UBS, Dubai owns Citi, now the US banks are facing what the UK banks did in the 1990's when they were all snapped up by overseas buyers.
Tis the end of Wall Street.
telegraph says " Morgan Stanley chief to blame for 'dismal' loss "
finance asia says " China extends lifeline to Morgan Stanley "
Banks have prioritised profits over prudence in the way they use the short-term money markets, the Financial Services Authority said yesterday, as it proposed tough rules to limit lending by some of the biggest banks and building societies.
Limits on the institutions' ability to lend to each other could have a knock-on effect on their willingness to extend loans to consumers.
Paul Sharma, head of risk review for the FSA, said: “There has perhaps been a dual purpose in banks' treasury management, with safeguarding liquidity on the one hand and being a profits centre on the other. That balance needs to be changed.
“In essence, banks will need to look at cash inflows and outflows over the shorter term, whether it be a week, a month or longer than a month, and we will put strict limits on outflows.”
The FSA's measures, put out to consultation with its membership yesterday, are designed to prevent the kind of liquidity crunch that forced the near-collapse of Northern Rock, the beleaguered mortgage bank.
The stricken Newcastle-based lender has been forced to borrow about £25 billion in emergency funds from the Bank of England after running into liquidity problems in September.
Fintag says I read the discussion paper yesterday and was shocked that the lead regulator is admitting it doesn't know how to do its job. Pathetic.
The City of London so nearly took over New York as the financial center of the world; it is now looking like a second place loser.
And no mention of illegal off balance practices? The FSA are effectively saying tighten up your belts and push are the toxins off balance sheet in conflict with the new CRD and Basel 2.
If anything, the banks need less restrictions. How can they operate in a serious liquidity trap environment?
Bernanke: There you go. I got nominal interest rates down to zero. Now its your turn. Wall Street: So what happens now? Nobody wants to invest in assets because they think they can only go down in value. Bernanke: Well you can all lend to each other and keep the markets liquid. Wall Street: You must be kidding. We are in a liquidity trap. We don't want to lend because it is too risky. Bernanke: Then I will fly around in my helicopter and drop dollars onto the streets of New York. If I can't then I will buy subprime houses ... oops that is what I am doing already. Wall Street: Rates are zero so we will wait for they can only go up. That is why the Bond market is collapsing. Bernanke: But according to Milton Freidman and Keynes, I am doing the right thing. Wall Street: Look at Japan in the 90's. You need to build more freeways, hospitals, start another war, that sort of thing. Get the budget deficit up a bit more and provide meaningless jobs for people. Until you learn from the past, we will just sit here. Bernanke: My job is over. I am off to be Goldman's next CEO. Bye, bye.
US regulators and prosecutors are probing an allegation that Bear Stearns Cos. allowed insiders to pull investments from hedge funds that collapsed in July while blocking outsiders from making withdrawals, BusinessWeek magazine reported, without saying where it got the information.
The Securities and Exchange Commission and the US Attorney's office in Brooklyn are talking to investors in the bankrupt funds about the allegation, BusinessWeek said.
The probe could involve 140 people who were employed by the firm's asset-management unit at the time, the magazine said.
The managers of the two hedge funds told investors in an April 30 conference call that they had a plan to "get the funds back on track" toward positive returns, BusinessWeek said. Meanwhile people related to the fund's management team were withdrawing their own money, according to the allegation.
A Bear Stearns spokesman didn't return calls seeking comment.
Fintag says Tut tut. And I thought Bear was a reputable, low staff turnover, family guy type of company.
finalternatives says " Hedge Fund Mobster Gets Seven Years "
finalternatives says " Morgan Stanley Settles Hedge Fund Market-Timing Case "
HEDGE FUND SRM UPS NORTHERN ROCK STAKE TO 9.74 PCT
Hedge fund SRM Global said on Wednesday it had again edged up its stake in stricken British mortgage lender Northern Rock to 9.74 percent, up from the 9.51 percent it announced on Tuesday.
Ralph Cioffi, the head fund manager in charge of the two collapsed Bear Stearns hedge funds, has quietly left the firm. While there are rumors that he might be setting up another hedge fund, this would be shocking given the carnage at Bear Stearns which is still being cleaned up. Well, you know what they say about doubling down on a bad bet.
A more likely reason for Cioffi's departure might have to do with the report that prosecutors are looking into Cioffi's withdrawal of some $2 million he personally invested in the funds while he was still touting them to investors. Two failed funds would be the least of Cioffi's worries if prosecutors decide to pursue a case of insider trading or some other wrongdoing.
The real interesting tidbit of Cioffi's departure will be the U-5 form that Bear Stearns is required by law to file within 30 days of his leaving, disclosing the reasons for his departure. Wall Street firms often post disparaging comments on a departing employee's U-5 in order to make it difficult to take a book of business or gain future employment. Regretfully, Wall Street believes it can now make reckless claims with immunity thanks to a New York state court ruling in June saying that a brokerage firm cannot be sued for defamation because of what it states on a broker's U-5 form.
Fintag says And Jimmy Cayne is still running the show?
We have been pretty critical of the ratings agencies not being on their toes and calling on things far too late. In fact, I have been an anti-fan of theirs all the way back to Enron. Today is another prime example of ratings agencies being late. They might even be analyzing a 2000 Gore-Bush vote recount at this point. McGraw Hill's (NYSE:MHP) S&P and Moody's (NYSE:MCO) sure seem to have perfected worthless 'objective' coverage.
ACA Capital (OTC:ACAH) was downgraded today to junk status under the "BBB" rating at S&P. Congratulations. Like that was a difficult one to see coming. This one is up big today on hopes (rumors) that the brokerage firms may band together to save it, although they would likely be doing this to save their own exposure from it failing more than seeing this one as a good investment.
D.R.Horton (NYSE: DHI) was downgraded by Moody's to junk status: Ba1 is the new rating after having been at Baa3, the lowest investment grade out there. There shouldn't be a single homebuilder in the U.S. with an investment grade rating and there shouldn't have been since 2006. If you tried selling a house in 2006 in a non-hot part of the country you'd know why this is so. The truth is that homebuilders are now just land banks and using the balance sheets for guidance is pure wizardry. We have asked "Which Homebuilder Goes to Zero First?" for good reason.
S&P took its outlook on AMBAC (NYSE: ABK) and MBIA (NYSE:MBI) to negative from stable. Where has S&P been? These companies have had known exposure to this mess for weeks now. At least AMBAC said it could get its rating stabilized. Security Capital Assurance's (NYSE:SCA) XL Capital Assurance unit is also on negative credit watch, so investors might as well get ready for that "AAA" rating to go away too. Blackstone Group (NYSE:BX) has a unit called Financial Guaranty Insurance Co. that the community has called "FGIC" (or pronounced 'Fij-ic') forever. S&P has it under review as well.
Moody's (NYSE: MCO) just maintained some of its own "Aaa" ratings on Monday, so there is a turf war. If you can recall a housing executive saying the housing market "was going to suck" a while back, it might ring a bell. We don't have to say that the ratings agencies suck, because they already know that they do. Maybe the conspiracy theorists are right. Maybe if these ratings agencies were truly objective (and actually analyzed these in the manner that we all were counting on them to) that would have never allowed much to really happen in the financial markets.
Most of these stocks have traded lower on the day, but they all have recovered far off lows and some are actually up on the day. If you take a look at what we've said here you'll know we have noted how their business models in covering debt issues are full of conflicts of interest top to bottom. No wonder.
Jon C. Ogg December 19, 2007
Fintag says They take the rebates on the way up, screw us all on the way down, and still think they are the authority on rating companies. Its a 19th century solution to a 21st century problem.
4 comments
ozgerbobble said ...
Is that AGA steam driven?
20 Dec 07 - 10:36 gmt
anonymous said ...
Bad Bear Day - suffers 4x expected loss. www.bloomberg.com/apps/news?pid=20601087&sid=agq8QB6jaqeM&refer=home
20 Dec 07 - 13:36 gmt
Finbar said ...
AGA is indeed a fossil fuel burning machine that pumps out more CO2 than your average 747.
20 Dec 07 - 15:38 gmt
Oh Tannenbaum! said ...
Christmas comes early this year because the mini-dialogue has returned! And out of all the mini-dialogues, mini-dialogues that involve ole' Heli Ben are the best of all.
I'll be out on the street catching dollars if anyone needs me.
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