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
As you know investments can go up and down. So when you saw the stellar returns of two Goldman alumni, you just wanted a piece of it. But just like a Bear Stearns Enhanced High Grade Leveraged Hedge Fund, it wasn't what it seemed. Here today, gone tomorrow. Peloton, a cyclist formation, has crashed into a tree.
More misery heaped onto the diminishing hedge fund industry. I mean, what does an out of work Hedgie do? Are we pariahs in the way incompetent bankers are? Should I pack it all in and become a sheep farmer?
However, my prediction that oil would hit USD103 came true (if a few months out but then timing isn't everything ...)
We note that New York is the cool place to be.
Pirates are fighting and looking to take on Hedgies.
A London-based hedge fund that invested in mortgage-backed securities and was recently valued at $3bn (£1.5bn) became the latest victim of the credit crunch yesterday when it wrote to investors warning that it had no choice but to suspend further trading and sell up.
Peloton was founded in 2005 by two former Goldman Sachs bankers, Ron Beller and Geoff Grant. Its ABS fund generated a return of 87% last year, and was lauded as one of the best-performing hedge funds in London.
Beller, though, is perhaps still best known for being a victim of Joyti De Laurey, a Goldman secretary who stole more than £1m from his and his wife's bank account without them noticing. Beller said at the time he thought his account was "light by £1m or £2m" but assumed it was a mistake.
Peloton has suffered short-term liquidity problems as a result of the tightening of the credit markets. The problems at Peloton are understood to have reached crisis level in just a matter of days, illustrating how harsh credit conditions have become, as well as the precarious nature of highly leveraged hedge funds in the present climate. Peloton owns two funds, both of which are being liquidated, and had been preparing to launch a third.
In the letter to investors, who include pension funds and wealthy individuals, the founders said they had "recently experienced difficulties in the challenging credit markets."
They said they had been "working night and day exploring every feasible option to alleviate the situation. In the end, the best solution has been to seek buyers." The firm said it had suspended redemptions and further subscriptions. Hedge funds tend to need constant funding as lines of credit from various sources rollover.
Ironically, the ABS fund achieved such strong returns last year by betting against sub-prime mortgage securities - the root cause of the credit crunch.
The fund was invested in AAA asset-backed securities, primarily mortgage securities, which had suffered severe net asset value declines in the current market. Because the fund is a distressed seller, it is doubtful that much cash will be left for investors once the assets are disposed of.
A spokesman for the fund said: "They were very much the victims of the current credit crisis and have acted honourably."
Fintag says ...acted honourably? These people lied! They have put the good name of Hedge Funds to shame. I thought Bear Stearns were the lepers of the industry but no, we have some smart ass Goldman Sachs partners ripping out a huge performance fee before letting the fund blow up.
Yes, Peloton has nice offices, a huge cost base and a couple of 2007 EuroHedge awards (as we always say, like the Oscars, they are a death knell) but no-one expected this. It is truly shocking and it makes my blood boil.
The February Bloomberg Eurozone Retail Purchasing Managers' Index, an indicator based on a mid-month survey of economic conditions in the euro area retail sector that provides data one month ahead of government issued figures, indicated that month-on-month food and drink sales in the Eurozone retail sector increased for the first time since last September, while sales in clothing and footwear, pharmaceuticals, autos and fuel, and household goods declined. As a result of the rapid increase in the food and drink sector, the overall index rose to 52.4 in February vs. 48.1 in January, the sharpest rate of growth since April 2007.
Fintag says What do you do when inflation goes up? Put up interest rates. Wrong!
No wonder London is losing its way to New York (Northern Rock, Congestion Charge, SUV tax, Incompetent FSA, Hedge Fund farces, strong GBP, Housing costs exceed GDP of Tasmania ...).
Fannie Mae and Freddie Mac will be allowed to expand their roles in the turbulent mortgage market even as worsening conditions in the housing sector punish the two companies.
Fannie, the largest buyer and backer of U.S. home loans, said Wednesday it lost nearly $3.6 billion in the fourth quarter of 2007 amid mounting home-loan delinquencies and soured bets on interest rates. Freddie is expected Thursday to report a $1.5 billion fourth-quarter loss, according to Wall Street estimates.
Under a previous agreement with federal regulators, the timely filing of Fannie's and Freddie's financial results triggers the removal of an investment-portfolio cap placed in the aftermath of multibillion-dollar accounting scandals at the government-sponsored companies.
The explosive growth of European hedge funds came to a sudden halt last year as the impact of the credit crunch and volatile market conditions left the volume of new fund start-ups running at its lowest level for at least seven years.
The slowdown, which was particularly marked in the second half of the year, also hit the amount of assets that funds raised from investors, according to EuroHedge, a provider of data and information on the worldwide market for alternative assets.
This is the first time that the number of fund launches and the amount of capital raised have both fallen since EuroHedge began to compile records in 2000.
As well as underscoring the tough conditions in the investment markets, it could mark the beginning of a tailing off in an industry that has made multimillionaires out of a stream of star managers. Many of them left lucrative investment banking jobs in the City to start up on their own.
Fintag says Fishing? Blogging? Social Media? CNBC Presenter? Joining Second Life and learning how to climb onto the back of airplanes? Maybe a stint in Afghanistan? Or maybe I just hang in there and let this media storm just blow over?
Or do I turn back to my roots and become a Socialist again?
AIG - THE WORLD'S BIGGEST INSURER - TAKES $13.75 BILLION IN CHARGES AND WRITEDOWNS RELATED TO SUBPRIME AND CAPITAL LOSSES IN THE FOURTH QUARTER
AIG - American International Group Inc. - the world's biggest insurer - on Thursday reported a $5.3 billion fourth-quarter - the worst quarterly loss in the history of the company that was founded in 1919.
AIG took writedowns on derivatives tied to subprime mortgages, that fell in value by $11.12 billion, pretax, in the fourth quarter. There may be further "material" losses in the future, according to the company. A charge for capital losses of $2.63 billion was also booked in the quarter.
Included in both the full year and fourth quarter 2007 net income (loss) and adjusted net income (loss) were charges of approximately $11.47 billion pretax ($7.46 billion after tax) and $11.12 billion pretax ($7.23 billion after tax), respectively, for a net unrealized market valuation loss related to the AIG Financial Products Corp.(AIGFP) super senior credit default swap portfolio. AIG says it continues to believe that the unrealized market valuation losses on this super senior credit default swap portfolio are not indicative of the losses AIGFP may realize over time.
The financier who leads struggling retailer Sears Holdings Corp. hinted Thursday at a plan that would allow some of the chain's most popular and exclusive brands be sold at other stores.
In a public letter to investors, Chairman Edward Lampert said Sears may expand locations where household names such as Kenmore, Craftsman, and DieHard are sold outside of the company's Sears and Kmart stores.
''Our mission is to provide our customers with the products and services they want. And we need to be prepared to supply them where and when our customers want,'' Lampert wrote. ''... That may not be exclusively through our stores. Instead, it could be online, via catalog, or possibly even through other retail outlets.''
Fintag says And there are pundits who don't think we are in a recession yet ...
Rebel investors have seized two failed Bear Stearns hedge funds in a move their lawyers hope will give them a platform to sue the US bank for compensation.
A Cayman Islands court ejected liquidators appointed at the behest of Bear to run offshore feeder versions of Bear Stearns High-Grade Structured Credit and Enhanced Leverage funds, replacing them with investor-supported liquidators.
The move prepares the ground for the investors to try to win back some of the $1.6bn lost in the collapse of onshore and offshore Bear funds last July, the first high-profile victims of the subprime crisis.
James McCarroll, who represents the investors, said it was “the first major step, by any party, toward securing recovery of the more than $1bn lost by overseas institutional investors in these funds”. Mr McCarroll is co-head of the alternative investment dispute resolution group at New York law firm Reed Smith.
Fintag says Not sure what they will find in them, though.
Troubled leveraged funds are likely to sell almost $100bn worth of asset-backed bonds and financial company debt by the end of the year as they struggle to avoid defaulting on their own debt, according to analysts at Citigroup.
Sales of asset-backed securities, such as mortgage-backed bonds and collateralised debt obligations, have gathered pace in recent weeks, pushing prices down further and keeping the market shut for new issues.
However, selling pressure looks set to increase as structured investment vehicles (SIVs) face a wave of medium-term debt repayments over the next few months, with more than $10bn due in each of the next seven months, up from the $4bn that matured in February, according to Citigroup analysts.
“Just less than $100bn, or 65 per cent, of the existing medium-term note [MTN] debt is due to be repaid in 2008, leaving around $50bn of MTN outstanding at the end of the year,” Birgit Specht at Citigroup said. “This looks like a good proxy for both the magnitude and the pace of a potential wind-down this year.”
Fintag says I'm leveraged, get me out of here.
It has been like this for most of us, for the past 6 months. Rates maybe falling but nobody wants to lend you anything. Just in case you are a Peloton-in-waiting.
PRIVATE EQUITY HEAD HITS BACK AFTER ATTACK BY BUYOUT PIONEER MOULTON
The head of Britain's private equity association has hit back at criticism from the buyout pioneer Jon Moulton, calling for the industry to present a united front as it works to leave behind its "bad guy" image.
Simon Walker, the chief executive of the British Venture Capital Association, went on the attack yesterday against those who had publicly criticised private equity companies and the trade body itself. "There are enough enemies of capitalism attacking us without the occasional blast behind our ranks," he said.
Mr Walker warned that any such careless remarks could spark long-term repercussions: "Today's headlines or clever quote might be tomorrow's tax rise or extra piece of regulation."
The barbs, made in a speech on the last day of the industry's showpiece conference in Munich, were interpreted as a thinly veiled attack on Mr Moulton, the founder of Alchemy Partners.
Mr Moulton had delivered the opening address for the Super Return International conference on Tuesday. The industry grandee trained both barrels on what he called the "enemies" of private equity - from the media and trade unions to politicians and hedge funds - before launching a surprising attack on the BVCA.
He criticised the trade body for using "dodgy" statistics to paint private equity in a misleadingly positive light. "We shouldn't use flaky statistics to show an over-optimistic image," he said.
Fintag says Fighting pirates. Lovely.
RBS RAISES DIVIDEND BY 10% AS WRITEDOWNS COME IN AT £1.6BN
Sir Fred Goodwin hit back yesterday at analysts who accused Royal Bank of Scotland of having a capital shortfall as his bank announced a rise in profits and a dividend increase, despite bigger writedowns from the credit crisis.
The RBS chief executive also defended its acquisition of ABN Amro and said increased gains from the deal would help rebuild the bank's capital ratios faster than expected. Annual operating profits at Britain's second biggest bank rose by 9 per cent to £10.3bn and its full-year dividend was up by 10 per cent to 33.2p.
The bank's ratio of tier-one capital to risk-weighted assets was 7.3 per cent and its core tier-one ratio was 4.5 per cent - above the accepted minimum of 4 per cent and higher than many analysts predicted.
RBS's share price has been plagued by concerns that its depleted capital buffer against unexpected losses could force it to cut the dividend or raise cash from shareholders. Analysts had calculated that for RBS's equity tier-one ratio to match the average for European lenders it would have to launch a £12.5bn rights issue.
Fintag says I apologise. In the run up to these earnings I truly believed we would see a massive write off [Editor: 6bn wasn't it?]. It looks like their accountants have tucked them away for another few months.
London is losing its status as the world's leading financial centre and being overtaken by New York, according to a global survey of finance professionals.
The collapse of Northern Rock and the proposed tax crackdown on non-domiciled residents are making the UK less attractive to overseas businesses, according to the City of London Corporation, which commissioned the survey.
A separate survey, also commissioned by the City, said the UK tax system had lost its competitive edge over other financial centres. The UK had become increasingly unpredictable and uncertain, complex and unnecessarily aggressive in its approach to taxpayers, it found.
Thursday was the last day for submissions to the Treasury on the government's plans to charge non-doms £30,000 a year if they wanted their overseas income to remain outside the UK tax net after seven years' residence.
City leaders have already warned that the proposals, which include a crackdown on offshore trusts, will provoke an exodus of foreign investors and professionals who have contributed to its pre-eminence as a financial centre.
Fintag says New York:
Pluses: Fit women (and lots of them), decent Condos, cheap transport, GPS in taxis, its sooooo cheap, Pret everywhere, the Buddha Bar and Mike Bloomberg.
Minuses: Intimidating men who stand outside Abercrombie & Fitch; the smell of walnut flavor coffee; Turkish music blaring on every street corner; too many European tourists; I don't live there.
Many leading private equity firms are raising tens of billions of dollars for new funds in spite of declining returns on old deals and growing difficulties in making additional acquisitions.
The amounts being raised are comparable to the fundraising efforts at the peak of the private equity boom in 2006 and early 2007 and suggest ample liquidity remains in the financial system in spite of the market turmoil.
While pension funds have scaled back their contributions to private equity firms in the face of market setbacks, investors say, sovereign wealth funds have become relatively more important investors in the sector.
Fintag says Well that has really made my day. Now where is that Prozac?
[Note to email subscribers: Sorry for the shockingly poor typo and grammar error rate in today's mail shot. It will happen again. Finbar.]
4 comments
anonymous said ...
Eurohedge awards. Everyones a winner - except the investors
29 Feb 08 - 09:00 gmt
anonymous said ...
In his feb 11 Barron's interview Jeremy Grantham said Private equity is mistaken thinking they can improve profit margins with buyouts; profit margins have been inflated by liquidity and will go back to normal or below. That whole interview seemed genius until I heard on TV that Grantham has been bearish on USA for 10 years
29 Feb 08 - 14:09 gmt
anonymous said ...
If UBS think there is another $600 billion subprime then that means UBS has negative assets.
29 Feb 08 - 14:23 gmt
anonymous said ...
Michael Sesit at Bloomberg says as MBIA's credit rating was maintained at AAA, default swaps on MBIA debt just rose 106 pts to 705, so it now costs $705,000 to insure $10mil in MBI bonds vs 137 for GE bonds AAA same maturity....implying 45% chance of MBI default in 5 years.
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