Category Archives: GDOW
Huffington Post broke us this one, Thanks James, Adrinana! Huff!
Add someone in Hongkong who writes a default swap for them ( insurance, in case of default, maybe the local Nankiang units can diversify :) ) and you have another perfect crisis, for the Chinese to fund this time. And they’ve defaulted on quite a few contracts themselves! ( commodities, October 2009)
Citi taught us to use Off Balance sheet financing
Banks are moving loans off their balance sheets in order to dress up their accounts for worried regulators.Only this time it isnt Citigroup C or State Street SST thats involved, but Chinas big banks.In November Chinas banks packaged and then sold $18.6 billion in loans to Chinese trust companies, removing those loans from the banks balance sheets, Shanghai Benefit Investment Consulting has told the Wall Street Journal. Thats a huge 54% of all the new loans banks made in the month according to government figures. For the year the total of loans packaged and sold by banks comes to almost $90 billion.The repackaging and sales come as Beijings bank regulators have started to worry that the countrys banks dont have enough capital to back all the loans theyve made in 2009. So far in 2009 Chinas banks have made more than $1 trillion in new loans, according to government figures. Regulators have begun to press banks to raise more capital to buttress their balance sheets.By selling the loans to trust companies, banks take them off their balance sheets. That has the effect of reducing the amount of loans that the banks look like they have made. That in turn reduces the amount of capital it looks like they need to raise to support these loans via James Jubak: Chinas Banks Copy Citigroup in Hiding Bad Loans Off Their Balance Sheets.
Everyone is in Oil these days and with Dubai coming back off the cliff, China bankrolling African dreams, Indian energy corps going global and Russia waiting to come back from a contraction and Gazprom thru Europe without Ukraine, that is the light at the end of the tunnel. Though a lot of people have talked about it, a market for carbon credits has just taken off this year, Copenhagen may likely have an agreement and time is ripe for the right people to get into energy funds. Who better than the Governments and the World Bank…Great news to hear. Maybe some will bankroll ethanol the right way too! It’s a great collection of baubles from the O’nomics back team to clear out the Christmas tree. Rassmussen reports will love Obama and the markets will love this new Sheikh out of Texas and the sands.
The United States pledged on Monday to contribute $85 million to a $350 million multinational fund aimed at speeding up renewable energy and energy efficiency technologies in poor countries. U.S. Energy Secretary Steven Chu also announced a high-level meeting will be held in Washington next year of major developed countries energy ministers to discuss global deployment of clean energy technology. Chu made the announcements on the sidelines of a Dec. 7-18 international climate conference in Copenhagen. The talks temporarily stalled on Monday when African countries walked out, accusing rich countries of trying to kill the U.N. Kyoto Protocol which set targets for emissions cuts by most industrialised countries. Projects which the fund will support include a plan to speed affordable solar-generated lighting systems and LED lanterns to those without access to electricity. Chu said the devices would eliminate air pollution from indoor kerosene lamps that he said contributes to 1.6 million deaths per year in poor countries. Other facets of the programme are the encouragement of more energy-efficient appliances in developing countries and rich country information-sharing of clean energy technologies. The White House said the financing would enhance a World Bank strategic climate fund that helps poor countries develop national renewable energy plans. Italy, Australia, Britain, the Netherlands, Norway and Switzerland also are participating and already have promised funds.
The new reforms
OTC derivative are a $450 trillion industry and after the reforms are passed, the only knowledge public would be where one of the biggies is on at least one side of the transaction. No banker is basing his price on your swaps to what the other bank did..they are but only to probably engage you with themselves next time ( and that is not shopping for discounts as you would either)
Everyone is still paying the bankers more and then you find the price on record for only the bigger deals as the registered biggies typically will have a minimum ticket size to waste their resources on. Also, these regulations are myopic in that the dealmakers and advisors are able to buy/sell insurance against/for the deal in a matter of minutes after each such deal. None of Goldman Sachs or AIG are anyways paying for the deal. I do not want to sound negative but you must know the facts and during its passage in the Senate thru 2010 you just might.
What Hank Palson started and what Lehman’s Fuld would claim now, would come back uglier and bigger next time. When the Oversight Council points out to another Bear next time, the counterparties of that Bear will hold significant mileage as that drama unfolds. In a market there are two parties to each deal, and here there are many inter-connected deals that can solve or create the problem, to put it simply and then when an Oversight council meets a Greenberg will come up and demand his way for knowing how the Council works.
MANAGING SYSTEMIC RISK
* Establishes inter-agency Financial Services Oversight Council, with staff and funding, chaired by Treasury secretary
* Council can tighten regulatory screws on firms that are in distress or judged to pose a threat to financial stability
* Council members include Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Deposit Insurance Corp, other bank supervisors
* Firms’ debt-to-equity ratio can be capped at 15-to-1, credit exposure to unaffiliated companies limited to 25 percent of capital stock, among balance-sheet strengthening steps
* Firms can be ordered to hold contingent capital, or long-term hybrid debt convertible to equity in emergencies
* In extreme cases, firms can be ordered to restructure, restrict executive pay, sell businesses, or otherwise break up
* Treasury secretary must approve order to divest more than $10 billion in assets; president, more than $100 billion
* Risky firms must undergo annual “stress tests” and submit “living wills” on how firms could be unwound quickly
* For first time, Federal Reserve monetary policy subjected to audits by congressional watchdog
SENATE OUTLOOK: Senate bill proposes stronger inter-agency council, smaller role for Federal Reserve in managing risks
DEALING WITH TROUBLED FIRMS
* In emergencies, FDIC can back debts of solvent firms, up to $500 billion, drawing on Treasury borrowings, fees to firms
* FDIC can liquidate insolvent firms through bankruptcy or orderly receivership, like FDIC now dismantles failing banks
* Fully secured creditors in FDIC dissolutions can have up to 10 percent of their claims treated as unsecured claims
* “Systemic dissolution fund” of $200 billion helps pay for FDIC actions, drawn from fees charged to firms with more than $50 billion in assets, and Treasury borrowings
* Fees paid by banks into FDIC’s existing Deposit Insurance Fund become risk-based, cutting small banks’ fee burden
* In financial emergencies, Fed can extend loans to a wide variety of businesses up to a total of $4 trillion
SENATE OUTLOOK: Senate bill proposes paying for dissolutions of troubled firms after the fact
SUPERVISING BANKS, SECURITIZERS
* Office of Thrift Supervision abolished and its operations merged into Office of Comptroller of the Currency
* Lenders must retain 5 percent of credit risk of loans securitized for sale onto secondary debt market
SENATE OUTLOOK: Senate bill proposes more radical bank supervisor centralization, similar securitization reform
REGULATING OTC DERIVATIVES
* Over-the-counter derivatives go through clearing and exchanges or equivalent facilities where possible
* Swaps not cleared centrally must be reported to swap repository or to regulators
* “End users” of swaps, such as airlines and agribusinesses, can be exempted from central clearing
* Regulators can set position limits on swap trading and on security-based and commodity-based derivatives
* Financial firm clearinghouse stakes capped at 20 percent
SENATE OUTLOOK: Senate has competing bills, main bill has narrower end user exemptions than House
However, the basics look fine with a cap of Debt Equity of 15-1, making everyone a scheduled bank ( earlier), asking for provisions of contingent capital, and getting the Fed reserve a more focussed role rather than everything. “Stress Tests” and “Living Wills ” have already been around, the top global banks share these within the bank and whether they will ever be made public for their impact is a matter of conjecture. Especially as it might not be prudent to discuss risk policies threadbare in the public domain and as always, you would need to provide the banks to cnduct their businessuniquely per their positioning with their clients.
Solvent debt contracts can be saved by FDIC probably even today. The $500 billion tab helps them discover the FDIC address a little sooner, but unlikely it will happen the weekend they are still solvent. Doesn’t work like that when you have to eject from a jet fighter on fire, never. Some respite for secured creditors, that should have just brought down
PROTECTING INVESTORS, CURBING PAY
* SEC standards for brokers and investment advisers harmonized, mandatory investor-broker arbitration curbed
* SEC’s budget doubles, enforcement powers strengthen
* Investors get annual, nonbinding votes on executive pay, while pay plans encouraging excessive risk can be prohibited
Managing performance pay is going to be a herculean effort for the new Oversight Council, in its mandatorily advisory role, but the CFPRA from Dodd is a clear winner…Retail Banking ( Cards, Loans and Mortgages ) is something easy to tackle and where America would be watching it everyday and if that itself turns around this bill would have brought US back to the rails.
CREATING CONSUMER WATCHDOG
* Consumer Financial Protection Agency (CFPA) created to regulate mortgages, credit cards, other financial products
* Fed, other existing agencies stripped of consumer protection duties, which would go to CFPA
* Exempted from CFPA oversight are auto dealers, retailers, accountants, tax preparers, real estate agents
* States can have tougher rules than CFPA, but federal regulators can block state laws in some circumstances
* Banks with less than $10 billion in assets need not have full-scale CFPA exams, but must follow agency’s rules
The above, along with measures in the CARD bill however will face significant opposition from Moneycenter banks. The regulators will have to cap interest rates further and also tackle the Bankers’ flights of fancy with overdraft charges that have been hiked recently and interest rates on credit cards that have been hiked recently.. once the profits are in, more focussed regulatory action is plausible against the rampant malpractice
Last but not the least, getting Hedge Funds, Credit rating agencies and regulators would be even tougher now, and this start could not have gone any further at this point either. It’s anyone’s guess where that might lead us and the only way to find out would be to let them come out and show what they would be playing. the Oversight committees and other regulators will have to sit in on the verdict till 2012
REGULATING HEDGE FUNDS, CREDIT RATING AGENCIES
* Hedge funds, private equity firms, offshore funds must register with SEC, while venture capital firms and funds with less than $150 million in assets exempted
* SEC gets new oversight over credit rating agencies, which exposed to more investor lawsuits
* Federal Insurance Office (FIO) set up to monitor insurance industry for first time, but not regulate it
* FIO cannot preempt state insurance laws except in limited circumstances, preserving state-level regulation
This regulation package is not going to work unless America wants it to work. And asking A service firm to not pay its employees from profits is unlikely to work after some time. But it has to be done over the next 2-3 years, this regulation itself may just be political fodder for 2010 from here. We bankers are the ones that know the products, the risk and the profits. And we are all in it together.
A special thanks to Kevin Drawbaugh and Leslie Adler for putting together the bill summary. Must have been a horrible weekend.
Banking regulation in India and China might influence global regulation more as bankers retract from multi tiered deals later on, but as of now it is the US example that is the important one for Europe and rest of the sinking world to fathom. European regulation has always been seemingly faster, higher and stronger on risk regulation but to no avail. Even the terms of the Competition commission in dealing with the monopolistic markets from new consolidation are a little touch and go and european banks in particular have more pain to follow as they stick to their ‘specially created isolated time warp’ for regulatory reporting and accounting that neither follows the US model nor shows any signs of resilience or realism.
Goldman Sachs’ earlier bonus component that averaged $700,000 per employee for this year is likely to be drastically revised. Initial reports suggested a 5 year stock purchase plan but the exact structuring is likely to throw up even more surprises as the government makes agreeing noises to the new compensation plan. France joined Britain in imposing a supertax, but the supertax by itself is unlikely to refund governments that are out of pocket..Immediate target for govt. failures and restructuring Portugal, Italy, Ireland, Greece and Spain. Italy and Ireland are yet to get notice from S&P or Fitch ratings divisions for the country debt/risk downgrade.
Also, the Commercial RE cost is likely to rack up over $225 billion and the US stimulus funds are likely to attempt more foreclosure finance having achieved only 4% till date. These may not affect bonuses but are likely to keep the government from allowing all its ‘equity’ in Citi, BofA and others to be paid off.
However, this partnership between governments and banks is also likely to bear some fruit in the tight infrastructure financing space despite the step up from private equity and ETFs
Bowing to calls for restraint in tough economic times, Goldman said that its most senior executives would forgo cash bonuses this year. Instead, the 30 executives will be paid in the form of long-term stock — an arrangement that means they will not get big year-end paydays, but one that could turn out to be enormously lucrative if Goldman’s share price rises over time.
The move is meant to address concerns that bankers and traders in the past benefited from short-term performance. The shift at Goldman locks up the executives’ rewards for five years and enables Goldman to claw back the bonuses in the event the bank’s business sours.
Goldman did not say how much it would pay the executives, suggesting the bank would continue a practice — widely followed in investment banking — of allocating roughly half its annual revenue for compensation. While their bonuses will be paid in long-term stock, the payouts are likely to be worth many millions of dollars.
zyakaira notes: A year end reminder of the fraility and the secrets in the financial markets, such a momentous happening may easily pass us by in the bankruptcies of California and Arizona, The Sale of emerging market stakes by BankAm, Loss of Merrill etc but is equally important. These are fundamental pillars of the fixed income markets that are probably 5-6 times the Equities markets and these are denizens as guilty as Bernie Madoff walking away with a warning
TCW, owned by SocGen of France bought Metropolitan West in a “behind the curtains” deal
Enter Metropolitan West. Buying the crosstown rival gives TCW a solid answer to institutional and retail investors who would otherwise exit along with Gundlach, Jacobson said. Met West’s flagship bond fund, the $7.4 billion Metropolitan West Total Return MWTRX 9.90, , is highly regarded and rates as one of Morningstar’s favorite bond offerings.
Los Angeles-based TCW, owned by Frances Societe Generale FR:GLE, said Chief Investment Officer Jeffrey Gundlach, one of the nations top bond-fund managers, was “relieved of his duties” as part of management changes accompanying the deal, the purchase price of which was not disclosed.Gundlach was also removed from TCWs board of directors, the firm added.”TCW deeply regrets the need to take this action,” TCW said in a statement.Erin Freeman, a spokeswoman for TCW, declined to comment on why Gundlach was ousted.Behind the scenes move Gundlachs ouster appears to be due to corporate politics rather than problems with the fund managers performance, said Eric Jacobson, director of fixed-income research at investment researcher Morningstar Inc.Jacobson said TCW has been seeking “strategic alternatives,” widely assumed to include a private-equity buyout or selling to another asset manager. Statements that Gundlach had made publicly evidently suggested that he might not be on board with such a move, and the possibility that Gundlach might leave the firm at such a critical juncture spurred TCW to act preemptively, Jacobson added.”They just decided that if they werent really careful he was going to surprise them by leaving,” Jacobson said of TCW. The departure of someone so influential and well-known among bond investors could have been catastrophic for the firm, he added.
GE has finally got itself a new doorstop with Vivendi agreeing to sell out 20% in NBC Universal for $5.8 billion (MarketWatch story)
Now one only needs to wait for Comcast to get in and bid for NBC and then it will be up to regulators to allow the new largest media company in the US to be formed from the merger of NBC and Comcast. The regulators will unlikely approve the deal before the last quarter of 2010
With this deal, NBC can put behind the networks’ advanced revenue deals and other skullduggery that caught AOL Time WArner and NBC itself repeatedly on the wrong foot during the past 10 years.
Also turning over a new leaf is hedge fund Citadel, stepping into a large underwriting deal for Hi Tech AMD’s $5 billion bond issue..What can now happen easily is that a Citadel can easily create a competitive deal environment for such media players as Comcast or telcos as AT&T when Apple and Amazon lead the next decade of innovation of media & retail while governments strike at infrastructure gaps and JP Morgan cements itself on the other continent, Europe with the purchase of another 50% of Cazenove.
The CFPRA of Chris Dodd is of course also going to pay a key role but it is this redefinition of the marketspaces that can create sustenance for the Financial markets and leave behind dscussions of unpaid insurance and empty pockets, without giving Maurice Greenbergs the easy time we did in 2008. Of course, with the deed done, Buffet is having an easy time too..but then some will get away basis a good record :) and no one has ever beaten JP Morgan and Goldman Sachs and GE will do well to remember that. It’s definitely not theirs to buy CNN and Viacom next!!
Also see our early lead on GE and NBC here
The French BNP and the Barclays’ have definitely come out on top post-crisis and given parochial attitudes in both nations, their governments are likely to plan making heavy weather on the bad financial markets industry..but I wouldn’t say these repayments signify any better practices on the part of these wannabe practitioners on the global horizon, but rather the fact that they were bystanders during the banking explosion of the last decade.
They do maintain a continued conservative stance which will come in useful, but given the history of the markets..they are much more likely to be the source of the next big black hole in a few days (years) maybe. However, with Citi planning to get out of government stakes as well, this could really absorb the prior decades’ sentiments some more and yet faster..leaving us with a blank slate in which to regulate our childrens’ future.
Coming back to the French, they do not have the depth in their markets to fund expansion and their global diaspora in terms of expansion by SocGen and BNP hardly enough to give them currency to support their non US pro Iran , pro Russia stance. They could however be the closest Euro member state for the new nations in East Europe that have been trying to get a piece of the global economics in this last decade as also they could substantially support some African nations. Being pragmatic however, they are likely to discover faster that they really do not want significant exposure in these markets
BNP recently paid $19.8 billion for Fortis (October 2008) and has therefore significantly completed its footprint in West Europe while SocGen has been active in Asia ( Offshore from Singapore, JVs with SBI in India)
China has had a long history with European Banks with the Deutsche Asiatique Bank, British Belgian Industrial Bank of China and the Sino Belgian Bank which issued Taels (North Asian currency) during Siberian-Japanese-Chinese trade ‘wars’ of the late 19th century but has never been remunerative for Foreign bank ( Comparitively with India, Chinese have very few branches and investment assets in Foreign banks)
However, as of March 2009 Bank of china had already purchased 20% in the Paris based Banque de Rothschild and with BNP out of government indebtedness, its reasons for going into China would be more mercantile than ever.
BNP Paribas, the largest French bank, said on Tuesday that it would raise €4.3 billion from investors to repay government bailout funds, The New York Times’s David Jolly and Chris V. Nicholson reported.
BNP Paribas, based in Paris, said its board had decided to repay, within the next month, the €5.1 billion, or $7.5 billion, it borrowed from the state March 31. The government would also receive a payout of €226 million on the nonvoting preferred shares it purchased.
Baudouin Prot, BNP Paribas’s chief executive, said in a conference call that the G20 meeting in last week in Pittsburgh, where world leaders agreed in principle that banks should raise more capital, had influenced the timing of BNP’s decision to issue shares, as had the lender’s share price, which is up more than 92 percent this year.
Christophe Nijdem, a banking analyst at Alphavalue in Paris, called the stock issue’s timing “judicious.”
“They had a window of opportunity,” he said. “A lot of banks will turn to the market in the months to come, and it’s first come, first serve.”
Mr. Nijdem added that, compared to American banks, European banks were more leveraged, and had to play catch up. Major Western banks are forecast to post losses of almost $2.5 trillion for the period 2007-2010, according to the International Monetary Fund.
zyakaira notes: Just more old wine..I just prefer all markets on ECNs with afterhours trading..you mean they need a platform to sit and match trades internally before going to market! UGGGHH!
BlackRock, the asset manager poised to become the world’s largest money manager with $3,000bn under management, is preparing to create its own global trading platform – a move that could challenge the business at the heart of many Wall Street groups.
BlackRock plans to develop a “new world-class global trading platform across the firm”, according to an internal memo seen by The Financial Times. It has appointed Minder Cheng, who is joining BlackRock as part of its acquisition of Barclays Global Investors, to oversee its development.
The platform will “fully realise the cost efficiencies and trading opportunities across all asset classes as we become one of the largest trading operations in the world”, the memo states.
Once BlackRock’s acquisition of BGI is completed sometime in December, the group will have about $3,000bn in assets under management.
The plan is still in its early stages, but its outlines are already clear. If some BlackRock clients are selling a security and others are buying, the group can “cross” those trades internally without going through Wall Street. BlackRock does not intend to take any fees for this service, since the whole point is to save its clients money, according to people familiar with the plan.
“Why pay such a large bid-offer spread?” another person familiar with the plan said, referring to the price gap between buyers and sellers. “The large volume gives BlackRock the opportunity to bundle trades.”
The plan will probably be first introduced for trading in stocks, where pricing is more transparent than in fixed income.
BlackRock executives have insisted that their plan is not meant to marginalise Wall Street, adding that the firm will still depend on banks to provide liquidity. But the new platform does serve as a sign that the buy side is increasingly flexing its muscles when it comes to paying fees to trade securities that often have very small margins and rely on large volumes to achieve profitability.
The high costs of developing new technology have hindered other attempts to develop such platforms. But BlackRock Solutions has been a pioneer in developing technology, which generally has been the province of the sell side. But now that is no longer an obstacle, these people add.
zyakaira notes: The Taiwan Life unit: The recent laundry list of asset sales planned by AIG see here continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad..
Bloomberg reports that Morgan Stanley’s (NYSE:MS) private equity fund pulled out of the bidding group Chinatrust Financial Holding Co. is leading. So is Chinatrust still in the bidding?
The sale of the unit is expected to bring in about $2 billion, but it could have trouble hitting that price target as the unit is under as much financial pressure as its parent. Nan Shan was forced to raise $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement as unprofitable policies eroded its reserves.
So who else is in the bidding for the unit?
Carlyle Group, which joined Fubon Financial Holding Co.
Cathay Financial Holding Co.
China Strategic Holdings Ltd. may have joined Primus Financial Holdings Ltd.
Binding offers are due for submission on Aug. 28, according to the reports. – Maria Woehr
AIG will soon be a domestic insurer if the planned three way split comes through to let the company return Federal funds as it has already spun off its International insurer AIA. In related news, all top four investment bankers are involved in this break up and sale of AIG. The current scrip (closing at $22.53 yesterday) is the result of a reverse split of 1:20 preventing a penny stock tag for a stock that was ‘once the pride of the nation’. AIG also does not have a very clear corp governance record till date, making short term arrangements with Liddy and Greenberg both regularly answering charges and stepping out
In June 2009, Revenue jumped 48% to $29.53 billion.
Operating income at AIG’s general-insurance business dropped 19% on a decline in underwriting profit, while net premiums written fell the same amount. Combined ratio, or the portion of premiums paid out on claims and expenses, rose six percentage points to 98.2%.(precarious, the true income stream as it may not dabble in other income enhancing trades now)
Meanwhile, the life-insurance and retirement-services segment’s loss narrowed sharply as the company said it had a difficult but improving operating environment. The investment assets as of Q1(Mar 2009) amounted to $560 billion and even a 10% loss on these largely policy liabilities, could wipe off the company
AIG now reports a profit of $2.57 per share at $4.57 billion, taking Equity up to $58 billion
On Monday, Robert Benmosche, the former chairman and chief executive of MetLife Inc. (MET), will step in as AIG’s new chief executive, and new director Harvey Golub, formerly chief executive of American Express Co. (AXP), takes over as non-executive chairman. Edward Liddy, who took both roles in September after AIG’s first bailout, will step down.
AIG’s maximum risk on a separate book of swaps sold to European banks narrowed to $177.5 billion as of June 30, compared with $192.6 billion at the end of March. The insurer said in June that declines in the value of assets tied to the swaps could have a “material adverse effect” on results and that the risk of losses on the derivatives may last “longer than anticipated.”
This risk can still wipe out equity in the next 4 quarters unless the bad assets are separated from the conglomerate. It also has had initial hiccups in selling off its Asian businesses though it will complete a couple of sales in Taiwan life insurance in the next few days The Government holds $8 billion equity in the newly formed AIA
The average weighted length of the swaps protecting residential loans is more than 24 years, while the span tied to corporate loans is about 7 years, the company said.
The government’s rescue includes a $60 billion credit line, $52.5 billion to buy mortgage-linked assets owned or insured by the company, and a Treasury investment of as much as $70 billion. AIG agreed to turn over a stake of almost 80 percent as part of the initial bailout, diluting private shareholders.
AIG – which is 80% owned by the U.S. government following its rescue of the company last September – posted income of $1.82 billion, or $2.30 a share, compared with a year-earlier loss of $5.36 billion, or $41.13 a share. Excluding capital losses and other items, earnings were $2.57 a share, compared with a prior-year loss of $10.15 a share.
Data courtesy Bloomberg, WSJ and other results announcements