Bonds

Auction-rate securities’ big innovation: everyone loses

13 Feb 2008

When most investments blow up, it s the buyer that suffers. Auction rate notes are an unwelcome innovation. They hurt issuers too. After performing pretty well for two decades, Wall Street s liquidity vacuum has exposed this $330bn market s Achilles' heel.

Buffett offers monolines an $800bn poisoned chalice

12 Feb 2008

The Sage of Omaha offered to reinsure twothirds of their muni exposures. Sound like a bailout? Well, no it would probably put them out of business. He d get all their safe bets, leaving them with toxic structured finance risk. His own new monoline would be the big winner.

Are battered LBO loans a buy?

11 Feb 2008

Highrisk loans are trading at 86 cents on the dollar. Sure, lenders are worried about defaults. But part of the discount is driven by market technicals mainly liquidity. And many recent LBOs don t have to refinance their debt for years. Longerterm, they may be attractive.

MBIA’s $1bn issue shows monoline rescue is unnecessary

8 Feb 2008

The bond insurer's stock issue takes the capital it has raised in recent months to $2.5bn. That shows some monolines can access capital without regulators help. Sure, a lot of challenges remain for the industry. But MBIA s fundraisings undermine the rationale for a bailout.

Happy birthday, credit crunch

7 Feb 2008

It s the first anniversary of HSBC and New Century revealing mounting problems with subprime loans. Once thought containable, the US s mortgage woes were instead the catalyst for bursting the broader leveraged credit bubble. So far, only more confusion seems to lie ahead.

S&P tries to rebuild confidence – and profits

7 Feb 2008

The rating agency s latest governance proposals are helpful. But the public service spin invites scepticism. It s largely about money: structured finance revenues at rival Moody s tumbled 40% last quarter. The problem for investors is that raters still aren t really accountable.

$50tr credit default swap market awaits crash-testing

5 Feb 2008

The overthecounter market for credit protection has weathered a few squalls. Banks trading infrastructure has improved, too. But exponential growth has been accompanied by a scarcity of company defaults. If a real bankruptcy storm builds, there s still room for worry.

Moody’s considers new bolts for stable doors

5 Feb 2008

The rating agency is asking whether it should differentiate structured finance ratings from its more traditional assessments. It s an idea whose time should have come years ago. Still, better late than never and there are a few options beyond the five ideas offered by Moody s.

Mini-me monoline puts sector’s woes in sharp relief

5 Feb 2008

Primus says it s not a bond insurer. But it sure looks a lot like one. Like them, it just reported a big marktomarket loss on its credit insurance portfolio. Since it doesn t insure muni bonds, its problems provide unalloyed insight into monolines structured credit dilemmas.

Egg on many faces as UK credit tightens

4 Feb 2008

Citigroup s UK internet bank has shown how not to cut off customers. Rivals should not follow its example. Banks have quadrupled credit card lending in a decade. They should retreat judiciously. Reputation, client relations and the economy are all at risk.

Wary banks undercut Bernanke’s credit push

4 Feb 2008

The US Fed chairman has pumped cash into Wall Street. But banks have cut back on real estate and commercial lending nonetheless. It makes sense for them to raise standards and charge more interest. But their dwindling risk appetite bodes ill for attempts to boost the economy.

Fear and loathing and lost wages

1 Feb 2008

The American Securitisation Forum s hordes gather in Las Vegas this week. The subprime mortgage and CDO debacle has left them bruised. But it s not all bad other securitisation markets are still open for business.

MBIA takes one step forward, two steps back

31 Jan 2008

The bond insurer moved fast in recent months and raised $1.5bn in new capital. Its competitors missed that opportunity. But MBIA s $2.3bn loss puts it in the same boat as its rivals. Scraping together more capital now will be tough. And it s unclear how much it really needs.

Deutsche may pay for succumbing to real estate froth

31 Jan 2008

The bank lent $5.8bn to real estate mogul Harry Macklowe. Now he can't repay the loans so Deutsche is stuck with seven office buildings. Sure, the deal was cut at the top of a frothy market, but the bank should have understood the risks. Deutsche could be facing a big loss.

UBS’s third warning creates more questions than answers

30 Jan 2008

By putting a number SFr4.4bn on its 2007 loss, the Swiss bank has ended one guessing game. But the size of the number has kicked off some others. One is why the loss is about SFr4bn more than analysts expected. Another is how long boss Marcel Ospel can hang on.

Bernanke’s risk management is fraught with risk

30 Jan 2008

The Fed chief thinks the central bank needs to cut rates fast and decisively when outsized market turmoil threatens to hurt the real economy. But this assumes the Fed will raise rates when the threat recedes. That flies in the face of history and market psychology.

What bank CEOs should know

29 Jan 2008

Wall Street was hammered by repackaged subprime mortgages. SocGen took a hit on equity futures. Modern finance is about taking risk through complex instruments. Bank CEOs need to understand these products, but many don t. Here s a starter kit of questions for shareholders to ask.

Wall Street’s murky assets shed some light

29 Jan 2008

Whether toxic or just hard to value, investment banks' level 3 holdings are revealing. Lehman and Morgan Stanley putting commercial property assets in the hardtovalue bin could be worrisome. Goldman Sachs, on the other hand, has already been snapping up distressed mortgages.

Bond insurer bailout will – and should – fail

24 Jan 2008

A regulator s plan to get banks to stump up capital to support the flagging monoline insurers is fraught with problems. And there are good reasons it should fail. Chief among them is it would repel others from entering the market and providing insurance at sensible rates.

Buyout debt malaise bad news for LBO equity

23 Jan 2008

It s difficult to value buyout firms equity stakes. But the declining price of LBO debt hints at malaise in equity values too. Unless they re forced to sell, buyout shops can hope for a rebound. But credit markets appear to have little faith in their businessbuilding skills.