Bonds

Regulators should bar bond insurers from structured finance

22 Jan 2008

Forcing them to focus on muni bond business is better than bailing them out. It would make underwriters and ratings agencies take more blame for their loss estimates on structured products. And it would allow investors to get a better handle on the insurers true prospects.

Bond insurers face a grim future

16 Jan 2008

Ambac s huge loss has further eroded the sector s credibility, just when it needs investors to pony up more capital. The bond insurance business is besieged on many fronts. If it survives, it will be a shadow of its former self.

Banks should come clean about CDOs

16 Jan 2008

CDO disclosure: after more than $130bn of subprimerelated writedowns, banks still expect investors to accept on faith their valuations of toxic CDO positions. Financial institutions could take several steps to add more clarity. Antony Currie and Jeff Goldfarb explain.

Hung LBO loans no longer matter

14 Jan 2008

Despite difficulties offloading these deals, they don t pose much of a threat any more. A lot of deals have been cancelled and banks will probably sell the remainder without taking huge hits. That may be little solace though, as their other business lines are souring.

Is Capital One the canary in the consumer credit mine?

10 Jan 2008

The credit card and car loans giant has slashed its 2007 profits estimate by 20% because of rising loan defaults. Its business model should protect it from becoming the next Countrywide. But it still bodes ill for the US economy.

UK credit squeeze has started: official

3 Jan 2008

A Bank of England survey shows how dramatically UK banks mood has changed. Harsh months lie ahead as lending to corporates and households is cut. The BoE will try to respond with more rate cuts but, for now, financial winter has the upper hand.

Borrowers face high costs reworking debt to avoid default

3 Jan 2008

Lenders are demanding that companies needing to restructure loans pay nearly three times the fees they did back in June, as well as a lot more interest. Squeezing iffy borrowers could push them over the brink. But lenders have good reasons to do so anyway.

Buffett’s late-year deals could be just the beginning

31 Dec 2007

The Sage of Omaha s move to start a bond insurer is just the latest example of Berkshire Hathaway s strength amid disarray elsewhere in the financial sector. This and other deals announced by Buffett over the holidays could be just a taste of things to come in 2008.

How good a deal are SWFs getting for bailing out Wall St?

20 Dec 2007

That critically depends on whether the likes of Citigroup and Morgan Stanley are going to cut their dividends. If one assumes they won't, the Arabs and Asians are only getting soso deals. But if the banks slash their payouts, the sovereign wealth funds have scored bargains.

Treasury yields much too low for comfort

17 Dec 2007

Banks have been flocking to US government paper for an illogical technical reason they help counter regulatory damage from the liquidity squeeze. But that won t last forever. Bonds eventually have to yield more, not less, than inflation. That suggests something more like 6%.

Citi’s new boss pulls rug on super-SIV

14 Dec 2007

Vikram Pandit has wasted no time reversing the bank s earlier stance on SIVs, bailing out $49bn of assets. True, his hand was largely forced by European banks and rating agencies. But Pandit's bold move only adds to his strategic challenges.

Fannie Mae and Freddie Mac should be privatised

12 Dec 2007

The US mortgage giants have outlived their public usefulness. They ve also proved themselves no more prudent than competitivelydisadvantaged freemarket rivals. Their subsidies should go, and they should be left to live or die on level terms with other financial institutions.

Hedge funds face financing squeeze in 2008

12 Dec 2007

Most hedge funds managed to survive the credit crunch in 2007 in reasonable shape. But next year will be much tougher as prime brokers scale back cheap funding. The answer is to secure longerterm financing but for many it may already be too late.

A really useful mortgage bailout toll-free number

6 Dec 2007

The Bush administration thinks some 1.2m adjustablerate mortgage holders could be helped by its new plan to freeze teaser rates for five years. But all those borrowers may swamp its tollfree phone counselling service. Here s a proposal to automate it and speed things along.

Which buyout is most at risk?

4 Dec 2007

The bankruptcies of Revco and Federated heralded the end of the 1980s buyout boom. Which of today s monster LBOs will be first to succumb? One hint the guy who bailed out Revco two decades ago is backing today s biggest potential timebomb.

Paulson’s subprime bailout faces long odds

30 Nov 2007

His new scheme to head off defaults on resetting adjustable rate subprime mortgages makes more sense than his SuperSIV project. That only addressed a symptom of the mess; the new effort tackles a cause. But it s far more complex than the SIV bailout and faces longer odds.

Rating agencies’ shield against lawsuits has holes

13 Nov 2007

US courts have often accorded credit ratings constitutional protection as free speech. But this muchtouted barrier to litigation could be permeable and all the more so because the most recent CDOinduced credit mess is anything but massmarket.

The worst-timed financial product launch ever?

9 Nov 2007

Bonds backed by reverse mortgages are certainly in the running for that title. After all, they depend on home prices, and on confidence in rating agencies, appraisers and Wall Street. And they ve got mortgage in the name. That s five big nails in the coffin.

Negative convexity magnifies subprime losses

8 Nov 2007

No, it s not a flaw in bankers eyeglasses. It's part of the reason Morgan Stanley says it lost $3.7bn on a mortgage bet despite correctly betting prices would fall. Negative convexity can help turn a modest flaw in a trader's assumptions into a whopping loss.

Have banks got the joke about SuperSIV?

8 Nov 2007

The belief that the fund s just a way to bail rivals out of a mess seems to have made many reluctant to support it. But a firesale of SIV assets could dump some $150bn of bank debt on the market. That would be painful for everyone.