Bonds

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.

Why super senior doesn’t always mean super safe

6 Nov 2007

Citigroup yesterday tried to reassure investors with the disclosure that the bulk of its US mortgage exposures are to super senior tranches of ABS CDOs. On its own, this statement offers no comfort at all. It all depends on what bonds the structures are referencing.

UK credit system looks unsound

25 Oct 2007

In its Financial Stability Report the Bank of England warns the credit crunch may not be over. Let s hope it s wrong. The UK has hardly been tested and yet has failed, almost allowing a bank with apparently sound assets to fail. But what if bank assets fall in value?

Bank of America needs to fish or cut bait

25 Oct 2007

Tapping a novice to run investment banking and slashing a host of jobs in that group increases doubts about the future of the business. It may show investors that Ken Lewis won t tolerate losses. But if he doesn t show real commitment to the business, it will always be a struggling alsoran.

Cookie-cutter credit structures mixed blessing for ratings agencies

24 Oct 2007

Moody s thinks the structured credit markets rebound depends on greater standardization. That makes sense. Consistency and familiarity should boost liquidity. But ratings agencies have profited from everincreasing complexity. A return to basics could hurt their profits.

Citi joins UBS with Q3 blow-up

1 Oct 2007

But unlike his Swiss rival, the US megabank s boss Chuck Prince isn t proposing a shakeup in the wake of $3.3bn of credit losses. This can only reinforce investor concerns about the Citigroup model, and its management.

Bank of England auction attracts only embarrassment

26 Sep 2007

Attracting no bids at all after a public Uturn last week to supply the market with liquidity is another slap in the face for the Bank. Fear of exposure probably deterred financial institutions from turning to the Old Lady. Again King looks out of touch with the market.

Next European bankruptcy wave will be bloody

19 Sep 2007

The LBO bubble has complicated balance sheets with exotic instruments while fragmenting the creditor body. Europe s bankruptcy laws aren t well attuned for producing negotiated settlements. The credit crunch will therefore produce bitter fights.

Infrastructure leverage boom may haunt investors

17 Sep 2007

Investments in assets like toll roads and bridges are said to be safe because of the stability of their cash flows. But easy debt markets fuelled leverageladen deals and have left them little room for a hiccup in growth. This could spell trouble.