Skip to main content

I Know What You Did Last Summer

Being in finance and investments, you have to keep learning new jargon. Six months ago many probably don't even know what CDOs were, many kept hearing it over the last 2 months and had a vague idea of what that is, but probably would find it hard to remember the actual definition in totality - man, where's our c-drive, no retention power, somebody defrag me... or just close all windows in my house and reboot!

Just when you thought it was safe to no longer mention "subprime"... hey all suddenly screamed "I know what you bloody banks did last summer!!!" You got me on HSBC, then Bear Stearns, the UBS joined the fray, jumped across to Northern Rock, now Merrill Lynch and the bigdawg Citigroup.


As I have said recently, the big banks waited for Paulson/Fed to come up with a US$100bn Superfund to help bail them out. That did not arrive, hence the revelation (just as scary as the one in the Good Book). Let's look at why so many investors are caught unawares on these shitty stuff. HSBC did the right thing, first to acknowledge that there is a problem, admit & write down the assets and control the exposure - that's why HSBC always trade at a premium in the eyes of Asian investors. The rest dragged their feet and evaded until it the cows actually rang the doorbell.

Many banks created Structured Investment Vehicles to carry a lot of these CDOs, and they did not show up on the balance sheets. Citigroup had the biggest OBS (off balance sheet) assets at US$222bn and their biggest SIV exposure was US$80bn, hence it would not be too far off to estimate that Citigroup may have to write off 50% of that in total or US$40bn. Bank of America staffers are probably the happiest as their banks have ZERO in SIVs and the OBS assets amount o only US$97bn. JP Morgan has US$128bn in OBS and has an exposure of over US$40bn to private equity firms.
In total, Citigroup may have to write down US$21bn. That compares with potential losses of US$5.4 billion for Bank of America, the second-biggest U.S. bank, and US$4.1 billion for JPMorgan Chase. I think Bank of America is quietly sniggering that this debacle will close the gap between #1 and #2.

Merrill Lynch last month reported US$8.4 billion of writedowns in the third quarter and may be on the hook for another US$9.4 billion. However, the potential losses related to CDOs at the three major banks in absolute terms dwarf those of the largest brokers. Lehman Brothers, Bear Stearns, Goldman Sachs and Morgan Stanley, all stand to lose as much as a quarter of their equity. The announcement of Citigroup's potential losses and the exit of its CEO prompted Fitch Ratings to cut its rating to AA, three levels below the top, and say it may reduce the rating again. Standard & Poor's said it may lower its AA grade.

As bad as it sounds, the bad news seem to be a sigh of relief for the markets as more of the actual risks are now known. When you do not know the numbers, you worry more, now that you do - you can start to work off those numbers accordingly.

Comments

clk said…
Ahhh..more derivatives style of accounting and reporting. Off bal-sheet vehicles.

Sounds familiar? Just different packaging of exotic instruments. Still don't understand it and don't intend to. Will just stick to plain-vanilla stuff.

Remember "Baring"?
doraiddd said…
it wld be even more blissful if jennifer lurve hewitt can do me every single summer....and i aint gonna worry abt it being off the sheets or on or between...

aniway, stan the man wont really be complaining with his 160mil bye byes...

maybe you shld do a piece on these obscene parachutes...

stan, chuck, and jimmy?... here's 160mil. thank you, bye bye, goodnight...

Popular posts from this blog

My Master, A National Treasure

REPOST:  Its been more than two years since I posted on my sifu. This is probably the most significant posting I had done thus far that does not involve business or politics. My circle of close friends and business colleagues have benefited significantly from his treatment.


My Master, Dr. Law Chin Han (from my iPhone)

Where shall I start? OK, just based on real life experiences of those who are close to me. The entire Tong family (Bukit Kiara Properties) absolutely swear that he is the master of masters when it comes to acupuncture (and dentistry as well). To me, you can probably find many great dentists, but to find a real Master in acupuncture, thats a whole different ballgame.


I am not big aficionado of Chinese medicine or acupuncture initially. I guess you have to go through the whole shebang to appreciate the real life changing effects from a master.


My business partner and very close friend went to him after 15 years of persistent gout problem, he will get his heavy attacks at least…

PUC - An Assessment

PUC has tried to reinvent itself following the untimely passing of its founder last year. His younger brother, who was highly successful in his own right, was running Pictureworks in a number of countries in Asia.

The Shares Price Rise & Possible Catalysts

Share price has broken its all time high comfortably. The rise has been steady and not at all volatile, accompanied by steady volume, which would indicate longer term investors and some funds already accumulating nd not selling back to the market.


Potential Catalyst #1

The just launched Presto app. Tried it and went to the briefing. Its a game changer for PUC for sure. They have already indicated that the e-wallet will be launched only in 1Q2018. Now what is Presto, why Presto. Its very much like Lazada or eBay or Alibaba. Lazada is a platform for retailers to sell, full stop. eBay is more for the personal one man operations. Alibaba is more for wholesalers and distributors.

Presto links retailers/f&b/services originators with en…

How Long Will The Bull Lasts For Malaysia

Are we in a bull run? Of course we are. Not to labour the point but I highlighted the start of the bull run back in January this year... and got a lot of naysayers but never mind:






























p/s: needless to say, this is Jing Tian ... beautiful face and a certain kind of freshness in her looks and acting career thus far



http://malaysiafinance.blogspot.my/2016/12/bank-negara-may-have-switched-on-bull.html


I would like to extend my prediction that the bull run for Bursa stocks should continue to run well till the end of the year. What we are seeing for the past 3 weeks was a general lull where volume suddenly shrunk but the general trend is still intact. My reasons for saying so:

a) the overall equity markets globally will be supported by a benign recovery complemented by a timid approach to raising rates by most central banks

b) thanks to a drastic bear run for most commodities, and to a lesser extent some oil & gas players, the undertone for "cost of materials" have been weak and has pr…