On Monday, the European Central Bank announced an even more aggressive version of a liquidity facility it had used last August in its efforts to lower interbank lending rates that are stubbornly higher than policy rates. This move is an admission that the coordinated efforts of five central banks last week, including the Fed and […]
Read more...The Financial Times’ Paul Davies, citing Dresdner Kleinwort research, tells us that many structured investment vehicles face acute financial demands beginning in January when their medium term notes, the subordinated layer of their funding, come due. Note that this demand is a new source of stress. SIVs were already on the ropes due to their […]
Read more...John Dizard of the Financial Times has learned that Goldman is trying to find a counterparty for a bearish position on banking industry risk. Is this a house bet, a hedge, an attractive product, or is the firm merely trying to find a taker for a punt a client wants to make? Regardless, the actions […]
Read more...It’s rare that I find fault with the the Financial Times, and even more uncommon with Gillian Tett and Paul Davies, who are two of their most seasoned and insightful journalists. Nevertheless, they have bitten off more than they can chew in “Out of the shadows: How banking’s secret system broke down.” The piece isn’t […]
Read more...The Wall Street Journal has officially sounded taps for the SIV bailout plan that once garnered front-page business news coverage: This week’s decision by Citigroup Inc. to bail out seven investment entities and bring $49 billion in assets onto its balance sheet effectively killed one of the centerpieces of the Bush administration’s approach. The balance […]
Read more...A reader reports that despite losing just over $2 billion in the third quarter on revenues of $9.6 billion and projecting fourth quarter results “not effectively better” , Freddie Mac nevertheless thought it fit to host a lavish celebration. As our reader described it: To celebrate, they threw a decadent holiday party at the Ritz […]
Read more...The actions announced by five central banks two days ago continue to leave the money markets unpersuaded. From Bloomberg: The biggest concerted effort by central banks in six years to restore confidence in global money markets is showing little sign of success. The rates banks charge each other for three-month loans held at seven-year highs […]
Read more...An odd sign of the times, or perhaps specifically, of financial stress; reversals of position. Today we have Citigroup, which previously stated it wouldn’t take SIV assets on to their balance sheet, relenting and doing just that. The Fed makes a few hawkish noises but still delivers a rate cut. Henry Paulson, a believer in […]
Read more...Despite its previous statements that it would not take its SIVs on to its balance sheet, Citigroup has reversed itself, announcing that it will assume $49 billion of SIV assets. The move was prompted by the Moody’s’ announcement that it was reviewing virtually all of Citi’s SIVs for a possible downgrade. A side effect is […]
Read more...Shock and awe indeed. The markets remain unimpressed after yesterday’s coordinated action by five central banks explicitly to address the lack of liquidity in the money markets. The cost of dollar borrowing did fall slightly, but less than expected. From Bloomberg: The interest rates banks charge each other for short-term loans remained close to the […]
Read more...One of the perils of being an evening/overnight blogger is that one is either early or late to news items. But a positive aspect of being on the late side is that one can (hopefully) be thoughtful rather than reactive. Wednesday we had the spectacle of five central banks taking coordinated action to deal with […]
Read more...I’ll be the first to confess that I am not current on who the logical suspects are in the loan syndication business these days, but I don’t think Japanese banks are the first parties one would call on. The SIV bailout plan (officially called the Master Liquidity Enhancement Conduit, or MLEC) was initially going to […]
Read more...Bloomberg reports on the coordinated effort by major and even some not-so-major central banks (Canada’s and Switzerland’s central banks are included) to tackle high interbank lending rates. One investor called it to “shock and awe,” which is a worrying comparison. In fact, the plan does not add net liquidity, but merely provides additional one-month term […]
Read more...Courtesy Doug Noland at Prudent Bear, these charts illustrate a fundamental problem: debt creation well in excess of economic growth: Now in fairness, rapid growth in debt isn’t necessarily a bad thing, provided it is funding productive investments. But much of the rise in US indebtedness is the result of overinvestment in housing, borrowing to […]
Read more...A story in today’s Financial Times discusses how Citigroup cut the size of its SIV outstandings from $83 billion to $66 billion. The details, while limited, still start to flesh out the picture. From the Financial Times: Citigroup has slashed the size of its struggling off-balance-sheet investment funds by more than $15bn in two months […]
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