Category Archives: Investment banks

New Flavor of Credit Market Fallout?

Many observers had expected quite a few hedge funds that had subprime exposures to report significant losses for June, and there have been rumors of funds that had begun the liquidation process because it was apparent they were too badly damaged to survive. But the specter of investors clamoring to pull funds out of a […]

Credit Default Swaps Put Goldman, Merrill, Lehman and Bear at Junk Levels

Credit default swaps prices have risen sharply all over the globe. Nevertheless, the CDS related to the debt of major Wall Street players have been particularly hard hit, which isn’t surprising, given their LBO financing commitments, exposure to hedge funds via their prime brokerage operations, and falling profitability. Some experts, however, think the CDS are […]

Investors Dump Wall Street Firms’ Stocks and Bonds

We warned earlier that if conditions deteriorated in the financial markets, investment banks were particularly exposed by virtue of their taking on multiple exposures to the same underlying risk. For example, they lend to hedge funds via their prime brokerage operations, and also may be exposed to them by providing credit default swaps on assets […]

Another Reason to Avoid Arbitration Agreements with Big Financial Institutions

Readers of this blog are likely to know that those arbitration agreements that customers have to sign when opening a brokerage account are a scam. As the Wall Street Journal noted, clients must go to industry-operated arbitration forums, and doubts about the fairness of the system to investors have led three senators to urge the […]

Barclays in a Row With Bear Over Failed Hedge Fund

The Wall Street Journal, in “Barclays Spars Over Its Losses at Bear Stearns,” discusses how Barclays is wrangling with Bear over what may be as much as $400 million in losses related to the failure of its two hedge funds run by Ralph Cioffi. The article is remarkably unclear as to what exactly the disputes […]

Were Some Derivatives Trades Primarily About Tax Avoidance?

Does anyone on Wall Street have any sense? If you are designing transactions that are solely or primarily about tax avoidance, you don’t leave a mile-wide paper trail, particularly documents with titles like “Tax Efficiency” for the IRS to find. From “IRS Probes Tax Goal of Derivatives” in the Wall Street Journal: Federal tax authorities […]

Sarbox Not Responsible for Decline in New York Market Competitiveness

Although I haven’t followed the debate over New York-London market competitiveness that closely, it was clear when the study on the US’s standing was commissioned, the sponsors already knew what answers they wanted to report, and emasculating Sarbanes-Oxley (Sarbox or SOX) was an idee fixe. It didn’t seem to occur to people like Hank Paulson […]

Fitch Points to Credit Derivatives as Possible Accelerant in Credit Downturn

News reports on a Fitch study on credit default swaps came out yesterday, and I saw it reported in the Financial Times and decided to pass, but other elements of the report have been picked up elsewhere, and I changed my mind. Basically (surprise!) leverage cuts both ways. The FT cited the results of a […]

Two Bear Stearns Funds "Nearly Worthless"

Today was the day that Bear Stearns was to issue its delayed report on the net asset value of its two failed hedge funds. As we had indicated, investors who had tried selling their interests for 11% of their April value did getting any takers. There had been bids of 5% on the more leveraged […]

"Goldman, JP Morgan Saddled With Debt They Can’t Sell"

The Wall Street Journal has mentioned in passing that investment bankers have been stuck with hung LBO financings, the result of investor resistance to the terms on offer. This Bloomberg story highlights the degree to which the Wall Street players have been left holding the bag. Unless there is an unexpected change in sentiment, the […]

Minsky Moment Deferred?

John Authers of the Financial Times thinks the markets got a lucky break this week, and deferred a so-called Minsky moment, which he discussed in a noteworthy piece earlier. By way of background, economist Hyman Minsky observed that creditors become more lax about lending standards during times of stability. He divided borrowers into three types: […]

More Confirmation that Sell Side Analysis is Generally Useless

Pity the poor sell side analyst. These guys have to be bright, numerate, articulate, and presentable. Yet they have to maintain the pretense that they are objective while acting as shills for stocks, and to add insult to injury, whenever they muster up the nerve to issue a harsh report (usually when the company is […]

"Warsh, Steel Don’t See `Systemic Risk’ From Subprime"

A Fed and Treasury official both said they don’t see the downgrade of some subprime related debt leading to a broader meltdown, but instead see the repricing of credit working itself through in an orderly fashion. The fact that they felt the need to issue the reassurance in and of itself isn’t a good sign, […]

SEC: Bear Unwind "Orderly"

Hhhm, “orderly” seems to be the favorite word from the finance officialdom today, and we see yet another reference to systemic risk (in this case, that the SEC remains vigilant on that front). But as regards the Bear situation, the comment from the SEC isn’t much in the way of news (however, “now orderly” would […]

Has the Credit Contraction Finally Begun?

Readers of this blog know that I have been concerned about the state of the credit markets for some time. We’ve had (until the last month or so), rampant liquidity feeding asset bubbles in virtually every asset class except the dollar and the yen, tight risk spreads (that means inadequate compensation for risk assumption), lax […]