The Wall Street Journal’s Deal Journal quoted veteran deal hand Steve Rattner, now DLJ’s head of merchant banking, taking a comparatively upbeat view of the difficult conditions in the LBO market: Yes, “the oversupply is the worst we’ve ever seen,” said Rattner, whose private-equity fund closed last year with $2.1 billion of capital. “The market […]
Read more...The Financial Times’ Lex column today takes issue with those who take comfort in the oft-quoted statistic that default rates are at a 25 year low. The article shows a long-term, unrelenting decline in average ratings and notes that bond defaults tend to peak two to four years after issuance. We’ve had an increase in […]
Read more...In case you haven’t come across it yet, I highly recommend the blog Overcoming Bias, where a number of academics write about epistemology. Given how we are bombarded with new factoids, studies, and commentary on a daily basis, it’s helpful to consider the views of those who think about the nature of knowledge and the […]
Read more...Nouriel Roubini, on his RGE Monitor, discusses the distinction between risk (variability in outcomes that can be estimated) and uncertainty (unknown or unmeasurable outcomes). Risk can be priced; uncertainty can’t (or at least can’t be priced by rational agents). Roubini argues that part of the panic in the markets stems from the fact that investors […]
Read more...Bloomberg reports that analysts at Sanford Bernstein estimate that Citi will suffer up to $3 billion in losses this quarter due to subprime and LBOs writeoffs: The New York-based company may lose between $1.2 billion and $1.5 billion on loans to buyout firms and between $500 million and $1 billion on subprime mortgages in the […]
Read more...As readers doubtless know, a nasty day in the markets yesterday was followed by distress overnight as the Japanese central bank injected funds into the marketplace and the European Central Bank added liquidity a second day, following an unprecedented, unlimited injection Thursday. The Dow opened down over 100 points, and due to a spike up […]
Read more...Two major types of hedge fund strategies, namely event-driven (Newspeak for risk arbitrage) and statistical arbitrage (typically, very high volume trading to capture and correct anomalies in prices relationships in various markets, such as among stocks bonds, or derivatives, or across markets) are having trouble. It isn’t yet clear how far reaching these problems are. […]
Read more...Currently docked in Marseille (managed to get a Financial Times yesterday in Monaco, so I feel slightly less cut off from the symbol world) and catching up on the grim market news of yesterday. It seems that the equity markets are getting the message that things are bad enough in the credit markets so as […]
Read more...The era of lax lending is inflicting damage on one of its biggest perps, namely, investment banks. Wall Street firms, overeager to win funding mandates from private equity firms, agreed to terms that were very much in favor of the private equity firms. And now the LBO firms are holding them to their financing commitments, […]
Read more...At junctures like this, when markets have come a bit unglued and may be undergoing a sea change, making forecasts is as scientific a process as reading tea leaves. And since I am (literally) at sea with pricey satellite access, I’m limiting myself to checking the usual suspect media sources rather than being as comprehensive […]
Read more...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 […]
Read more...Jamie Dimon, CEO of JP Morgan, fesses up that commercial banks like his have overdone it on LBO debt and are likely to take writedowns. At this point, this statement is no revelation. The main point of Dimon’s remarks is to reassure investors that the prospective losses are not significant relative to JP Morgan’s capital […]
Read more...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 […]
Read more...Whether you choose to see it as subprime contagion, repricing of risk, or a temporary correction, prices of debt in various markets are falling, which translates into higher yield requirements. At RGE Monitor, Nouriel Roubini took note (as we did) of a Fitch report warning of overheated lending practices in the commercial real estate lending […]
Read more...Ciitgroup CEO Charles Prince, in an exclusive interview with the Financial Times, said something I expect he will come to regret: Chuck Prince on Monday dismissed fears that the music was about to stop for the cheap credit-fuelled buy-out boom, saying Citigroup was “still dancing”. The Citigroup chief executive told the Financial Times that the […]
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