Friday, August 31, 2007

Bailout Humor.....

You really need a good dose of humor to stand all the bailout rhetoric, initiatives, efforts..... Have a nice weekend

Man muß wirklich humorvoll sein um die ganze Bailout Rhethorik, Initiatven, Regelauslegungen zu ertragen..... Allen ein schönes Wochenende

Thanks to all the comments and mails!

Dank für all die Kommentare und Mails!
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American Investment Banks "Shots In The Dark" Economist

I think that not even the best accounting magic can hide that the earnings and the balance sheet will take major hits down the road and have deteriorated significantly. There goes the low multiple....... This was always one of the main bull arguments, now they already had switch to book value (see comment further down), next......

Ich denke das nich einmal die größten Bilanzierungstricks verschleiern können das sich sowohl der Gewinnausblick als auch die Bilanzstruktur erheblich und wohl auch auf längere Sicht verschlechtert hat. Soviel zum niedrigen KGV das seit jeher als Kaufargument herangezogen worden ist. Nun wird bereits auf den niedrigen Buchwert hingewiesen (siehe Kommentar weiter unten), demnächst.......
Wall Street pays for its opacity

STOCKMARKET investors come in all shapes and sizes, but in the current turmoil they agree on one thing: if in doubt about a financial firm, shoot first and ask questions later.
> And when you have committed liquidity guarantees as shown in the table from the Handelsblatt to conduits/SIV´s it is no wonder that you dump the shares first.......
> Und wenn man Zweckgemeinschaften lt. dem Handelsblatt solch großzügige Liquiditätsgarantien gemacht hat würde ich auch schnellstmöglich meine Bankaktien auf den Markt schmeißen.......
> John M from Housing Doom has found this via Minyanville

Through the conduits’ convoluted structures, banks were able to “lend” huge amounts off-balance sheet and collect fees on no-capital-required lines of credit. No one - and I mean no one - ever expected these conduits to move from off-balance sheet back on-balance sheet and I don’t think the market yet understands the earnings, capital and liquidity impact of this migration.

If you figure you need anywhere from 6-8% capital per dollar of loans, then a move of $1.0 trln from off-balance sheet to on requires $60-80 bln in additional equity capital. I don’t know about you, but I don’t see this kind of free capital sitting around.

> Exellent find John M! Maybe we should forward this info to the rating agencies.... ;-)
> Nochmals besten Dank für diesen Fund an John M. Evtl- sollte man diese Erkenntnis an die Rating Agenguten weiterleiten....;-)
State Street, a big money manager, is the latest to stumble into the line of fire. Its shares slumped this week on unsubstantiated rumours that it faced big losses in asset-backed commercial paper.

> More details on State Street from Mish

But it is the investment banks that continue to take most of the bullets. They helped drag stockmarkets down on August 28th after Merrill Lynch downgraded a number of its peers, citing exposure to toxic credit, a day after Goldman Sachs had done the same. An unseemly squabble over jurisdiction in a bankruptcy case against two defunct Bear Stearns hedge funds ´probably didn't help to calm nerves. It hurts all the more to fall from a great height. Until a couple of months ago the investment banks were flying. Profit records were smashed quarter after quarter. Bonus pools looked more like lakes. Valuations climbed to three times book value, implying sustainable returns on equity of over 30%, when even 25% is rare in the industry.

As long as the money rolled in, no one seemed to mind that much of the business was cloaked in mystery.

Investment banks are now paying for that opacity, even though their management of risk has improved since the last credit crisis in 1998. They are suffering from their decision to do less moving and more storing of assets: they hold a lot more illiquid, hard-to-value paper these days, and have more capital tied up in lumpy private-equity deals. Worse, some of Wall Street's most lucrative recent creations, such as conduits and CDOs, are suddenly out of favour. This is part of what one analyst, Deutsche Bank's Mike Mayo, calls “dis-disintermediation”: the return of more traditional forms of finance, to the benefit of universal banks like Citigroup.....

Thanks to iTulip

All except Bear are still trading well above book value, the level at which they are generally considered cheap.
> Reminds me of the discussion from the "value" guys that came up with book value to measure the stock as dirt cheap... Until this sector turned to an impaired industry
> Die ganze Argumentation mit dem Buchwert erinnert mich sehr stark an dieselbe Diskussion mit den Homebuildern. Nachdem das KGV zu hoch war bzw. keine Gewinne mehr vorhanden waren kam plötzlich das Argument von sog. "Valueplayern" (LOL) das gemäß den Buchwerten die Aktien praktisch geschenkt sind.....Das war bevor der Sektor eine einzige Abschreibungsruine geworden ist......
Tellingly, while executives at other financial firms piled into their own shares in August, believing them oversold, there was scant buying among investment bankers.

The key now will be to reassure markets that the exotic assets on bank balance sheets are worth something. Investors are waiting with bated breath for Wall Street firms' third-quarter results, beginning in the second week of September. They may try to get as much bad news out as they can while sentiment is at rock bottom.

Mr Hintz sees it as an encouraging sign that none of the investment banks issuing bonds in the second half of August pointed to new “material” risks, as required when a company raises debt. This suggests that, while things are undoubtedly bad, the banks see no further nasty surprises in the short term.
bigger / größer
The debate over how to value elaborate securities, less pressing in good times, is now taking centre stage. Most credit instruments have to be held at the value a buyer might pay for them, not cost. But judging that is more art than science. The Securities and Exchange Commission, the investment banks' regulator, is examining the issue following rumours that Merrill Lynch and Goldman Sachs were too optimistic in their marking. “This is a chance for the SEC to show leadership on a crucial issue. We desperately need an umpire to ensure consistency and restore confidence,” says one senior banker.

At least investment banks are in better shape than they were going into past crises. Their capital structures are more stable: they increased long-term funding by $200 billion in the past year alone, making them less vulnerable when capital markets dry up. They are also more diversified. They have piled into commodities trading and wealth management, which remain attractive. Their proprietary trading desks, once predominantly credit-focused, now trade lots of equities too. All except Bear Stearns now earn roughly half of their non-retail revenues outside America. ....
Peter Nerby of Moody's, a rating agency, points to two further advantages (though his rivals at Standard & Poor's are not so sanguine). The banks have become better at making money in tough times, he says. Thanks to hedging, trading volume and volatility are now bigger earnings drivers than the level or direction of markets.
> Really? Wasn´t it just 2 weeks ago that the Fed bends rules to help two big banks that had to step in for their brokerage affiliates.... And when you look at the leverage the guy from Moody´s is overly confident. The bond market has a much gloomier view on Goldman & Co
> Wirklich? Ist es nicht gerade ein paar Tage her das die Fed Ihre Grundsätze über Bord geworfen hat um 2 Investmentbanken vor dem Kollaps zu retten.....Der Anleihemarkt sieht die Lage von Goldman & Co weniger entspannt...... Second, good first-half results will help to bail Wall Street firms out, as half of their accrued bonus pools can be taken back to cover second-half losses. A generous pay structure can come in handy if markets falter at the right time of the year.

Bear and Lehman Brothers are likely to suffer more than the rest, partly because they are smaller and partly because they are more exposed to asset-backed nasties (see chart). If conditions worsen, they may even have to buy back securities peddled to clients, as they are obliged to make markets in some of them.

The tables may yet turn. Merrill, Goldman and Morgan Stanley are more exposed than Bear or Lehman to the $300 billion overhang of unsold debt from leveraged buy-outs. This week the bankers fought back, forcing Home Depot to cut the price on the sale of its supply division and the trio of private-equity buyers to swallow higher interest rates on the debt. A bigger test of nerves will come in the next couple of weeks, when buyers are sought for more than $20 billion of loans to finance the takeover of First Data, a transaction-processing group. Were that or another big upcoming deal to collapse, the investment banks could expect a hail of bullets.
> And with appetite for junk like this coming to a halt it is likely that they will have to hold far more toxiy loans than planned.....
> Und nachdem der Junkmarket praktisch zum erliegen gekommen ist ist es sehr wahrscheinlich das die Banken einige ungewollte Kredite in Ihrer Bilanz behalten müssen......
Eleven junk-rated borrowers have sold bonds since the beginning of July, compared with an average of 41 a month in the first half of the year, Bloomberg data show. Three found buyers in August.
Some of them are desperately trying to find a way out..... But with onlyJust three of the 40 biggest pending LBOs have an escape clause that lets the buyer back out if funding can't be arranged this could be very expensive
Einige von Ihnen versuchen bereits verzweifelt sich aus einigen Deals freizukaufen..... Da aber nur 3 der 40 Deals eine Klausel beinhalten das man vom Kredit zurücktreten kann könnte das eine extrem teure Geschichte werden.....
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Rants Of The Day......Rating Agencies & Bernanke

In addition to this rant from Mark Gilbert i´ve found an even better one from Mish on Bernanke. Make sure you read Bernanke Proves he is a Complete Fool and if you agree digg his rant so that this message is getting out to as many people as possible.

Zusätzlich zu dem netten Bericht den Mark Gilbert sich von der Seele geschrieben hat empfehle ich den noch besseren "Ausbruch" von Mish der Bernanke aufs Korn nimmt. Solltet Ihr mit ihm in seinem Post Bernanke Proves he is a Complete Fool übereinstimmen bitte ich darum das Ihr den Bericht "digged" um Ihn möglichst vielen zugänglich zu machen.

Unsafe at Any Rating, CDO Speeds to CCC From AAA: Mark Gilbert
Aug. 30 (Bloomberg) -- Watching the rating cuts trickle out of the derivatives forest is akin to searching for elephant dung on a path to try and work out how many pachyderms are in the jungle. There's clearly a herd in there. And it's probably much bigger than the ordure you have seen so far would suggest.

Last week, Standard & Poor's butchered the ratings on $3.2 billion of debt from structured investment vehicles spawned by Solent Capital Partners LLP in London and Avendis Group in Geneva. About $254 million was slashed from the top AAA grade to CCC+ and CCC -- slides of 16 and 17 levels, triggered by their investments in mortgage-backed bonds.

Think about that for a second. You left the office Tuesday owning a AAA rated security. By the time you got back to your desk on Wednesday morning, it was eight steps below investment grade in a category S&P defines as ``currently vulnerable to nonpayment.'' Try explaining that to your pension-fund trustees.

DBS Group Holdings Ltd., Singapore's biggest bank, said on Aug. 7 it had S$1.4 billion ($921 million) at stake in collateralized-debt obligations. This week, it boosted that total to S$2.4 billion. It seems the bank had overlooked its commitment to a unit called Red Orchid Secured Assets. As the man said, a billion here and a billion there and pretty soon you're talking about real money.

`An Oasis of Calm'
A rare moment of comedy arises from what Moody's Investors Service had to say about the oversight. ``I don't think DBS will be the only one who has missed something the first time,'' said Deborah Schuler, a senior Moody's analyst in Singapore.

Could this be the same Moody's that called structured investment vehicles ``an oasis of calm in the subprime maelstrom'' in a July 23 report? ``The vehicles are not structured to forcibly liquidate assets in times of crisis,'' Moody's said. Their ability to access several sources of finance ``obviates the need to liquidate large buckets of assets at potentially the worst period in the life of the vehicle.''
Tell that to Cheyne Capital Management Ltd., which said yesterday it may be forced to dump the securities owned by its $6 billion Cheyne Finance LLC fund because the asset-backed commercial paper market is freezing up and the SIV is struggling to fund itself beyond November.

Shifting Scenarios
Moody's recently added some new phrases to its lexicon of code words. When the rating company refers to ``updating its methodology'' or ``refining its risk assessments,'' what it really means is that its historical models say absolutely nothing about how the future might turn out.

> Even Homer would have done a better job.....

> Selbst Homer Simpson hätte das besser hinbekommen....

Marked to Which Market?
Here's what is most worrying about the coming flood of downgrades and defaults. The U.S. Securities and Exchange Commission is investigating how the biggest brokerage firms priced securities caught up in the subprime meltdown as their values collapsed. My colleague Jonathan Weil last week detailed some of the accounting shenanigans that accompany how banks measure the ``fair value'' of their assets.

What happens if the SEC discovers that different units of a single bank assign different values to identical securities? That seems like a viable scenario for what might happen when a complex market of infrequently traded securities whose prices are dependent on a series of assumptions hits trouble.

And what happens if the SEC finds that banks marked the securities they owned at high prices, while attributing much lower values to identical securities offered by their hedge-fund clients as collateral? Again, that seems like a plausible strategy for a bank concerned about the longevity and liquidity of its customers.

The WSJ is reporting S&P President Corbet Is Replaced

McGraw Hill Cos. replaced the top executive at Standard & Poor's Corp. as criticism of the company's financial-information division mounts for its role in the unfolding subprime-mortgage crisis.

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Thursday, August 30, 2007

Times are tough.....

Hat tip to my fellow blogger from the superb New York City Housing Bubble and the cartoonist Bob Gorrell

But there is hope if you can stand to listen what Lawrence Yun from the NAR has to say about the future of the housing market.....

Twist from the excellent Housing Doom was so polite to put this warning in front of her post

WARNING: Do not attempt to read if you suffer from vertigo

Changed My Mind- Can We Have Lereah Back?

I think that not even Charly Brown and all his friends can safe Snoopy & co......

Wenn man den Prognosen von Lawrence Yun dem Cheflobbyisten der Immobilienmakler glauben schenken möchte besteht noch Hoffnung für Snoopy & co....

Twist von Housing Doom war so freundlich die Leser zu warnen das diese Aussagen wirkich nur für Hartgesottene oder Leute mit viel Humor zu ertragen sind.

Changed My Mind- Can We Have Lereah Back?

Ich denke das nicht einmal Charly Brown samt all seiner Freunde Snoopy & co retten kann.....

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Wednesday, August 29, 2007

Bubble World Tour " Mumbai / India"

Aug. 30 (Bloomberg) -- Mumbai's ambition of becoming a global financial center will unravel if the exorbitant rent that ABN Amro Holding NV recently agreed to pay to retain its presence in the city's commercial district becomes the norm.

According to an article this week in the Times of India, the Dutch bank's Indian unit renewed the lease for one of its offices at Sakhar Bhavan in Nariman Point, Mumbai's main business district, for 500 rupees ($12) a month per square foot.

That rent, the highest ever for India, is almost three times the rate the bank was paying for the premises until now, the newspaper report said.

It's also double the going rent for prime office space in Singapore. Even Dubai, with its petrodollar-fueled real-estate frenzy, is cheaper than Mumbai.

``There's currently a huge supply crunch of quality office space in Mumbai,'' says Anuj Puri, chairman of Jones Lang LaSalle Meghraj, a real-estate consulting firm. ``All financial institutions want to be in the central business district, and there are presently no feasible alternatives.''

Sky-high Mumbai rents are all the more ridiculous considering that most of the city's real estate is a dump and urban amenities are woefully inadequate.

``Mumbai in no way matches the infrastructure and quality available elsewhere in the Asia-Pacific sector,'' Puri says.

While the business cycle may have accentuated Mumbai's real-estate deficiency -- just as it has caused the market for traders and investment bankers to tighten, pushing up financial- sector wages -- the core problem is structural.

The city's vertical growth has been stunted by overly restrictive floor-space-index norms; supply of land has been stymied by a draconian Urban Land Ceiling Act, which was brought in to curb hoarding but has ended up discouraging genuine and economically beneficial transactions.

At the same time, demand for office space in Mumbai is soaring because of a surge in the flow of money and deals, in line with what one would expect to see in the world's second- fastest-growing major economy. ....

Even before the current bout of rental escalation, Mumbai offices were the third-most-expensive in the Asia-Pacific region after Hong Kong and Tokyo.

Mumbai's urban planners should realize that the city's acute space crunch is now spiraling out of control, and that work on a brand-new financial district must begin immediately.

> Looks like the same could be said about the residential market in Mumbai

> Sieht ganz so aus als wenn die Probleme auch den wohnwirtschaftlichen Immobiliensektor betreffen

Mumbai, India’s financial capital is one of the most expensive places in the world to buy a condominium unit, according to a Global Property Guide survey.Apartments in South Mumbai cost around US$9,000 to US$10,200 per square metre. “Such stellar prices can only be found in the world’s leading cities,” says Yasmin Rahman, yields and valuation analyst at the Global Property Guide.

These prices are exceptionally high for a country with a GDP per person of only US$770 in 2006. Even for highly paid call centre agents with annual income of around US$3,000 to US$4,500, these condominiums are still unaffordable.

Property prices in other cities in India are significantly cheaper than in Mumbai. In New Delhi, the administrative capital, used apartments cost around US$2,000 to US$3,000 per sq. m. In Bangalore, India’s Silicon Valley, prices are around US$950 to US$2,000 per sq. m.

> But what else to expect when M3 / credit growth is out of control....
> Was anderes soll man auch erwarten wenn die Geldmenge und das Kreditwachstum über mehere Jahre explodiert....

> No wonder the the India stock market is producing stories like this
> Kein Wunder das der indische Aktienmarkt Nachrichten wie diese produziert....
Shares of Unitech Ltd., India's largest real-estate developer by market value, soared 26,869 percent during the past three years. Anant Raj Industries Ltd., a competitor, leapt 39,548 percent
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German Bankruptcies

I think it is time to takes a closer look how the consumer is doing in Germany. And especially some of the foreign readers will be surprised to see that lots of German consumers are also struggling. I assume that the average $ amount is tiny compared to the Number in the US. But with lots more options like more financing for electronics & furniture etc, credit cards flooding (for German standards) the market, banks getting more aggressive on lending there is more trouble ahead. Some part of the increase is related to a change in the bankruptcy law that has made it easier to unload the debt. You can pay off the debt during 6 years. A trustee will control that you only have a minimum amount of money for your living. Every € that surpasses this minimum has to go to the creditors for 6 years.

Nachdem ich hier fast täglich den US Konsumenten auf die Finger schaue wird es Zeit mal den deutschen Konsumenten etwas genauer zu betrachten. Ich denke das besonders einige ausländische Leser überrascht sein werden das es etliche Problemfälle gibt. Ich vermute aber das der jeweilige € Betrag im Verhältnis zu einem vergleichbaren US Fall doch erheblich geringer ist. Wenn man sich in letzter Zeit die Finanzierungsmöglichkeiten für Elektronik & Möbel usw, die zunehmende Flut (zumindest für deutsche Verhältnisse) von Kreditkartenangeboten, immer mehr Banken forcieren das Konsumentenkreditgeschäft ist schwer vorstellbar das sich dies in Zukünft ändern wird. Ein großer Teil ist sicher auch auf díe Novellierung des Insolvenzgesetztes zurückführen. Ansonsten sähe die Sache in den letzten 2 Jahren wohl freundlicher aus.

According to Creditreform 51.000 Consumers have filed for bankruptcy during the first half of 2007. For the entire year the estimate is 110.000. That would represent a 19 percent increase yoy.

Nach den neuesten Zahlen der Wirtschaftsauskunftei Creditreform haben bereits im ersten Halbjahr 2007 gut 51 000 Verbraucher Insolvenz angemeldet. Für das Gesamtjahr rechnet Creditreform mit bis zu 110 000 Privatpleiten. Das wären rund 19 Prozent mehr als im Vorjahr.

Here the link to the 2006 US BANKRUPTCIES via the American Bankruptcy Institute

Hier der Link zum Stand der US Insolvenzen im Jahr 2006 von dem American Bankruptcy Institute. Auch hier der Hinweis das die Zahlen durch eine Reform im Jahr 2005 erheblich verzerrt sind.

At least this new offering is not yet common in Germany Patients Turn to No-Interest Loans for Health Care .....

Immerhin sind solche Angebote bei und noch nicht der Regelfall Patients Turn to No-Interest Loans for Health Care .....

But even the US can learn something regarding creditinnovations from the Dutch.....New Business Opportunity: SMS Loan Sharking

Aber selbst die Amis können in Sachen Kreditinnovationen noch etwas von den Niederländern lernen.....New Business Opportunity: SMS Loan Sharking ....

Hat tip to Yves Smith from Nacked Capitalism

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1 Year ARM Surpasses 30 Fixed Year For The First Time

I´m pretty sure that the majority of mortgage borrowers never heard of LIBOR as the most important rate when it comes to their mortgage.....

Ich bin mir ziemlich sicher das die Mehrzahl der Hypothekenschuldner noch nie in Ihrem Leben vom LIBOR gehört haben. Ärgerlich wird es wenn dieser Zinssatz dann die Anpassung des laufenden Kredites maßgeblich bestimmt......
LIBOR is an abbreviation for "London Interbank Offered Rate," and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments, including Adjustable Rate Mortgages (ARMs) and other loans.

The average rate on a one-year adjustable mortgage surged to 6.51 percent, the highest since January 2001, from 5.84 percent the prior week. The rate also surpassed the cost of a 30-year fixed loan for the first time.

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Cheyne May Liquidate Commercial Paper Plan on Losses, S&P Says

Too bad that Cheyne didn´t have a larger parent bank or the German taxpayer to bail them out. Will be interesting to see at what levels the markets will step in and place the bids. Needless to say that the downgrade from AAA to A- (six levels) is "amusing". I´m pretty sure that the business model from the rating agencies won´t look the same in the year 2008. The chart from Moody´s is giving a clear signal. Hard to see how Buffet ( largest shareholder) sees value in Moody´s

Schon dumm wenn man keine Mutterbank oder besser noch den deutschen Steuerzahler hat der einen "raushaut". Es dürfte sehr spannend werden zu welchen Preisen diese Papiere einen Abnehmer finden werden. Das die Ratingagenturen über Nacht festgestellt haben das AAA auf einmal A- bedeutet ist schon fast wieder komisch. Ich bin mir ziemlich sicher das deren Geschäftsmodell und deren Struktur im Jahr 2008 nicht mehr mit den heutigen zu vergleichen sein werden. Der Chart spricht Bände. Verwunderlich das Buffet (größter Aktionär) hier immer noch als Valueplayer engagiert ist.

S&P had said this two weeks before......

In Standard & Poor’s Ratings Services’ view, SIV managers recognize the importance of managing price volatility in the asset pool. These investment vehicles have weathered the difficult credit conditions of 1990-1991, the Long-Term Capital Management collapse, and the Sept. 11, 2001, terrorist attacks. SIVs responded to each event by diversifying into multiple funding markets, such as Europe and the U.S., and by having access to the best available liquidity sources, including banks and easily traded assets. SIVs also maintained access to the CP and MTN markets through each crisis during those 19 years

position SIVs to manage very differently than, for example, mutual funds or traditional CDOs. The market value tests and related assumptions penalize less-liquid, less-transparent, and less-understood asset selection. The tests encourage diversification, best-of-class asset selection, and defensive leverage management….As markets go through volatile periods, such as the current one, SIVs are not immune to eventually failing a test. However, SIVs are generally structured to have incentives to maintain asset portfolio and liability profiles that would help them in the face of volatile markets.

Aug. 29 (Bloomberg) -- Cheyne Capital Management Ltd., a London-based hedge fund, may be forced to liquidate $6 billion in assets backing a commercial paper program after the global credit rout reduced the value of the securities, Standard & Poor's said.

The Cheyne Finance LLC fund, which can hold as many as $20 billion in assets, breached a test based on losses in the portfolio, S&P said in a statement. Cheyne Capital also runs Queen's Walk Investment Ltd., a fund that invested in mortgages and which reported in June a loss of 67.7 million euros ($92 million) in the year ended March 31.

``Even though you are a well-regarded investment vehicle, if you can't roll over your paper and the market is concerned about the asset value of rolling over that paper, investors are not going to refinance you in this environment,'' said Craig Saalmann, credit strategist at JPMorgan Chase & Co. in Sydney.

Commercial paper conduits have faced funding shortages as investors balk at buying asset-backed, short-term debt after losses on U.S. home loans to risky borrowers caused turmoil in global credit markets. The retreat has caused commercial paper yields to soar to five-year highs.
Profits Cut
Structured investment vehicles like Cheyne Finance purchase long-term securities on money raised from short- and medium-term debt. The profit typically delivered from this strategy is being cut by rising yields.

HBOS Plc, the U.K's largest mortgage lender, said last week that it would step in to repay about $35 billion of commercial paper owed by its Grampian Funding LLC unit as contagion from the subprime slump drove up the cost of borrowing.

Cheyne Capital may begin liquidating assets and by Aug. 30 will estimate expected proceeds from future asset sales, S&P said. ....

There are about $385 billion outstanding in structured investment vehicles and 23 percent of their assets are mortgage securities or collateralized debt obligations that often hold mortgages, according to an Aug. 9 report by Bear Stearns Cos.

The Cheyne portfolio is primarily invested in ``real estate securitizations'' and none of the assets have had downgrades, S&P said. Structured investment vehicles often aren't backed by credit lines from banks like asset-backed commercial paper programs, of which there are $1.05 trillion outstanding.

S&P lowered the credit rating on the commercial paper issued by Cheyne Finance by two levels to A-2 from A-1+. The rating on senior debt was cut six levels to A- from AAA, the highest rating.

The average yield on the highest rated asset-backed commercial paper with one-day maturity has risen 0.71 percentage point this month to 6.04 percent as investors have fled funding linked to subprime mortgages, according to Bloomberg data.
Securities of subprime mortgages to people with poor credit or high debt have lost value because of the highest delinquency rate in four years. Commercial paper is debt due in 270 days or less.

> Here is the Cheyne Letter to clients via the FT

> Hier der Brief an die momentan wohl ziemlich aufgebrachten Cheyne Investoren via der FT

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Mainland China vs H Shares Hongkong

Time for another China update....... Fascinating!

Zeit für ein neuerliches China Update.......Faszinierend!

A few days ago the Chinese government has indicated that it will expand a program allowing its citizens to buy Hongkong-traded stocks directly to calm down the mainland stock market and ease the liquidity pressure that has driven stocks into the stratosphere.

So far the only thing that happened is that the Chinese shares that are listed in Honkong spiked and have closed a little bit of the gap (although, some shares jumped 70%). Needles to say that the stock market in Shanghai also climbed to multiple new highs. It will be key to watch if the gap in the future will be closed from the bottom (Hongkong 2008 PE 20 ) or from the top ( Mainland PE 40-50).

The longer the markets refuse to close the gap from the top the uglier the awakening should be.

> see also the chart "P/E Ratios: Nasdaq vs China"

Vor einigen Tagen haben die chinesischen Offiziellen durchblicken lassen das es zukünftig möglich sein wird auch chinesische Aktien in Hongkong ohne größere Einschränkungen zu erwerben. Dieser Schritt soll etwas den Druck von den heimischen Aktienmärkten nehmen und die Liquidität etwas breiter streuen.

Bisher hat diese Maßnahme in erster Linie dazu geführt das die chinesischen Aktien die in Hong Kong gelistet sind einen kleinen Teil der Lücke von unten geschlossen haben (obwohl einzelne Aktien über 70% explodiert sind). Überflüssig zu erwähnen das der Index in Shanghai munter weiter neue Hochs markiert hat. Es wird spannend zu sehen sein von welchsem Ende die zukünftige Bewertungslücke geschlossen werden wird. Momentan notieren die China/Hong Kong Aktien mit einem 08 er KGV von rund 20 während die Festlandaktien noch immer mit einem atemberaubenden KGV von 40-50 allen die Show stehlen.

Je länger die Anpassung von oben aufgeschoben wird desto ungemütlicher dürfte das erwachen sein.

> The table shows the run druing the last 5 days and ytd, estimated pe 2008 H shares Hongkong and mainland China, the "theoretical valuation gap", marketcap

Here another example that shows how different the two chinese markets act.

Hier ein weiteres Beispiel das anschaulich zeigt wie verschieden die zwei chinesischen Märkte zur Zeit noch reagieren.

The Financial Times is asking What’s the real Bank of China price?

On Thursday, Bank of China fessed up to holding just under $10bn in US subprime paper and CDOs. While its ‘H’ shares fell more than 6 per cent in Hong Kong in response, the reaction of investors in Shanghai was to push the price of the ‘A’shares up 1.3 per cent.

The gap between Bank of China’s mainland and HK prices has been widening for nine months now. This week the average premium of A shares over H generally widened to 70 per cent for the first time - and that is in response to Monday’s news that China intends to let its residents buy overseas stock (such as H shares)!

> But this is what happens when the central bank is offering deposit rates that are lower than the inflation rate...

> Aber das sollte nicht weiter verwundern wenn die Notenbank den Einlagenzinssatz unterhalb der Inflation festsetzt......
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Monday, August 27, 2007

If we are Rome, Wall Street's our Coliseum

Somehow Jack Nicholson in "A Few Good Men" with his famous speech "You can´t handle the truth" comes to mind. 50 trillion hole and growing 3 to 4 trillion annually......Please click on the headline to read the entire piece.

Irgendwie erscheint mir bei diesem Thema die inzwischen berühmte Rede von Jack Nicolson aus "Eine Frage der Ehre" über die Wahrheit vor dem gesitigen Auge. Eine Lücke von 50 billion die jedes Jahr 3-4 billion anwächst. Leider kein Tippfehler...Klickt bitte auf die Überschrift um den kompletten Bericht zu lesen.

Maybe you don´t need to handle the truth if you believe in forecasts like this The Triumph Of Hope Over Experience

Aber evtl. verdrängt man die Wahrheit einfach am besten mit Prognosen wie diesen The Triumph Of Hope Over Experience

Should be great news for the Greenback down the road..... Thank god that the Fed is vigilant in fighting inflation ( see chart ) ...... ;-)

Das alles sollten zukünftig "tolle" Neuigkeiten für den US$ sein.... Wie gut das die Fed stets ein entschlossener Inflationsbekämpfer ist ( siehe Chart) ...... ;-)

Thanks to Bud Wood for the excellent Chart!

(Marketwatch) Comptroller General warns (again), we're 'bankrupting America'

What do Cassandra, "Chicken Little," the "Boy Who Cried Wolf" and David Walker, America's Comptroller General and head of the U.S. Government Accountability Office, all have in common?

Nobody pays attention to them!

Except for a short piece in London's Financial Times, Walker's warnings were generally ignored by the American press, by the public and even by the very Congress that hired him and has the power to do something, yet still refuses to heed his warnings. ......

>Here a not so depressing interview with the Comptroller himself with Colbert :-)

>Hier zur Abwechslung ein nicht so ganz deprimierendes Interview mit David M. Walker von Colbert :-)

got gold.....?
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Number Of The Day.... Junk Bond Sales

And i bet the three in August had to made substantial concessions like Home Depot to unload the debt.... :-)

Und ich gehe jede Wette ein das die 3 glücklichen im August erhebliche Zugeständnisse wie im Fall Home Depot gemacht haben.... :-)

Eleven junk-rated borrowers have sold bonds since the beginning of July, compared with an average of 41 a month in the first half of the year, Bloomberg data show. Three found buyers in August.

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Landesbank Sachsen Fire Sale / Bailout complete

Whenever you sell a bank with a core capital of € 1.5 billion for just € 300 mio you know that things are not looking good. In this case things are ugly. Almost all of the risks that had lead to the pro forma insolvency of the Landesbank Sachsen will remain at the taxpayer. On top of this sale was forced from the ( long time asleep) banking oversight Bafin. The Bafin tries to mask the damage that they havn´t done anything to stop the LB to pile up close to € 26 billion (Source : Handelsblatt) off balance sheet vehicles ( Sachsen LB balance sheet € 68 billion...). Off course the rating agencies have now ( just in time) put the conduit vehicles on watch negative from AAA....... It looks like their model is always working with a time lag.....

Immer wenn man zu hören bekommt das eine Bank die eigentlich ein Eigenkapital von 1,5 Mrd € hat für schlappe 300 mio € vertickert wird weiß man das die Dinge nicht gut stehen. In diesem Fall sind Sie in der Tat extrem unerfreulich. Die Risiken die zur quasi Insolvenz der Sachsen LB geführt haben bleiben letztendlich dank der Gewährträgerhaftung beim Steuerzahler hängen. Ein Zeichen mehr das der Sachsen LB das Wasser bis zum Hals stand ist der Umstand das die Bafin den Verkauf angeordnet hat und damit der Landtag der ansonsten über solche Transaktionen zu entscheiden hat ausgehebelt worden ist. Die Bafin probiert wohl zu retten was Sie durch Ihre nicht vorhandene Aufsicht mitprovoziert hat. Wie sonst sind bis zu 26 Mrd € in Zweckgemeinschaften ausserhalb der Bilanz möglich wenn die eigenen Bilanzsumme gerade einmal 68 Mrd € beträgt. Ganz unabhängig davon das ein Großteil obendrein noch in die riskantesten Papiere investiert worden ist.... Das WSJ berichtet zudem das noch eine Schieflage mit einem 20 fach gehelbelten Hedge Fonds aus London droht bei dem die Sachsen LB mit knapp 20% beteiligt ist......

Here the saga with all the nasty details and early dementies that evevthing is just fine 14 days ago....

Hier nochmal das ganze Drama mit dem frühen Dementi das alles in bester Ordnung vor gerade einmal 2 Wochen.....

Second Major Bailout Underway In Germany ?

SachsenLB Has EU3 Billion in Subprime Investments

Marketwatch Stuttgart-based state-owned bank Landesbank Baden-Wuerttemberg will buy Sachsen LB, one of two German banks threatened by a global credit crisis, Baden-Wuerttemberg's state governor said at a press conference Sunday.

Sachsen LB is selling itself to Landesbank Baden-Württemberg an investment in a hedge fund turned sour, adding to the bank's struggles in the asset-backed commercial paper market, according to a report in the online edition of the Wall Street Journal, citing unidentified people familiar with the situation.

Under the terms of the deal, Gov. Guenther Oettinger said, the state of Saxony, which holds 37% in Sachsen, and the Sachsen-Finanzgruppe, owner of 63%, will receive stakes in LBBW, but that exactly how large these stakes will only be determined on Dec. 31.
bigger overview all Landesbanken including balance sheet, ownerstructure etc.... Too bad that they didn´t include the off balance sheet vehicles....

größere Übersicht über alle Landesbanken inklsuive Bilanzsummen, Eignerstruktur usw....leider ohne die ganzen Aktivitäten ausserhalb der Bilanz......

Earlier Sunday, Oettinger estimated that Sachsen might be worth between 300 million and 800 million euros, less that the 1.5 billion euros in equity capital the bank had according to the latest figures. The Journal report that as an immediate measure to support Sachsen liquidity, LBBW will inject $342 million into the bank.

Sachsen has an estimated €200 million ($271 million) stake in a fund run by Synapse Investment Management LLP, a London-based fixed-income hedge fund firm, the Wall Street Journal said on Saturday.

The fund has received margin calls from British bank Barclays Plc and faced a seizure of collateral, the newspaper added. Barclays discussed with Sachsen the idea of Sachsen providing money to Synapse to protect Sachsen's own investment. But it appears that Sachsen will be sold, the WSJ said.

20 times leverage
Synapse was set up in 2006 by Graeme Anderson and Mark Holman, former managing directors at Barclays Capital, the investment banking business of Barclays. The firm oversees more than $500 million in assets.

It's not clear which Synapse fund Sachsen invested in. However, one of the London firm's funds, the Synapse High Grade ABS Fund No. 1 Plc, lost 6% in July, according to the firm's Web site.
The 189.5 million euro fund, run by Rob Ford, Ben Hayward and Eoin Walsh, invests in AAA and AA rated asset-backed securities only, according to an update from Aug. 1 on the firm's Web site.

The update also noted that the fund is expected to be 20 times leveraged. That means it borrows 20 times the level of equity invested by clients. So a 189.5 million euro fund could in theory control more than $3 billion in assets using this amount of leverage.

Conduit crunch
Sachsen LB had already been hit by credit turmoil. The bank said on Aug. 17 that disruption in the asset-backed commercial paper market left doubt about whether an investment conduit called Ormond Quay could repay 17.3 billion euros in debt that it owed.

bigger / größer

A group of German banks and regulators lent $17.3 billion to the conduit so it could repay what it owed.

But more trouble emerged when another affiliate, Sachsen Funding I Ltd., said it was having financial difficulties amid the lack of demand by asset-backed commercial-paper investors and might have to be restructured, the WSJ said.

BERLIN. Die LBBW übernimmt das Institut zum Ende des Jahres und unterstützt es zudem mit einer Kapitalspritze in Höhe von 250 Mill. Euro. Auf einem Großteil der Risiken, die aus den von der SachsenLB geführten irischen Tochtergesellschaften herrühren, bleibt der Freistaat jedoch sitzen.

„Es musste wegen der Liquiditätsnot gehandelt werden“, sagte Oettinger. Die Rettung könnte für die LBBW teuer werden. Die Kapitalspritze eingerechnet, liegt der Kaufpreis zwischen 550 Mill. und 1,15 Mrd. Euro, wobei die LBBW die Übernahme zu zwei Dritteln mit eigenen Anteilen bezahlt.

Der Hals über Kopf am Wochenende ausgehandelte Verkauf geht offenbar auf massiven Druck der Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) zurück. BaFin-Chef Jochen Sanio, der sich in die Verhandlungen in Dresden eingeschaltet hatte, habe deutlich gemacht, dass jede weitere Verzögerung die Verluste der SachsenLB erhöht hätte, sagte Milbradt. Er verzichtete wegen der „besonderen Situation“ darauf, den Landtag über die Transaktion abstimmen zu lassen.

Die Lage der SachsenLB war offenbar weitaus dramatischer als bislang angenommen. So schlummern noch beträchtliche Bewertungsrisiken in den Büchern der SachsenLB, heißt es in Bankenkreisen. Zudem drohten weitere Belastungen aus den Engagements der außerbilanziell geführten Tochterfirmen. Diese drohten die Landesbank, deren Eigenkapital Ende 2006 rund 1,5 Mrd. Euro betrug, zu überfordern.

Erst vor zehn Tagen hatten die Sparkassen die Landesbank mit einer Kreditlinie in Höhe von 17,3 Mrd. Euro unterstützt. Das Institut war wegen riskanter Geschäfte seiner irischen Töchter in erhebliche Liquiditätsnöte geraten. Die irische SachsenLB-Tochter Sachsen LB Europe betreibt drei außerbilanziell geführte Zweckgesellschaften, die im Verbriefungsgeschäft tätig sind, mit einem Gesamtvolumen von rund 26 Mrd. Euro – bei einer Bilanzsumme der SachsenLB von 68 Mrd. Euro.

Für Ausfälle bei den Fonds der irischen Töchter steht aber letztlich das Land Sachsen durch die Gewährträgerhaftung gerade. Zwar wurde diese Absicherung im Juli 2005 auf Druck der EU-Kommission abgeschafft, doch Verbindlichkeiten aus den Jahren 2001 bis Anfang 2005 unterliegen noch der Gewährträgerhaftung.

Bislang musste die SachsenLB die Kreditlinie der Sparkassen noch nicht anzapfen, doch weiteres Ungemach drohte. Da der Markt für Commercial Papers, mit denen sich Zweckgesellschaften refinanzieren, nach wie vor ausgetrocknet ist, war es eine Frage der Zeit, bis die beiden anderen Zweckgesellschaften, Georges Quay und Sachsen-Funding, in Liquiditätsnöte gekommen wären. Bislang konnte die SachsenLB ihren Finanzierungsverpflichtungen hier selbst nachkommen, was die BaFin bestätigte.

Am vergangenen Mittwoch stellte die Ratingagentur Standard & Poor’s die Bonitätsnote der SachsenLB Europe „AAA“ auf „Beobachtung“. Eine mögliche Herabstufung hätte die Refinanzierung weiter erschwert. Die Muttergesellschaft SachsenLB wurde bereits zuvor um eine Stufe von „A-“ auf „BBB+“ herabgestuft.

> Mal wieder zeitig......

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