Citi’s new boss pulls rug on super-SIV 14 Dec 2007 Vikram Pandit has wasted no time reversing the bank s earlier stance on SIVs, bailing out $49bn of assets. True, his hand was largely forced by European banks and rating agencies. But Pandit's bold move only adds to his strategic challenges.
Fannie Mae and Freddie Mac should be privatised 12 Dec 2007 The US mortgage giants have outlived their public usefulness. They ve also proved themselves no more prudent than competitivelydisadvantaged freemarket rivals. Their subsidies should go, and they should be left to live or die on level terms with other financial institutions.
Hedge funds face financing squeeze in 2008 12 Dec 2007 Most hedge funds managed to survive the credit crunch in 2007 in reasonable shape. But next year will be much tougher as prime brokers scale back cheap funding. The answer is to secure longerterm financing but for many it may already be too late.
A really useful mortgage bailout toll-free number 6 Dec 2007 The Bush administration thinks some 1.2m adjustablerate mortgage holders could be helped by its new plan to freeze teaser rates for five years. But all those borrowers may swamp its tollfree phone counselling service. Here s a proposal to automate it and speed things along.
Which buyout is most at risk? 4 Dec 2007 The bankruptcies of Revco and Federated heralded the end of the 1980s buyout boom. Which of today s monster LBOs will be first to succumb? One hint the guy who bailed out Revco two decades ago is backing today s biggest potential timebomb.
Paulson’s subprime bailout faces long odds 30 Nov 2007 His new scheme to head off defaults on resetting adjustable rate subprime mortgages makes more sense than his SuperSIV project. That only addressed a symptom of the mess; the new effort tackles a cause. But it s far more complex than the SIV bailout and faces longer odds.
Rating agencies’ shield against lawsuits has holes 13 Nov 2007 US courts have often accorded credit ratings constitutional protection as free speech. But this muchtouted barrier to litigation could be permeable and all the more so because the most recent CDOinduced credit mess is anything but massmarket.
The worst-timed financial product launch ever? 9 Nov 2007 Bonds backed by reverse mortgages are certainly in the running for that title. After all, they depend on home prices, and on confidence in rating agencies, appraisers and Wall Street. And they ve got mortgage in the name. That s five big nails in the coffin.
Negative convexity magnifies subprime losses 8 Nov 2007 No, it s not a flaw in bankers eyeglasses. It's part of the reason Morgan Stanley says it lost $3.7bn on a mortgage bet despite correctly betting prices would fall. Negative convexity can help turn a modest flaw in a trader's assumptions into a whopping loss.
Have banks got the joke about SuperSIV? 8 Nov 2007 The belief that the fund s just a way to bail rivals out of a mess seems to have made many reluctant to support it. But a firesale of SIV assets could dump some $150bn of bank debt on the market. That would be painful for everyone.
Why super senior doesn’t always mean super safe 6 Nov 2007 Citigroup yesterday tried to reassure investors with the disclosure that the bulk of its US mortgage exposures are to super senior tranches of ABS CDOs. On its own, this statement offers no comfort at all. It all depends on what bonds the structures are referencing.
Bank of America needs to fish or cut bait 25 Oct 2007 Tapping a novice to run investment banking and slashing a host of jobs in that group increases doubts about the future of the business. It may show investors that Ken Lewis won t tolerate losses. But if he doesn t show real commitment to the business, it will always be a struggling alsoran.
UK credit system looks unsound 25 Oct 2007 In its Financial Stability Report the Bank of England warns the credit crunch may not be over. Let s hope it s wrong. The UK has hardly been tested and yet has failed, almost allowing a bank with apparently sound assets to fail. But what if bank assets fall in value?
Cookie-cutter credit structures mixed blessing for ratings agencies 24 Oct 2007 Moody s thinks the structured credit markets rebound depends on greater standardization. That makes sense. Consistency and familiarity should boost liquidity. But ratings agencies have profited from everincreasing complexity. A return to basics could hurt their profits.
Citi joins UBS with Q3 blow-up 1 Oct 2007 But unlike his Swiss rival, the US megabank s boss Chuck Prince isn t proposing a shakeup in the wake of $3.3bn of credit losses. This can only reinforce investor concerns about the Citigroup model, and its management.
Bank of England auction attracts only embarrassment 26 Sep 2007 Attracting no bids at all after a public Uturn last week to supply the market with liquidity is another slap in the face for the Bank. Fear of exposure probably deterred financial institutions from turning to the Old Lady. Again King looks out of touch with the market.
Next European bankruptcy wave will be bloody 19 Sep 2007 The LBO bubble has complicated balance sheets with exotic instruments while fragmenting the creditor body. Europe s bankruptcy laws aren t well attuned for producing negotiated settlements. The credit crunch will therefore produce bitter fights.
Infrastructure leverage boom may haunt investors 17 Sep 2007 Investments in assets like toll roads and bridges are said to be safe because of the stability of their cash flows. But easy debt markets fuelled leverageladen deals and have left them little room for a hiccup in growth. This could spell trouble.
The wonky world of credit ratings needs a shake-up 7 Sep 2007 Credit ratings are sanctified by US laws and international bank capital rules. So investors rely on ratings, often more than they should. Rating agencies probably take more flak than they deserve. Breakingviews offers a few wacky ideas to shield them from blame.
US credit card debt might be next big problem 7 Sep 2007 Americans owe $900bn on plastic, a subprimesized debt load. With house prices no longer rising, they ll have trouble paying it back. Losses could be large for loans without collateral. But a meltdown might have a good effect: rethinking this highrate highloss business.