Posts from Friday Jun 15 2012

The Weekender

This week on FT Alphaville,

– Was the Spanish bank bailout really less than a week ago? Really? Read more

Rajat Gupta guilty

Another head on the wall for government prosecutors. Maybe one of the biggest so far in the annals of insider trading convictions.

The jury took little time in returning with convictions on four charges related to securities fraud (including one conspiracy count). Read more

Cyprus Popular Bank: ‘Money is gone’ (allegedly)

We must return to Cyprus Popular Bank, the bank that’s essentially forcing Cyprus to seek a bailout – something that may well be announced some time this weekend. Most reports say that it’s problems are down to write-downs following the Greek restructuring. True, the value of Popular Bank’s investment in Greek sovereign debt was written down to €710m from €3.05bn. But there’s more to the story, which involves inter alia speculating monks, unusual lending practices and a man called Andreas Vgenopoulos.

Crucially, it suggests that concerns about the quality of the bank’s assets could be an important reason for why private sources cannot be found to fund the €2bn capital shortfall. Read more

Merkel’s options: Pay, inflate, or else…

How Charles Dumas of Lombard Street Research gets from this poor performance in Dutch retail sales recently…

 Read more

The formula that Wall Street never believed in

In ‘The Formula That Killed Wall Street’? The Gaussian Copula and the Material Cultures of Modelling, Donald MacKenzie and Taylor Spears present a history of the development of the one-factor Gaussian copula model, which is used to price various structured products, including Collateralised Debt Obligations (CDOs). As the title of the paper suggests, the model has many critics and has had a lot of blame placed at its feet.

What this paper reveals that really stands out is that the quant community also didn’t, and doesn’t, rate the Gaussian copula model highly at all. In fact, we’re putting that very mildly if the statements from quants interviewed by the researchers are anything to go by. Read more

The JPMorgan Whale’s regulatory motive

The full story of why JPMorgan entered into the trades that cost it so much money may never become public. However, thanks to Jamie Dimon’s testimony on Wednesday, we can conjecture a little more about the motivations behind the synthetic credit trades entered into by the bank’s Chief Investment Office.

The story begins with surplus deposits. JPMorgan was perceived as safe thanks to its size and relatively good record during the 2008 crisis, so it attracted significant deposit inflows. Much of this money was lent out, but not all of it was, giving rise to the problem of what to invest it in. With government bonds paying record low rates, the bank decided, understandably, to invest some of the funds in corporate and asset-backed securities. The CIO bought over $380bn of these bonds, a very substantial position. Read more

Dear Switzerland, good call on Credit Suisse. Yours, Fitch p.s. We love you

This is kinda sweet. From Fitch:

The Swiss National Bank’s (SNB) statement that UBS (‘A’/Stable/’a-‘) and Credit Suisse Group (‘A’/Stable/’a’) should promptly improve their loss-absorbing capacity confirms that Switzerland maintains one of Europe’s strictest supervisory frameworks for banks, Fitch Ratings says. Read more

10 questions on the Greek election answered

From Martin Lueck and team at UBS:

Who’s winning? Read more

Markets Live transcript 15 Jun 2012

Live markets commentary from 

Opec compromised; Saudi Arabia becomes lone player

JBC Energy sums up the thrust of Thursday’s Opec meeting in one handy paragraph:

As expected, OPEC members decided to keep the current overall production ceiling of 30 million b/d unchanged during yesterday’s meeting. Lowering the ceiling was not an option as the group is currently producing at around 1.6 million b/d above the target. On the other hand, an increase would not have been accepted by the price hawks. Saudi Arabia was allegedly asked by other members to cut production and adhere to the overall ceiling. Due to the lower prices and the massive global stockbuild, we forecast that Saudi Arabia will decrease production in H2 to 9.5 million b/d, bringing the 2012 annual average down to 9.7 million b/d.

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The (early) Lunch Wrap

Good morning New York…


LME snapped up by Hong Kong Exchanges

A $2.15bn bid for the London Metal Exchange has sealed it for HKex, beating Intercontinental Exchange to end a nine-month bidding war. From the statement:

The board of Hong Kong Exchanges & Clearing Limited (“HKEx”) is pleased to announce that on 15 June 2012, HKEx, HKEx Investment (UK) Limited (“HKEx Investment”) and LME Holdings Limited (“LME Holdings”) entered into a Framework Agreement regarding the terms of a recommended cash offer (the “Offer”) for the entire issued and outstanding ordinary share capital of LME Holdings by HKEx Investment, a direct subsidiary of HKEx International Limited (“HKEx International”) and an indirect wholly-owned subsidiary of HKEx (the “Transaction”). Read more

Operation Black Cloud: snap reactions

“The other effect of the euro-area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole.”

Here’s the speechRead more

Does Moody’s not read the FT letters page?

From Mr Michael Maslinski, on Thursday

Sir, Richard Lesmoir-Gordon (Letters, June 8) is undoubtedly right in his conclusion that the excessive reliance on mathematics and financial models has driven out the traditional banking skills of “common sense, assessment of character, knowledge of history, how countries and cultures differ and experience of life”… Read more

Further reading

Elsewhere on Friday,

– A little more on EFSF and ESM funding. Read more

The 6am Cut London

Asian markets rose on optimism over global monetary intervention, Bloomberg reports. Central banks were preparing co-ordinated liquidity operations in the event of a credit shock after the weekend elections in Greece, says Reuters. The MSCI Asia Pacific index was on track for its biggest weekly gain since February, says Bloomberg, as investors also welcomed UK policy support announcement, and hopes for more Fed easing were raised.

Moody’s cuts Dutch bank ratings: ING, Rabobank, ABN Amro and LeasePlan were all cut two notches, while another large Dutch bank, SNS Bank, was cut one notch. The cuts were made on concerns that the recession, regional debt crisis and dependence on wholesale funds makes them vulnerable, reports Bloomberg. (StatementRead more

Overnight markets: Up

Asian markets
Nikkei 225 up +16.29 (+0.19%) at 8,585
Topix up +2.36 (+0.33%) at 728.02
Hang Seng up +244.56 (+1.30%) at 19,053

US markets
S&P 500 up +14.22 (+1.08%) at 1,329
DJIA up +155.53 (+1.24%) at 12,652 Read more