Synthetic tranches anyone?

Tight spreads, low volatility and a plethora of under-employed structured credit traders mean it’s time for investors to do just one thing – buy some synthetic structured products of course! Citigroup analysts are recommending the trades today, viz the following:

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BIS: There’s an oil-debt-dealer nexus

FT Alphaville has written before about how the pronounced collapse in the price of oil appears very reminiscent of the disintegration in the value of a certain subprime financial asset; both have been swift, disorderly and self-reinforcing.

A new report from The Bank for International Settlements emphasises the latter dynamic by drawing a connection between the vast sums of money energy companies have borrowed from investors in recent years as well as the retreat of traditional dealers from certain commodities-related transactions. The new dynamic has imparted a swift and sudden forcefulness to the recent price action in the crude price that goes beyond the effects of a simple change in production and consumption of oil. Read more

The VaR shock starts in Switzerland

This volatility is to low
This volatility is too high
This volatility is … holy cow … the SNB just removed its currency floor?

Investors in the big trading banks are spending the week discovering that financial institutions are the Goldlilocks of the volatility world after the likes of JPMorgan, Goldman et al released some disappointing fourth-quarter earnings despite an uptick in vol. With banks having spent much of the past five years moaning that volatility was too low to eke out trading profits, it turns out that in the fourth-quarter volatility was just a bit too high to make money. Or not quite the right kind of volatility. Or whatever. Read more

A view on oil, courtesy of the subprime securitisation sector

The drop in oil prices – with WTI now drifting down towards $46 a barrel – has been nothing short of stunning.

On that note, here’s an interesting thought from Chris Flanagan, head of US mortgages and other structured finance research at Bank of America Merrill Lynch. When this securitisation veteran sees the fall in oil prices he thinks of one thing – the ABX indexRead more

Scoping market liquidity, with stick figures

Behold the current market liquidity debate as heard at a leveraged loan conference panel in New York today and illustrated with stick figures.* The debate rages outside the confines of the loan industry in the pages of Fortune, Euromoney and yes, the FT. Read more

Subprime lending + cars + robotic repo men = financial journalism gold

Here is a cartoon of a GPS unit, represented by a robot, repossessing a car bought on credit by a McDonald’s employee on minimum wage. The robot is repossessing the car, using new technology, to pay off some greedy bankers who have been bundling subprime auto loans into subprime auto asset-backed securities and then selling them to equally greedy investors.

Are you outraged yet?

No? Then stay with us.

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Anti-Abacus, anti-BISTRO and anti-balance sheet synthetic securitisation


Close your eyes, lay back and imagine yourself as a regulator at the US Securities and Exchange Commission (do we have to? -ed). Read more

Building bank liquidity buffers, the FHLB, TBTF, WTF way

Hey did you hear the Fed finalised its liquidity coverage ratio rules for large US banks?

Yep, you can read the announcement hereRead more

Goldman’s Symphony of Babble

… And they said, Go to, let us build us a city and a tower, whose top may reach unto heaven; and let us make us a name, lest we be scattered abroad upon the face of the whole earth.

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Bonfire of the bond funds

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Are you there hedge funds? It’s me, JPMorgan

Are you a hedge fund with a prime broker who happens to be a large bank?

Are you worried that said prime broker will no longer be able to make a lot of money from doing business with you, because of new banking regulation such as the liquidity coverage ratio (LCR), the net stable funding ratio (NSFR) or various types of leverage ratios?

Well, then JPMorgan Chase has some advice for you! Read more

Is leveraged lending guidance effective? Yes, no, maybe

Last year the Federal Reserve and the Office of the Comptroller of the Currency issued new leveraged lending guidance designed to discourage big banks from underwriting risky new loans. Off the menu were loans with more than six times leverage, or that exhibited certain signs of weak underwriting or covenants. Since then, the regulators have double-down on the guidance — warning banks they should hardly ever do loans that are unlikely to pass muster.

So, more than a year later, it’s worth asking whether the guidance has had any effect. Read more

About that Deutsche Bank capital…

Gather round nerds, and hear the tale of Deutsche Bank’s mysterious new CoCo bonds.

It’s a tale that involves an €8bn capital raising anchored by the Qataris, some German accounting standards and one terrible cereal-based pun. Read more

When corporate credits fall out of the sky

Paging Bruno Iksil.

It’s well known that JPMorgan lost $6bn in its ill-fated “London Whale” investment. What is less known is that shortly before the bank’s unwieldy multi-legged play on corporate credit ballooned to unsustainable proportions, the positions taken on by JPMorgan produced almost half a billion dollars worth of profits thanks to the bankruptcy of a single company — American Airlines. In fact, one could easily make the case (as the US Senate did) that the easy money reaped by JPMorgan from the AMR filing helped catalyse the CIO’s doomed love-affair with low-cost default protection. Read more

Carry on conduits

After the deluge comes … erm … the deluge.

Commercial Mortgage Alert reports that 37 shops are now in the business of actively originating commercial mortgage-backed securities (CMBS). That’s up from 27 such CMBS “conduits” in existence a year ago, and just shy of a peak of 38 originators tallied in 2007 and 2008. That’s pretty impressive work for a market that all but collapsed after the crisis. Read more

I, Claudius, caller of bank bonds

Claudius was a Roman emperor from AD 41 to 54.

Claudius notes are Tier 1 instruments that were issued by Credit Suisse back in 2010 and which feature a call date that first comes into effect in December 2015. Except, as bank bond investors have experienced from time to time, the issuers of such securities have an unnerving tendency to sometimes behave unexpectedly. Credit Suisse made some noise when it released earnings last week that it may call the Claudius bonds thanks to something known as a “regulatory par call.” Read more

Not all securitisation bankers are evil – some are just slow

This occasional Alphaville contributor just got back from a prolonged reporting stint in Las Vegas.

On the agenda was not one but two securitisation conferences. Some readers may recall that the American Securitization Forum (ASF) has for many years hosted an annual gathering, most often in the pleasant confines of the Aria hotel in Las Vegas. This year, a bitter schism within the securitisation industry meant there were dueling conferences – one organised by the ASF and the other by the break-away Structured Finance Industry Group (SFIG). Read more

DVA, CVA and FVAaaaaaaargh!

Much accounting intrigue in JPMorgan’s recently-released fourth-quarter results.

According to the bank, it incurred a $1.5bn hit to net revenue after “implementing a funding valuation adjustment.” Read more

Back to the future with commercial paper

Commercial paper has a long and varied history.

Initially a form of promissory notes sold by companies, the short-term debt became (in)famous after banks co-opted the stuff in the run-up to the financial crisis — selling hundreds of billions of dollars worth of the paper as a way of raising cheap short-term financing. Buyers of the bank-issued paper got nervous during the crisis, and financial institutions soon found themselves unable to roll over the short-term financing, exacerbating the general freezing of markets. Read more

Zions Bancorp and some biblical bank accounting


We haven’t forgotten who keeps us in business,” reads the slogan on the website of Zions Bancorp, Utah’s biggest bank. Read more

It’s leveraged super senior, Jim, but not as we know it

They’re baa-ack.

Euromoney reports on Wednesday that Citigroup is attempting to revive “leveraged super seniors,” a type of synthetic CDO not seen seen the financial crisis. We take a (no doubt unhealthy) interest in all things LSS, given our previous experience helping out on this series of Financial Times stories. The stories involved three former Deutsche Bank staff who blew the whistle on the way the German bank was allegedly valuing so-called “gap risk” on $130bn worth of LSS of trades. Read more

Goldman’s not-so-great currency caper

Alternate title – Did Goldman Sachs lose $1.3bn in currency trades in the third quarter, or not? Read more

Private capital now, say hedge funds with Frannie preferreds

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HEDGE FUNDS – Place your advertisement HERE

And enjoy sub-par returns for the next 12 months.

No, this is not FT Alphaville’s marketing department shooting itself in the foot. This is the conclusion of a recent paper examining the effect of advertising on hedge funds’ inflows and returns. Read more

Midnight Madness is expanding, practice your lateral thinking here

Midnight Madness, that Goldman Sachs-led all-night lavish scavenger hunt/puzzle-solving competition/performance art so wonderfully described by Quartz earlier this year, is back and expanding. This year the charitable event will include Citigroup, Credit Suisse, BlueMountain, and Secor Asset Management all fielding teams to compete against Goldman.

Below you can see the pitchbook that was sent to potential participants (in typical banking style) earlier this year: Read more

Digging into dealer inventories

There’s an oft-quoted number in the debate raging over liquidity in the bond market.*

It is, depending on the week, 75-78 per cent — the amount by which dealer banks’ inventories of corporate bonds are said to have declined since their peak of $235bn in 2007, according to Federal Reserve dataRead more

Nothing screams shadow banking quite like a leveraged loan ETF

They are billed as a quick and easy way for investors to gain access to higher-yielding assets while still providing some protection if interest rates start to rise. They are ETFs which track portfolios of (floating-rate) bank loans.

And they are on fireRead more

Price discovery, sending Goldman Sachs a message edition

How much would you pay to make Goldman Sachs feel slightly uncomfortable?

The City of Oakland, California plans to dish out $226,378. Read more

Wanted at Goldman Sachs: Compliance person with aversion to French, fabulousness

Spotted on the Goldman Sachs careers website…

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Introducing the Winklevoss Bitcoin Trust

Click to read - Winklevoss Bitcoin Trust S-1 filing

That’s a SEC filing for the Winklevoss twins’ brand-new Bitcoin exchange-traded fund. For realz. Read more