Posts tagged 'rehypothecation'

The velocity of handbags

We know the Chinese have a propensity to raise money against almost anything (commodities, trade receipts, export inventory, tech goods), but in Hong Kong the Wall Street Journal reported on Tuesday that some lenders are even willing to accept borrowers’ beloved handbags as collateral.

From the WSJ: Read more

Shadow banking and the seven collateral miners

In the words of Goldman Doc, Morgan Grumpy, JP Happy, Bank of Sleepy, Barclays Bashful, Sneezy Citi, and Dopey Deutsche:

We dig dig dig dig dig dig dig from early morn till night
We dig dig dig dig dig dig dig up everything in sight
We dig up diamonds by the score
A thousand rubies, sometimes more
But we don’t know what we dig ‘em for
We dig dig dig a-dig dig Read more

Effectively controlling assets, MF Global edition

MF Global lost ‘effective control’ of its sovereign bond assets. This gifted the broker some rather favourable accounting treatment. The broker’s clients, meanwhile, wanted to keep effective control of their own assets, and not just in the accounting sense, but in a very real sense.

As creditors and clients pick over the corpse of MF Global, reaching into its pockets for anything that can compensate them, we’re learning a lot about accounting for repos, and about what does and doesn’t work when it comes to protecting client assets. Read more

Greek asset sweating

Hat-tip to a reader for pointing us to this Reuters story, on a fresh twist in the Greco-Finnish collateral fiasco:

While Finland had wanted to receive cash as collateral — which would have required Greece to deposit about 500 million euros in an escrow account to guarantee Finland’s 1.4 billion euros of loans to Athens — that requirement has been dropped. Read more

If you pay peanuts for ETFs, you get…

We had always heard stories about how profitable ETFs were for banks.

For example, people had told us that official management fees were clearly a red herring. By and large, the money was being made in the background, from the ETF plumbing. Read more

The collateral crunch

It gets less attention than its credit-denominated relative, but the 2008 financial crisis actually sprung from a massive ‘collateral crunch’ within the shadow banking system.

Read Manmohan Singh on rehypothecation, or try to get your hands on Matt King’s seminal ‘Are the brokers broken?’ note. The Citigroup credit  analyst warned just two weeks before Lehman’s collapse that “brokers’ and banks’ gross usage of repo, revealed in footnotes of 10-Qs, far exceeds that which shows up on balance sheet. Although in principle much of this is for clients (mostly hedge funds) it still makes their business as a whole much more dependent on the continued availability of repo funding than might otherwise be appreciated.” Read more

Do banks see ETFs as inexpensive funding for illiquid securities? – Part I

Recent trends in Exchange Traded Funds (ETFs) could create “potential financial stability issues” says the Financial Stability Board.

We say: about time someone stated the obvious. Read more

2010: the year of collateral

Since the Lehman crisis, collateralisation has never really been the same.

On the one hand more attention than ever is being paid to the quality of collateral being pledged by institutions; and on the other hand, more collateral than ever is being sought. Read more

The awards curse strikes at JP Morgan…

JPMorgan has won an award for its innovative use of so-called rehypothecation, a way for hedge funds to extract greater value from their collateral by reposting it elsewhere, FT Alphaville notes. Ironic, then, that the bank has just been fined by the FSA for careless safekeeping of its clients’ money. Read more