FT Alphaville is (still) poring over (and enjoying) the staff report from the Senate Permanent Subcommittee on Investigations on the JPMorgan “whale” trades in its Chief Investment Office that lost the bank over $6bn. It takes
a lot of coffee awhile to get through all 597 pages of exhibits along with the 307-page report, and all the glorious footnotes, so please kindly bear with us.
As it stands, the more we read, the more dirt we turn up. And the uglier we realise this whole episode was, the more we become concerned: if this happened at JPMorgan, where else could it happen?
The below on risk limits serves as a case in point. The tl;dr version in graphs below, but first from the staff report (emphasis ours): Read more
On Monday, the results of the Bank of England’s Systemic Risk Survey were out.
How confident are 79 market participants — from hedge funds, banks, building societies, large complex financial institutions, asset managers and insurers — in the UK’s financial system?
Well, it would appear that they’ve gone from approximately umm-errrr-dunno to hmmm: Read more
The trauma and cost of a public rescue must surely teach the bank management concerned to behave in a more prudent manner, right?
Wrong, according to a recent Bank of International Settlements paper. Read more
FT Alphaville has intercepted a recent phone call between banks and their regulators!!!
Regulators: “We’re going to revise the capital adequacy framework and increase transparency in the reporting of risk on bank balance sheets.” Read more
There might be some wiggling about liquidity but the worldwide work of getting banks ready for Basel III goes on. Though there’s been an interesting development in Australia recently.
Australian banks and other savings institutions were this week given some guidance on how they’ll be expected to meet Basel III capital requirements when the Australian Prudential Regulatory Authority (Apra) came out with a discussion paper (PDF) which suggested an accelerated timeline for adopting new rules. Read more
Bullion gained more than 2 per cent on Tuesday, Reuters reports, roaring to all-time highs for a second consecutive session to stand above $1,750 as equity markets dived on growing fears of a global recession following last week’s US credit downgrade. Traders said investors ranging from sophisticated hedge funds to European savers were turning to bullion as they pulled money out of tumbling equity markets, the FT reports. Investors in gold through exchange traded funds hold a record 2,276 tonnes of gold, more than most central banks. Dealers said sales of coins and small bars to European investors were on Monday the highest so far this year. Read more
Deutsche Bank’s fixed income research team don’t see any need to beat around the bush.
We’re in the early stages of the Global Sovereign Crisis. End of. Read more
It’s an answer — of sorts — to the $2,200bn dollar question. Read more
We bring up this dangerous malady, because Citi FX strategist Steven Englander does in his latest piece. But first, take a glance at these charts. The first is the S&P 500 — which is almost at the second anniversary of rebounding from its cycle low:
Never short a Japanese government bond — no matter what you think of the country’s debt-to-GDP ratios, demographics, savings and the like. The JGB market can stay irrational longer than you can stay solvent etc. So swaption it, instead.
Here’s Bank of America Merrill Lynch’s Bin Gao on why: Read more
The last time Nomura talked ‘risk on/risk off‘ they thought it had ruptured.
Now they think the market phenomenon — which had seen correlations intensify in recent (QEased and crisis-ed) years — might be ruined for good. Read more
Believe us, it’s taken all our willpower to not headline this post as Basel Faulty.
The London Banker has returned to blogging after a two-year hiatus. And boy, that 24-month break has done nothing to quell this former central banker’s ire. Read more
The European Central Bank made headlines on Thursday, with its request for a €5bn capital increase. The stated reason was all about covering volatility in fx, interest rates and gold prices “as well as credit risk” on other (SMP-bought) securities.
Nomura’s European rates team, however, are having none of it: Read more
Quelle surprise. Or should we say, was fur eine Überraschung?
A new working paper from the European Central Bank describes the augmenting effect of government guarantees on bank risk-taking. In a nutshell: Read more
Traders have sought safe havens in gold and the dollar, after a day of international unease begun by North and South Korean forces firing artillery at each other, the FT reports. The Dow’s energy components brought it down to 1.3 per cent in edgy trading also influenced by the developing crisis in the eurozone, but the Dollar Index was up 1.1 per cent, the WSJ adds. Russia, China and the United Nations have urged restraint following North Korea’s attack on civilian targets, the FT says, although South Korea said its military remains at ‘crisis status’, the NYT reports. FT Alphaville captures earlier Asian market sell-offs. Read more
Kathleen Brooks, research director at Gain Capital, warned on Wednesday how a quantitative easing boost from the Fed would, most likely, reverse a recent and unusual trend in the Vix Index.
As she explained, for most of October, the Vix rather unusually has been rising alongside the S&P 500 — the index from which it’s derived. The two indices ordinarily move inversely to each other. Read more
Risk’s Life & Pension edition draws attention to an interesting development occurring in the pensions and insurance arena.
Banks have supposedly been touting insurance and pensions funds for their liquidity. Read more
Never were truer words spoken of a mathematical formula.
Out on Friday — some über-Geeky weekend reading for those (still?) interested in financial risk management. It comes courtesy of The Joint Forum, the taskforce set up by the Basel Committee on Banking Supervision, IOSCO and the International Association of Insurance Supervisors, to examine topics of mutual interest. Read more
Whilst much has been written about the rise in correlation recently — what’s been less frequently observed is the strange disconnection that’s occurring between correlation and volatility.
The two traditionally move together. That is, correlation tends to rise and fall with volatility. Read more
Nomura’s fixed income team reckon ‘risk on, risk off‘ is too simple.
In fact, they say the recent bout of QE2-inspired herding of risk is breaking down. Read more
A rather unusual chart from RBC Capital Markets:
The Federal Reserve didn’t mean for its recent QEII announcement – that it would be reinvesting proceeds from its maturing securities portfolio — to so greatly affect investors. Read more
The Bank of England’s executive director of financial stability has a refreshingly straight-forward answer to his self-imposed question “The Contribution of the Financial Sector: Miracle or Mirage?”
His response: Read more
Credit Suisse’s analysts have noticed one almighty decoupling in bonds and equities, FT Alphaville notes – safe haven yields are down, but defensive stocks are being beaten by cyclicals. What’s going on? Read more
Hopes that Greek fiscal woes would be contained and optimism over the US economy encouraged traders to pick up risky assets on Monday, according to the FT’s rolling global markets overview. The FTSE All-World equity index rose 0.5 per cent, just shy of a 19-month high, while commodities saw demand and the euro found some form.
The yen and highly rated sovereign bonds fell back as perceived haven assets lost favour. The S&P 500 equity futures pointed to the benchmark opening unchanged in New York at 1,217. Read more
Alternate title: Irrational exuberance – the sequel.
Former Federal Reserve chairman Alan Greenspan is offering his explanation of the financial meltdown in a paper to be presented at the Brookings Institute on Friday. Read more
Something tells us the story of Greece’s €1bn currency swap — and particularly the involvement of a bank everyone loves to hate, Goldman Sachs — is going to run and run.
Therefore we are going to republish a large chunk of the original 2003 story from Risk, which has now been unlocked and can be read in full here. Read more