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Richard Field

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  • Are European Officials Deaf to Investors? [View article]
    The difficulty is more that governments continue to play the "trust us" card.

    Why should the IMF be any better at overseeing stress tests than national government regulators? The answer is that they should not be.

    The reason Mr. Osborne suggests using the IMF is that the national regulators undermined their credibility with the first stress tests. Now, unless they are going to make the data available, they need another quasi-government entity to bless the results and say "trust us".

    That can only end badly as investors have no reason to 'trust' the IMF.
    Jan 8 12:50 PM | Likes Like |Link to Comment
  • Will Structured-Finance Reform Freeze Financials Until They 'Know What They Own'? [View article]
    The only way to meet the standard of 'know what you own' is if there is disclosure on an observable event basis.

    If an actively managed fund buys or sells a security, this could be disclosed at the end of the business day that it occurs on. This would allow you as an investor to know what you own.

    The barrier in Europe to meeting the 'know what you own' standard is not technological. All the data that is needed is already tracked by the financial institutions in electronic databases. The barrier is a the unwillingness of the sell-side firms to give up their informational advantage and the related profits this advantage generates for them.

    Article 122a dramatically improves the chances that the barrier will fall. The know what you own requirement allows the investors to set a standard for information disclosure under which they would end the buyers' strike and return to the structured finance market.
    Jan 4 08:54 AM | 1 Like Like |Link to Comment
  • Don't Make Covered Bonds the New Toxic Securities [View article]
    From an investor's perspective, the covered bond nightmare begins when the issuer becomes insolvent.

    It is only at that moment that the investor can be sure that the issuer cannot step up and replace all the non-performing assets.

    Subsequently, the investor is likely to find that the assets backing the covered bond did not generate enough cash flow to make a scheduled interest payment.

    This leaves the investor in the nightmare situation of knowing that some of the underlying assets in what is now a fixed pool of assets are non-performing, but with no way to monitor the current performance of the underlying assets.

    If the current performance of the underlying assets cannot be monitored, then the covered bond becomes very difficult to value and sell unless the investor is willing to accept a large haircut (take a large loss).
    Dec 29 09:27 PM | Likes Like |Link to Comment
  • Europe Gearing Up for Mark-to-Market [View article]
    As discussed in my reply to the other post, the idea behind loan-level disclosure is that it will provide the data necessary for investors to be able to independently analyze and value the securities.

    Investors can use their own valuation to make buy, hold and sell decisions based on the prices shown them by Wall Street.

    Without this ability to independently value the securities, there is no market. You just have investors blindly betting.
    Dec 23 08:15 AM | Likes Like |Link to Comment
  • To Calm Investors, Spain Opens Its Books [View article]
    Clearly, there was a global real estate bubble. Some countries are still closer to their peak valuations than others.

    It is not clear to me that every bank has an equal exposure to the global bubble. In the case of Spain, the Cajas clearly have the bulk of their exposure to the local market. So they may not have offsetting gains.
    Dec 21 07:36 AM | Likes Like |Link to Comment
  • To Calm Investors, Spain Opens Its Books [View article]
    As I discussed, the problem is that the market does not know if the pool of toxic assets is too much for the government to handle.

    The absence of performance information frees credit market participants from any anchor to their analysis of the situation - is this a disaster or can Spain muddle through despite the recession.

    If it is the former, contagion is alive and well in the Euro zone. If not, then Spanish government debt is very attractive.

    With the lack of performance information, taking one side or the other is essentially a blind bet. Given the experience since the start of the credit crisis with governments underestimating how bad the situation is, it is sensible to lean towards contagion.
    Dec 21 07:31 AM | Likes Like |Link to Comment
  • To Calm Investors, Spain Opens Its Books [View article]
    Actually, the reason that the government of Spain is facing paying higher interest rates on its debt is that investors are worried the government will do exactly what you suggest (purchase all the toxic assets).

    The question is "how large is the pool of toxic assets?"

    Is it small enough so that it is manageable by the Spanish government or is it so large that it will overwhelm the Spanish government like it overwhelmed the Irish government?
    Dec 20 09:56 AM | Likes Like |Link to Comment
  • Mervyn King, Bank of England and a Second Chance to Save the Global Financial System [View article]

    My ideas are still current, because, as stated in the article, we still have a solvency issue (in case you doubt that look at Ireland and Spain).

    Did the banks actually take "their write downs" or are the regulators, particularly in the US, letting them "earn" their way out of their problems?

    The reason that a bank can hold impaired assets forever is that regulators permit it (notice King's observation about the Japanese banks' impaired assets two decades after their real estate bubble burst). That is one of the reasons that the regulators needed mark to market suspended. Has mark to market returned for all assets on a bank's balance sheet?

    Is there "bad paper" sitting at the Fed? I think that the Fed should have to disclose the current performance of the underlying loans so that the market can determine the value of this structured finance paper too.
    Dec 17 09:48 PM | 1 Like Like |Link to Comment
  • Mervyn King, Bank of England and a Second Chance to Save the Global Financial System [View article]
    Before inventing a system for 'how to' re-capitalize the banks, it is important to know 'how much' capital each bank needs.

    My article focuses on the issue of providing the necessary disclosure so that the credit markets can be enlisted to determine 'how much' capital is needed.

    I am leaving it to individuals with experience raising capital to determine 'how to' re-capitalize the banks.
    Dec 16 09:29 PM | 1 Like Like |Link to Comment
  • In Response to Thomas Hoenig's Call to Break Up Too Big to Fail [View article]
    It would no longer be a modest proposal to also restructure the FTC and get rid of the lobbyists and insiders. :)
    Dec 4 11:07 AM | Likes Like |Link to Comment
  • In Response to Thomas Hoenig's Call to Break Up Too Big to Fail [View article]
    Yes. The data in these is minimally helpful and by definition it is out of date. It is also mandated by the SEC.

    The Fed has its own authority for collecting data. My point is the Fed should collect all the asset-level data and then share it with the market.
    Dec 3 10:31 AM | 1 Like Like |Link to Comment
  • Questions Remain After Irish Bailout [View article]
    I think that your observation that in the absence of loan-level performance data investing in banks is essentially betting on the government and its policies is accurate.

    Personally, I prefer to invest where I can do my own homework and independently analyze and value the investment.

    That said, there are policies that governments could adopt that I think would be very good for investing in bank debt and equity securities.

    One of these policies would be for a government to announce that it was requiring loan-level performance disclosure. Any government that does this is making an incredibly powerful statement. It is saying emphatically that its banking system is solvent and here is the data to show that fact.

    Benefits of adopting loan-level performance disclosure should include a reduction in the cost of funds to that country's banks, an ability to unwind all government programs that support the credit markets and, most importantly, a restoration of confidence in the country's financial markets. With confidence restored in the financial markets, business and consumer confidence should also return.
    Nov 29 07:47 PM | Likes Like |Link to Comment
  • The Future of Finance: An End to Opacity and the Mother of All Databases [View article]
    The crucial step in reasserting control is to make information available to all market participants. Access to this information is necessary if there is going to be effective market driven discipline.
    Nov 23 08:23 PM | Likes Like |Link to Comment
  • Ireland's Choice: Inexpensive Cure or Expensive Bailout [View article]
    Is the plan under consideration? I do not know. Judging from the stats associated with my firm's blog, I think yes as the readership of this particular blog entry includes all of the major European financial players.

    As discussed above, the problem is that the bond market does not have definitive answers for the very reasonable questions that you are asking. Instead, the market participants are blindly guessing how bad it could be?

    The only way to end this fear based analysis is to provide the actual data.
    Nov 15 08:53 PM | 1 Like Like |Link to Comment
  • Ireland's Choice: Inexpensive Cure or Expensive Bailout [View article]

    Today, in quick succession the Irish government proposed: 1) adding more capital to its banks to address the bond market perception that there might be a solvency problem; 2) accepting the bailout to address any liquidity problems the banks might have; and 3) meeting with EU finance ministers to see what other alternatives might exist to underpin financial and bank stability.

    Adding capital and accepting the bailout might temporarily relieve the pressure of increasing interest spreads between Irish and German government bonds.

    Naturally my preference is the selection of an alternative to underpin financial and bank stability - namely provide the bond market with the loan-level performance data.

    Announcing the plan to disclose the data on an ongoing basis should have an immediate and permanent impact. The immediate impact is to stop the fear driven speculation that the situation is worse than the Irish government has reported. The permanent impact is that Ireland ends up with properly functioning capital markets again as investors are able to independently assess the risk of its banks and its national debt and make fully informed buy, sell and hold decisions without the need for EU guarantees.
    Nov 15 04:39 PM | 1 Like Like |Link to Comment