vaultvix

Biggest Rights Issue Ever: Lloyds to Raise 21 Billion Pounds

No comment has been made about BOS because they are being allowed to keep it. TSB was the sacrificial lamb. Lloyds/HBOS had taken more than L13.5 bn of the L25 bn first loss required under the APS, so the L16.5 bn fee was not worth paying. Kroes let them off easy given her other decisions in Europe...which is entirely reasonable since Lloyds has already repaid most of the state aid it received through the rights issue earlier this spring and now through this rights issue.

She should be a lot more concerned with the European banks that continue to take stealth aid at the ECB window. Those are the banks that are distorting the market.

Four Shippers Emerging from the Mire

Skipper54, HerrHansa and coprophagous above seem to understand the shipping industry far better than the author of this article. I am always amazed at the way "equity people" take the BDI as gospel. Yes, ship sizes, cargos, routes, contracts all matter...and the index doesn't even touch tankers and container ships. Hardly a picture of the shipping market, but easy to see, so often, but in my opinion incorrectly, used as a proxy.

You know that lack of lending people are screaming about in Germany? Well...a little of it has to do with the fact that the banks have to reserve more and more as their shipping loans (which, it turns out, aren't all that liquid...) deteriorate. Put up more capital for those loans, and there isn't a whole lot left for the auto parts maker. (Bad example--government will make that loan. OK, the retailer.)

These stocks might go up, but it won't be because the "shipping market" has suddenly revived. A stop in Singapore might be convincing. Or just ask Maersk.

Changing Patterns In China's Lending Boom

I have always thought that people overestimate the danger here. Some of this lending is from one level of the state to another given the ownership of most of the banking system, and certainly the source of its funding.

But importantly, as you point out, any short term funding is self-correcting. It rolls off, shrinking balance sheets unless it is replaced(though I did see petrochemical plants financed in Thailand with 3 month money back in 1997...)

To your point about real estate, and putting the cart before the horse (and it sounds like you might have been going to make this point), to some extent, China is still urbanizing, and housing needs to be built to allow for growth in GDP and private consumption. Whether that housing is at the right level is another issue, and isn't always the case, but much is, and people who haven't been to the secondary cities (yes, the ones with 20 million people or less) don't always realize this.

When will you write your second piece on the rmb as reserve currency?

The Renminbi as a Reserve Currency (Part 1)

Thank you for this great article. It lays out issues that people discuss constantly with very little knowledge. This was both a highly intelligent piece on the subject, and hopefully added to the knowledge base so future debate can be more thoughtful and iformed.

To Mr./Ms. AuGod's comment, no, the world does not need a currency monolith, but it does need money markets, and a term structure pricing proxy for interest rates is also a valuable global trade and financing lubricant. The US dollar is still far and away the best we have so far fulfilling these functions, as Mr. Chovanec points out. In fact, ironically, European corporates and sovereigns have been increasing their USD issuance which is only going to cause this issue to persist.

So we have a long way to go in terms of...let's face it, wide spread non-domestic use of the renminbi, much less reserve currency status. It isn't on the agenda for 2010. China is making many of the right moves. They could make more if they wanted. (They could force banks to hold municipal debt, they could force limited disintermediation of their banking system to create a bond market, to name two possibilities.) But they are cracking open that capital account by stealth if you watch the individual actions being taken.


On Aug 31 05:13 PM AuGod! wrote:

> "So, a truly global legal tender is a trusted currency that is well
> managed, retains its value, is fully convertible, widely traded in
> liquid currency markets and used as a currency of denomination for
> international trade." China's Renminbi fails on all criterion but
> that is no slight to them. They are a relatively new economy and
> don't really know the ropes. When they do, they will likely shun
> the idea of going global with their currency unlike the British Pound
> and American Dollar. In the nearer future, instead of a single reserve
> currency, a bunch of bilateral relationships money-wise will likely
> pop up as has been the case recently with BRIC and some ASEAN countries.
> With complexity being made tractable with computers, does the world
> really need a currency monolith? I think that is the question.

The Coming Consequences of Banking Fraud

Nice rant, but what is your point? It was interesting at first, but then you lost me when some of the things were factually incorrect. We are back in a bubble, but I don't think you actually understand why. By the way, Colonial was pretty obvious if you looked at their June FDIC call report.

Colonial Bank Failure Highlights the Problem

Thank you to "Angry Banker". I am not sure which is more surprising, the paranoid, uninformed rant, or the fact that there are so many people commenting on it as if there is something interesting in it. What does Colonial have to do with Goldman, except that a New York capital markets group may have securitized some of Colonial's loans three years ago (apparently not enough). Most likely, Colonial's demise had nothing to do with marks, and everything to do with the fact that its construction and development loans couldn't be rolled over--or securitized. Should Colonial have made bigger provisions for them? Probably, but my guess is that had nothing to do with bonuses, and everything to do with survival. It lost >$735m in the second quarter, and had a T1 ratio of 6.5%.




On Aug 24 09:17 AM Angry Banker wrote:

> Another predictable rant by Mr. Nielson based on over-simplified
> comparisons of asset markdowns after completely separate deals and
> under completely separate circumstances. I thought SA was supposed
> to be a site where investment theses were discussed. I guess Jeff
> is suggesting shorting Citi? Wait, of course that's always been his
> position, hasn't it? When I suggested in my June 24th article that
> Citi was too important to fail and thus a good long term investment
> opportunity, the ranters came out in full force against the company
> (as usual). The stock was trading around $3.00 then. Now it's over
> $4.75. Good thing I didn't follow Jeff's views on Citi's prospects
> at that time.... should I listen now?

Tier 1 Capital Ratios Comparison: U.S. vs. European Banks

One thing I would suggest is that, while important, Tier 1 capital is not the only measure on which to judge the health of a bank. Liquidity, maturity of funding, asset quality, pre-provision profitability...

Now Playing: Zombie Condos in Manhattan

There are more than that, having actively looked to buy an individual unit recently. Some of those large rental conversions are at risk where the developer him/herself is highly levered and was depending on the sales to pay the debt--there is a very large one on 57th Street still quoting 2007 prices with several hundred units to sell.

Additionally, if you include some of the smaller ones in your screen which have the same developer, they could conceivably be managed together and thus add to the number. None of these apartments are moving. People are still thinking 2006-2007 numbers. I now have so much leverage with my lease, that I am going to wait another year.

Interesting story.

3 Critical Tests for the IMF

I am not sure you have the IMF "bond" issue explained correctly. There are issues being discussed about IMF "bonds" as in "issues denominated in SDRs" and the traditional IMF lending as you mention with their FCL package to Mexico. These are two separate issues.

In order for the IMF to "become the world's central bank", the proposal was to have its "currency" SDRs become a "global" currency. It is really not relevant whether the issuer of SDR-denominated bonds are the IMF, it just requires that SDRs become commonly acceptable capital markets instruments--liquid markets where people, companies and governments can borrow and save. Next time Siemens wants to issue 5 year debt, what odds do you give it that they choose SDRs instead of Euros? How about California Water Authority 20 years? SDRs or USD?

SDRs are currently a mixture of USD, GBP, Yen and Euro. The Chinese were pushing for use of the SDR. Were they thinking the Yuan would be an appropriate fifth portion? With a closed capital account?

The IMF is far away from being a global central bank. It didn't even get firm commitments for the increases in capital for next year--only "promises to get the commitments in January 2010" by which time the current $215 billion will be gone.

The G20 should take responsibility for the things it has done by enumerating each additional protectionist measure put into place since the initial meeting last year when they promised not to implement any, instead of writing empty self congratulatory communiques. When progress is made, fine. I see economic deterioration and denial.

Does Financial Regulation Work?

The Germans are the most vocal about the desire for increased regulation. So, please, help me understand this. Will this new regulation have limits on the percentage of assets of the Hungarian banking system that will be permitted to be in Swiss Francs? Will it limit the percent of the Landesbanks' securities portfolios that can be invested in California real estate securitizations since their funding comes from local Euro-based sources? Will it have the ability to recognize problems that are arising? Or are they just deciding that if they require more capital, they will have more room to absorb mistakes like this? Just asking.

Interpreters of Data Should Exercise Care to Get Facts Right

I am an enormous fan of Mauldin, but thought this was one of his poorer posts for the reasons you mention here. One of the biggest issues on mark to market--if it ever gets implemented--is that it may prevent some marking up of assets. It may be a long time before we know what "market" is, but what if enormous refi activities reduces pools of securitizations so much that subordination becomes extreme. That surely improves the value of those securities even if no market has developed. Mark to market is no panacea. One of the biggest problems was not forcing non-capital markets banks to recognize true impairments (or easily forseeable impairments) to their held to maturity loan portfolios.

None of this is simple, but Mauldin is so intelligent and covers his subjects so thoroughly that I am a little surprised he didn't include this in his piece.

I find him really hard to criticise, however. You have to be really bold (and sure of your own research) to be willing to cast stones.

The Latest from Roubini: Long on Words, Short on Facts

We may have a very interesting phenomenon developing. Despite a slow start, China's stimulus really is starting to make some progress. And while they would like to just "stimulate to export", they do, in fact, realize that this is not a long term option. So they are really building a domestic economy. It will take years. But it will create some global demand. For the US, our axis will tilt a little eastward as Europe spends the next decade in recession and stagnation.

This is a little bigger than what happens to the S&P tomorrow, but it underpins the fact that those horrible numbers coming out of China (and they were terrifying) will start to bottom out in the summer. Not so for the rest of Asia, perhaps. And we will have a problem here with financing our government, because creating that economy in China means not financing ours. But that is another story, and the implications for our stock market of that...we can worry about them at S&P 800.

(But for full disclosure, I'm giving the market a pass on either side. Late 1974 was a very good time to get into equities--for about 18 months. If you track the history for the next decade, it really wasn't worth the risk.)

The New Normal

Not to be cynical...but I get the point. I have seen it made before, and there is validity to it.

Markets work. If the government (which is the biggest player) wants to intervene, it can. In 1998, the Hong Kong Monetary Authority decided that it wanted to "discourage" speculators in the stock market (it had spent US$1 billion defending its currency--successfully... but shorting other financial assets could have the same effect--it intervened and bought stocks directly. People who were short stock lost money, and, several years later (governments are the ultimate long term investors), the HKMA had made US$1bn on the trade.

The US government could step in and write CDSs on any companies it felt were under attack from this assymetric situation where the supply of bonds is fixed but the supply of CDS is potentially infinite. It just has to write the CDS all day. Underbid the current writers. It might lose on some--BRK might default, but how likely is that? Citi might default, but how likely is that? In the latter case, the government would basically be writing credit default insurance against itself. But from the buyer's perspective, what better counterparty than to be buying from the government? It can just raise revenues to cover its liability.

Here is where the cynical part comes in. Who in the government would do this? The only person who would propose it is someone who knows how these things work. But those people have all been told, "No, please do not apply for jobs with the Treasury because we don't want people from Wall Street."

As you like. Just keep drip feeding.

V Bottoms and the Twin-Peaked Bear

What is interesting, and ultimatly matters to potential investors, is to look at where the market went after the "V" of 1974. The rally was in fact very sharp, and the low put in place in 1974 proved to be the low. But, historians, look at 1976. In Dow terms (and the Dow and S&P tracked well enough if you weren't trading spreads between the two on leverage), the market declined from over 1,000 to under 750. After a substantial amount of volatility (which is usually defined as risk) but no net movement, it went from just over 750 to 1,000 again in 1979. Then back again in the next two years. Keep in mind, this is all in nominal terms. In real terms, this represented substantial loss. The Dow finally took out its 1973 high in December of 1983.

Just letting the audience know that they might not want to expect to buy SPYs and hold them for 10 years and make a lot of money. Picking stocks will probably lead to substantial gains, but "alpha" isn't going to arrive automatically out of a V bottom.

Maverick Capital's 13F Filing for Q408

One is Berk A and one is Berk B.


On Mar 12 09:37 AM pansyed wrote:

> Bershire is shown as being both increased and reduced positions.
> How can that be?