SourcingMan

CDS Regulation: Just One Simple Rule

KD is absolutely correct. No naked short seller brought down anyone. LEH is a case in point: they brought down themselves. In fact months before they went down, they knew their balance sheet was going up in smoke. With a leverage of >40:1 and undiversified exposure to the mortgage markets (as well as a massive bet on commercial RE) they had no chance. It took sometime to the market to realize that, but when it did, it brought down LEH with all its force, and large because it needed to go down as it was insolvent. Sorry for the good guys working there but their bosses ignore risk management.

True naked CDS buying selling is a bet on a house about to burn down, and it might increase the bad feelings about it. But the if the house is not rotten the market will correct (see Buffet on GE / GS etc), likely at a discount. But what really brings down the house is the house owner itself.

The rule proposed here are simple and fine. Actually, simple is fine by definition: it’s hard to game it and everybody can understand it.

The big issue is getting the CDS sellers, the insurers under control. Firstly by having themselves collateralizing the obligations they write. Not the buyer, the seller should post collateral. This will strengthen their balance sheet and inherently limit their ability to write ad infinitum CDS. Secondly, and especially if the seller is an Insurance firm, by shifting from a two man and a dog regulator to a serious one. One that can look into their positions and stop the management to take unchecked, unmanaged risks.

IT Outsourcing Witnesses Growth from New Markets and Divesting

I would not be as positive yet. Get set ready is good, but the market is still slow, decision making is even slower. Banks especially are seeing good numbers for H1, but they all expect a softer September / H2. Service providers should yes gear up, but should also realistically expect a longer and uncertain sales cycle. I still view Q1 of 2010 as the real inflection point for the IT services market. As for BPO, there is next to nothing worth mentioning in the pipelines, 2009 will be a very weak year for the sector, especially for EU which has been the engine for growth in the past 2/3 years.

UBS Sells Outsourcing Unit: IT Looking Up?

Intersting story. I believe this is a good time to monetise captive off or nearshoring units. Near-shore may be even better as these are likely to be within the EU, but labor-arbitrage prone loactions (for how long is a guess). Banks such as UBS and Citi still need cash, and these assets are definitely non-core. Althongh is not likely to be a fire-sale anymoreI, if you are a strategic buyer with cash (Infoysis, TCS!!!) then you could snap up some good assets, with attached a revenue stream. I see also non-strategic buyers getting in the buy-the-cative game by the way. An this trend I am positive will extend soon to non-FS captives especially those established by companies trading in the more depressed business sectors, those sectors yet to show green shoots.