Big I-Banks Challenging the Market Gods

Includes: C, JPM
by: Greg Newton

Two days, two subsidiaries of Global Megabank NA find two different ways to spit in the eye of the market gods.

On Monday, Citibank (NYSE:C) signed up for 20 years at $20 million per for naming rights and ancillary goodies at the new home of the New York Mutts Mets in lovely downtown Willetts Point, Queens; the stadium, due to open in 2009, will be known as CitiField.

While the stadium-sponsor curse is a less reliable indicator than it once was – doubtless in some part due to the ongoing confusion of brains with a bull market - the roll of honor includes such names as Adelphia, Conseco, Enron, National Car Rental, PSINet, Trans World Airlines, United Airlines, US Airways and WorldCom along with more than a handful of near-misses.

Come Tuesday, Bill Winters, co-chief executive of JP Morgan Chase’s (NYSE:JPM) investment bank was, if anything, more provocative:

…the bank is ready to pounce on any opportunities that may develop from hedge fund industry woes such as the meltdown at Amaranth Advisors LLC…

[Winters] said the bank has unique insight into the hedge fund industry because it has broad relationships with firms that have some $1 trillion in assets under management…

Historical note: A copy of the final report of the bankruptcy trustee into events surrounding the 1994 failure of David Askin’s Granite Partners LP, Granite Corp, and Quartz Hedge Funds fell off a shelf as NakedShorts ambled by yesterday. Money quote, in light of today’s markets, where every return is risk-free:

[Askins Capital Mgt] represented that the Granite Funds’ leverage “under most scenarios…will be maintained in a range of from 1.0 to 3.5 to 1.” Quartz was to maintain leverage “in a range of 4:1 to 7:1.”

...With some exceptions, the Granite Funds generally adhered to the leverage guidelines set out in their offering documents…the debt-to-equity ratios for [the Granite Funds] stayed within the target range for each month from October, 1993 through February, 1994 (with the exception of November, 1993). [Askins lost over 20 percent in Feb. 1994 and a similar amount the following month, before the margin clerks carried him was, at the time, the biggest, baddest hedge fund blow up of them all.]

Not that there’s any “manager’s marks” on the books at Global Megabank NA. Or that Global Megabank NA would - oh dear, what a shame, never mind - accidentally miscalculate a margin call. Or phone around among themselves to organize quotes the way Marsh and its ilk organized insurance policies. Or...well, you get the idea. Which is not to say that Askins was not substantially responsble for his own immolation, and that of his investors. But he was, by today’s standards, hardly aggressively levered.

JPMorgan exec sees more Amaranth-type opportunities
Reuters Nov. 14 2006

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