The thing about useful stuff is

WeB@ank - Zopa and Social Lending Thursday, January 22, 2009

One of the 3 firms showcased at the WeB@nk event this week that was hosted by Nesta was Zopa. Nearly 4 years old, Zopa [which stands for "Zone of Possible Agreement"] describes itself as a market for money. Targeted at the retail market, the platform has executed £31m of unsecured loans to date across over 7000 loans, with £12.6m booked in 2008 for 2600 loans. Their maximum loan limit is £15k and typical loans have been for cars, weddings and medical expenses - the loan purpose has to be detailed as part of the information provider by a borrower.

In supplying offers of cash, lenders specify

the total amount on offer up to a maximum of £25,000 beyond which a lender needs a Consumer Credit Licence
the rate they are prepared to lend at, which can be set per borrower risk category
the maximum amount per borrower they are willing to commit e.g. no more than £100 per borrower [Zopa sets a floor of £10 minimum per borrower]
the loan term
the category of risk they want to invest in [Zopa stratifies its' borrowers across 5 risk categories]

Borrowers

Complete a loan application
Make monthly repayments comprising capital and interest
Can borrow over 36 or 60 months with the ability to repay early
Pay a loan fee of £94.25 when taking a loan
Can borrow between £1,000 and £15,000

Zopa's role is to

provide the marketplace platform
pool funds provided by lenders and distribute these amongst eligible borrowers
vet lenders and borrowers against anti-money laundering criterion
credit score borrowers
undertake loan administration i.e. cash distribution and collection, oversee debt recovery via a third party arrangement

Apparently Zopa's average lender is male, 40 years old, living in SW London who lends £1300 whilst their average borrower is male, 40 years old in Birmingham and borrows £4300 for a car.

Zopa were at pains to stress that many people are attracted to Zopa because it puts a human face on money which they termed "Social lending", rather than the impersonal and institutionalised banking that traditionally operates. Yet as one member of the audience put it, "they made it sound like charitable work or lending for emotional/entertainment value".

Zopa did acknowledge that the flip side to social lending is that it can turn sour/personal when bad debts arise as people feel their "trust" has been betrayed. Overall Zopa has experienced 0.2% bad debts to date, and provides its' lenders with an estimate of bad debts per risk category as shown here.

One of the major selling points of Zopa is that borrowers and lenders reportedly get better rates than from banks by interacting directly. Lenders are presently getting an average of 8% after fees compared to high street savings ates of under 2%, whilst borrowers are receiving loans at 9% compared to 15%+ from a bank from unsecured loans.

I felt quite strongly that Zopa is disingenuous in making interest rates comparisons between themselves and banks for savers. When depositing with a bank you are transferring loan default risk to them and losses are borne by the bank's shareholders. Depositors also benefit from deposit protection schemes in the event of bank default. In Zopa you retain this risk. Hence an element of the rate differential has to compensate for that. In conversation after the event, their MD admitted to me that whilst the rate differential is about 6% following the sharp fall in bank deposit rates [Zopa lenders are averaging 9% less 1% Zopa fee versus average savings rates of 2%], back in the summer it was about a 2% differential.

What astounds me about this latter figure is that it indicates that Zopa lenders are clearly not making an allowance for borrower default. Whilst average historic loss rates may be only 0.2% across all lenders, those lenders who lent to defaulting borrowers will have been lost much more. More significantly, whilst Zopa claim that their credit screening process rejects a considerable percentage of borrower applicants and keeps them clear of sub-prime loans, I suspect that the deterioration in the economy is going to push up their default rates in line with the experiences of banks on similar tranches of unsecured personal debt.

My assertion regarding default risk being overlooked by lenders was further validated when I enquired about whether Zopa would consider offering credit protection insurance and Giles advised that it had been offered but there had been minimal interest in the product. Perhaps people are being overly seduced by the touchy-feely aspect of "social lending" and become too trusting or are ignorant of the risks.

Whilst savers are undoubtedly complaining about the pitiful rates currently offered on deposits, in the current environment I suspect that many people are most concerned about return of capital than return on capital, at least temporarily.

As James Gardner of Lloyds TSB (Bankervision) put it during the panel session, the real question is whether Zopa and its' kind represent a significant threat to banking and could disrupt the current model. He contended it did not and I have to concur. Whilst I believe Zopa has considerable growth potential from its' current low base and is not liable for losses on loans, I'm not convinced about its' business because

despite having increased it's margin from 0.5% to 1%, this feels like insufficient gross margin on which to operate and develop the business. For example, at best Zopa is generating approximately £300,000 of interest revenue each year on £31m of loans, assuming all loans transacted on the platform were open, no capital repayments had been made and 1% was applicable to all of them. On top of this, Zopa will have generated just under £200,000 of borrower loan fees in 2008. Once costs are factored in e.g. staff, premises, insurances and technology, this doesn't leave much.
Zopa isn't a regulated business at present, but were it to scale-up I believe that regulators would probably be forced to take a closer look. As James Gardner observes, were a major bank to enter the peer-to-peer lending space it would be inevitable that regulators would seek to include it as a regulated activity. At this point, its cost of operation would increase considerably putting further pressure on its' margins.
Zopa claims that all elligible borrower applications have been funded to date, demonstrating that their supply of funds is sufficient. However this is represents a probable and material constraint on their business. The higher rates currently on offer may induce more savers to use the service but I believe that Zopa will also need to increase the average deposit several fold from the current average of £1,300, which translates into an average of 3 savers per borrower. Whilst banks have a similar situation, they can also supplement funds from wholesale markets, leverage and shareholders. None of these options are available in Zopa's current "peer to peer" model.
Banks have considerably more experience in loan pricing than individuals and I question whether the rates presently on offer on Zopa may represent naive pricing on the part of lenders once bad debts/risk premium is taken into account. Obviously I acknowledge that bank lending rates will be higher simply to allow for bank profit and bad debt provisions, but stripping out such elements are likely to suggest higher rates should apply.

All that aside, I am a huge fan of such electronic markets and respect the ingenuity that has gone into Zopa. It is logical, will make a difference to its' users, and has a strong and easily understood sales message. Moreover, I recognise that that the supposided dramatic contraction in personal loan availability from the banking sector and collapse in savings rates will drive Zopa's borrower and lender numbers up [influx of former Icesave customers perhaps]. Hence, in this "perfect storm" I shall not be surprised if its' MD is able to report a doubling or trebling in business by next year, but disappointingly this will still leave it with a loan book of less than £100m.

Labels: banks, Financial services, James Gardner, Lloyds TSB, Loan, markets, Peer-to-peer, Zopa

posted by John Wilson @ 3:50 PM Permanent Link ,

newsvine reddit

Wheels coming off at Porsche? Friday, November 28, 2008

The 911, the top selling model as of June, 2006

Image via WikipediaPorsche on Wednesday said revenues had plunged 15 per cent in the past four months and expected revenues in the four months to the end of November to come in below €2bn ($2.6bn). It expected unit sales to fall 18 per cent in the same period.

Fortunately, it has made considerable sums from share dealing practices in VW shares that would be considered market abuse in the UK, but which apparently are perfectly acceptable in Germany. The results of this were to impose considerable losses on hedge funds, albeit it is unclear how many were forced to close as a consequence.

Is it surprising that hedge fund managers can no longer afford to buy Porsche cars as a consequence?

Labels: markets, Porsche, Stock market, Volkswagen

posted by John Wilson @ 10:39 AM Permanent Link ,

newsvine reddit

Share indices are crumbling tonight Thursday, October 09, 2008

After some frenetic trading in the last few minutes, the Dow ended the day at 8579 having smashed through the psychological barrier of 9000.

Spread-betting quotes right now i.e. Thursday 2230h are showing the FTSE100 down 200 to approximately 4113, levels last seen in 2003. Whilst the levels are based on on thin trading and without the enormous liquidity during market hours, they foretell of a large fall on the open tomorrow unless Far East markets find some reason to turn the tide.

Labels: Dow Jones Industrial Average, FTSE 100 Index, markets, secondary markets, Stock market

posted by John Wilson @ 10:14 PM Permanent Link ,

newsvine reddit

HBOS - A day's rollercoaster ride Wednesday, October 08, 2008

The HBOS share price was all over the place today with a day's low of 93.5p and a high of 155p, ending on 116p, with enormous swings throughout the day.

Trading in this market is a lottery.

Labels: HBOS, markets, Stock market

posted by John Wilson @ 10:03 PM Permanent Link ,

newsvine reddit

Alternate guide to market terminology

More gallows humour circulating in the City. This time it's a guide to commonly used terms and jargon in markets.

CEO --Chief Embezzlement Officer.

CFO-- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewellery, and the husband gets no sex.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER -- A guy whose phone has been disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW -- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor sucker for $240 per share.

WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.

PROFIT -- An archaic word no longer in use.

Labels: humour, markets, Stock market

posted by John Wilson @ 9:16 PM Permanent Link ,

newsvine reddit

The Deal explains Modern Finance Monday, October 06, 2008

From The Deal

Labels: markets

posted by John Wilson @ 10:23 PM Permanent Link ,

newsvine reddit

The nationalisation of the banking system Friday, October 03, 2008

Watching the rapid and widespread expansion of the State into the banking sector in so many countries is simply astounding. Free market countries including Iceland, the Netherlands and Britain have all nationalised banks, with other countries propping up financial companies via direct investment, loans or guarantees.

This is going to put a huge strain on national finances and will reshape the financial landscape for ever.

Readers of Marx will be forgiven for assuming policy makers have been followers of his.

Labels: banks, markets

posted by John Wilson @ 9:42 PM Permanent Link ,

newsvine reddit

25 year old home owner found guilty of leverage Thursday, September 25, 2008

The media coverage of the financial crisis has introduced the public to bits of City jargon, commonly with a derogatory slant e.g. "short sellers" being bad and "leverage" being a dodgy scheme that caused banks to collapse.

Oddly, most home owners are as "guilty" of being heavily leveraged via the mortages. They have typically used a small deposit for a home and borrowed the rest, with the sum borrowed linked to their apparent ability to repay and their home pledged as security for the loan.

Speculation on the residential property market has been widespread, and for many years it has been seen as and genuinely been a one-way bet. Thanks to low interest rates and easy terms, people have been able to borrow ever greater sums thus giving them more purchasing power [in absolute terms] which has inflated the market. Large profits have been made by property buyers for relatively small financial investments of personal equity, the rest being borrowed on leverage of 9x or more.

Unfortunately, as interest rates have gone up so repayments have become a greater burden to householders; as property prices have fallen so the value of ther security has dropped. In such a climate, the impact is dramatic for individuals. In some cases, it will result in the home being repossessed and the home owner's personal equity in a property being wiped out, coupled with supplementary claims from the lenders for shortfalls on the security provided which failed to cover the loan.

Whilst on a massively greater scale and with far greater implications for the economy, the many leverage similarities between banks and individual homeowners are yet to be fully acknowledged by press, politicians and religious leaders alike or maybe they simply avoid unpopular themes. More significantly, it was and is the widespread belief that the property bubble is bursting, which is expected to lead to greater repossessions and losses on property related loans, that has contributed to the dramatic loss of market confidence.

Labels: leverage, LTV, markets, property, Short selling

posted by John Wilson @ 8:54 AM Permanent Link ,

newsvine reddit

Bidroute - a logical way to improve program trading Friday, September 19, 2008

Many people outside of the City would be surprised to know how "Heath Robinson" much of the internal systems infrastructure actually is at most companies. Spreadsheets play an integral part in many key functions and email/faxes/phone are still used in some dealings between counterparties.

One notable area of spreadsheet blizzards and emails/faxes is program trading, which refers to the execution of large baskets of shares in many companies.

When placing program trade orders, investors are keen to minimise their "market impact", by which I mean trading in a manner which adversely moving prices against oneself because the market becomes aware the trades before execution is complete. Brokers aim to assist such investors via their dedicated Program Trading desks.

The desk can either execute these baskets on an "agency" or "principal" basis. With the former, the investors continues to face the same price risk in the market, receiving the price that is achieved, but aim to reduce market impact by utilising the brokers execution facilities/expertise.

As principal, a broker buys the basket from the client without knowing its specific contents other than general characteristics e.g. number of stocks, their sectors, their approximate value. They will then aim to profit from the execution by trading it at a better price in the market, but with the obvious risk that they may fail.

To ensure they get a good price on a principal trade, the investor would normally be expected to shop around, the challenge being that this may obviously alert the market to the forthcoming trades and adversely affect the price they receive.

An equally significant deterrent though is that orchestrating program trades can be a time-consuming and complex manual process, especially when little exists by way of standard formats to exchange information - one is constantly coping with emails flying around and spreadsheets being constructed and amended by multiple parties.

A growing difficulty for fund managers is being able to satisfactorily demonstrate to the regulators that you sought to achieve best execution [not necessarily the same as best price] on behalf of your investment clients.

BidRoute seeks to address this headache in 3 ways

By providing a single communication hub for routing program trades to multiple counterparties and describing them in a consistent manner, which makes orchestration easier and hence lessens the burden of accessing a wider market if desired
Offering facilities to operate a competitive auction for the program trade between brokers, which should lead to a better price being obtained via a fair and transparent process
The platform assists in administering the trade, pre and post execution and maintaining records to demonstrate quality of the execution/service received. This is important when seeking to demonstrate why routing decision were made and highlight why price was not the only determinant in awarding a program to a particular broker.

The pricing model for the service is a flat transaction charge levied on the broker that is awarded the trade, with a higher tariff for principal trades than for agency.

Understandably, some brokers have been less than keen to participate in a service that would expose them to transparent price competition, albeit on an anonymous bidding basis, preferring an opaque environment. However, they have been more interested in the administrative efficiencies the platform offers, especially when dealing with hundreds of such trades per day. Knowing that the auction component was optional has made take-up on the sell side much easier.

Despite this, the buy side have not been quick to grab this opportunity for reasons that presently elude me. After all,

there is no direct cost to them in using it
implementation and integration looks relatively trivial, with the service utilising FIX and hooking up to major order management systems
administration, orchestration and record keeping are simplified
a buy-side dealer can run a price auction if they wish
execution and service quality can be recorded and measured

Labels: bidroute, markets, program trades, secondary markets, Stock market

posted by John Wilson @ 8:28 AM Permanent Link ,

newsvine reddit

Now Morgan Stanley - what next, Goldman? Thursday, September 18, 2008

Image via Wikipedia After a week of turmoil which has seen Lehman declare insolvency and Merrill run into the arms of Bank of America, only two independent investment banks remain - Morgan Stanley and Goldman Sachs. And now the unthinkable is underway - the share prices of these two Goliaths are under attack and the CDS prices for their debt is ballooning.

Every "given" during my working life has been torn to shreds this week. A week ago it would have been unthinkable for these firms to be considered vulnerable. But a day seems an eternity right now and news has emerged in the last 16 hours that Morgan Stanley is already in talks with Wachovia Bank, presumably on the basis that its' management know it may not survive being in the spotlight for long. If this goes through, that leaves just Goldman Sachs - the most respected firm in wholesale markets. Can they withstand the spotlight and hold the hounds at bay - if anyone can give you a categoric answer, then I doubt they know what they are talking about, given the climate we are in.

Along with many others, I have spent the last week in a shock. When the dust settles, it will be a very different [financial] world we face. The game is changing very quickly and the power base of London and New York may have been fundamentally undermined. This leaves open the possibility of markets shifting, especially with the growing might of sovereign wealth funds. International money can move easily and people follow money. Many other places stand very ready to welcome both.

Labels: Bank of America, goldman sachs, Lehman Brothers, markets, Merrill Lynch, Morgan Stanley, Stock market, Wachovia

posted by John Wilson @ 8:24 AM Permanent Link ,

newsvine reddit

What's happening to Lehman pending settlements? Tuesday, September 16, 2008

Image via Wikipedia I've spoken to a few people this morning trying to find out if Lehman were settling trades yesterday and today.

I'm assuming their accounts were frozen, which would have brought settlement chaos but it's not being reported and there's been no announcement by the CSDs. A friend at Dresdner thought that people were leaving delivery versus payment ["DVP"] trades in place and those DVP trade that had been "pre-matched" were settling. But who is doing the work to settle them as most of the staff were told to go home, certainly in London.

Assuming they are not settling trades, the ramifications would be multi-fold

Settlement blockages: Lehman is a major counterparty in a number of market, and its' inability to deliver stock from its' accounts to buyers would preclude them from any on-deliveries
Replacement cost: If you have trades with Lehman that aren't going to settle, then your positions need to be re-stated. As such, if you choose to replace those trades you may face a different price [probably much less, in which case better to walk away from the trade anyway and ignore any subsequent calls from the Administrators]

This leaves aside all of the position maintenance e.g. corporate actions that arise on positions that Lehmans were holding that need to be acted upon.

Lehman has been declared in default by Hong Kong Securities Clearing Company, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited.

At the same time, Lehman administers assets on behalf of many clients, which are dispersed in many locations. These will need to be moved back under client control. Likewise, stock loans will need to be returned to the real legal owners.

Sorry to be floating questions and wondering aloud, but my mind is whirring.

Labels: Hong Kong Exchanges and Clearing, lehman, Lehman Brothers, markets

posted by John Wilson @ 1:39 PM Permanent Link ,

newsvine reddit

Is walking away a negotiating tactic by Korea Devt Bank? Thursday, September 11, 2008

Korea Development Bank (KDB) has ended negotiations with the shaky investment bank Lehman Brothers. Lehmans was looking to sell a stake rumoured to be $6bn to KDB in order to shore up its balance sheet. After the news broke, shares in Lehman fell by 45 per cent in New York yesterday.

Of course, this means that it's much cheaper to buy Lehmans today than it was on Monday. So, knowing that would be the likely consequence, might KDB be following the example of anyone haggling at a Asian market stall and wait for the buyer to implore them to return by offering a lower price?

Labels: lehman, Lehman Brothers, markets, Stock market

posted by John Wilson @ 3:49 PM Permanent Link ,

newsvine reddit

Auction Rate Securities are toxic at UBS Monday, June 30, 2008

Image via WikipediaIt is amazing that banks continue to use email given that they regularly are the means by which they hang themselves. In the latest episode, William Galvin, secretary of the Commonwealth of Massachusetts, subpoenaed documents from UBS which revealed that they were desperate to get rid of their holdings in auction rate securities from their balance sheet and dump them onto any unsuspecting victim / client. Meanwhile, the firm stuck to the public line that these remained highly liquid instruments.

When the $300bn ARS market seized up in Q108, many investors found themselves unable to liquidate at any price, albeit often receiving interest rates far in excess of the market rate.

The International Herald Tribune has the story here. It seems inevitable that UBS will be hit hard both financially and reputationally given the apparent mis-selling the emails suggest.

Labels: markets, UBS AG

posted by John Wilson @ 12:10 PM Permanent Link ,

newsvine reddit

Madonna knocks bricks out of a crumbling wall Thursday, May 15, 2008

Last week the news emerged that Madonna is endorsing secondary trading of concert tickets, and has negotiated directly with the market operators to get a slice of the action. StubHub will be able to trade tickets for her North American concerts, while Viagogo has been given the rights to be secondary ticket partner in Europe, as well as handling VIP packages and all premium tickets.

Having sold her touring rights to LiveNation last year, this represents a major endorsement of secondary markets by one of the world's largest promoters and blows a hole through the "moral" arguments that were advanced by some parts of the live music industry, who condemned such market as scalping or touting. Similarly, it leaves the recently formed industry association that was advocating a revenue tax on secondary markets completely wrong footed.

I've already heard it said that Madonna is an exceptional case and most artists won't be able to negotiate the same deals with secondary market operators, but this applies equally to the situation most artists face with promoters who underwrite tours [primary market].

Live Nations endorsement follows the complete about face by Ticketmaster, who acquired two secondary market operators a mere six months after appearing before a UK Parliamentary Select Committee to advocate such markets were plainly wrong. The hypocrisy isn't unique to them - effectively, many industry incumbents have been arguing it is wrong purely because they don't profit from it, which is a very difficult matter from it being wrong in principle.

Labels: Madonna, markets, StubHub, ticketing, Ticketmaster

posted by John Wilson @ 9:56 AM Permanent Link ,

newsvine reddit

Hedge fund secondary markets Thursday, May 08, 2008

Allaboutalpha reports here on a study about secondary market trading of hedge funds based on Hedgebay data.

Having been closely involved in a venture that sought to launch a regulated secondary market for the trading of hedge fund interests via underlying and synthetic instruments, with related clearing and settlement, I found the findings fascinating. Most notable were the size of premiums/discounts operating, which re-enforced my beliefs that investors always prefer to have competitive liquidity venues and the price they pay/accept depends upon their circumstances regardless of underlying reported value, with immediacy of execution being a key determinant.

Labels: Hedge fund, marketplace, markets

posted by John Wilson @ 4:33 PM Permanent Link ,

newsvine reddit

"Am I worth $250m+ ? I think so." Wednesday, April 23, 2008

Greg Coffey is leaving approximately $250m in stock options behind as a consequence of resigning from GLG to set up his own firm. He currently manages about US$7bn of GLG's US$24bn of funds under management, reportedly generating about 60 per cent of its performance fees last year.

Mr Coffey, a 36-year-old Australian, took home $300m (£150m) in pay last year but was reportedly unable to agree a new compensation package. Many articles on the matter can be found here.

The news of his departure initially knocked about $375m off the value of GLG, but the share price has since rebounded.

When I chat with folks outside of capital markets they often challenge me about the spectacular sums paid to individuals in the City. In this case, it's relatively easy to point to the worth the market attached to his value at GLG. Moreover, as a major contributor to the bottom line, his abilities were evidently a major appeal to GLG clients and validated by the performance of his funds.

As for the headline of this piece it was unrelated to me [unsurprisingly] but to Greg who obviously thinks he is, otherwise he wouldn't be leaving behind $250m of stock and a probable $300m of compensation per year to run his own firm. Will his bosses be bitter - perhaps initially but a) they left their employers to set up GLG and b) will probably seed his new fund and thereby continue to benefit from his skills.

Labels: GLG, Hedge Funds, markets

posted by John Wilson @ 5:26 PM Permanent Link ,

newsvine reddit

Which form of Bye do you want? Tuesday, April 22, 2008

If you happen to work in capital markets, this was a very scary headline.

Mumbai, Dubai, Shanghai - or goodbye,' executives are told.

Yikes.

Electronic markets may operate globally and enable you to trade from anywhere, but people always follow the money. Right now, most banks are focussing considerable efforts and energy on positioning themselves in these markets. This reflects where wealth is being generated but also their desire to lessen their dependency on traditional US & European markets, which are expected to be flat for the next two years.

As a consequence, the choice is becoming stark - move or move on.

Labels: markets

posted by John Wilson @ 12:52 PM Permanent Link ,

newsvine reddit

CDO fantasy - to the tune of Bohemian Rhapsody Thursday, March 20, 2008

This is absolutely superb - courtesy of an email sent into FT Alphaville

CDO fantasy - to the tune of Bohemian Rhapsody

Is this the real price?
Is this just fantasy?
Financial landslide
No escape from reality

Open your eyes
And look at your buys and see.
I’m now a poor boy
High-yielding casualty

Because I bought it high, watched it blow Rating high, value low Any way the Fed goes Doesn’t really matter to me, to me

Mama - just killed my fund
Quoted CDO’s instead
Pulled the trigger, now it’s dead
Mama - I had just begun
These CDO’s have blown it all away

Mama - oooh
I still wanna buy
I sometimes wish I’d never left Goldman at all.

I see a little silhouette of a Fed
Bernanke! Bernanke! Can you save the whole market?
Monolines and munis - very very frightening me!
Super senior, super senior
Super senior CDO - magnifico

I’m long of subprime, nobody loves me
He’s long of subprime CDO fantasy
Spare the margin call you monstrous PB!
Easy come easy go, will you let me go?
Peloton! No - we will not let you go - let him go Peloton! We will not let you go - let him go Peloton! We will not let you go - let me go Will not let you go - let me go (never) Never let you go - let me go Never let me go - ooo

No, no, no, no, no, no, no, -
Oh mama mia, mama mia, mama mia let me go S&P had the devil put aside for me For me, for me, for me

So you think you can fund me and spit in my eye?
And then margin call me and leave me to die Oh PB - can’t do this to me PB Just gotta get out - just gotta get right outta here

Ooh yeah, ooh yeah
No price really matters
No liquidity
Nothing really matters - no price really matters to me

Any way the Fed goes…..

Labels: credit crunch, humour, markets

posted by John Wilson @ 10:13 AM Permanent Link ,

newsvine reddit

How to stop a run on bank cheaply [hopefully] Wednesday, March 19, 2008

Bank runs for beginners.

Lesson 1. Bank runs are a direct result of a loss of confidence in a bank
Lesson 2. Confidence is affected by rumours
Lesson 3. Rumours may be true or false or in between
Lesson 4. False rumours may be started maliciously and/or for financial gain
Lesson 5. People can be seriously hurt by rumour

When false rumours may prompt a run on a bank with the chaos that brings i.e. bailouts, job losses, panic, the Bank of England gets very angry. The turbulence in HBOS shares on claims of liquidity issues and central bank emergency funding have been categorically denied by the Bank of England. In an unprecedented move, it has apparently been ringing press and TV newsroom to categorically set the record straight and demanding such stories stop.

In parallel the FSA has announced it is to hunt for anyone manipulating the market with such rumours in order to profit.

One has to hope that will kill the matter off. However, there will inevitably be many depositors who will make pre-cautions withdrawals and no doubt, HBOS branches will receive extra deliveries of cash tonight to ensure that the panic does not flare up again. Notably, it does place the Bank of England in a position that were problems to subsequently occur, it may stand accused of misleading the market and held financially liable. For that reason, of which it will be fully aware, you can take some comfort from its assertions/assurances.

Labels: bank of england, markets

posted by John Wilson @ 5:36 PM Permanent Link ,

newsvine reddit

A deal too good to miss?

The panic in financial market is causing violent swings in prices. At the top and bottom of these, apparently even cautious investors are starting to re-enter the market to take advantage of the overshoot and comparative value implied.

For instance, the price of a 5 year Credit Default Swap on iTraxx Europe hit than 160 basis points this week. This means anybody selling protection on £10m would earn £160,000 a year. Of course, you face the potential of paying out £10m were the index constituents to default. However, if you believe that prices are very frothy and will return to levels consistent with the past, then you could close you CDS position out as prices fall i.e. you receive £160k today but if you can cover this risk in a month's time for say £140,000, then you have a clear £20k profit.

Similarly, the credit spreads on some banks such as HBOS and Lehmans, were at levels typically associated with Nigeria. In comparative value terms, does that make sense?

Labels: CDS, credit crunch, markets

posted by John Wilson @ 10:32 AM Permanent Link ,

newsvine reddit