Wednesday, January 30, 2008
King-dom Come (Back Again)
We expect very little of our public servants.So we get what we deserve.The re-appointment of Mr King is not good news.
Monday, January 28, 2008
Merrill Lynch:Ahmass Fakahany get's f..resigns.
Ahmass Fakahany Resigns (According to CNBC)
I did tell you this would happen.My earlier blog of 29 Nov 2007 entitled,Merrill Lynch:You don't have to be in-thain to work here,but it helps,explains why.Wonder what the severance will be for the worst risk manager in the world.My guess around 20$ million cash & stock.Sounds about right for tanking a FORTUNE 500 bank.See below.Is Greg next?
RB
I did tell you this would happen.My earlier blog of 29 Nov 2007 entitled,Merrill Lynch:You don't have to be in-thain to work here,but it helps,explains why.Wonder what the severance will be for the worst risk manager in the world.My guess around 20$ million cash & stock.Sounds about right for tanking a FORTUNE 500 bank.See below.Is Greg next?
RB
Thursday, January 24, 2008
Societe Generale:'Rogue Trader'?
I hate the term 'rogue trader'.There's no such thing.Just poor controls.I don't know the details,they're not important.The young man at SG has just racked up losses of $7 billion.I hate the term losses,lets call them negative profits.
So you make a little, lose a little.I feel rather sorry for the trader.He hasn't really done anything wrong in real terms has he? It's all fake electronic money anyway.
Think about this,assume his vanilla directional market bet had gone the 'right' way.That is to say it was up 7$ billion in profit.Do you think he would even have made the news.When the 'rogue trader' makes money for the bank he is called a star trader aka financial wiz.
It's just bad luck, they should leave the young man alone and make him head up a risk management team.
RB
So you make a little, lose a little.I feel rather sorry for the trader.He hasn't really done anything wrong in real terms has he? It's all fake electronic money anyway.
Think about this,assume his vanilla directional market bet had gone the 'right' way.That is to say it was up 7$ billion in profit.Do you think he would even have made the news.When the 'rogue trader' makes money for the bank he is called a star trader aka financial wiz.
It's just bad luck, they should leave the young man alone and make him head up a risk management team.
RB
Tuesday, January 22, 2008
Market Volatility : Let the bad times roll.
Well the recent recent volatility will be nothing compared to what will happen if the monolines go under.Imagine the whole of the developed world selling most of the bonds they own and most of the world's banks balance sheets severely distressed.The near dooms day scenario is a bit like every bank with write offs like Merrill without the sovereign wealth funds to help them out.Nasty huh?
The Fed's emergency rate cut today was laughable.What on earth will lowering interest rates do in a world where trust has broken down.Banks aren't lending to each other,not because of lack of liquidity/cost,but lack of trust.Guess what, money can't buy trust.A novel concept.
Sadly Mr Bernanke's only trying to fix the mess his predecessor,Mr Greenspan made.50 years from now Greenspan will be remembered for one thing only.As the Central Banker who precipitated the conditions for the worst asset inflation bubble for a century for no apparent reason.He has now joined a hedge fund,Paulson & Co, specialising in essentially selling sub-prime short.It's the opposite of a virtuous circle.A vicious cycle.
Assuming deteriorating US corporate earnings,high unemployment,poor consumer confidence and impaired bank balance sheets,then the conditions for a deep recession in financial markets are already here.
In the end the the Fed has only another 350 basis points worth of ammunition.What 'medicine' will it use after that? After that all recovery is based on hope.
Exciting times really.The financial services industry needs a severe downturn to get rid of all the idiots in the investment banks.If you don't know who they are.You're probably it.Here's hoping markets continue to deteriorate quickly.Why do l care,I'm long cash.
RB
The Fed's emergency rate cut today was laughable.What on earth will lowering interest rates do in a world where trust has broken down.Banks aren't lending to each other,not because of lack of liquidity/cost,but lack of trust.Guess what, money can't buy trust.A novel concept.
Sadly Mr Bernanke's only trying to fix the mess his predecessor,Mr Greenspan made.50 years from now Greenspan will be remembered for one thing only.As the Central Banker who precipitated the conditions for the worst asset inflation bubble for a century for no apparent reason.He has now joined a hedge fund,Paulson & Co, specialising in essentially selling sub-prime short.It's the opposite of a virtuous circle.A vicious cycle.
Assuming deteriorating US corporate earnings,high unemployment,poor consumer confidence and impaired bank balance sheets,then the conditions for a deep recession in financial markets are already here.
In the end the the Fed has only another 350 basis points worth of ammunition.What 'medicine' will it use after that? After that all recovery is based on hope.
Exciting times really.The financial services industry needs a severe downturn to get rid of all the idiots in the investment banks.If you don't know who they are.You're probably it.Here's hoping markets continue to deteriorate quickly.Why do l care,I'm long cash.
RB
Thursday, January 17, 2008
Monolines reaching the end of the line?
Monoline Insurers : Key to future write down numbers
At the moment bond insurers are having their credit ratings downgraded.This is of course having a knock on effect on the value of all the debt on Wall Street's balance sheet.
If you think the write downs by Citi and Merrill are bad now, don't be fooled.If MBIA,AMBAC or another one of these insurers goes bust,then everything they've ever insured is instantly worthless.Monoline insurers are used by investment banks to protect against default for their toxic debt tranches/packages.If the insurer fails,depending on the bank's exposure, the bank loses even more.It's lose lose all round.Cool or what.
One of my predictions for 2008 (See Jan 4 2008 blog below) was that a major US monoline insurer would go bust.AMBAC's credit rating was downgraded today,as a result it lost nearly half it's value at one point. If it/similar went under then the likelihood of a major Wall street house being tipped into Chapter 11 would be pretty much guaranteed in my opinion.Not to mention substantial mark downs in the stock price of the surviving ones.
This could be the next major development in the sub prime story,and has enormous entertainment potential.Can't wait.
Keep an eye on them.
RB
At the moment bond insurers are having their credit ratings downgraded.This is of course having a knock on effect on the value of all the debt on Wall Street's balance sheet.
If you think the write downs by Citi and Merrill are bad now, don't be fooled.If MBIA,AMBAC or another one of these insurers goes bust,then everything they've ever insured is instantly worthless.Monoline insurers are used by investment banks to protect against default for their toxic debt tranches/packages.If the insurer fails,depending on the bank's exposure, the bank loses even more.It's lose lose all round.Cool or what.
One of my predictions for 2008 (See Jan 4 2008 blog below) was that a major US monoline insurer would go bust.AMBAC's credit rating was downgraded today,as a result it lost nearly half it's value at one point. If it/similar went under then the likelihood of a major Wall street house being tipped into Chapter 11 would be pretty much guaranteed in my opinion.Not to mention substantial mark downs in the stock price of the surviving ones.
This could be the next major development in the sub prime story,and has enormous entertainment potential.Can't wait.
Keep an eye on them.
RB
Tuesday, January 15, 2008
Banking career advice for the young (and young at heart!)
.A number of readers have privately e-mailed me as to what l think the true position is at Merrill Lynch.I am sad to say l cannot proffer career advice.Each person's position is unique.I think of my readers like snowflakes.No two are the same.Everyone is special.What l can say if you're unsure about what to do in any firm,especially a bank/similar,here are some generic questions you should ask your self.
A short guide to career due diligence, most of you already know this;but the late 20-something new meat has yet to be tenderised.This for them,l hope l'm giving something back to the young folks :
1.Do you believe top-down communication has been transparent and honest? I of course mean corporate 'honesty'.So not fraudulent counts as 'honest' in this context.
2.Do you believe any of the assurances provided to you by your manager/senior management .If it's something along the lines of,''we value our top performers'',''there will always be roles for exceptional people in our ( INSERT NAME OF COMPANY)'',"if you're giving better than your best/110% there's nothing to fear","We value people",''our core values are that we we treat our human capital professionally''.You should probably be packing up your stuff slowly and knocking out your hard drive before I.T. shuts off access.
3.Note though the sooner you leave,the better first mover advantage you will have over later leavers.Get into the market before the crowd.You're more likely to find employment else where,if you want to work again,especially for more junior/middle management roles.
4.On the flip side, if you stay what is the probability of a decent redundancy pay out?.Redundancy In your company this may be called ''voluntary or involuntary separation'' ,''right-sizing'',''role elimination'' or even ''redundancy".
5.If you do decide ''to stay'' and sit it out,consider what information you have on your operating environment about malfeasance or misfeasance.Any memos,emails,records of meetings? Get proof.Evidence is key,ideally these days of regulatory breaches.They're the juiciest. This will always be useful in severance 'negotiations' with HR later.
6.The restricted stock problem.If you were compensated in restricted stock mostly,you could try and get new co. to buy you out in real cash (unlikely but always worth trying it on.It's just a monetisation trade really) or ask for straight stock for stock swap on same terms.Failing that remember restricted stock is not real.The numbers might look big to you now,but the value depends on performance of the share price.How do you know if your current employer will even be in business a year from now?You can't eat stock,go down to Starbucks and try to pay for coffee in restricted stock.They will laugh you out of town.It's essentially an illusory not so golden handcuffs for middle managers.You won't really lose anything by letting it go if you really want to leave.
In the age of the adversarial consumer society,employees only owe a duty of care to one person.Themselves.
Good luck you crazy young things!
RB
A short guide to career due diligence, most of you already know this;but the late 20-something new meat has yet to be tenderised.This for them,l hope l'm giving something back to the young folks :
1.Do you believe top-down communication has been transparent and honest? I of course mean corporate 'honesty'.So not fraudulent counts as 'honest' in this context.
2.Do you believe any of the assurances provided to you by your manager/senior management .If it's something along the lines of,''we value our top performers'',''there will always be roles for exceptional people in our ( INSERT NAME OF COMPANY)'',"if you're giving better than your best/110% there's nothing to fear","We value people",''our core values are that we we treat our human capital professionally''.You should probably be packing up your stuff slowly and knocking out your hard drive before I.T. shuts off access.
3.Note though the sooner you leave,the better first mover advantage you will have over later leavers.Get into the market before the crowd.You're more likely to find employment else where,if you want to work again,especially for more junior/middle management roles.
4.On the flip side, if you stay what is the probability of a decent redundancy pay out?.Redundancy In your company this may be called ''voluntary or involuntary separation'' ,''right-sizing'',''role elimination'' or even ''redundancy".
5.If you do decide ''to stay'' and sit it out,consider what information you have on your operating environment about malfeasance or misfeasance.Any memos,emails,records of meetings? Get proof.Evidence is key,ideally these days of regulatory breaches.They're the juiciest. This will always be useful in severance 'negotiations' with HR later.
6.The restricted stock problem.If you were compensated in restricted stock mostly,you could try and get new co. to buy you out in real cash (unlikely but always worth trying it on.It's just a monetisation trade really) or ask for straight stock for stock swap on same terms.Failing that remember restricted stock is not real.The numbers might look big to you now,but the value depends on performance of the share price.How do you know if your current employer will even be in business a year from now?You can't eat stock,go down to Starbucks and try to pay for coffee in restricted stock.They will laugh you out of town.It's essentially an illusory not so golden handcuffs for middle managers.You won't really lose anything by letting it go if you really want to leave.
In the age of the adversarial consumer society,employees only owe a duty of care to one person.Themselves.
Good luck you crazy young things!
RB
Saturday, January 12, 2008
Merrill Lynch 4th Quarter write down hits 15$ billion:Abandon Ship
As you will see from Bloomberg,Marketwatch,and the International Herald Tribune,Merrill is now expected to report a 4th quarter write down of 15$ billion.Apparently far in excess of analysts expectations.Where these analysts get their numbers from l have no idea.None of them seem to be able to build accurate valuation models for Merrill.The problem is many of them are innumerate snake oil salesman,unable to count nothing more than the loose change in their own pockets.I said last year in a previous blog (see below 30 Dec 2007) I expected a 4th quarter write down of 15$ billion.So it is.
After the news was announced,the shares went up to around 54$.This is called a suckers rally.My own valuation model estimates of Q1 & Q2 2008 losses for ML show that there is at least another 9$ billion which will be written off by mid year on top of the 23$ billion to date.My valuation model is extremely robust since and has been coded by of the finest brain in the city,me.It's been bang on to date.
Although Mr Thain is hiring all his ex-Goldman buddies to strengthen senior management,no matter how great the management is,at the current rate of write downs,the company will simply run out of capital.My current calculations suggest it's only the cash from Sovereign Investment Funds et al that is allowing Merrill to meet it's current wage bills.Some of the SIFs will undoubtedly make money out of their positions in US investment banks and brokerages.Increasingly this looks unlikely at Merrill.Temasek would do well to dump it's stake while it's up.
The bonuses were announced last Thursday,if you're a smart employee you could do worse than to abandon ship once it's been paid into bank account.No one would blame you.It's called survival.
RB
After the news was announced,the shares went up to around 54$.This is called a suckers rally.My own valuation model estimates of Q1 & Q2 2008 losses for ML show that there is at least another 9$ billion which will be written off by mid year on top of the 23$ billion to date.My valuation model is extremely robust since and has been coded by of the finest brain in the city,me.It's been bang on to date.
Although Mr Thain is hiring all his ex-Goldman buddies to strengthen senior management,no matter how great the management is,at the current rate of write downs,the company will simply run out of capital.My current calculations suggest it's only the cash from Sovereign Investment Funds et al that is allowing Merrill to meet it's current wage bills.Some of the SIFs will undoubtedly make money out of their positions in US investment banks and brokerages.Increasingly this looks unlikely at Merrill.Temasek would do well to dump it's stake while it's up.
The bonuses were announced last Thursday,if you're a smart employee you could do worse than to abandon ship once it's been paid into bank account.No one would blame you.It's called survival.
RB
Friday, January 04, 2008
2008 Financial predictions
2008 Forecasts
Like most ill informed pundits,my 10 Forecasts for 2008.A lot of it wishful thinking.
1. Oil reaches $125 (mostly on supply disruption concerns).
2.Gold breaks $1100 per troy ounce.
3.Dollar hits 2.40/£.
4.US interest rates hit 2.5%
5.At least one major Wall Street firm is taken over/Goes to the Wall.
6.Northern Rock is officially nationalised.
7.Dow falls below 10,000.
8.Bank of England independence officially retracted.
9.$ hits further record lows vs €
10.Major US monoline insurer goes bust.
RB
Like most ill informed pundits,my 10 Forecasts for 2008.A lot of it wishful thinking.
1. Oil reaches $125 (mostly on supply disruption concerns).
2.Gold breaks $1100 per troy ounce.
3.Dollar hits 2.40/£.
4.US interest rates hit 2.5%
5.At least one major Wall Street firm is taken over/Goes to the Wall.
6.Northern Rock is officially nationalised.
7.Dow falls below 10,000.
8.Bank of England independence officially retracted.
9.$ hits further record lows vs €
10.Major US monoline insurer goes bust.
RB
