I am writing this with news just announced of Fannie Mae and Freddie Mac having been taken into public ownership. Such an event would have seemed inconceivable 12 months ago, but this latest event indicates the ability of the sub-prime crisis to continue to spread out and damage not just financial markets but the "real" economy as well. So how was the story first picked up by the financial media and what are the media and analysts saying was the starting point?
A search on Google News on "start of credit crunch" comes up with the first entry in Moneyweek, 11th July 2007 which had a piece titled "Is this the start of a global credit crunch."
According to Google News, the BBC was using the term a month later, with insights from leading financial analysts.
The Independent on Sunday has a good timeline and a major survey this August looking back to the start of the credit crunch in August 2007, going so far as to name August 9th 2007 and the closing of several funds by BNP Paribas due to sub-prime problems in the US as the starting point.
The BNP Paribas press announcement (English version) announcing the development still reads rather shockingly even with the benefit of hindsight. "The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating." Full marks to BNP Paribas for their transparency over the situation at that point - how many banks would have been so honest?
So what did the Financial Times have to say on those events back in August 2007? What is interesting is the potential severity of the situation was understood immediately by the Financial Times and its article the following day seem remarkably prescient. Bear Stearns the month before (July 2007) and then BNP Paribas were the first two markers in a timeline which leads to Fannie Mae and Freddie Mac. Where next?
Sunday, 7 September 2008
Thursday, 6 March 2008
Schadenfreude and a play on words
The collapse of Peloton or certainly of its major hedge fund has given the financial media a good news hook for its coverage of the story. Peloton is a term from cycling describing the mass of cyclists in a race, all bunched together. When one falls in the peloton he or she can bring down many others. For journalists that image is a powerful one suggesting wider ramifications not just the fall of one hedge fund.
Today's Financial Times (6th March) covering Pelton's public apology to its investors suggests that problems for hedge funds are increasing as banks are requiring much higher margins to lend to hedge funds. Mr Beller, the former Goldman Sachs trader who along with other Goldman Sachs' colleagues founded the company was quoted as saying "In some cases, he said, margin requirements doubled or tripled the cash required to be put up to buy loans – moves that also threaten other leveraged investors."
The remarkable collapse of Peloton's ABS Fund - valued at £2bn in January to near worthless today - has actually led so far to little schadenfreude on behalf of the media. Schadenfreude being the German word for pleasure in someone else's misfortune. But the fact that the banks are requiring so much extra margin to lend to even supposedly well run hedge funds, does illustrate that the business model of some or many hedge funds can be particularly vulnerable to external shocks. Perhaps it is time for all the major investors to take their money out of hedge funds and put them into a nice safe bank account - such as in Lichtenstein, as long as you have told the tax authorities.
Today's Financial Times (6th March) covering Pelton's public apology to its investors suggests that problems for hedge funds are increasing as banks are requiring much higher margins to lend to hedge funds. Mr Beller, the former Goldman Sachs trader who along with other Goldman Sachs' colleagues founded the company was quoted as saying "In some cases, he said, margin requirements doubled or tripled the cash required to be put up to buy loans – moves that also threaten other leveraged investors."
The remarkable collapse of Peloton's ABS Fund - valued at £2bn in January to near worthless today - has actually led so far to little schadenfreude on behalf of the media. Schadenfreude being the German word for pleasure in someone else's misfortune. But the fact that the banks are requiring so much extra margin to lend to even supposedly well run hedge funds, does illustrate that the business model of some or many hedge funds can be particularly vulnerable to external shocks. Perhaps it is time for all the major investors to take their money out of hedge funds and put them into a nice safe bank account - such as in Lichtenstein, as long as you have told the tax authorities.
Thursday, 21 February 2008
Northern Rock - end of the story?
This has been a story which has dominated British politics over the last six months. This week yet another new development which surely can never have been seen back in the summer - Nationalisation of the bank. For the Labour government this has been a very public humiliation but also for the UK financial establishment.
One of the aspects however of the Northern Rock crisis has been, in my judgement, the performance generally of the UK financial media. Many stories have been broken by the media in a timescale which may not have suited regulators and other bodies.
One of the aspects however of the Northern Rock crisis has been, in my judgement, the performance generally of the UK financial media. Many stories have been broken by the media in a timescale which may not have suited regulators and other bodies.
Thursday, 22 November 2007
Northern Rock shareholders take their argument to the airwaves
An interesting aspect of the Northern Rock saga, is its demonstration of how weak shareholders can be in terms of influencing executive action particularly when events are moving quickly.
By going quietly, understandably, to the Bank of England to get emergency loans, Northern Rock management has been party to what appears to be the total dilution of shareholder value, or as good as, and at the same time the influence of shareholders. Northern Rock last year, I think was worth £5bn, today it is worth less than £400 million.
No wonder the shareholders are taking their case to the media. Sadly there is very little sympathy for their case from the media because the main shareholders now are hedge funds looking to see what might happen as the carcase is picked over. However many small shareholders were/are Northern Rock employees who have worked for the company for many years.
The hedge funds are not used to being so ignored but it would appear they are potentially sitting on major losses if as expected that Northern Rock is sold for a nominal sum. Certainly the driving force in sorting out Northern Rock appears to the UK government via the Treasury and Bank of England. The board of Northern Rock essentially all resigned last week. It is not often you see a FTSE100 publicly quoted company with no details at all on main board, audit committee etc - take a look at the web site.
Might the shareholders take their case to the courts. Certainly it is being managed by government as though it is nationalised. What is its exact legal entity currently and might this have issues for any decisions taken in this interim period. When companies talk about running the company on behalf of shareholders - remember that does not include banks which have had to run to the Bank of England.
By going quietly, understandably, to the Bank of England to get emergency loans, Northern Rock management has been party to what appears to be the total dilution of shareholder value, or as good as, and at the same time the influence of shareholders. Northern Rock last year, I think was worth £5bn, today it is worth less than £400 million.
No wonder the shareholders are taking their case to the media. Sadly there is very little sympathy for their case from the media because the main shareholders now are hedge funds looking to see what might happen as the carcase is picked over. However many small shareholders were/are Northern Rock employees who have worked for the company for many years.
The hedge funds are not used to being so ignored but it would appear they are potentially sitting on major losses if as expected that Northern Rock is sold for a nominal sum. Certainly the driving force in sorting out Northern Rock appears to the UK government via the Treasury and Bank of England. The board of Northern Rock essentially all resigned last week. It is not often you see a FTSE100 publicly quoted company with no details at all on main board, audit committee etc - take a look at the web site.
Might the shareholders take their case to the courts. Certainly it is being managed by government as though it is nationalised. What is its exact legal entity currently and might this have issues for any decisions taken in this interim period. When companies talk about running the company on behalf of shareholders - remember that does not include banks which have had to run to the Bank of England.
Thursday, 15 November 2007
Barclays Capital - follow the flow of communications
A good opportunity to analyse the information flows related to Barclays Capital comes with today's rushed announcement to calm City concerns.
Last week major rumours swept financial markets that Barclays was in greater trouble than it was admitting over collaterised debt obligations (CDO). Barclays Capital, part of Barclays, and one of the main driver of profit for the group, had been one of the most aggressive operators in terms of handling and repackaging subprime mortgages. Interesting to note the intensity of the information flows around this topic of Barclays rumours. According to Google there are over 500,000 search results on the topic. I went to page 10 of these on the Google Search page and they were still highly relevant. A good example of an information "firestorm".
Today they have rushed out an announcement from Barclays Capital, see link above which has covered in great detail, Barclays treatment and exposure to collaterised debt obligations. Seems reassuring and initial coverage on the story seems to be reassuring markets.
Barclays share price at 1251, Thursday was: 533p up 6p on the day suggesting that markets take this positively. A good example of market transparency at work? Let's see the reaction tomorrow and later in the week.
Last week major rumours swept financial markets that Barclays was in greater trouble than it was admitting over collaterised debt obligations (CDO). Barclays Capital, part of Barclays, and one of the main driver of profit for the group, had been one of the most aggressive operators in terms of handling and repackaging subprime mortgages. Interesting to note the intensity of the information flows around this topic of Barclays rumours. According to Google there are over 500,000 search results on the topic. I went to page 10 of these on the Google Search page and they were still highly relevant. A good example of an information "firestorm".
Today they have rushed out an announcement from Barclays Capital, see link above which has covered in great detail, Barclays treatment and exposure to collaterised debt obligations. Seems reassuring and initial coverage on the story seems to be reassuring markets.
Barclays share price at 1251, Thursday was: 533p up 6p on the day suggesting that markets take this positively. A good example of market transparency at work? Let's see the reaction tomorrow and later in the week.
Wednesday, 14 November 2007
Syndicated loans - underwriters show how to run an issue campaign
A good example of how financial media can be used to develop an issue campaign can be seen by recent coverage on syndicated loans.
Syndicated loans is another area being affected by the spreading ripples of the subprime financial problems. Just as subprime mortgages are packaged up and sold off, so corporate loans are packaged up and sold off by the lead institution(s). However this has become increasingly difficult in the general and gathering credit problems and for example the backers of Boots, a massive management buyout, at the top of the market, has only been partially syndicated, leaving the lead banks nursing a potentially significant hangover on their balance sheets.
The conference, sponsored by Reuters, has highlighted that the major underwriting banks are refusing to discount the syndicated loans on their books unlike US banks. Other members of the large underwriting community, perhaps feeling the lack of business, are highlighting the role of some European banks which are not discounting below par i.e. taking a loss.
By bringing it to wider attention and media coverage, they are ensuring that the investment community will be discounting these loans on the underwriting banks' books and so in effect forcing them to probably start discounting over the coming months.
Syndicated loans is another area being affected by the spreading ripples of the subprime financial problems. Just as subprime mortgages are packaged up and sold off, so corporate loans are packaged up and sold off by the lead institution(s). However this has become increasingly difficult in the general and gathering credit problems and for example the backers of Boots, a massive management buyout, at the top of the market, has only been partially syndicated, leaving the lead banks nursing a potentially significant hangover on their balance sheets.
The conference, sponsored by Reuters, has highlighted that the major underwriting banks are refusing to discount the syndicated loans on their books unlike US banks. Other members of the large underwriting community, perhaps feeling the lack of business, are highlighting the role of some European banks which are not discounting below par i.e. taking a loss.
By bringing it to wider attention and media coverage, they are ensuring that the investment community will be discounting these loans on the underwriting banks' books and so in effect forcing them to probably start discounting over the coming months.
Thursday, 8 November 2007
What's in a word
Alot more than you think. The Financial Times today has highlighted the example of both Chuck Prince former CEO of Citigroup and Stan O'Neal, former CEO of Merrill Lynch both departed over the past week due to the sub-prime crisis and the impact this has had on their respective banks in terms of write-downs. They have both "retired" rather than "resigned". Take a look at the official announcement of Chuck Prince's departure on the
web site press centre I saw it a few days ago and did not pick up on significance of use of language.
Silly. As John Gapper of the FT points out today, there is a great deal of significance in the word. According to the article and because they retired not resigned, they will walk away with significant amounts in unvested shares i.e ones which he has not bought even at a low price but has been able to leave on the shelf until required. In the case of Chuck Prince this means a further $40million. So now we can see the reason for the delay in Chuck Prince's announcement. The lawyers were hard at work agreeing a statement and there was a great deal of signficance in the words. Good lesson - always remember to deconstruct the official statement, the use of words is invariably very important.
Gapper nicely brings into the piece the element of moral hazard about the deal. He says this is an example of moral hazard, encouraging potentially reckless behaviour. Brings us back to Northern Rock and Governor of the Bank of England. Do you remember that moral hazard was the very real concern he had when considering whether to support the bank or let it fail as he indicated when appearing before the House of Commons Parliamentary Finance and Treasury committee. Interesting how certain phrases which we may or may not have heard of or used before, suddenly become common currency for a while.
web site press centre I saw it a few days ago and did not pick up on significance of use of language.
Silly. As John Gapper of the FT points out today, there is a great deal of significance in the word. According to the article and because they retired not resigned, they will walk away with significant amounts in unvested shares i.e ones which he has not bought even at a low price but has been able to leave on the shelf until required. In the case of Chuck Prince this means a further $40million. So now we can see the reason for the delay in Chuck Prince's announcement. The lawyers were hard at work agreeing a statement and there was a great deal of signficance in the words. Good lesson - always remember to deconstruct the official statement, the use of words is invariably very important.
Gapper nicely brings into the piece the element of moral hazard about the deal. He says this is an example of moral hazard, encouraging potentially reckless behaviour. Brings us back to Northern Rock and Governor of the Bank of England. Do you remember that moral hazard was the very real concern he had when considering whether to support the bank or let it fail as he indicated when appearing before the House of Commons Parliamentary Finance and Treasury committee. Interesting how certain phrases which we may or may not have heard of or used before, suddenly become common currency for a while.
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