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Archive for October 2011
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Posted in:
Banks
So Maybe Citi Created A Mortgage-Backed Security Filled With Loans They Knew Were Going To Fail So That They Could Sell It To A Client Who Wasn’t Aware That They Sabotaged It By Intentionally Picking The Misleadingly Rated Loans Most Likely To Be Defaulted Upon, So What?
By Matt Levine
Citi today paid out some of its DVA gains to settle SEC charges that it sold investors a CDO-squared that facilitated its own naked CDS purchases on the underlying CDOs, while misleading investors into thinking that an independent collateral manager selected the underlying portfolio. If my grandmother reads Dealbreaker she’s now stopped.
Anyway. I’m proud of my time at Goldman, which I thought was a great place filled with smart and ethical people (really) and which also was a market leader in many areas, including paying fines for fraudulent CDO structuring fraud. In that line of business we were first both in time and in market share, settling Abacus for $550mm in July; JPMorgan’s $153.6mm Magnetar settlement came a week later and Citi didn’t get around to their $285mm entry (and Credit Suisse’s $2.5mm addition) until today.
Now, maybe it’s just my Goldman bias talking but I never really got the outrage at these things, which always seemed to come from importing an already incorrect understanding of how nonfinancial transactions work into a market-making, two-sided, financial markets context. But reading the Citi CDO documents, which are fascinating, I think makes it a little more comprehensible.
There are five points to which your free-floating rage could maybe attach:
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Much to one Wall Street Occupier’s disappointment. Continue reading »
In his tenure as CEO of Morgan Stanley, bonuses have been a bit of a sore spot for James Gorman. Last year he swore to god that he would “personally escort” anyone caught leaking numbers out of the building, earlier this month he was said to have suggested that things will be way, way down from last time around, and now? He can’t even look at you. Continue reading »
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Posted in:
Hedge Funds
If You Only Read One 110-Page Presentation On Coffee Today, Make It This One
By Bess LevinIf you’re jammed and don’t have time for that, just skip to the last slide to check out David Einhorn’s breathtaking foam artistry:
Otherwise, proceed. Continue reading »
Morgan Stanley profit boosted by accounting gain (Reuters, press release)
Morgan Stanley (MS.N) reported a third-quarter profit, reversing a year-earlier loss, helped by a large accounting gain that stemmed from declines in the value of its debt. The second-largest U.S. investment bank earned $2.15 billion, or $1.15 per share, compared with a loss of 7 cents per share a year earlier. Revenue climbed 46 percent to $9.89 billion. Excluding a gain of $3.4 billion from debt valuation adjustment, Morgan Stanley earned 2 cents per share.
Banks’ Files Are Seized (WSJ)
European officials are scrutinizing an interest rate called the Euro Interbank Offered Rate, or Euribor, people familiar with the situation said. Euribor, set by more than 40 banks, is a benchmark used to determine interest rates on trillions of euros worth of euro-denominated loans and debt instruments. … The Euribor rate-setting panel includes some of Europe’s biggest banks. A list of financial firms raided Tuesday by the European Commission, which is the executive branch of the European Union, wasn’t available. But among the targets were a large French bank and a large German bank, people familiar with the situation said. The coordinated raids occurred in London and other European cities, these people said.
Groupon set to launch roadshow (FT)
The US IPO market has been virtually shut since August. But the first exchange-traded IPO in two months, Ubiquiti Networks, came off last week. Another deal priced on Tuesday. Zeltiq Aesthetics, which develops weight loss tools, successfully sold $91m worth of shares after the market closed, although again they priced below the expected range, at $13 a share, versus a target of $15 to $17. JPMorgan and Goldman Sachs were the lead managers on the deal. However, the market remains challenging. On Tuesday, insurer Liberty Mutual withdrew a $1.3bn IPO of a subsidiary unit, and oil and gas group Williams withdrew a $750m offering of its exploration unit. The volume of US IPOs this year is still set to double last year’s total, at $34.5bn so far versus $17.8bn at the same time last year, according to Dealogic, following a boom in offerings in the first half of the year, including LinkedIn’s $352m offering in May.
Occupy Wall St. pepper-spray cop Anthony Bologna loses 10 vacation days for violating NYPD rules (NYDN)
The NYPD found that Bologna violated departmental guidelines and docked him 10 vacation days, or the equivalent amount of pay, police sources said. … Shortly after midnight, actor Alec Baldwin showed up at Zuccotti Park. “You slept here for two days?” he asked Nina Montgomery, 18. “I slept like a baby,” she answered. “I woke up with cameras in my face. Maybe you’re used to that, but I’m not.”
Town under siege: Lions, tigers, bears escape Ohio preserve and run amok (NYP)
Officers armed with assault rifles patrolled Zanesville Wednesday morning, a day after police killed dozens of animals that escaped from a wild-animal preserve, and where the owner’s body later was found. Warning that more animals still were on the loose, officials expected up to four school districts to cancel classes as the remaining bears, big cats and other beasts from the Muskingum County Animal Farm were hunted down. “These are wild animals that you would see on TV in Africa,” Sheriff Matt Lutz said at a press conference. He told residents to stay indoors and sent updates to them via Twitter.
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$$$ Bank of America is “knocking it out of the park” with third-quarter revenue that beat analysts’ estimates by almost $3 billion, said Michael Holland, chairman of New York-based investment firm Holland & Co. The $28.7 billion in revenue “is a big number,” Holland said today. [Bloomberg]
$$$ “There is a myth that the Greeks don’t work many hours. This is a big lie,” Chrysochoidis said. “The reality is that the Greek people work more than any other country in the European Union.” [CNBC]
$$$ The Road To Business School [BW]
$$$ Los Angeles faces tens of millions of dollars in additional borrowing costs after the City Council told anti-Wall Street protesters it intends to cut ties with banks involved in financial wrongdoing, Administrative Officer Miguel Santana said. [Bloomberg]
$$$ Are you smarter than a Wall Street Occupier? [Daily Intel] Continue reading »
If you are in the business of selling derivatives you have to value them from time to time, because counterparties want to know what their thing is worth, and regulators want to know how deep in the hole you are. This is not always as easy as valuing a stock by just going out and getting a quote. But the principles can be stated sort of simply: you just take an integral of your net discounted cash flows over every possible future state of the world, appropriately probability weighted.*
Easy to say, but hard to do, because you have only so much direct access to possible future states of the world. Fortunately there are rules of thumb for this, of greater or lesser reliability, which exclude the unlikely and immaterial states of the world (your BAC warrants are worth zero if the world ends this Friday, but that’s unlikely; you’re perhaps equally likely to eat a bacon bowl or a salad for lunch tomorrow, but your choice will have only an immaterial effect on the value of your BAC warrants). All of these methods, however, provide only market-sanctioned guesses about the fair value of your derivatives; if the future world moves in ways not contemplated by the moving parts of your model your calculations are just wrong.
This is, I’ve always thought, a nice way to think of the world, and certainly more conceptually satisfying than “it’s worth what people will pay for it” or “it’s worth what the formula says.” And once you get into thinking of things this way, you can have fun thinking of all the possible things that (1) are not trivially unlikely and (2) would have a not trivial effect on your stuff.
Like, it turns out, your own demise. Continue reading »
Feeble-brained CEO’s worldwide–you’ve been warned. [FINalternatives]
Though she need no introduction, for the uninformed, Diane Passage is a former Scores girl, former wife of money manager/convicted Ponzi schemer Kenneth Starr and full-time hustler/life coach. Recently she’s been making the rounds doling out advice to current and would-be Wall Street wives and today offered the women of the world 8 tips for “how to have men eating out of your hand.” What does this have to do with you? While some of her suggestions have little relevance, others can be readily applied to your situation, like repeating the mantra “My presence is a gift- I know my value” come bonus time, remembering it’s your “right to act bitchy on occasion” before going into major negotiations, and, particularly if you work at a Swiss bank “I can create my own outcome and accomplish any goal.” Continue reading »
Prior to his turn as an investment banker/research analyst/junior trader/private wealth manager/PE guy in Money Never Sleeps, Shia Labeouf spent a lot of time on the Street, learning the tricks of the trade. At the Encino Charles Schwab office, he learned how to turn $20,000 into $489,000 in less than three months. A Citi, he learned how to program Bloomberg into his speed dial. At John Thomas Financial, he learned how to trade on his flip-phone. And at a diner in Lower Manhattan, after hesitating on American or Cheddar, he learned the hard way how one does and doesn’t get a job at Goldman Sachs. Unfortunately, one bit of wisdom Shia’s guru’s never thought to instill in him was how to go head to head with Marilyn Manson or take a punch from a shirtless guy in Canada. Continue reading »
