Financial institutions normally prefer not to have everyone think they’re a shitty credit, because that can lead to doom, or MF Doom, or glitchy intimations of doom that quickly get sorted. But it can also sometimes lead to profit.
Sometimes that profit is fake, or fake-ish. When banks book a mark-to-market profit on their own credit spreads widening, that looks … a little fake. We don’t particularly object here, since it reflects a sort of economic reality, but it is probably temporary – your liabilities roll forward and eventually either you pay them off at par, in which case your DVA gains fritter down to zero through PnL, or you don’t, in which case the permanency of your accounting gains are not of much interest to most people.
In any case, because it looks fake, or fake-ish, banks actually don’t much abuse the privilege. Thus most of the DVA gains that banks booked last quarter were on derivatives, where US GAAP requires you to mark DVA to market, or on derivatives-looking things like structured notes where it seems more plausible than not. You don’t see a lot of banks taking a lot of DVA gains on vanilla debt.
So when you have $295bn of public debt (with, I don’t know, maybe a 2 year weighted average duration, whatever) and your CDS blows out by 300bps in a quarter, you don’t book $18 billion of gains. You book, um, $4.5 billion. You never get to taste most of that delicious credit widening.
Now, if only there were a way for a bank to (1) get a gain on its vanilla public debt and (2) make it permanent. Like, say, this, from Bank of America’s 10-Q filed today:
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“As Interactive Brokers continued its dive into MF Global’s books, signs of exhaustion among the participants grew. J. Christopher Flowers, the MF Global investor and former Goldman executive, was spotted at the talks on Sunday wearing mismatched shoes.” [Dealbook]
…despite a cold, relentless November rain Wednesday night, several hundred people marched to the Sheraton Hotel in downtown Seattle, where Dimon was a keynote speaker at an awards ceremony for the University of Washington’s Foster School of Business. Sixth Avenue in front of the hotel was closed to traffic for less than an hour as protesters tried to block hotel entrances by locking arms. Police used pepper spray to clear a side entrance near the corner of Pike Street and Seventh Avenue so hotel patrons could enter or leave. The protest began at 6 p.m. and lasted 3 ½ hours. They stood outside and chanted slogans, while people inside sipped cocktails and looked down from a reception area with curiosity. The number of protesters dwindled after about an hour because of rain, but more than 100 stayed on to stake out the hotel. They left at 9:30 p.m. after learning that Dimon had reportedly left about 9 p.m. [Seattle Times]
In 2003, things were going pretty well for Todd J. Remis. Great, even. The equity research analyst had left Warburg Pincus Asset Management to found Hygrove Partners LLC, he was living the good life in New York City and he’d recently married Latvia native Milena Grzibovska. The wedding was an intimate affair that included less than 40 guests and took place at Castle on the Hudson in Tarrytown. A proud husband, Remis sent a photo of the happy couple to his alma mater for inclusion in its newsletter, for all his former Bowdoin College classmates to see.
Fast forward six years, and things were going less swimmingly for Todd. For starters, the Chicago Booth grad’s marriage had hit the skids, with a separation in 2008 and an official divorce by 2010. Additionally, he was unemployed, having been laid off or fired from his job at Legg Mason’s ClearBridge Advisors. And with that kind of loss and time on his hands, Todd wanted nothing more than to sit around looking at photos of memories past, specifically of the day he married Milena. Only Todd couldn’t do that, could he? At least not in the way he wanted to, which was by going through the photos chronologically, very beginning to very end, from Milena getting dressed to the bouquet toss to the last dance, laughing, crying, wiping his tears with each shot, laying down naked on a pile of them scattered on the bathroom floor and remembering how he felt that day. The reason he couldn’t do that? Because someone FUCKED Todd, good and hard. And the more Todd thought about it, the more he decided that he had to make that person pay. Continue reading »
In the 48 days since the airing of grievances against Wall Street began, New York-based protestors have mostly remained in their headquarters at Zuccotti Park (Broadway & Liberty Street), with day trips uptown to visit JPMorgan, Bank of America, Citigroup and John Paulson. The group has plans to migrate west today at noon, when they’ll “march on Goldman Sachs” and “ask for something our judicial and legislative systems have so far failed to deliver – the return of billions of taxpayer dollars to the 99 percent and criminal sentences for those Goldman Sachs executives who carried out the fraud.” Perhaps not being able to wait another second to see Lloyd et al, however, a few members of the group apparently got a head start last night. Continue reading »
Europe Gives Greece An Ultimatum (WSJ)
“Does Greece want to remain part of the euro zone or not,” German Chancellor Angela Merkel said. “That is the question the Greek people must now answer.” French President Nicolas Sarkozy said the Greeks would get no more euro-zone rescue aid—”no French taxpayer money, no German taxpayer money”—until the question is answered. Without aid, Greece would be bankrupt within weeks.
Report: Papandreou to Resign; Greece to Form Coalition (CNBC)
Papandreou will meet Greek President Karolos Papoulias immediately after an emergency cabinet meeting has finished. He is expected to offer to resign and offer a coalition government in place of the current administration, with former Greek central banker Lucas Papademos at the helm.
Defections Deepen Greek Debt Crisis (WSJ)
Greek Prime Minister George Papandreou called an emergency cabinet meeting Thursday after more defections by his socialist party’s lawmakers over his surprise plan for a euro referendum erased his majority in Parliament. Also coming out against the plan was Finance Minister Evangelos Venizelos, who like other cabinet colleagues, wasn’t informed of Mr. Papandreou’s plan before the surprise announcement on Monday. Mr. Venizelos said in a statement he is against a referendum that essentially will decide whether Greece remains in the euro zone.
ECB cuts rates in surprise move (Reuters)
The European Central Bank cut interest rates by a quarter point to 1.25 percent in a surprise move on Thursday, acting boldly to support the ailing euro zone economy at President Mario Draghi’s first policy meeting in charge…The decision to cut rates was unexpected and came despite inflation in the 17-country euro zone staying at 3.0 percent for a second month running in October, well above the ECB’s target of just below 2 percent. “What a starter. It is obvious that the ECB has caught the crisis virus and is trying everything it can to prevent a full-fledged recession,” ING economist Carsten Brzeski said.
Facebook figures in Des Moines arson case (DMR)
Officials said the fire at 1 a.m., caused a popping sound and then a “boom.” The family was sleeping at the time but the sounds alerted family members to the danger. They managed to escape as the siding on their house began to melt from the heat of the fire in the detached garage. The roof of the garage collapsed on cars stored in the garage. Other stored property also was lost in the blaze. Officers asked Jim Rasmussen if anyone would want to harm him of his family and he provided the name Jennifer “Jen” Harris. He said Harris was a long-time friend of his wife but they were now involved in a dispute. A police report says that when an officer asked Nikki Rasmussen about Jen Harris, Rasmussen said “… the two are no longer friends due to a dispute over Facebook. According to Nikki, Jen is angry with her because she ended their friendship on Facebook.” Continue reading »
Mr. Miller, 23, is the founder of Heritage Lawn Mowing, a company that rents out sheep — yes, sheep — as a landscaping aid. For a small fee, Mr. Miller, whose official job title is “shepherd,” brings his ovine squad to the yards of area homeowners, where the sheep spend anywhere from three hours to several days grazing on grass, weeds and dandelions. The results, he said, are a win-win: the sheep eat free, saving him hundreds of dollars a month in food costs, and his clients get a freshly cut lawn, with none of the carbon emissions of a conventional gas-powered mower. (There are, of course, other emissions, which Mr. Miller said make for “all-natural fertilizer.”)…As an uncertain economy and a stagnant hiring climate continue to freeze people out of the traditional job market, a number of entrepreneurs like Mr. Miller, many of them in their 20s and 30s, are heading back to the land, starting small agricultural businesses. And in the process, they are discovering that modern homesteading offers more rewarding work, and possibly more security, than entering the white-collar fray. [NYT]
If the 1% thought they were welcome, they were sorely mistaken. Suit up elsewhere. Continue reading »
