Derivatives

  • With co-CEOs, etc., there's no really satisfying picture for DB. Presumably this isn't Jain's fault.

    News

    Deutsche Bank Ignored Some “Losses” Until They Went Away

    Oh man, what is going on in this FT article? Here is the bottom line: In a series of complaints to US regulators, two risk managers and one trader have told officials that Deutsche had in effect hidden billions of dollars of losses. “By doing so, the bank was able to maintain its carefully crafted […]

    / Dec 6, 2012 at 9:38 AM
  • We need more pictures of him in his Sandy-relief outfit

    News

    Goldman Is Looking Forward To Making Less Money On Standardized Derivatives So It Can Make Much More Money On Non-Standardized Derivatives

    How can you not love listening to Lloyd Blankfein? He spoke at this Merrill conference this morning and here are the slides, whatever; he is not a PowerPoint presenter, he is a philosopher. Let’s talk Philosophy of Lloyd.1 Lloyd and I share a number of passions, I assert without evidence, but a quirky one is […]

    / Nov 13, 2012 at 12:50 PM
  • Quikster? Meh, I could take or leave it.

    News

    Who Is Doing What To Whom On Carl Icahn’s Netflix Trades?

    If I were the sort of guy who could come in to a company, yell at them a bunch, and get them to sell themselves to someone else at a premium, I would: do that often!, and buy lots of call options on the stock before doing it. Right? If I bought the call options […]

    / Oct 31, 2012 at 6:01 PM
  • I feel like if your name is "Skelly" you're pretty much destined to find oil in your backyard. "Levine," not.

    News

    JPMorgan Sold An Equity Derivative To A Tulsa Oil Heiress Too Unsophisticated To Appreciate Its Beauty

    A core belief here at Dealbreaker HQ is that we’d be really good rich people.1 No conservative 401(k)s and unborn-children-college-funds for us; we’d dedicate ourselves to lives of sybaritic excess. For me, that means that if someone wants to die and leave me an oil fortune, I’ll be putting Morandis on the wall, DRCs in […]

    / Oct 10, 2012 at 4:30 PM
  • SunTrust now has Zero Coke shares, he thought and then punched himself in the face.

    News

    Spoilsport Banking Regulators Ruin Another Derivative That Was Too Beautiful To Live

    Soon it will be time for Congress to shout at bankers about derivatives again and that’s fine, but allow me to indulge a bit in mourning for a derivative that Basel III killed today. That being of course SunTrust’s postpaid bifurcated collateralized variable share forward on its Coca-Cola stake: SunTrust Bank’s third quarter is about […]

    / Sep 6, 2012 at 7:23 PM
  • ELECTRICITY!

    News

    When Morgan Stanley’s Merger Bankers Say No, Its Derivatives Bankers Say Yes

    I very much enjoyed this Morgan Stanley electric shenanigans case that settled yesterday. According to the complaint, this happened: KeySpan, an electric generator, realized that prices for electric generation would be going down as more capacity came online. It decided to keep up prices by cutting back its own generation. But that’s dumb, because then […]

    / Aug 8, 2012 at 5:05 PM
  • JSDIAMOND02.JPG

    News

    The City Of Baltimore Didn’t Need To Subsidize Your Mortgage Through Libor

    We talked the other day about municipalities and the Libor shenanigans. Quick recap: 1) Municipalities wanted long-term fixed-rate debt. 2) They got it indirectly by selling long-term floating-rate debt and buying interest rate swaps from banks. 3) At first, this was cheaper than issuing fixed-rate debt.* 4) Later, though, sometimes it turned out to be […]

    / Jul 13, 2012 at 6:11 PM
  • Whaledemort

    The Whale and the Quants

    If you’d like some non-real-time insight into the London Whale, may I highly recommend this oral history, by Edinburgh sociologists Donald MacKenzie and Taylor Spears, of how investment banks came to price and trade and hedge things like the index CDS that the Whale dabbled in? It made me tear up a little. It is […]

    / Jun 13, 2012 at 11:19 AM
  • News

    Paying Bankers In Derivatives Worked Out So Well For Credit Suisse, Let’s All Do It

    BreakingViews has a couple of posts up about one of my favorite things in the financial universe, Credit Suisse’s habit of paying its bankers in structured credit instruments that take pages to describe. How’s that going? Great: Three years ago, around 2,000 employees were forced to take some $5 billion of the riskiest assets from […]

    / Jun 12, 2012 at 3:53 PM
  • Banks

    Spare Some Worrying For Ratings-Triggered Collateral

    Remember how a week ago people went around bothering themselves about Bank of America’s derivatives? Specifically how if they get downgraded, as seems plausible, they will have to come up with a zillion more dollars for derivative collateral? And how earlier this week they did the same for Morgan Stanley? Anyway we talked about it […]

    / May 11, 2012 at 6:22 PM
  • News

    The Tale Of A Whale Of A Fail

    Hi! Would you like to talk about the London Whale? Sure you would. The amount of misunderstanding of our poor beleaguered beluga is staggering, so I figured we could try to embark on a voyage of discovery together. Maybe we’ll figure it out. Along the way we’ll talk a tiny bit about the Volcker Rule. […]

    / May 11, 2012 at 2:36 PM
  • News

    Let’s Worry About Bank of America’s Collateral Triggers

    I occasionally entertain myself thinking about this set of puzzles: (1) It is good for financial regulators and probably, let’s say, the world, if creditors are slow to pull money out of banks that run into trouble. In particular you don’t want everyone to want to move first and get their money out well before […]

    / May 4, 2012 at 6:39 PM
  • News

    Marvel At The Derivative On Its Derivatives That Credit Suisse Wrote To Itself

    Financial news is very serious business and you should probably fret more than you do about the economy and the banksters and the muppets and the homeowners and so forth. Some things, though, are best viewed as purely aesthetic triumphs, and your reaction should just be an appreciative whistle. This starts slow but stick with […]

    / Apr 25, 2012 at 4:33 PM
  • Banks, News

    Investors Want To Put All Their Run-Off-With-My-Money Risk In One Place

    One way I like to imagine the world is that there’s sort of a constant amount of financial risk and entropy tends to increase, so that as time goes by everyone increasingly ends up facing the same financial risks as everyone else (though quantities and leverage vary) and idiosyncratic risk is a rare and beautiful […]

    / Mar 30, 2012 at 3:04 PM
  • 100511-James-Gorman

    News

    Derivative Accomplishes Purpose And Unwinds At Market Price

    You can read the Jamie Dimon “Don’t gloat about how bad Goldman is. Did you hear me? Don’t gloat about how BAD GOLDMAN IS. The fact that GOLDMAN is BAD is of no interest to our clients. Or the press. Don’t leak this to the press!” memo two ways. One is, y’know, what it sounds like: Dimon gets to score some easy/meta points by spreading it around that his business practices are so superior that he doesn’t even need to spread it around that his business practices are superior. The other is that making money off of clients isn’t something invented at Goldman Sachs and anyone at JPMorgan who throws stones is likely to be clonked on the forehead by a ricochet. (Or possibly by a deranged fictional whistleblower!*)

    The latter interpretation is probably right for James Gorman’s more full-throated defense of Goldman because whoops:

    / Mar 16, 2012 at 12:36 PM
  • News

    Greek Debt Management Guy Thought His Partners In Obscuring The National Debt Would Be The Last People To Rip Him Off

    Bloomberg’s story about the Greece-Goldman swap-debt-whatever kaboodle, so let’s talk about the philosophy of derivatives for a minute. First the story:

    Greece’s secret loan from Goldman Sachs Group Inc. (GS) was a costly mistake from the start. On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said.

    There are at least three reasons to use derivatives. First you could be into some actual informed shifting of risks from those who want to pay to get rid of them to those willing to be paid to bear them, or from those who have Risk X and want Risk Y to those who etc. Boy are there a lot of textbooks that talk about this. And I suppose it even happens sometimes. You could imagine that a vanilla interest rate swap entered into by a corporation on its bonds or credit facility could qualify as this. I guess people who trade listed options to do covered-write strategies or speculate on takeovers or whatever fall in this category, maybe modulo the “informed.” (Sometimes!)

    Then there’s tax and regulatory arbitrage. This is time-honored and much of it, particularly the stuff with the best names, is focused on tax dodging, but there are also various other regimes – securities laws, accounting, whatever – that you might want to get around with derivatives. Paying $10 for CDS with a maximum payout of $10 purely to lower your capital requirements is a recent amusing/egregious example.

    The thing that wasn’t mentioned in the CFA Level I derivatives primer is principal-agent arbitrage. This is … first of all, let’s say this isn’t a derivatives issue, or a financial-industry issue, it’s like a life issue. (Some would say it’s why there’s an M&A business, for instance.*)

    But it’s also a derivatives issue! And you can see why if you’re as baffled as I am by the Bloomberg story. So this:

    / Mar 6, 2012 at 6:48 PM
  • Basel. Where the BIS is. I'm getting more and more into soothing photos of architecture. Enjoy!

    News

    BIS Paper Reminds Us That All’s Well In The Derivatives Market

    The gnomes at the Bank for International Settlements have produced a particularly gnomish paper called “Collateral requirements for mandatory central clearing of over-the-counter derivatives.” Wait! It might be important! Hear them out. (There’ll be charts …) Their goal is to measure how much more cash collateral the big dealer banks will need to encumber to […]

    / Mar 6, 2012 at 3:44 PM
  • News

    New Rules May Prevent Banks From Blowing Themselves Up For Cheap

    If you’re in a certain line of work, and I bet you are, then your main concern about things like the Volcker Rule and increased capital requirements for banks is that they might reduce your comp. If you’re in that line of work, you’re also probably the sort of person who has a higher than […]

    / Feb 8, 2012 at 3:46 PM

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