Dexia

  • 11 Jul 2013 at 3:05 PM

Deutsche Bank Did Some Accounting Stuff

I used to work in a business that, among other things, helped clients get financing against securities. One thing that you learn quickly in that business, and then spend the rest of your career trying to forget, is that the simplest way to get financing against securities is to sell them. You’ve got $100 of stock and want to borrow $80 of cash against it? Just sell the stock, now you have $100, you’re welcome.1

This is not a perfect solution, of course, because you presumably owned the stock for a reason, and that reason was presumably that you thought it would go up.2 And if you sell it you lose the chance to participate in that upside. So one thing you could do is (1) sell your stock for $100 today and (2) enter into some sort of transaction that gives you some or all of the upside in the stock over some period of time. Like, you could buy a call option struck at $100, giving you all the upside and none of the downside, though at the cost of having to pay premium for the call option. Or you could enter into a total return swap struck at $100, giving you all of the upside and all of the downside at a zero-ish cost. Or you could enter into a forward contract to buy back the stock, which is the same as the swap, more or less. That last one – sell stock today, enter into a forward to buy it back in the future – is so common that it has a name, and the name is “repo.” Read more »

A while back Bear Stearns sold some mortgage-backed securities to a thing called FSAM, which was basically a subsidiary of Franco-Belgian monstrosité Dexia, and FSAM sold the RMBS on to Dexia, and the mortgages were all terrible, and their value dropped, and Dexia sued JPMorgan, currently the proud owner of Bear Stearns, and today JPMorgan won:

JPMorgan Chase & Co has won the dismissal of the vast majority of a lawsuit accusing it of misleading the Belgian-French bank Dexia SA into buying more than $1.6 billion of troubled mortgage debt.

The decision, made public Wednesday by U.S. District Judge Jed Rakoff in Manhattan, is a victory for the largest U.S. bank, in a case that gained notoriety after emails and other materials were disclosed that suggested the bank and its affiliates knew the debt was toxic, but sold it anyway.

Despite the notoriety this is kind of a boring case: it’s a garden-variety RMBS fraud case; Bear said various things in the offering documents that maybe weren’t so true, and the market crashed and the investors lost a lot of money, and now they’re mad. There’s like a zillion of those cases; actually there’s like a zillion of those cases just against Bear Stearns (here are two).

But the fact that the bank won is pretty interesting? Like, if JPMorgan can win a garden-variety RMBS case then so can anyone? I guess? So I suppose it’s worth spending a minute figuring out what this means for other banks.

We run into immediate problems because it’s hard to know exactly why JPMorgan won; the judge’s order is two pages of “opinion to follow.” But reading JPMorgan’s submissions you can get behind CNBC’s interpretation: Read more »

  • 02 Jan 2013 at 1:20 PM

Dexia Liquidation Plan Foresees A Dexia In 12 Years

Dexia almost collpased more than a year ago. But it’ll still be around in 2025, according to its wind-down plan. Read more »