Opening Bell: 11.21.08


Citi Group Eyes Options, Including Merger (Reuters)
After the losses over the last week the Citi board is looking for options, and futures are up on expectations. I don't know what there's going to be for them on the street, though, outside of liquidation and absorption into other firms.
To the point of liquidation, MS has already weighed in with a resounding "no", while JP Morgan isn't saying much - but I doubt that after the WaMu integration and writedowns they're going to have a lot of capital reserve to work with. Barclays doesn't have much on the table, either - and BofA is at capacity. I think if we're going to see Citi unwind, it's going to have to be slow and methodical: I'm sure someone will pick up the consumer deposits, but the rest of the company is probably looking at much less pleasant times.
Harkin Moves Forward With CDS Exchanges (WSJ)
"Senate Agriculture Committee Chairman Tom Harkin plans to introduce a bill Thursday that would force all over-the-counter derivatives, including credit-default swaps, onto regulated futures exchanges."
Not an unusual or ill-timed move; ICE and the CME have both been pushing forward with their plans for a CDS exchange. The exchange will allow for better regulation of the instrument, which few people actually take the time to understand (though of recent, everyone seems to be talking about them).
BNP IB Unit To Face Bonus Cuts (Bloomberg)
"Europe's third- biggest bank, may cut bonuses by more than 70 percent at its corporate and investment bank after profit plunged in the first three quarters of the year."
It's only a matter of time, BNP, before Cuomo finds a way to annoy the shit out of you, too.
All US Financials To Be Nationalized (CNBC)
Eclectica Asset Management CIO Hugh Hendry is under the impression that all or at the very least the vast majority of US Financial institutions will be under the thumb of the Senate by the end of the year. While the argument isn't fully detailed, I imagine it's a variant of the tried and true "too big to fail".
Paulson Questions Wall St Pay (WSJ via DJNW)
"Mr. Paulson, who had a lucrative career on Wall Street, also questioned compensation practices of the financial-services industry, saying policymakers need to ensure those practices don't "encourage unsafe and unsound risk-taking or reward failure.""
"And he took aim at the practice of slicing and dicing loans and packaging them for sale to investors, saying there needs to be a "wholesale review" of such securitization."
Usually casting stones is a diversionary tactic, the idea being that if you attack something that everyone dislikes, you'll draw the attention off of yourself long enough that maybe no one will notice how monumentally you fu*#ed things up. I can only imagine that's what Paulson's trying to accomplish, as there's absolutely jack shit wrong with tranching. Let's review the basics: it distributes default risk across a pool, and it allows for the segmentation of risk classes among risk seekers. Tranching had absolutely nothing to do with the current credit crunch; that's a myth that needs to get dispelled quickly.
If you're going to point fingers, it would be wise to start with the mental powerhouses that are the Regional banks. The Regionals, for those of you late to the game, issued loans to speculative contractors, and then facilitated the issuing of loans to cover the original loans, increasing their bottom line. This is only a problem when you consider that they knew that the second round of loans could be packaged and sold - meaning they didn't face any of the default risk - and the first round couldn't, which in turn means it was in their interest to make risky loans to cover their in-house loans. America got screwed by the bank at the street corner, not the one on Broad Street.
--William Richards


Opening Bell: 11.21.12

Germany Hints At More Financing (WSJ) Germany on Wednesday signaled its willingness to provide additional financing for the euro zone's bailout fund and accept lower interest on loans to Athens, in order to get the Greek rescue back on track and free the next tranche of about €44 billion ($56.40 billion) in loans for the euro zone's weakest member. Merkel Sees Chance For Greek Deal Monday (Reuters) "I believe there are chances, one doesn't know for sure, but there are chances to get a solution on Monday," Merkel told the Bundestag lower house of parliament in a debate on the German budget. But the longing for one act, one miracle solution, one truth that means all our problems are gone tomorrow...this will not be fulfilled. What was neglected over years, over decades, cannot be taken care of overnight and therefore we will need to continue to move step by step." H-P Says It Was Duped (WSJ) The technology giant said that an internal investigation had revealed "serious accounting improprieties" and "outright misrepresentations" in connection with U.K. software maker Autonomy, which H-P acquired for $11.1 billion in October 2011. "There appears to have been a willful sustained effort" to inflate Autonomy's revenue and profitability, said Chief Executive Meg Whitman. "This was designed to be hidden." Michael Lynch, Autonomy's founder and former CEO, fired back hours later, denying improper accounting and accusing H-P of trying to hide its mismanagement. "We completely reject the allegations," said Mr. Lynch, who left H-P earlier this year. "As soon as there is some flesh put on the bones we will show they are not true." Analysts Had Questioned Autonomy’s Accounting Years Ago (CNBC) Paul Morland, technology research analyst at broking and advisory house Peel Hunt, told CNBC that he had noticed three red flags in Autonomy’s accounts in the years leading up to the HP acquisition: poor cash conversion, an inflated organic growth rate, and the categorizing of hardware sales as software. London Bankers Become Landlords as Rents Hit Record (Bloomberg) Vivek Jeswani became a landlord by accident when Deutsche Bank AG (DBK) transferred him to New York two weeks after he moved into a new home in central London. Now back in the U.K., Jeswani views the apartment in Baker Street, the fictional home of Sherlock Holmes, as one of his best assets and is about to buy another home to expand his rental business. “There are no other investments as attractive and you’ve got some security if you’ve got an asset you can use yourself,” the 36-year-old risk officer at China Construction Bank Corp.’s U.K. unit said. “There’s a good yield over 5 percent and being in central London, you’ve got demand domestically and internationally.” Trading Charges Reach SAC (WSJ) The hedge funds reaped $276 million in profits and losses avoided based on that information, criminal and civil authorities said—far dwarfing that of any previous insider-trading case. The bulk of the trading profits generated by Mr. Martoma was paid to Mr. Cohen, a person close to the hedge fund said. Fed Still Trying To Push Down Rates (WSJ) Fed Chairman Ben Bernanke suggested that the central bank will keep trying to push down long-term interest rates in 2013, as federal tax and spending policies become a more substantial headwind to the U.S. economy. "We will continue to do our best to add monetary-policy support to the recovery," Mr. Bernanke said at the New York Economic Club, answering a question about how the Federal Reserve would respond to impending spending cuts or tax increases that might restrain economic growth. 'Stiletto Surgery' alters pinky toe for better fit (Fox) These days, some women will do just about anything to fit into their favorite pair of high heels – including surgery. A growing number of women are paying thousands of dollars to surgically alter their feet just to make wearing heels a more comfortable experience. Surgical procedures such as shortening toes, receiving foot injections and even completely cutting off pinky toes are on the rise. “Unless you’ve been there, and you can’t find shoes, and you’re in pain, don’t judge,” said Susan Deming, a patient who recently underwent a toe-shortening procedure. Adoboli’s Fate Decided at Wine Bar as UBS Market Bets Unraveled (Bloomberg) On a cool late summer evening last year in London’s financial district, with the euro-zone crisis worsening and Greece tottering on the edge of default, Kweku Adoboli says he asked the three traders who worked with him at UBS AG’s exchange-traded funds desk to join him for a drink. Adoboli said in a post on his Facebook page that he needed “a miracle” as his bets on the market imploded. That night at a wine bar across the street from their office, Adoboli asked John Hughes, the senior trader on the ETF desk, and two junior traders, what to do. The others decided he should take the blame for billions of dollars in losses and an elaborate web of secret trades in what he called an umbrella account that once held $40 million in hidden profits. “I knew I was going to lose my job anyway, I had already resigned myself to that, so fair enough,” the 32-year-old Adoboli testified last month about the meeting, which the other traders deny took place. Jobless Claims in U.S. Decrease (Bloomberg) Fewer Americans filed applications for unemployment benefits last week as damage to the labor market caused by superstorm Sandy began to subside. Jobless claims decreased by 41,000 to 410,000 in the week ended Nov. 17, the Labor Department reported today in Washington. The number of applications matched the median forecast of 48 economists surveyed by Bloomberg. Soros Buying Gold as Record Prices Seen on Stimulus (Bloomberg) The metal will rise every quarter next year and average $1,925 an ounce in the final three months, or 11 percent more than now, according to the median of 16 analyst estimates compiled by Bloomberg. Paulson & Co. has a $3.66 billion bet through the SPDR Gold Trust, the biggest gold-backed exchange- traded product, and Soros Fund Management LLC increased its holdings by 49 percent in the third quarter, U.S. Securities and Exchange Commission filings show. 'Cannibal Cop' Gilberto Valle planned to to cook up 'some girl meat' on Thanksgiving (NYDN) The "Cannibal Cop" had his own twist for a Thanksgiving dinner this year — cooking up “some girl meat,” prosecutors revealed Tuesday. Gilberto Valle, 28 — who allegedly kept a database of at least 100 women he plotted to rape, cook and eat — planned the freakish feast with one of his online conspirators earlier this year, prosecutors said. “I’m planning on getting me some girl meat,” he wrote to his pal on Feb. 9. “Really tell me more,” responded the friend. “It’s this November, for Thanksgiving. It’s a long way off but I’m getting the plan in motion now,” Valle wrote.