fear

D-day for the hedge fund industry

Jim Kim — Sun, 16 Nov 2008 08:27:40 -0500

Some people in the hedge fund industry have taken to calling Saturday, Nov. 15, D-Day--the last day for investors to make a redemption request for the year. There is some fear that a flood of such requests could force hedge funds into more panic selling. Reuters reports there is indeed a lot of "anxiety" in the industry. But a previous deadline, Sept. 30 (for funds that require 3 months notice), has already passed. And the current deadline may pass with something less than an outright explosion. Many funds have taken proactive steps, either to impose redemption moratoriums or work out alternative arrangements. In any case, all expect hedge fund assets to trend down significantly. The issue is how long this down trend will last.

For more:
- here's a Reuters article

Related Articles:
Navigating the Hedge Fund Maze - October 2008

Credit card debt starting to creak

Jim Kim — Mon, 13 Oct 2008 13:38:09 -0400

There's about $365 billion market in credit-card debt-backed securities out there. And there is fear that it will go the way of its subprime-backed cousin. The card not nearly as large, but as the economy sours, it seems fait accompli that more consumers will fall behind. Business Week notes banks, led by JPMorgan Chase and Citigroup, are reaching out to customers already, allowing various payment programs and adjustments to keep accounts active. Article

World struggles to contain crisis

Jim Kim — Sun, 12 Oct 2008 19:42:41 -0400

Did anyone really think it would get to this: a world recession? If you did, I hope you had the courage of your convictions, like John Paulson, and bet big. The fact is that the world is teetering at the edge of the unknown. The fear was evident this weekend, as world leaders continued to scramble. The goal was to announce solid bailout plans before the markets opened today. On Sunday, Eurozone governments agree to a broad, if hastily struck, plan to provide hundreds of billions of euros in guarantees for medium-term bank debt. The G7 meanwhile pledged to do whatever it takes to prevent another Lehman Brothers. But despite such pledges, fears about Morgan Stanley's survival cropped up again. Economically, the toll (and not just in the U.S.) is becoming more clear with every passing day. This has yet to fully play out.

Money funds and the credit crunch--whew!

Fri, 09 May 2008 06:59:55 -0400

There were a few scenarios out there that were really, really nasty. It's one thing when accredited investors take their lumps on hedge funds. But what if Ma and Pa started taking losses on their money market funds? Many money funds, which most people equate with cash, invested in SIVs. The fear not too long ago was that many would get burned; it hasn't really panned out, fortunately. More than a few banks have bailed out their funds. The mentality, rightly, was "anything to prevent breaking the buck." The political fallout would have been immense, but disaster was averted. The top consumer financial firms--the Vanguards and Fidelitys of the universe--will step in to prevent real customer account damage.

For more:
- here's a Fortune article

The big picture: Will tremors spread?

Mon, 17 Mar 2008 07:59:56 -0400

The great fear is that the run on liquidity at Bear Stearns will spread to other tottering institutions. Lehman Brothers, which hasn't been nearly as hard hit by the crisis, announced it secured a credit line as its stock tanked. The real danger here is that the rumor mill gets cranked up. As with Bear, if the talk gets heated enough, people start believing it. And people stop lending to the bank. All talk of moral hazards go out the window at a time like this. These are the sort of events that keep Fed and other officials up all night. This ranks right up there with the LTCM gyrations and the failure of Continental Illinois. It's unclear to what extent the industry will suffer. Presumably, the Fed-backed credit line will keep the bank fulfilling its trading and counterparty obligations until someone can buy it.

For more:
- here's a New York Times article

Related Articles:
Credit crisis to worsen. Article
Credit crisis rolls on. Article

Hedge fund worries spread debt markets

Mon, 25 Feb 2008 06:59:55 -0500

There still are a lot of worries over hedge funds, and whether a few big ones will lead to further meltdowns in various markets. Stoking fear: D.B. Zwirn & Co. news that it will shutter two hedge funds following redemption requests of more than $2 billion. The fear, of course, is that more redemptions will spark another "run" of sorts. That just might lead to forced liquidations that could really sock it to certain markets. The Financial Times notes CLOs and CPDOs.

For more:
- here's the Financial Times article

Related Articles:
More investors investigate hedge fund managers. Article
When hedge funds just aren't fun anymore. Article
Another day, another hedge fund bailout. Article

Is the worst over for E*Trade?

Mon, 11 Feb 2008 06:59:56 -0500

E*Trade was somewhat surprisingly hit hard by the credit crunch last year. In November, its mortgage-backed woes crested to the point that rumors were rife it would be forced into Chapter 11. The company says that was always a bunch of horse manure, but the fear was real. And some customers fled. Many assumed it would be forced into a bailout deal. Now, Fortune notes the firm seems to have turned a corner. The sense of crisis has passed, and accounts are growing again. To boot, its Super Bowl ad was a hit. But you've got to wonder if it is still ripe for a deal. Profitability is still a ways off.

For more:
- here's the Fortune article

Big picture view of bond insurers

Thu, 24 Jan 2008 06:59:56 -0500

It was once a staid business. Now, bond insurance is one more reason--and a big one--for the markets to fret. We've been covering the travails of MBIA, Ambac and ACA. Things seem to be moving to some sort of climax, the New York Times notes. Banks, the likes of Goldman Sachs and Citigroup, are meeting with regulators to try and formulate some sort of capital injection plan. The hope is to prevent a massive downgrade of bonds of the insurers--already tiny ACA has been downgraded to predictable results for munis. The fear is that another massive round of bond grades happens--at the worst possible time. Which is exactly what we don't need. Looking good in all this: Warren Buffett. He started his own bond insurance firm unencumbered by all the really toxic debt.

For more:
- here's the New York Times article

More fears over bond insurers

Tue, 22 Jan 2008 06:59:56 -0500

The travails of bond insurers, like Ambac Financial, MBIA and ACA Capital, are starting to get a bit scary. We've watched as the concerns about their credit worthiness have slowly built. Unfortunately, their woes seem to be peaking at just the wrong time. Brows were raised when Merrill Lynch wrote down $3 billion hedges held by ACA Capital, which lost its AAA rating recently. The firm is in danger of failing; it must raise $1.7 billion somehow. The larger fear is that Ambac and MBIA will likewise lose their top rating, which will translate into lower ratings for the many bonds they insure--everything from CDOs to munis. The pain would be intense. These hedges have reduced the net exposure of top banks. In the case of Merrill Lynch, if ACA failed, its super senior CDO exposure would have more than doubled. Whew! Unsurprisingly, CDS spreads have ticked up across the board.

For more:
- here's a Financial Times article
- Cities to suffer? Article

What to make of HSBC's big move

Tue, 27 Nov 2007 06:59:56 -0500

People have long been speculating that more banks will be forced to take more SIV assets onto their balance sheets. That seems to have come to pass with HSBC. It announced it will take $45 billion in assets from two SIVs, to prevent the vehicles from having to sell quality assets at higher prices. The fear of course is that the bank will be opening itself up to losses generated by the vehicles. HSBC says that the original investors will still bear "all the economic risk up to the full amount of their investment." Quite a deal it struck. So it is basically lending its balance sheet heft to the vehicles to hopefully buy enough time for the underlying assets to recover. You have to wonder if Citigroup is taking note. If it could take the assets but not the risk, it may also take billions onto its books. Stay tuned.

For more:
- here's the MarketWatch article

Related article:
- Other credit problems mountings?