Credit Linked Notes and Minibonds

[Chongster]

for those of you who bought minibonds, credit linked notes etc, please go and check whether Merrill, Lehman or AIG are one of the reference entities on your product as well.

 

there could be a early redemption event coming up and the promises of capital protection may be gone.

 

not to cause panic,but most people thought these products were 100% capital protected...

[Throttle2]

i think not many here bot these instruments.....

[Ccssgm]

AIG gets lifeline

 

NEW YORK - STRUGGLING US insurance giant American International Group was thrown a lifeline on Monday by New York authorities, who said the company could borrow some US$20 billion (S$29 billion) from its subsidiaries.

New York Governor David Paterson said he had called on regulators 'to provide the authorisation, such that AIG can access US$20 billion of its assets through its subsidaries for the purpose of posting these assets as collateral

Mr Paterson assured reporters at a press conference that the company was financially sound but 'right now they are having a liquidity problem as they need immediate access to capital.'

 

The lifeline failed to impress investors though as AIG shares plunged some 61 per cent on the stock market on Monday, losing some US$20 billion in market value. In just a year, the group has lost 93 per cent of its value and is only worth some US$12.8 billion.

 

It has primarily been shaken by fears that it could be the next domino to fall in the worst banking crisis to shake Wall Street since the Great Depression.

 

AIG, saddled with toxic mortgage-backed derivatives and facing the imminent threat of a ratings downgrade, has reportedly turned to the US Federal Reserve for US$40 billion in bridge financing, according to the New York Times.

 

It would be a desperate attempt to stave off the same type of liquidity crisis that has felled Bear Stearns and Lehman Brothers, which filed for bankruptcy protection on Monday.

 

'I want to underscore the fact that no taxpayer dollars are involved. This is not a government bailout. It is simply giving AIG in effect the ability to provide a bridge loan to itself,' Mr Paterson stressed on Monday.

 

And he said he had asked his superintendent of insurance, Eric Dinallo, to hold talks with the Federal Reserve 'about the possible ability of the federal government to be involved in some type of arrangement.'

 

One analyst at a major French bank, speaking earlier on condition of anonymity, said: 'I can't imagine the Fed letting AIG fail.'

 

The Federal Reserve from New York confirmed on Monday that it had held a meeting about the AIG crisis with representatives from the state, the treasury and 'a group of financial institutions' whose members were not disclosed.

 

AIG, the largest insurer in the United States with 74 million customers in 130 countries, and until recently, the largest worldwide, has this year posted losses of US$18 billion from guarantees it wrote on mortgage-backed derivatives.

 

AIG has already had to write down US$25 billion in 'credit default swaps' (CDS) depreciation because of the drop in real estate values that they are pegged to.

 

Trying to shore up its finances, AIG is seeking a fresh infusion of capital, following its US$20 billion capital raising in May.

 

But Treasury Secretary Henry Paulson has ruled out investing any public funds in helping AIG.

 

'Let me say what is going on right now has got nothing to do with any bridge loan from the government,' Mr Paulson said on Monday referring to the New York decision.

 

'What's going on in New York is a private sector effort, again focused with dealing on an important issue that I think is important that a financial system work on right now.'

 

According to business channel CNBC, the Treasury is trying to pressure the banks Goldman Sachs and JPMorgan Chase into putting together a US$70 billion to US$75 billion loan for AIG.

 

Unlike other insurers, AIG finds itself in the thick of the current crisis because of the high volume of credit fault swaps it has issued.

 

Credit default swaps are complex derivatives that insure investors against payment defaults by a bond issuer. They have created a complex intertwining between the ailing financial instutions, and exacerbated the current crisis.

 

According to a US Securities and Exchange filing, the company had an exposure of US$441 million worth of the instruments as of June 30, 2008.

 

The 89-year-old company is expected in the coming days to unveil a restructuring plan, which it is believed could include the sell-off of its plane-leasing unit, International Lease Finance Corporation, which manages a fleet of some 900 planes valued at about US$50 billion.

 

[Ccssgm]

Long queues outside AIA building

 

 

Snaking queues were formed outside the AIA building in Shenton Way today (Sep 16), and the STOMPer who took this picture surmises this is due to the US economic crisis which has shaken the financial world recently.

 

Sam alerted STOMP to this, and said in his email:

 

"I like to share this photo taken today.

 

"I didnt walk up to ask the matter, but can guess could be due to the current US crisis.

 

"Spotted a TV crew is there to interview a few people.

 

"Regards to the report of the closure and buy over, will there be jobless people from that company?

 

"Worried about the inflation."

 

With regard to this issue, the Monetary Authority of Singapore said in a press article which appears in the Straits Times page A8 today (Sep 16) that "AIA Singapore is required under the Insurance Act and Regulations to maintain sufficient funds to meet all its liabilities to policy-holders at all times."

 

In an email reply which is in the same article, the MAS says:

 

"AIA currently meets these regulatory requirements. MAS will continue to monitor the financial position of AIA," and it added that it has the legislative power to establish a fund to protect policy-holders.

 

AIG Car Insurance , Accient Can Claim Bo

[Pentium]

Minibonds gone case already, Jublilee notes 2,3 also gone case. More to come when goldman sachs and morgan stanley announcements of results.

[Chongster]

the FAs were pedelling these sometimes back basically as capital protected structured deposits, and there are lots of people in spore looking for carry given the low interest rate environment here...

 

a lot of people didn't think the wall st investment banks wld go under, and probably didn't look at the terms too carefully.

 

i dunno, just hope not too many got caught. i know some of friends kenna. i didn't, i just bought into US stocks directly

[Marquee]

Not to spread fear here, but I dun think anyone will be spared if AIG collaspe. It is a matter of direct or indirect effect.

[Chongster]

goldman, MS look pretty solid leh, so is BoA and JPM. unless their recent oil bets start getting hit big time... the next big name is probably UBS. citi also, lots of toxic there.

 

the world is suddenly a scary place man.

[Chongster]

i can see them not bailing out Lehman, but not bailing out AIG might not be an option..... it's more in the freddie, fannie scale.

[Marquee]

Bro, pls watch Bloomberg Channel.

 

Goldman Sachs is reporting the Q3 earnings in the next hours or so.... analyst is already seeing a 73% decline in earnings yoy.

Edited September 16, 2008 by Marquee

[Chongster]

no loss can already, in this climate. last year, they made damn a lot of money still...

[Ccssgm]

[Throttle2]

go and look at Credit default swaps (CDS) of these companies for a fairer comparison....

 

Investment banks/security houses are by no means safer than banks in general.

Most of the CDS of investments banks are above 200. The higher the figure , the higher the risk of default.

 

Goldman is 340++ versus UBS which is only half at 170++

 

For bank comparison, can also look at Tier One Capital Ratios.

 

In this business, it's not how much you lose but how much you can afford to lose.

 

The strength and profitability of the core business is what makes the difference going forward.

 

eg.

 

Goldman's core is in corp advisory deals, M & A and the likes.

Such business is not fantastic especially in such harsh environment.

 

UBS's core is in Wealth management for private individuals.

This business reported brings 65% to 70% of the bacon home

And Wealth Management is still in the upswing.

 

Citi's core is a mix of Retail and Corp.

The fundamentals of these businesses are still solid.

 

However one thing that must be done in all these companies is to cut the fat.

Trim the cost. it will take some time to do that and turnaround so the one that succeeds is the one that is most disciplined.

Edited September 16, 2008 by Throttle2

[Chongster]

agreed, it's the diversified banks like JPM, BoA that are buying out others in this crisis.

 

the very concept of investment banking business seems under threat, but i think the fear is overdone - you take IB away today, and someone will reinvent the wheel tomorrow. so unless some trader w/i makes a really stupid bet on oil or something along the way, i can't see GS or MS going that way. brokerage, prime brokerage, corporate advisory, funds management, these will still go on and there are a couple of competitors less going forward... multi year bonus might not happen this year though

 

btw, goldman tier one is something like 11 odd%, which is pretty solid.

 

abt wealth management, sometimes i wonder how solid that is. a friend recently commented that nowadays RMs kept getting f-ed by clients as everything they recommend also lose money. PBs are not insulated from all this. at the end of the day, they sell investment products and with everything falling in tandem, wonder what they can sell to clients now?

[Throttle2]

Yes, i also dont see any failures going forward.

 

as with pb, I believe true private bankers do not sell products to their clients.

They understand where the client is coming from and help to allocate the assets properly and build structures to manage risks.

 

That doesnt mean making money 100% of the time but it means being able to balance and diversify and assist in making well informed decisions whether it is to make money or to reduce losses.

 

I hate those "bankers" who ask me to buy this product and that product...

Some dont even know what they are selling.

Those are salesmen, in my opinion, sometimes not much different from those at Lucky PLaza.

[Chongster]

i guess it takes a sophisticated client to appreicate a good pb too.

some people are saying the aussie banks are next. apparently based on CDS, Macqurie is at 500bps...

[Crv007]

goldman, MS look pretty solid leh, so is BoA and JPM. unless their recent oil bets start getting hit big time... the next big name is probably UBS. citi also, lots of toxic there.

 

the world is suddenly a scary place man.

 

most your answer sound like hearsay

 

Just curious on what basis do you think UBS and CITI is next?? base on hearsay??? speculation???? or really facts, news and figures which you can show.

 

If you understand what & how business each different banks have, what is their cash cow and how much liquidlity they have, than you will know who carry more risk of default.

 

BTW the size of UBS & CITI each is more than twice the size of AIG, thus base on your previous answer that AIG must be save due to their size, if either UBS or CITI fall the financial will sxxt big time.

 

go wikipedia compare the companies

[Chongster]

well, i got it right with AIG didn't i?