http://business.scotsman.com/finance.cfm?id=1354142007
Shareholders digest £18bn HBOS shock
BILL JAMIESON

THOSE who thought the 'great credit crunch' was a phenomenon confined to overexcited New York traders and a few never-heard-of German banks have had a huge surprise close to home.

It came in a brief and tersely worded announcement from the Edinburgh-based bank HBOS to the Stock Exchange last Tuesday that it was extending credit to a vast in-house debt-finance fund called Grampian Funding.

Especially eyebrow-raising was the size of this Jersey-registered fund: a whopping $37bn (£18bn).

Now, gigantic though it is, you will search in vain for any mention of Grampian in the 200-page HBOS annual report. There is no reference in the chairman or chief executive's statement, no section explaining its operations in the directors' report or any hint of its existence in the financial statement and balance sheet.

For the army of small HBOS shareholders, news that Grampian existed, never mind that it was the largest banking conduit in Europe and now needed financial assistance from its parent, came as a total shock, akin to discovering a face you thought you were familiar with had suddenly grown an enormous protrusion on the side of the head.

In the extraordinary market turbulence of recent weeks this exotic growth has suddenly appeared with all the sinister connotations of a malignant tumour. And £18bn for HBOS is some tumour. It represents 57% of the group's stock market capitalisation.

Could you imagine what would happen if the Fed said it would'nt touch them with a 10 ft barge pole! Seems like they have no choice in the matter. While investers and analysts are saying the Fed wont let anything bad happen, the reality is they are being pushed along by events.

An article from today's Sunday Telegraph on the same issue:

On the trail of lenders who borrow
Last Updated: 12:50am BST 26/08/2007
http://www.telegraph.co.uk/money/main.jhtm.../cnpaper126.xml

At 2.30 on Tuesday afternoon, HBOS, Britain's biggest mortgage lender, made an quiet announcement to the stock exchange about something called Grampian ABCP. It had apparently been refinanced. It wasn't immediately clear that this was a move that would cost HBOS £17.5bn.

In the money markets, liquidity is so tight that banks are wary of lending to one another - never mind anyone else. The banks all have money, but they don't want to spend it, fearful of where they will be expected to cough up next. The tensions are being most keenly felt in the markets for commercial paper - short-term loans for banks and highly rated corporates. That's where HBOS has been caught out by soaring costs, prompting the refinancing of Grampian, its asset-backed commercial paper (ABCP) vehicle - the largest of its kind in Europe.

"The market for these short-term loans is just not working," says one senior banking source. "The longer that situation persists, the worse it gets. Some people seem to think it can work itself through of its own accord. But it's difficult to see how that would happen. All the major banks are watching for the next casualties. While that remains the case, liquidity will be tight."

In December 1997 there was $25.8bn (£13bn) outstanding in European ABCP vehicles, according to data from Moody's, the credit rating agency. By May this year that figure had soared to $510.9bn - an 18-fold increase over 10 years. British banks have huge exposures to these ABCP vehicles - known in the trade as "conduits". HSBC has $40bn in conduits around the world, Lloyds TSB has $25bn, Royal Bank of Scotland has about $14bn.

"A lot of people are asking me whether we are through the worst of what we've been seeing in these markets," says a senior treasury banker in a major European bank. "I don't think we are. I expect there to be at least one more major event in the US, involving a smaller financial institution - a hedge fund perhaps, or a small bank. That would then lead to further pressures on liquidity. At the moment we are just pausing for breath."

We are now in a state of this credit crunch where it is more important to care about return OF money, rather than about return ON money.

Use all strenght in Sterling to buy gold and silver. Keep some cash (bank notes) at home in case 'sudden' and 'unexpected' bank holidays get established.

How likely is it that we would get to a point of unexpected bank holidays, 2% chance ???? 10% ???? 50% ?????

Things do look ugly / scary but should we be hoarding cash at home ?

If there is a chance of this happening then the majority of my friends / colleagues are in a lot of problems. Most have huge mortgages, brand new financed cars and credit cards. I just cant believe how much these people live a champagne lifestyle on lemonade money.

It will be all of a sudden, an unexpected surprise. How could it be any different?

Playing devil's advocate a bit here, but it's a good Q to throw out...

If cash becomes so unavailable and hard to come buy, how will assets such as gold be converted into currency? If I go into a jewellers with a kruger because I need some bread and all he's got is the cash under his mattress, I'm not going to get much for it am I?

http://www.bloomberg.com/apps/news?pid=206...p;refer=finance


I think this is getting to a point where Jim Cramer will have to scream and jump again, you stay calm, stay put and don't say a word, don't panic the market etc...Who is going to shush a Public hearing, what you think guys a lot of media attention?
We are getting quite nervous this time in Europe, seems that Germany have "a little problem" and want explanations.

Why not buying the whole bakery for the Kruger? Furthermore, the problem won't be not enough cash, the problem will be converting bank deposits into cash, i.e. getting them out. If you have a Kruger, you have one problem less, since the Kruger is already 'out' and can not default on you.

Wait only til Spain goes bankrupt. This will be when the real fun will start. Because, what's worth a Eurpean government bond, then? Especially, if it's from Spain?

Glad to see you are changing your mind about short dated gilts.

Well, I advise to buy gold and silver. If you can't stand the heat, short term government debt is possibly the 'best' option

not if they decide not to buy it back like they did 200 years ago

That would be bad.

Regarding debt constipation and liquidity diarrhea, the second hour of the latest Financial Sense Radio with this guy from Prudent Bear is pretty good. He says at the moment he has the same feeling as after 9/11 -- he knew something had changed for the worse, it was only not so clear at the time how exactly things would develop. Summarizes pretty much my stance towards this mess.

If it becomes a widely held belief that banks will fold its more probable to happen. Banking relies on confidence. Which is why I think the media is being quite restrained, or is being restrained - I don't know which! Chances are the banks will pass the poo onto the Feds (BoE etc) and carry it all off provided no one cries "panic!"

Goldfinger, I remember well early 1980s people buying up as much gold/silver as they could, prices went sky high, did they ever sell to realise the cash, or are they still sitting on it safely tucked away in bank vaults?

Reflexivity -- George Soros. The current crisis is self-energizing, in the same way as the preceding boom was.

Does anyone seriously believe that a major UK bank would be allowed to fail and that the £30k max per acount payout would happen? Seems like hyperventilation to me.

Rather like the USA situation, I suspect the BofE would do everything it could to avoid this.

I agree, a major bank crash is highly unlikely.

Good question! Some got very rich, I suppose. Well, we are still far from the blow-off. Remember, trillions are the new billions.

Right. And this 'everything' would let gold explode (and Sterling tank). If other currencies tanked at the same time, it would be less obvious, only your daily shopping would hurt much more.

Yes the BOE would do everything it could to avoid this, if only for political reasons. But at what point do the flood gates open historically (1929) ??

I am up in the city today, nice sunday afternoon and the tourists are spend spend spend at the markets, so no panic today :-)

Or course not. When Joe Public panics it will be too late. The time to get out is NOW.

Does anyone else get the feeling that Goldfinger might get his fingers burnt if he can't panic everyone into buying gold to ramp up the price?

Ive been waiting for some terrible news to come out for weeks now. Someone big must be in trouble. The sharemarket doesnt seem to care about hedgies crashing. Where is the fear and panic?

I think we need a bank (even a small one) in England or the UK to blow up. Unfortunately my friends think Im an idiot now as I told them all to sell up their shares a few weeks ago. The darn SM keeps rising rising... Driving me crazy.

This news about the FED basically bailing out some of the big banks affiliates is very promising......

Ive got a short option on Lehmans for about 2k.

No need to ramp it up. Just wait and see.

After two blow ups in Germany already, I am sure the UK will do much worse long term. Wait only for the house price bubble to pop...

How long for?

If I knew exactly I would be richer than Warren Buffet. However not for long I think.

http://www.bloomberg.com/apps/news?pid=206...&refer=home
Fed May Kill Long Bond Rally With Switch From Inflation Focus
Aug. 27 (Bloomberg) -- The rally in 30-year Treasury bonds, the most profitable U.S. government securities the past 15 months, may become a casualty of the Federal Reserve's efforts to ease a widening credit crunch.

Yields on so-called long bonds will increase because Fed Chairman Ben S. Bernanke may lower borrowing costs and cause consumer prices to rise at a faster pace, said Brian Carlin, head of fixed-income trading at JPMorgan Private Bank.

Investors will demand a ``higher risk premium,'' said Carlin, who helps oversee $100 billion of bonds in New York. ``Fed cuts may, in fact, turn out to be quasi-inflationary.''

It's always unwise to put all your eggs into one basket, the same as many have done with housing. Gold could crash just as easily as it could go up even further - I would'nt want to be invested in more than 5%.

the problem for the rich is, which asset class do you choose to be safe in at the moment?
what happens if they all crash at the same time, or is that impossible?

thankfully, I haven't got that worry.

Interesting times ahead & I am personally glad to say that I will have been part of it, much to the detrement of my finances probably.

I think Paper cash is the best option for the short term.

http://business.timesonline.co.uk/tol/busi...icle2332477.ece
August 27, 2007
Barclays’ woes grow as crisis in sub-prime forces its client to be rescued
Patrick Hosking, Banking and Finance Editor

Barclays Bank was dragged deeper into the sub-prime mortgage crisis last night after Landesbank Sachsen, a major client, had to be rescued by a rival state-owned bank in Germany.

Barclays appears to have been responsible both for designing a complex fund that got Sachsen into difficulty and for helping to pull the plug on the bank by demanding margin calls in respect of another Sachsen investment.

Sachsen, a Saxony-based bank with assets of €68 billion (£46 billion) owned partly by the regional government, said last night that it was being taken over by Landesbank Baden-Württemberg (LBBW) after a previously attempted €17.3 billion bailout failed.

LBBW is paying €300 million to €800 million for Sachsen and has taken the precaution of inserting a clause in the deal allowing it to walk away if further big losses emerge.

Although Sachsen has declined to divulge the size of its losses, it and funds that it sponsors are understood to have been significant casualties of the implosion in securities backed by American sub-prime mortgages.

Sachsen Funding I, a Dublin-registered fund created jointly by Sachsen and Barclays Capital, said last week that it was having financial difficulties and might have to be restructured.

Meanwhile, last week Barclays made margin calls on a client, Synapse Investment Management, a credit hedge fund in which Sachsen has an estimated €200 million stake - almost the entire equity in the fund - and later seized some of its collateral.

Didn't Barclays go to the BOE and that chap has done a runner!

Hmm and a fund registered in Dublin.

Everyone should own some gold, preferably in the form of sub 1 ounce coins, as a form of insurance if the entire fiat monetary system crashes.

You may also want to buy gold as a speculation on the commodities bull market.

However, please remember that gold and silver are priced in US dollars. If the US dollar depreciates further, and the gold price moves up, you may have actually made nothing or even lost money in sterling (or euro) terms.

Gold is a currency. It has a price in every currency, just as any currency can be priced in terms of any other - think exchange rates.

Gold has been the strongest currency since the internet bubble popped. With central banks accelerating the monetization of debt it is likely that this is just the beginning of the trend.

= all eggs in one basket

http://www.dailymail.co.uk/pages/live/arti...amp;ito=newsnow
Fears of crisis as City trader vanishes
By COLIN FERNANDEZ AND GALEN ENGLISH
Last updated at 22:27pm on 26th August 2007

A city trader has gone missing after quitting his job, prompting fears of a financial crisis at one of Britain's biggest banks.

Edward Cahill, 33, walked out of Barclays Capital following the collapse of investment schemes under his control worth millions of pounds.

His disappearance has revived memories of the trader Nick Leeson, who infamously fled Barings Bank in 1995 after losing £830million of the firm's money, leading to its collapse.

Mr Cahill resigned on Thursday and has not been seen since at the £1million flat in London's Docklands he shares with his brother Michael, 28, a graphic designer.

Colleagues have been "frantically" trying to find him.

http://www.iht.com/articles/2007/08/26/business/sxasia.php
Central banks try to prevent the global system from unraveling
By Michael R. Sesit Bloomberg News
Published: August 26, 2007

PARIS: 'This financial crisis is far from over," says Rob Carnell, London-based chief international economist at ING Wholesale Banking. "U.S. house prices have further to fall; delinquency rates have further to rise; and subprime mortgage-backed assets will likely fall further."

The world's major central banks face four challenges as they strive to prevent the global financial system from unraveling and growth from stagnating: Acting in a concerted manner; improving transparency; deciding who gets bailed out and who doesn't; and making sure whatever monetary medicine is administered doesn't come with destabilizing side effects.

Maybe he' just gone fishing.

Unfortunately, Tesco will not accept gold as payment for my daily bread. I have to sell my gold into pounds and then pay them with that.

I haven't a clue about your chart. All I recall is that I bought 7 ounces of gold worth $3k (£2140) of gold coins when the exchange rate was around £1=$1.4 and the gold price was $430. In gold terms the price has now gone up over 50%. In sterling terms, my gold is worth £2310, a rise of 8%

http://business.timesonline.co.uk/tol/busi...icle2332477.ece



Yikes

My account is with Barclays - but only by default after they recently took over The Woolwich - something i was not too happy about (the way all of a sudden i was with Barclays). Are you being serious that i should look to move elsewhere? - not talking alot of money but all my cash flow for my (small) business goes through it. Are you talking about Barclays investments funds or like peoples regular current accounts held on high street branches?

Normally they are seperate companies, each one protected from other departments, however it could have an impact on barclays retail.

How about copper, or silver?

The price of LEAD has done better than the price of gold in the last year.
LEAD, that boring, grey, toxic metal that nobody likes. And guess where all the capital investment for mining is going? Not into lead!

The price of wheat has probably done more in a year than gold, and if we are heading for a major disaster I know which one I'd rather eat.

Anyway, wasn't this thread supposed to be about the 4 trillion (oops, sorry cgnao, 120 trillion) credit derivatives market?
Then it got onto Barclays ABS funds, then gold.

Now how about a little less copy-and-paste and a bit more detail about the problems in the credit derivatives market?

http://business.timesonline.co.uk/tol/busi...icle2332477.ece
Barclays’ woes grow as crisis in sub-prime forces its client to be rescued
Sources close to Barclays said that any SIV losses appeared minimal for it and that it should not be blamed for clients’ difficulties since it was not responsible for picking assets in the funds or running them. It foresaw “little flowback” – continuing financial or legal liabilities. Barclays would in theory be obliged to make a statement only if the loss topped £700 million, a tenth of annual profits.
sorry posted, double post

http://www.thesun.co.uk/article/0,,2-2007390776,00.html

"Barclays crash banker missing" (The Sun)



http://business.timesonline.co.uk/tol/busi...icle2323961.ece

So we get pictures of sharks and more cut-and-paste, but where's the news about credit derivatives?

Do any of the people posting here actually know the difference between a single-name cds and a cdo?

Hello????