Thursday, Dec 20, 2007
More bad news for Barclays?
FT.com: LBBW bails out Sachsen SIV-lite
Please note the ominous paragraph in this article:The Sachsen SIV-lite is one of a handful of such vehicles created and sold by Barclays Capital, all of which have been pushed to the point of failure by the near closure of the short-term debt markets upon which they relied and the falling value of mortgage-backed investments.
A SIV-lite exists to exploit the difference between cheap short-term funding and the higher returns available on longer-term investments such as mortgage-backed bonds. One such deal, Cairn High Grade Funding – run by Cairn Capital, the London-based hedge fund manager – was weeks ago restructured, with Barclays providing long-term funding.
Is Barclays Bank solvent?
Posted by lvmreader @ 03:47 PM (949 views) Add Comment
16 Comments
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1. cornishman said...
I've a feeling that there is a lot of 'restructuring' going on at the moment. Smoke and mirrors. Who will end up holding what when the music stops?
2. cornishman said...
- and another thing. Everyone is fretting about the banks. What about the endowment companies and pension funds who bought all this AAA rated stuff that will turn out to be worthless?
3. Mr Parry said...
Holy crap! Have 6 fig in Barclays. Know what I'm doing in the morning. My own personal run on a bank!
4. lvmreader said...
@cornishman, you just called time on the "Naked Emperor".
That is the 25 megaton bomb masquerading as a Christmas cracker.
We have already seen municipalities as large as the State of Florida and many councils in New South Wales, getting caught out because they were relying on payments from these SIV type vehicles. This is so bad it is like a nightmare.
These endowment companies and pension funds have yet to tell the poor suckers what is about to happen.
5. Guiriduro said...
Its a pretty sorry state really. House prices are going to plummet - and any equity in them is going to disappear. That's for those who thought putting money into property directly was a means of saving for retirement. Conversely, those who did the "right" thing and sank their money into pension savings... are now also exposed to property, possibly more exposed as most of this stuff was leveraged... they are going to find their annuities shrinking accordingly.
Anyone who invested most of their savings in gold in 2005 are about the only ones who will be smiling at the end of this mess..
6. hpwatcher said...
This thing is getting bigger by the minute.
7. lvmreader said...
And all roads lead to Barclays!
Look at the GBP, it is plummeting because Alistair "d-wad" Darling is printing money like he works for Robert Mugabe or something
8. drewster said...
@cornishman, you're right on the money! Some of you may remember Orange County, California, losing $1.5bn and filing for bankruptcy because of a bad derivatives investment back in 1994. The local council shed 3,000 employees; every local service from bin collection to parks maintenance suffered cutbacks.
Banks have an incentive to report massive losses - if they get all their bad news out in one go and persuade shareholders that the crisis is over then their share price might not suffer too much. By contrast a steady stream of bad news is very damaging to the share price.
Banks can also go crying to the central banks, begging for lower rates or special terms. This also gives them an incentive to report bad news (like all the VIs screaming for lower rates). Pension funds have no such recourse, the central bank won't help them. They have an incentive to wait as long as possible before reporting bad news, in the hope that things will have improved by then.
The real scandal is that our pension funds might not even notice the difference. Pension fund performance is generally poor - you can nearly always get a better return with a simple index tracker; and some pension funds are so bad that a good savings account can beat their returns. To them, more losses are probably bearable.
9. happyrenterz said...
There was a post here yesterday pointing to http://www.marketoracle.co.uk/Article3138.html which is well worth reading. It explains why banks are hording cash and driving up LIBOR. Not because they distrust each other but because under Basel rules they need cash to cover their capital requirements. All these SIVs need to be taken back on their books because no one wants to invest in them anymore. So as they take them back they need cash to match this debt under banking rules. As long as no one invests in these SIVs the banks will take more and more on their books. That means more and more cash hoarding and then more and more short term-lending from Central banks. This is unsustainable. Either investors suddenly regain their appetite for structured debt (not likely) or the banking rules change to allow banks to hold more debt not covered by cash or there is an almighty banking system crash.
10. drewster said...
@happyrenterz,
That's a very good article, definitely. Related to what cornishman said, "what about the endowment companies and pension funds", your article contains a quote from Nouriel Roubini:
"Non-bank institutions do not have access to the Fed's liquidity support and they are now at risk of a liquidity run as their liabilities are short term while many of their assets are longer term and illiquid; so the risk of something equivalent to a bank run for non-bank financial institutions is now rising."
Is it time to transfer your pension fund to a SIPP and invest either in cash or gold? Will there be a "run" on pension funds??
11. planning4acrash said...
But surely the latter will be a moral hazard that would lead to an even bigger bubble?
12. drewster said...
p4ac,
Yes relaxing the banking rules would be a moral hazard, and it would lead to a bigger bubble. Right now the banks want a cut in capital adequacy ratio from 8% to 6%; in a few years they'll just want 4%, until they reach zero and discover that there really is no money left! Luckily the central bankers know that - that's why the Basel II regulations were created in the first place.
Incidentally, twenty-five people (myself included) were given notice at work today. Interesting...
13. planning4acrash said...
Sorry to hear that Drewster.
14. Submedia said...
Yeah, i second that.
15. Fedupwithhouseprices said...
Drewster do you work for a bank? I'm worried as we have family members who work for banks
16. drewster said...
Thanks guys. I'll be fine - I have a long enough notice period in which to find new work. Also as a tenant I can pick up sticks and move to the other side of the country (or even overseas) as work takes me. I really feel sorry for a colleague who just bought a £200k flat thinking that his job would last for ever.