Skip to main content

Last week Dexia this week Erst Bank

Some readers will remember that last summer (June 2011) Europe performed a stress test on its financial institutions.  Some will even remember that Dexia came rated very high scores (very safe) on certain scales Dexia was Europe's best capitalized bank -- the results so far this week is that the whole mess of a bank is being sold, and taken over by the French and Belgian governments.

Last night Austria's largest bank reported losses of Euro 1.6 billion.  Aside from getting screwed by the Hungarian government -- Erst had been writing Hungarian mortgages in Euro in a Forint denominated country.  The reason was that Euro interest rates were low, while the Forint interest rates were high... of course this could only end well (sarcasm).  When the Forint was devalued against the Euro (because the economy is in trouble) those who had taken a Euro loan were screwed, so the government came to the borrower's rescue, and made the F/X contracts "illegal".  Erst should have known that this was a very stupid trade (Erst was not the only players, but was the largest), entering into sophisticated transactions with unsophisticated counterparts.  So we know that Erst is stupid, but it turns out they are also liars, because in the June stress test Erst audited indicated that it had no CDS exposure -- Ernst was not a "participant in the credit derivative swap market".  Imagine everyone's surprise when yesterday Erst revealed a loss of Euro 460 million on its Euro 2.8 billion CDS portfolio -- that didn't exist!

Some will ask how was this done?  Simple, Ernst "hide" the CDS business in its "assets held to maturity" which are marked to model (or to whatever you want) -- moreover the regulators never saw these books (or didn't look).  Further proof (if any where needed) that the European stress test of last summer (again June 2011 -- 4 months ago) was only a exercise in public relations.


Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…